Quarterly / Earnings Reports | Second Quarter (2Q) Update

Imperial Oil Details Q2 / Six Month Results

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   |    Friday,August 02,2019

Imperial Oil Limited reported its Q2 2019 results.

Highlights:

• Net income of $1,212 million, including a $662 million benefit from the Alberta corporate tax rate change
• Highest second quarter production in over 25 years, including record second quarter production at Kearl
• Cash generated from operations of $1 billion; $2 billion in the first six months, the highest since 2014
• Returned $515 million to shareholders; renewed share purchase program for another year

Estimated net income in the second quarter of 2019 was $1,212 million, up from net income of $196 million in the same period of 2018. Second quarter 2019 results include a favourable impact, largely non-cash, of $662 million associated with the recently enacted Alberta corporate income tax rate decrease.

Overall upstream gross oil-equivalent production averaged 400,000 barrels per day, up from 336,000 barrels per day in the second quarter of 2018, due to strong Kearl production and the absence of Syncrude turnaround activity. Gross production at Kearl averaged 207,000 barrels per day in the second quarter, and 193,000 barrels per day in the first six months of 2019, representing both a record second quarter and a record first half.

“In a quarter when the upstream completed significant turnaround activities, the company still achieved its highest second quarter production in over 25 years,” said Rich Kruger, chairman, president and chief executive officer. “The ongoing focus on improving reliability at Kearl is working, with the operation recording four of its ten best-ever production days following completion of the turnaround in June.”

Refinery throughput averaged 344,000 barrels per day, compared to 363,000 barrels per day in the second quarter of 2018. Petroleum product sales averaged 477,000 barrels per day in the second quarter, compared to 510,000 barrels per day in the same period of 2018. Downstream results were impacted by the planned Sarnia refinery turnaround and a fractionation tower incident, which occurred during preparations for the turnaround.

On June 21, Imperial announced the renewal of its share purchase program, allowing the company to buy approximately 38 million shares over a 12-month period ending June 26, 2020. The company fully utilized the prior program, returning $1.6 billion to shareholders through the purchase of over 40 million shares. Imperial remains committed to returning cash to shareholders through paying a reliable and growing dividend and returning surplus cash to shareholders through share buybacks.

“Given overall financial and operational performance in the first half, and with several of the year’s planned upstream and downstream turnarounds completed, Imperial remains on track to deliver on our commitments for 2019,” added Kruger.

Second quarter highlights

• Net income of $1,212 million or $1.57 per share on a diluted basis, up from net income of $196 million or $0.24 per share in the second quarter of 2018. Second quarter 2019 results include a favourable impact, largely non-cash, of $662 million associated with the recently enacted Alberta corporate income tax rate decrease.
• Cash generated from operating activities was $1,026 million, up from $859 million in the second quarter of 2018.
• Capital and exploration expenditures totalled $429 million, compared with $284 million in the second quarter of 2018.
• Dividends paid and share purchases totalled $515 million in the second quarter of 2019, including the purchase of about 9.8 million shares for $368 million. Under the 12-month program that ended on June 26, 2019, the company purchased 40.4 million shares for $1.6 billion, the maximum allowable.
• Share purchase program renewed for another 12 months. In June, Imperial received Toronto Stock Exchange approval to renew its program enabling the purchase of up to five percent of its common shares outstanding, approximately 38 million shares, during the 12-month period ending June 26, 2020. The company remains committed to returning surplus cash to shareholders.
• Production averaged 400,000 gross oil-equivalent barrels per day, up from 336,000 barrels per day in the same period of 2018. Strong post-turnaround production at Kearl and the absence of turnaround activities at Syncrude contributed to this result.
• Gross production of Kearl bitumen averaged 207,000 barrels per day (147,000 barrels Imperial’s share), up from 180,000 barrels per day (128,000 barrels Imperial’s share) in the second quarter of 2018. Production was impacted by an estimated 46,000 barrels per day (33,000 barrels Imperial’s share) associated with the largest planned turnaround in the asset’s history.
• Gross production of Cold Lake bitumen averaged 135,000 barrels per day, up from 133,000 barrels per day in the same period of 2018. A 32-day turnaround at the Mahkeses facility was completed in the quarter and impacted production by an estimated 12,000 barrels per day.
• The company’s share of gross production from Syncrude averaged 80,000 barrels per day, up from 50,000 barrels per day in the same period of 2018. The increase was primarily due to the absence of turnaround activities and production impacts resulting from the 2018 power disruption.
• Crude-by-rail shipments averaged 64,000 barrels per day in the second quarter, up from 36,000 barrels per day in the first quarter of 2019. Future rail movements will continue to be driven by economics.
• Refinery throughput averaged 344,000 barrels per day, compared to 363,000 barrels per day in the second quarter of 2018. Capacity utilization was 81 percent, compared to 86 percent in the second quarter of 2018. The results reflect the impact of a planned turnaround at the Sarnia facility and an incident with a fractionation tower during preparations for the turnaround. Turnaround activities were completed in the quarter and work continues to replace the tower.
• Petroleum product sales were 477,000 barrels per day, compared to 510,000 barrels per day in the second quarter of 2018. Lower volumes were mainly due to reduced throughput at Sarnia.
• Speedpass+™mobile payment app enhanced. Imperial’s Speedpass+ app now allows customers to link their PC Financial Mastercard, earn PC Optimum points, and use the app at participating Mobil stations. Until September 30, customers can earn five times the Esso Extra points or 50 PC Optimum points per litre when using the app at participating Esso and Mobil stations nationwide.

