IMPERIAL OIL LTD - Quarter Report: 2011 September (Form 10-Q)

Form 10-Q

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 September 30, 2011

[ ] 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)


CANADA				98-0017682
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

237 Fourth Avenue S.W. Calgary, Alberta, Canada				T2P 3M9
(Address of principal executive offices)				(Postal Code)

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).

YES ü NO

The registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934).


Large accelerated filer ü				Accelerated filer
Non-accelerated filer				Smaller reporting company

The registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES NO ü

The number of common shares outstanding, as of September 30, 2011, was 847,599,011.

IMPERIAL OIL LIMITED

INDEX


	PAGE

PART I - Financial Information

Item 1 - Financial Statements.

Consolidated Statement of Income -Nine Months ended September 30, 2011 and 2010		3

Consolidated Balance Sheet - as at September 30, 2011 and December 31, 2010		4

Consolidated Statement of Cash Flows - Nine Months ended September 30, 2011 and 2010		5

Notes to the Consolidated Financial Statements		6

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.		12

Item 3 - Quantitative and Qualitative Disclosures about Market Risk.		15

Item 4 - Controls and Procedures.		15

PART II - Other Information

Item 1 - Legal Proceedings.		16

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.		16

Item 6 - Exhibits.		17

SIGNATURES		17

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, 2010.

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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

IMPERIAL OIL LIMITED



CONSOLIDATED STATEMENT OF INCOME
(U.S. GAAP, unaudited)						Nine Months
		Third Quarter				to September 30
millions of Canadian dollars		2011		2010		2011		2010


REVENUES AND OTHER INCOME
Operating revenues (a) (b)			7,918		5,828		22,531		18,053
Investment and other income (note 3)			27		23		59		103

TOTAL REVENUES AND OTHER INCOME			7,945		5,851		22,590		18,156


EXPENSES
Exploration			17		54		76		171
Purchases of crude oil and products (c)			4,993		3,462		13,939		10,759
Production and manufacturing (d)			1,017		961		3,054		3,003
Selling and general			249		271		823		786
Federal excise tax (a)			345		345		985		971
Depreciation and depletion			192		187		570		561
Financing costs (note 5)			-		3		1		4

TOTAL EXPENSES			6,813		5,283		19,448		16,255


INCOME BEFORE INCOME TAXES			1,132		568		3,142		1,901
INCOME TAXES			273		150		776		490

NET INCOME			859		418		2,366		1,411


PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (dollars) (note 8)			1.01		0.49		2.79		1.66
Net income per common share - diluted (dollars) (note 8)			1.01		0.49		2.77		1.65
Dividends per common share (dollars)			0.11		0.11		0.33		0.32

(a)	Federal excise tax included in operating revenues		345		345		985		971
(b)	Amounts from related parties included in operating revenues		876		560		2,181		1,607
(c)	Amounts to related parties included in purchases of crude oil and products		737		774		2,618		1,786
(d)	Amounts to related parties included in production and manufacturing expenses		53		68		154		190

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED



CONSOLIDATED BALANCE SHEET
(U.S. GAAP, unaudited)	As at		As at
millions of Canadian dollars	Sept. 30 2011		Dec. 31 2010


ASSETS
Current assets
Cash		920		267
Accounts receivable, less estimated doubtful accounts		2,124		2,000
Inventories of crude oil and products		986		527
Materials, supplies and prepaid expenses		272		246
Deferred income tax assets		581		498

Total current assets		4,883		3,538

Long-term receivables, investments and other long-term assets		918		870

Property, plant and equipment,		32,583		30,004
less accumulated depreciation and depletion		14,458		14,099

Property, plant and equipment, net		18,125		15,905

Goodwill		204		204
Other intangible assets, net		64		63

TOTAL ASSETS		24,194		20,580


LIABILITIES
Current liabilities
Notes and loans payable		364		229
Accounts payable and accrued liabilities (a) (note 7)		4,349		3,470
Income taxes payable		1,149		878

Total current liabilities		5,862		4,577

Long-term debt (b) (note 6)		844		527
Other long-term obligations (note 7)		2,737		2,753
Deferred income tax liabilities		1,588		1,546

TOTAL LIABILITIES		11,031		9,403


SHAREHOLDERS’ EQUITY
Common shares at stated value (c)		1,524		1,511
Earnings reinvested		13,131		11,090
Accumulated other comprehensive income		(1,492)		(1,424)

TOTAL SHAREHOLDERS’ EQUITY		13,163		11,177


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		24,194		20,580

(a)	Accounts payable and accrued liabilities included amounts payable to related parties of $206 million (2010 - amounts receivable of $45 million).

