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IMPERIAL OIL LTD - Quarter Report: 2014 September (Form 10-Q)

10-Q
Table of Contents

 

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, 2014

OR

[    ]  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, 2014, was 847,599,011.


Table of Contents

IMPERIAL OIL LIMITED

 

 

INDEX

 

     PAGE  
PART I - Financial Information   

Item 1 - Financial Statements.

  

Consolidated Statement of Income - Nine Months ended September 30, 2014 and 2013

     3   

Consolidated Statement of Comprehensive Income - Nine Months ended September 30, 2014 and 2013

     4   

Consolidated Balance Sheet - as at September 30, 2014 and December 31, 2013

     5   

Consolidated Statement of Cash Flows - Nine Months ended September 30, 2014 and 2013

     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.

     17   
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, 2013.

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.

The term “project” as used in this release can refer to a variety of different activities and does not necessarily have the same meaning as under government payment transparency reports.

 

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Table of Contents

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    2014        2013             2014        2013    

 

 

REVENUES AND OTHER INCOME

                  

Operating revenues (a) (b)

     9,641           8,577              28,237           24,470     

Investment and other income (note 3)

     17           17              696           96     
  

 

 

       

 

 

 

TOTAL REVENUES AND OTHER INCOME

           9,658           8,594                    28,933           24,566     
  

 

 

       

 

 

 

EXPENSES

                  

Exploration

     14           30              52           74     

Purchases of crude oil and products (c)

     6,100           5,484              17,677           15,460     

Production and manufacturing (d)

     1,358           1,325              4,224           3,974     

Selling and general

     254           291              825           797     

Federal excise tax (a)

     412           385              1,165           1,041     

Depreciation and depletion

     276           223              836           860     

Financing costs (note 5)

     (1        (1)             3           1     
  

 

 

       

 

 

 

TOTAL EXPENSES

     8,413           7,737              24,782           22,207     
  

 

 

       

 

 

 

INCOME BEFORE INCOME TAXES

     1,245           857              4,151           2,359     

INCOME TAXES

     309           210              1,037           587     
  

 

 

       

 

 

 

NET INCOME

     936           647              3,114           1,772     
  

 

 

       

 

 

 

PER SHARE INFORMATION (Canadian dollars)

                  

Net income per common share - basic (note 8)

     1.10           0.76              3.67           2.09     

Net income per common share - diluted (note 8)

     1.10           0.76              3.66           2.08     

Dividends per common share

     0.13           0.12              0.39           0.36     

(a)    Federal excise tax included in operating revenues

     412           385              1,165           1,041     

(b)    Amounts from related parties included in operating revenues

     1,201           711              2,759           1,936     

(c)    Amounts to related parties included in purchases of crude oil and products

     1,111           1,018              2,939           3,544     

(d)    Amounts to related parties included in production and manufacturing expenses

     93           85              268           255     

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

 

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IMPERIAL OIL LIMITED

 

 

  

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(U.S. GAAP, unaudited)                            Nine Months  
             Third Quarter               to September 30  
millions of Canadian dollars            2014        2013                  2014        2013     

 

 

Net income

     936           647             3,114           1,772      

Other comprehensive income, net of income taxes

                 

Post-retirement benefit liability adjustment (excluding amortization)

     —             —               (38        (102)     

Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs

     34           52             109           154      
  

 

 

      

 

 

 

Total other comprehensive income/(loss)

     34           52             71           52      
  

 

 

      

 

 

 
                 
  

 

 

      

 

 

 

Comprehensive income

             970           699                   3,185           1,824      
  

 

 

      

 

 

 

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

 

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IMPERIAL OIL LIMITED

 

 

  

CONSOLIDATED BALANCE SHEET

(U.S. GAAP, unaudited)    As at     As at    
     Sept 30     Dec 31    
millions of Canadian dollars    2014     2013    

 

 

ASSETS

    

Current assets

    

Cash

     43         272      

Accounts receivable, less estimated doubtful accounts (a)

     2,301         2,084      

Inventories of crude oil and products

     1,107         1,030      

Materials, supplies and prepaid expenses

     396         342      

Deferred income tax assets

     618         559      
  

 

 

 

Total current assets

     4,465         4,287      

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

     1,379         1,332      

Property, plant and equipment,

          49,263         47,165      

less accumulated depreciation and depletion

     (15,141)            (15,845)     
  

