IMPERIAL OIL LTD - Quarter Report: 2015 September (Form 10-Q)

IMPERIAL OIL LTD - Quarter Report: 2015 September (Form 10-Q)

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Form 10-Q

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨	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 x 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 x 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 x

The number of common shares outstanding, as of September 30, 2015, 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, 2015 and 2014		3

Consolidated Statement of Comprehensive Income - Nine Months ended September 30, 2015 and 2014		4

Consolidated Balance Sheet - as at September 30, 2015 and December 31, 2014		5

Consolidated Statement of Cash Flows - Nine Months ended September 30, 2015 and 2014		6

Notes to the Consolidated Financial Statements		7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.		14

Item 3 - Quantitative and Qualitative Disclosures about Market Risk.		17

Item 4 - Controls and Procedures.		17

PART II - Other Information

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.		18

Item 6 - Exhibits.		18

SIGNATURES		19

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, 2014.

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.

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF INCOME

(U.S. GAAP, unaudited)


	Third Quarter					Nine Months to September 30
millions of Canadian dollars	2015		2014			2015		2014

REVENUES AND OTHER INCOME
Operating revenues (a) (b)		7,111		9,641			20,553		28,237
Investment and other income (note 3)		44		17			106		696

TOTAL REVENUES AND OTHER INCOME		7,155		9,658			20,659		28,933


EXPENSES
Exploration		19		14			52		52
Purchases of crude oil and products (c)		4,053		6,100			11,653		17,677
Production and manufacturing (d)		1,351		1,358			4,105		4,224
Selling and general		267		254			803		825
Federal excise tax (a)		416		412			1,180		1,165
Depreciation and depletion		400		276			1,052		836
Financing costs (note 5)		12		(1	)		20		3

TOTAL EXPENSES		6,518		8,413			18,865		24,782


INCOME BEFORE INCOME TAXES		637		1,245			1,794		4,151
INCOME TAXES		158		309			774		1,037

NET INCOME		479		936			1,020		3,114


PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (note 8)		0.56		1.10			1.20		3.67
Net income per common share - diluted (note 8)		0.56		1.10			1.20		3.66
Dividends per common share		0.14		0.13			0.40		0.39

(a) Federal excise tax included in operating revenues		416		412			1,180		1,165
(b) Amounts from related parties included in operating revenues		944		1,201			2,599		2,759
(c) Amounts to related parties included in purchases of crude oil and products		867		1,111			2,520		2,939
(d) Amounts to related parties included in production and manufacturing expenses		106		93			333		268

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)


	Third Quarter				Nine Months to September 30
millions of Canadian dollars	2015		2014		2015			2014

Net income		479		936		1,020			3,114

Other comprehensive income, net of income taxes
Post-retirement benefit liability adjustment (excluding amortization)		—		—		(176	)		(38	)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs		42		34		126			109

Total other comprehensive income/(loss)		42		34		(50	)		71



Comprehensive income		521		970		970			3,185

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 Sept 30			As at Dec 31
millions of Canadian dollars	2015			2014

ASSETS
Current assets
Cash		366			215
Accounts receivable, less estimated doubtful accounts (a)		1,702			1,539
Inventories of crude oil and products		1,223			1,121
Materials, supplies and prepaid expenses		506			380
Deferred income tax assets		316			314

Total current assets		4,113			3,569

Long-term receivables, investments and other long-term assets		1,484			1,406

Property, plant and equipment,		53,615			50,911
less accumulated depreciation and depletion		(16,050	)		(15,337	)

Property, plant and equipment, net		37,565			35,574

Goodwill		224			224
Other intangible assets, net		66			57

TOTAL ASSETS		43,452			40,830


LIABILITIES
Current liabilities
Notes and loans payable (b)		1,953			1,978
Accounts payable and accrued liabilities (a) (note 7)		3,393			3,969
Income taxes payable		424			34

Total current liabilities		5,770			5,981

Long-term debt (c) (note 6)		6,473			4,913
Other long-term obligations (d) (note 7)		3,900			3,565
Deferred income tax liabilities		4,148			3,841

TOTAL LIABILITIES		20,291			18,300


SHAREHOLDERS’ EQUITY
Common shares at stated value (e)		1,566			1,566
Earnings reinvested		23,704			23,023
Accumulated other comprehensive income (note 9)		(2,109	)		(2,059	)

