Imperial announces third quarter 2019 financial and operating results

Imperial Oil Limited (TSX:IMO):

• Net income of $424 million; cash generated from operations of nearly $1.4 billion
• Highest third quarter production in 30 years at 407,000 gross oil-equivalent barrels per day
• Returned $512 million to shareholders through share purchases and dividends

Estimated net income in the third quarter of 2019 was $424 million, compared to net income of $749 million in the same period of 2018. Cash generated from operating activities for the third quarter totalled nearly $1.4 billion, up from $1.2 billion generated in the third quarter of 2018.

Overall upstream gross oil-equivalent production averaged 407,000 barrels per day, up from 393,000 barrels per day in the third quarter of 2018. Gross production at Kearl averaged 224,000 barrels per day in the third quarter, with production for the first nine months of the year averaging 204,000 barrels per day.

“Imperial achieved its highest third quarter production in 30 years,” said Rich Kruger, chairman and chief executive officer. “This performance demonstrates the results of the company’s focus on upstream reliability.”

Refinery throughput averaged 363,000 barrels per day, compared to 388,000 barrels per day in the third quarter of 2018. Petroleum product sales averaged 488,000 barrels per day in the third quarter, compared to 516,000 barrels per day in the same period of 2018. Downstream volumes were affected by the planned Nanticoke refinery turnaround and ongoing impacts from the fractionation tower incident at Sarnia earlier in the year.

“Imperial continued to deliver strong cash flow in the third quarter, despite executing significant maintenance activities. Year-to-date cash generated from operations totalled $3.4 billion, supporting the company’s ability to fund its investment priorities and also return surplus cash to shareholders. During the first nine months of 2019, over $1.5 billion was returned to shareholders through dividends and share purchases,” said Kruger.

As previously announced, chairman and chief executive officer Rich Kruger declared his plans to retire at the end of December 2019 and Imperial’s board of directors announced the appointment of Brad Corson as president and a director on September 17. Mr. Corson will assume the additional roles of chairman and chief executive officer on January 1, 2020. “Imperial’s people and assets provide a solid foundation for continued growth and leadership within the Canadian energy industry,” said Corson. “I look forward to building on these strengths to deliver long-term shareholder value.”

Third quarter highlights

• Net income of $424 million or $0.56 per share on a diluted basis, compared to net income of $749 million or $0.94 per share in the third quarter of 2018.
• Cash generated from operating activities was $1,376 million, up from $1,207 million in the third quarter of 2018.
• Capital and exploration expenditures totalled $442 million, compared with $376 million in the third quarter of 2018. Total capital expenditures for the year continue to be anticipated at between $1.8 billion and $1.9 billion.
• Dividends paid and share purchases totalled $512 million in the third quarter of 2019. The company paid dividends of $169 million or $0.22 per share, and purchased about 9.8 million shares for $343 million.
• Production averaged 407,000 gross oil-equivalent barrels per day, up from 393,000 barrels per day in the same period of 2018.
• Gross production of Kearl bitumen averaged 224,000 barrels per day (159,000 barrels Imperial’s share), compared to 244,000 barrels per day (173,000 barrels Imperial’s share) in the third quarter of 2018. A planned turnaround on one of the asset’s two plants began in early-September and was completed in mid-October, impacting gross production in the quarter by an estimated 34,000 barrels per day (24,000 barrels Imperial’s share).
• Gross production of Cold Lake bitumen averaged 142,000 barrels per day, compared to 150,000 barrels per day in the same period of 2018.
• The company’s share of gross production from Syncrude averaged 69,000 barrels per day, up from 45,000 barrels per day in the same period of 2018. The increase was mainly due to the absence of impacts from the 2018 power disruption, partially offset by an ongoing 75-day planned turnaround which began in late-August. The turnaround impacted the company’s share of gross production in the quarter by an estimated 15,000 barrels per day.
• Crude-by-rail shipments averaged 52,000 barrels per day in the third quarter, compared to 64,000 barrels per day in the second quarter of 2019.
• Refinery throughput averaged 363,000 barrels per day,compared to 388,000 barrels per day in the third quarter of 2018. Capacity utilization was 86 percent, compared to 92 percent in the third quarter of 2018. The results reflect a planned turnaround at the Nanticoke refinery which began in September and is anticipated to be complete in November, as well as ongoing impacts from the fractionation tower incident at Sarnia which occurred earlier this year.
• Petroleum product sales were 488,000 barrels per day,compared to 516,000 barrels per day in the third quarter of 2018. Lower volumes were mainly due to reduced refining throughput.
• Speedpass+TM mobile app enhancement and promotion a success. During this promotion, the number of users enrolled increased by 50 percent. Speedpass+ users can now earn Esso Extra or PC Optimum points when using the app at participating Esso and Mobil stations nationwide.
• Imperial to enhance artificial intelligence capabilities. Imperial announced plans to collaborate with the Alberta Machine Intelligence Institute for progressing in-house machine learning capabilities, which will develop more effective ways to recover oil and gas resources, lower operating costs and reduce environmental impacts.

