Imperial Oil - 10-Q quarterly report FY2021 Q2

Imperial Oil - 10-Q quarterly report FY2021 Q2

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Q2false0000049938--12-31falseYesYesfalsefalseCA2023-05-312022-06-30Amounts to related parties included in purchases of crude oil and products. 666 396 1,181 1,135 Amounts to related parties included in production and manufacturing, and selling and general expenses. 106 138 222 321Amounts from related parties included in revenues. 1,405 747 2,913 2,483 Investments and long-term receivables included amounts from related parties of $301 million (2020 - $313 million).Accounts receivable - net included net amounts receivable from related parties of $582 million (2020 - $384 million).Long-term debt included amounts to related parties of $4,447 million (2020 - $4,447 million).Notes and loans payable included amounts to related parties of $75 million (2020 - $111 million).Number of common shares authorized and outstanding were 1,100 million and 705 million, respectively (2020 - 1,100 million and 734 million, respectively).Included contributions to registered pension plans. (42) (41) (70) (100)Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased.Included export sales to the United States of $1,544 million (2020 - $739 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.Included export sales to the United States of $3,113 million (2020 - $2,112 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.Total recorded employee retirement benefits obligations also included $58 million in current liabilities (2020 - $58 million).Total asset retirement obligations and other environmental liabilities also included $100 million in current liabilities (2020 - $100 million).For Second Quarter 2020 and Six Months to June 30, 2020, the Net income (loss) per common share – diluted excludes the effect of 2.0 million employee share-based awards. Share-based awards have the potential to dilute basic earnings per share in the future.Total operating lease liability also included $82 million in current liabilities (2020 - $97 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $4 million (2020 - $27 million).Amounts to related parties included in financing, (note 5). 10 14 21 38 Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”.Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”. 0000049938 2021-01-01 2021-06-30 0000049938 2021-06-30 0000049938 2020-12-31 0000049938 2021-04-01 2021-06-30 0000049938 2020-04-01 2020-06-30 0000049938 2020-01-01 2020-06-30 0000049938 2021-04-30 0000049938 2020-06-29 2020-06-29 0000049938 2020-06-30 0000049938 2020-01-01 2020-12-31 0000049938 2021-01-01 2021-03-31 0000049938 2020-01-01 2020-03-31 0000049938 2020-06-15 2020-06-15 0000049938 2019-12-31 0000049938 2021-03-31 0000049938 2020-03-31 0000049938 us-gaap:CorporateAndOtherMember 2020-01-01 2020-06-30 0000049938 srt:ConsolidationEliminationsMember 2020-01-01 2020-06-30 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FORM

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[

✓

]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

[

]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
None		None

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 90 days.

YES

✓

The registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

YES

✓

The registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act of 1934.


Large accelerated filer	✓	Smaller reporting company
Non-accelerated filer		Emerging growth company
Accelerated filer

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

The registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act of 1934).

YES

✓

The number of common shares outstanding, as of June 30, 2021 was 704,578,328.

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IMPERIAL OIL LIMITED

Table of contents

Page


PART I. FINANCIAL INFORMATION			3
Item 1. Financial statements			3
Consolidated statement of income			3
Consolidated statement of comprehensive income			4
Consolidated balance sheet			5
Consolidated statement of shareholders’ equity			6
Consolidated statement of cash flows			7
Notes to the consolidated financial statements			8
Item 2. Management’s discussion and analysis of financial condition and results of operations			19
Item 3. Quantitative and qualitative disclosures about market risk			24
Item 4. Controls and procedures			24

PART II. OTHER INFORMATION			25
Item 1. Legal proceedings			25
Item 2. Unregistered sales of equity securities and use of proceeds			25
Item 6. Exhibits			26

SIGNATURES			27

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, 2020. Note that numbers may not add due to rounding.

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.

In this report, unless the context otherwise indicates, reference to “the company” or “Imperial” includes Imperial Oil Limited and its subsidiaries.

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IMPERIAL OIL LIMITED

PART I. FINANCIAL INFORMATION

Item 1.

Financial statements

Consolidated statement of income (U.S. GAAP, unaudited)


	Second Quarter					Six Months to June 30
millions of Canadian dollars	2021		2020			2021		2020
Revenues and other income
Revenues (a)		8,007		3,666			14,999		10,330
Investment and other income (note 3)		40		44			46		70
Total revenues and other income		8,047		3,710			15,045		10,400

Expenses
Exploration		2		3			4		4
Purchases of crude oil and products (b) (note 11)		4,867		2,115			8,754		6,341
Production and manufacturing (c)		1,569		1,273			3,054		2,852
Selling and general (c)		200		183			389		349
Federal excise tax and fuel charge		465		369			869		820
Depreciation and depletion (note 11)		450		413			944		886
Non-service pension and postretirement benefit		10		30			21		60
Financing (d) (note 5)		13		17			27		36
Total expenses		7,576		4,403			14,062		11,348

Income (loss) before income taxes		471		(693	)		983		(948	)

Income taxes		105		(167	)		225		(234	)

Net income (loss)		366		(526	)		758		(714	)

Per share information (Canadian dollars)