(b)	Long-term debt included amounts to related parties of $820 million (2010 - $500 million).

(c)	Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2010 - 1,100 million and 848 million, respectively).

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS


(U.S. GAAP, unaudited) inflow/(outflow)	Third Quarter				Nine Months to September 30
millions of Canadian dollars	2011		2010		2011		2010


OPERATING ACTIVITIES
Net income		859		418		2,366		1,411
Adjustment for non-cash items:
Depreciation and depletion		192		187		570		561
(Gain)/loss on asset sales (note 3)		(17)		(12)		(23)		(58)
Deferred income taxes and other		59		(17)		(27)		55
Changes in operating assets and liabilities:
Accounts receivable		175		(33)		(132)		(95)
Inventories, materials, supplies and prepaid expenses		26		(58)		(485)		(178)
Income taxes payable		221		60		271		(172)
Accounts payable and accrued liabilities		169		375		879		752
All other items - net (a)		(26)		45		(146)		(73)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		1,658		965		3,273		2,203


INVESTING ACTIVITIES
Additions to property, plant and equipment and intangibles		(1,087)		(1,147)		(2,812)		(2,811)
Proceeds from asset sales		24		35		44		95
Repayment of loan from (loan to) equity company		2		(1)		8		(1)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES		(1,061)		(1,113)		(2,760)		(2,717)


FINANCING ACTIVITIES
Short-term debt - net		-		30		135		120
Long-term debt issued		-		200		320		200
Reduction in capitalized lease obligations		(1)		(2)		(3)		(3)
Issuance of common shares under stock option plan		1		-		15		1
Common shares purchased		(3)		-		(47)		(3)
Dividends paid		(93)		(93)		(280)		(263)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		(96)		135		140		52


INCREASE (DECREASE) IN CASH		501		(13)		653		(462)
CASH AT BEGINNING OF PERIOD		419		64		267		513


CASH AT END OF PERIOD		920		51		920		51


(a) Includes contribution to registered pension plans		(12)		(13)		(310)		(378)

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of financial statement presentation

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. In the opinion of the management, the information furnished herein reflects all known accruals and adjustments necessary for a fair presentation of the financial position of the company as at September 30, 2011, and December 31, 2010, and the results of operations and changes in cash flows for the nine months ended September 30, 2011 and 2010. All such adjustments are of a normal recurring nature. The company’s exploration and production activities are accounted for under the “successful efforts” method. Certain reclassifications to the prior year have been made to conform to the 2011 presentation.

The results for the nine months ended September 30, 2011, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

IMPERIAL OIL LIMITED




2. Business Segments

Third Quarter	Upstream				Downstream				Chemical
millions of dollars	2011		2010		2011		2010		2011		2010

REVENUES AND OTHER INCOME
Operating revenues		1,263		908		6,319		4,655		336		265
Intersegment sales		994		879		614		416		80		79
Investment and other income		1		5		23		17		-		-

		2,258		1,792		6,956		5,088		416		344

EXPENSES
Exploration		17		54		-		-		-		-
Purchases of crude oil and products		781		545		5,596		4,047		304		244
Production and manufacturing		627		592		347		320		43		49
Selling and general		2		2		251		229		18		16
Federal excise tax		-		-		345		345		-		-
Depreciation and depletion		133		128		53		54		3		3
Financing costs		-		-		-		1		-		-

TOTAL EXPENSES		1,560		1,321		6,592		4,996		368		312

INCOME BEFORE INCOME TAXES		698		471		364		92		48		32
INCOME TAXES		164		123		92		23		11		9

NET INCOME		534		348		272		69		37		23

Export sales to the United States		496		377		257		295		221		161
Cash flows from (used in) operating activities		1,004		748		589		198		55		31
CAPEX (a)		1,051		1,151		48		45		-		1


Third Quarter	Corporate and Other				Eliminations				Consolidated
millions of dollars	2011		2010		2011		2010		2011		2010

REVENUES AND OTHER INCOME
Operating revenues		-		-		-		-		7,918		5,828
Intersegment sales		-		-		(1,688)		(1,374)		-		-
Investment and other income		3		1		-		-		27		23

