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

10-Q
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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, 2015

 

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 June 30, 2015, was 847,599,011.

 

 

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IMPERIAL OIL LIMITED

 

 

INDEX

 

 

     PAGE   

PART I - Financial Information

  

Item 1 - Financial Statements.

  

Consolidated Statement of Income - Six Months ended June 30, 2015 and 2014

     3   

Consolidated Statement of Comprehensive Income - Six Months ended June 30, 2015 and 2014

     4   

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

     5   

Consolidated Statement of Cash Flows - Six Months ended June 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.

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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PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.

IMPERIAL OIL LIMITED

 

 

CONSOLIDATED STATEMENT OF INCOME

(U.S. GAAP, unaudited)

                Six Months  
         Second Quarter          to June 30  
millions of Canadian dollars    2015      2014        2015        2014    

 

 

REVENUES AND OTHER INCOME

           

Operating revenues (a) (b)

     7,272         9,399           13,442         18,596     

Investment and other income (note 3)

     29         650           62         679     
  

 

 

    

 

 

 

TOTAL REVENUES AND OTHER INCOME

     7,301         10,049           13,504         19,275     
  

 

 

    

 

 

 

EXPENSES

           

Exploration

     16         17           33         38     

Purchases of crude oil and products (c)

     4,295         6,035           7,600         11,577     

Production and manufacturing (d)

     1,395         1,390           2,754         2,866     

Selling and general

     272         296           536         571     

Federal excise tax (a)

     387         383           764         753     

Depreciation and depletion

     335         280           652         560     

Financing costs (note 5)

     5         2           8         4     
  

 

 

    

 

 

 

TOTAL EXPENSES

         6,705         8,403               12,347         16,369     
  

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     596         1,646           1,157         2,906     

INCOME TAXES

     476         414           616         728     
  

 

 

    

 

 

 

NET INCOME

     120         1,232           541         2,178     
  

 

 

    

 

 

 

PER SHARE INFORMATION (Canadian dollars)

           

Net income per common share - basic (note 8)

     0.14         1.45           0.64         2.57     

Net income per common share - diluted (note 8)

     0.14         1.45           0.64         2.56     

Dividends per common share

     0.13         0.13           0.26         0.26     

(a)   Federal excise tax included in operating revenues

     387         383           764         753     

(b)   Amounts from related parties included in operating revenues

     1,017         742           1,655         1,558     

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

       and products

     967         1,058           1,653         1,828     

(d)   Amounts to related parties included in production and

       manufacturing expenses

     125         89           227         175     

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)

     Second Quarter     

    Six Months    

    to June 30    

 
millions of Canadian dollars    2015           2014      2015          2014  

 

 

Net income

     120            1,232           541           2,178     

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            37           84           75     
  

 

 

    

 

 

 

Total other comprehensive income/(loss)

     42            37           (92        37     
  

 

 

    

 

 

 
                
  

 

 

    

 

 

 

Comprehensive income

           162            1,269                 449           2,215     
  

 

 

    

 

 

 

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)

millions of Canadian dollars   

As at

June 30
2015

   

As at 

Dec 31 
2014 

 

 

 

ASSETS

    

Current assets

    

Cash

     28        215     

Accounts receivable, less estimated doubtful accounts (a)

     2,105        1,539     

Inventories of crude oil and products

     1,099        1,121     

Materials, supplies and prepaid expenses

     565        380     

Deferred income tax assets

     377        314     
  

 

 

 

Total current assets

     4,174        3,569     

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

     1,529        1,406     

Property, plant and equipment,

     52,551        50,911     

less accumulated depreciation and depletion

     (15,709         (15,337)    
  

 

 

 

Property, plant and equipment, net

     36,842        35,574     

Goodwill

     224        224     

Other intangible assets, net

     65        57     
  

 

 

 

TOTAL ASSETS

           42,834        40,830     
  

 

 

 

LIABILITIES

    

Current liabilities

    

Notes and loans payable (b)

     1,976        1,978     

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

     3,606        3,969     

Income taxes payable

     366        34     
  

 

 

 

Total current liabilities

     5,948        5,981     

Long-term debt (c) (note 6)

     6,008        4,913     

Other long-term obligations (d) (note 7)

     3,973        3,565     

Deferred income tax liabilities

     4,146        3,841     
  

 

 

 

TOTAL LIABILITIES

     20,075        18,300     
  

 

 

 

SHAREHOLDERS’ EQUITY

    

Common shares at stated value (e)

     1,566        1,566     

Earnings reinvested

     23,344        23,023     

Accumulated other comprehensive income (note 9)

     (2,151     (2,059)    
  

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     22,759        22,530     
  

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

     42,834        40,830     
  

 

 

 

 

(a) Accounts receivable, less estimated doubtful accounts included amounts receivable from related parties of $249 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 $208 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.

