Quarterly / Earnings Reports | First Quarter (1Q) Update

Imperial Oil Talks Q1 2019 Results

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   |    Friday,April 26,2019

Imperial Oil Limited reported its Q1 2019 results.

Highlights:

• Earnings of $293 million; cash generated from operations of $1 billion
• $510 million returned to shareholders through share purchases and dividends
• Second quarter dividend increased by 16 percent to 22 cents per share

Estimated net income in the first quarter of 2019 was $293 million, compared to net income of $516 million in the same period of 2018.

Overall upstream gross oil-equivalent production averaged 388,000 barrels per day, up from 370,000 barrels per day in the first quarter of 2018, due to improved Syncrude reliability and the restart of the Norman Wells operation. Gross production at Kearl averaged 180,000 barrels per day in the first quarter, consistent with the company’s commitment to achieve full-year production of 200,000 barrels per day in 2019. In addition, the supplemental crusher project continues on schedule and is expected to be complete by year-end, increasing annual average production to 240,000 barrels per day in 2020.

Refinery throughput averaged 383,000 barrels per day, compared to 408,000 barrels per day in the first quarter of 2018. Petroleum product sales averaged 477,000 barrels per day in the first quarter, essentially flat with the prior year. Downstream financial results were impacted by weaker industry product margins and lower refinery utilization.

“First quarter operational performance was impacted by challenges in both the upstream and downstream early in the quarter, in part due to extreme cold weather across the country. Furthermore, the Government of Alberta’s production curtailment order significantly affected financial performance, as improved upstream realizations were more than offset by reduced downstream margins,” said Rich Kruger, chairman, president and chief executive officer.

“Alberta’s mandated curtailment continues to impact crude-by-rail economics. After increasing crude-by-rail shipments to record levels in late 2018, the company discontinued shipments in February. Late in the quarter, the company resumed limited rail shipments, and will continue to evaluate future movements as economically justified,” said Kruger.

Imperial declared a second quarter dividend of 22 cents per share, an increase of 3 cents per share from the first quarter, supported by the company’s strong balance sheet and resilient cash flow. Imperial remains committed to returning cash to shareholders through the payment of a reliable and growing dividend and an ongoing share purchase program.

The volatility in crude prices over the last several months, and resulting impact on upstream and downstream margins, continue to demonstrate the value of Imperial’s balance and integration. The company’s upstream production, midstream logistics, and downstream refining and sales work together to provide resiliency across a range of market conditions.

First quarter highlights

• Net income of $293 million or $0.38 per share on a diluted basis, compared to a net income of $516 million or $0.62 per share in the first quarter of 2018.
• Cash generated from operating activities was $1,003 million, up from $985 million in the first quarter of 2018.
• Capital and exploration expenditures totalled $529 million, compared with $274 million in the first quarter of 2018. During the quarter the company announced a slowdown in the development of the Aspen project given market uncertainty stemming from the Government of Alberta’s intervention in crude markets and other industry competitiveness challenges. As a result, capital expenditures for 2019 are now expected to be in the range of $1.8 billion to $1.9 billion, down from the previous guidance of $2.3 billion to $2.4 billion.
• Dividends paid and share purchases totalled $510 million in the first quarter of 2019, including the purchase of about 10 million shares for $361 million.
• Production averaged 388,000 gross oil-equivalent barrels per day, up from 370,000 barrels per day in the same period of 2018.
• Gross production of Kearl bitumen averaged 180,000 barrels per day (127,000 barrels Imperial’s share), compared to 182,000 barrels per day (129,000 barrels Imperial’s share) in the first quarter of 2018. First quarter results were affected by an extended period of extremely cold weather and related impacts on shovel performance. Imperial continues to expect annual average gross production at Kearl of 200,000 barrels per day in 2019.
• Gross production of Cold Lake bitumen averaged 145,000 barrels per day, compared to 153,000 barrels per day in the same period of 2018. Extremely cold weather negatively impacted first quarter production.
• The company’s share of gross production from Syncrude averaged 78,000 barrels per day, up from 65,000 barrels per day in the same period of 2018. The increase in production was primarily due to stronger asset reliability, partially offset by the impact of the Government of Alberta’s curtailment order.
• Crude-by-rail shipments averaged 36,000 barrels per day in the first quarter, down from 146,000 barrels per day in the fourth quarter of 2018. During the first quarter, the company ramped down activity from 89,000 barrels per day in January to essentially zero in February, before resuming limited shipments in late March.
• Refinery throughput averaged 383,000 barrels per day, compared to 408,000 barrels per day in the first quarter of 2018. Capacity utilization was 91 percent, compared to 96 percent in the first quarter of 2018. Performance was affected by several individually small reliability events, which reduced throughput by approximately 20,000 barrels per day in the quarter.
• Petroleum product sales were 477,000 barrels per day, compared to 478,000 barrels per day in the first quarter of 2018.
• Kearl’s autonomous haul truck program received regulatory approval from Alberta Occupational Health and Safety, granting Imperial the ability to automate its entire fleet. Plans include expanding the scope of the ongoing pilot to about 20 trucks through 2020, before making a final decision on full automation. The project is expected to drive a significant improvement in safety performance and operating cost.
• Imperial invests in new SAIT water management program, reflecting its commitment to environmental sustainability. The company’s $1 million donation launched a new two-year diploma program at the Southern Alberta Institute of Technology (SAIT), the first of its kind in Canada. Graduates will develop skills for working global water-related issues in a wide range of industries.
• Imperial releases comprehensive Energy and carbon summary. The report highlights the company’s efforts to responsibly develop energy for a lower-carbon future. Imperial has reduced greenhouse gas emissions intensity in its operated oil sands facilities by 20 percent between 2013 and 2017, and is developing technologies that could reduce greenhouse gas emissions intensity for future in-situ oil sands production by approximately 25 percent to 90 percent.

