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IMPERIAL OIL LTD - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
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
   (I.R.S. Employer
of incorporation or organization)
   Identification No.)      
505 Quarry Park Boulevard S.E. Calgary, Alberta, Canada
  
T2C 5N1
(Address of principal executive offices)
   (Postal Code)
1-800-567-3776
(Registrant’s telephone number, including area code)
 
 
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
Indicate by check mark whether 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    
        
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
  YES  
   
    
  NO    
        
Indicate by check mark whether 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.    
            
Indicate by check mark whether 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 March 31, 2022 was 669,143,714.
 

IMPERIAL OIL LIMITED
 
 
 
Table of contents
 
  
 
Page
 
     3  
Item 1. Financial statements      3  
     3  
     4  
     5  
     6  
     7  
     8  
Item 2. Management’s discussion and analysis of financial condition and results of operations      18  
Item 3. Quantitative and qualitative disclosures about market risk      23  
Item 4. Controls and procedures      23  
PART II. OTHER INFORMATION      24  
Item 1. Legal proceedings      24  
Item 2. Unregistered sales of equity securities and use of proceeds      24  
Item 6. Exhibits      25  
     26  
 
 
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, 2021. 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)
 
   
     Three Months  
     to March 31  
 millions of Canadian dollars
  
2022
       2021  
Revenues and other income
                   
Revenues
(a)
  
 
12,657
 
       6,992  
Investment and other income
(note 3)
  
 
29
 
       6  
Total revenues and other income
  
 
12,686
 
       6,998  
     
Expenses
                   
Exploration
  
 
2
 
       2  
Purchases of crude oil and products
(b)
  
 
8,350
 
       3,887  
Production and manufacturing
(c)
  
 
1,659
 
       1,485  
Selling and general
(c)
  
 
225
 
       189  
Federal excise tax and fuel charge
  
 
479
 
       404  
Depreciation and depletion
  
 
426
 
       494  
Non-service
pension and postretirement benefit
  
 
4
 
       11  
Financing
(d) (note 5)
  
 
7
 
       14  
Total expenses
  
 
11,152
 
       6,486  
     
Income (loss) before income taxes
  
 
1,534
 
       512  
     
Income taxes
  
 
361
 
       120  
     
Net income (loss)
  
 
1,173
 
       392  
   
Per share information
(Canadian dollars)
 
          
Net income (loss) per common share - basic
(note 9)
  
 
1.75
 
       0.53  
Net income (loss) per common share - diluted
(note 9)
  
 
1.75
 
       0.53  
(a)  Amounts from related parties included in revenues.
  
 
3,959
 
       1,508  
(b)  Amounts to related parties included in purchases of crude oil and products.
  
 
650
 
       515  
(c)   Amounts to related parties included in production and manufacturing, and selling and general expenses.
  
 
118
 
       116  
(d)  Amounts to related parties included in financing (note 5).
  
 
4
 
       11  
The information in the notes to consolidated financial statements is an integral part of these statements.
 
3

IMPERIAL OIL LIMITED
 
 
 
 
 
 
 
 
 
 
 
 
 Consolidated statement of comprehensive income (U.S. GAAP, unaudited)
 
     Three Months  
     to March 31  
millions of Canadian dollars
  
 
2022
 
       2021  
Net income (loss)
  
 
1,173
 
       392  
     
Other comprehensive income (loss), net of income taxes
                   
Postretirement benefits liability adjustment (excluding amortization)
  
 
24
 
       54  
     
Amortization of postretirement benefits liability adjustment included in net benefit costs
  
 
21
 
       33  
Total other comprehensive income (loss)
  
 
45
 
       87  
                     
Comprehensive income (loss)
  
 
1,218
 
       479  
The information in the notes to consolidated financial statements is an integral part of these statements.
 
4

IMPERIAL OIL LIMITED
 
 
 
 
 
 
 
 
 
 
 
 
 Consolidated balance sheet (U.S. GAAP, unaudited)
          
     
       As at          As at  
       Mar 31          Dec 31  
millions of Canadian dollars
  
 
2022
 
       2021  
Assets
                   
Current assets
                   
Cash
  
 
3,149
 
       2,153  
Accounts receivable - net
(a)
  