 

 

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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    2015       2014      2015      2014    

 

 

OPERATING ACTIVITIES

           

Net income

     120          1,232           541          2,178     

Adjustments for non-cash items:

           

Depreciation and depletion

     335          280           652          560     

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

     (25)         (640)          (51)         (660)    

Deferred income taxes and other

     254          221           272          226     

Changes in operating assets and liabilities:

           

Accounts receivable

     (353)         333           (566)         (321)    

Inventories, materials, supplies and prepaid expenses

     (148)         (145)          (163)         (173)    

Income taxes payable

     148          (109)          332          (17)    

Accounts payable and accrued liabilities

     23          (239)          (363)         196     

All other items - net (a)

     23          66                   95     
  

 

 

    

 

 

 

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

     377          999           658          2,084     
  

 

 

    

 

 

 

INVESTING ACTIVITIES

           

Additions to property, plant and equipment

     (773)         (1,295)          (1,784)         (2,501)    

Proceeds associated with asset sales

     65          732           90          807     

Additional investments

     (16)         (32)          (32)         (44)    
  

 

 

    

 

 

 

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES

           (724)         (595)          (1,726)         (1,738)    
  

 

 

    

 

 

 

FINANCING ACTIVITIES

           

Short-term debt - net

     40          (223)                  (223)    

Long-term debt issued

     389          -                 1,106          -     

Reduction in capitalized lease obligations

     (4)         (2)          (6)         (4)    

Dividends paid

     (110)         (110)          (220)         (220)    
  

 

 

    

 

 

 

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES

     315          (335)          881          (447)    
  

 

 

    

 

 

 

INCREASE (DECREASE) IN CASH

     (32)         69           (187)         (101)    

CASH AT BEGINNING OF PERIOD

     60          102           215          272     
  

 

 

    

 

 

 

CASH AT END OF PERIOD (b)

     28          171           28          171     
  

 

 

    

 

 

 

(a)    Included contribution to registered pension plans

     (69)         (96)          (132)         (172)    

(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

        

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

 

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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 six months ended June 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.

 

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IMPERIAL OIL LIMITED

 

 

2.   Business segments

 

Second Quarter          Upstream            Downstream          Chemical  
millions of dollars    2015       2014        2015      2014        2015       2014    

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

     1,783          2,109           5,178         6,901           311          389     

Intersegment sales

     718          1,043           268         370           63          115     

Investment and other income

     16          643           13         7           (1)         (1)    
  

 

 

    

 

 

    

 

 

 
     2,517          3,795           5,459         7,278           373          503     
  

 

 

    

 

 

    

 

 

 

EXPENSES

                 

Exploration

     16          17           -           -                   -     

Purchases of crude oil and products

     1,070          1,430           4,071         5,781           205          351     

Production and manufacturing

     953          987           392         350           50          53     

Selling and general

     (1)         1           243         214           20          19     

Federal excise tax

             -           387         383                   -     

Depreciation and depletion

     273          216           56         58                   3     

Financing costs

             2           -           -                   -     
  

 

 

    

 

 

    

 

 

 

TOTAL EXPENSES

           2,311          2,653                 5,149         6,786                 277          426     
  

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     206          1,142           310         492           96          77     

INCOME TAXES

     380          285           95         126           27          20     
  

 

 

    

 

 

    

 

 

 

NET INCOME

     (174)         857           215         366           69          57     
  

 

 

    

 

 

    

 

 

 

Cash flows from (used in) operating activities

     (264)         633           541         248           105          74     

CAPEX (b)

     704          1,237           96         135                   6     
Second Quarter          Corporate and Other          Eliminations      Consolidated  
millions of dollars    2015       2014        2015        2014        2015       2014    

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

             -           -           -           7,272          9,399     

Intersegment sales

             -           (1,049)          (1,528)                  -     

Investment and other income

             1           -           -           29          650     
  

 

