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IMPERIAL OIL LTD - Quarter Report: 2019 June (Form 10-Q)

10-Q
Table of Contents
 
FORM
10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
✓ 
]
     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2019
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.)
             
 
505 Quarry Park Boulevard S.E. Calgary, Alberta, Canada
 
 
T2C 5N1
 
(Address of principal executive offices)
 
 
(Postal Code)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Registrant’s telephone number, including area code:
1-800-567-3776
 
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading symbol
 
Name of each exchange on
which registered
None
 
 
None
 
 
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 90 days.
  
YES
  
  
  
  NO  
         
The registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
  
YES
  
  
  
 NO  
         
The registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act of 1934).
                 
Large accelerated filer
 
  
  
 
Smaller reporting company
 
___
_
 
Non-accelerated
 filer
 
____
 
Emerging growth company
 
____   
 
                    
Accelerated filer
 
____
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
        
The registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act of 1934).
  
YES
  
        
  NO  
  
  
The number of common shares outstanding, as of June 30, 2019 was
762,773,619
.
 
 
 
Table of Contents
 
IMPERIAL OIL LIMITED
 
Table of contents
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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, 2018. Note that numbers may not add due to rounding.
The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.
In this report, unless the context otherwise indicates, reference to “the company” or “Imperial” includes Imperial Oil Limited and its subsidiaries.
 
2
 
 
 
Table of Contents
IMPERIAL OIL LIMITED
 
PART I.   FINANCIAL INFORMATION
Item 1.
Financial statements
Consolidated statement of income (U.S. GAAP, unaudited)
 
Second Quarter
   
Six Months
to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
2019
   
2018
 
Revenues and other income
   
     
     
     
 
 Revenues
(a)
   
9,228
     
9,516
     
17,193
      
17,416
 
 Investment and other income
(note 4)
   
33
     
27
     
50
     
61
 
Total revenues and other income
   
9,261
     
9,543
     
17,243
     
17,477
 
                                 
Expenses
   
     
     
     
 
Exploration
   
5
     
1
     
38
     
9
 
 Purchases of crude oil and products
(b)
   
5,662
     
6,537
     
10,557
     
11,317
 
 Production and manufacturing
(c)
   
1,715
     
1,646
     
3,310
     
3,077
 
 Selling and general
(c)
   
236
     
273
     
449
     
467
 
Federal excise tax and fuel charge
   
463
     
412
     
857
     
809
 
Depreciation and depletion
   
392
     
358
     
782
     
735
 
Non-service
pension and postretirement benefit
   
36
     
26
     
72
     
53
 
 Financing
(d) (note 6)
   
23
     
26
     
51
     
49
 
Total expenses
   
8,532
     
9,279
     
16,116
     
16,516
 
                                 
Income (loss) before income taxes
   
729
     
264
     
1,127
     
961
 
                                 
Income taxes
   
(483
)
   
68
     
(378
)
   
249
 
                                 
Net income (loss)
   
1,212
     
196
     
1,505
     
712
 
                                 
Per share information
 
(Canadian dollars)
   
     
     
     
 
Net income (loss) per common share - basic
(note 11)
   
1.58
     
0.24
     
1.95
     
0.86
 
Net income (loss) per common share - diluted 
(note 11)
   
1.57
     
0.24
     
1.94
     
0.86
 
                                 
(a)
Amounts from related parties included in revenues.
   
2,234
     
1,769
     
3,956
     
3,142
 
                                 
(b)
Amounts to related parties included in purchases of crude oil and products.
   
908
     
1,374
     
1,636
     
2,266
 
                                 
(c)
Amounts to related parties included in production and manufacturing, and selling and general expenses.
   
161
     
156
     
322
     
297
 
                                 
(d)
Amounts to related parties included in financing, (note 6).
   
24
     
22
     
52
     
42
 
The information in the notes to consolidated financial statements is an integral part of these statements.
 
3
 
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
Consolidated statement of comprehensive income (U.S. GAAP, unaudited)
                                 
 
    Second Quarter
   
Six Months
to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
2019
   
2018
 
Net income (loss)
   
1,212
     
196
     
1,505
     
712
 
                                 
Other comprehensive income (loss), net of income taxes
   
     
     
     
 
Postretirement benefits liability adjustment (excluding amortization)
   
-
     
-
     
18
     
(19
)
Amortization of postretirement benefits liability adjustment included in net periodic benefit costs
   
28
     
33
     
55
     
67
 
Total other comprehensive income (loss)
   
28
     
33
     
73
     
48
 
   
     
     
     
 
Comprehensive income (loss)
   
1,240
     
229
     
1,578
     
760
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The information in the notes to consolidated financial statements is an integral part of these statements.
 
4
 
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
Consolidated balance sheet (U.S. GAAP, unaudited)    
                 
 
As at
June 30
   
As at
Dec 31
 
millions of Canadian dollars
 
2019
   
2018
 
Assets
   
     
 
Current assets
   
     
 
Cash
   
1,087
     
988
 
 Accounts receivable, less estimated doubtful accounts
(a)
   
3,134
     
2,529
 
Inventories of crude oil and products
   
1,228
     
1,297
 
Materials, supplies and prepaid expenses
   
631
     
541
 
Total current assets
   
6,080
     
5,355
 
Investments and long-term receivables
(b)
   
894
     
857
 
Property, plant and equipment,
   
54,263
 
   
53,944
 
less accumulated depreciation and depletion
   
(20,025
)
 
 
(19,719
)
Property, plant and equipment, net
   
34,238
 
 
 
34,225
 
Goodwill
   
186
 
 
 
186
 
Other assets, including intangibles, net
   
531
 
 
 
833
 
Total assets
   
41,929
 
 
 
41,456
 
 
     
 
 
     
Liabilities
   
 
 
 
 
Current liabilities
   
 
 
 
 
 Notes and loans payable
(c)
   
200
 
 
 
202
 
 Accounts payable and accrued liabilities
(a) (note 9)
   
3,985
 
 
 
3,688
 
Income taxes payable
   
28
 
 
 
65
 
Total current liabilities
   
4,213
 
 
 
3,955
 
Long-term debt
(d) (note 7)
   
4,968
 
 
 
4,978
 
Other long-term obligations
(e) (note 9)
   