		3		1		(1,688)		(1,374)		7,945		5,851

EXPENSES
Exploration		-		-		-		-		17		54
Purchases of crude oil and products		-		-		(1,688)		(1,374)		4,993		3,462
Production and manufacturing		-		-		-		-		1,017		961
Selling and general		(22)		24		-		-		249		271
Federal excise tax		-		-		-		-		345		345
Depreciation and depletion		3		2		-		-		192		187
Financing costs		-		2		-		-		-		3

TOTAL EXPENSES		(19)		28		(1,688)		(1,374)		6,813		5,283

INCOME BEFORE INCOME TAXES		22		(27)		-		-		1,132		568
INCOME TAXES		6		(5)		-		-		273		150

NET INCOME		16		(22)		-		-		859		418

Export sales to the United States		-		-		-		-		974		833
Cash flows from (used in) operating activities		10		(12)		-		-		1,658		965
CAPEX (a)		5		2		-		-		1,104		1,199

(a)	Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles and additions to capital leases.

IMPERIAL OIL LIMITED




Nine Months to September 30	Upstream				Downstream				Chemical
millions of dollars	2011		2010		2011		2010		2011		2010

REVENUES AND OTHER INCOME
Operating revenues		3,837		3,159		17,687		14,081		1,007		813
Intersegment sales		3,291		2,790		2,053		1,449		274		212
Investment and other income		12		36		41		62		-		3

		7,140		5,985		19,781		15,592		1,281		1,028

EXPENSES
Exploration		76		171		-		-		-		-
Purchases of crude oil and products		2,605		1,985		16,012		12,471		940		754
Production and manufacturing		1,822		1,767		1,099		1,079		133		157
Selling and general		5		5		711		678		50		49
Federal excise tax		-		-		985		971		-		-
Depreciation and depletion		398		384		155		162		10		9
Financing costs		-		-		-		1		-		-

TOTAL EXPENSES		4,906		4,312		18,962		15,362		1,133		969

INCOME BEFORE INCOME TAXES		2,234		1,673		819		230		148		59
INCOME TAXES		548		435		207		54		37		15

NET INCOME		1,686		1,238		612		176		111		44

Export sales to the United States		1,604		1,295		815		919		649		487
Cash flows from (used in) operating activities		2,544		2,057		608		161		137		44
CAPEX (a)		2,753		2,838		120		129		3		9
Total assets as at September 30		16,104		12,754		6,830		6,401		400		425


Nine Months to September 30	Corporate and Other				Eliminations				Consolidated
millions of dollars	2011		2010		2011		2010		2011		2010

REVENUES AND OTHER INCOME
Operating revenues		-		-		-		-		22,531		18,053
Intersegment sales		-		-		(5,618)		(4,451)		-		-
Investment and other income		6		2		-		-		59		103

		6		2		(5,618)		(4,451)		22,590		18,156

EXPENSES
Exploration		-		-		-		-		76		171
Purchases of crude oil and products		-		-		(5,618)		(4,451)		13,939		10,759
Production and manufacturing		-		-		-		-		3,054		3,003
Selling and general		57		54		-		-		823		786
Federal excise tax		-		-		-		-		985		971
Depreciation and depletion		7		6		-		-		570		561
Financing costs		1		3		-		-		1		4

TOTAL EXPENSES		65		63		(5,618)		(4,451)		19,448		16,255

INCOME BEFORE INCOME TAXES		(59)		(61)		-		-		3,142		1,901
INCOME TAXES		(16)		(14)		-		-		776		490

NET INCOME		(43)		(47)		-		-		2,366		1,411

Export sales to the United States		-		-		-		-		3,068		2,701
Cash flows from (used in) operating activities		(16)		(59)		-		-		3,273		2,203
CAPEX (a)		12		4		-		-		2,888		2,980
Total assets as at September 30		1,137		96		(277)		(278)		24,194		19,398

(a)	Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles and additions to capital leases.

IMPERIAL OIL LIMITED

		$000		$000	$000		$000		$000


3. Investment and other income

Investment and other income includes gains and losses on asset sales as follows:
	Third Quarter					Nine Months to September 30
millions of dollars	2011		2010			2011		2010

Proceeds from asset sales		24		35			44		95
Book value of assets sold		7		23			21		37

Gain/(loss) on asset sales, before tax		17		12			23		58

Gain/(loss) on asset sales, after tax		15		10			19		50

4. Employee retirement benefits

The components of net benefit cost are as follows:

		$000			$000	$000		$000			$000
	Third Quarter						Nine Months to September 30
millions of dollars	2011			2010			2011			2010