Third quarter 2019 vs. third quarter 2018

The company’s net income for the third quarter of 2019 was $424 million or $0.56 per share on a diluted basis, compared to net income of $749 million or $0.94 per share in the same period of 2018.

Upstream net income was $209 million in the third quarter, compared to net income of $222 million in the same period of 2018. Earnings decreased mainly due to higher operating expenses of about $70 million and higher royalties of about $50 million, partially offset by higher volumes of about $110 million primarily at Syncrude.

West Texas Intermediate (WTI) averaged US$56.44 per barrel in the third quarter of 2019, down from US$69.43 per barrel in the same quarter of 2018. Western Canada Select (WCS) averaged US$44.21 per barrel and US$47.49 per barrel for the same periods. The WTI / WCS differential narrowed during the third quarter of 2019 to average approximately US$12 per barrel for the quarter, compared to around US$22 per barrel in the same period of 2018.

The Canadian dollar averaged US$0.76 in the third quarter of 2019, essentially unchanged from the third quarter of 2018.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter supported primarily by lower diluent costs partially offset by a decrease in WCS. Bitumen realizations averaged $51.12 per barrel in the third quarter of 2019, up from $50.42 per barrel in the third quarter of 2018. The company’s average Canadian dollar realizations for synthetic crude declined generally in line with WTI in the quarter, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $77.27 per barrel in the third quarter of 2019, compared to $89.70 per barrel in the same period of 2018.

Gross production of Cold Lake bitumen averaged 142,000 barrels per day in the third quarter, compared to 150,000 barrels per day in the same period of 2018.

Gross production of Kearl bitumen averaged 224,000 barrels per day in the third quarter (159,000 barrels Imperial’s share), compared to 244,000 barrels per day (173,000 barrels Imperial’s share) in the third quarter of 2018. Lower production was mainly due to timing of planned turnaround activity.

The company's share of gross production from Syncrude averaged 69,000 barrels per day, up from 45,000 barrels per day in the third quarter of 2018. Higher production was mainly due to the absence of production impacts from the 2018 power disruption, partially offset by planned turnaround activity.

Downstream net income was $221 million in the third quarter, compared to $502 million in the third quarter of 2018. Earnings were negatively impacted by lower margins of about $230 million and planned turnaround activity of about $70 million.

Refinery throughput averaged 363,000 barrels per day, compared to 388,000 barrels per day in the third quarter of 2018. Capacity utilization was 86 percent, compared to 92 percent in the third quarter of 2018. Reduced throughput was mainly due to planned turnaround activity at Nanticoke and ongoing impacts from the fractionation tower incident at Sarnia which occurred earlier in 2019.

Petroleum product sales were 488,000 barrels per day, compared to 516,000 barrels per day in the third quarter of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.

Chemical net income was $38 million in the third quarter, compared to $69 million from the same quarter of 2018, primarily reflecting lower margins.

Corporate and other expenses were $44 million in the third quarter, unchanged from the same period of 2018.

