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, 2012
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)
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).
Large accelerated filer ü Accelerated filer
Non-accelerated filer Smaller reporting company
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, 2012, was 847,599,011.
INDEX
PART I - Financial Information
Item 1 -
Financial Statements.
Consolidated Statement of Income -Three Months ended March 31, 2012 and 2011
Consolidated Statement of Comprehensive Income -Three Months ended March 31, 2012 and 2011
Consolidated Balance Sheet - as at March 31, 2012 and December 31, 2011
Consolidated Statement of Cash Flows - Three Months ended March 31, 2012 and 2011
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
Unregistered Sales of Equity Securities and Use of Proceeds.
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, 2011.
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)
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
TOTAL EXPENSES
INCOME BEFORE INCOME TAXES
INCOME TAXES
NET INCOME
PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (dollars) (note 8)
Net income per common share - diluted (dollars) (note 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 STATEMENT OF COMPREHENSIVE INCOME
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
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) (note 7)
Income taxes payable
Total current liabilities
Long-term debt (b) (note 6)
Other long-term obligations (note 7)
Deferred income tax liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Common shares at stated value (c)
Earnings reinvested
Accumulated other comprehensive income
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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CONSOLIDATED STATEMENT OF CASH FLOWS
inflow/(outflow)
OPERATING ACTIVITIES
Adjustment 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
Repayment of loan from equity company
CASH FLOWS 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 FLOWS FROM (USED IN) FINANCING ACTIVITIES
INCREASE (DECREASE) IN CASH
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD
(a) Included contribution to registered pension plans
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Basis of financial statement preparation
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 2011 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, 2012, 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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Business Segments
Operating revenues
Intersegment sales
Investment and other income
Purchases of crude oil and products
Production and manufacturing
Federal excise tax
Financing costs
Export sales to the United States
Cash flows from (used in) operating activities
CAPEX (a)
Total assets as at March 31
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and additions to capital leases.
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Investment and other income included 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
Employee retirement benefits
The components of net benefit cost were as follows:
Three Months
to March 31
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
Total financing costs
Long-term debt
Capital leases
Total long-term debt
7. Other long-term obligations
Employee retirement benefits (a)
Asset retirement obligations and other environmental liabilities (b)
Share-based incentive compensation liabilities
Other obligations
Total other long-term obligations
Total recorded employee retirement benefits obligations also included $48 million in current liabilities (December 31, 2011 - $48 million).
Total asset retirement obligations and other environmental liabilities also included $145 million in current liabilities (December 31, 2011 - $145 million).
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Net income per share
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)
9. Other comprehensive income information
Changes in accumulated other comprehensive income:
January 1 balance
Post-retirement benefits liability adjustment:
Current period change excluding amounts reclassified from other comprehensive income
Amounts reclassified from other comprehensive income
March 31 balance
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 benefit liability adjustment included in net periodic benefit cost
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OPERATING RESULTS
The company’s net income for the first quarter of 2012 was $1,015 million or $1.19 a share on a diluted basis, compared with $781 million or $0.91 a share for the same period last year.
Earnings in the first quarter were higher than the same quarter in 2011 primarily due to stronger industry refining margins of about $150 million and higher liquids realizations of about $115 million. These factors were partially offset by higher royalty costs of about $55 million and lower Syncrude volumes of about $30 million.
Upstream
Net income in the first quarter was $542 million, $14 million higher than the same period of 2011. Earnings benefited from higher liquids realization of about $115 million. This factor was partially offset by higher royalty costs due to higher realizations of about $55 million and lower Syncrude volumes due to maintenance activities of about $30 million.
Prices for most of the company’s liquids production are based on West Texas Intermediate (WTI) oil markets, a common benchmark for mid-continent North American markets. Compared to the same quarter last year, the average price of WTI crude oil in U.S. dollars in the first quarter of 2012 was higher by about $8.43 a barrel, while Brent crude oil, the benchmark for Atlantic basin oil markets, was higher by about $13.46 a barrel in the first quarter of 2012. This widened the price differential between WTI and Brent crude oils to $15.43 a barrel in U.S. dollars in the first quarter of 2012. The company’s Western Canadian liquids realizations are also impacted by market discounts caused by supply/demand imbalances in the mid-continent North American crude oil market. Discounts for bitumen and synthetic crude oils increased through the first quarter, reflecting high industry refining downtime in mid-continent North America. For the quarter, bitumen realizations averaged $66.24 a barrel, an increase of $10.48 in Canadian dollars compared to the first quarter of 2011.
Gross production of Cold Lake bitumen averaged 157 thousand barrels a day during the first quarter, unchanged from the same period last year.
The company’s share of Syncrude’s gross production in the first quarter was 74 thousand barrels a day, versus 80 thousand barrels in the first quarter of 2011. Higher unplanned maintenance activities were the main contributor to the lower production.
