10-QPeriod: Q1 FY2012

IMPERIAL OIL LTD Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 3, 2012For Securities:IMO

Summary

Imperial Oil Limited reported a strong first quarter for 2012, with net income increasing by 30% to $1,015 million ($1.19 per diluted share) compared to $781 million ($0.91 per diluted share) in the same period of 2011. This growth was primarily driven by significantly improved industry refining margins and higher crude oil and product realizations. The company's upstream segment saw a modest increase in net income, bolstered by higher liquids realizations but partially offset by increased royalty costs and lower Syncrude volumes due to maintenance. The downstream segment delivered record net income, largely benefiting from the strong refining margins. Cash flow from operations improved, but significant capital expenditures, particularly for the Kearl initial development and expansion, led to a decrease in the company's cash balance. Despite increased spending on growth projects, the company maintained its dividend payments and slightly increased the per-share dividend, signaling confidence in its financial performance and future outlook. Investors should note the ongoing investment in long-term oil sands production capacity and the company's commitment to its dividend policy.

Key Highlights

  • 1Net income for Q1 2012 rose 30% year-over-year to $1,015 million ($1.19/share diluted) from $781 million ($0.91/share diluted) in Q1 2011.
  • 2Strong industry refining margins and higher liquids realizations were the primary drivers of improved profitability.
  • 3The downstream segment achieved record net income, driven by favorable refining margins.
  • 4Capital expenditures increased significantly to $1,145 million in Q1 2012, up from $822 million in Q1 2011, primarily for the Kearl project.
  • 5Cash flow from operating activities increased by $88 million to $1,047 million.
  • 6The company declared a dividend of $0.12 per share, an increase from $0.11 per share in the prior year's comparable quarter.
  • 7Gross natural gas production decreased significantly due to divested properties and natural reservoir decline.

Frequently Asked Questions

The significant increase in net income was primarily driven by stronger industry refining margins, which contributed approximately $150 million, and higher crude oil and product realizations (liquids), which contributed about $115 million. These factors more than offset increases in royalty costs and lower Syncrude volumes.

Capital expenditures increased substantially to $1,145 million in the first quarter of 2012, up from $822 million in the same period of 2011. The majority of these expenditures were directed towards the advancement of the Kearl initial development and expansion project. Other significant investments included the Nabiye expansion project at Cold Lake and production pilot and acreage acquisitions.

Imperial Oil increased its per-share dividend to $0.12 in the first quarter of 2012, up from $0.11 in the prior year's comparable quarter. The company maintained its dividend payments, indicating confidence in its financial performance and commitment to returning value to shareholders, while also balancing significant capital investment activities.

Production of Cold Lake bitumen remained stable year-over-year at 157 thousand barrels a day. However, Syncrude production decreased to 74 thousand barrels a day due to higher unplanned maintenance activities. Natural gas production saw a significant decline to 198 million cubic feet a day, primarily due to divested properties and natural reservoir decline.