 

 

 

Property, plant and equipment, net

     34,122         31,320      

Goodwill

     224         224      

Other intangible assets, net

     52         55      
  

 

 

 

TOTAL ASSETS

     40,242         37,218      
  

 

 

 

LIABILITIES

    

Current liabilities

    

Notes and loans payable (b)

     1,759         1,843      

Accounts payable and accrued liabilities (a) (note 7)

     4,571         4,518      

Income taxes payable

     698         727      
  

 

 

 

Total current liabilities

     7,028         7,088      

Long-term debt (c) (note 6)

     4,443         4,444      

Other long-term obligations (note 7)

     2,817         3,091      

Deferred income tax liabilities

     3,575         3,071      
  

 

 

 

TOTAL LIABILITIES

     17,863         17,694      
  

 

 

 

SHAREHOLDERS’ EQUITY

    

Common shares at stated value (d)

     1,566         1,566      

Earnings reinvested

     22,463         19,679      

Accumulated other comprehensive income (note 9)

     (1,650)        (1,721)     
  

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     22,379         19,524      
  

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

     40,242         37,218      
  

 

 

 

 

(a) Accounts receivable, less estimated doubtful accounts included amounts receivable from related parties of $79 million (2013 - accounts payable and accrued liabilities included amounts payable to related parties of $170 million).
(b) Notes and loans payable included amounts to related parties of $75 million (2013 - $75 million).
(c) Long-term debt included amounts to related parties of $4,316 million (2013 - $4,316 million).
(d) Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2013 - 1,100 million and 848 million, respectively).

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

 

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IMPERIAL OIL LIMITED

 

 

  

CONSOLIDATED STATEMENT OF CASH FLOWS

(U.S. GAAP, unaudited)

inflow/(outflow)

          Third Quarter                 Nine Months
      to September 30
 
millions of Canadian dollars    2014      2013             2014      2013    

 

 

OPERATING ACTIVITIES

              

Net income

     936         647              3,114         1,772     

Adjustments for non-cash items:

              

Depreciation and depletion

     276         223              836         860     

(Gain)/loss on asset sales (note 3)

     (4      (5)             (664      (60)    

Deferred income taxes and other

     185         106              411         276     

Changes in operating assets and liabilities:

              

Accounts receivable

     104         51              (217      (166)    

Inventories, materials, supplies and prepaid expenses

     42         46              (131      (451)    

Income taxes payable

     (12      (485)             (29      (607)    

Accounts payable and accrued liabilities

     (216      (226)             (20      282     

All other items - net (a)

     (81      (59)             14         (273)    
  

 

 

       

 

 

 

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

     1,230         298              3,314         1,633     
  

 

 

       

 

 

 

INVESTING ACTIVITIES

              

Additions to property, plant and equipment

           (1,351      (1,810)                   (3,852      (4,771)    

Acquisition

     —           —                —           (1,602)    

Proceeds from asset sales

     7         6              814         68     

Additional investments

     (35      —                (79      —       

Repayment of loan from equity company

     —           —                —           4     
  

 

 

       

 

 

 

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES

     (1,379      (1,804)             (3,117      (6,301)    
  

 

 

       

 

 

 

FINANCING ACTIVITIES

              

Short-term debt - net

     135         325              (88      1,359     

Long-term debt issued

     —           819              —           3,213     

Reduction in capitalized lease obligations

     (3      (2)             (7      (5)    

Dividends paid

     (111      (102)             (331      (305)    
  

 

 

       

 

 

 

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES

     21         1,040              (426      4,262     
  

 

 

       

 

 

 

INCREASE (DECREASE) IN CASH

     (128      (466)             (229      (406)    

CASH AT BEGINNING OF PERIOD

     171         542              272         482     
  

 

 

       

 

 

 

CASH AT END OF PERIOD

     43         76              43         76     
  

 

 

       

 

 

 

(a) Included contribution to registered pension plans

     (95      (163)              (267      (461)    

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

 

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Table of Contents

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 2013 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 nine months ended September 30, 2014, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

 

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Table of Contents

IMPERIAL OIL LIMITED

 

 

 

2. Business segments

 

Third Quarter   Upstream   Downstream       Chemical  
millions of dollars   2014     2013            2014     2013            2014     2013    

