01—Abstract
Summary
Summary of the 10-K filed February 24, 2021. Cited figures are marked; the original filing is the authoritative source.
Imperial Oil Limited's 2020 10-K reports a net loss of C$1,857 milliona (C$2.53 per diluted share), versus net income of C$2,200 million (C$2.88) in 2019.
The result was driven mainly by lower crude realizations, the C$1,171 millionb after-tax non-cash impairment on Montney and Duvernay unconventional assets, and a sharp drop in revenue to C$22,284 million from C$34,002 million. Cash flow from operating activities fell to C$798 million from C$4,429 million. Upstream posted a C$2,318 million loss, while Downstream (C$553 million) and Chemical (C$78 million) remained profitable, aided by the Canada Emergency Wage Subsidy and integration benefits.
The company has deliberately reduced its upstream growth ambitions. It will no longer develop a significant portion of its Alberta unconventional portfolio and cut 2020 capital spending to about C$874 millionc, with 2021 capital expenditures guided to roughly C$1.2 billion. Proved reserves fell to 560 million barrels of oil equivalent, largely because about 2.8 billion barrels of bitumen no longer met the SEC's price-based proved-reserves definition at low 2020 prices.
Management stated this does not affect operations. Quarterly dividends were held at C$0.22d per share, and the company said it would continue to evaluate its share purchase program after suspending purchases on April 1, 2020. Balance-sheet strength remains a key support.
Total debt was C$5,184 million, with a debt-to-capital ratio of 19 percent, and most of the long-term debt is a loan from ExxonMobil, which owns about 69.6 percent of the shares. Investors should weigh the earnings and cash-flow pressure, the reserve revisions and the reliance on ExxonMobil's control against the company's integrated model, its Kearl production record, and its long dividend-growth history.
02—Key points
Key Highlights
- Net loss of C$1,857 million (C$2.53 per diluted share) in 2020, compared with net income of C$2,200 million (C$2.88) in 2019, as revenues fell 34 percent to C$22,284 million.
- C$1,171 million after-tax non-cash impairment on non-core Montney and Duvernay unconventional assets that the company decided not to develop further.
- Operating cash flow fell to C$798 million from C$4,429 million, though cash flow from operating activities and asset sales was C$880 million; year-end cash was C$771 million.
- Upstream net loss of C$2,318 million was driven by about C$2,620 million in lower realizations, while Downstream earned C$553 million and Chemical C$78 million.
- Proved reserves were 560 million oil-equivalent barrels at year-end 2020, with 2.8 billion barrels of bitumen (2.2 billion at Kearl, 0.6 billion at Cold Lake) no longer qualifying under SEC price rules; the company says operations are unaffected.
- Record Kearl gross production of 222,000 barrels per day (158,000 net to Imperial) and 2021 guidance of 255,000 barrels per day gross, while 2020 capital spending was cut to C$874 million and 2021 is guided to about C$1.2 billion.
- Dividends of C$0.88 per share were declared in 2020 (C$0.22 per quarter, up from C$0.85), with a debt-to-capital ratio of 19 percent and total debt of C$5,184 million; ExxonMobil owns about 69.6 percent of the shares.
03—Questions
Frequently Asked Questions
Why did Imperial Oil swing to a net loss in 2020?
The loss mainly reflects about C$2.6 billion in lower Upstream realizations as WTI averaged US$39.26 per barrel versus US$57.03 in 2019, plus a C$1,171 million after-tax non-cash impairment on Montney and Duvernay assets. Lower Downstream margins and sales volumes from COVID-19 demand declines also weighed on results, partly offset by lower royalties and operating costs and about C$115 million from the Canada Emergency Wage Subsidy.
Is Imperial's dividend at risk after the 2020 loss?
The filing shows the quarterly dividend was maintained at C$0.22 per share and the annual dividend was raised for a 26th consecutive year, to C$0.88 declared in 2020. Dividends paid totaled C$649 million, which exceeded the C$798 million of operating cash flow only modestly. Coverage is thinner than in 2019, when operating cash flow was C$4,429 million, so sustained low prices would put pressure on the payout.
What do the reserve reductions mean for the company's future production?
The reserve decline is mainly a reporting effect. About 2.8 billion barrels of bitumen no longer met the SEC's 12-month average price definition of proved reserves, but Imperial says it does not expect this to change its operations. Proved undeveloped reserves fell to 138 million barrels from 397 million, and proved developed reserves made up 75 percent of total proved reserves, versus 89 percent in 2019. The company notes that a recovery in prices or lower costs could bring some of these volumes back into proved reserves.
How much does ExxonMobil's control affect minority investors?
ExxonMobil owns about 69.6 percent of the shares, and the company is a controlled company under NYSE American and TSX rules. Imperial has a combined chairman and CEO role, the board includes an ExxonMobil employee (D.C. Brownell, who is not standing for re-election), and the company has C$4,447 million in long-term loans from an ExxonMobil affiliate. Transactions with ExxonMobil in 2020 totaled C$2,424 million in purchases and C$5,101 million in sales, and the company says these were on arm's-length terms.
What is the outlook for 2021 and beyond?
Management expects Kearl to reach 255,000 barrels per day gross in 2021, plans to focus on base performance at Cold Lake with about 130,000 barrels per day gross bitumen, and guides total capital and exploration spending to about C$1.2 billion. The Aspen project remains on hold for major investment, and the Alberta production curtailment regime was eliminated in December 2020 but could be reimposed. Future results depend on commodity prices, the pace of demand recovery after COVID-19, carbon pricing increases and whether pipeline and rail capacity constraints ease.
04—Continue