TOTAL SHAREHOLDERS’ EQUITY		23,161			22,530


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		43,452			40,830

(a)	Accounts receivable, less estimated doubtful accounts included amounts receivable from related parties of $107 million (2014 - accounts payable and accrued liabilities included amounts payable to related parties of $174 million)

(b)	Notes and loans payable included amounts to related parties of $75 million (2014 - $75 million)

(c)	Long-term debt included amounts to related parties of $5,852 million (2014 - $4,746 million)

(d)	Other long-term obligations include amounts to related parties of $231 million (2014 - $96 million)

(e)	Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2014 - 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)


							Nine Months
	Third Quarter						to September 30
millions of Canadian dollars	2015			2014			2015			2014

OPERATING ACTIVITIES
Net income		479			936			1,020			3,114
Adjustments for non-cash items:
Depreciation and depletion		400			276			1,052			836
(Gain)/loss on asset sales (note 3)		(29	)		(4	)		(80	)		(664	)
Deferred income taxes and other		86			185			358			411
Changes in operating assets and liabilities:
Accounts receivable		403			104			(163	)		(217	)
Inventories, materials, supplies and prepaid expenses		(65	)		42			(228	)		(131	)
Income taxes payable		58			(12	)		390			(29	)
Accounts payable and accrued liabilities		(271	)		(216	)		(634	)		(20	)
All other items - net (a)		43			(81	)		47			14

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		1,104			1,230			1,762			3,314


INVESTING ACTIVITIES
Additions to property, plant and equipment		(647	)		(1,351	)		(2,431	)		(3,852	)
Proceeds from asset sales (note 3)		28			7			118			814
Additional investments		—			(35	)		(32	)		(79	)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES		(619	)		(1,379	)		(2,345	)		(3,117	)


FINANCING ACTIVITIES
Short-term debt - net		(30	)		135			(29	)		(88	)
Long-term debt issued		—			—			1,106			—
Reduction in capitalized lease obligations		(7	)		(3	)		(13	)		(7	)
Dividends paid		(110	)		(111	)		(330	)		(331	)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		(147	)		21			734			(426	)


INCREASE (DECREASE) IN CASH		338			(128	)		151			(229	)
CASH AT BEGINNING OF PERIOD		28			171			215			272


CASH AT END OF PERIOD (b)		366			43			366			43


(a) Included contribution to registered pension plans		(46	)		(95	)		(178	)		(267	)

(b)	Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased

NON-CASH TRANSACTIONS

A capital lease of approximately $480 million was not included in “Additions to property, plant and equipment” or “Long-term debt issued” lines on the Consolidated Statement of Cash Flows.

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 2014 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, 2015, 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	2015			2014			2015			2014			2015		2014
REVENUES AND OTHER INCOME
Operating revenues (a)		1,467			2,365			5,344			6,912			300		364
Intersegment sales		610			1,077			239			318			60		93
Investment and other income		4			2			40			14			—		—

		2,081			3,444			5,623			7,244			360		457

EXPENSES
Exploration		19			14			—			—			—		—
Purchases of crude oil and products		879			1,590			3,906			5,701			176		296
Production and manufacturing		923			917			377			389			51		52
Selling and general		1			(1	)		256			234			23		17
Federal excise tax		—			—			416			412			—		—
Depreciation and depletion		333			219			61			52			3		3
Financing costs		2			(1	)		—			—			—		—

TOTAL EXPENSES		2,157			2,738			5,016			6,788			253		368

INCOME BEFORE INCOME TAXES		(76	)		706			607			456			107		89
INCOME TAXES		(24	)		174			153			113			29		23

NET INCOME		(52	)		532			454			343			78		66

Cash flows from (used in) operating activities		696			1,072			313			114			109		77
CAPEX (b)		1,050			1,280			55			127			17		7

Third Quarter	Corporate and Other						Eliminations						Consolidated
millions of dollars	2015			2014			2015			2014			2015		2014
REVENUES AND OTHER INCOME
Operating revenues (a)		—			—			—			—			7,111		9,641
Intersegment sales		—			—			(909	)		(1,488	)		—		—
Investment and other income		—			1			—			—			44		17