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

    2,365        1,786             6,912        6,469             364        322     

Intersegment sales

    1,077        1,397             318        415             93        96     

Investment and other income

    2        8             14        9             —          —       
 

 

 

      

 

 

      

 

 

 
        3,444            3,191             7,244        6,893             457        418     
 

 

 

      

 

 

      

 

 

 

EXPENSES

                 

Exploration

    14        30             —          —               —          —       

Purchases of crude oil and products

    1,590        1,307             5,701        5,789             296        295     

Production and manufacturing

    917        880             389        396             52        50     

Selling and general

    (1     1             234        217             17        17     

Federal excise tax

    —          —               412        385             —          —       

Depreciation and depletion

    219        168             52        50             3        3     

Financing costs

    (1     —               —          (1)            —          —       
 

 

 

      

 

 

      

 

 

 

TOTAL EXPENSES

    2,738        2,386             6,788        6,836             368        365     
 

 

 

      

 

 

      

 

 

 

INCOME BEFORE INCOME TAXES

    706        805             456        57             89        53     

INCOME TAXES

    174        201             113        11             23        14     
 

 

 

      

 

 

      

 

 

 

NET INCOME

    532        604             343        46             66        39     
 

 

 

      

 

 

      

 

 

 

Cash flows from (used in) operating activities

    1,072        601             114        (315)            77        7     

CAPEX (b)

    1,280        1,765             127        51             7        3     
Third Quarter   Corporate and Other   Eliminations       Consolidated  
millions of dollars   2014     2013            2014     2013            2014     2013    

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

    —          —               —          —                   9,641            8,577     

Intersegment sales

    —          —               (1,488     (1,908)            —          —       

Investment and other income

    1        —               —          —               17        17     
 

 

 

      

 

 

      

 

 

 
    1        —                   (1,488     (1,908)            9,658        8,594     
 

 

 

      

 

 

      

 

 

 

EXPENSES

                 

Exploration

    —          —               —          —               14        30     

Purchases of crude oil and products

    —          —               (1,487         (1,907)            6,100        5,484     

Production and manufacturing

    —          —               —          (1)            1,358        1,325     

Selling and general

    5        56             (1     —               254        291     

Federal excise tax

    —          —               —          —               412        385     

Depreciation and depletion

    2        2             —          —               276        223     

Financing costs

    —          —               —          —               (1     (1)    
 

 

 

      

 

 

      

 

 

 

TOTAL EXPENSES

    7        58             (1,488     (1,908)            8,413        7,737     
 

 

 

      

 

 

      

 

 

 

INCOME BEFORE INCOME TAXES

    (6     (58)            —          —               1,245        857     

INCOME TAXES

    (1     (16)            —          —               309        210     
 

 

 

      

 

 

      

 

 

 

NET INCOME

    (5     (42)            —          —               936        647     
 

 

 

      

 

 

      

 

 

 

Cash flows from (used in) operating activities

    (33     5             —          —               1,230        298     

CAPEX (b)

    20        21             —          —               1,434        1,840     

 

(a) Included export sales to the United States of $2,092 million (2013 - $1,380 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
(b) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles, additions to capital leases, additional investments and acquisition.

 

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IMPERIAL OIL LIMITED

 

 

 

Nine Months to September 30   Upstream   Downstream       Chemical  
millions of dollars   2014     2013            2014     2013            2014     2013    

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

    6,671        4,392             20,458        19,120             1,108        958     

Intersegment sales

    3,188        3,344             1,118        1,603             310        240     

Investment and other income

    658        55             34        39             —          —       
 

 

 

      

 

 

      

 

 

 
       10,517        7,791                21,610          20,762             1,418        1,198     
 

 

 

      

 

 

      

 

 

 

EXPENSES

                 

Exploration

    52        74             —          —               —          —       

Purchases of crude oil and products

    4,425        3,030             16,898        16,788             966        826     

Production and manufacturing (c)

    2,933        2,508             1,125        1,312             166        157     

Selling and general

    2        4             658        651             53        49     

Federal excise tax

    —          —               1,165        1,041             —          —       

Depreciation and depletion (c)

    657        443             162        401             9        9     

Financing costs

    3        —               —          1             —          —       
 

 

 

      

 

 