 

    

 

 

    

 

 

 
             1           (1,049)          (1,528)          7,301          10,049     
  

 

 

    

 

 

    

 

 

 

EXPENSES

                 

Exploration

             -           -           -           16          17     

Purchases of crude oil and products

             -           (1,051)          (1,527)          4,295          6,035     

Production and manufacturing

             -           -           -           1,395          1,390     

Selling and general

             63           2           (1)          272          296     

Federal excise tax

             -           -           -           387          383     

Depreciation and depletion

             3           -           -           335          280     

Financing costs

             -           -           -                   2     
  

 

 

    

 

 

    

 

 

 

TOTAL EXPENSES

     17          66           (1,049)          (1,528)          6,705          8,403     
  

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     (16)         (65)          -           -           596          1,646     

INCOME TAXES

     (26)         (17)          -           -           476          414     
  

 

 

    

 

 

    

 

 

 

NET INCOME

     10          (48)          -           -           120          1,232     
  

 

 

    

 

 

    

 

 

 

Cash flows from (used in) operating activities

     (5)         44           -           -           377          999     

CAPEX (b)

     15          20           -           -           819          1,398     

 

 

(a) Included export sales to the United States of $1,362 million (2014 - $1,370 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

 

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IMPERIAL OIL LIMITED

 

 

 

Six Months to June 30    Upstream      Downstream      Chemical  
millions of dollars    2015      2014      2015      2014      2015      2014  

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

     2,995          4,306           9,847         13,546           600         744     

Intersegment sales

     1,316          2,111           524         800           122         217     

Investment and other income

     18          656           43         20           -         -     
  

 

 

    

 

 

    

 

 

 
     4,329          7,073           10,414         14,366           722         961     
  

 

 

    

 

 

    

 

 

 

EXPENSES

                 

Exploration

     33          38           -         -           -         -     

Purchases of crude oil and products

     1,908          2,835           7,266         11,197           387         670     

Production and manufacturing

     1,903          2,016           748         736           103         114     

Selling and general

     (1)         3           464         424           42         36     

Federal excise tax

             -           764         753           -         -     

Depreciation and depletion

     532          438           108         110           5         6     

Financing costs

             4           -         -           -         -     
  

 

 

    

 

 

    

 

 

 

TOTAL EXPENSES

     4,378          5,334           9,350         13,220           537         826     
  

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     (49)         1,739           1,064         1,146           185         135     

INCOME TAXES

     314          430           284         292           50         35     
  

 

 

    

 

 

    

 

 

 

NET INCOME

     (363)         1,309           780         854           135         100     
  

 

 

    

 

 

    

 

 

 

Cash flows from (used in) operating activities

     (515)         990           1,055         960           160         77     

CAPEX (b)

     1,594          2,400           221         183           16         8     

Total assets as at June 30

     36,612          32,940           5,839         6,121           381         377     
Six Months to June 30    Corporate and Other      Eliminations      Consolidated  
millions of dollars    2015      2014      2015      2014      2015      2014  

 

 

REVENUES AND OTHER INCOME

                 

Operating revenues (a)

             -                   -           13,442         18,596     

Intersegment sales

             -           (1,962)         (3,128)          -         -     

Investment and other income

             3                   -           62         679     
  

 

 

    

 

 

    

 

 

 
             3           (1,962)         (3,128)          13,504         19,275     
  

 

 

    

 

 

    

 

 

 

EXPENSES

                 

Exploration

             -                   -           33         38     

Purchases of crude oil and products

             -           (1,961)         (3,125)          7,600         11,577     

Production and manufacturing

             -                   -           2,754         2,866     

Selling and general

     32          111           (1)         (3)          536         571     

Federal excise tax

             -                   -           764         753     

Depreciation and depletion

             6                   -           652         560     

Financing costs

             -                   -           8         4     
  

 

 

    

 

 

    

 

 

 

TOTAL EXPENSES

     44          117           (1,962)         (3,128)          12,347         16,369     
  

 

 

    

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     (43)         (114)                  -           1,157         2,906     

INCOME TAXES

     (32)         (29)                  -           616         728     
  

 

 

    

 

 

    

 

 

 

NET INCOME

     (11)         (85)                  -           541         2,178     
  

 

 

    

 

 

    

 

 

 