Net income (loss) per common share - basic (note 9)		0.51		(0.72	)		1.04		(0.97	)
Net income (loss) per common share - diluted (note 9)		0.50		(0.72	)		1.04		(0.97	)
(a) Amounts from related parties included in revenues.		1,405		747			2,913		2,483

(b) Amounts to related parties included in purchases of crude oil and products.		666		396			1,181		1,135

(c) Amounts to related parties included in production and manufacturing, and selling and general expenses.		106		138			222		321

(d) Amounts to related parties included in financing, (note 5).		10		14			21		38

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)


	Second Quarter					Six Months to June 30
millions of Canadian dollars	2021		2020			2021		2020
Net income (loss)		366		(526	)		758		(714	)

Other comprehensive income (loss), net of income taxes
Postretirement benefits liability adjustment (excluding amortization)		-		-			54		(114	)
Amortization of postretirement benefits liability adjustment included in net periodic benefit costs		33		34			66		68
Total other comprehensive income (loss)		33		34			120		(46	)

Comprehensive income (loss)		399		(492	)		878		(760	)

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)


	As at June 30			As at Dec 31
millions of Canadian dollars	2021			2020
Assets
Current assets
Cash		776			771
Accounts receivable - net (a)		3,163			1,919
Inventories of crude oil and products		1,213			1,161
Materials, supplies and prepaid expenses		722			673
Total current assets		5,874			4,524
Investments and long-term receivables (b)		748			781
Property, plant and equipment,		56,257			55,771
less accumulated depreciation and depletion		(24,664	)		(23,737	)
Property, plant and equipment, net		31,593			32,034
Goodwill (note 11)		166			166
Other assets, including intangibles - net		558			526
Total assets		38,939			38,031

Liabilities
Current liabilities
Notes and loans payable (c)		197			227
Accounts payable and accrued liabilities (a) (note 7)		4,411			3,153
Income taxes payable		42			-
Total current liabilities		4,650			3,380
Long-term debt (d) (note 6)		5,065			4,957
Other long-term obligations (note 7)		4,061			4,100
Deferred income tax liabilities		4,394			4,176
Total liabilities		18,170			16,613

Shareholders’ equity
Common shares at stated value (e) (note 9)		1,302			1,357
Earnings reinvested		21,336			22,050
Accumulated other comprehensive income (loss) (note 10)		(1,869	)		(1,989	)
Total shareholders’ equity		20,769			21,418

Total liabilities and shareholders’ equity		38,939			38,031

(a)	Accounts receivable - net included net amounts receivable from related parties of $582 million (2020 - $384 million).

(b)	Investments and long-term receivables included amounts from related parties of $301 million (2020 - $313 million).

(c)	Notes and loans payable included amounts to related parties of $75 million (2020 - $111 million).

(d)	Long-term debt included amounts to related parties of $4,447 million (2020 - $4,447 million).

(e)	Number of common shares authorized and outstanding were 1,100 million and 705 million, respectively (2020 - 1,100 million and 734 million, respectively).

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 shareholders’ equity (U.S. GAAP, unaudited)


	Second Quarter						Six Months to June 30
millions of Canadian dollars	2021			2020			2021			2020
Common shares at stated value (note 9)
At beginning of period		1,357			1,357			1,357			1,375
Share purchases at stated value		(55	)		-			(55	)		(18	)
At end of period		1,302			1,357			1,302			1,357

Earnings reinvested
At beginning of period		22,281			24,204			22,050			24,812
Net income (loss) for the period		366			(526	)		758			(714	)
Share purchases in excess of stated value		(1,116	)		-			(1,116	)		(256	)
Dividends declared		(195	)		(162	)		(356	)		(324	)
Cumulative effect of accounting change		-			-			-			(2	)
At end of period		21,336			23,516			21,336			23,516

Accumulated other comprehensive income (loss) (note 10)
At beginning of period		(1,902	)		(1,991	)		(1,989	)		(1,911	)
Other comprehensive income (loss)		33			34			120			(46	)
At end of period		(1,869	)		(1,957	)		(1,869	)		(1,957	)

Shareholders’ equity at end of period		20,769			22,916			20,769			22,916

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 ( o utflow)	Second Quarter						Six Months to June 30
millions of Canadian dollars	2021			2020			2021			2020
Operating activities
Net income (loss)		366			(526	)		758			(714	)
Adjustments for non-cash items:
Depreciation and depletion		450			413			944			866
Impairment of intangible assets (note 11)		-			-			-			20
(Gain) loss on asset sales (note 3)		(24	)		(10	)		(27	)		(17	)
Inventory write-down to current market value (note 11)		-			(281	)		-			-
Deferred income taxes and other		76			(242	)		136			(199	)
Changes in operating assets and liabilities:
Accounts receivable		(775	)		(310	)		(1,244	)		833
Inventories, materials, supplies and prepaid expenses		58			117			(101	)		(82	)
Income taxes payable		21			(2	)		42			(106	)
Accounts payable and accrued liabilities		655			(46	)		1,239			(1,074	)
All other items - net (b)		25			71			150			80
Cash flows from (used in) operating activities		852			(816	)		1,897			(393	)