Cash flow generated from operating activities was $1,376 million in the third quarter, up from $1,207 million in the corresponding period in 2018, primarily reflecting favourable working capital effects, partially offset by lower earnings.

Investing activities used net cash of $413 million in the third quarter, compared with $352 million used in the same period of 2018.

Cash used in financing activities was $519 million in the third quarter, compared with $580 million used in the third quarter of 2018. Dividends paid in the third quarter of 2019 were $169 million. The per share dividend paid in the third quarter was $0.22, up from $0.19 in the same period of 2018. During the third quarter, the company, under its share purchase program, purchased about 9.8 million shares for $343 million, including shares purchased from Exxon Mobil Corporation. In the third quarter of 2018, the company purchased about 10 million shares for $418 million.

The company’s cash balance was $1,531 million at September 30, 2019, versus $1,148 million at the end of third quarter 2018.

The company currently anticipates exercising its share purchases uniformly over the duration of the program. Purchase plans may be modified at any time without prior notice.

Nine months highlights

• Net income of $1,929 million, up from net income of $1,461 million in 2018.
• Net income per share on a diluted basis was $2.51, up from net income per share of $1.79 in 2018.
• Cash flow generated from operating activities was $3,405 million, up from $3,051 million in 2018.
• Gross oil-equivalent production averaged 398,000 barrels per day, up from 367,000 barrels per day in 2018.
• Refinery throughput averaged 363,000 barrels per day, compared to 386,000 barrels per day in 2018.
• Petroleum product sales were 481,000 barrels per day, compared to 503,000 barrels per day in 2018.
• Per share dividends declared during the year totalled $0.63, up from $0.54 per share in 2018.
• Returned over $1.5 billion to shareholders through share purchases and dividends.

Nine months 2019 vs. nine months 2018

Net income in the first nine months of 2019 was $1,929 million, or $2.51 per share on a diluted basis, up from net income of $1,461 million or $1.79 per share in the first nine months of 2018. 2019 results include a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022.

Upstream net income was $1,252 million for the first nine months of the year, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, 2019 net income was $563 million, up from net income of $172 million in the same period of 2018. Improved results reflect higher volumes of about $530 million at Syncrude, Kearl and Norman Wells, as well as the impact of higher crude oil realizations of about $220 million and favourable foreign exchange impacts of about $90 million. Results were negatively impacted by higher operating expenses of about $270 million, higher royalties of about $130 million, and lower Cold Lake volumes of about $70 million.

West Texas Intermediate averaged US$57.10 per barrel in the first nine months of 2019, down from US$66.77 per barrel in the same period of 2018. Western Canada Select averaged US$45.32 per barrel and US$44.98 per barrel for the same periods. The WTI / WCS differential narrowed to average approximately US$12 per barrel in the first nine months of 2019, from around US$22 per barrel in the same period of 2018.

The Canadian dollar averaged US$0.75 in the first nine months of 2019, a decrease of $0.03 from the same period in 2018.

Imperial's average Canadian dollar realizations for bitumen increased in the first nine months of 2019, supported primarily by lower diluent costs. Bitumen realizations averaged $52.44 per barrel, up from $45.04 per barrel from the same period in 2018. The company's average Canadian dollar realizations for synthetic crude declined generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $74.59 per barrel, compared to $83.66 per barrel from the same period in 2018.

Gross production of Cold Lake bitumen averaged 141,000 barrels per day in the first nine months of 2019, compared to 145,000 barrels per day in the same period of 2018.

Gross production of Kearl bitumen averaged 204,000 barrels per day in the first nine months of 2019 (145,000 barrels Imperial's share), up from 202,000 barrels per day (144,000 barrels Imperial's share) in the same period of 2018.

During the first nine months of 2019, the company's share of gross production from Syncrude averaged 76,000 barrels per day, up from 53,000 barrels per day in the same period of 2018. Higher production was mainly due to the absence of production impacts from the 2018 power disruption.

