FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
For the transition period from —- to —-
Commission file number 0-12014
IMPERIAL OIL LIMITED
(Exact name of registrant as specified in its charter)
CANADA
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
237 Fourth Avenue S.W.
Calgary, Alberta, Canada
(Address of principal executive offices)
(Postal Code)
Registrant's telephone number, including area code: 1-800-567-3776
The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 91 days.
YES þ NO ¨
The registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
The registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Securities Exchange Act of 1934).
The registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES ¨ NO þ
The number of common shares outstanding, as of March 31, 2015, was 847,599,011.
INDEX
PART I - Financial Information
Item 1 - Financial Statements.
Consolidated Statement of Income - Three Months ended March 31, 2015 and 2014
Consolidated Statement of Comprehensive Income - Three Months ended March 31, 2015 and 2014
Consolidated Balance Sheet - as at March 31, 2015 and December 31, 2014
Consolidated Statement of Cash Flows - Three Months ended March 31, 2015 and 2014
Notes to the Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk.
Item 4 - Controls and Procedures.
PART II - Other Information
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6 - Exhibits.
SIGNATURES
In this report all dollar amounts are expressed in Canadian dollars unless otherwise stated. This report should be read in conjunction with the company's Annual Report on Form 10-K for the year ended December 31, 2014.
Statements in this report regarding future events or conditions are forward-looking statements. Actual results could differ materially due to the impact of market conditions, changes in law or governmental policy, changes in operating conditions and costs, changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other technical and economic factors.
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 under government payment transparency reports.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENT OF INCOME
REVENUES AND OTHER INCOME
Operating revenues (a) (b)
Investment and other income (note 3)
TOTAL REVENUES AND OTHER INCOME
EXPENSES
Exploration
Purchases of crude oil and products (c)
Production and manufacturing (d)
Selling and general
Federal excise tax (a)
Depreciation and depletion
Financing costs (note 5)
TOTAL EXPENSES
INCOME BEFORE INCOME TAXES
INCOME TAXES
NET INCOME
PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (note 8)
Net income per common share - diluted (note 8)
Dividends per common share
(a) Federal excise tax included in operating revenues
(b) Amounts from related parties included in operating revenues
(c) Amounts to related parties included in purchases of crude oil and products
(d) Amounts to related parties included in production and manufacturing expenses
The information in the Notes to Consolidated Financial Statements is an integral part of these statements.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(U.S. GAAP, unaudited)
Net income
Other comprehensive income, net of income taxes
Post-retirement benefit liability adjustment (excluding amortization)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs
Total other comprehensive income/(loss)
Comprehensive income
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CONSOLIDATED BALANCE SHEET
ASSETS
Current assets
Cash
Accounts receivable, less estimated doubtful accounts (a)
Inventories of crude oil and products
Materials, supplies and prepaid expenses
Deferred income tax assets
Total current assets
Long-term receivables, investments and other long-term assets
Property, plant and equipment,
less accumulated depreciation and depletion
Property, plant and equipment, net
Goodwill
Other intangible assets, net
TOTAL ASSETS
LIABILITIES
Current liabilities
Notes and loans payable (b)
Accounts payable and accrued liabilities (a)(note 7)
Income taxes payable
Total current liabilities
Long-term debt (c)(note 6)
Other long-term obligations (d)(note 7)
Deferred income tax liabilities
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Common shares at stated value (e)
Earnings reinvested
Accumulated other comprehensive income (note 9)
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
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CONSOLIDATED STATEMENT OF CASH FLOWS
inflow/(outflow)
OPERATING ACTIVITIES
Adjustments for non-cash items:
(Gain)/loss on asset sales (note 3)
Deferred income taxes and other
Changes in operating assets and liabilities:
Accounts receivable
Inventories, materials, supplies and prepaid expenses
Accounts payable and accrued liabilities
All other items - net (a)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES
Additions to property, plant and equipment
Proceeds associated with asset sales (b)
Additional investments
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
FINANCING ACTIVITIES
Short-term debt - net
Long-term debt issued
Reduction in capitalized lease obligations
Dividends paid
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
INCREASE (DECREASE) IN CASH
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD (c)
(a) Included contribution to registered pension plans
(b) 2014 included $50 million deposit for the sale of producing conventional assets which closed in the second quarter of 2014
(c) Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission in the company's 2014 Annual Report on Form 10-K. In the opinion of the company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The company's exploration and production activities are accounted for under the "successful efforts" method.