 
5,413
 
       3,869  
Inventories of crude oil and products
  
 
1,374
 
       1,102  
Materials, supplies and prepaid expenses
  
 
782
 
       689  
Total current assets
  
 
10,718
 
       7,813  
Investments and long-term receivables
(b)
  
 
754
 
       757  
Property, plant and equipment,
  
 
56,925
 
       56,762  
less accumulated depreciation and depletion
  
 
(25,818
       (25,522
Property, plant and equipment, net
  
 
31,107
 
       31,240  
Goodwill
  
 
166
 
       166  
Other assets, including intangibles - net
  
 
1,065
 
       806  
Total assets
  
 
43,810
 
       40,782  
     
Liabilities
                   
Current liabilities
                   
Notes and loans payable
  
 
122
 
       122  
Accounts payable and accrued liabilities
(a) (note 7)
  
 
7,364
 
       5,184  
Income taxes payable
  
 
1,165
 
       248  
Total current liabilities
  
 
8,651
 
       5,554  
Long-term debt
(c) (note 6)
  
 
5,049
 
       5,054  
Other long-term obligations
(note 7)
  
 
3,426
 
       3,897  
Deferred income tax liabilities
  
 
4,408
 
       4,542  
Total liabilities
  
 
21,534
 
       19,047  
     
Shareholders’ equity
                   
Common shares at stated value
(d) (note 9)
  
 
1,237
 
       1,252  
Earnings reinvested
  
 
22,171
 
       21,660  
Accumulated other comprehensive income (loss)
(note 10)
  
 
(1,132
       (1,177
Total shareholders’ equity
  
 
22,276
 
       21,735  
     
Total liabilities and shareholders’ equity
  
 
43,810
 
       40,782  
(a)  Accounts receivable - net included net amounts receivable from related parties of $1,632 million (2021 - $1,031 million).
(b)  Investments and long-term receivables included amounts from related parties of $297 million (2021 - $298 million).
(c)   Long-term debt included amounts to related parties of $4,447 million (2021 - $4,447 million).
(d)  Number of common shares authorized and outstanding were 1,100 million and 669 million, respectively (2021 - 1,100 million and 678 million, respectively).
The information in the notes to consolidated financial statements is an integral part of these statements.
 
5

IMPERIAL OIL LIMITED
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated statement of shareholders’ equity (U.S. GAAP, unaudited)
 
   
       Three Months  
       to March 31  
millions of Canadian dollars
  
 
2022
 
    2021  
Common shares at stated value
(note 9)
                
At beginning of period
  
 
1,252
 
    1,357  
Share purchases at stated value
  
 
(15
     
At end of period
  
 
1,237
 
    1,357  
     
Earnings reinvested
                
At beginning of period
  
 
21,660
 
    22,050  
Net income (loss) for the period
  
 
1,173
 
    392  
Share purchases in excess of stated value
  
 
(434
     
Dividends declared
  
 
(228
    (161
At end of period
  
 
22,171
 
    22,281  
     
Accumulated other comprehensive income (loss)
(note 10)
                
At beginning of period
  
 
(1,177
    (1,989
Other comprehensive income (loss)
  
 
45
 
    87  
At end of period
  
 
(1,132
    (1,902
     
Shareholders’ equity at end of period
  
 
22,276
 
        21,736  
 
The information in the notes to consolidated financial statements is an integral part of these statements.
 
 
6

IMPERIAL OIL LIMITED
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated statement of cash flows (U.S. GAAP, unaudited)
 
   
       Three Months  
Inflow (outflow)
     to March 31  
millions of Canadian dollars
  
 
2022
 
     2021  
Operating activities
                 
Net income (loss)
  
 
1,173
 
     392  
Adjustments for
non-cash
items:
                 
Depreciation and depletion
  
 
426
 
     494  
(Gain) loss on asset sales
(note 3)
  
 
(20
     (3
Deferred income taxes and other
  
 
(331
     60  
Changes in operating assets and liabilities:
                 
Accounts receivable
  
 
(1,544
     (469
Inventories, materials, supplies and prepaid expenses
  
 
(364
     (159
Income taxes payable
  
 
459
 
     21  
Accounts payable and accrued liabilities
  
 
2,144
 
     584  
All other items - net
(b)
  
 
(29
     125  
Cash flows from (used in) operating activities
  
 
1,914
 
     1,045  
     
Investing activities
                 
Additions to property, plant and equipment
  
 
(304
     (167
Proceeds from asset sales
(note 3)
  
