FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
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)
(State or other jurisdiction
of incorporation or organization)
237 Fourth Avenue S.W.
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 ü 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 ü
The number of common shares outstanding, as of March 31, 2011, was 847,599,011.
PART I - Financial Information
Item 1- Financial Statements.
Item 2-
Item 3 -
Item 4 -
PART II - Other Information
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
Item 4 - Submission of Matters to a Vote of Security Holders.
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, 2010.
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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENT OF INCOME
(U.S. GAAP, unaudited)
millions of Canadian dollars
REVENUES AND OTHER INCOME
Operating revenues (a)(b)
Investment and other income (3)
TOTAL REVENUES AND OTHER INCOME
EXPENSES
Exploration
Purchases of crude oil and products (c)
Production and manufacturing (d)(4)
Selling and general (4)
Federal excise tax (a)
Depreciation and depletion
Financing costs (5)
TOTAL EXPENSES
INCOME BEFORE INCOME TAXES
INCOME TAXES
NET INCOME (2)
NET INCOME PER COMMON SHARE - BASIC (dollars) (8)
NET INCOME PER COMMON SHARE - DILUTED (dollars) (8)
DIVIDENDS PER COMMON SHARE (dollars)
(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 BALANCE SHEET
ASSETS
Current assets
Cash
Accounts receivable, less estimated doubtful accounts
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
Accounts payable and accrued liabilities (a)(7)
Income taxes payable
Total current liabilities
Long-term debt (b)(6)
Other long-term obligations (7)
Deferred income tax liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Common shares at stated value (c)
Earnings reinvested
Accumulated other comprehensive income (9)
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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CONSOLIDATED STATEMENT OF CASH FLOWS
OPERATING ACTIVITIES
Net income
Adjustment for non-cash items:
(Gain)/loss on asset sales (3)
Deferred income taxes and other
Changes in operating assets and liabilities:
Accounts receivable
Inventories and prepaids
Accounts payable
All other items - net (a)
CASH FROM (USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES
Additions to property, plant and equipment and intangibles
Proceeds from asset sales
Loans to equity company
CASH FROM (USED IN) INVESTING ACTIVITIES
FINANCING ACTIVITIES
Reduction in capitalized lease obligations
Issuance of common shares under stock option plan
Common shares purchased
Dividends paid
CASH FROM (USED IN) FINANCING ACTIVITIES
INCREASE (DECREASE) IN CASH
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD
(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. In the opinion of the management, the information furnished herein reflects all known accruals and adjustments necessary for a fair presentation of the financial position of the company as at March 31, 2011, and December 31, 2010, and the results of operations and changes in cash flows for the three months ended March 31, 2011 and 2010. All such adjustments are of a normal recurring nature. The company’s exploration and production activities are accounted for under the “successful efforts” method. Certain reclassifications to the prior year have been made to conform to the 2011 presentation.
The results for the three months ended March 31, 2011, 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
Intersegment sales
Investment and other income
Purchases of crude oil and products
Production and manufacturing
Selling and general
Federal excise tax
Financing costs
NET INCOME
Export sales to the United States
Cash flow from (used in) operating activities
CAPEX (a)
Total assets as at March 31
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Investment and other income includes gains and losses on asset sales as follows:
Book value of assets sold
Gain/(loss) on asset sales, before tax
Gain/(loss) on asset sales, after tax
The components of net benefit cost included in production and manufacturing and selling and general expenses in the consolidated statement of income are as follows:
Pension benefits:
Current service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized 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
Long-term debt
Capital leases
Total long-term debt
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 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 employee share-based awards (millions of shares)
Weighted average number of common shares outstanding,assuming dilution (millions of shares)
Post-retirement benefit liability adjustment (excluding amortization)
Amortization of post retirement benefit liability adjustmentincluded in net periodic benefit costs
Other comprehensive income (net of income taxes)
Total comprehensive income
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OPERATING RESULTS
The company’s net income for the first quarter of 2011 was $781 million or $0.91 a share on a diluted basis, compared with $476 million or $0.56 a share for the same period last year.
Earnings in the first quarter were higher than the same quarter in 2010 primarily due to stronger industry refining margins of about $175 million, higher Syncrude and Cold Lake volumes of about $100 million and lower refinery planned maintenance activities of about $85 million. These factors were partially offset by the unfavourable foreign exchange effects of the stronger Canadian dollar of about $70 million. Reliability and expense management improvements in all operating segments allowed the capture of higher crude oil realizations in the Upstream and improved margins in petroleum product markets.
Upstream
Net income in the first quarter was $528 million, $84 million higher than the same period of 2010. Earnings increased primarily due to higher volumes and lower maintenance costs at Syncrude totaling about $80 million. Earnings were also positively impacted by higher Cold Lake bitumen production of about $30 million and higher crude oil commodity prices of about $30 million. These factors were partially offset by the unfavourable foreign exchange effects of the stronger Canadian dollar of about $50 million.
The average price of Brent crude oil in U.S. dollars, a common benchmark for world oil markets, was $105.01 a barrel in the first quarter of 2011, up almost 40 percent from the corresponding period last year. The company’s average realizations on sales of Canadian conventional crude oil and synthetic crude oil from Syncrude production also increased. The company’s average bitumen realizations in the first quarter were about ten percent lower than that in the first quarter of 2010, reflecting a widened price spread between the lighter crude oils and Cold Lake bitumen, primarily due to continuing impacts from third party pipeline integrity issues on heavy oil markets.
