10-QPeriod: Q1 FY2014

IMPERIAL OIL LTD Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 7, 2014For Securities:IMO

Summary

Imperial Oil Limited reported solid financial results for the first quarter of 2014, with net income increasing to $946 million ($1.11 per diluted share) from $798 million ($0.94 per diluted share) in the prior year's first quarter. This performance was driven by higher earnings across its Upstream, Downstream, and Chemical segments, benefiting from improved production volumes, favorable commodity prices, and stronger product margins. Operationally, the company saw growth in its Upstream segment, notably from the Kearl and Syncrude operations, despite a decline in Cold Lake bitumen production. The Downstream segment maintained profitability despite lower refining margins, while the Chemical segment saw improved results. The company generated strong operating cash flow, though it was partially offset by significant capital expenditures related to ongoing projects, particularly at Kearl and Cold Lake Nabiye. Overall, Imperial Oil demonstrated a robust financial performance and continued strategic investment in its core assets.

Key Highlights

  • 1Net income for Q1 2014 rose to $946 million, a significant increase from $798 million in Q1 2013.
  • 2Diluted earnings per share improved to $1.11 in Q1 2014, up from $0.94 in Q1 2013.
  • 3Upstream segment net income increased by $152 million year-over-year, driven by higher liquids realizations and production from Kearl and Syncrude.
  • 4Downstream segment net income was slightly higher at $488 million compared to $478 million, despite lower refining margins.
  • 5Chemical segment net income showed improvement, reaching $43 million from $35 million in the prior year.
  • 6Operating cash flow strengthened to $1,085 million from $597 million, supported by higher earnings and working capital movements.
  • 7Capital expenditures were substantial at $1,206 million, primarily for Kearl expansion and Cold Lake Nabiye projects, impacting cash flow from investing activities.

Frequently Asked Questions

The primary driver for the increase in net income was stronger performance in the Upstream segment, which benefited from higher liquids realizations and increased production volumes from the Kearl and Syncrude operations. Favorable foreign exchange rates also contributed positively.

In the Upstream segment, gross production of Cold Lake bitumen averaged 147,000 barrels per day, down from 164,000 barrels year-over-year, primarily due to the cyclic nature of steaming and unplanned outages. However, Imperial Oil's share of Syncrude gross production increased to 73,000 barrels per day from 65,000 barrels due to improved reliability. Kearl's initial development produced 70,000 gross barrels per day, with production continuing to ramp up.

Imperial Oil continued to invest heavily in capital projects, with $1,206 million in additions to property, plant, and equipment during the first quarter of 2014, mainly for the Kearl expansion and Cold Lake Nabiye projects. This significant investment resulted in cash used in investing activities of $1,143 million for the quarter. Despite these investments, operating cash flow was strong, but the overall cash balance decreased to $102 million at March 31, 2014, from $272 million at year-end 2013.

The company's net income is sensitive to market fluctuations. A $1 U.S. per barrel change in crude oil prices is estimated to impact after-tax earnings by approximately $435 million. A one-cent change in the value of the Canadian dollar versus the U.S. dollar is estimated to impact after-tax earnings by approximately $620 million. These sensitivities reflect the company's operational mix and commodity exposures.