IMPERIAL OIL LTD - Quarter Report: 2012 June (Form 10-Q)

IMPERIAL OIL LTD - Quarter Report: 2012 June (Form 10-Q)

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Table of Contents

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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 June 30, 2012

[ ] 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).

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 June 30, 2012, was 847,599,011.

IMPERIAL OIL LIMITED

INDEX



	PAGE

PART I - Financial Information

Item 1 - Financial Statements.

Consolidated Statement of Income -Six Months ended June 30, 2012 and 2011		3

Consolidated Statement of Comprehensive Income -Six Months ended June 30, 2012 and 2011		4

Consolidated Balance Sheet - as at June 30, 2012 and December 31, 2011		5

Consolidated Statement of Cash Flows - Six Months ended June 30, 2012 and 2011		6

Notes to the Consolidated Financial Statements		7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.		13

Item 3 - Quantitative and Qualitative Disclosures about Market Risk.		16

Item 4 - Controls and Procedures.		16

PART II - Other Information

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.		17

Item 6 - Exhibits.		18

SIGNATURES		18

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, 2011.

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)


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2012		2011		2012		2011


REVENUES AND OTHER INCOME
Operating revenues (a) (b)		7,452		7,761		14,946		14,613
Investment and other income (note 3)		63		13		102		32

TOTAL REVENUES AND OTHER INCOME		7,515		7,774		15,048		14,645

EXPENSES
Exploration		18		22		46		59
Purchases of crude oil and products (c)		4,645		4,966		9,031		8,946
Production and manufacturing (d)		1,247		1,058		2,224		2,037
Selling and general		247		253		531		574
Federal excise tax (a)		340		325		656		640
Depreciation and depletion		178		190		368		378
Financing costs (note 5)		–		1		–		1

TOTAL EXPENSES		6,675		6,815		12,856		12,635

INCOME BEFORE INCOME TAXES		840		959		2,192		2,010
INCOME TAXES		205		233		542		503

NET INCOME		635		726		1,650		1,507

PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (dollars) (note 8)		0.75		0.86		1.95		1.78
Net income per common share - diluted (dollars) (note 8)		0.75		0.85		1.94		1.76
Dividends per common share (dollars)		0.12		0.11		0.24		0.22

(a) Federal excise tax included in operating revenues		340		325		656		640
(b) Amounts from related parties included in operating revenues		938		638		1,645		1,120
(c) Amounts to related parties included in purchases of crude oil and products		1,022		766		1,555		1,881
(d) Amounts to related parties included in production and manufacturing expenses		71		48		105		101

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

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(U.S. GAAP, unaudited)


	Second Quarter					Six Months to June 30
millions of Canadian dollars	2012		2011			2012			2011


Net income		635		726			1,650			1,507
Other comprehensive income, net of income taxes
Post-retirement benefit liability adjustment (excluding amortization)		-		(64	)		(117	)		(172	)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs		51		36			99			69

Total other comprehensive income/(loss)		51		(28	)		(18	)		(103	)

Comprehensive income		686		698			1,632			1,404

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 June 30			As at Dec 31
millions of Canadian dollars	2012			2011


ASSETS
Current assets
Cash		996			1,202
Accounts receivable, less estimated doubtful accounts		2,143			2,290
Inventories of crude oil and products		931			762
Materials, supplies and prepaid expenses		264			239
Deferred income tax assets		550			590

Total current assets		4,884			5,083
Long-term receivables, investments and other long-term assets		928			920
Property, plant and equipment,		35,674			33,416
less accumulated depreciation and depletion		(14,507	)		(14,254	)

Property, plant and equipment, net		21,167			19,162
Goodwill		204			204
Other intangible assets, net		58			60

TOTAL ASSETS		27,241			25,429

LIABILITIES
Current liabilities
Notes and loans payable		364			364
Accounts payable and accrued liabilities (a) (note 7)		4,542			4,317
Income taxes payable		1,357			1,268

Total current liabilities		6,263			5,949
Long-term debt (b) (note 6)		841			843
Other long-term obligations (note 7)		3,856			3,876
Deferred income tax liabilities		1,617			1,440

TOTAL LIABILITIES		12,577			12,108

SHAREHOLDERS’ EQUITY
Common shares at stated value (c)		1,566			1,528
Earnings reinvested		15,354			14,031
Accumulated other comprehensive income (note 9)		(2,256	)		(2,238	)

TOTAL SHAREHOLDERS’ EQUITY		14,664			13,321

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		27,241			25,429

(a)	Accounts payable and accrued liabilities included amounts payable to related parties of $147 million (2011 - amounts payable of $215 million).