Gross production of conventional crude oil averaged 21 thousand barrels a day in the first quarter, essentially unchanged from the 22 thousand barrels in the first quarter of 2011.
Gross production of natural gas during the first quarter of 2012 was 198 million cubic feet a day, down from 269 million cubic feet in the same period last year. The lower production volume was primarily a result of the impact of divested producing properties and natural reservoir decline.
Downstream
Net income was $455 million in the first quarter, the best quarter on record and $179 million higher than the first quarter of 2011. Earnings increased primarily due to the favourable impact of stronger industry refining margins of about $150 million. Refining margins were higher in the first quarter as the overall cost of crude oil processed at three of the company’s four refineries followed the trend of WTI prices and Western Canadian crude oils. Canadian wholesale prices of refined products are largely determined by wholesale prices in adjacent U.S. regions, where wholesale prices are predominately tied to international product markets. Stronger industry refining margins are the result of the widened differential between product prices and cost of crude oil processed.
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First quarter earnings in 2012 included a gain of about $15 million from the sale of assets.
Chemical
Net income was $35 million in the first quarter, compared with $38 million in the same quarter last year with continued strong margins across all product channels.
Corporate and other
Net income effects from Corporate and other were negative $17 million in the first quarter, compared with negative $61 million in the same period of 2011. Favourable effects were primarily due to lower share-based compensation charges.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $1,047 million in the first quarter, an increase of $88 million from the corresponding period in 2011. Higher cash flow was primarily due to higher earnings partially offset by working capital effects, which included inventory built in advance of the company’s extensive second quarter 2012 planned refinery maintenance activities.
Investing activities used net cash of $1,064 million in the first quarter, compared with $806 million in the same period of 2011. Additions to property, plant and equipment were $1,145 million in the first quarter, compared with $822 million during the same quarter 2011. Expenditures during the quarter were primarily directed towards the advancement of Kearl initial development and expansion. Other investments included advancing the Nabiye expansion project at Cold Lake, environmental and efficiency projects at Syncrude, as well as the advancement of the production pilot at Horn River and tight oil acreage acquisitions.
Cash used in financing activities was $140 million in the first quarter, compared with $119 million of cash from financing activities in the first quarter of 2011. Dividends paid in the first quarter of 2012 were $93 million, same as in the corresponding period in 2011. Per-share dividend declared in the first quarter of 2012 totaled $0.12, up from $0.11 in the same period of 2011.
During the first quarter of 2012, the company limited its share repurchases to those to offset the dilutive effects from the exercise of stock options. The company will continue to evaluate its share-purchase program in the context of its overall capital project activities.
The above factors led to a decrease in the company’s balance of cash to $1,045 million at March 31, 2012, from $1,202 million at the end of 2011.
The company has entered into additional long-term pipeline transportation agreements to ship heavy crude oil blend. These agreements, which have a total commitment of about $3 billion, will support the company’s long-term growth in oil sands production. The company expects to fulfill these commitments in the normal course of business.
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Information about market risks for the three months ended March 31, 2012 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, 2011.
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, 2012. 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
During the period January 1, 2012 to March 31, 2012, the company issued 1,307,307 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)
Period
(a) Totalnumber ofshares (or
units)purchased
(b) Averageprice paid
per share (orunit)
(c) Totalnumber ofshares (or
as part ofpubliclyannouncedplans orprograms
(d) Maximumnumber (orapproximatedollar value) ofshares (or units)that may yet bepurchased
under the plans
or programs
January 2012
(Jan 1- Jan 31)
February 2012
(Feb 1 – Feb 29)
March 2012
(Mar 1 – Mar 31)
On June 23, 2011, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its share repurchase program. The new program enables the company to repurchase up to a maximum of 42,385,463 common shares, including common shares purchased for the company’s employee savings plan, the company’s employee retirement plan and from Exxon Mobil Corporation during the period June 25, 2011 to June 24, 2012. If not previously terminated, the program will end on June 24, 2012.
The company will continue to evaluate its share-purchase program in the context of its overall capital activities.
At the annual meeting of shareholders on May 2, 2012, 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 741,783,964 shares for and 1,420,046 shares withheld, B. H. March 726,344,394 shares for and 16,859,616 shares withheld, J.M. Mintz 742,355,684 shares for and 848,326 shares withheld, R.C. Olsen 719,395,503 shares for and 23,808,507 shares withheld, D.S. Sutherland 742,475,949 shares for and 728,061 shares withheld, S.D. Whittaker 741,925,111 shares for and 1,278,899 shares withheld, and V.L. Young 742,418,433 shares for and 785,577 shares withheld.
At the same annual meeting of shareholders, PricewaterhouseCoopers LLP were reappointed as the auditors by a vote of 751,005,207 shares for and 744,027 shares withheld from the reappointment of the auditors.
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(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.
Senior Vice-President, Finance and
Administration and Treasurer
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