The results for the three months ended March 31, 2015, are not necessarily indicative of the operations to be expected for the full year.
All amounts are in Canadian dollars unless otherwise indicated.
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Operating revenues (a)
Intersegment sales
Investment and other income
Purchases of crude oil and products
Production and manufacturing
Federal excise tax
Financing costs
Cash flows from (used in) operating activities
CAPEX (b)
Total assets as at March 31
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Investment and other income included gains and losses on asset sales as follows:
millions of dollars
Proceeds from asset sales
Book value of assets sold (a)
Gain/(loss) on asset sales, before tax
Gain/(loss) on asset sales, after tax
(a) 2015 includes $3 million associated with the wind up of a capital lease
The components of net benefit cost were as follows:
Pension benefits:
Current service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Net benefit cost
Other post-retirement benefits:
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Debt-related interest
Capitalized interest
Net interest expense
Other interest
Total financing costs
In the first quarter of 2015, the company extended the maturity date of its existing $500 million 364-day short-term unsecured committed bank credit facility to March 2016. The company has not drawn on the facility.
Long-term debt
Capital leases
Total long-term debt
In the first quarter of 2015, the company increased its long-term debt by $717 million by drawing on an existing facility with an affiliated company of Exxon Mobil Corporation. The increased debt was used to finance normal operations and capital projects.
Employee retirement benefits (a)
Asset retirement obligations and other environmental liabilities (b)
Share-based incentive compensation liabilities
Other obligations
Total other long-term obligations
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Three Months
to March 31
Net income per common share - basic
Net income (millions of dollars)
Weighted average number of common shares outstanding (millions of shares)
Net income per common share (dollars)
Net income per common share - diluted
Effect of share-based awards (millions of shares)
Weighted average number of common shares outstanding,
assuming dilution (millions of shares)
Changes in accumulated other comprehensive income:
Balance at January 1
Post-retirement benefits liability adjustment:
Current period change excluding amounts reclassified
from accumulated other comprehensive income
Amounts reclassified from accumulated other comprehensive income
Balance at March 31
Amounts reclassified out of accumulated other comprehensive income -
before-tax income/(expense):
Amortization of post-retirement benefits liability adjustment
included in net periodic benefit cost (a)
(a) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 4)
Income tax expense/(credit) for components of other comprehensive income:
Post-retirement benefits liability adjustments:
Post-retirement benefits liability adjustment (excluding amortization)
included in net periodic benefit cost
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In May 2014, the Financial Accounting Standards Board issued a new standard, Revenue from Contracts with Customers. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2017. Imperial is evaluating the standard and its effect on the company's financial statements.
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OPERATING RESULTS
First quarter 2015 vs. first quarter 2014
The company’s net income for the first quarter of 2015 was $421 million or $0.50 per share on a diluted basis, compared with $946 million or $1.11 per share for the same period last year.
Upstream recorded a net loss in the first quarter of $189 million, compared to income of $452 million in the same period of 2014. Earnings in the first quarter 2015 reflected the impact of lower crude oil and gas realizations of about $1,100 million. This was partially offset by lower royalties of about $200 million, the impact of a weaker Canadian dollar of about $160 million, higher Kearl and Cold Lake volumes of about $60 million and lower energy costs of about $60 million.
West Texas Intermediate (WTI), the main U.S. dollar benchmark crude for North America, decreased by 51 percent compared to the same quarter in 2014. The company’s average first quarter 2015 Canadian dollar realizations for synthetic crude oil and bitumen were $55.81 and $27.40 per barrel, lower by 48 and 58 percent respectively, as a result of the weaker Canadian dollar and increased heavy – light differentials versus the same period in 2014. The company’s average realizations on natural gas sales of $3.15 per thousand cubic feet, in the first quarter of 2015, were lower by $3.41 per thousand cubic feet, versus the same period in 2014.
Gross production of Cold Lake bitumen averaged 152,000 barrels per day, up from 147,000 barrels from the same period last year. Incremental volume growth of 4,000 barrels per day was achieved with initial first quarter 2015 production from the Nabiye project.
The company’s share of Syncrude’s gross production in the first quarter was 73,000 barrels per day, unchanged from the first quarter of 2014.
Gross production from the Kearl initial development was 95,000 barrels per day (67,000 barrels Imperial’s share) compared to 70,000 barrels per day (50,000 barrels Imperial’s share) in the first quarter of 2014 as a result of improved reliability.