Q1 2019 vs. Q1 2018

The company’s net income for the first quarter of 2019 was $293 million or $0.38 per share on a diluted basis, compared to net income of $516 million or $0.62 per share for the same period 2018.

Upstream net income was $58 million in the first quarter, up $102 million from the same period of 2018. Improved results reflect the impact of higher Canadian crude oil realizations of about $160 million and higher Syncrude and Norman Wells volumes of about $80 million. Results were negatively impacted by higher operating expenses of about $120 million and lower Cold Lake volumes of about $50 million.

West Texas Intermediate (WTI) averaged US$54.90 per barrel in the first quarter of 2019, down from US$62.89 per barrel in the same quarter of 2018. Western Canada Select (WCS) averaged US$42.44 per barrel and US$38.67 per barrel for the same periods. The WTI / WCS differential narrowed during the first quarter of 2019 to average approximately US$12 per barrel for the quarter, compared to around US$24 per barrel in the same period of 2018.

The Canadian dollar averaged US$0.75 in the first quarter of 2019, a decrease of US$0.04 from the first quarter of 2018.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, supported by an increase in WCS and lower diluent costs. Bitumen realizations averaged $48.85 per barrel for the first quarter of 2019, up from $35.61 per barrel in the first quarter of 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 $69.34 per barrel, compared to $77.26 per barrel in the same period of 2018.

Gross production of Cold Lake bitumen averaged 145,000 barrels per day in the first quarter, compared to 153,000 barrels per day in the same period last year. Lower production was mainly due to production timing associated with steam management.

Gross production of Kearl bitumen averaged 180,000 barrels per day in the first quarter (127,000 barrels Imperial’s share), compared to 182,000 barrels per day (129,000 barrels Imperial’s share) during the first quarter of 2018.

The company's share of gross production from Syncrude averaged 78,000 barrels per day, up from 65,000 barrels per day in the first quarter of 2018. Higher production was mainly due to reduced downtime, partially offset by impacts from the Government of Alberta’s production curtailment order.

Downstream net income was $257 million in the first quarter, compared to net income of $521 million in the first quarter of 2018. Earnings decreased mainly due to lower margins of about $180 million and the impact of refinery reliability events of about $60 million.

Refinery throughput averaged 383,000 barrels per day, compared to 408,000 barrels per day in the first quarter of 2018. Capacity utilization was 91 percent, compared to 96 percent in the first quarter of 2018. Reduced throughput was mainly due to reliability events at company facilities.

Petroleum product sales were 477,000 barrels per day, compared to 478,000 barrels per day in the first quarter of 2018.

Chemical net income was $34 million in the first quarter, compared to $73 million from the same quarter of 2018, primarily reflecting lower margins.

Corporate and other expenses were $56 million in the first quarter, compared to $34 million in the same period of 2018.

Effective January 1, 2019, Imperial adopted the Financial Accounting Standards Board’s standard, Leases (Topic 842), as amended. The adoption of the new standard increased the assets and liabilities on the company’s Consolidated balance sheet by $298 million and there was no cumulative earnings effect adjustment.

Cash flow generated from operating activities was $1,003 million in the first quarter, up from $985 million in the corresponding period in 2018, reflecting higher working capital effects, partially offset by lower earnings.

Investing activities used net cash of $463 million in the first quarter, compared with $365 million used in the same period of 2018.

Cash used in financing activities was $517 million in the first quarter, compared with $390 million used in the first quarter of 2018. Dividends paid in the first quarter of 2019 were $149 million. The per share dividend paid in the first quarter was $0.19, up from $0.16 in the same period of 2018. During the first quarter, the company, under its share purchase program, purchased about 10 million shares for $361 million, including shares purchased from Exxon Mobil Corporation.

The company’s cash balance was $1,011 million at March 31, 2019, versus $1,425 million at the end of first quarter 2018.

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.