10-QPeriod: Q1 FY2013

IMPERIAL OIL LTD Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 2, 2013For Securities:IMO

Summary

Imperial Oil Limited's first quarter of 2013 showed a notable decrease in net income to $798 million ($0.94 per diluted share) from $1,015 million ($1.19 per diluted share) in the prior year period. This decline was primarily driven by lower crude oil and bitumen realizations, increased refinery maintenance activities, and production-related expenses at Syncrude and Kearl. Despite these challenges, the company's upstream segment saw record bitumen production from Cold Lake, and the downstream segment benefited from stronger refining margins. A significant event during the quarter was Imperial's acquisition of a 50 percent interest in Celtic Exploration Ltd. for $1.6 billion, financed largely through debt, which has expanded its natural gas and crude oil portfolio. The company's financial position reflects a strategic shift towards increasing long-term debt to fund major investments, including the Celtic acquisition and ongoing development at Kearl. Cash flows from operations decreased, while investing activities saw a substantial increase due to the acquisition and capital expenditures. Management emphasized continued focus on operational efficiency and strategic capital deployment, with the Kearl oil sands project reaching a significant milestone with the startup of its initial development phase.

Key Highlights

  • 1Net income for Q1 2013 decreased to $798 million ($0.94/share) from $1,015 million ($1.19/share) in Q1 2012, primarily due to lower crude oil and bitumen prices and higher operational costs.
  • 2Imperial Oil acquired a 50% interest in Celtic Exploration Ltd. for $1.6 billion, significantly expanding its upstream assets in natural gas and crude oil, financed through increased debt.
  • 3Upstream segment net income fell to $300 million from $542 million, impacted by lower liquid realizations and higher Syncrude/Kearl expenses, though Cold Lake bitumen production hit a record high.
  • 4Downstream segment net income increased to $478 million from $455 million, driven by improved refining margins, despite higher maintenance activities.
  • 5Cash flow from operating activities declined to $597 million from $1,047 million, impacted by lower earnings and working capital changes.
  • 6Capital expenditures rose significantly to $2,935 million (including the acquisition) from $1,064 million, primarily for the Celtic acquisition and the Kearl expansion project.
  • 7The company successfully started the initial development of the Kearl oil sands project, a key long-term strategic initiative.

Frequently Asked Questions

The primary reasons for the decrease in net income were lower realizations for crude oil and bitumen, increased refinery maintenance activities, and higher production readiness expenditures at Syncrude and Kearl. These factors were partially offset by lower royalty costs and improved refining margins.

Imperial Oil acquired a 50% interest in Celtic Exploration Ltd.'s assets and liabilities for $1.6 billion. This acquisition expanded the company's upstream portfolio in natural gas and crude oil. The transaction was financed primarily through increased long-term debt, leading to higher interest expenses and a substantial increase in capital expenditures for the quarter.

The Upstream segment's net income decreased significantly due to lower commodity prices, although Cold Lake bitumen production reached a record. The Downstream segment saw improved profitability driven by stronger refining margins. The Chemical segment's net income remained stable year-over-year. Corporate and Other activities resulted in a net loss.

Imperial Oil announced the startup of the initial development of the Kearl oil sands project during the first quarter. This marks a significant milestone for the company, with ongoing expenditures directed towards its expansion, indicating a continued strategic focus on this key asset.