Gross production of Cold Lake bitumen averaged 157 thousand barrels a day during the first quarter, up from 148 thousand barrels in the same quarter last year. Higher volumes were the result of the ongoing development drilling program partially offset by the cyclic nature of production at Cold Lake.
The company’s share of Syncrude’s gross production in the first quarter was 80 thousand barrels a day, versus 67 thousand barrels in the first quarter of 2010. Increased production was primarily the result of improved mining and upgrading reliability as well as lower planned maintenance activities.
Gross production of conventional crude oil averaged 22 thousand barrels a day in the first quarter, down from 24 thousand barrels the same period last year, due to natural reservoir decline.
Gross production of natural gas during the first quarter of 2011 was 269 million cubic feet a day, down from 273 million cubic feet in the same period last year. The lower production volume was a result of natural reservoir decline.
The Kearl development plan is being reconfigured from a three-phase to a two-phase strategy. Production from the initial development phase will be at 110,000 barrels of bitumen a day. A second phase expansion with debottlenecking of both phases will be used to reach the regulatory capacity of 345,000 barrels a day as approved under the original three-phase strategy. Full lease unit development costs are expected to remain the same.
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Downstream
Net income was $276 million in the first quarter of 2011, $237 million higher than the same period a year ago. Earnings benefited from stronger industry refining margins of about $175 million due in part to favourably priced crude mix processed and improved demand for petroleum products, as well as the favourable impact of about $85 million associated with lower planned refinery maintenance activities. These factors were partially offset by the unfavourable effects of the stronger Canadian dollar of about $20 million.
Chemical
Net income was $38 million in the first quarter, $39 million higher than the same quarter last year. Improved industry margins across all product channels, lower costs due to lower planned maintenance activities, and higher polyethylene sales volumes were the main contributors to the increase.
Corporate and other
Net income effects were negative $61 million in the first quarter, compared with negative $6 million in the same period of 2010. Unfavourable earnings effects in the first quarter were primarily due to changes in share-based compensation charges.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $959 million during the first quarter of 2011, compared with $914 million in the same period of 2010. Higher cash flow was primarily driven by higher earnings partially offset by working capital effects.
Investing activities used net cash of $806 million in the first quarter, compared to $807 million in the corresponding period in 2010. Additions to property, plant and equipment were $822 million in the first quarter, compared with $813 million during the same quarter 2010. For the Upstream segment, expenditures during the quarter were primarily directed towards the advancement of the Kearl oil sands project. Other investments included environmental and other projects at Syncrude, development drilling at Cold Lake and advancing the Nabiye project, the next phase of expansion at Cold Lake, as well as exploration drilling at Horn River. The Downstream segment’s capital expenditures were focused mainly on refinery projects to improve reliability, feedstock flexibility, energy efficiency and environmental performance.
Cash used in financing activities was $119 million in the first quarter 2011, compared with $86 million in the first quarter of 2010. During the first quarter of 2011, the company did not make any share repurchases except those to offset the dilutive effects from the exercise of stock options. Cash dividends of $93 million were paid in the first quarter 2011, compared with dividends of $85 million in the first quarter 2010. Per-share dividends paid in the first quarter 2011 totaled $0.11, up from $0.10 in the same period of 2010.
The above factors led to an increase in the company’s balance of cash to $301 million at March 31, 2011, from $267 million at the end of 2010.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Information about market risks for the three months ended March 31, 2011 does not differ materially from that discussed on page 23 in the company’s annual report on Form 10-K for the year ended December 31, 2010.
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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, 2011. 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
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the period January 1, 2011 to March 31, 2011, the company issued 602,214 common shares to employees or former employees outside the U.S.A. for $15.50 per share upon the exercise of stock options. These issuances were not registered under the Securities Act in reliance on Regulation S thereunder.
Issuer Purchases of Equity Securities (1)
(d) Maximumnumber (orapproximatedollar value) ofshares (or units)that may yet bepurchased
under the plansor programs
January 2011
(January 1 - January 31)
February 2011
(February 1 - February 28)
March 2011
(March 1 - March 31)
The company will continue to evaluate its share purchase program in the context of its overall capital activities.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareholders on April 28, 2011, all of the management’s nominee directors were elected to hold office until the close of the next annual meeting. The votes for the directors were: K.T. Hoeg 738,106,214 shares for and 997,911 shares withheld, B. H. March 725,214,301 shares for and 13,889,824 shares withheld, J.M. Mintz 738,693,464 shares for and 410,661 shares withheld, R.C. Olsen 686,307,977 shares for and 52,796,148 shares withheld, D.S. Sutherland 738,782,411 shares for and 321,714 shares withheld, S.D. Whittaker 738,457,594 shares for and 646,531 shares withheld, and V.L. Young 738,786,854 shares for and 317,271 shares withheld.
At the same annual meeting of shareholders, PricewaterhouseCoopers LLP were reappointed as the auditors by a vote of 745,950,692 shares for and 1,085,455 shares withheld from the reappointment of the auditors.
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Item 6. Exhibits.
(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 and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
(32.2) Certification by the chief financial officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
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.
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