Investing activities
Additions to property, plant and equipment		(241	)		(205	)		(408	)		(515	)
Proceeds from asset sales (note 3)		35			40			42			49
Loans to equity companies - net		(1	)		(7	)		12			(14	)
Cash flows from (used in) investing activities		(207	)		(172	)		(354	)		(480	)

Financing activities
Short-term debt - net		-			-			(36	)		-
Reduction in finance lease obligations (note 6)		(4	)		(5	)		(8	)		(12	)
Dividends paid		(161	)		(162	)		(323	)		(326	)
Common shares purchased (note 9)		(1,171	)		-			(1,171	)		(274	)
Cash flows from (used in) financing activities		(1,336	)		(167	)		(1,538	)		(612	)

Increase (decrease) in cash		(691	)		(1,155	)		5			(1,485	)
Cash at beginning of period		1,467			1,388			771			1,718
Cash at end of period (a)		776			233			776			233

(a) Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased.


(b) Included contributions to registered pension plans.			(42	)			(41	)			(70	)			(100	)



Income taxes (paid) refunded.	27		1		28		(152	)
Interest (paid), net of capitalization.	(14	)	(17	)	(27	)	(36	)

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 consolidated financial statements (unaudited)

1. Basis of financial statement preparation

These unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) 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 (SEC) in the company’s 2020 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 six months ended June 30, 2021, 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

2. Business segments


Second Quarter	Upstream		Downstream		Chemical
millions of Canadian dollars	2021	2020	2021	2020	2021	2020
Revenues and other income
Revenues (a)	2,616	908	5,015	2,587	376	171
Intersegment sales	1,312	262	788	124	79	27
Investment and other income (note 3)	6	10	28	27	1	1
	3,934	1,180	5,831	2,738	456	199
Expenses
Exploration	2	3	-	-	-	-
Purchases of crude oil and products (note 11)	2,044	512	4,760	1,896	240	119
Production and manufacturing	1,166	884	357	343	46	46
Selling and general	-	-	142	135	22	21
Federal excise tax and fuel charge	-	-	465	369	-	-
Depreciation and depletion (note 11)	399	363	39	40	5	4
Non-service pension and postretirement benefit	-	-	-	-	-	-
Financing (note 5)	-	-	-	-	-	-
Total expenses	3,611	1,762	5,763	2,783	313	190
Income (loss) before income taxes	323	(582)	68	(45)	143	9
Income taxes	76	(138)	8	(13)	34	2
Net income (loss)	247	(444)	60	(32)	109	7
Cash flows from (used in) operating activities	595	(968)	136	88	111	46
Capital and exploration expenditures (b)	130	145	120	51	2	2

Second Quarter	Corporate and other		Eliminations		Consolidated
millions of Canadian dollars	2021	2020	2021	2020	2021	2020
Revenues and other income
Revenues (a)	-	-	-	-	8,007	3,666
Intersegment sales	-	-	(2,179)	(413)	-	-
Investment and other income (note 3)	5	6	-	-	40	44
	5	6	(2,179)	(413)	8,047	3,710
Expenses
Exploration	-	-	-	-	2	3
Purchases of crude oil and products (note 11)	-	-	(2,177)	(412)	4,867	2,115
Production and manufacturing	-	-	-	-	1,569	1,273
Selling and general	38	28	(2)	(1)	200	183
Federal excise tax and fuel charge	-	-	-	-	465	369
Depreciation and depletion (note 11)	7	6	-	-	450	413
Non-service pension and postretirement benefit	10	30	-	-	10	30
Financing (note 5)	13	17	-	-	13	17
Total expenses	68	81	(2,179)	(413)	7,576	4,403
Income (loss) before income taxes	(63)	(75)	-	-	471	(693)
Income taxes	(13)	(18)	-	-	105	(167)
Net income (loss)	(50)	(57)	-	-	366	(526)
Cash flows from (used in) operating activities	10	1	-	17	852	(816)
Capital and exploration expenditures (b)	7	9	-	-	259	207

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(a)	Included export sales to the United States of $1,544 million (2020 - $739 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.

(b)	Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.

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Six Months to June 30	Upstream		Downstream		Chemical
millions of Canadian dollars	2021	2020	2021	2020	2021	2020
Revenues and other income
Revenues (a)	4,758	2,560	9,542	7,383	699	387
Intersegment sales	2,663	984	1,561	692	132	71
Investment and other income (note 3)	6	10	33	42	1	1
	7,427	3,554	11,136	8,117	832	459
Expenses
Exploration	4	4	-	-	-	-
Purchases of crude oil and products (note 11)	3,878	2,162	8,780	5,665	449	259
Production and manufacturing	2,275	1,992	683	751	96	109
Selling and general	-	-	275	316	47	46
Federal excise tax and fuel charge	-	-	869	820	-	-
Depreciation and depletion (note 11)	844	780	78	86	9	8
Non-service pension and postretirement benefit	-	-	-	-	-	-
Financing (note 5)	1	-	-	-	-	-
Total expenses	7,002	4,938	10,685	7,638	601	422
Income (loss) before income taxes	425	(1,384)	451	479	231	37
Income tax expense (benefit)	99	(332)	99	109	55	9
Net income (loss)	326	(1,052)	352	370	176	28
Cash flows from (used in) operating activities	1,126	(504)	598	110	173	43
Capital and exploration expenditures (b)	215	376	188	127	4	11
Total assets as at June 30 (note 11)	31,931	33,591	5,352	4,683	481	404