Gross production of conventional crude oil averaged 15,000 barrels per day in the first quarter, versus 22,000 barrels in the corresponding period in 2014. The lower production volume was primarily due to the impact of properties divested during the first half of 2014.
Gross production of natural gas during the first quarter of 2015 was 146 million cubic feet per day, down from 205 million cubic feet in the same period last year, reflecting the impact of properties divested during the first half of 2014.
Downstream net income was $565 million in the first quarter, compared to $488 million in the first quarter of 2014. Increased earnings were primarily due to higher marketing margins and a first quarter 2015 gain of $17 million from the sale of assets, partially offset by lower refining margins.
Chemical net income was $66 million in the first quarter, up $23 million over the same period in 2014, mainly as a result of strong polyethylene margins.
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Net income effects from Corporate and Other were negative $21 million in the first quarter, versus negative $37 million in the same period of 2014, primarily due to lower share-based compensation charges.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $281 million in the first quarter, versus $1,085 million in the corresponding period in 2014. Lower cash flow was primarily due to lower earnings and working capital effects.
Investing activities used net cash of $1,002 million in the first quarter, compared with $1,143 million in the same period of 2014. Additions to property, plant and equipment were $1,011 million in the first quarter, compared with $1,206 million during the same quarter in 2014. Expenditures during the quarter were primarily directed towards the completion of the Cold Lake Nabiye and Kearl expansion projects.
Cash from financing activities was $566 million in the first quarter, compared with cash used in financing activities of $112 million in the first quarter of 2014. In the first quarter, the company increased long-term debt by $717 million through its existing loan facility to finance normal operations and capital projects. Dividends paid in the first quarter of 2015 were $110 million, unchanged from the corresponding period in 2014. Per-share dividend paid in the first quarter was $0.13, consistent with the same period of 2014.
The above factors led to a decrease in the company’s balance of cash to $60 million at March 31, 2015, from $215 million at the end of 2014.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board issued a new standard, Revenue from Contracts with Customers. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2017. Imperial is evaluating the standard and its effect on the Corporation’s financial statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Information about market risks for the three months ended March 31, 2015 does not differ materially from that discussed on page 22 in the company’s Annual Report on Form 10-K for the year ended December 31, 2014 except for the following:
Earnings sensitivity
millions of dollars after tax
Four dollars (U.S.) per barrel change in crude oil prices
One dollar (U.S.) per barrel change in sales margins for total petroleum products
Seven cents decrease (increase) in the value of the Canadian dollar
versus the U.S. dollar
The sensitivity of net income to changes in crude oil prices increased from year-end 2014 by about $5 million (after tax) a year for each one U.S. dollar change. A decrease in the value of the Canadian dollar at March 31, 2015 has increased the impact of U.S. dollar denominated crude oil prices on the company’s revenue and earnings.
The sensitivity of net income to changes in sales margins for total petroleum products increased from year-end 2014 by about $15 million (after tax) a year for each one U.S. dollar per barrel change. A decrease in the value of the Canadian dollar has also increased the impact of U.S. dollar denominated crude oil and petroleum product prices on the company’s revenues and earnings.
The sensitivity of net income to changes in the Canadian dollar versus the U.S. dollar increased from year-end 2014 by about $15 million (after tax) a year for each one-cent change, primarily due to wider downstream and Chemicals margins.
Item 4. Controls and Procedures.
As indicated in the certifications in Exhibit 31 of this report, the company’s principal executive officer and principal financial officer have evaluated the company’s disclosure controls and procedures as of March 31, 2015. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Issuer Purchases of Equity Securities (1)
Period
(a) Total
number of
shares (or
units)
purchased
(b) Average
price paid
per share (or
unit)
(c) Total
as part of
publicly
announced
plans or
programs
(d) Maximum
number (or
approximate
dollar value) of
shares (or units)
that may yet be
under the plans
or programs
January 2015
(Jan 1 – Jan 31)
February 2015
(Feb 1 – Feb 28)
March 2015
(Mar 1 – Mar 31)
The company will continue to evaluate its share purchase program in the context of its overall capital activities.
(31.1) Certification by the principal executive officer of the company pursuant to Rule 13a-14(a).
(31.2) Certification by the principal financial officer of the company pursuant to Rule 13a-14(a).
(32.1) Certification by the chief executive officer of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
(32.2) Certification by the chief financial officer of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
(Signature)
Paul J. Masschelin
Senior Vice-President, Finance and
Administration and Controller
(Principal Accounting Officer)
Cathryn Walker
Assistant Corporate Secretary
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