What caused the significant decrease in net income compared to the previous year?

The primary driver for the decrease in net income was a substantial non-cash after-tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Additionally, lower industry refining margins also negatively impacted earnings.

How is the Upstream segment performing, and what are the key drivers?

The Upstream segment showed improved performance, with net income increasing in the second quarter of 2013 compared to the prior year. This improvement was primarily due to higher realized prices for liquids and increased volumes from Syncrude. However, this was partially offset by higher start-up operating costs at the Kearl project and increased maintenance costs at Cold Lake.

What is the company's strategy regarding debt and capital expenditures?

Imperial Oil increased its long-term and short-term debt in the second quarter of 2013 to fund normal operations and major projects, including the expansion of the Kearl and Cold Lake Nabiye projects. Significant capital expenditures continue to be allocated to these growth initiatives.

When is the Kearl project expected to contribute significantly to production?

The Kearl initial development began production from its first proprietary paraffinic froth treatment train in April 2013. While production volumes were low in Q2 2013 due to synchronization and stabilization efforts, diluted bitumen sales are expected to begin in the third quarter of 2013, with the company expecting to reach 110,000 barrels a day (78,000 barrels a day Imperial's share) later in 2013. The Kearl expansion is expected to start up late in 2015.

IMO 10-Q Quarterly Report Q2 FY2013 — Revenue, Net Income, EPS

Summary

Imperial Oil Limited's Q2 2013 report shows a significant year-over-year decline in net income, driven by a large non-cash charge related to the conversion of its Dartmouth refinery and lower industry refining margins. Upstream operations saw an increase in net income due to higher liquid realizations and Syncrude volumes, partially offset by increased startup costs at Kearl and higher costs at Cold Lake. Downstream segment earnings were significantly impacted by the refinery conversion charge and reduced refining margins. Financially, the company increased its long-term and short-term debt in the quarter to fund operations and capital projects, leading to a higher cash balance. Significant capital expenditures were directed towards the Kearl and Cold Lake Nabiye expansion projects. Investors should note the ongoing ramp-up of the Kearl facility and its expected contribution to future production.

Key Highlights

1Net income for Q2 2013 was $327 million ($0.38/share diluted) compared to $635 million ($0.75/share diluted) in Q2 2012, a 49% decrease.
2A significant $264 million after-tax non-cash charge was recognized in Q2 2013 due to the conversion of the Dartmouth refinery to a fuels terminal.
3Upstream segment net income increased by $37 million year-over-year to $397 million, driven by higher liquids realizations and Syncrude volumes.
4Downstream segment net income was negative $97 million in Q2 2013, heavily impacted by the Dartmouth refinery conversion charge and lower refining margins.
5Capital expenditures increased to $1.616 billion in Q2 2013 from $1.290 billion in Q2 2012, primarily for the Kearl and Cold Lake Nabiye expansion projects.
6Total debt increased significantly, with $799 million in new long-term debt and $348 million in new short-term debt during Q2 2013, used to finance operations and projects.

IMPERIAL OIL LTD Quarterly Report for Q2 Ended Jun 30, 2013

Summary

Key Highlights

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