		—			1			(909	)		(1,488	)		7,155		9,658

EXPENSES
Exploration		—			—			—			—			19		14
Purchases of crude oil and products		—			—			(908	)		(1,487	)		4,053		6,100
Production and manufacturing		—			—			—			—			1,351		1,358
Selling and general		(12	)		5			(1	)		(1	)		267		254
Federal excise tax		—			—			—			—			416		412
Depreciation and depletion		3			2			—			—			400		276
Financing costs		10			—			—			—			12		(1	)

TOTAL EXPENSES		1			7			(909	)		(1,488	)		6,518		8,413

INCOME BEFORE INCOME TAXES		(1	)		(6	)		—			—			637		1,245
INCOME TAXES		—			(1	)		—			—			158		309

NET INCOME		(1	)		(5	)		—			—			479		936

Cash flows from (used in) operating activities		(14	)		(33	)		—			—			1,104		1,230
CAPEX (b)		20			20			—			—			1,142		1,434

(a)	Included export sales to the United States of $1,168 million (2014 - $2,092 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 and equipment, additions to capital leases, additional investments and acquisition

IMPERIAL OIL LIMITED


Nine Months to September 30 millions of dollars	Upstream						Downstream						Chemical
Nine Months to September 30 millions of dollars	2015			2014			2015			2014			2015		2014
REVENUES AND OTHER INCOME
Operating revenues (a)		4,462			6,671			15,191			20,458			900		1,108
Intersegment sales		1,926			3,188			763			1,118			182		310
Investment and other income		22			658			83			34			—		—

		6,410			10,517			16,037			21,610			1,082		1,418

EXPENSES
Exploration		52			52			—			—			—		—
Purchases of crude oil and products		2,787			4,425			11,172			16,898			563		966
Production and manufacturing		2,826			2,933			1,125			1,125			154		166
Selling and general		—			2			720			658			65		53
Federal excise tax		—			—			1,180			1,165			—		—
Depreciation and depletion		865			657			169			162			8		9
Financing costs		5			3			—			—			—		—

TOTAL EXPENSES		6,535			8,072			14,366			20,008			790		1,194

INCOME BEFORE INCOME TAXES		(125	)		2,445			1,671			1,602			292		224
INCOME TAXES		290			604			437			405			79		58

NET INCOME		(415	)		1,841			1,234			1,197			213		166

Cash flows from (used in) operating activities		181			2,062			1,368			1,074			269		154
CAPEX (b)		2,644			3,680			276			310			33		15
Total assets as at September 30		36,817			33,799			5,645			6,027			386		381

Nine Months to September 30 millions of dollars	Corporate and Other						Eliminations						Consolidated
Nine Months to September 30 millions of dollars	2015			2014			2015			2014			2015		2014
REVENUES AND OTHER INCOME
Operating revenues (a)		—			—			—			—			20,553		28,237
Intersegment sales		—			—			(2,871	)		(4,616	)		—		—
Investment and other income		1			4			—			—			106		696

		1			4			(2,871	)		(4,616	)		20,659		28,933

EXPENSES
Exploration		—			—			—			—			52		52
Purchases of crude oil and products		—			—			(2,869	)		(4,612	)		11,653		17,677
Production and manufacturing		—			—			—			—			4,105		4,224
Selling and general		20			116			(2	)		(4	)		803		825
Federal excise tax		—			—			—			—			1,180		1,165
Depreciation and depletion		10			8			—			—			1,052		836
Financing costs		15			—			—			—			20		3

TOTAL EXPENSES		45			124			(2,871	)		(4,616	)		18,865		24,782

INCOME BEFORE INCOME TAXES		(44	)		(120	)		—			—			1,794		4,151
INCOME TAXES		(32	)		(30	)		—			—			774		1,037

NET INCOME		(12	)		(90	)		—			—			1,020		3,114

Cash flows from (used in) operating activities		(56	)		24			—			—			1,762		3,314
CAPEX (b)		58			61			—			—			3,011		4,066
Total assets as at September 30		777			426			(173	)		(391	)		43,452		40,242

(a)	Included export sales to the United States of $3,331 million (2014 - $4,888 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 and equipment, additions to capital leases, additional investments and acquisition

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	2015			2014		2015		2014
Proceeds from asset sales		28			7		118		814
Book value of assets sold (a)		(1	)		3		38		150