Cash flows from (used in) operating activities

     (42)         57                   -           658         2,084     

CAPEX (b)

     38          41                   -           1,869         2,632     

Total assets as at June 30

     413          535           (411)         (575)          42,834         39,398     

 

(a) Included export sales to the United States of $2,163 million (2014 - $2,796 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

 

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3. Investment and other income

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

 

                           Six Months  
     Second Quarter          to June 30  
millions of dollars    2015           2014             2015            2014    

Proceeds from asset sales

           65           782                   90            807     

Book value of assets sold

           40           142                   39            147     
  

 

 

      

 

 

 

Gain/(loss) on asset sales, before tax

           25           640                   51            660     
  

 

 

      

 

 

 

Gain/(loss) on asset sales, after tax

           17           480                   40            496     
  

 

 

      

 

 

 

 

4. Employee retirement benefits

The components of net benefit cost were as follows:

 

                      Six Months      
     Second Quarter          to June 30      
millions of dollars    2015     2014      2015     2014    

Pension benefits:

         

Current service cost

         51        39               102        77     

Interest cost

         77        80               154        159     

Expected return on plan assets

     (96 )      (91)         (193 )      (182)   

Amortization of prior service cost

         4        5               8        11     

Amortization of actuarial loss

         49        43               99        86     
  

 

 

    

 

 

 

Net benefit cost

         85        76               170        151     
  

 

 

    

 

 

 

Other post-retirement benefits:

         

Current service cost

         4        2               8        5     

Interest cost

         6        6               12        12     

Amortization of actuarial loss

         3        2               6        4     
  

 

 

    

 

 

 

Net benefit cost

         13        10               26        21     
  

 

 

    

 

 

 

 

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5. Financing costs and additional notes and loans payable information

 

                      Six Months      
         Second Quarter          to June 30      
millions of dollars    2015     2014      2015     2014    

Debt-related interest

         20        20               43        41     

Capitalized interest

     (15     (20)         (38     (41)   
  

 

 

    

 

 

 

Net interest expense

         5        -               5        -     

Other interest

         -        2               3        4     
  

 

 

    

 

 

 

Total financing costs

         5        2               8        4     
  

 

 

    

 

 

 

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

 

     As at        As at  
     June 30        Dec 31  
millions of dollars    2015        2014  

Long-term debt

     5,852           4,746   

Capital leases

     156           167   
  

 

 

      

 

 

 

Total long-term debt

             6,008                   4,913   
  

 

 

      

 

 

 

In the first half of 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 faciltiy with an affiliated company of ExxonMobil from $6.25 billion to $7.75 billion. All other terms and conditions of the agreement remained unchanged.

Subsequent to the second quarter, the company entered into a long-term capital lease related to the Woodland pipeline for approximately $500 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

 

     As at      As at  
     June 30      Dec 31  
millions of dollars    2015      2014  

Employee retirement benefits (a)

     1,870         1,739   

Asset retirement obligations and other environmental liabilities (b)

     1,518         1,325   

Share-based incentive compensation liabilities

     178         154   

Other obligations

     407         347   
  

 

 

    

 

 

 

Total other long-term obligations

             3,973                 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)

 

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8. Net income per share

 

                      Six Months        
     Second Quarter       to June 30         
      2015           2014       2015           2014    

Net income per common share - basic

              

Net income (millions of dollars)

     120           1,232          541           2,178     

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

           847.6           847.6          847.6           847.6     

Net income per common share (dollars)

     0.14           1.45          0.64           2.57     

Net income per common share - diluted

              

Net income (millions of dollars)

     120           1,232          541           2,178     

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)

     3.1           3.1          3.0           3.0     
  

 

 

   

 

 

 

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

     850.7           850.7          850.6           850.6     

Net income per common share (dollars)

     0.14           1.45          0.64           2.56     

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

            84             75       
         

 

 

 

Balance at June 30

                  (2,151)           (1,684)     
         

 

 

 

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

              
                      Six Months        
     Second Quarter       to June 30         
millions of dollars    2015           2014     2015           2014  

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

     (56 )         (50     (113 )         (101

 

(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:

 

                                                                   
                   Six Months        
     Second Quarter        to June 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         13                   30        26     
  

 

 

    

 

 

 
             15         13           (31     13     
  

 

 

    

 

 

 

 

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

 

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

OPERATING RESULTS

Second quarter 2015 vs. second quarter 2014

The company’s net income for the second quarter of 2015 was $120 million or $0.14 per share on a diluted basis and reflected a net charge, largely non-cash, of $320 million ($0.38 per share) associated with the recently enacted Alberta corporate income tax rate increase, compared with $1,232 million or $1.45 per share for the same period last year.

