10-QPeriod: Q3 FY2013

IMPERIAL OIL LTD Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 5, 2013For Securities:IMO

Summary

Imperial Oil Ltd. reported a decrease in net income for the nine months ended September 30, 2013, to $1.77 billion ($2.08 per share) from $2.69 billion ($3.16 per share) in the prior year period. This decline was primarily driven by significantly lower industry refining margins and increased costs associated with the Kearl and Syncrude operations. Despite lower overall profitability, the company demonstrated resilience in its upstream segment, with higher liquids realizations contributing positively. Capital expenditures remained substantial, focused on major projects like Kearl expansion and Nabiye. The company also significantly increased its debt levels to finance operations and ongoing projects, leading to a reduced cash balance at the end of the period.

Key Highlights

  • 1Net income for the nine months ended September 30, 2013, decreased to $1.77 billion from $2.69 billion in the same period of 2012, primarily due to lower refining margins and increased operational costs.
  • 2Upstream segment performance showed improvement with higher liquids realizations, partially offsetting increased costs at Syncrude and Kearl start-up expenses.
  • 3The company significantly increased its long-term and short-term debt during the third quarter of 2013, raising $819 million in long-term debt and $325 million in short-term debt.
  • 4Capital expenditures were substantial, with $1.81 billion invested in the third quarter, primarily for Kearl expansion and Nabiye projects.
  • 5The price differential between Brent crude oil and West Texas Intermediate (WTI) narrowed significantly, impacting industry refining margins.
  • 6The Dartmouth refinery conversion to a terminal resulted in an after-tax charge of $264 million in the first nine months of 2013.
  • 7The company's cash balance decreased to $76 million at September 30, 2013, from $482 million at the end of 2012, reflecting increased debt and capital expenditures.

Frequently Asked Questions

The primary driver for the decrease in net income was significantly lower industry refining margins, which were negatively impacted by a narrowing price differential between Brent crude oil and West Texas Intermediate (WTI). Additionally, higher operating and start-up costs at the Kearl and Syncrude operations contributed to the decline.

Imperial Oil significantly increased its debt levels during the third quarter of 2013. This included drawing $819 million on an existing facility for long-term debt and issuing an additional $325 million in commercial paper for short-term debt. These increased borrowings were used to finance normal operations and major projects.

The Kearl initial development contributed 23,000 barrels per day to gross production in the third quarter of 2013. While the project is undergoing ongoing improvements in equipment reliability and experienced a temporary shutdown for maintenance, production is expected to reach 110,000 barrels per day gross by year-end. The Kearl expansion project is also advancing, with start-up expected by late 2015. However, higher start-up and operating costs at Kearl were a significant factor in the reduced net income for the first nine months of 2013.

Imperial Oil increased its long-term and short-term debt substantially in Q3 2013 to support operations and projects. This, along with significant capital investments, led to a decrease in the company's cash balance to $76 million as of September 30, 2013, from $482 million at the end of 2012. The company also has access to committed bank credit facilities, which it had not drawn upon as of the filing date.