Six Months to June 30	Corporate and other		Eliminations		Consolidated
millions of Canadian dollars	2021	2020	2021	2020	2021	2020
Revenues and other income
Revenues (a)	-	-	-	-	14,999	10,330
Intersegment sales	-	-	(4,356)	(1,747)	-	-
Investment and other income (note 3)	6	17	-	-	46	70
	6	17	(4,356)	(1,747)	15,045	10,400
Expenses
Exploration	-	-	-	-	4	4
Purchases of crude oil and products (note 11)	-	-	(4,353)	(1,745)	8,754	6,341
Production and manufacturing	-	-	-	-	3,054	2,852
Selling and general	70	(11)	(3)	(2)	389	349
Federal excise tax and fuel charge	-	-	-	-	869	820
Depreciation and depletion (note 11)	13	12	-	-	944	886
Non-service pension and postretirement benefit	21	60	-	-	21	60
Financing (note 5)	26	36	-	-	27	36
Total expenses	130	97	(4,356)	(1,747)	14,062	11,348
Income (loss) before income taxes	(124)	(80)	-	-	983	(948)
Income tax expense (benefit)	(28)	(20)	-	-	225	(234)
Net income (loss)	(96)	(60)	-	-	758	(714)
Cash flows from (used in) operating activities	-	(42)	-	-	1,897	(393)
Capital and exploration expenditures (b)	15	24	-	-	422	538
Total assets as at June 30 (note 11)	1,606	1,088	(431)	(266)	38,939	39,500

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(a)	Included export sales to the United States of $3,113 million (2020 - $2,112 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.

(b)	Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.

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3. Investment and other income

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


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2021		2020		2021		2020
Proceeds from asset sales		35		40		42		49
Book value of asset sales		11		30		15		32
Gain (loss) on asset sales, before tax		24		10		27		17
Gain (loss) on asset sales, after tax		22		9		24		15

4. Employee retirement benefits

The components of net benefit cost were as follows:


	Second Quarter						Six Months to June 30
millions of Canadian dollars	2021			2020			2021			2020
Pension benefits:
Current service cost		81			77			162			153
Interest cost		68			77			136			154
Expected return on plan assets		(107	)		(98	)		(214	)		(196	)
Amortization of prior service cost		4			3			8			7
Amortization of actuarial loss (gain)		36			39			72			77
Net periodic benefit cost		82			98			164			195

Other postretirement benefits:
Current service cost		7			6			14			12
Interest cost		5			6			11			12
Amortization of actuarial loss (gain)		4			3			8			6
Net periodic benefit cost		16			15			33			30

5. Financing costs


	Second Quarter						Six Months to June 30
millions of Canadian dollars	2021			2020			2021			2020
Debt-related interest		20			26			41			60
Capitalized interest		(7	)		(9	)		(15	)		(24	)
Net interest expense		13			17			26			36
Other interest		-			-			1			-
Total financing		13			17			27			36

In May 2021, the company extended the maturity date of two of its existing committed short-term lines of credit to May 2023, totalling $750 million. In June 2021, the company extended the maturity date of one of its existing $300 million committed short-term lines of credit to June 2022. The company has not drawn on any of its $1,300 million of available credit facilities.

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6. Long-term debt


millions of Canadian dollars	As at June 30 2021		As at Dec 31 2020
Long-term debt	4,447		4,447
Finance leases		618		510
Total long-term debt		5,065		4,957

7. Other long-term obligations


millions of Canadian dollars	As at June 30 2021		As at Dec 31 2020
Employee retirement benefits (a)		2,023		2,105
Asset retirement obligations and other environmental liabilities (b)		1,699		1,676
Share-based incentive compensation liabilities		84		45
Operating lease liability (c)		96		95
Other obligations		159		179
Total other long-term obligations		4,061		4,100

(a)	Total recorded employee retirement benefits obligations also included $58 million in current liabilities (2020 - $58 million).

(b)	Total asset retirement obligations and other environmental liabilities also included $100 million in current liabilities (2020 - $100 million).

(c)	Total operating lease liability also included $82 million in current liabilities (2020 - $97 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $4 million (2020 - $27 million).

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8. Financial and derivative instruments

Financial instruments

The fair value of the company’s financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no material differences between the fair value of the company’s financial instruments and the recorded carrying value. At June 30, 2021 and December 31, 2020, the fair value of long-term debt ($4,447 million, excluding finance lease obligations) was primarily a level 2 measurement.

Derivative instruments

The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company uses commodity-based contracts, including derivative instruments to manage commodity price risk. The company does not designate derivative instruments as a hedge for hedge accounting purposes.

Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.