 
24
 
     7  
Loans to equity companies - net
  
 
1
 
     13  
Cash flows from (used in) investing activities
  
 
(279
     (147
     
Financing activities
                 
Short-term debt - net
  
 
-
 
     (36
Reduction in finance lease obligations
(note 6)
  
 
(5
     (4
Dividends paid
  
 
(185
     (162
Common shares purchased
(note 9)
  
 
(449
     -  
Cash flows from (used in) financing activities
  
 
(639
     (202
     
Increase (decrease) in cash
  
 
996
 
     696  
Cash at beginning of period
  
 
2,153
 
     771  
Cash at end of period
(a)
  
 
3,149
 
     1,467  
(a)  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.
   
(b)  Included contributions to registered pension plans.
  
 
(50
     (28
     
Income taxes (paid) refunded.
  
 
(223
     1  
Interest (paid), net of capitalization.
  
 
(12
     (13
The information in the notes to consolidated financial statements is an integral part of these statements.
 
 
7

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 2021 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 three months ended March 31, 2022, are not necessarily indicative of the operations to be expected for the full year.
All amounts are in Canadian dollars unless otherwise indicated.
 
8

IMPERIAL OIL LIMITED
 
 
 
2.
Business segments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months to March 31
           Upstream              Downstream             Chemical       
millions of Canadian dollars
  
 
2022
 
            2021     
 
   2022
 
         2021     
 
    2022
 
        2021  
Revenues and other income
                                                     
Revenues
(a)
  
 
99
 
     2,142     
 
12,191
 
     4,527     
 
367
 
     323  
Intersegment sales
  
 
4,431
 
     1,351     
 
1,833
 
     773     
 
104
 
     53  
Investment and other income
(note 3)
  
 
4
 
     -     
 
21
 
     5     
 
-
 
     -  
    
 
4,534
 
     3,493     
 
14,045
 
     5,305     
 
471
 
     376  
Expenses
                                                     
Exploration
  
 
2
 
     2     
 
-
 
     -     
 
-
 
     -    
Purchases of crude oil and products
  
 
1,890
 
     1,834     
 
12,512
 
     4,020     
 
315
 
     209  
Production and manufacturing
  
 
1,249
 
     1,109     
 
356
 
     326     
 
54
 
     50  
Selling and general
  
 
-
 
     -     
 
147
 
     133     
 
23
 
     25  
Federal excise tax and fuel charge
  
 
-
 
     -     
 
479
 
     404     
 
-
 
     -  
Depreciation and depletion
  
 
373
 
     445     
 
41
 
     39     
 
5
 
     4  
Non-service
pension and postretirement benefit
  
 
-
 
     -     
 
-
 
     -     
 
-
 
     -  
Financing
(note 5)
  
 
-
 
     1     
 
-
 
     -     
 
-
 
     -  
Total expenses
  
 
3,514
 
     3,391     
 
13,535
 
     4,922     
 
397
 
     288  
Income (loss) before income taxes
  
 
1,020
 
     102     
 
510
 
     383     
 
74
 
     88  
Income tax expense (benefit)
  
 
238
 
     23     
 
121
 
     91     
 
18
 
     21  
Net income (loss)
  
 
782
 
     79     
 
389
 
     292     
 
56
 
     67  
Cash flows from (used in) operating activities
  
 
1,447
 
     531     
 
375
 
     462     
 
67
 
     62  
Capital and exploration expenditures
(b)
  
 
222
 
     85     
 
68
 
     68     
 
1
 
     2  
Total assets as at March 31
  
 
29,182
 
     31,754     
 
10,179
 
     4,909     
 
501
 
     462  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months to March 31
     Corporate and other       Eliminations       Consolidated  
millions of Canadian dollars
  
 
2022
 
    2021    
 
2022
 
    2021    
 
2022
 
     2021  
Revenues and other income
                                                 
Revenues
(a)
  
 
-
 
    -    
 
-
 
    -    
 
12,657
 
     6,992  
Intersegment sales
  
 
-
 
    -    
 
(6,368
    (2,177  
 
-
 
     -  
Investment and other income
(note 3)
  