3,076
 
 
 
2,943
 
Deferred income tax liabilities
   
4,650
 
 
 
5,091
 
Total liabilities
   
16,907
 
 
 
16,967
 
 
     
 
 
     
Shareholders’ equity
   
 
 
 
 
Common shares at stated value
(f) (note 11)
   
1,410
 
 
 
1,446
 
Earnings reinvested
   
25,056
 
 
 
24,560
 
Accumulated other comprehensive income (loss)
(note 12)
   
(1,444
)
 
 
(1,517
)
Total shareholders’ equity
   
25,022
 
 
 
24,489
 
       
 
 
     
Total liabilities and shareholders’ equity
   
41,929
     
41,456
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Accounts receivable, less estimated doubtful accounts included net amounts receivable from related parties of $1,200 million (2018 - $666 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Investments and long-term receivables included amounts from related parties of $249 million (2018 - $146 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c) Notes and loans payable included amounts to related parties of $75 million (2018 - $75 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d) Long-term debt included amounts to related parties of $4,447 million (2018 - $4,447 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(e) Other long-term obligations included amounts to related parties of $0 million (2018 - $15 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(f) Number of common shares authorized and outstanding were 1,100 million and 763 million, respectively (2018 - 1,100 million and 783 million, respectively).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
Consolidated statement of shareholders’ equity (U.S. GAAP, unaudited)
                                 
 
    Second Quarter
   
Six Months
to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
2019
   
2018
 
Common shares at stated value
 
(note 11)
   
     
     
     
 
At beginning of period
 
 
1,427
 
 
 
1,523
 
 
 
1,446
 
 
 
1,536
 
Issued under the stock option plan
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Share purchases at stated value
 
 
(17
)
 
 
(40
)
 
 
(36
)
 
 
(53
)
At end of period
 
 
1,410
 
 
 
1,483
 
 
 
1,410
 
 
 
1,483
 
                                 
Earnings reinvested
 
 
 
 
 
 
 
 
 
 
 
 
At beginning of period
 
 
24,364
 
 
 
24,861
 
 
 
24,560
 
 
 
24,714
 
Net income (loss) for the period
 
 
1,212
 
 
 
196
 
 
 
1,505
 
 
 
712
 
Share purchases in excess of stated value
 
 
(351
)
 
 
(853
)
 
 
(693
)
 
 
(1,090
)
Dividends declared
 
 
(169
)
 
 
(155
)
 
 
(316
)
 
 
(287
)
At end of period
 
 
25,056
 
 
 
24,049
 
 
 
25,056
 
 
 
24,049
 
                                 
Accumulated other comprehensive income (loss)
(note 12)
   
     
     
     
 
At beginning of period
 
 
(1,472
)
 
 
(1,800
)
 
 
(1,517
)
 
 
(1,815
)
Other comprehensive income (loss)
 
 
28
 
 
 
33
 
 
 
73
 
 
 
48
 
At end of period
 
 
(1,444
)
 
 
(1,767
)
 
 
(1,444
)
 
 
(1,767
)
                                 
Shareholders’ equity at end of period
   
25,022
     
23,765
     
25,022
     
23,765
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The information in the notes to consolidated financial statements is an integral part of these statements.
  
6
 
 
  
 
 
Table of Contents 
 
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
 
2019
   
2018
   
2019
   
2018
 
Operating activities
   
     
     
     
 
Net income (loss)
   
1,212
     
196
     
1,505
     
712
 
Adjustments for
non-cash
items:
   
     
     
     
 
Depreciation and depletion
   
392
     
358
     
782
     
735
 
(Gain) loss on asset sales
(note 4)
   
(11
)
   
(9
)    
(6
)
   
(19
)
Deferred income taxes and other
   
(471
)
   
24
     
(475
)
   
209
 
Changes in operating assets and liabilities:
   
     
     
     
 
Accounts receivable
   
99
     
(340
)    
(605
)
   
87
 
Inventories, materials, supplies and prepaid expenses
   
(40
)
   
40
     
(21
)
   
(177
)
Income taxes payable
   
(9
)
   
16
     
(37
)
   
32
 
Accounts payable and accrued liabilities
   
(175
)
   
439
     
728
     
24
 
All other items - net
(a) (b)
   
29
     
135
     
158
     
241
 
Cash flows from (used in) operating activities
   
1,026
     
859
     
2,029
     
1,844
 
                                 
Investing activities
   
     
     
     
 
Additions to property, plant and equipment
(b)
   
(394
)
   
(357
)    
(825
)
   
(728
)
Proceeds from asset sales
(note 4)
   
14
     
9
     
36
     
21
 
Loan to equity company
   
(49
)
   
(31
)    
(103
)
   
(37
)
Cash flows from (used in) investing activities
   
(429
)
   
(379
)    
(892
)
   
(744
)
                                 
Financing activities
   
     
     
     
 
Reduction in finance lease obligations
(note 8)
   
(6
)
   
(7
)    
(13
)
   
(13
)
Dividends paid
   
(147
)
   
(132
)    
(296
)
   
(266
)
Common shares purchased
(note 11)
   
(368
)
   
(893
)    
(729
)
   
(1,143
)
Cash flows from (used in) financing activities
   
(521
)
   
(1,032
)    
(1,038
)
   
(1,422
)
                                 
Increase (decrease) in cash
   
76
     
(552
)    
99
     
(322
)
Cash at beginning of period
   
1,011
     
1,425
     
988
     
1,195
 
Cash at end of period
(c)
   
1,087
     
873
     
1,087
     
873
 
(a)    Included contribution to registered pension plans.
   
(57
)
 
    (57 )    
(98
)
   
(101
(b)    The impact of carbon emission programs are included in additions to property, plant and equipment, and all other items, net.
 