      

 

 

 

TOTAL EXPENSES

    8,072        6,059             20,008        20,194             1,194        1,041     
 

 

 

      

 

 

      

 

 

 

INCOME BEFORE INCOME TAXES

    2,445        1,732             1,602        568             224        157     

INCOME TAXES

    604        431             405        141             58        41     
 

 

 

      

 

 

      

 

 

 

NET INCOME

    1,841        1,301             1,197        427             166        116     
 

 

 

      

 

 

      

 

 

 

Cash flows from (used in) operating activities

    2,062        1,065             1,074        420             154        122     

CAPEX (b)

    3,680        6,272             310        128             15        6     

Total assets as at September 30

    33,799          29,693             6,027        6,159             381        374     
Nine Months to September 30   Corporate and Other   Eliminations       Consolidated  
millions of dollars   2014     2013            2014     2013            2014     2013    

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

    —          —               —          —               28,237        24,470     

Intersegment sales

    —          —               (4,616     (5,187)            —          —       

Investment and other income

    4        2             —          —               696        96     
 

 

 

      

 

 

      

 

 

 
    4        2             (4,616     (5,187)               28,933          24,566     
 

 

 

      

 

 

      

 

 

 

EXPENSES

                 

Exploration

    —          —               —          —               52        74     

Purchases of crude oil and products

    —          —               (4,612     (5,184)            17,677        15,460     

Production and manufacturing (c)

    —          —               —          (3)            4,224        3,974     

Selling and general

    116        93             (4     —               825        797     

Federal excise tax

    —          —               —          —               1,165        1,041     

Depreciation and depletion (c)

    8        7             —          —               836        860     

Financing costs

    —          —               —          —               3        1     
 

 

 

      

 

 

      

 

 

 

TOTAL EXPENSES

    124        100             (4,616     (5,187)            24,782        22,207     
 

 

 

      

 

 

      

 

 

 

INCOME BEFORE INCOME TAXES

    (120     (98)            —          —               4,151        2,359     

INCOME TAXES

    (30     (26)            —          —               1,037        587     
 

 

 

      

 

 

      

 

 

 

NET INCOME

    (90     (72)            —          —               3,114        1,772     
 

 

 

      

 

 

      

 

 

 

Cash flows from (used in) operating activities

    24        26             —          —               3,314        1,633     

CAPEX (b)

    61        47             —          —               4,066        6,453     

Total assets as at September 30

    426        364             (391     (509)            40,242        36,081     

 

(a) Included export sales to the United States of $4,888 million (2013 - $4,071 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
(b) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles, additions to capital leases, additional investments and acquisition.
(c) A second quarter 2013 charge in the Downstream segment of $355 million ($264 million, after-tax) associated with the company’s decision to convert the Dartmouth refinery to a terminal included the write-down of refinery plant and equipment not included in the terminal conversion of $245 million, reported as part of depreciation and depletion expenses, and decommissioning, environmental and employee-related costs of $110 million, reported as part of production and manufacturing expenses. Amounts incurred related to the project at the end of the third quarter 2014 associated with decommissioning, environmental and employee-related costs were $79 million.

 

 

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IMPERIAL OIL LIMITED

 

 

 

3. Investment and other income

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

 

      

  Third Quarter

      

  Nine Months

  to September 30

 
millions of dollars      2014        2013          2014          2013    

 

 

Proceeds from asset sales (a)

             7           6                   814             68     

Book value of assets sold

       3           1             150             8     
    

 

 

      

 

 

 

Gain/(loss) on asset sales, before tax (a)

       4           5             664             60     
    

 

 

      

 

 

 

Gain/(loss) on asset sales, after tax (a)

       2           5             498             46     
    

 

 

      

 

 

 

 

(a) The nine months ended September 30, 2014 included gains of $638 million ($478 million, after tax) from the sale of the company’s interest in producing conventional assets located in Boundary Lake, Cynthia/West Pembina and Rocky Mountain House.

