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, 2014
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)
(I.R.S. Employer
Identification No.)
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, 2014, was 847,599,011.
INDEX
PART I - Financial Information
Item 1 - Financial Statements.
Consolidated Statement of Income - Three Months ended March 31, 2014 and 2013
Consolidated Statement of Comprehensive Income - Three Months ended March 31, 2014 and 2013
Consolidated Balance Sheet - as at March 31, 2014 and December 31, 2013
Consolidated Statement of Cash Flows - Three Months ended March 31, 2014 and 2013
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, 2013.
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 in any government payment transparency reports
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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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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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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 (note 7)
Deferred income tax liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Common shares at stated value (d)
Earnings reinvested
Accumulated other comprehensive income (note 9)
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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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
Acquisition
Proceeds associated with asset sales (b)
Additional investments
Repayment of loan from equity company
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
(a) Included contribution to registered pension plans
(b) Included $50 million deposit for a potential asset sale
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. 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 2013 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, 2014, 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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2. Business segments
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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3. Investment and other income
Investment and other income included gains and losses on asset sales as follows:
Proceeds from asset sales
Book value of assets sold
Gain/(loss) on asset sales, before tax
Gain/(loss) on asset sales, after tax
4. Employee retirement benefits
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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5. Financing costs and additional notes and loans payable information
Debt-related interest
Capitalized interest
Net interest expense
Other interest
Total financing costs
In the first quarter of 2014, the company extended the maturity date of its existing $500 million 364-day short-term unsecured committed bank credit facility to March 2015. All other terms and conditions of the facility remained unchanged. The company has not drawn on the facility.
6. Long-term debt
Long-term debt
Capital leases
Total long-term debt
In January 2014, the company increased the capacity of its existing floating rate loan facility with an affiliated company of ExxonMobil from $5 billion to $6.25 billion. All other terms and conditions of the agreement remained unchanged.
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
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8. Net income per share
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)
9. Other comprehensive income information
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)
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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10. Subsequent event
On May 1, 2014, the company completed the sale of its interests in conventional oil and gas assets located in Boundary Lake, Cynthia/West Pembina and Rocky Mountain House in western Canada for cash proceeds of approximately $855 million. The assets involved in the transaction produced about 15,000 oil-equivalent barrels per day in 2013 on a net before royalty basis. The company’s gain on the sale, which is subject to final closing adjustments, is anticipated to be in the range of $635 million to $700 million ($475 million to $525 million, after tax).
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OPERATING RESULTS
First quarter 2014 vs. first quarter 2013
The company’s net income for the first quarter of 2014 was $946 million or $1.11 per share on a diluted basis, compared with $798 million or $0.94 per share for the same period last year.
Upstream net income in the first quarter was $452 million, $152 million higher than the same period of 2013. Earnings increased primarily due to higher liquids realizations of about $200 million, along with the impact of Kearl production and higher Syncrude volumes totalling $90 million. Earnings were also higher by about $85 million due to the impact of a weaker Canadian dollar. These factors were partially offset by higher royalty costs of about $115 million, lower Cold Lake volumes of about $65 million and higher energy costs of about $40 million.
The company’s average realizations from the sales of synthetic crude oil increased 11 percent in the first quarter of 2014 versus the first quarter of 2013. The increased realizations reflected increases in West Texas Intermediate (WTI) crude oil benchmark price, which was up about five percent, and the impact of a weaker Canadian dollar. The company’s average bitumen realizations in Canadian dollars in the first quarter were $65.19 per barrel versus $43.63 per barrel in the first quarter of 2013 as the price spread between light crude oil and bitumen narrowed. The company’s average realizations on natural gas sales of $6.56 per thousand cubic feet in the first quarter of 2014 were higher by $3.06 per thousand cubic feet versus the same period in 2013.
Gross production of Cold Lake bitumen averaged 147,000 barrels per day, down from 164,000 barrels from the same period last year. Lower volumes were primarily due to the cyclic nature of steaming and associated production, along with the impact of several unplanned third-party power outages.
The company’s share of Syncrude’s gross production in the first quarter was 73,000 barrels per day, up from 65,000 barrels in the first quarter of 2013. Increased production was the result of improved reliability.
Gross production from the Kearl initial development was 70,000 barrels per day (50,000 barrels Imperial’s share). Production continued to ramp up during the quarter as progress was made towards stabilizing production at the targeted rate of 110,000 barrels per day (78,000 barrels Imperial’s share).
Gross production of conventional crude oil averaged 22,000 barrels per day in the first quarter, versus 20,000 barrels in the corresponding period in 2013.
Gross production of natural gas during the first quarter of 2014 was 205 million cubic feet per day, up from 187 million cubic feet in the same period last year, reflecting contributions from the Celtic (XTO Energy Canada) acquisition completed in the first quarter of 2013.
Downstream net income was $488 million in the first quarter compared to $478 million in the first quarter of 2013. Increased earnings were primarily due to improved reliability in the first quarter of 2014 partially offset by lower industry refining margins.
Chemical net income was $43 million in the first quarter, up from $35 million in the same quarter in 2013. Higher margins across all major product lines contributed to the increase.
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Net income effects from Corporate and Other were negative $37 million in the first quarter, versus negative $15 million in the same period of 2013, primarily due to changes in share-based compensation charges.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $1,085 million in the first quarter, versus $597 million in the corresponding period in 2013. Higher cash flow was primarily due to higher earnings and working capital effects.
Investing activities used net cash of $1,143 million in the first quarter, compared with $2,935 million in the same period of 2013 (which included $1,602 million for the Celtic acquisition). Additions to property, plant and equipment were $1,206 million in the first quarter, compared with $1,345 million during the same quarter in 2013. Expenditures during the quarter were primarily directed towards the advancement of Kearl expansion and Cold Lake Nabiye projects.
Cash used in financing activities was $112 million in the first quarter, compared with cash from financing activities of $2,179 million in the first quarter of 2013. Dividends paid in the first quarter of 2014 were $110 million, $8 million higher than the corresponding period in 2013. Per-share dividend paid in the first quarter was $0.13, up from $0.12 in the same period of 2013.
The above factors led to a decrease in the company’s balance of cash to $102 million at March 31, 2014, from $272 million at the end of 2013.
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Information about market risks for the three months ended March 31, 2014 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, 2013 except for the following:
Earnings sensitivity
millions of dollars after tax
Nine dollars (U.S.) per barrel change in crude oil prices
Nine 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 decreased from year-end 2013 by about $6 million (after tax) a year for each one U.S. dollar change. The decrease was primarily a result of the impact of higher royalty costs for production at Syncrude and Cold Lake due to higher prices for bitumen at the end of the first quarter of 2014.
The sensitivity of net income to changes in the Canadian dollar versus the U.S. dollar increased from year-end 2013 by about $13 million (after tax) a year for each one-cent change, primarily due to the increase in bitumen prices.
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, 2014. 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
number of
shares (or units)
purchased as
part of publicly
announced plans
or programs
(d) Maximum
number (or
approximate
dollar value) of
that may yet be
under the plans
January 2014
(January 1 – January 31)
February 2014
(February 1 – February 28)
March 2014
(March 1 – March 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 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.
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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.
Date: May 6, 2014
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