(c)    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 transaction
The company removed $570 million of assets and corresponding liabilities associated with the Government of Ontario’s revocation of its cap and trade legislation. The impact of this removal was not reflected in “Accounts payable and accrued liabilities” and “All other items - net” lines on the Consolidated statement of cash flows as it was not a cash transaction.
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 consolidated financial statements (unaudited)
1.  Basis of financial statement preparation
These unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) 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 (SEC) in the company’s 2018 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, 2019, are not necessarily indicative of the operations to be expected for the full year.
All amounts are in Canadian dollars unless otherwise indicated.
2.  Accounting changes
Effective January 1, 2019, Imperial adopted the Financial Accounting Standards Board’s standard,
Leases (Topic 842)
, as amended. The standard requires all leases to be recorded on the balance sheet as a right of use asset and a lease liability. The company used a transition method that applies the new lease standard at January 1, 2019. The company applied a policy election to exclude short-term leases from the balance sheet recognition and also elected certain practical expedients at adoption. As permitted, Imperial did not reassess whether existing contracts are or contain leases, the lease classification for any existing leases, initial direct costs for any existing lease and whether existing land easements and right of way, which were not previously accounted for as leases, are or contain a lease. At adoption of the lease accounting change, on January 1, 2019, an operating lease liability of $298 million was recorded and the operating lease right of use asset was $298 million. There was no cumulative earnings effect adjustment.
 
 
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Table of Contents 
IMPERIAL OIL LIMITED
 
3.  Business segments
                                         
Second Quarter
 
 
Upstream       
 
Downstream       
 
 
 
Chemical          
millions of Canadian dollars
 
 
2019
 
    
 
2018
 
2019
   
 
 
2018
 
 
 
2019
      
 
2018 
Revenues and other income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
(a)
 
 
2,587
 
 
      
2,318
          
6,375
 
          
 
6,870
 
 
      
266
            
 
328 
Intersegment sales
 
 
1,116
 
 
 
650
 
487
 
 
 
332
 
 
 
48
 
 
74 
Investment and other income
(note 4)
 
 
4
 
 
 
3
 
19
 
 
 
19
 
 
 
-
 
 
 
 
3,707
 
 
 
2,971
 
6,881
 
 
 
7,221
 
 
 
314
 
 
402 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exploration
 
 
5
 
 
 
1
 
-
 
 
 
-
 
 
 
-
 
 
Purchases of crude oil and products
 
 
1,802
 
 
 
1,573
 
5,338
 
 
 
5,803
 
 
 
171
 
 
216 
Production and manufacturing
 
 
1,171
 
 
 
1,106
 
474
 
 
 
488
 
 
 
70
 
 
52 
Selling and general
 
 
-
 
 
 
-
 
201
 
 
 
197
 
 
 
23
 
 
23 
Federal excise tax and fuel charge
 
 
-
 
 
 
-
 
463
 
 
 
412
 
 
 
-
 
 
Depreciation and depletion
 
 
338
 
 
 
300
 
46
 
 
 
49
 
 
 
3
 
 
Non-service
pension and postretirement benefit
 
 
-
 
 
 
-
 
-
 
 
 
-
 
 
 
-
 
 
Financing
(note 6)
 
 
-
 
 
 
-
 
-
 
 
 
-
 
 
 
-
 
 
Total expenses
 
 
3,316
 
 
 
2,980
 
6,522
 
 
 
6,949
 
 
 
267
 
 
295 
Income (loss) before income taxes
 
 
391
 
 
 
(9
)
359
 
 
 
272
 
 
 
47
 
 
107 
Income taxes
 
 
(594
)
 
 
 
(3
)
101
 
 
 
71
 
 
 
9
 
 
29 
Net income (loss)
 
 
985
 
 
 
(6
)
258
 
 
 
201
 
 
 
38
 
 
78 
Cash flows from (used in) operating activities
 
 
585
 
 
 
(10
)
423
 
 
 
776
 
 
 
52
 
 
116 
Capital and exploration expenditures
 
(b)
 
 
301
 
 
 
183
 
111
 
 
 
88
 
 
 
6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Second Quarter
 
 
   Corporate and other
 
Eliminations       
 
 
 
Consolidated    
millions of Canadian dollars
 
 
2019
     
 
 
2018
 
2019
   
 
 
2018
 
 
 
2019
  
        
2018 
Revenues and other income
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
Revenues
(a)
 
 
-
 
 
 
-
        
-
 
 
 
-
 
 
 
9,228
 
 
9,516 
Intersegment sales
 
 
-
 
 
 
-
 
(1,651
)
        
 
(1,056
)
     
-
 
 
Investment and other income
(note 4)
 
 
10
 
 
 
5
 
-
 
 
 
-
 
   
33
 
 
27 
 
 
10
 
 
 
5
 
(1,651
)
 
 
(1,056
   
9,261
 
 
9,543 
Expenses
 
 
 
 
 
 
 
 
 
 
   
 
 
 
Exploration
 
 
-
 
 
 
-
 
-
 
 
 
-
 
   
5
 
 
Purchases of crude oil and products
 
 
-
 
 
 
-
 
(1,649
)
 
 
(1,055
   
5,662
 
 
6,537 
Production and manufacturing
 
 
-
 
 
 
-
 
-
 
 
 
-
 
   
1,715
 
 
1,646 
Selling and general
 
 
14
 
 
 
54
 
(2
)
 
 
(1
)
   
236
 
 
273 
Federal excise tax and fuel charge
 
 
-
 
 
 
-
 
-
 
 
 
-
 
 
 
463
 
 
412 
Depreciation and depletion
 
 
5
 
 
 
5
 
-
 
 
 
-
 
 
 
392
 
 
358 
Non-service
pension and postretirement benefit
 
 
36
 
 
 
26
 
-
 
 
 
-
 
 
 
36
 
 
26 
Financing
(note 6)
 
 
23
 
 
 
26
 
-
 
 
 
-
 
 
 
23
 
 
26 
Total expenses
 
 
78
 
 
 
111
 
(1,651
)
 
 
(1,056
)
 
 
8,532
 
 
9,279 
Income (loss) before income taxes
 
 
(68
)
 
 
(106
)
-
 
 
 
-
 
 
 
729
 
 
264 
Income taxes
 
 
1
 
 
 
(29
-
 
 
 
-
 
 
 
(483
)
 
68 
Net income (loss)
 
 
(69
 
 
(77
-
 
 
 
-
 
 
 
1,212
 
 
196 
Cash flows from (used in) operating activities
 
 
(34
)
 
 
(23
)
-
 
 
 
-
 
 
 
1,026
 
 
859 
Capital and exploration expenditures
 
(b)
 
 
11
 
 
 
6
 
-
 
 
 
-
 
 
 