The net notional long/(short) position of derivative instruments was:


(thousands of barrels)	As at June 30 2021			As at Dec 31 2020
Crude		(710	)		(800	)
Products		(160	)		(390	)

Realized and unrealized gain or (loss) on derivative instruments recognized in the Consolidated statement of income is included in the following lines on a

before-tax

basis:


	Second Quarter						Six Months to June 30
millions of Canadian dollars	2021			2020			2021			2020
Revenues		(9	)		(9	)		(9	)		(8	)
Purchases of crude oil and products		(19	)		(52	)		(33	)		(18	)
Total		(28	)		(61	)		(42	)		(26	)

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The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement is as follows:


millions of Canadian dollars
At June 30, 2021
	Fair value								Effect of counterparty netting			Effect of collateral netting			Net carrying value
	Level 1		Level 2		Level 3		Total		Effect of counterparty netting			Effect of collateral netting			Net carrying value
Assets
Derivative assets (a)		6		-		-		6		(6	)		-			-

Liabilities
Derivative liabilities (b)		8		-		-		8		(6	)		(2	)		-

(a)	Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”.

(b)	Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”.


millions of Canadian dollars
At December 31, 2020
	Fair value								Effect of counterparty netting			Effect of collateral netting			Net carrying value
	Level 1		Level 2		Level 3		Total		Effect of counterparty netting			Effect of collateral netting			Net carrying value
Assets
Derivative assets (a)		2		-		-		2		(2	)		-			-

Liabilities
Derivative liabilities (b)		12		-		-		12		(2	)		(10	)		-

(a)	Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”.

(b)	Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”.

At June 30, 2021 and December 31, 2020, respectively, the company had $8 million and $5 million of collateral under a master netting arrangement not offset against the derivatives on the Consolidated balance sheet in “Accounts receivable - net”, primarily related to initial margin requirements.

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9. Common shares


thousands of shares	As of June 30 2021		As of Dec 31 2020
Authorized		1,100,000		1,100,000
Common shares outstanding		704,578		734,077

The

12-month

limited normal course issuer bid program that was in place throughout the second quarter of 2021 came into effect on June 29, 2020 and was amended on April 30, 2021. The program enabled the company to purchase up to a maximum of 29,363,070 common shares (4 percent of the total shares on June 15, 2020), which included shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to maintain its ownership percentage at approximately 69.6 percent.

The current

12-month

normal course issuer bid program came into effect June 29, 2021, under which Imperial will continue its existing share purchase program. The program enables the company to purchase up to a maximum of 35,583,671 common shares (5 percent of the total shares on June 15, 2021) which includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent.

The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.

The company’s common share activities are summarized below:


	Thousands of shares			Millions of dollars
Balance as at December 31, 2019		743,902			1,375
Issued under employee share-based awards		7			-
Purchases at stated value		(9,832	)		(18	)
Balance as at December 31, 2020		734,077			1,357
Issued under employee share-based awards		-			-
Purchases at stated value		(29,499	)		(55	)
Balance as at June 30, 2021		704,578			1,302

The following table provides the calculation of basic and diluted earnings per common share and the dividends declared by the company on its outstanding common shares:


	Second Quarter					Six Months to June 30
	2021		2020			2021		2020
Net income (loss) per common share - basic
Net income (loss) (millions of Canadian dollars)		366		(526	)		758		(714	)
Weighted average number of common shares outstanding (millions of shares)		724.1		734.1			729.1		736.5
Net income (loss) per common share (dollars)		0.51		(0.72	)		1.04		(0.97	)

Net income (loss) per common share - diluted
Net income (loss) (millions of Canadian dollars)		366		(526	)		758		(714	)
Weighted average number of common shares outstanding (millions of shares)		724.1		734.1			729.1		736.5
Effect of employee share-based awards (millions of shares) (a)		1.7		-			1.7		-
Weighted average number of common shares outstanding, assuming dilution (millions of shares)		725.8		734.1			730.8		736.5
Net income (loss) per common share (dollars)		0.50		(0.72	)		1.04		(0.97	)

Dividends per common share - declared (dollars)		0.27		0.22			0.49		0.44

(a)	For Second Quarter 2020 and Six Months to June 30, 2020, the Net income (loss) per common share – diluted excludes the effect of 2.0 million employee share-based awards. Share-based awards have the potential to dilute basic earnings per share in the future.

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10. Other comprehensive income (loss) information

Changes in accumulated other comprehensive income (loss):


millions of Canadian dollars	2021			2020
Balance at January 1		(1,989	)		(1,911	)
Postretirement benefits liability adjustment:
Current period change excluding amounts reclassified from accumulated other comprehensive income		54			(114	)
Amounts reclassified from accumulated other comprehensive income		66			68
Balance at June 30		(1,869	)		(1,957	)

Amounts reclassified out of accumulated other comprehensive income (loss) -

before-tax

income (expense):


	Second Quarter						Six Months to June 30
millions of Canadian dollars	2021			2020			2021			2020
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost (a)		(44	)		(45	)		(88	)		(90	)

(a)	This accumulated other comprehensive income component is included in the computation of net periodic benefit cost, (note 4).

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


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2021		2020		2021		2020
Postretirement benefits liability adjustments:
Postretirement benefits liability adjustment (excluding amortization)		-		-		17		(37	)
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost		11		11		22		22
Total		11		11		39		(15	)

11. Miscellaneous financial information

At March 31, 2021, due to the termination of transportation services agreements related to a third-party pipeline project, the company recognized a liability of $62 million, previously reported as a contingent liability in Note 10 of Imperial’s Form

10-K.

