UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2016
OR
For the transition period from to
Commission file number 0-12014
IMPERIAL OIL LIMITED
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
505 Quarry Park Boulevard S.E.
Calgary, Alberta, Canada
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 March 31, 2016, was 847,599,011.
INDEX
PART I - Financial Information
Item 1 - Financial Statements.
Consolidated Statement of Income - Three Months ended March 31, 2016 and 2015
Consolidated Statement of Comprehensive Income - Three Months ended March 31, 2016 and 2015
Consolidated Balance Sheet - as at March 31, 2016 and December 31, 2015
Consolidated Statement of Cash Flows - Three Months ended March 31, 2016 and 2015
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 1 - Legal Proceedings.
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, 2015.
The term “project” as used in this report 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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PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF INCOME
(U.S. GAAP, unaudited)
Three Months
to March 31
millions of Canadian dollars
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 (LOSS) BEFORE INCOME TAXES
INCOME TAXES
NET INCOME (LOSS)
PER-SHARE INFORMATION (Canadian dollars)
Net income (loss) per common share - basic (note 8)
Net income (loss) 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
Net income (loss)
Other comprehensive income (loss), 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 (loss)
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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
Assets held for sale (note 10)
TOTAL ASSETS
LIABILITIES
Current liabilities
Notes and loans payable (b)
Accounts payable and accrued liabilities (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 (loss) (note 9)
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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CONSOLIDATED STATEMENT OF CASH FLOWS
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 from asset sales (note 3)
Additional investments
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
FINANCING ACTIVITIES
Short-term debt - net
Long-term debt issued (note 6)
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 (b)
(a) Includes contribution to registered pension plans.
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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 2015 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, 2016, 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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millions of dollars
Operating revenues (a)
Intersegment sales
Investment and other income
Purchases of crude oil and products
Production and manufacturing
Federal excise tax
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:
Proceeds from asset sales
Book value of assets sold (a)
Gain (loss) on asset sales, before tax
Gain (loss) on asset sales, after tax
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 March 2016, the company extended the maturity date of its existing $500 million 364-day short-term unsecured committed bank credit facility to March 2017. The company has not drawn on the facility.
Long-term debt
Capital leases
Total long-term debt
In the three months ended March 31, 2016, the company increased its long-term debt by $495 million by drawing on an existing facility with an affiliated company of Exxon Mobil Corporation. The increased debt was used to supplement 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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Net income (loss) per common share - basic
Net income (loss) (millions of dollars)
Weighted average number of common shares outstanding (millions of shares)
Net income (loss) per common share (dollars)
Net income (loss) 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 (loss):
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 (loss) - before-tax income (expense):
Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost (a)
Income tax expense (credit) for components of other comprehensive income:
Post-retirement benefits liability adjustments:
Post-retirement benefits liability adjustment (excluding amortization)
Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost
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On March 8, 2016, the company announced that it had entered into agreements which will result in the sale and transition of its remaining company-owned Esso retail stations to a branded wholesaler operating model for approximately $2.8 billion. Under the branded wholesaler model, Imperial supplies fuel to independent third parties who own and/or operate the sites in alignment with Esso brand standards. The company’s gain on the sale, which is subject to final closing adjustments, is anticipated to be in the range of $2.0 billion to $2.1 billion ($1.6 billion to $1.7 billion, after tax). The transactions are anticipated to close by year-end 2016, subject to regulatory approvals.
The major classes of assets classified as held for sale within the Downstream segment at March 31, 2016, were as follows:
Assets held for sale
Accounts receivable and prepaid expenses
Inventories
Net property, plant and equipment
Total assets held for sale
In May 2014, the Financial Accounting Standards Board (FASB) 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.
“Operating Revenue” on the Consolidated statement of income includes sales and excise taxes on sales transactions. When the company adopts the standard, revenue will exclude sales-based taxes collected on behalf of third parties. This change in reporting will not impact earnings. Imperial continues to evaluate other areas of the standard and its effect on the company’s financial statements.
In February 2016, the FASB issued a new standard, Leases. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and lease liability. The standard is required to be adopted beginning January 1, 2019. Imperial is evaluating the standard and its effect on the company’s financial statements.
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OPERATING RESULTS
First quarter 2016 vs. first quarter 2015
The company’s net loss for the first quarter of 2016 was $101 million or $0.12 per share on a diluted basis, compared to net income of $421 million or $0.50 per share for the same period last year.
Upstream recorded a net loss in the first quarter of $448 million, compared to a net loss of $189 million in the same period of 2015. Results in the first quarter of 2016 reflected lower realizations of about $355 million, partially offset by the impact of a weaker Canadian dollar of about $70 million.