429
 
 
284 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Included export sales to the United States of $
2,152
 million (2018 - $
1,561
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 finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
10
 
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
 
                         
Six Months to June 30
 
Upstream        
 
Downstream      
 
Chemical          
millions of Canadian dollars
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018 
Revenues and other income
 
 
 
 
 
    
 
Revenues
(a)
 
4,827
 
4,307
 
11,849
 
12,477
 
517
 
632 
Intersegment sales
 
2,064
 
1,307
 
935
 
694
 
120
 
147 
Investment and other income
(note 4)
 
4
 
4
 
29
 
41
 
-
 
 
6,895
 
5,618
 
12,813
 
13,212
 
637
 
779 
Expenses
 
 
 
 
 
 
 
Exploration
 
38
 
9
 
-
 
-
 
-
 
Purchases of crude oil and products
 
3,388
 
2,947
 
9,920
 
10,097
 
364
 
418 
Production and manufacturing
 
2,327
 
2,118
 
855
 
856
 
128
 
103 
Selling and general
 
-
 
-
 
380
 
370
 
44
 
44 
Federal excise tax and fuel charge
 
-
 
-
 
857
 
809
 
-
 
Depreciation and depletion
 
672
 
618
 
92
 
100
 
7
 
Non-service
pension and postretirement benefit
 
-
 
-
 
-
 
-
 
-
 
Financing
(note 6)
 
-
 
-
 
-
 
-
 
-
 
Total expenses
 
6,425
 
5,692
 
12,104
 
12,232
 
543
 
572 
Income (loss) before income taxes
 
470
 
(74
)
709
 
980
 
94
 
207 
Income taxes
 
(573
)
(24
)
194
 
258
 
22
 
56 
Net income (loss)
 
1,043
 
(50
)
515
 
722
 
72
 
151 
Cash flows from (used in) operating activities
 
865
 
327
 
1,155
 
1,366
 
100
 
199 
Capital and exploration expenditures
 
(b)
 
673
 
389
 
240
 
145
 
23
 
11 
Total assets as at June
  30 
(c) (d)
 
35,059
 
34,781
 
5,041
 
5,090
 
451
 
408 
             
Six Months to June 30
 
    Corporate and other 
Eliminations      
 
Consolidated       
millions of Canadian dollars
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018 
Revenues and other income
 
 
 
 
 
 
 
Revenues
(a)
 
-
 
-
 
-
 
-
 
17,193
 
17,416 
Intersegment sales
 
-
 
-
 
(3,119
)
(2,148
)
-
 
Investment and other income
(note 4)
 
17
 
16
 
-
 
-
 
50
 
61 
 
17
 
16
 
(3,119
)
(2,148
)
17,243
 
17,477 
Expenses
 
 
 
 
 
 
 
Exploration
 
-
 
-
 
-
 
-
 
38
 
Purchases of crude oil and products
 
-
 
-
 
(3,115
)
(2,145
)
10,557
 
11,317 
Production and manufacturing
 
-
 
-
 
-
 
-
 
3,310
 
3,077 
Selling and general
 
29
 
56
 
(4
)
(3
)
449
 
467 
Federal excise tax and fuel charge
 
-
 
-
 
-
 
-
 
857
 
809 
Depreciation and depletion
 
11
 
10
 
-
 
-
 
782
 
735 
Non-service
pension and postretirement benefit
 
72
 
53
 
-
 
-
 
72
 
53 
Financing
(note 6)
 
51
 
49
 
-
 
-
 
51
 
49 
Total expenses
 
163
 
168
 
(3,119
)
(2,148
)
16,116
 
16,516 
Income (loss) before income taxes
 
(146
)
(152
)
-
 
-
 
1,127
 
961 
Income taxes
 
(21
)
(41
)
-
 
-
 
(378
)
249 
Net income (loss)
 
(125
)
(111
)
-
 
-
 
1,505
 
712 
Cash flows from (used in) operating activities
 
(91
)
(48
)
-
 
-
 
2,029
 
1,844 
Capital and exploration expenditures
 
(b)
 
22
 
13
 
-
 
-
 
958
 
558 
Total assets as at June
  30 
(c) (d)
 
1,822
 
1,438
 
(444
)
(327
)
41,929
 
41,390 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
 
(a) Included export sales to the United States of $
3,816
 million (2018 - $
2,768
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 finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c) Effective January 1, 2019, Imperial adopted the Financial Accounting Standards Board’s standard,
Leases (Topic 842)
, as amended. As at June 30, 2019, Total assets include operating lease right of use assets of $
261
 million. An election was made not to restate prior periods. See note 8 for additional details.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d) The company removed $570 million from Total assets and corresponding liabilities associated with the Government of Ontario’s revocation of its cap and trade legislation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
4.  Investment and other income
Investment and other income included gains and losses on asset sales as follows:
                                 
 
    Second Quarter
   
  Six Months
  to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
    2019
   
    2018
 
Proceeds from asset sales
   
14
     
9
     
36
        
21
 
Book value of asset sales
   
3
     
-
     
30
     
2
 
Gain (loss) on asset sales, before tax
   
11
     
9
     
6
     
19
 
Gain (loss) on asset sales, after tax
   
10
     
8
     
6
     
15
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.  Employee retirement benefits
The components of net benefit cost were as follows:
                                 
 
    Second Quarter
   
  Six Months   to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
    2019
   
   2018
 
Pension benefits:
   
     
     
     
 
Current service cost
   
57
     
60
     
114
     
120
 
Interest cost
   
81
     
75
     
162
     
151
 
Expected return on plan assets
   
(88
)
   
(100
)    
(175
)
   
(201
)
Amortization of prior service cost
   
-
     
1
     
-
     
2
 
Amortization of actuarial loss (gain)
   
38
     
43
     
75
     
87
 
Net periodic benefit cost
   
88
     
79
     
176
     
159
 
                                 
Other postretirement benefits:
   
     
     
     
 
Current service cost
   
4
     
4
     
8
     
8
 
Interest cost
   
6
     
6
     
11
     
11
 
Amortization of actuarial loss (gain)
   
(1
)
   
1
     
(1
)
   
3
 
Net periodic benefit cost
   
9
     
11
     
18
     
22
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.  Financing and additional notes and loans payable information
                                 