Gain/(loss) on asset sales, before tax		29			4		80		664

Gain/(loss) on asset sales, after tax		26			2		65		498

(a)	The third quarter ended September 2015 included a post close adjustment relating to conventional assets divested in 2014

4.	Employee retirement benefits

The components of net benefit cost were as follows:


	Third Quarter						Nine Months to September 30
millions of dollars	2015			2014			2015			2014
Pension benefits:
Current service cost		56			37			158			114
Interest cost		77			82			231			241
Expected return on plan assets		(101	)		(95	)		(294	)		(277	)
Amortization of prior service cost		4			6			12			17
Amortization of actuarial loss		50			39			149			125

Net benefit cost		86			69			256			220


Other post-retirement benefits:
Current service cost		4			3			12			8
Interest cost		7			7			19			19
Amortization of actuarial loss		3			1			9			5

Net benefit cost		14			11			40			32

IMPERIAL OIL LIMITED

5.	Financing costs and additional notes and loans payable information


	Third Quarter						Nine Months to September 30
millions of dollars	2015			2014			2015			2014
Debt-related interest		30			20			73			61
Capitalized interest		(20	)		(20	)		(58	)		(61	)

Net interest expense		10			—			15			—
Other interest		2			(1	)		5			3

Total financing costs		12			(1	)		20			3

In the first quarter of 2015, the company extended the maturity date of its existing $500 million 364-day short-term unsecured committed bank credit facility to March 2016. The company has not drawn on the facility

6.	Long-term debt


millions of dollars	As at Sept 30 2015		As at Dec 31 2014
Long-term debt		5,852		4,746
Capital leases		621		167

Total long-term debt		6,473		4,913

In the nine months ended September 30, 2015, the company increased its long-term debt by $1,106 million by drawing on an existing facility with an affiliated company of Exxon Mobil Corporation. The increased debt was used to finance normal operations and capital projects

In July 2015, the company increased the capacity of its existing floating rate loan facility with an affiliated company of ExxonMobil from $6.25 billion to $7.75 billion. All terms and conditions of the agreement remained unchanged

In July 2015, the company entered into a long-term capital lease related to the Woodland pipeline for approximately $480 million. A commitment related to this obligation was previously reported as a firm capital commitment in the company’s 2014 Form 10-K

7.	Other long-term obligations


millions of dollars	As at Sept 30 2015		As at Dec 31 2014
Employee retirement benefits (a)		1,832		1,739
Asset retirement obligations and other environmental liabilities (b)		1,531		1,325
Share-based incentive compensation liabilities		170		154
Other obligations		367		347

Total other long-term obligations		3,900		3,565

(a)	Total recorded employee retirement benefits obligations also included $58 million in current liabilities (2014 - $58 million)

(b)	Total asset retirement obligations and other environmental liabilities also included $143 million in current liabilities (2014 - $143 million)

IMPERIAL OIL LIMITED

8.	Net income per share

Nine Months

Third Quarter

to September 30

2015

2014

2015

2014

Net income per common share - basic

Net income (millions of dollars)

479

936

1,020

3,114

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

847.6

847.6

847.6

847.6

Net income per common share (dollars)

0.56

1.10

1.20

3.67

Net income per common share - diluted

Net income (millions of dollars)

479

936

1,020

3,114

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

3.3

3.1

3.1

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

850.9

850.9

850.7

850.7

Net income per common share (dollars)

0.56

1.10

1.20

3.66

9.	Other comprehensive income information

Changes in accumulated other comprehensive income:


millions of dollars	2015			2014
Balance at January 1		(2,059	)		(1,721	)
Post-retirement benefits liability adjustment:
Current period change excluding amounts reclassified from accumulated other comprehensive income		(176	)		(38	)
Amounts reclassified from accumulated other comprehensive income		126			109

Balance at September 30		(2,109	)		(1,650	)

Amounts reclassified out of accumulated other comprehensive income - before-tax income/(expense):

Nine Months

Third Quarter

to September 30

millions of dollars

2015

2014

2015

2014

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

(57)

(46)

(170)

(147)

(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	2015		2014		2015			2014
Post-retirement benefits liability adjustments:
Post-retirement benefits liability adjustment (excluding amortization)		—		—		(61	)		(13	)
Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost		15		12		44			38

		15		12		(17	)		25

IMPERIAL OIL LIMITED

10.