Q2 2019 Results (Compared to Q2 2018)

The company’s net income for the second quarter of 2019 was $1,212 million or $1.57 per share on a diluted basis, up from net income of $196 million or $0.24 per share in the same period of 2018. Second quarter 2019 results include a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022.

Upstream net income was $985 million in the second quarter, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, second quarter 2019 net income was $296 million, an increase of $302 million compared to a net loss of $6 million in the same period of 2018. Improved results reflect higher volumes of about $310 million, primarily at Syncrude, Kearl and Norman Wells, as well as the impact of higher Canadian crude oil realizations of about $80 million. Results were negatively impacted by higher operating expenses of about $60 million and higher royalties of about $50 million.

West Texas Intermediate (WTI) averaged US$59.91 per barrel in the second quarter of 2019, down from US$67.91 per barrel in the same quarter of 2018. Western Canada Select (WCS) averaged US$49.31 per barrel and US$48.81 per barrel for the same periods. The WTI / WCS differential narrowed during the second quarter of 2019 to average approximately US$11 per barrel for the quarter, compared to around US$19 per barrel in the same period of 2018.

The Canadian dollar averaged US$0.75 in the second quarter of 2019, a decrease of US$0.03 from the second quarter of 2018.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, supported primarily by lower diluent costs. Bitumen realizations averaged $57.19 per barrel in the second quarter of 2019, up from $48.90 per barrel in the second quarter of 2018. The company’s average Canadian dollar realizations for synthetic crude declined generally in line with WTI in the quarter, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $79.96 per barrel in the second quarter of 2019, compared to $86.31 per barrel in the same period of 2018.

Gross production of Cold Lake bitumen averaged 135,000 barrels per day in the second quarter, up from 133,000 barrels per day in the same period of 2018.

Gross production of Kearl bitumen averaged 207,000 barrels per day in the second quarter (147,000 barrels Imperial’s share), up from 180,000 barrels per day (128,000 barrels Imperial’s share) in the second quarter of 2018. Higher production was mainly due to improved reliability.

The company's share of gross production from Syncrude averaged 80,000 barrels per day, up from 50,000 barrels per day in the second quarter of 2018. Higher production was mainly due to the absence of turnaround activities and impacts from the 2018 power disruption.

Downstream net income was $258 million in the second quarter, up from $201 million in the second quarter of 2018. Earnings increased primarily due to lower net turnaround impacts of about $150 million partially offset by reliability events of about $70 million, including the Sarnia tower incident.

Refinery throughput averaged 344,000 barrels per day, compared to 363,000 barrels per day in the second quarter of 2018. Capacity utilization was 81 percent, compared to 86 percent in the second quarter of 2018. Reduced throughput was mainly due to the impact of a planned turnaround and the tower incident at Sarnia, partially offset by the absence of the 2018 planned turnaround at Strathcona.

Petroleum product sales were 477,000 barrels per day, compared to 510,000 barrels per day in the second quarter of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.

Chemical net income was $38 million in the second quarter, compared to $78 million from the same quarter of 2018, primarily reflecting lower margins.

Corporate and other expenses were $69 million in the second quarter, compared to $77 million in the same period of 2018.

Cash flow generated from operating activities was $1,026 million in the second quarter, up from $859 million in the corresponding period in 2018, reflecting higher earnings partially offset by working capital effects.

Investing activities used net cash of $429 million in the second quarter, compared with $379 million used in the same period of 2018.

Cash used in financing activities was $521 million in the second quarter, compared with $1,032 million used in the second quarter of 2018. Dividends paid in the second quarter of 2019 were $147 million. The per share dividend paid in the second quarter was $0.19, up from $0.16 in the same period of 2018. During the second quarter, the company, under its share purchase program, purchased about 9.8 million shares for $368 million, including shares purchased from Exxon Mobil Corporation. In the second quarter of 2018, the company purchased about 21.4 million shares for $893 million following the increase of its share purchase program.

The company’s cash balance was $1,087 million at June 30, 2019, versus $873 million at the end of second quarter 2018.

On June 21, 2019, 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 38,211,086 common shares during the period June 27, 2019 to June 26, 2020. 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 26, 2020. The company currently anticipates exercising its share purchases uniformly over the duration of the program. Purchase plans may be modified at any time without prior notice.

