10-QPeriod: Q2 FY2005

IMPERIAL OIL LTD Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 9, 2005For Securities:IMO

Summary

Imperial Oil Limited reported solid financial results for the second quarter and the first half of 2005, driven primarily by higher commodity prices and refining margins. Net income for the second quarter increased to $539 million ($1.56 per diluted share) from $504 million ($1.40 per diluted share) in the prior year. For the first six months, net income was $932 million ($2.68 per diluted share), a slight decrease from $970 million ($2.69 per diluted share) in the same period of 2004, attributed to factors such as lower volumes from a major coker turnaround at Syncrude and a stronger Canadian dollar. The company's Natural Resources segment demonstrated strong performance with record net income in the second quarter, boosted by higher crude oil and natural gas realizations and increased production volumes from Cold Lake and natural gas fields. Despite some challenges like the appreciation of the Canadian dollar and increased maintenance costs, the segment remains a key earnings driver. The Petroleum Products segment saw a decline in net income due to higher maintenance expenses and relocation costs, although sales volumes improved. The Chemicals segment maintained its performance with improved margins. Financially, Imperial Oil's operating cash flow remained robust, though it was lower year-to-date compared to 2004 primarily due to timing of tax payments and pension contributions. The company continued its aggressive share repurchase program, significantly reducing the number of outstanding shares. Significant capital expenditures were directed towards maintaining and expanding production capacity in the Natural Resources segment and improving operational efficiency in Petroleum Products. The company also announced an intent to divest its Western Canada fertilizer distribution assets.

Key Highlights

  • 1Net income for Q2 2005 was $539 million ($1.56/share), an increase from $504 million ($1.40/share) in Q2 2004.
  • 2First six months net income was $932 million ($2.68/share), a slight decrease from $970 million ($2.69/share) in the same period of 2004.
  • 3Natural Resources segment achieved record net income in Q2 2005 driven by higher commodity prices and production volumes.
  • 4Aggressive share repurchase program continued, with $802 million spent on repurchasing approximately 8.9 million shares in the first half of 2005.
  • 5Capital and exploration expenditures were $678 million for the first six months of 2005, focused on production capacity and efficiency improvements.
  • 6The company is exploring the divestiture of its Western Canada fertilizer distribution assets.
  • 7Higher commodity prices and refining margins were key drivers for improved earnings, partially offset by a stronger Canadian dollar and increased maintenance costs.

Frequently Asked Questions

The primary drivers were higher realizations for crude oil and natural gas, coupled with stronger refining margins, which collectively contributed significantly to the increased earnings compared to the same period in the prior year.

The decrease was primarily due to lower volumes and higher maintenance costs associated with a major coker turnaround at Syncrude, the natural decline of conventional crude oil and natural gas liquids volumes, and the impact of a stronger Canadian dollar. Additionally, higher stock-related compensation expenses and costs associated with headquarters relocation also contributed.

Imperial Oil continued its active share repurchase program, aiming to enhance shareholder value. In the first half of 2005, the company repurchased approximately 8.9 million shares for $802 million, significantly reducing the number of outstanding shares. A new normal course issuer bid was approved to continue this program.

Yes, the company has signed a letter of intent to divest its Western Canada fertilizer distribution assets. This transaction is expected to close in the third quarter of 2005, subject to final agreement and regulatory approval.