In connection with the same project, commitments under “Other long-term purchase agreements” as reported in Imperial’s Form

10-K

decreased by approximately $2.9 billion. The majority of these commitments related to years 2026 and beyond.

In the first quarter of 2020, a

non-cash

charge of $281 million after tax (Upstream - $229 million; Downstream - $52 million) was recorded associated with the carrying value of crude oil inventory exceeding the current market value. In the second quarter of 2020, the first quarter’s temporary

non-cash

inventory charge was reversed.

In the first quarter of 2020, with the change in economic conditions and the reduction in the company’s market capitalization, the company assessed its goodwill balances for impairment and recognized a

non-cash

goodwill impairment charge of $20 million in the company’s Upstream segment. The goodwill impairment is reflected in “Depreciation and depletion” on the Consolidated statement of income and “Goodwill” on the Consolidated balance sheet. The remaining balance of goodwill is associated with the Downstream segment.

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Item 2.

Management’s discussion and analysis of financial condition and results of operations

Operating results

In early 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the

COVID-19

pandemic spread rapidly through most areas of the world resulting in substantial reductions in consumer and business activity and significantly reduced demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key

oil-producing

countries which led to increases in inventory levels and sharp declines in prices for crude oil, natural gas, and petroleum products.

Through 2021, demand for petroleum and petrochemical products has continued to improve leading to stronger prices and margins across all segments. Some lingering effects of the weak 2020 business environment continued to have a negative impact on financial results in the first half of 2021 when compared to periods prior to the pandemic. The company continues to closely monitor industry and global economic conditions, including recovery from the

COVID-19

pandemic.

Second quarter 2021 vs. second quarter 2020

The company recorded net income of $366 million or $0.50 per share on a diluted basis in the second quarter of 2021, compared to a net loss of $526 million or $0.72 per share in the same period of 2020. Second quarter 2020 results included a reversal of the

non-cash

inventory revaluation charge of $281 million recorded in the first quarter of 2020.

Upstream recorded net income of $247 million in the second quarter of 2021, compared to a net loss of $444 million in the same period of 2020. Improved results reflect higher realizations of about $1,100 million and higher volumes of about $280 million. These items were partially offset by the absence of the prior year reversal of the

non-cash

charge of $229 million related to the revaluation of the company’s inventory, higher operating expenses of about $230 million, higher royalties of about $200 million and unfavourable foreign exchange impacts of about $50 million.

West Texas Intermediate (WTI) averaged US$66.17 per barrel in the second quarter of 2021, up from US$27.83 per barrel in the same quarter of 2020. Western Canada Select (WCS) averaged US$54.64 per barrel and US$16.73 per barrel for the same periods. The WTI / WCS differential averaged approximately US$12 per barrel for the second quarter of 2021, up from around US$11 in the same period of 2020.

The Canadian dollar averaged US$0.81 in the second quarter of 2021, an increase of US$0.09 from the second quarter of 2020.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, primarily due to an increase in WCS. Bitumen realizations averaged $57.26 per barrel in the second quarter of 2021, up from $12.82 per barrel in the second quarter of 2020. The company’s average Canadian dollar realizations for synthetic crude increased generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $80.80 per barrel in the second quarter of 2021, up from $32.20 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 255,000 barrels per day in the second quarter (181,000 barrels Imperial’s share), up from 190,000 barrels per day (135,000 barrels Imperial’s share) in the second quarter of 2020. Higher production was mainly due to the absence of prior year production balancing with market demands, partially offset by impacts associated with planned turnaround activities.

Gross production of Cold Lake bitumen averaged 142,000 barrels per day in the second quarter, up from 123,000 barrels per day in the same period of 2020. Higher production was primarily due to improved reliability and lower scheduled downtime.

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The company’s share of gross production from Syncrude averaged 47,000 barrels per day, compared to 50,000 barrels per day in the second quarter of 2020. Lower production was primarily associated with planned turnaround activities, partially offset by the absence of prior year production balancing with market demands.

Downstream recorded net income of $60 million in the second quarter of 2021, compared to a net loss of $32 million in the same period of 2020. Improved results reflect higher margins of about $200 million, partially offset by unfavourable foreign exchange impacts of about $70 million and the absence of the prior year reversal of the

non-cash

charge of $52 million related to the revaluation of the company’s inventory.

Refinery throughput averaged 332,000 barrels per day, up from 278,000 barrels per day in the second quarter of 2020. Capacity utilization was 78 percent, up from 66 percent in the second quarter of 2020. Higher throughput was driven by reduced impacts associated with the

COVID-19

pandemic, partially offset by a planned turnaround at Strathcona.

Petroleum product sales were 429,000 barrels per day, up from 357,000 barrels per day in the second quarter of 2020. Improved petroleum product sales were mainly due to reduced impacts associated with the

COVID-19

pandemic.

Chemical net income was $109 million in the second quarter, up from net income of $7 million in the same quarter of 2020, primarily due to higher polyethylene margins.

Corporate and other expenses were $50 million in the second quarter, compared to $57 million in the same period of 2020.