 
4
 
    1    
 
-
 
    -    
 
29
 
     6  
    
 
4
 
    1    
 
(6,368
    (2,177  
 
12,686
 
     6,998  
Expenses
                                                 
Exploration
  
 
-
 
    -    
 
-
 
    -    
 
2
 
     2  
Purchases of crude oil and products
  
 
-
 
    -    
 
(6,367
    (2,176  
 
8,350
 
     3,887  
Production and manufacturing
  
 
-
 
    -    
 
-
 
    -    
 
1,659
 
     1,485  
Selling and general
  
 
56
 
    32    
 
(1
    (1  
 
225
 
     189  
Federal excise tax and fuel charge
  
 
-
 
    -    
 
-
 
    -    
 
479
 
     404  
Depreciation and depletion
  
 
7
 
    6    
 
-
 
    -    
 
426
 
     494  
Non-service
pension and postretirement benefit
  
 
4
 
    11    
 
-
 
    -    
 
4
 
     11  
Financing
(note 5)
  
 
7
 
    13    
 
-
 
    -    
 
7
 
     14  
Total expenses
  
 
74
 
    62    
 
(6,368
    (2,177  
 
11,152
 
     6,486  
Income (loss) before income taxes
  
 
(70
    (61  
 
-
 
    -    
 
1,534
 
     512  
Income tax expense (benefit)
  
 
(16
    (15  
 
-
 
    -    
 
361
 
     120  
Net income (loss)
  
 
(54
    (46  
 
-
 
    -    
 
1,173
 
     392  
Cash flows from (used in) operating activities
  
 
25
 
    (10  
 
-
 
    -    
 
1,914
 
     1,045  
Capital and exploration expenditures
(b)
  
 
5
 
    8    
 
-
 
    -    
 
296
 
     163  
Total assets as at March 31
  
 
  4,136
 
      2,346    
 
(188
    (464  
 
43,810
 
     39,007  
 
9

IMPERIAL OIL LIMITED
 
 
 
(a)
Included export sales to the United States of $2,504 million (2021 - $1,569 million).
(b)
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions and the company’s share of similar costs for equity companies. CAPEX excludes the purchase of carbon emission credits.
 
10

IMPERIAL OIL LIMITED
 
 
 
3.
Investment and other income
Investment and other income included gains and losses on asset sales as follows:
 
 
 
 
 
 
 
 
 
     Three Months
to March 31
 millions of Canadian dollars
  
2022
     2021
Proceeds from asset sales
  
 
24
 
       7  
Book value of asset sales
  
 
4
 
       4  
Gain (loss) on asset sales, before tax
  
 
20
  
           3   
Gain (loss) on asset sales, after tax
  
 
16
 
       2  
 
4.
Employee retirement benefits
The components of net benefit cost were as follows:
 
 
 
 
 
 
 
 
 
     Three Months
to March 31
 
 millions of Canadian dollars
  
2022
       2021  
Pension benefits:
                   
Service cost
  
 
70
 
       81  
Interest cost
  
 
73
 
       68  
Expected return on plan assets
  
 
(103
       (107
Amortization of prior service cost
  
 
4
 
       4  
Amortization of actuarial loss (gain)
  
 
22
 
       36  
Net benefit cost
  
 
66
 
       82  
     
Other postretirement benefits:
                   
Service cost
  
 
6
 
       7  
Interest cost
  
 
6
 
       6  
Amortization of actuarial loss (gain)
  
 
2
 
       4  
Net benefit cost
  
 
14
 
       17  
 
5.
Financing costs
 
 
 
 
 
 
 
 
 
     Three Months
to March 31
 
 
millions of Canadian dollars
  
2022
       2021  
Debt-related interest
  
 
12
 
       21  
Capitalized interest
  
 
(5
       (8
Net interest expense
  
 
7
 
       13  
Other interest
  
 
-
 
       1  
Total financing
  
 
      7
 
       14  
 
11

IMPERIAL OIL LIMITED
 
 
 
6.
Long-term debt
 
 
 
 
 
 
 
 
 
     As at
Mar 31
       As at
Dec 31
 
 millions of Canadian dollars
  
2022
       2021  
 Long-term debt
  
 
4,447
 
       4,447  
 Finance leases
  
 
602
 
       607  
 Total long-term debt
  
 
5,049
 
       5,054  
 
7.
Other long-term obligations
 
 
 
 
 
 
 
 
 
     As at
Mar 31
       As at
Dec 31
 
 millions of Canadian dollars
  
2022
       2021  
 Employee retirement benefits
(a)
  
