Imperial Oil - 10-Q quarterly report FY2015 Q3

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FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For the quarterly period ended September 30, 2015

OR

For the transition period from                     to                    

Commission file number 0-12014

IMPERIAL OIL LIMITED

(Exact name of registrant as specified in its charter)

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  x    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).    YES  x    NO  ¨

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  x

The number of common shares outstanding, as of September 30, 2015, was 847,599,011.

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IMPERIAL OIL LIMITED

INDEX

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.

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

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF INCOME

(U.S. GAAP, unaudited)

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

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IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(U.S. GAAP, unaudited)

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

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IMPERIAL OIL LIMITED

CONSOLIDATED BALANCE SHEET

(U.S. GAAP, unaudited)

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

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IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

(U.S. GAAP, unaudited)

inflow/(outflow)

NON-CASH TRANSACTIONS

A capital lease of approximately $480 million was not included in “Additions to property, plant and equipment” or “Long-term debt issued” lines on the Consolidated Statement of Cash Flows.

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

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IMPERIAL OIL LIMITED

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 nine months ended September 30, 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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IMPERIAL OIL LIMITED

Investment and other income included gains and losses on asset sales as follows:

The components of net benefit cost were as follows:

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IMPERIAL OIL LIMITED

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

In the nine months ended September 30, 2015, the company increased its long-term debt by $1,106 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

In July 2015, the company increased the capacity of its existing floating rate loan facility with an affiliated company of ExxonMobil from $6.25 billion to $7.75 billion. All terms and conditions of the agreement remained unchanged

In July 2015, the company entered into a long-term capital lease related to the Woodland pipeline for approximately $480 million. A commitment related to this obligation was previously reported as a firm capital commitment in the company’s 2014 Form 10-K

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IMPERIAL OIL LIMITED

Changes in accumulated other comprehensive income:

Amounts reclassified out of accumulated other comprehensive income - before-tax income/(expense):

Income tax expense/(credit) for components of other comprehensive income:

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IMPERIAL OIL LIMITED

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 will be adopted beginning January 1, 2018. Imperial is evaluating the standard and its effect on the company’s financial statements.

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OPERATING RESULTS

Third quarter 2015 vs. third quarter 2014

The company’s net income for the third quarter of 2015 was $479 million or $0.56 per share on a diluted basis compared with $936 million or $1.10 per share for the same period last year.

Upstream recorded a net loss in the third quarter of $52 million, compared to net income of $532 million in the same period of 2014. Earnings in the third quarter of 2015 reflected lower crude oil and gas realizations of about $1,250 million and higher depreciation expense of about $80 million. These factors were partially offset by higher Kearl and Cold Lake volumes of about $280 million, the favourable impact of a weaker Canadian dollar of about $270 million and lower royalties of about $230 million.

West Texas Intermediate (WTI), the main U.S. dollar benchmark crude for North America, decreased by 52 percent compared to the same quarter in 2014. The company’s average Canadian dollar realizations for synthetic crude oil and bitumen decreased about 40 and 56 percent in the third quarter of 2015 to $61.21 and $32.61 per barrel respectively, as the decline in the benchmark crude and increased light-heavy differentials were partially offset by the weaker Canadian dollar. The company’s average realizations on sales of natural gas of $1.75 per thousand cubic feet in the third quarter of 2015, were lower by $1.83 per thousand cubic feet, versus the same period in 2014.

Gross production of Cold Lake bitumen averaged 166,000 barrels per day in the third quarter, up from 149,000 barrels in the same period last year, primarily due to the continued ramp-up of Nabiye production.

Gross production of Kearl bitumen averaged 181,000 barrels per day in the third quarter (128,000 barrels Imperial’s share) up from 78,000 barrels per day (55,000 barrels Imperial’s share) during the third quarter of 2014, reflecting the strong start-up of the Kearl expansion project.

The company’s share of gross production from Syncrude averaged 59,000 barrels per day, compared to 61,000 barrels in the third quarter of 2014.

Gross production of conventional crude oil averaged 12,000 barrels per day in the third quarter, down from 16,000 barrels in the corresponding period in 2014. The lower production volume was primarily due to planned maintenance activity and natural reservoir decline.

Gross production of natural gas during the third quarter of 2015 was 116 million cubic feet per day, down from 149 million cubic feet in the same period last year.

Downstream net income was $454 million in the third quarter, $111 million higher than the third quarter of 2014. Earnings increased mainly due to the favourable impact of a weaker Canadian dollar of about $160 million, partially offset by higher refinery planned maintenance and operating costs, mainly associated with the Edmonton Rail Terminal, of about $70 million.

Chemical net income was $78 million in the third quarter, the highest quarterly earnings on record, up 18 percent from $66 million in the same quarter in 2014.

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Net income effects from Corporate and Other were negative $1 million in the third quarter, compared to negative $5 million in the same period of 2014.

Nine months 2015 vs. nine months 2014

Net income in the first nine months of 2015 was $1,020 million, or $1.20 per share on a diluted basis and reflected a net charge, largely non-cash, of $320 million associated with the enacted Alberta corporate income tax rate increase, versus $3,114 million or $3.66 per share for the first nine months of 2014, which included a $478 million gain on the sale of conventional upstream producing assets.

Upstream recorded a net loss of $415 million for the first nine months of 2015, compared to net income of $1,841 million in the same period of 2014. Earnings in 2015 reflected lower crude oil and gas realizations of about $3,000 million, a net charge of $327 million associated with increased Alberta corporate income taxes and higher depreciation expense of about $130 million. Earnings in 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. These factors were partially offset by the favourable impact of a weaker Canadian dollar of about $590 million, lower royalties of about $560 million, higher liquid volumes of about $490 million, primarily Kearl and Cold Lake, and lower energy costs of about $90 million.

WTI, the main U.S. dollar benchmark crude for North America, decreased by 49 percent compared to the same period in 2014. The company’s average Canadian dollar realizations for synthetic crude oil and bitumen decreased about 41 and 49 percent in the first nine months of 2015 to $63.03 and $36.48 per barrel respectively, as the decline in benchmark crude and increased light-heavy differentials were partially offset by the weaker Canadian dollar. The company’s average realizations on sales of natural gas of $2.44 per thousand cubic feet in 2015, were lower by $2.53 per thousand cubic feet, versus the same period in 2014.

Gross production of Cold Lake bitumen averaged 160,000 barrels per day in the first nine months, up from 145,000 barrels from the same period last year, primarily due to Nabiye production.

Gross production of Kearl bitumen averaged 136,000 barrels per day in the first nine months of 2015 (96,000 barrels Imperial’s share) up from 73,000 barrels per day (52,000 barrels Imperial’s share), reflecting early start-up of the Kearl expansion project and improved reliability of the initial development.

During the first nine months of 2015, the company’s share of gross production from Syncrude averaged 61,000 barrels per day, compared to 62,000 barrels from the same period of 2014.

Gross production of conventional crude oil averaged 14,000 barrels per day in the first nine months of 2015, compared to 18,000 barrels during the same period of 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 nine months of 2015 was 132 million cubic feet per day, down from 171 million cubic feet in the same period last year, reflecting the impact of divested properties.

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