(b)	Long-term debt included amounts to related parties of $820 million (2011 - $820 million).

(c)	Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2011 - 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)


	Second Quarter						Six Months to June 30
millions of Canadian dollars	2012			2011			2012			2011


OPERATING ACTIVITIES
Net income		635			726			1,650			1,507
Adjustment for non-cash items:
Depreciation and depletion		178			190			368			378
(Gain)/loss on asset sales (note 3)		(55	)		-			(84	)		(6	)
Deferred income taxes and other		169			4			217			(86	)
Changes in operating assets and liabilities:
Accounts receivable		(1	)		(62	)		139			(307	)
Inventories, materials, supplies and prepaid expenses		237			(49	)		(194	)		(511	)
Income taxes payable		29			33			88			50
Accounts payable and accrued liabilities		155			(21	)		226			710
All other items - net (a)		(30	)		(165	)		(46	)		(120	)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		1,317			656			2,364			1,615

INVESTING ACTIVITIES
Additions to property, plant and equipment		(1,290	)		(903	)		(2,435	)		(1,725	)
Proceeds from asset sales		61			6			139			20
Repayment of loan from equity company		5			4			8			6

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES		(1,224	)		(893	)		(2,288	)		(1,699	)

FINANCING ACTIVITIES
Short-term debt - net		-			135			-			135
Long-term debt issued		-			320			-			320
Reduction in capitalized lease obligations		(1	)		(1	)		(2	)		(2	)
Issuance of common shares under stock option plan		21			3			43			14
Common shares purchased		(60	)		(8	)		(128	)		(44	)
Dividends paid		(102	)		(94	)		(195	)		(187	)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		(142	)		355			(282	)		236

INCREASE (DECREASE) IN CASH		(49	)		118			(206	)		152
CASH AT BEGINNING OF PERIOD		1,045			301			1,202			267

CASH AT END OF PERIOD		996			419			996			419


(a) Included contribution to registered pension plans		(147	)		(232	)		(244	)		(298	)

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 preparation

These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission in the company’s 2011 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, 2012, 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


Second Quarter	Upstream				Downstream					Chemical
millions of dollars	2012		2011		2012		2011			2012		2011


REVENUES AND OTHER INCOME
Operating revenues		1,073		1,400		6,032		6,021			347		340
Intersegment sales		948		1,140		594		728			69		105
Investment and other income		38		3		22		9			-		-

		2,059		2,543		6,648		6,758			416		445

EXPENSES
Exploration		18		22		-		-			-		-
Purchases of crude oil and products		740		963		5,234		5,647			282		329
Production and manufacturing		701		596		499		415			47		47
Selling and general		-		2		222		237			16		16
Federal excise tax		-		-		340		325			-		-
Depreciation and depletion		119		132		52		52			4		4
Financing costs		-		-		-		1			-		-

TOTAL EXPENSES		1,578		1,715		6,347		6,677			349		396

INCOME BEFORE INCOME TAXES		481		828		301		81			67		49
INCOME TAXES		121		204		69		17			18		13

NET INCOME		360		624		232		64			49		36

Export sales to the United States		386		559		517		307			230		228
Cash flows from (used in) operating activities		599		823		591		(252	)		99		77
CAPEX (a)		1,272		884		30		36			1		1


Second Quarter	Corporate and Other						Eliminations						Consolidated
millions of dollars	2012			2011			2012			2011			2012		2011


REVENUES AND OTHER INCOME
Operating revenues		-			-			-			-			7,452		7,761
Intersegment sales		-			-			(1,611	)		(1,973	)		-		-
Investment and other income		3			1			-			-			63		13