Recently Issued 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 will be adopted beginning January 1, 2018. Imperial is evaluating the standard and its effect on the company’s financial statements.

Item 2.

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

OPERATING RESULTS

Third quarter 2015 vs. third quarter 2014

The company’s net income for the third quarter of 2015 was $479 million or $0.56 per share on a diluted basis compared with $936 million or $1.10 per share for the same period last year.

Upstream recorded a net loss in the third quarter of $52 million, compared to net income of $532 million in the same period of 2014. Earnings in the third quarter of 2015 reflected lower crude oil and gas realizations of about $1,250 million and higher depreciation expense of about $80 million. These factors were partially offset by higher Kearl and Cold Lake volumes of about $280 million, the favourable impact of a weaker Canadian dollar of about $270 million and lower royalties of about $230 million.

West Texas Intermediate (WTI), the main U.S. dollar benchmark crude for North America, decreased by 52 percent compared to the same quarter in 2014. The company’s average Canadian dollar realizations for synthetic crude oil and bitumen decreased about 40 and 56 percent in the third quarter of 2015 to $61.21 and $32.61 per barrel respectively, as the decline in the benchmark crude and increased light-heavy differentials were partially offset by the weaker Canadian dollar. The company’s average realizations on sales of natural gas of $1.75 per thousand cubic feet in the third quarter of 2015, were lower by $1.83 per thousand cubic feet, versus the same period in 2014.

Gross production of Cold Lake bitumen averaged 166,000 barrels per day in the third quarter, up from 149,000 barrels in the same period last year, primarily due to the continued ramp-up of Nabiye production.

Gross production of Kearl bitumen averaged 181,000 barrels per day in the third quarter (128,000 barrels Imperial’s share) up from 78,000 barrels per day (55,000 barrels Imperial’s share) during the third quarter of 2014, reflecting the strong start-up of the Kearl expansion project.

The company’s share of gross production from Syncrude averaged 59,000 barrels per day, compared to 61,000 barrels in the third quarter of 2014.

Gross production of conventional crude oil averaged 12,000 barrels per day in the third quarter, down from 16,000 barrels in the corresponding period in 2014. The lower production volume was primarily due to planned maintenance activity and natural reservoir decline.

Gross production of natural gas during the third quarter of 2015 was 116 million cubic feet per day, down from 149 million cubic feet in the same period last year.

Downstream net income was $454 million in the third quarter, $111 million higher than the third quarter of 2014. Earnings increased mainly due to the favourable impact of a weaker Canadian dollar of about $160 million, partially offset by higher refinery planned maintenance and operating costs, mainly associated with the Edmonton Rail Terminal, of about $70 million.

Chemical net income was $78 million in the third quarter, the highest quarterly earnings on record, up 18 percent from $66 million in the same quarter in 2014.

Net income effects from Corporate and Other were negative $1 million in the third quarter, compared to negative $5 million in the same period of 2014.

Nine months 2015 vs. nine months 2014

Net income in the first nine months of 2015 was $1,020 million, or $1.20 per share on a diluted basis and reflected a net charge, largely non-cash, of $320 million associated with the enacted Alberta corporate income tax rate increase, versus $3,114 million or $3.66 per share for the first nine months of 2014, which included a $478 million gain on the sale of conventional upstream producing assets.

Upstream recorded a net loss of $415 million for the first nine months of 2015, compared to net income of $1,841 million in the same period of 2014. Earnings in 2015 reflected lower crude oil and gas realizations of about $3,000 million, a net charge of $327 million associated with increased Alberta corporate income taxes and higher depreciation expense of about $130 million. Earnings in 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. These factors were partially offset by the favourable impact of a weaker Canadian dollar of about $590 million, lower royalties of about $560 million, higher liquid volumes of about $490 million, primarily Kearl and Cold Lake, and lower energy costs of about $90 million.

WTI, the main U.S. dollar benchmark crude for North America, decreased by 49 percent compared to the same period in 2014. The company’s average Canadian dollar realizations for synthetic crude oil and bitumen decreased about 41 and 49 percent in the first nine months of 2015 to $63.03 and $36.48 per barrel respectively, as the decline in benchmark crude and increased light-heavy differentials were partially offset by the weaker Canadian dollar. The company’s average realizations on sales of natural gas of $2.44 per thousand cubic feet in 2015, were lower by $2.53 per thousand cubic feet, versus the same period in 2014.