West Texas Intermediate (WTI) averaged US$33.63 per barrel in the first quarter of 2016, down from US$48.57 per barrel in the same quarter of 2015. Western Canada Select (WCS) averaged US$19.30 per barrel and US$33.88 per barrel respectively for the same periods. The WTI/WCS differential widened to 43 percent in the first quarter of 2016 as global surplus crude barrels cleared in the U.S. Gulf Coast.
During the first quarter of 2016, the Canadian dollar weakened relative to the U.S. dollar largely reflecting lower crude oil prices. The Canadian dollar averaged US$0.73 in the first quarter of 2016, a decrease of US$0.08 from the first quarter of 2015.
The company’s average Canadian dollar realizations for bitumen and synthetic crudes declined essentially in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs. Bitumen realizations averaged $11.92 per barrel for the first quarter of 2016, a decrease of $15.48 per barrel versus the first quarter of 2015. Synthetic crude realizations averaged $46.32 per barrel, a decrease of $9.49 per barrel for the same period of 2015.
Gross production of Kearl bitumen averaged 194,000 barrels per day in the first quarter (138,000 barrels Imperial’s share) up from 95,000 barrels per day (67,000 barrels Imperial’s share) during the first quarter of 2015, reflecting the start-up of the Kearl expansion project and continued improvement in reliability of the initial development.
Gross production of Cold Lake bitumen averaged 165,000 barrels per day in the first quarter, up from 152,000 barrels in the same period last year. Incremental volumes from Nabiye offset cycle timing in the base operation.
The company’s share of gross production from Syncrude averaged 80,000 barrels per day, up from 73,000 barrels in the first quarter of 2015, reflecting improved reliability of the operations.
Downstream net income was $320 million in the first quarter, compared to $565 million in the same period of 2015. Earnings decreased mainly due to lower refinery margins of about $395 million, partially offset by the favourable impact of a weaker Canadian dollar of about $120 million.
Refinery throughput averaged 398,000 barrels per day, up from 393,000 barrels in the first quarter of 2015, due to a continued focus on reliability. Capacity utilization increased to 94 percent.
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Petroleum product sales were 469,000 barrels per day, compared to 474,000 barrels per day in the first quarter of 2015.
Chemical net income was $49 million in the first quarter, compared to $66 million in the same quarter of 2015. The decrease was due to lower margins.
Net income effects from Corporate and Other were negative $22 million in the first quarter, compared to negative $21 million in the same period of 2015.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $49 million in the first quarter, compared with $281 million in the corresponding period in 2015, reflecting lower earnings as a result of a decrease in global crude prices.
Investing activities used net cash of $358 million in the first quarter, compared with $1,002 million in the same period of 2015, reflecting the decline in additions to property, plant and equipment.
Cash from financing activities was $261 million in the first quarter, compared with cash from financing activities of $566 million in the first quarter of 2015. Dividends paid in the first quarter of 2016 were $119 million. The per-share dividend paid in the first quarter was $0.14, up from $0.13 in the same period of 2015.
The company’s cash balance was $155 million at March 31, 2016, versus $60 million at the end of the first quarter of 2015.
RECENTLY ISSUED ACCOUNTING STANDARDS
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FORWARD-LOOKING STATEMENTS
Statements in this report regarding future events or conditions are forward-looking statements. Actual future financial and operating 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.
Information about market risks for the three months ended March 31, 2016 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, 2015.
Earnings sensitivity
millions of dollars after tax
Seven cents decrease (increase) in the value of the Canadian dollar versus the U.S. dollar
The sensitivity of net income to changes in the Canadian dollar versus the U.S. dollar decreased from year-end 2015 by about $8 million (after tax) a year for each one-cent change, primarily due to the impact of narrower Downstream margins.
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, 2016. 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
On October 26, 2015, Imperial was charged with committing the offence of discharging or causing or permitting the discharge of a contaminant, namely coker stabilizer thermocracked gas, from Imperial’s chemical plant in Sarnia, into the natural environment that caused or was likely to have caused an adverse effect contrary to section 14(1) of the Environmental Protection Act, R.S.O. 1990, c. E.19, as amended, which offence was alleged to have occurred on February 7, 2014.
Issuer Purchases of Equity Securities
January 2016
(January 1 – January 31)
February 2016
(February 1 – February 29)
March 2016
(March 1 – March 31)
The company will continue to evaluate its share repurchase 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.
/s/ Beverley A. Babcock
/s/ Cathryn Walker
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