 
    Second Quarter
   
  Six Months
  to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
     2019
   
    2018
 
Debt-related interest
   
34
 
   
32
     
73
     
62
 
Capitalized interest
   
(11
)
   
(6
)    
(22
)
   
(13
)
Net interest expense
   
23
     
26
     
51
     
49
 
Other interest
   
-
     
-
     
-
     
-
 
Total financing
   
23
     
26
     
51
     
49
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.  Long-term debt
                                 
 
   
   
As at
June 30
   
As at
Dec 31
 
millions of Canadian dollars
 
   
   
2019
   
2018
 
Long-term debt
   
     
     
4,447
     
4,447
 
Finance leases
(a)
   
     
     
521
     
531
 
Total long-term debt
   
     
     
4,968
     
4,978
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Maturity analysis of finance lease liabilities is disclosed in note 8.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
 
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
8.  Leases
The company generally purchases the property, plant and equipment used in operations, but there are situations where assets are leased, primarily rail cars, marine vessels, storage tanks and other moveable equipment. Right of use assets and lease liabilities are established on the balance sheet for leases with an expected term greater than one year, by discounting the amounts fixed in the lease agreement for the duration of the lease which is reasonably certain, considering the probability of exercising any early termination and extension options. The portion of the fixed payment related to service costs for long-term transportation agreements is excluded from the calculation of right of use assets and lease liabilities. Usually, assets are leased only for a portion of their useful lives and are accounted for as operating leases. In limited situations assets are leased for nearly all of their useful lives and are accounted for as finance leases. In general, leases are capitalized using the company’s incremental borrowing rate.
Variable payments under these lease agreements are not significant. Residual value guarantees, restrictions, or covenants related to leases, and transactions with related parties are also not significant. The company’s activities as a lessor are not material.
At adoption of the lease accounting change (see note 2), on January 1, 2019, an operating lease liability of $
298
 million was recorded and the operating lease right of use asset was $
298
 million. There was no cumulative earnings effect adjustment.
The table below summarizes the total lease cost incurred:
                                 
 
 Second Quarter
 2019
   
Six Months
to June 30
2019
 
                         
millions of Canadian dollars
 
      Operating
leases
   
Finance
leases
   
    Operating
leases
   
Finance
leases
 
Operating lease cost
   
37
     
     
74
     
 
Short-term and other (net of sublease rental income)
   
25
     
     
40
     
 
                                 
Amortization of right of use assets
   
     
14
     
     
27
 
Interest on lease liabilities
   
     
10
     
     
20
 
Total lease cost
   
62
     
24
     
114
     
47
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table summarizes the amounts related to operating leases and finance leases recorded on the Consolidated balance sheet:
                                 
 
   
   
As at
June 30
2019
 
                         
millions of Canadian dollars
 
   
   
    Operating
leases
   
    Finance
leases
 
Right of use assets
   
     
     
     
 
Included in Other assets, including intangibles, net
   
     
     
261
     
 
Included in Property, plant and equipment, net
   
     
     
     
574
 
Total right of use assets
   
     
     
261
     
574
 
                                 
Lease liability due within one year
   
     
     
     
 
Included in Accounts payable and accrued liabilities
   
     
     
118
     
38
 
Included in Notes and loans payable
   
     
     
     
25
 
Long-term lease liability
   
     
     
     
 
Included in Other long-term obligations
   
     
     
141
     
-
 
Included in Long-term debt
   
     
     
     
521
 
Total lease liability
   
     
     
259
     
584
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
  
 
Table of Contents 
IMPERIAL OIL LIMITED
 
The maturity analysis of the company’s lease liabilities, weighted average remaining lease term and weighted average discount rates applied are summarized below:
                                 
 
   
   
As at
June 30
2019
 
                         
millions of Canadian dollars, unless noted
 
   
   
    Operating
leases
   
    Finance
leases
 
Maturity analysis of lease liabilities
   
     
     
     
 
2019 remaining months
   
     
     
68
     
55
 
2020
   
     
     
94
     
71
 
2021
   
     
     
46
     
50
 
2022
   
     
     
15
     
49
 
2023
   
     
     
13
     
48
 
2024
   
     
     
11
     
47
 
2025 and beyond
   
     
     
30
     
1,086
 
Total lease payments
   
     
     
277
     
1,406
 
                                 
Discount to present value
   
     
     
(18
)    
(822
)
Total lease liability
   
     
     
259
     
584
 
                                 
Weighted average remaining lease term
(years)
   
     
     
4
     
41
 
Weighted average discount rate
(percent)
   
     
     
2.7
     
7.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In addition to the operating lease liabilities in the table immediately above, at June 30, 2019, additional undiscounted commitments for leases not yet commenced totalled $1 million.
The table below summarizes the cash paid for amounts included in the measurement of lease liabilities and the right of use assets obtained in exchange for new lease liabilities:
                                 
 
Second Quarter
2019
   
Six Months
to June 30
2019
 
                         
millions of Canadian dollars
 
    Operating
leases
   
    Finance
leases
   
    Operating
leases
   
    Finance
leases
 
Cash paid for amounts included in the measurement of lease liabilities
   
     
     
     
 
Cash flows from operating activities
   
37
     
     
73
     
 
Cash flows from financing activities
   
     
28
     
     
35
 
                                 
Non-cash right of use assets recorded for lease liabilities
   
     
     
     
 
For January 1 adoption of
Leases (Topic 842)
   
     
     
298
     
 
In exchange for new lease liabilities during the period
   
     
     
34
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
  
 
 
Table of Contents 
IMPERIAL OIL LIMITED
 
At December 31, 2018, the company held
non-cancelable
operating leases covering primarily storage tanks, rail cars and marine vessels, with minimum undiscounted lease commitments totaling $291 million as indicated in the following table:
         
millions of Canadian dollars
 
As at
Dec 31
2018
 
Payments due by period
   
 
 
2019
 
 
130
 
2020
   
82
 
2021
   
43
 
2022
   
13
 
2023
   
11
 
2024 and beyond
   
12
 
Total lease payments under minimum commitments
(a)
   
291
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Net rental cost under cancelable and
non-cancelable
operating leases incurred in 2018 was $
221
 million (2017 - $
206
 million, 2016 - $
253
million). Related rental income was not material.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9.  Other long-term obligations
                 