Pension benefits:
Current service cost		30			25			91			76
Interest cost		78			77			235			230
Expected return on plan assets		(77	)		(69)			(231	)		(206)
Amortization of prior service cost		6			5			16			13
Recognized actuarial loss		41			34			122			103

Net benefit cost		78			72			233			216


Other post-retirement benefits:
Current service cost		1			1			4			4
Interest cost		6			6			18			18
Amortization of prior service cost		-			-			-			(1)
Recognized actuarial loss		1			-			2			-

Net benefit cost		8			7			24			21

IMPERIAL OIL LIMITED

5. Financing costs

		$0,000		$0,000		$0,000		$0,000
	Third Quarter				Nine Months to September 30
millions of dollars	2011		2010		2011		2010

Debt related interest		5		2		12		4
Capitalized interest		(5)		(2)		(12)		(4)

Net interest expense		-		-		-		-
Other interest		-		3		1		4

Total financing costs		-		3		1		4

6. Long-term debt

		$0,000	$0,000		$0,000
millions of dollars	As at Sept. 30 2011			As at Dec. 31 2010

Long-term debt		820			500
Capital leases		24			27

Total long-term debt		844			527

7. Other long-term obligations

		$0,000	$0,000		$0,000
millions of dollars	As at Sept. 30 2011			As at Dec. 31 2010

Employee retirement benefits (a)		1,627			1,640
Asset retirement obligations and other environmental liabilities (b)		732			754
Share-based incentive compensation liabilities		159			127
Other obligations		219			232

Total other long-term obligations		2,737			2,753

(a)	Total recorded employee retirement benefits obligations also include $47 million in current liabilities (December 31, 2010 - $47 million).

(b)	Total asset retirement obligations and other environmental liabilities also include $134 million in current liabilities (December 31, 2010 - $134 million).

IMPERIAL OIL LIMITED

8. Net income per share

		$0,000		$0,000		$0,000		$0,000
	Third Quarter				Nine Months to September 30
	2011		2010		2011		2010


Net income per common share - basic

Net income (millions of dollars)		859		418		2,366		1,411

Weighted average number of common shares outstanding (millions of shares)		847.6		847.6		847.7		847.6

Net income per common share (dollars)		1.01		0.49		2.79		1.66

Net income per common share - diluted

Net income (millions of dollars)		859		418		2,366		1,411

Weighted average number of common shares outstanding (millions of shares)		847.6		847.6		847.7		847.6
Effect of employee share-based awards (millions of shares)		6.2		7.1		6.3		6.9

Weighted average number of common shares outstanding, assuming dilution (millions of shares)		853.8		854.7		854.0		854.5

Net income per common share (dollars)		1.01		0.49		2.77		1.65

9. Comprehensive income

		$0,000		$0,000		$0,000			$0,000
	Third Quarter				Nine Months to September 30
millions of dollars	2011		2010		2011			2010

Net income		859		418		2,366			1,411

Post-retirement benefit liability adjustment (excluding amortization)		-		-		(172	)		84
Amortization of post retirement benefit liability adjustment included in net periodic benefit costs		35		28		104			85

Other comprehensive income (net of income taxes)		35		28		(68	)		169



Total comprehensive income		894		446		2,298			1,580

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of

Operations.

OPERATING RESULTS

The company’s net income for the third quarter of 2011 was $859 million or $1.01 a share on a diluted basis, compared with $418 million or $0.49 a share for the same period last year. Net income for the first nine months of 2011 was $2,366 million or $2.77 a share on a diluted basis, versus $1,411 million or $1.65 a share for the first nine months of 2010.

Earnings in the third quarter were higher than the same quarter in 2010 primarily due to stronger industry refining margins of about $270 million, higher crude oil commodity prices of about $190 million, increased Cold Lake bitumen production of about $90 million and higher Syncrude volumes of about $45 million. These factors were partially offset by the unfavourable impacts of the foreign exchange effects of the stronger Canadian dollar of about $65 million, higher royalty costs of about $60 million and lower conventional crude oil volumes of about $35 million due to third-party pipeline reliability issues.

For the nine months, increased earnings were primarily attributable to higher crude oil commodity prices of about $650 million, stronger industry refining margins of about $525 million, increased Cold Lake bitumen production of about $190 million and higher Syncrude volumes of about $70 million. These factors were partially offset by the unfavourable impact of the stronger Canadian dollar of about $205 million, higher royalty costs of about $190 million and lower conventional crude oil volumes of about $80 million due to third party pipeline reliability issues.

