10-QPeriod: Q2 FY2012

IMPERIAL OIL LTD Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 2, 2012For Securities:IMO

Summary

Imperial Oil Ltd. reported a net income of $635 million for the second quarter of 2012, a decrease from $726 million in the same period last year. For the six months ended June 30, 2012, net income increased to $1,650 million from $1,507 million in 2011. The decrease in second-quarter earnings was primarily driven by lower upstream realizations due to commodity prices and higher planned maintenance activities, partially offset by stronger refining margins. Cash flow from operations saw a significant increase in the second quarter, reaching $1,317 million, up from $656 million in the prior year. This improvement was largely due to working capital effects. However, investing activities used more cash, with $1,224 million spent in the quarter compared to $893 million in the prior year, mainly for capital expenditures on the Kearl project. The company also renewed its normal course issuer bid to repurchase up to approximately 42 million shares.

Key Highlights

  • 1Net income for Q2 2012 was $635 million ($0.75/share diluted), down from $726 million ($0.85/share diluted) in Q2 2011.
  • 2Six-month net income for 2012 was $1,650 million ($1.94/share diluted), up from $1,507 million ($1.76/share diluted) in the same period of 2011.
  • 3Operating cash flow significantly increased to $1,317 million in Q2 2012, up from $656 million in Q2 2011, primarily due to working capital changes.
  • 4Capital expenditures increased to $1,290 million in Q2 2012 from $903 million in Q2 2011, largely driven by the Kearl project.
  • 5Upstream segment income decreased significantly in Q2 2012 due to lower commodity prices and planned maintenance, while Downstream segment income improved due to stronger refining margins.
  • 6The Chemical segment reported its best quarter on record, with net income of $49 million.
  • 7The company announced a new normal course issuer bid to repurchase up to approximately 42 million shares.

Frequently Asked Questions

The primary reasons for the lower net income in the second quarter of 2012 were lower upstream realizations due to declining commodity prices, which impacted earnings by approximately $345 million, and higher planned maintenance activities across refineries and Syncrude, totaling about $230 million. These were partially offset by stronger industry refining margins, which added about $270 million to earnings.

The Kearl Initial Development project was 94% complete at the end of the second quarter of 2012, with construction 88% complete. The project was on schedule for an expected startup in late 2012. Significant capital expenditures were directed towards its advancement during the quarter.

Imperial Oil announced a new normal course issuer bid, allowing it to repurchase up to approximately 42 million shares between June 25, 2012, and June 24, 2013. During the second quarter of 2012, share repurchases were limited to offsetting the dilutive effects of stock options, and the company will continue to evaluate its share purchase program in relation to its overall capital activities.

The Upstream segment saw a decrease in net income due to lower crude oil prices and planned maintenance. The Downstream segment reported higher net income driven by stronger refining margins, despite significant maintenance activities. The Chemical segment achieved a record quarter with improved margins and sales volumes. Corporate and Other segments had a net loss, in line with the previous year.