		3			1			(1,611	)		(1,973	)		7,515		7,774

EXPENSES
Exploration		-			-			-			-			18		22
Purchases of crude oil and products		-			-			(1,611	)		(1,973	)		4,645		4,966
Production and manufacturing		-			-			-			-			1,247		1,058
Selling and general		9			(2	)		-			-			247		253
Federal excise tax		-			-			-			-			340		325
Depreciation and depletion		3			2			-			-			178		190
Financing costs		-			-			-			-			-		1

TOTAL EXPENSES		12			-			(1,611	)		(1,973	)		6,675		6,815

INCOME BEFORE INCOME TAXES		(9	)		1			-			-			840		959
INCOME TAXES		(3	)		(1	)		-			-			205		233

NET INCOME		(6	)		2			-			-			635		726

Export sales to the United States		-			-			-			-			1,133		1,094
Cash flows from (used in) operating activities		28			8			-			-			1,317		656
CAPEX (a)		5			4			-			-			1,308		925

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

IMPERIAL OIL LIMITED


Six Months to June 30 millions of dollars	Upstream				Downstream				Chemical
Six Months to June 30 millions of dollars	2012		2011		2012		2011		2012		2011


REVENUES AND OTHER INCOME
Operating revenues		2,468		2,574		11,787		11,368		691		671
Intersegment sales		2,042		2,297		1,388		1,439		151		194
Investment and other income		41		11		55		18		-		-

		4,551		4,882		13,230		12,825		842		865

EXPENSES
Exploration		46		59		-		-		-		-
Purchases of crude oil and products		1,761		1,824		10,255		10,416		596		636
Production and manufacturing		1,292		1,195		840		752		92		90
Selling and general		2		3		463		460		33		32
Federal excise tax		-		-		656		640		-		-
Depreciation and depletion		248		265		108		102		7		7
Financing costs		-		-		-		-		-		-

TOTAL EXPENSES		3,349		3,346		12,322		12,370		728		765

INCOME BEFORE INCOME TAXES		1,202		1,536		908		455		114		100
INCOME TAXES		300		384		221		115		30		26

NET INCOME		902		1,152		687		340		84		74

Export sales to the United States		849		1,108		748		558		441		428
Cash flows from (used in) operating activities		1,486		1,540		778		19		46		82
CAPEX (a)		2,417		1,702		53		72		2		3
Total assets as at June 30		19,146		15,184		6,633		7,044		368		416


Six Months to June 30 millions of dollars	Corporate and Other						Eliminations						Consolidated
Six Months to June 30 millions of dollars	2012			2011			2012			2011			2012		2011


REVENUES AND OTHER INCOME
Operating revenues		-			-			-			-			14,946		14,613
Intersegment sales		-			-			(3,581	)		(3,930	)		-		-
Investment and other income		6			3			-			-			102		32

		6			3			(3,581	)		(3,930	)		15,048		14,645

EXPENSES
Exploration		-			-			-			-			46		59
Purchases of crude oil and products		-			-			(3,581	)		(3,930	)		9,031		8,946
Production and manufacturing		-			-			-			-			2,224		2,037
Selling and general		33			79			-			-			531		574
Federal excise tax		-			-			-			-			656		640
Depreciation and depletion		5			4			-			-			368		378
Financing costs		-			1			-			-			-		1

TOTAL EXPENSES		38			84			(3,581	)		(3,930	)		12,856		12,635

INCOME BEFORE INCOME TAXES		(32	)		(81	)		-			-			2,192		2,010
INCOME TAXES		(9	)		(22	)		-			-			542		503

NET INCOME		(23	)		(59	)		-			-			1,650		1,507

Export sales to the United States		-			-			-			-			2,038		2,094
Cash flows from (used in) operating activities		54			(26	)		-			-			2,364		1,615
CAPEX (a)		9			7			-			-			2,481		1,784
Total assets as at June 30		1,221			640			(127	)		(318	)		27,241		22,966

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

IMPERIAL OIL LIMITED

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 dollars	2012		2011		2012		2011


Proceeds from asset sales		61		6		139		20
Book value of assets sold		6		6		55		14

Gain/(loss) on asset sales, before tax		55		-		84		6

Gain/(loss) on asset sales, after tax		46		-		70		4

4. Employee retirement benefits

The components of net benefit cost were as follows:


	Second Quarter						Six Months to June 30
millions of dollars	2012			2011			2012			2011