 
As at
   
As at
 
 
June 30
   
Dec 31
 
millions of Canadian dollars
 
2019
   
2018
 
Employee retirement benefits
(a)
   
1,153
     
1,195
 
Asset retirement obligations and other environmental liabilities
(b)
   
1,446
     
1,435
 
Share-based incentive compensation liabilities
   
95
     
78
 
Operating lease liability
(c)
   
141
     
-
 
Other obligations
   
241
     
235
 
Total other long-term obligations
   
3,076
     
2,943
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Total recorded employee retirement benefits obligations also included $
55
 million in current liabilities (2018 - $
55
million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Total asset retirement obligations and other environmental liabilities also included $
118
 million in current liabilities (2018 - $
118
million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c) Effective January 1, 2019, Imperial adopted the Financial Accounting Standards Board’s standard,
Leases (Topic 842)
, as amended. The standard requires all leases to be recorded on the balance sheet as a right of use asset and liability. The long-term lease liability for operating leases is included in Other long-term obligations (see note 8).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.  Financial instruments
The fair value of the company’s financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no material differences between the fair value of the company’s financial instruments and the recorded carrying value. At June 30, 2019 and December 31, 2018 the fair value of long-term debt ($
4,447
 million, excluding finance lease obligations) was primarily a level 2 measurement.
  
16
 
 
Table of Contents
IMPERIAL OIL LIMITED
 
11.  Common shares
                                 
thousands of shares
 
   
   
As of
June 30
2019
   
As of
Dec 31
2018
 
Authorized
   
     
     
1,100,000
     
1,100,000
 
Common shares outstanding
   
     
     
762,774
     
782,565
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The
12-month
normal course issuer bid program that was in place during the second quarter of 2019 came into effect in June 27, 2018. The program enabled the company to purchase up to a maximum of 40,391,196 common shares (
5
 percent of the total shares on June 13, 2018), which included shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to maintain its ownership percentage in Imperial at approximately 69.6 percent.
The current
12-month
normal course issuer bid program came into effect June 27, 2019, under which Imperial will continue its existing share purchase program. The program enables the company to purchase up to a maximum of 38,211,086 common shares (5 percent of the total shares on June 13, 2019) which includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent.
The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.
 
The company’s common share activities are summarized below:
                                 
 
   
   
Thousands of
shares
   
Millions of
dollars
 
Balance as at December 31, 2017
   
     
     
831,242
     
     1,536
 
Issued under employee share-based awards
   
     
     
2
     
-
 
Purchases at stated value
   
     
     
(48,679
)    
(90
)
Balance as at December 31, 2018
   
     
     
782,565
     
1,446
 
Issued under employee share-based awards
   
     
     
-
     
-
 
Purchases at stated value
   
     
     
(19,791
)
   
(36
)
Balance as at June 30, 2019
   
     
     
   762,774
     
1,410
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table provides the calculation of basic and diluted earnings per common share and the dividends declared by the company on its outstanding common shares:
                                 
 
    Second Quarter
   
Six Months
to June 30
 
 
2019
   
2018
   
2019
   
   2018
 
Net income (loss) per common share - basic
   
     
     
     
 
Net income (loss)
(millions of Canadian dollars)
   
1,212
     
196
     
1,505
     
712
 
Weighted average number of common shares outstanding
(millions of shares)
   
767.4
     
816.1
     
772.5
     
822.6
 
Net income (loss) per common share
(dollars)
   
1.58
     
0.24
     
1.95
     
0.86
 
                                 
Net income (loss) per common share - diluted
   
     
     
     
 
Net income (loss)
(millions of Canadian dollars)
   
1,212
     
196
     
1,505
     
712
 
Weighted average number of common shares outstanding
(millions of shares)
   
767.4
     
816.1
     
772.5
     
822.6
 
Effect of employee share-based awards
(millions of shares)
   
2.5
     
2.7
     
2.4
     
2.6
 
Weighted average number of common shares outstanding, assuming dilution 
(millions of shares)
   
769.9
     
818.8
     
774.9
     
825.2
 
Net income (loss) per common share
(dollars)
   
1.57
     
0.24
     
1.94
     
0.86
 
                                 
Dividends per common share - declared
(dollars)
   
0.22
     
0.19
     
0.41
     
0.35
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
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12.  Other comprehensive income (loss) information
Changes in accumulated other comprehensive income (loss):
                                 
millions of Canadian dollars
 
   
   
2019
   
   2018
 
Balance at January 1
   
     
     
(1,517
)
   
(1,815
)
Postretirement benefits liability adjustment:
   
     
     
     
 
Current period change excluding amounts reclassified from accumulated other comprehensive income
   
     
     
18
     
(19
)
Amounts reclassified from accumulated other comprehensive income
   
     
     
55
     
67
 
Balance at June 30
   
     
     
(1,444
)
   
(1,767
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts reclassified out of accumulated other comprehensive income (loss) -
before-tax
income (expense):
                                 
 
    Second Quarter
   
Six Months
to June 30
 
millions of Canadian dollars
 
2019
   
2018
   
   2019
   
    2018
 
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost
(a)
   
(37
)
   
(46
)    
(74
)
   
(92
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost, (note 5).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (credit) for components of other comprehensive income (loss):
                                 
 
    Second Quarter
   
Six Months 
to June 30
 
millions of Canadian dollars
 
2019
   
  2018
   
   2019
   
   2018
 
Postretirement benefits liability adjustments:
   
     
     
     
 
Postretirement benefits liability adjustment (excluding amortization)
   