Upstream

Net income in the third quarter was $534 million, $186 million higher than the same period of 2010. Earnings benefited from higher crude oil commodity prices of about $190 million, increased Cold Lake bitumen production of about $90 million and higher Syncrude volumes of about $45 million. These factors were partially offset by higher royalty costs due to higher commodity prices of about $60 million, the foreign exchange effects of the stronger Canadian dollar of about $45 million and lower conventional crude oil volumes of about $35 million due to third-party pipeline reliability issues.

Net income for the nine months of 2011 was $1,686 million, up $448 million from 2010. Earnings increased primarily due to the impacts of higher crude oil commodity prices of about $650 million, increased Cold Lake bitumen production of about $190 million and higher Syncrude volumes of about $70 million. These factors were partially offset by the unfavourable effects of higher royalty costs of about $190 million, the stronger Canadian dollar of about $150 million and lower conventional crude oil volumes of about $120 million, of which about $80 million was a result of the second and third quarter 2011 third-party pipeline issues.

The average price of Brent crude oil in U.S. dollars, a common benchmark for Atlantic Basin oil markets, was $113.46 a barrel in the third quarter and $111.96 a barrel in the nine months of 2011, up about 48 percent and 45 percent from the corresponding periods last year. Increase in the average price of West Texas Intermediate (WTI) crude oil, a common benchmark for mid-continent North American oil markets, was limited to 17 percent and 23 percent, respectively, due to the continued weakness in WTI crude oil markets. Increases in the company’s average realizations on sales of Canadian conventional crude oil and synthetic crude oil were in line with that of WTI. Increase in the company’s average bitumen realizations in Canadian dollars in the third quarter and in the first nine months of 2011 were two percent to $58.23 a barrel and five percent to $60.90 a barrel, respectively, as the price spread between light crude oil and Cold Lake bitumen widened.

Gross production of Cold Lake bitumen averaged 162 thousand barrels a day and established a new production record in the third quarter. Cold Lake production was up 17 percent from 139 thousand barrels in the same quarter last year. For the nine months, gross production was 159 thousand barrels a day this year, compared with 143 thousand barrels in the same period of 2010. Increased volumes in both periods were due to contributions from new wells steamed in 2010 and 2011, increased recoveries and the cyclic nature of production at Cold Lake.

The company’s share of Syncrude’s gross production in the third quarter was 75 thousand barrels a day, versus 66 thousand barrels in the third quarter of 2010. Higher production was primarily the result of improved operating reliability partially offset by planned maintenance activities which began in September 2011 and will be complete in the fourth quarter of 2011. During the first nine months of the year, the company’s share of gross production from Syncrude averaged 75 thousand barrels a day, up from 71 thousand barrels in 2010. Increased production was due to improved operating reliability.

Gross production of conventional crude oil averaged 12 thousand barrels a day in the third quarter, down from 22 thousand barrels in the third quarter of 2010. Lower volumes were primarily due to the third-party pipeline unplanned downtime which caused significantly reduced production at the Norman Wells field. In the first nine months of the year, gross production was 17 thousand barrels a day, compared with 23 thousand barrels in 2010. Lower volumes were primarily due to third-party pipeline downtime, which reduced production at the Norman Wells field along with natural reservoir decline.

Gross production of natural gas during the third quarter of 2011 was 252 million cubic feet a day, down from 284 million cubic feet in the same period last year. In the nine months of the year, gross production was 259 million cubic feet a day, down from 282 million cubic feet in the nine months of 2010. The lower production volumes in both periods were primarily a result of natural reservoir decline.

Downstream

Net income was $272 million in the third quarter of 2011, compared with $69 million in the same period a year ago. Earnings increased primarily due to stronger industry refining margins of about $270 million partially offset by higher expenses of about $40 million mainly due to higher maintenance activities and the unfavourable effects of the stronger Canadian dollar of about $20 million. Refinery crude runs increased by 39 thousand barrels a day in the third quarter, following completion of planned maintenance activities in the prior quarter.

Nine months net income was $612 million, an increase of $436 million over 2010. Higher earnings were primarily due to favourable impacts of stronger industry refining margins of about $525 million and $40 million associated with improved refinery operations. These factors were partially offset by the unfavourable impacts of the stronger Canadian dollar of about $55 million and higher expenses of about $40 million mainly due to higher maintenance activities. Earnings in 2010 included a gain of about $25 million from sale of non-operating assets.