Upstream recorded a net loss in the second quarter of $174 million, $1,031 million lower than the same period of 2014. Earnings in the second quarter of 2015 reflected lower crude oil and gas realizations of about $650 million along with the impact associated with increased Alberta corporate income taxes of about $327 million. Earnings in the second quarter of 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. These factors were partially offset by higher Kearl and Cold Lake volumes of about $190 million, the impact of a weaker Canadian dollar of about $160 million and lower royalties of about $120 million.

West Texas Intermediate (WTI), the main U.S. dollar benchmark crude for North America, decreased by 44 percent compared to the same quarter in 2014. The company’s average Canadian dollar realizations for synthetic crude oil and bitumen decreased about 33 and 35 percent in the second quarter of 2015 to $75.20 and $49.16 per barrel respectively, as the decline in the benchmark crude was partly offset by the weaker Canadian dollar, along with decreased light-heavy differentials. The company’s average realizations on sales of natural gas of $1.83 per thousand cubic feet in the second quarter of 2015, were lower by $2.25 per thousand cubic feet, versus the same period in 2014.

Gross production of Cold Lake bitumen averaged 161,000 barrels per day in the second quarter, up from 138,000 barrels in the same period last year, primarily due to the continued ramp-up of Nabiye production. Nabiye production is expected to reach approximately 40,000 barrels per day, before royalties, by the end of 2015.

Gross production of Kearl bitumen averaged 130,000 barrels per day in the second quarter (92,000 barrels Imperial’s share) up from 73,000 barrels per day (52,000 barrels Imperial’s share) during the second quarter of 2014, reflecting early start-up of the Kearl expansion project and continued improvement in reliability of the initial development.

During the second quarter of 2015, the company’s share of gross production from Syncrude averaged 52,000 barrels per day, up from 51,000 barrels in the second quarter of 2014.

Gross production of conventional crude oil averaged 15,000 barrels per day in the second quarter, versus 18,000 barrels in the corresponding period in 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 second quarter of 2015 was 134 million cubic feet per day, down from 158 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 $215 million in the second quarter, $151 million lower than the second quarter of 2014. Earnings decreased mainly due to lower margins of about $170 million, higher refinery planned maintenance expense of about $90 million, partly offset by the impact of a weaker Canadian dollar of about $130 million.

 

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Chemical net income was $69 million in the second quarter, the highest quarterly earnings on record, up from $57 million in the same quarter in 2014.

Net income effects from Corporate and Other were $10 million in the second quarter, versus negative $48 million in the same period of 2014, primarily due to changes in share-based compensation charges and the impact of the Alberta corporate income tax rate increase.

 

 

Six months 2015 vs. six months 2014

Net income in the first six months of 2015 was $541 million, or $0.64 per share on a diluted basis and reflected a net charge, largely non-cash, of $320 million ($0.38 per share) associated with the recently enacted Alberta corporate income tax rate increase, versus $2,178 million or $2.56 per share for the first half of 2014, which included a $478 million gain on the sale of conventional upstream producing assets.

Upstream recorded a net loss of $363 million for the first six months of 2015, $1,672 million lower than the same period of 2014. Earnings in 2015 reflected the impact of lower crude oil and gas realizations of about $1,740 million and the impact associated with increased Alberta corporate income taxes of about $327 million. Earnings in the second quarter of 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. These factors were partially offset by lower royalties of about $330 million, the impact of a weaker Canadian dollar of about $320 million, and higher Kearl and Cold Lake volumes of about $260 million.

WTI, the main U.S. dollar benchmark crude for North America, decreased by 47 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 45 percent in the first half of 2015 to $63.89 and $39.15 per barrel respectively, as the decline in benchmark crude and increased light-heavy differentials were partly offset by the weaker Canadian dollar. The company’s average realizations on sales of natural gas of $2.71 per thousand cubic feet in 2015, were lower by $2.78 per thousand cubic feet, versus the same period in 2014.

