10-QPeriod: Q3 FY2016

IMPERIAL OIL LTD Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 2, 2016For Securities:IMO

Summary

Imperial Oil Ltd. reported a significant increase in net income for the third quarter of 2016, driven primarily by a substantial gain from the sale of retail sites. This strategic divestiture positively impacted earnings, overshadowing a slight net loss in the Upstream segment, which was affected by lower crude oil realizations and production timing. The nine-month period also showed a mixed performance, with overall net income lower than the prior year due to a challenging upstream environment, but bolstered by the same retail site divestiture gains. The company's Downstream segment demonstrated resilience with improved refinery operations and marketing volumes, despite lower industry margins. Capital expenditures were notably lower year-over-year, particularly in the Upstream segment, reflecting the completion of major growth projects and a focus on optimizing capital allocation. The company also provided an update on its oil and gas reserves, noting that current low prices could impact SEC-defined proved reserves, though this is not expected to affect future operations.

Key Highlights

  • 1Third quarter 2016 net income was $1,003 million ($1.18/share diluted), a substantial increase from $479 million ($0.56/share diluted) in Q3 2015, largely due to a $716 million gain from the sale of retail sites.
  • 2Upstream segment recorded a net loss of $26 million in Q3 2016, an improvement from a $52 million loss in Q3 2015, despite lower crude oil realizations and production variations.
  • 3Downstream segment saw a significant increase in net income to $1,002 million in Q3 2016 from $454 million in Q3 2015, boosted by the retail site sale gain, improved refinery operations, and higher marketing volumes.
  • 4Total capital and exploration expenditures for the nine months ended September 30, 2016, were $948 million, a significant decrease from $3,011 million in the same period of 2015, indicating project completion and a shift in investment.
  • 5The company's cash balance stood at $248 million as of September 30, 2016, down from $366 million at the end of Q3 2015, with operating and asset sale proceeds primarily used to reduce short-term debt.
  • 6Potential de-booking of SEC-defined proved reserves is noted due to low prices, specifically around 2.6 billion barrels at Kearl and 0.4 billion barrels at Cold Lake, though this is not expected to impact operational outlook.
  • 7The company is evaluating potential impairments on long-lived assets due to the continued weakness in the upstream environment, with results to be determined by year-end.

Frequently Asked Questions

The primary driver of Imperial Oil's significantly improved net income in the third quarter of 2016 was a substantial gain of $716 million ($0.84 per share) resulting from the sale of company-owned retail sites.

The Upstream segment recorded a net loss of $26 million in the third quarter of 2016, which was an improvement compared to a net loss of $52 million in the same period of 2015. This improvement was driven by higher Syncrude volumes and lower operating expenses, partially offset by lower crude oil realizations.

Imperial Oil noted that current low crude and natural gas prices could impact the classification of proved reserves under SEC rules. Approximately 2.6 billion barrels of bitumen at Kearl and 0.4 billion barrels at Cold Lake may not qualify as proved reserves at year-end 2016 if current price conditions persist. However, the company stated this is not expected to affect the operation of the underlying projects or alter the outlook for future production volumes.

Capital and exploration expenditures significantly decreased for the first nine months of 2016 ($948 million) compared to the same period in 2015 ($3,011 million). This reduction reflects the completion of major upstream growth projects and a strategic shift, with operating and asset sale proceeds primarily being used to reduce short-term debt.