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Six months 2021 vs. six months 2020

Net income in the first six months of 2021 was $758 million, or $1.04 per share on a diluted basis, compared to a net loss of $714 million or $0.97 per share in the first six months of 2020.

Upstream recorded net income of $326 million for the first six months of the year, compared to a net loss of $1,052 million in 2020. Improved results reflect higher realizations of about $1,810 million and higher volumes of about $280 million. These items were partially offset by higher royalties of about $300 million, higher operating expenses of about $290 million, and unfavourable foreign exchange impacts of about $120 million.

West Texas Intermediate averaged US$62.22 per barrel in the first six months of 2021, up from US$36.66 per barrel in 2020. Western Canada Select averaged US$50.14 per barrel and US$21.20 per barrel for the same periods. The WTI / WCS differential narrowed to approximately US$12 per barrel in the first six months of 2021, from around US$15 per barrel in the same period of 2020.

The Canadian dollar averaged US$0.80 in the first six months of 2021, an increase of US$0.07 from 2020.

Imperial’s average Canadian dollar realizations for bitumen increased in the first six months of 2021 primarily due to an increase in WCS. Bitumen realizations averaged $52.45 per barrel, up from $15.54 per barrel in the same period of 2020. The company’s average Canadian dollar realizations for synthetic crude increased generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $72.42 per barrel, up from $48.10 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 253,000 barrels per day in the first six months of 2021 (180,000 barrels Imperial’s share), up from 208,000 barrels per day (147,000 barrels Imperial’s share) in the same period of 2020. Higher production was mainly due to the absence of prior year production balancing with market demands, partially offset by impacts associated with planned turnaround activities.

Gross production of Cold Lake bitumen averaged 141,000 barrels per day in the first six months of 2021, up from 131,000 barrels per day in the same period of 2020. Higher production was primarily due to improved reliability.

During the first six months of 2021, the company’s share of gross production from Syncrude averaged 63,000 barrels per day, up from 61,000 barrels per day in the same period of 2020. Higher production was primarily associated with the absence of prior year production balancing with market demands and unplanned downtime, partially offset by planned turnaround activities.

Downstream net income was $352 million for the first six months of the year, compared to $370 million in the same period of 2020. Results were negatively impacted by unfavourable foreign exchange impacts of about $120 million, partially offset by higher margins of about $50 million and lower operating expenses of about $50 million.

Refinery throughput averaged 348,000 barrels per day in the first six months of 2021, up from 330,000 barrels per day in the same period of 2020. Capacity utilization was 81 percent, up from 78 percent in the same period of 2020. Higher throughput was driven by reduced impacts associated with the

COVID-19

pandemic, partially offset by a planned turnaround at Strathcona.

Petroleum product sales were 421,000 barrels per day in the first six months of 2021, up from 409,000 barrels per day in the same period of 2020. Improved petroleum product sales were mainly due to reduced impacts associated with the

COVID-19

pandemic.

Chemical net income was $176 million in the first six months of 2021, up from $28 million in the same period of 2020, primarily due to higher polyethylene margins.

Corporate and other expenses were $96 million in the first six months of 2021, up from $60 million in the same period of 2020, mainly due to higher share-based compensation costs.

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Liquidity and capital resources

Cash flow generated from operating activities was $852 million in the second quarter, compared with cash flow used in operating activities of $816 million in the corresponding period in 2020, primarily reflecting higher Upstream realizations and favourable working capital impacts.

Investing activities used net cash of $207 million in the second quarter, compared with $172 million used in the same period of 2020.

Cash used in financing activities was $1,336 million in the second quarter, compared with $167 million used in the second quarter of 2020. Dividends paid in the second quarter of 2021 were $161 million. The per share dividend paid in the second quarter was $0.22, consistent with the same period of 2020. During the second quarter, the company, under its share purchase program, purchased about 29.5 million shares for $1,171 million, including shares purchased from ExxonMobil Corporation. In the second quarter of 2020, the company did not purchase any shares under its share purchase program.

The company’s cash balance was $776 million at June 30, 2021, versus $233 million at the end of second quarter 2020.

Cash flow generated from operating activities was $1,897 million in the first six months of 2021, compared to cash flow used in operating activities of $393 million in the same period of 2020, primarily reflecting higher Upstream realizations and favourable working capital impacts.

Investing activities used net cash of $354 million in the first six months of 2021, compared to $480 million used in the same period of 2020, primarily reflecting lower additions to property, plant and equipment.

Cash used in financing activities was $1,538 million in the first six months of 2021, up from $612 million used in the same period of 2020. Dividends paid in the first six months of 2021 were $323 million. The per share dividend paid in the first six months of 2021 was $0.44, consistent with in the same period of 2020. During the first six months of 2021, the company, under its share purchase program, purchased about 29.5 million shares for $1,171 million. In the first six months of 2020, the company purchased about 9.8 million shares for $274 million.

10-K.

In connection with the same project, commitments under “Other long-term purchase agreements” as reported in Imperial’s Form

10-K

decreased by approximately $2.9 billion. The majority of these commitments related to years 2026 and beyond.

