10-QPeriod: Q3 FY2012

IMPERIAL OIL LTD Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 6, 2012For Securities:IMO

Summary

Imperial Oil Ltd. reported solid financial results for the nine months ending September 30, 2012, with net income increasing to $2.69 billion, or $3.16 per diluted share, compared to $2.37 billion, or $2.77 per diluted share, in the prior year period. This growth was primarily driven by strong performance in the Downstream segment, which achieved record quarterly and year-to-date earnings due to favorable refining margins. The Upstream segment experienced a decline in net income, largely due to lower realizations for natural gas and Syncrude, along with increased production readiness expenditures for the Kearl project. Capital expenditures remained significant, with a substantial portion allocated to the Kearl initial development and expansion projects, which were nearing completion. The company also announced plans to evaluate a potential participation in the acquisition of Celtic Exploration Limited. Despite increased debt levels to fund these activities, Imperial Oil maintained a healthy financial position, with a strong emphasis on returning capital to shareholders through dividends.

Key Highlights

  • 1Net income for the nine months ended September 30, 2012, increased to $2.69 billion, a 13.7% rise from $2.37 billion in the prior year, with diluted EPS growing to $3.16 from $2.77.
  • 2The Downstream segment reported record quarterly and year-to-date net income, driven by strong mid-continent industry refining margins.
  • 3Upstream segment net income declined primarily due to lower Syncrude and natural gas realizations, as well as increased Kearl production readiness expenditures.
  • 4Capital expenditures were heavily focused on the Kearl project, with the initial development 98% complete and expansion 20% complete as of September 30, 2012.
  • 5Cash flow from operating activities decreased year-over-year for both the quarter and the nine-month period, impacted by working capital movements and tax payments.
  • 6The company's long-term debt increased by $150 million, and short-term debt by $75 million, primarily to fund capital investments.
  • 7Dividends paid increased to $102 million in Q3 2012 from $93 million in Q3 2011, with year-to-date dividends per share rising to $0.36 from $0.33.

Frequently Asked Questions

The primary drivers for the increase in net income were significantly stronger industry refining margins in the Downstream segment, which delivered record results, and lower royalty costs. These positive factors were partially offset by lower Upstream realizations, particularly for natural gas and Syncrude, and higher refinery maintenance costs.

As of September 30, 2012, the Kearl initial development project was 98% complete, with phased start-up activities underway targeting production around year-end 2012. The expansion project was 20% complete. Capital expenditures remained high, with a significant portion directed towards these Kearl projects, contributing to the overall increase in investing activities compared to the prior year.

Imperial Oil increased its long-term debt by $150 million and short-term debt by $75 million, primarily to support its capital investments. This, along with increased investing activities, led to a decrease in the company's cash balance to $469 million at September 30, 2012, from $1,202 million at the end of 2011.

The Downstream segment showed very strong performance driven by favorable refining margins and is expected to continue benefiting from this trend. The Upstream segment faced challenges with lower natural gas and Syncrude prices, but the company is progressing with the Kearl project, which is expected to bring new production online. The company is also evaluating a potential participation in the acquisition of Celtic Exploration Limited, indicating a strategic interest in expanding its upstream assets.