Downstream net income was $736 million for the first nine months of 2019, compared to $1,224 million for the same period of 2018. Earnings were negatively impacted by lower margins of about $430 million, reliability events of about $140 million, including the fractionation tower incident at Sarnia, and lower sales volumes of about $100 million. These factors were partially offset by lower net turnaround impacts of about $80 million, and favourable foreign exchange effects of about $60 million.

Refinery throughput averaged 363,000 barrels per day in the first nine months of 2019, compared to 386,000 barrels per day in the same period of 2018. Capacity utilization was 86 percent, compared to 91 percent in the same period of 2018. Reduced throughput was mainly due to higher planned turnaround activities and impacts from the Sarnia fractionation tower incident.

Petroleum product sales were 481,000 barrels per day in the first nine months of 2019, compared to 503,000 barrels per day in the same period of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.

Chemical net income was $110 million in the first nine months of 2019, compared to $220 million in the same period of 2018, primarily reflecting lower margins.

Corporate and other expenses were $169 million in the first nine months of 2019, compared to $155 million in the same period of 2018.

Cash flow generated from operating activities was $3,405 million in the first nine months of 2019, up from $3,051 million in the same period of 2018, primarily reflecting favourable working capital effects.

Investing activities used net cash of $1,305 million in the first nine months of 2019, compared with $1,096 million used in 2018, primarily reflecting higher additions to property, plant and equipment.

Cash used in financing activities was $1,557 million in the first nine months of 2019, compared with $2,002 million used in the same period of 2018. Dividends paid in the first nine months of 2019 were $465 million. The per share dividend paid in the first nine months of 2019 was $0.60, up from $0.51 in the same period of 2018. During the first nine months of 2019, the company, under its share purchase program, purchased about 29.6 million shares for $1,072 million, including shares purchased from Exxon Mobil Corporation. In the first nine months of 2018, the company purchased about 38.5 million shares for $1,561 million.

Key financial and operating data follow.

Forward-looking statements

Statements of future events or conditions in this release, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Forward-looking statements can be identified by words such as believe, anticipate, propose, plan, goal, target, estimate, expect, future, continue, likely, may, should, will and similar references to future periods. Disclosure related to capital expenditures for 2019; timing of Nanticoke turnaround activities; the development, application and impact of artificial intelligence technology; and the anticipated purchases under the share purchase program constitute forward-looking statements.

Forward-looking statements are based on the company's current expectations, estimates, projections and assumptions at the time the statements are made. Actual future financial and operating results, including expectations and assumptions concerning demand growth and energy source, supply and mix; commodity prices and foreign exchange rates; production rates, growth and mix; project plans, dates, costs, capacities and execution; production life and resource recoveries; cost savings; applicable laws and government policies; and capital and environmental expenditures could differ materially depending on a number of factors. These factors include changes in the supply of and demand for crude oil, natural gas, and petroleum and petrochemical products and resulting price and margin impacts; transportation for accessing markets; political or regulatory events, including changes in law or government policy, applicable royalty rates and tax laws; third party opposition to operations and projects; environmental risks inherent in oil and gas exploration and production activities; environmental regulation, including climate change and greenhouse gas regulation and changes to such regulation; currency exchange rates; availability and allocation of capital; availability and performance of third party service providers; unanticipated operational disruptions; management effectiveness; project management and schedules; response to technological developments; operational hazards and risks; cybersecurity incidents; disaster response preparedness; the ability to develop or acquire additional reserves; and other factors discussed in Item 1A risk factors and Item 7 management’s discussion and analysis of financial condition and results of operations of Imperial Oil Limited’s most recent annual report on Form 10-K.

Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial. Imperial’s actual results may differ materially from those expressed or implied by its forward-looking statements and readers are cautioned not to place undue reliance on them. Imperial undertakes no obligation to update any forward-looking statements contained herein, except as required by applicable law.

In this release all dollar amounts are expressed in Canadian dollars unless otherwise stated. This release should be read in conjunction with Imperial’s most recent Form 10-K. Note that numbers may not add due to rounding.

The term “project” as used in this release can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.

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