 

4. Employee retirement benefits

The components of net benefit cost were as follows:

 

         Third Quarter          Nine Months
  to September 30
 
millions of dollars      2014          2013          2014          2013    

 

 

Pension benefits:

                   

Current service cost

       37             46             114             136     

Interest cost

       82             71             241             211     

Expected return on plan assets

             (95)            (85)                (277)            (248)    

Amortization of prior service cost

       6             6             17             17     

Amortization of actuarial loss

       39             61             125             182     
    

 

 

      

 

 

 

Net benefit cost

       69             99             220             298     
    

 

 

      

 

 

 

Other post-retirement benefits:

                   

Current service cost

       3             3             8             8     

Interest cost

       7             5             19             16     

Amortization of actuarial loss

       1             3             5             8     
    

 

 

      

 

 

 

Net benefit cost

       11             11             32             32     
    

 

 

      

 

 

 

 

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IMPERIAL OIL LIMITED

 

 

 

5. Financing costs and additional notes and loans payable information

 

           Third Quarter          

      Nine Months
      to September 30

 
millions of dollars    2014     2013             2014     2013    

 

 

Debt-related interest

     20        21              61        47     

Capitalized interest

             (20             (21)                     (61             (47)    
  

 

 

       

 

 

 

Net interest expense

     —          —                —          —       

Other interest

     (1     (1)             3        1     
  

 

 

       

 

 

 

Total financing costs

     (1     (1)             3        1     
  

 

 

       

 

 

 

In the first quarter of 2014, the company extended the maturity date of its existing $500 million 364-day short-term unsecured committed bank credit facility to March 2015. The company has not drawn on the facility.

 

6. Long-term debt

 

                                                                   
millions of dollars       As at 
Sept 30 
2014 
        As at 
Dec 31 
2013 
 

 

 

Long-term debt

      4,316                 4,316    

Capital leases

      127           128    
   

 

 

     

 

 

 

Total long-term debt

           4,443           4,444    
   

 

 

     

 

 

 

In January 2014, the company increased the capacity of its existing floating rate loan facility with an affiliated company of ExxonMobil from $5 billion to $6.25 billion.

In the third quarter of 2014, the company extended the maturity date of its existing $500 million stand-by long-term bank credit facility to August 2016. The company has not drawn on the facility.

 

7. Other long-term obligations
                                                                   
        
millions of dollars       As at 
Sept 30 
2014 
         As at 
Dec 31 
2013 
 

 

 

Employee retirement benefits (a)

          1,237            1,448    

Asset retirement obligations and other environmental liabilities (b)

      1,139            1,258    

Share-based incentive compensation liabilities

      222            140    

Other obligations

      219            245    
   

 

 

      

 

 

 

Total other long-term obligations

           2,817                  3,091    
   

 

 

      

 

 

 

 

(a) Total recorded employee retirement benefits obligations also included $53 million in current liabilities (2013 - $53 million).
(b) Total asset retirement obligations and other environmental liabilities also included $157 million in current liabilities (2013 - $154 million).

 

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IMPERIAL OIL LIMITED

 

 

 

8. Net income per share

 

     Third Quarter             Nine Months     
to September 30  
 
     2014        2013            2014        2013    

 

 

Net income per common share - basic

             

Net income (millions of dollars)

     936           647             3,114           1,772     

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

     847.6           847.6             847.6           847.6     

Net income per common share (dollars)

     1.10           0.76             3.67           2.09     

Net income per common share - diluted

             

Net income (millions of dollars)

     936           647             3,114           1,772     

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

           847.6           847.6          

 

        847.6  

  

         847.6     

Effect of share-based awards (millions of shares)

     3.3           3.4             3.1           3.2     
  

 

 

      

 

 

 

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

     850.9           851.0             850.7           850.8     

Net income per common share (dollars)

     1.10           0.76             3.66           2.08     

 

9. Other comprehensive income information

Changes in accumulated other comprehensive income:

 

millions of dollars    2014        2013    

 

 

Balance at January 1

     (1,721)          (2,455)    

Post-retirement benefits liability adjustment:

     

Current period change excluding amounts reclassified from accumulated other comprehensive income

     (38)          (102)    

Amounts reclassified from accumulated other comprehensive income

     109           154     
  

 

 

 

Balance at September 30

           (1,650)            (2,403)    
  

 

 

 

Amounts reclassified out of accumulated other comprehensive income -

before-tax income/(expense):

     

 

     Third Quarter               Nine Months      
to September 30   
 
millions of dollars    2014     2013            2014     2013    

 

 

Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost (a)

               (46                 (70)                       (147              (207)    

 