Pension benefits:
Current service cost		41			32			80			61
Interest cost		72			79			144			157
Expected return on plan assets		(72	)		(78	)		(144	)		(154	)
Amortization of prior service cost		6			6			11			10
Recognized actuarial loss		61			41			118			81

Net benefit cost		108			80			209			155

Other post-retirement benefits:
Current service cost		2			2			4			3
Interest cost		6			6			11			12
Recognized actuarial loss		2			-			4			1

Net benefit cost		10			8			19			16

IMPERIAL OIL LIMITED

5. Financing costs


	Second Quarter						Six Months to June 30
millions of dollars	2012			2011			2012			2011


Debt related interest		5			4			9			7
Capitalized interest		(5	)		(4	)		(9	)		(7	)

Net interest expense		-			-			-			-
Other interest		-			1			-			1

Total financing costs		-			1			-			1

6. Long-term debt


	As at June 30		As at Dec 31
millions of dollars	2012		2011


Long-term debt		820		820
Capital leases		21		23

Total long-term debt		841		843

In the second quarter, the company extended the maturity date of its existing unused $200 million long-term bank credit facility to July 2014.

7. Other long-term obligations


	As at June 30		As at Dec 31
millions of dollars	2012		2011


Employee retirement benefits (a)		2,602		2,645
Asset retirement obligations and other environmental liabilities (b)		908		914
Share-based incentive compensation liabilities		146		125
Other obligations		200		192

Total other long-term obligations		3,856		3,876

(a)	Total recorded employee retirement benefits obligations also included $48 million in current liabilities (December 31, 2011 - $48 million).

(b)	Total asset retirement obligations and other environmental liabilities also included $145 million in current liabilities (December 31, 2011 - $145 million).

IMPERIAL OIL LIMITED

8. Net income per share

Second Quarter

Six Months

to June 30

2012

2011

2012

2011

Net income per common share - basic

Net income (millions of dollars)

635

726

1,650

1,507

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

848.0

847.7

847.9

847.7

Net income per common share (dollars)

0.75

0.86

1.95

1.78

Net income per common share - diluted

Net income (millions of dollars)

635

726

1,650

1,507

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

848.0

847.7

847.9

847.7

Effect of employee share-based awards (millions of shares)

3.6

6.2

3.5

6.3

Weighted average number of common shares outstanding, assuming dilution (millions of shares)

851.6

853.9

851.4

854.0

Net income per common share (dollars)

0.75

0.85

1.94

1.76

9. Other comprehensive income information

Changes in accumulated other comprehensive income:


millions of dollars	2012			2011


January 1 balance		(2,238	)		(1,424	)
Post-retirement benefits liability adjustment:
Current period change excluding amounts reclassified from accumulated other comprehensive income		(117	)		(172	)
Amounts reclassified from accumulated other comprehensive income		99			69

June 30 balance		(2,256	)		(1,527	)

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


	Second Quarter					Six Months to June 30
millions of dollars	2012		2011			2012			2011


Post-retirement benefits liability adjustments:
Post-retirement benefits liability adjustment (excluding amortization)		-		(22	)		(40	)		(59	)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit cost		18		13			34			24

		18		(9	)		(6	)		(35	)

Item 2.

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

OPERATING RESULTS

The company’s net income for the second quarter of 2012 was $635 million or $0.75 a share on a diluted basis, compared with $726 million or $0.85 a share for the same period last year. Net income for the first six months of 2012 was $1,650 million or $1.94 a share on a diluted basis, versus $1,507 million or $1.76 a share for the first half of 2011.

Lower second quarter earnings were primarily attributable to the impacts of lower upstream realizations due to lower commodity prices of about $345 million and higher planned maintenance events totalling about $230 million, which included about $120 million at the Downstream refineries and about $110 million at Syncrude. Earnings in the second quarter of 2012 were also impacted by higher Kearl production readiness expenditures of about $30 million. These factors were partially offset by the impacts of stronger industry refining margins of about $270 million, lower royalty costs of about $145 million and a weaker Canadian dollar of about $50 million. Second quarter earnings in 2012 included a gain of about $25 million from the sale of assets.