Chemical

Net income was $37 million in the third quarter, $14 million higher than the same quarter last year. Improved industry margins for intermediate products and lower costs due to lower planned maintenance activities were the main contributors to the increase.

Net income in the first nine months of 2011 was $111 million, up $67 million from 2010. Earnings were positively impacted by improved industry margins across all product channels, lower costs due to lower planned maintenance activities and higher polyethylene sales volumes.

Corporate and other

Net income effects from Corporate and other were $16 million in the third quarter, compared with negative $22 million in the same period of 2010. Favourable effects were primarily due to lower share-based compensation charges. For the nine months of 2011, net income effects from Corporate and other were negative $43 million, in line with the negative $47 million reported last year.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $1,658 million in the third quarter and $3,273 million in the first nine months of 2011, an increase of $693 million and $1,070 million from corresponding periods in 2010. Higher cash flow in both the third quarter and nine months of 2011 was primarily due to higher earnings along with working capital effects.

Investing activities used net cash of $1,061 million in the third quarter, compared with $1,113 million in the same period of 2010. Additions to property, plant and equipment were $1,087 million in the third quarter, compared with $1,147 million during the same quarter 2010. For the Upstream segment, expenditures during the quarter were primarily directed towards the advancement of the Kearl initial development and Kearl expansion oil sands project. Other investments included advancing the Nabiye expansion project at Cold Lake, environmental and efficiency projects at Syncrude, as well as exploration drilling and the advancement of the production pilot at Horn River. The Downstream segment’s capital expenditures were focused mainly on refinery projects to improve reliability, feedstock flexibility, energy efficiency and environmental performance.

Cash used in financing activities was $96 million in the third quarter, compared with $135 million of cash from financing activities in the third quarter of 2010. The 2010 results included debt issuance of $230 million.

Dividends paid in the third quarter of 2011 were $93 million, same as in the corresponding period in 2010. Per-share dividend declared for the first three quarters of 2011 totaled $0.33, up from $0.32 in the same period of 2010.

During the third quarter of 2011, the company limited its share repurchases to those to offset the dilutive effects from the exercise of stock options. The company will continue to evaluate its share-purchase program in the context of its overall capital project activities.

The above factors led to an increase in the company’s balance of cash to $920 million at September 30, 2011, from $267 million at the end of 2010.


Item 3.		Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the nine months ended September 30, 2011 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, 2010 and Form 10-Q for the quarter ended June 30, 2011.


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 September 30, 2011. 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On September 15, 2011 Imperial Oil Resources NWT Ltd., a subsidiary of Imperial Oil Limited, pled guilty to a charge of depositing a substance harmful to fish and fish habitat in a backwash pond near the Mackenzie River. For this offence under the Fisheries Act, Imperial Oil was fined $5,000 and agreed to pay an additional $155,000 to the federal government for conservation and protection of fish and fish habitat. For a second and related offence of violating the conditions of its water license under the NWT Waters Act, the company was fined an additional $25,000.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the period July 1, 2011 to September 30, 2011, the company issued 61,251 common shares to employees or former employees outside the U.S.A. for $15.50 per share upon the exercise of stock options. These issuances were not registered under the Securities Act in reliance on Regulation S thereunder.

Issuer Purchases of Equity Securities (1)



Period	(a) 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 shares (or units) that may yet be purchased under the plans or programs
July 2011 (July 1- July 31)	0	0	0	42,287,486
August 2011 (August 1 - August 31)	57,600	$40.6699	57,600	42,141,005
September 2011 (Sept 1 - Sept 30)	14,400	$37.8179	14,400	42,035,505

(1)

On June 23, 2011, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its share repurchase program. The new program enables the company to repurchase up to a maximum of 42,385,463 common shares, including common shares purchased for the company’s employee savings plan, the company’s employee retirement plan and from Exxon Mobil Corporation during the period June 25, 2011 to June 24, 2012. If not previously terminated, the program will end on June 24, 2012.

The company will continue to evaluate its share-purchase program in the context of its overall capital activities.

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 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.

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: November 3, 2011		/s/ Paul J. Masschelin

		(Signature)
		Paul J. Masschelin
		Senior Vice-President, Finance and Administration and Treasurer
		(Principal Accounting Officer)

Date: November 3, 2011		/s/ Brent A. Latimer

		(Signature)
		Brent A. Latimer
		Assistant Secretary

IMPERIAL OIL LTD - Quarter Report: 2011 September (Form 10-Q)

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