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Imperial Oil Annual Report, Year Ended Dec 31, 2019

Filing Date
Filed February 26, 2020
Period End
December 31, 2019
Security
IMO
In the record · 2016–202610-K1110-Q338-K240

IMO filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 240 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Oct ’16Oct ’16
  2. Leadership change8-K · Feb ’21Feb ’21
  3. Leadership change8-K · Jul ’26Jul ’26

01—Abstract

Summary

Summary of the 10-K filed February 26, 2020. Cited figures are marked; the original filing is the authoritative source.

Imperial Oil Ltd. (TSX/NYSE American: IMO), a majority-owned subsidiary of ExxonMobil (69.6%), reported 2019 net income of C$2,200 milliona, or C$2.88 per diluted share, versus C$2,314 million (C$2.86) in 2018.

Results were flattered by a largely non-cash C$662 millionb benefit from the Alberta corporate income tax rate cut; excluding that, earnings were roughly flat to modestly lower, with Upstream improving sharply and Downstream and Chemical earnings falling on weaker margins, a Sarnia fractionation tower incident, and heavier turnaround activity. Upstream net income excluding the tax benefit was C$659 million, up from a loss of C$138 million in 2018, supported by higher crude realizations and volumes at Syncrude and Norman Wells. Total upstream gross production reached 398,000 oil-equivalent barrels per day, the highest in over 25 years according to the company.

Cash generation and capital returns were solid. Cash flow from operating activities rose to C$4,429 millionc, the highest since 2012, while the company returned about C$2.0 billion to shareholders through C$631 million in dividends and C$1,373 million in share buybacks (38.7 million shares, roughly 5% of shares outstanding). Total debt was C$5,190 million, the debt-to-capital ratio was steady at 18%, and the company is well capitalized.

The 2020 capital and exploration budget is guided to C$1.6d-1.7 billion, and the Kearl supplemental crushing facilities and Aspen SA-SAGD project are key growth drivers, though Aspen's pace has been slowed by Alberta production curtailment rules. Key risks flagged include Alberta's temporary mandatory production curtailment, wide but narrowing western Canadian crude differentials, IMO 2020 marine fuel sulphur rules, a tightening carbon-pricing regime, and Canadian dollar strength, which the company notes is not hedged and would reduce reported earnings. Proved reserves stood at 3,492 million oil-equivalent barrels at year-end 2019, about 89% of which were proved developed.

Leadership transitioned as B.W. Corson succeeded R.M. Kruger as chairman, president and CEO effective January 1, 2020.

02—Key points

Key Highlights

  1. Net income of C$2,200 million (C$2.88 per diluted share) in 2019, including a non-cash C$662 million benefit from the Alberta corporate tax rate cut, versus C$2,314 million in 2018.
  2. Upstream net income excluding the tax benefit rose to C$659 million from a C$138 million loss in 2018, driven by about C$1,000 million higher crude realizations.
  3. Cash flow from operating activities of C$4,429 million, the highest since 2012, up from C$3,922 million in 2018.
  4. Returned about C$2.0 billion to shareholders: C$631 million in dividends and C$1,373 million in share repurchases covering 38.7 million shares; dividend per share declared rose to C$0.85 from C$0.73.
  5. Refinery throughput fell to 353,000 barrels per day (83% utilization) from 392,000, due to turnarounds and the Sarnia fractionation tower incident; Downstream net income dropped to C$961 million from C$2,366 million.
  6. Proved reserves of 3,492 million oil-equivalent barrels at year-end 2019, with about 89% proved developed; Kearl and Cold Lake remain the core bitumen assets.
  7. 2020 capital and exploration expenditures guided to C$1.6-1.7 billion, with Kearl supplemental crushing targeting 240,000 barrels per day gross output in 2020.

03—Questions

Frequently Asked Questions

  1. How much of the 2019 earnings improvement came from one-time tax effects?

    The Alberta corporate income tax rate reduction (from 12% to 8% by 2022) produced a largely non-cash C$662 million favourable impact in 2019. Net income of C$2,200 million would have been materially lower without it, and underlying earnings excluding this item were below 2018's level, although Upstream improved significantly.

  2. Is Imperial's majority ownership by ExxonMobil a factor for investors?

    Yes. ExxonMobil owns about 69.6% of shares and intends to keep participating in buybacks to maintain that stake, so a large share of repurchases goes to ExxonMobil. The company is a 'controlled company' under NYSE American and TSX rules, and it relies on ExxonMobil for shared research, affiliate supply and a C$4.4 billion long-term loan.

  3. What are the main regulatory risks to near-term production and returns?

    Alberta's temporary mandatory production curtailment, introduced January 1, 2019, limits output from larger producers and has narrowed western Canadian crude differentials, but its duration is uncertain. The company also cites carbon pricing (federal levy rising to C$50 per tonne by 2022), the new Impact Assessment Act, and IMO 2020 sulphur limits, which may weaken heavy crude differentials.

  4. How sensitive is Imperial's earnings to commodity prices and the Canadian dollar?

    Per the company's sensitivities table, a US$1 per barrel change in crude prices moves after-tax net income by about C$105 million, a US$1 change in refining margins by about C$140 million, and a one-cent move in the Canadian dollar versus the U.S. dollar by about C$100 million. Imperial does not use derivatives to hedge currency exposure, so a stronger Canadian dollar reduces reported earnings.

04—Continue

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