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

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

 

     Third Quarter                   Nine Months      
to September 30   
 
millions of dollars    2014        2013                2014        2013    

 

 

Post-retirement benefits liability adjustments:

               

Post-retirement benefits liability adjustment (excluding amortization)

     —             —                           (13)                    (35)    

Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost

               12                     18               38           53     
  

 

 

        

 

 

 
     12           18               25           18     
  

 

 

        

 

 

 

 

 

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

OPERATING RESULTS

Third quarter 2014 vs. third quarter 2013

The company’s net income for the third quarter of 2014 was $936 million or $1.10 per share on a diluted basis, compared with $647 million or $0.76 per share for the same period last year.

Upstream net income in the third quarter was $532 million, $72 million lower than the same period of 2013. Earnings in the third quarter of 2014 reflected the impact of lower bitumen and synthetic crude oil realizations of about $200 million. Earnings also decreased due to higher royalties along with higher energy and other operating costs totalling about $90 million. These factors were partially offset by higher liquids volumes of about $140 million, primarily due to incremental contribution from Kearl production, and the impact of a weaker Canadian dollar of about $85 million.

The company’s average realizations from the sales of synthetic crude oil decreased about 10 percent in the third quarter of 2014 to $102.58 per barrel versus $113.63 per barrel in the third quarter of 2013. The decreased realizations largely followed the West Texas Intermediate (WTI) crude oil benchmark price, which was down about eight percent to $97.25 per barrel, in U.S. dollars. The company’s average bitumen realizations at $74.82 per barrel, also followed the trend of WTI, and were down about eight percent versus the third quarter of 2013. The company’s average realizations on natural gas sales of $3.58 per thousand cubic feet in the third quarter of 2014 were higher by $0.92 per thousand cubic feet versus the same period in 2013.

Gross production of Cold Lake bitumen averaged 149,000 barrels per day in the third quarter, up from 147,000 barrels in the same period last year.

Gross production from the Kearl initial development in the third quarter was 78,000 barrels per day (55,000 barrels Imperial’s share) up from 33,000 barrels per day (23,000 barrels Imperial’s share) in the third quarter of 2013. Excluding the impact of major planned maintenance, which was executed over a two week period in September, gross production averaged 92,000 barrels per day (65,000 barrels Imperial’s share).

The company’s share of Syncrude’s gross production in the third quarter was 61,000 barrels per day, up from 57,000 barrels in the third quarter of 2013. Increased volumes were due to lower maintenance activities.

Gross production of conventional crude oil averaged 16,000 barrels per day in the third quarter, versus 22,000 barrels in the corresponding period in 2013. The lower production volume was primarily due to the impact of properties divested during the first half of 2014.

Gross production of natural gas during the third quarter of 2014 was 149 million cubic feet per day, down from 211 million cubic feet in the same period last year, reflecting the impact of properties divested during the first half of 2014.

Downstream net income was $343 million in the third quarter, $297 million higher than the third quarter of 2013. Earnings increased due to the impacts of improved refinery reliability and feedstock mix of about $110 million, along with higher industry refining margins of about $100 million, and higher marketing margins and sales volumes totalling about $70 million.

 

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Chemical net income in the third quarter was a record $66 million, up from $39 million in the same quarter in 2013. Strong margins across all major product lines and the processing of cost-advantaged ethane feedstock from Marcellus shale gas contributed to these best-ever quarterly results.

Net income effects from Corporate and Other were negative $5 million in the third quarter, versus negative $42 million in the same period of 2013 due to lower share-based compensation charges.

 

 

Nine months 2014 vs. nine months 2013

Net income in the first nine months of 2014 was $3,114 million, or $3.66 per share on a diluted basis, versus $1,772 million or $2.08 per share for the first nine months of 2013.

Upstream net income for the first nine months of 2014 was $1,841 million, $540 million higher than the same period of 2013. Earnings in 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. Earnings also increased due to the impacts of a weaker Canadian dollar of about $240 million and higher liquids volumes of about $150 million, primarily due to incremental contribution from Kearl production. These factors were partially offset by higher royalty costs of about $220 million and higher energy and other operating costs of about $100 million.