-
     
-
     
7
     
(7
)
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost
   
9
     
13
     
19
     
25
 
Total
   
9
     
13
     
26
     
18
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13.  Recently issued accounting standards
Effective January 1, 2020, Imperial will adopt the Financial Accounting Standards Board’s update,
Financial Instruments - Credit Losses (Topic 326)
, as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote and considers past events, current conditions and expectations of the future. 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 2019 vs. second quarter 2018
The company’s net income for the second quarter of 2019 was $1,212 million or $1.57 per share on a diluted basis, up from net income of $196 million or $0.24 per share in the same period of 2018. Second quarter 2019 results include a favourable impact, largely
non-cash,
of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022.
Upstream net income was $985 million in the second quarter, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, second quarter 2019 net income was $296 million, an increase of $302 million compared to a net loss of $6 million in the same period of 2018. Improved results reflect higher volumes of about $310 million, primarily at Syncrude, Kearl and Norman Wells, as well as the impact of higher Canadian crude oil realizations of about $80 million. Results were negatively impacted by higher operating expenses of about $60 million and higher royalties of about $50 million.
West Texas Intermediate (WTI) averaged US$59.91 per barrel in the second quarter of 2019, down from US$67.91 per barrel in the same quarter of 2018. Western Canada Select (WCS) averaged US$49.31 per barrel and US$48.81 per barrel for the same periods. The WTI / WCS differential narrowed during the second quarter of 2019 to average approximately US$11 per barrel for the quarter, compared to around US$19 per barrel in the same period of 2018.
The Canadian dollar averaged US$0.75 in the second quarter of 2019, a decrease of US$0.03 from the second quarter of 2018.
Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, supported primarily by lower diluent costs. Bitumen realizations averaged $57.19 per barrel in the second quarter of 2019, up from $48.90 per barrel in the second quarter of 2018. The company’s average Canadian dollar realizations for synthetic crude declined generally in line with WTI in the quarter, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $79.96 per barrel in the second quarter of 2019, compared to $86.31 per barrel in the same period of 2018. 
Gross production of Cold Lake bitumen averaged 135,000 barrels per day in the second quarter, up from 133,000 barrels per day in the same period of 2018.
Gross production of Kearl bitumen averaged 207,000 barrels per day in the second quarter (147,000 barrels Imperial’s share), up from 180,000 barrels per day (128,000 barrels Imperial’s share) in the second quarter of 2018. Higher production was mainly due to improved reliability.
The company’s share of gross production from Syncrude averaged 80,000 barrels per day, up from 50,000 barrels per day in the second quarter of 2018. Higher production was mainly due to the absence of turnaround activities and impacts from the 2018 power disruption.
Downstream net income was $258 million in the second quarter, up from $201 million in the second quarter of 2018. Earnings increased primarily due to lower net turnaround impacts of about $150 million partially offset by reliability events of about $70 million, including the Sarnia tower incident.
Refinery throughput averaged 344,000 barrels per day, compared to 363,000 barrels per day in the second quarter of 2018. Capacity utilization was 81 percent, compared to 86 percent in the second quarter of 2018. Reduced throughput was mainly due to the impact of a planned turnaround and the tower incident at Sarnia, partially offset by the absence of the 2018 planned turnaround at Strathcona.
 
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Petroleum product sales were 477,000 barrels per day, compared to 510,000 barrels per day in the second quarter of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.
Chemical net income was $38 million in the second quarter, compared to $78 million from the same quarter of 2018, primarily reflecting lower margins.
Corporate and other expenses were $69 million in the second quarter, compared to $77 million in the same period of 2018.
 
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Six months 2019 vs. six months 2018
Net income in the first six months of 2019 was $1,505 million, or $1.94 per share on a diluted basis, up from net income of $712 million or $0.86 per share in the first six months of 2018. 2019 results include a favourable impact, largely
non-cash,
of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022.
Upstream net income was $1,043 million for the first six months of the year, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, 2019 net income was $354 million, an increase of $404 million compared to a net loss of $50 million in the same period of 2018. Improved results reflect higher volumes of about $330 million, primarily at Syncrude, Kearl and Norman Wells, as well as the impact of higher Canadian crude oil realizations of about $260 million and favourable foreign exchange impacts of about $60 million. Results were negatively impacted by higher operating expenses of about $180 million and higher royalties of about $80 million.
West Texas Intermediate averaged US$57.45 per barrel in the first six months of 2019, down from US$65.44 per barrel in the same period of 2018. Western Canada Select averaged US$45.88 per barrel and US$43.74 per barrel for the same periods. The WTI / WCS differential narrowed to average approximately US$12 per barrel in the first six months of 2019, from around US$22 per barrel in the same period of 2018.
The Canadian dollar averaged US$0.75 in the first six months of 2019, a decrease of $0.03 from the same period in 2018.
Imperial’s average Canadian dollar realizations for bitumen increased in the first six months of 2019, supported primarily by lower diluent costs and an increase in WCS. Bitumen realizations averaged $53.20 per barrel, up from $41.84 per barrel from the same period in 2018. The company’s average Canadian dollar realizations for synthetic crude declined generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $74.77 per barrel, compared to $81.24 per barrel from the same period in 2018.
Gross production of Cold Lake bitumen averaged 140,000 barrels per day in the first six months of 2019, compared to 143,000 barrels per day in the same period of 2018.
Gross production of Kearl bitumen averaged 193,000 barrels per day in the first six months of 2019 (137,000 barrels Imperial’s share) up from 181,000 barrels per day (128,000 barrels Imperial’s share) in the same period of 2018. Higher production was mainly due to improved reliability.
During the first six months of 2019, the company’s share of gross production from Syncrude averaged 79,000 barrels per day, up from 57,000 barrels per day in the same period of 2018. Higher production was mainly due to the absence of turnaround activities and impacts from the 2018 power disruption.
Downstream net income was $515 million for the first six months of 2019, compared to $722 million for the same period of 2018. Earnings were negatively impacted by lower margins of about $210 million, reliability events of about $130 million, including the Sarnia tower incident, and lower sales volumes of about $70 million. These factors were partially offset by lower net turnaround impacts of about $150 million and favourable foreign exchange effects of about $70 million.
Refinery throughput averaged 364,000 barrels per day in the first six months of 2019, compared to 386,000 barrels per day in the same period of 2018. Capacity utilization was 86 percent, compared to 91 percent in the same period of 2018. Reduced throughput was mainly due to the impact of a planned turnaround and the tower incident at Sarnia, partially offset by the absence of the 2018 planned turnaround at Strathcona.
Petroleum product sales were 477,000 barrels per day in the first six months of 2019, compared to 494,000 barrels per day in the same period of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.
 
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Chemical net income was $72 million in the first six months of 2019, compared to $151 million in the same period of 2018, primarily reflecting lower margins.
Corporate and other expenses were $125 million in the first six months of 2019, compared to $111 million in the same period of 2018.
 