For the six months, earnings increased primarily due to stronger industry refining margins of about $410 million and lower royalty costs of about $95 million. These factors were partially offset by lower upstream realizations of about $245 million due to lower commodity prices and lower Syncrude volumes of about $105 million, due primarily to increased planned maintenance impacts.

Upstream

Net income in the second quarter was $360 million versus $624 million in the same period of 2011. Earnings decreased primarily due to lower realizations of about $345 million, lower Syncrude volumes due to planned maintenance activities of about $75 million and higher Syncrude maintenance costs of about $35 million. Earnings in the second quarter of 2012 were also impacted by higher Kearl production readiness expenditures of about $30 million. These factors were partially offset by lower royalty costs due to lower realizations of about $145 million and the impact of a weaker Canadian dollar of about $50 million. Second quarter earnings in 2012 included a gain of about $25 million from the sale of assets.

Net income for the six months of 2012 was $902 million versus $1,152 million from 2011. Earnings were lower primarily due to the impacts of lower realizations of about $245 million, lower Syncrude volumes of about $105 million and higher maintenance costs of about $45 million. These factors were partially offset by lower royalty costs of about $95 million and the impact of a weaker Canadian dollar of about $60 million.

Prices for most of the company’s liquids production are based on West Texas Intermediate (WTI) crude oil, a common benchmark for mid-continent North American oil markets. Compared to the corresponding periods last year, the average WTI crude price in U.S. dollars was lower by $8.99 a barrel or nine percent in the second quarter of 2012 and by $0.35 a barrel or less than one percent in the first six months of 2012. Also, discounts for bitumen and synthetic crude oils increased in the second quarter and first six months of 2012, reflecting high industry refining downtime in mid-continent North America. For the second quarter and in the first six months of 2012, bitumen realizations in Canadian dollars decreased 17 percent and one percent, respectively, and synthetic crude oil realizations in Canadian dollars decreased 19 percent and seven percent, respectively, compared to the corresponding periods last year.

Gross production of Cold Lake bitumen averaged 152 thousand barrels a day during the second quarter, versus 158 thousand barrels in the same period last year. For the six months, gross production was 155 thousand barrels a day this year, compared with 157 thousand barrels in the same period of 2011. Slightly lower volumes in both periods were primarily due to planned maintenance activities at the Mahkeses plant as well as the cyclic nature of production at Cold Lake.

The company’s share of Syncrude’s gross production in the second quarter was 60 thousand barrels a day, versus 70 thousand barrels in the second quarter of 2011. During the six months of the year, the company’s share of gross production from Syncrude averaged 67 thousand barrels a day, down from 75 thousand barrels in 2011. Planned maintenance of one of the three cokers in the second quarter was the main contributor to lower production in both periods.

Gross production of conventional crude oil averaged 20 thousand barrels a day in both the second quarter and the first six months of the year, up from the 16 thousand barrels and 19 thousand barrels, respectively, in the corresponding periods in 2011 when third-party pipeline downtime significantly reduced production at the Norman Wells field.

Gross production of natural gas during the second quarter of 2012 was 195 million cubic feet a day, down from 257 million cubic feet in the same period last year. In the six months of the year, gross production was 197 million cubic feet a day, down from 263 million cubic feet in the six months of 2011. The lower production volume in both periods was primarily a result of the impact of divested producing properties.

Downstream

Net income was $232 million in the second quarter, $168 million higher than the second quarter of 2011. Earnings increased primarily due to the favourable impact of stronger industry refining margins of about $270 million. This factor was partially offset by the unfavourable impact of significant maintenance activities of about $120 million.

Industry refining margins continued to be strong in the second quarter, as the overall cost of crude oil processed at three of the company’s four refineries followed the trend of WTI prices and Western Canadian crude oils. Canadian wholesale prices of refined products are largely determined by wholesale prices in adjacent U.S. regions, where wholesale prices are predominately tied to international product markets. Stronger industry refining margins are the result of the widened differential between product prices and cost of crude oil processed. Substantial planned maintenance activities at Strathcona and Nanticoke refineries along with unplanned downtime at the Sarnia refinery reduced our ability to fully capitalize on the strong refining margins.