Gross production of Cold Lake bitumen averaged 160,000 barrels per day in the first nine months, up from 145,000 barrels from the same period last year, primarily due to Nabiye production.

Gross production of Kearl bitumen averaged 136,000 barrels per day in the first nine months of 2015 (96,000 barrels Imperial’s share) up from 73,000 barrels per day (52,000 barrels Imperial’s share), reflecting early start-up of the Kearl expansion project and improved reliability of the initial development.

During the first nine months of 2015, the company’s share of gross production from Syncrude averaged 61,000 barrels per day, compared to 62,000 barrels from the same period of 2014.

Gross production of conventional crude oil averaged 14,000 barrels per day in the first nine months of 2015, compared to 18,000 barrels during the same period of 2014. 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 2015 was 132 million cubic feet per day, down from 171 million cubic feet in the same period last year, reflecting the impact of divested properties.

Downstream net income was $1,234 million, up $37 million in the same period of 2014. Earnings increased due to the favourable impact of a weaker Canadian dollar of about $360 million, higher fuels marketing margins and volumes of about $70 million, lower energy costs of $70 million and a 2015 gain of $17 million from the sale of assets. These factors were partially offset by the impacts of lower refining margins of about $280 million, higher refinery planned maintenance and operating costs, mainly associated with the Edmonton Rail Terminal, of about $220 million.

Chemical net income was $213 million for the first nine months of 2015, an increase of $47 million over the same period in 2014.

For the first nine months of 2015, net income effects from Corporate & Other were negative $12 million, compared to negative $90 million in 2014, primarily due to lower share-based compensation charges and the impact of the Alberta corporate income tax rate increase.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $1,104 million in the third quarter, versus $1,230 million in the corresponding period in 2014. Lower cash flow was due to lower earnings and was partially offset by favourable working capital effects.

Investing activities used net cash of $619 million in the third quarter, compared with $1,379 million in the same period of 2014, reflecting the decline in additions to property, plant and equipment to $647 million during the third quarter, compared with $1,351 million during the same quarter in 2014. Expenditures during the quarter were primarily in support of completion of upstream growth projects.

Cash used in financing activities was $147 million in the third quarter, compared with cash from financing activities of $21 million in the third quarter of 2014. Dividends paid in the third quarter of 2015 were $110 million. Per-share dividend paid in the third quarter was $0.13, consistent with the same period of 2014.

The company’s cash balance was $366 million as at September 30, 2015, versus $43 million at the end of the third quarter of 2014.

In July 2015, the company increased the capacity of its existing floating rate loan facility with an affiliated company of ExxonMobil from $6.25 billion to $7.75 billion. Also, the company entered into a long-term capital lease related to the Woodland pipeline for approximately $480 million. A commitment related to this obligation was previously reported as a firm capital commitment in the company’s 2014 Form 10-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

FORWARD-LOOKING STATEMENTS

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.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the nine months ended September 30, 2015 does not differ materially from that discussed on page 22 in the company’s Annual Report on Form 10-K for the year ended December 31, 2014 and Form 10-Q for the quarters ended March 31, 2015 and June 30, 2015 except for the following:

Earnings sensitivity

millions of dollars after tax

Four dollars (U.S.) per barrel change in crude oil prices

+ (-) 314

The sensitivity of net income to changes in crude oil prices increased from the second quarter of 2015 by about $9 million (after tax) a year for each one U.S. dollar change. The increase was primarily the result of lower royalty costs due to lower crude oil 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 September 30, 2015. 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.

Issuer Purchases of Equity Securities (a)


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
July 2015 (July 1 – July 31)		0		0		0		1,000,000
August 2015 (Aug 1 – Aug 31)		0		0		0		1,000,000
September 2015 (Sept 1 – Sept 30)		0		0		0		1,000,000

(a)

On June 22, 2015, 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, 2015 to June 24, 2016. The program will end when the company has purchased the maximum allowable number of shares, or on June 24, 2016.

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.

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, 2015				/s/ Beverley A. Babcock
				(Signature)
				Beverley A. Babcock
				Senior Vice-President, Finance and Administration and Controller
				(Principal Accounting Officer)

Date: November 3, 2015				/s/ Cathryn Walker
				(Signature)
				Cathryn Walker
				Assistant Corporate Secretary

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company