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Liquidity and capital resources
Cash flow generated from operating activities was $1,026 million in the second quarter, up from $859 million in the corresponding period in 2018, reflecting higher earnings partially offset by working capital effects.
Investing activities used net cash of $429 million in the second quarter, compared with $379 million used in the same period of 2018.
Cash used in financing activities was $521 million in the second quarter, compared with $1,032 million used in the second quarter of 2018. Dividends paid in the second quarter of 2019 were $147 million. The per share dividend paid in the second quarter was $0.19, up from $0.16 in the same period of 2018. During the second quarter, the company, under its share purchase program, purchased about 9.8 million shares for $368 million, including shares purchased from Exxon Mobil Corporation. In the second quarter of 2018, the company purchased about 21.4 million shares for $893 million following the increase of its share purchase program.
The company’s cash balance was $1,087 million at June 30, 2019, versus $873 million at the end of second quarter 2018.
Cash flow generated from operating activities was $2,029 million in the first six months of 2019, up from $1,844 million in the same period of 2018, primarily reflecting higher earnings.
Investing activities used net cash of $892 million in the first six months of 2019, compared with $744 million used in 2018, primarily reflecting higher additions to property, plant and equipment.
Cash used in financing activities was $1,038 million in the first six months of 2019, compared with $1,422 million used in the same period of 2018. Dividends paid in the first six months of 2019 were $296 million. The per share dividend paid in the first six months of 2019 was $0.38, up from $0.32 in the same period of 2018. During the first six months of 2019, the company, under its share purchase program, purchased about 19.8 million shares for $729 million, including shares purchased from Exxon Mobil Corporation. In the first six months of 2018, the company purchased about 28.6 million shares for $1,143 million following the increase of its share purchase program.
On June 21, 2019, 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 existing share purchase program. The program enables the company to purchase up to a maximum of 38,211,086 common shares during the period June 27, 2019 to June 26, 2020. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will end should the company purchase the maximum allowable number of shares, or on June 26, 2020.
Recently issued accounting standards
Effective January 1, 2020, Imperial will adopt the Financial Accounting Standards Board’s update,
Financial Instruments - Credit Losses (Topic 326)
, as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote and considers past events, current conditions and expectations of the future. Imperial is evaluating the standard and its effect on the company’s financial statements.
 
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Forward-looking statements
Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Disclosure related to the share purchase program and capital activities constitute forward-looking statements. Forward-looking statements are based on the company’s current expectations, estimates, projections and assumptions at the time the statements are made. Actual future financial and operating results, including expectations and assumptions concerning demand growth and energy source, supply and mix; commodity prices and foreign exchange rates; production rates, growth and mix; applicable laws and government policies; financing sources; and capital and environmental expenditures could differ materially depending on a number of factors. These factors include changes in the supply of and demand for crude oil, natural gas, and petroleum and petrochemical products and resulting price and margin impacts; transportation for accessing markets; political or regulatory events, including changes in law or government policy; environmental risks inherent in oil and gas exploration and production activities; environmental regulation; currency exchange rates; availability and allocation of capital; unanticipated operational disruptions; project management and schedules; operational hazards and risks; cybersecurity incidents; disaster response preparedness; and other factors discussed in Item 1A risk factors and Item 7 management’s discussion and analysis of financial condition and results of operations of Imperial Oil Limited’s most recent annual report on Form
10-K.
Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial. Imperial’s actual results may differ materially from those expressed or implied by its forward-looking statements and readers are cautioned not to place undue reliance on them. Imperial undertakes no obligation to update any forward-looking statements contained herein, except as required by applicable law.
The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.
 
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Item 3.
Quantitative and qualitative disclosures about market risk
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Information about market risks for the six months ended June 30, 2019, does not differ materially from that discussed on page 25 of the company’s annual report on Form
10-K
for the year ended December 31, 2018.
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, 2019. 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
                                     
 
Total number of
shares purchased
   
Average price paid
per share
(Canadian dollars)
   
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 
(a) (b)
   
     
April 2019
   
     
     
     
   
(April 1 - April 30)
   
3,378,870
     
38.43
     
3,378,870
     
6,436,046
   
May 2019
   
     
     
     
   
(May 1 - May 31)
   
3,539,821
     
37.63
     
3,539,821
     
2,896,225
   
June 2019
   
     
     
     
   
(June 1 - June 26)
(a)
   
2,896,225
     
36.42
     
2,896,225
     
-
   
(June 27 - June 30)
(b)
   
-
     
-
     
-
     
38,211,086
   
(c)
     
 
 
 
 
 
(a) The
12-month
normal course issuer bid program that was in place during the second quarter of 2019, came into effect on June 27, 2018. The program enabled the company to purchase up to a maximum of 40,391,196 common shares (5 percent of the total shares on June 13, 2018), which included shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to maintain its ownership percentage at approximately 69.6 percent.
 
 
 
 
 
The program ended on June 26, 2019. Upon expiration, the company had purchased the maximum 40,391,196 shares allowed under the program.
(b) On June 21, 2019, 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 existing share purchase program. The program enables the company to purchase up to a maximum of 38,211,086 common shares during the period June 27, 2019 to June 26, 2020. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will end should the company purchase the maximum allowable number of shares, or on June 26, 2020.
 
 
 
 
 
 
(c) In its most recent quarterly earnings release, the company stated that it currently anticipates exercising its share purchases uniformly over the duration of the program. Purchase plans may be modified at any time without prior notice.
 
 
 
 
 
 
The company will continue to evaluate its share purchase program in the context of its overall capital activities.
 
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IMPERIAL OIL LIMITED
 
 
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.
 
(101) Interactive data files.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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IMPERIAL OIL LIMITED
 
 
SIGNATURES
Pursuant to the requirements of the
 
Securities Exchange
 
Act
 
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 
 
Imperial Oil Limited
(Registrant)
         
Date:    August 7, 2019
 
 
/s/ Daniel E. Lyons
---------------------------------------------------
 
 
(Signature)
 
 
Daniel E. Lyons
 
 
Senior vice-president, finance and
administration, and controller
(Principal accounting officer)
         
         
Date:    August 7, 2019
 
 
/s/ Cathryn Walker
---------------------------------------------------
 
 
(Signature)
 
 
Cathryn Walker
 
 
Assistant corporate secretary
 
28