Six months net income was $687 million, an increase of $347 million over 2011. Higher earnings were primarily due to stronger industry refining margins of about $410 million. This factor was partially offset by the unfavourable impact of a higher level of refinery planned maintenance activities compared with 2011 totalling about $80 million.

Chemical

Net income was $49 million in the second quarter, the best quarter on record and $13 million higher than the same quarter last year. Strong operating performance along with higher polyethylene sales volumes and margins were the main contributors to the increase.

Six months net income was $84 million, up $10 million from 2011. Earnings were positively impacted by improved margins across all product channels and higher polyethylene sales volumes.

Corporate and other

Net income effects from Corporate and other were negative $6 million in the second quarter, in line with $2 million in the same period of 2011. For the six months of 2012, net income effects from Corporate and other were negative $23 million, versus negative $59 million last year due to lower share-based compensation charges.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $1,317 million in the second quarter, an increase of $661 million from the corresponding period in 2011. Higher cash flow was primarily due to working capital effects. Year-to-date cash flow generated from operating activities was $2,364 million, compared with $1,615 million in the same period last year. Higher cash flow was primarily due to working capital effects and the timing of scheduled income tax payments.

Investing activities used net cash of $1,224 million in the second quarter, compared with $893 million in the same period of 2011. Additions to property, plant and equipment were $1,290 million in the second quarter, compared with $903 million during the same quarter 2011. Expenditures during the quarter were primarily directed towards the advancement of Kearl initial development and expansion. At the end of the second quarter of 2012, the Kearl Initial Development was 94 percent complete, with construction 88 percent complete. The project is progressing on schedule towards expected start-up in late 2012. Other investments included advancing the Nabiye expansion project at Cold Lake, environmental and efficiency projects at Syncrude, as well as tight oil acreage acquisitions.

Cash used in financing activities was $142 million in the second quarter, compared with $355 million of cash from financing activities in the second quarter of 2011. In the second quarter of 2011, the company issued additional long-term debt and commercial paper totalling $455 million. Dividends paid in the second quarter of 2012 were $102 million, $8 million higher than the corresponding period in 2011. Per-share dividends declared in the first six months of 2012 totalled $0.24, up from $0.22 in the same period of 2011.

In June, the company received approval from the Toronto Stock Exchange for a new normal course issuer bid to replace its existing share-purchase program that expired on June 24, 2012. The new share-purchase program enables the company to repurchase up to about 42 million shares during the period from June 25, 2012, to June 24, 2013, including shares purchased for the company’s employee savings plan, the company’s employee retirement plan and from ExxonMobil. During the second quarter of 2012, 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 a decrease in the company’s balance of cash to $996 million at June 30, 2012, from $1,202 million at the end of 2011.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the six months ended June 30, 2012 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, 2011 except for the following:

Earnings sensitivity (a)

millions of dollars after tax

Eight dollars (U.S.) a barrel change in crude oil prices + (-) 300

(a) The amount quoted to illustrate the impact of the sensitivity represents a change of about 10 percent in the value of the rate at the end of the second quarter 2012. The sensitivity calculation shows the impact on annual net income that results from a change in one factor, after tax and royalties and holding all other factors constant. While the sensitivity is applicable under current conditions, it may not apply proportionately to larger fluctuations.

The sensitivity of net income to changes in crude oil prices increased from year-end 2011 by about $4 million (after tax) a year for each one U.S. dollar change. The increase was primarily a result of the impact of lower royalty costs for bitumen production due to lower crude oil commodity prices.

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, 2012. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the period April 1, 2012 to June 30, 2012, the company issued 1,153,947 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)(2)


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
April 2012 (April 1- April 30)	246,003	45.3448	246,003	39,490,994
May 2012 (May 1 – May 31)	1,097,871	44.7521	1,097,871	38,306,196
June 2012 (June 1 – June 30)	0	0	0	38,231,759

(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 program enabled 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. The program ended on June 24, 2012.

(2)

On June 21, 2012, 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 42,379,951 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, 2012 to June 24, 2013. 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: August 1, 2012		/s/ Paul J. Masschelin


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



Date: August 1, 2012						/s/ Brent A. Latimer


						(Signature) Brent A. Latimer Assistant Secretary

Large accelerated filer

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Non-accelerated filer

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