The company’s average realizations from the sale of synthetic crude oil increased about four percent in the first nine months of 2014 to $106.59 per barrel versus $102.98 per barrel in the corresponding period last year. The increased realizations reflected the increase in the WTI crude oil benchmark price, which was up about one percent, and the impact of a weaker Canadian dollar. The company’s average bitumen realizations in Canadian dollars for the nine months to-date in 2014 were $72.11 per barrel versus $63.86 per barrel in the same period in 2013 as the price spread between light crude oil and bitumen narrowed. The company’s average realizations on natural gas sales of $4.97 per thousand cubic feet in the first nine months of 2014 were higher by $1.76 per thousand cubic feet versus the same period in 2013.

Gross production of Cold Lake bitumen averaged 145,000 barrels per day in the first nine months, down from 152,000 barrels from the same period last year. Lower volumes were primarily due to the cyclic nature of steaming and associated production and the impact of several unplanned third-party power outages in the first quarter.

Gross production from the Kearl initial development in the first nine months of 2014 was 73,000 barrels per day (52,000 barrels Imperial’s share) versus 13,000 barrels (9,000 barrels Imperial’s share) in the same period of 2013.

During the first nine months of 2014, the company’s share of gross production from Syncrude averaged 62,000 barrels per day, compared to 63,000 barrels from the same period of 2013.

Gross production of conventional crude oil averaged 18,000 barrels per day in the first nine months of 2014, versus 21,000 barrels from the same period in 2013. The lower production volume was primarily due to the impact of properties divested during the first half of 2014.

Gross production of natural gas during the first nine months of 2014 was 171 million cubic feet per day, down from 201 million cubic feet in the same period last year. The lower production volume was primarily the result of the impact of divested properties.

 

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Downstream net income was $1,197 million, up $770 million in the same period of 2013. Earnings in the first nine months of 2013 included a charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings also increased due to the impacts of improved refinery reliability and feedstock mix of about $330 million, higher marketing margins and sales volumes totalling about $140 million and a weaker Canadian dollar of about $90 million. These factors were partially offset by lower industry refining margins of about $60 million.

Chemical net income was $166 million for the first nine months of 2014, up $50 million over the same period in 2013.

For the first nine months of 2014, net income effects from Corporate & Other were negative $90 million, versus negative $72 million in 2013, primarily due to changes in share-based compensation charges.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $1,230 million in the third quarter, $932 million higher than the corresponding period in 2013. Higher cash flow was primarily due to working capital effects and higher earnings.

Investing activities used net cash of $1,379 million in the third quarter, compared with $1,804 million in the same period of 2013. Additions to property, plant and equipment were $1,351 million in the third quarter, compared with $1,810 million during the same quarter in 2013. Expenditures during the quarter were primarily directed towards the advancement of Kearl expansion and Cold Lake Nabiye projects.

Cash from financing activities was $21 million in the third quarter, compared with $1,040 million in the third quarter of 2013. Dividends paid in the third quarter of 2014 were $111 million, $9 million higher than the corresponding period in 2013. Per-share dividend paid in the third quarter was $0.13, up from $0.12 in the same period of 2013.

The above factors led to a decrease in the company’s balance of cash to $43 million at September 30, 2014 from $272 million at the end of 2013.

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board issued a new standard, Revenue from Contracts with Customers. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2017. Imperial Oil is evaluating the standard and its effect on the company’s financial statements.

 

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Item 3.               Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the nine months ended September 30, 2014 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, 2013 and Form 10-Q for the quarter ended March 31, 2014.

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, 2014. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

 

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PART II  -  OTHER INFORMATION

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

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 2014

(July 1 – July 31)

 

   0      0      0      1,000,000  

August 2014

(Aug 1 – Aug 31)

 

   0      0      0      1,000,000  

September 2014

(Sept 1 – Sept 30)

 

   0      0      0      1,000,000  

 

  (1) On June 23, 2014, 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 1,000,000 common shares during the period June 25, 2014 to June 24, 2015. The program will end when the company has purchased the maximum allowable number of shares, or on June 24, 2015.

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 of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

(32.2)  Certification by the chief financial officer of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

 

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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 4, 2014

 

   

/s/ Paul J. Masschelin

 

   

 

 

(Signature)

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

Date:     November 4, 2014

 

   

/s/ Brent A. Latimer

 

   

 

 

(Signature)

      Brent A. Latimer
      Assistant Secretary

 

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