Six Month Highlights:

• Net income of $1,505 million, up from net income of $712 million in 2018.
• Net income per share on a diluted basis was $1.94, up from net income per share of $0.86 in 2018.
• Cash flow generated from operating activities was $2,029 million, up from $1,844 million in 2018.
• Gross oil-equivalent production averaged 394,000 barrels per day, up from 353,000 barrels per day in 2018.
• Refinery throughput averaged 364,000 barrels per day, compared to 386,000 barrels per day in 2018.
• Petroleum product sales were 477,000 barrels per day, compared to 494,000 barrels per day in 2018.
• Per share dividends declared during the year totalled $0.41, up from $0.35 per share in 2018.
• Returned over $1 billion to shareholders through share purchases and dividends.

Six Months 2019 v. Six Months 2018

Net income in the first six months of 2019 was $1,505 million, or $1.94 per share on a diluted basis, up from net income of $712 million or $0.86 per share in the first six months of 2018. 2019 results include a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022.

Upstream net income was $1,043 million for the first six months of the year, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, 2019 net income was $354 million, an increase of $404 million compared to a net loss of $50 million in the same period of 2018. Improved results reflect higher volumes of about $330 million, primarily at Syncrude, Kearl and Norman Wells, as well as the impact of higher Canadian crude oil realizations of about $260 million and favourable foreign exchange impacts of about $60 million. Results were negatively impacted by higher operating expenses of about $180 million and higher royalties of about $80 million.

West Texas Intermediate averaged US$57.45 per barrel in the first six months of 2019, down from US$65.44 per barrel in the same period of 2018. Western Canada Select averaged US$45.88 per barrel and US$43.74 per barrel for the same periods. The WTI / WCS differential narrowed to average approximately US$12 per barrel in the first six months of 2019, from around US$22 per barrel in the same period of 2018.

The Canadian dollar averaged US$0.75 in the first six months of 2019, a decrease of $0.03 from the same period in 2018.

Imperial's average Canadian dollar realizations for bitumen increased in the first six months of 2019, supported primarily by lower diluent costs and an increase in WCS. Bitumen realizations averaged $53.20 per barrel, up from $41.84 per barrel from the same period in 2018. The company's average Canadian dollar realizations for synthetic crude declined generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $74.77 per barrel, compared to $81.24 per barrel from the same period in 2018.

Gross production of Cold Lake bitumen averaged 140,000 barrels per day in the first six months of 2019, compared to 143,000 barrels per day in the same period of 2018.

Gross production of Kearl bitumen averaged 193,000 barrels per day in the first six months of 2019 (137,000 barrels Imperial's share) up from 181,000 barrels per day (128,000 barrels Imperial's share) in the same period of 2018. Higher production was mainly due to improved reliability.

During the first six months of 2019, the company's share of gross production from Syncrude averaged 79,000 barrels per day, up from 57,000 barrels per day in the same period of 2018. Higher production was mainly due to the absence of turnaround activities and impacts from the 2018 power disruption.

Downstream net income was $515 million for the first six months of 2019, compared to $722 million for the same period of 2018. Earnings were negatively impacted by lower margins of about $210 million, reliability events of about $130 million, including the Sarnia tower incident, and lower sales volumes of about $70 million. These factors were partially offset by lower net turnaround impacts of about $150 million and favourable foreign exchange effects of about $70 million.

Refinery throughput averaged 364,000 barrels per day in the first six months of 2019, compared to 386,000 barrels per day in the same period of 2018. Capacity utilization was 86 percent, compared to 91 percent in the same period of 2018. Reduced throughput was mainly due to the impact of a planned turnaround and the tower incident at Sarnia, partially offset by the absence of the 2018 planned turnaround at Strathcona.

Petroleum product sales were 477,000 barrels per day in the first six months of 2019, compared to 494,000 barrels per day in the same period of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.

Chemical net income was $72 million in the first six months of 2019, compared to $151 million in the same period of 2018, primarily reflecting lower margins.

Corporate and other expenses were $125 million in the first six months of 2019, compared to $111 million in the same period of 2018.

Cash flow generated from operating activities was $2,029 million in the first six months of 2019, up from $1,844 million in the same period of 2018, primarily reflecting higher earnings.

Investing activities used net cash of $892 million in the first six months of 2019, compared with $744 million used in 2018, primarily reflecting higher additions to property, plant and equipment.

Cash used in financing activities was $1,038 million in the first six months of 2019, compared with $1,422 million used in the same period of 2018. Dividends paid in the first six months of 2019 were $296 million. The per share dividend paid in the first six months of 2019 was $0.38, up from $0.32 in the same period of 2018. During the first six months of 2019, the company, under its share purchase program, purchased about 19.8 million shares for $729 million, including shares purchased from Exxon Mobil Corporation. In the first six months of 2018, the company purchased about 28.6 million shares for $1,143 million following the increase of its share purchase program.