Gross production of Cold Lake bitumen averaged 156,000 barrels per day in the first six months, up from 142,000 barrels from the same period last year, primarily due to Nabiye production.

Gross production of Kearl bitumen averaged 113,000 barrels per day in the first six months of 2015 (80,000 barrels Imperial’s share) up from 72,000 barrels per day (51,000 barrels Imperial’s share), reflecting early start-up of the Kearl expansion project and improved reliability of the initial development.

During the first six months of 2015, the company’s share of gross production from Syncrude averaged 63,000 barrels per day, up from 62,000 barrels from the same period of 2014.

Gross production of conventional crude oil averaged 15,000 barrels per day in the first half of 2015, compared to 20,000 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.

 

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Gross production of natural gas during the first six months of 2015 was 140 million cubic feet per day, down from 181 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 $780 million, down $74 million from the same period of 2014. Earnings decreased due to the impacts of lower refining margins of about $200 million and higher refinery planned maintenance expense of about $130 million, partially offset by the impact of a weaker Canadian dollar of about $170 million, lower energy costs of $80 million and a 2015 gain of $17 million from the sale of assets.

Chemical net income was $135 million, up from $100 million in the same period in 2014, mainly as a result of strong polyethylene operations and margins.

For the first six months of 2015, net income effects from Corporate & Other were negative $11 million, versus negative $85 million in 2014, primarily due to changes in 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 $377 million in the second quarter, versus $999 million in the corresponding period in 2014. Lower cash flow was mainly due to lower earnings and working capital effects.

Investing activities used net cash of $724 million in the second quarter, compared with $595 million in the same period of 2014. Additions to property, plant and equipment were $773 million in the second quarter, compared with $1,295 million during the same quarter in 2014. Expenditures during the quarter were primarily directed towards the completion of the upstream growth projects.

Cash from financing activities was $315 million in the second quarter, compared with cash used in financing activities of $335 million in the second quarter of 2014. Dividends paid in the second quarter of 2015 were $110 million, unchanged from the corresponding period in 2014. Per-share dividends paid in the second quarter were $0.13, unchanged from the same period of 2014.

The company’s cash balance was $28 million as at June 30, 2015 versus $171 million at the end of the second quarter of 2014.

Subsequent to the second quarter, 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 $500 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

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 expected to be adopted beginning January 1, 2018. Imperial is evaluating the standard and its effect on the Corporation’s financial statements.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the six months ended June 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 quarter ended March 31, 2015 except for the following:

 

Earnings sensitivity

millions of dollars after tax

  

  

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

   + (-)      350   

Eight cents decrease (increase) in the value of the Canadian dollar

   + (-)      720   

            versus the U.S. dollar

             

The sensitivity of net income to changes in crude oil prices decreased from the first quarter of 2015 by about $5 million (after tax) a year for each one U.S. dollar change. The decrease was primarily the result of higher royalty costs due to higher crude oil prices and higher taxes due to the increase in the Alberta corporate tax rate.

The sensitivity of net income to changes in the Canadian dollar versus the U.S. dollar increased from the first quarter of 2015 by about $10M (after tax) a year from each one-cent change, primarily due to the impact of higher U.S. dollar crude 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, 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.

 

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PART II - OTHER INFORMATION

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

Issuer Purchases of Equity Securities (a)(b)

 

 

Period

   Total
number
of shares
(or units)
purchased

 

 

   Average
price paid
per share (or
unit)

 

 

  

 

 

Total
number of
shares (or
units)
purchased
as part of
publicly
announced
plans or
programs

   Maximum
number (or
approximate
dollar value) of
shares (or units)
that may yet be
purchased

under the plans
or programs

April 2015

(Apr 1 – Apr 30)

 

   0    0    0    1,000,000

May 2015

(May 1 – May 31)

 

   0    0    0    1,000,000

June 2015

(Jun 1 – Jun 30)

 

   0    0    0    1,000,000

 

  (a) 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 program enabled 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 ended on June 24, 2015.
  (b) 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.

 

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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)
      /s/ Paul J. Masschelin
Date:    August 4, 2015      

 

      (Signature)
      Paul J. Masschelin
     

Senior Vice-President, Finance and

Administration and Controller

      (Principal Accounting Officer)
      /s/ Cathryn Walker
Date:    August 4, 2015      

 

      (Signature)
      Cathryn Walker
      Assistant Corporate Secretary

 

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