On June 23, 2021, 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 existing share purchase program. The program enables the company to purchase up to a maximum of 35,583,671 common shares during the period June 29, 2021 to June 28, 2022. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will end should the company purchase the maximum allowable number of shares, or on June 28, 2022.

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IMPERIAL OIL LIMITED

Forward-looking statements

Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Forward-looking statements can be identified by words such as believe, anticipate, intend, propose, plan, goal, seek, project, predict, target, estimate, expect, strategy, outlook, schedule, future, continue, likely, may, should, will and similar references to future periods. Forward-looking statements in this release include, but are not limited to, references to the use of derivative instruments and effectiveness of risk mitigation; earnings sensitivities; and plans for purchases under the amended share purchase program.

Forward-looking statements are based on the company’s current expectations, estimates, projections and assumptions at the time the statements are made. Actual future financial and operating results, including expectations and assumptions concerning demand growth and energy source, supply and mix; commodity prices, foreign exchange rates and general market conditions; production rates, growth and mix; project plans, timing, costs, technical evaluations and capacities and the company’s ability to effectively execute on these plans and operate its assets; progression of

COVID-19

and its impacts on Imperial’s ability to operate its assets, including the possible shutdown of facilities due to

COVID-19

outbreaks; and capital and environmental expenditures could differ materially depending on a number of factors. These factors include global, regional or local changes in supply and demand for oil, natural gas, and petroleum and petrochemical products and resulting price, differential and margin impacts, including foreign government action with respect to supply levels and prices and the impact of

COVID-19

on demand; political or regulatory events, including changes in law or government policy such as tax laws, production curtailment and actions in response to

COVID-19;

management effectiveness and disaster response preparedness, including business continuity plans in response to

COVID-19;

unanticipated technical or operational difficulties; project management and schedules and timely completion of projects; operational hazards and risks; availability and allocation of capital; currency exchange rates; general economic conditions; and other factors discussed in Item 1A risk factors and Item 7 management’s discussion and analysis of financial condition and results of operations of Imperial Oil Limited’s most recent annual report on Form

10-K.

Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial. Imperial’s actual results may differ materially from those expressed or implied by its forward-looking statements and readers are cautioned not to place undue reliance on them. Imperial undertakes no obligation to update any forward-looking statements contained herein, except as required by applicable law.

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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IMPERIAL OIL LIMITED

Item 3.

Quantitative and qualitative disclosures about market risk

Information about market risks for the six months ended June 30, 2021, does not differ materially from that discussed on page 32 of the company’s annual report on Form

10-K

for the year ended December 31, 2020. The following table details those earnings sensitivities that have been updated from the fiscal

year-end

to reflect current market conditions.

Earnings Sensitivities

(a)

(a)	Each sensitivity calculation shows the impact on net income resulting from a change in one factor, after tax and royalties and holding all other factors constant. These sensitivities have been updated to reflect current conditions. They may not apply proportionately to larger fluctuations.

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 June 30, 2021. 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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IMPERIAL OIL LIMITED

PART II. OTHER INFORMATION

Item 1.

Legal proceedings

Imperial has elected to use a $1 million threshold for disclosing environmental proceedings.

Item 2.

Unregistered sales of equity securities and use of proceeds

Issuer purchases of equity securities


	Total number of shares purchased		Average price paid per share (Canadian dollars)		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs (a) (b)

April 2021
(April 1 - April 30)		-		-		-		29,356,095
May 2021
(May 1 - May 31)		13,905,500		38.75		13,905,500		15,450,595
June 2021
(June 1 - June 28)		15,450,595		40.58		15,450,595		-
(June 29 - June 30)		142,332		37.77		142,332		35,441,339

(a)

On June 23, 2020, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a limited normal course issuer bid. The program was initially used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan, and enabled the company to purchase up to a maximum of 50,000 common shares during the period June 29, 2020 to June 28, 2021. This maximum included shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to maintain its ownership percentage at approximately 69.6 percent.

On April 30, 2021, the company announced an amendment to its normal course issuer bid to increase the number of common shares that were available to be purchased. Under the amendment, the number of common shares available to be purchased increased to a maximum of 29,363,070 common shares during the period June 29, 2020 to June 28, 2021, which included shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. No other provisions of the normal course issuer bid have changed.

The program ended on June 28, 2021. Upon expiration, the company had purchased the maximum 29,363,070 shares allowed under the program.

(b)

The company will continue to evaluate its share purchase program in the context of its overall capital activities. Purchase plans may be modified at any time without prior notice.

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IMPERIAL OIL LIMITED

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 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.

(101) Interactive Data Files (formatted as Inline XBRL).

(104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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IMPERIAL OIL LIMITED

SIGNATURES

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.


				Imperial Oil Limited (Registrant)

Date: August 4, 2021				/s/ Daniel E. Lyons ---------------------------------------------------
				(Signature)
				Daniel E. Lyons
				Senior vice-president, finance and administration, and controller (Principal accounting officer)



Date: August 4, 2021				/s/ Cathryn Walker ---------------------------------------------------
				(Signature)
				Cathryn Walker
				Assistant corporate secretary

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer Identification No.)

505 Quarry Park Boulevard S.E. Calgary, Alberta, Canada

(Address of principal executive offices)

(Postal Code)