 
1,326
 
       1,362  
 Asset retirement obligations and other environmental liabilities
(b)
  
 
1,713
 
       1,713  
 Share-based incentive compensation liabilities
  
 
111
 
       79  
 Operating lease liability
(c)
  
 
138
 
       147  
 Other obligations
  
 
138
 
       596  
 Total other long-term obligations
  
 
3,426
 
       3,897  
(a)
Total recorded employee retirement benefits obligations also included $56 million in current liabilities (2021 - $56 million).
(b)
Total asset retirement obligations and other environmental liabilities also included $102 million in current liabilities (2021 - $102 million).
(c)
Total operating lease liability also included $95 million in current liabilities (2021 - $102 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $0 million (2021 - $5 million).
 
12

IMPERIAL OIL LIMITED
 
 
 
8.
Financial and derivative instruments
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 March 31, 2022 and December 31, 2021, the fair value of long-term debt ($4,447 million, excluding finance lease obligations) was primarily a level 2 measurement.
Derivative instruments
The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company uses commodity-based contracts, including derivative instruments to manage commodity price risk and to generate returns from trading. Commodity contracts held for trading purposes are presented in the Consolidated statement of income on a net basis in the line “Revenues”. The company does not designate derivative instruments as a hedge for hedge accounting purposes.
Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.
The net notional long/(short) position of derivative instruments was:
 
 
 
 
 
 
 
 
 
 
     As at
Mar 31
     As at
Dec 31
 
 thousands of barrels
  
2022
     2021  
Crude
  
 
(620
     7,390  
Products
  
 
(70
     (560
Realized and unrealized gain or (loss) on derivative instruments recognized in the Consolidated statement of income is included in the following lines on a
before-tax
basis:
 
 
 
 
 
 
 
 
 
 
     Three Months
to March 31
 
 millions of Canadian dollars
  
2022
       2021  
Revenues
  
 
37
 
       -  
Purchases of crude oil and products
  
 
-
 
           (14
Total
  
 
37
 
       (14
 
13

IMPERIAL OIL LIMITED
 
 
 

The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 At March 31, 2022
 millions of Canadian dollars
     Fair value      Effect of     Effect of     Net  
                                 counterparty     collateral     carrying  
      Level 1      Level 2      Level 3      Total      netting     netting     value  
 Assets
 
                                                   
Derivative assets
(a)
  
 
48
 
  
 
18
 
  
 
-
 
  
 
66
 
  
 
(59
 
 
-
 
 
 
7
 
             
 Liabilities
 
                                                   
Derivative liabilities
(b)
  
 
53
 
  
 
25
 
  
 
-
 
  
 
78
 
  
 
(59
 
 
(4
 
 
15
 
(a)
Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable—net” and “Other assets, including intangibles - net”.
(b)
Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 At December 31, 2021  
 millions of Canadian dollars
 
     Fair value      Effect of     Effect of     Net  
                                 counterparty     collateral     carrying  
      Level 1      Level 2      Level 3      Total      netting     netting     value  
 Assets
                                                            
Derivative assets
(a)
     24        17        -        41        (31     -       10  
               
 Liabilities
                                                            
Derivative liabilities
(b)
     31        12        -        43        (31     (7     5  
 (a)
Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable - net” and “Other assets, including intangibles - net”.
 (b)
Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”.
At March 31, 2022 and December 31, 2021, the company had $47 million and $6 million, respectively, of collateral under a master netting arrangement not offset against the derivatives on the Consolidated balance sheet in “Accounts receivable - net”, primarily related to initial margin requirements.
 
14

IMPERIAL OIL LIMITED
 
 
 
9.
Common shares
 
 
 
 
 
 
 
 
 
                     As of                      As of  
     Mar 31      Dec 31  
 thousands of shares
  
2022
     2021  
Authorized
  
 
1,100,000
 
     1,100,000  
Common shares outstanding
  
 
669,144
 
     678,080  
The most recent
12-month
normal course issuer bid program came into effect June 29, 2021, under which Imperial continued its existing share purchase program. The program enabled the company to purchase up to a maximum of 35,583,671 common shares (5 percent of the total shares on June 15, 2021) 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. As in the past, Exxon Mobil Corporation advised the company that it intended to participate to maintain its ownership percentage at approximately 69.6 percent. The program completed on January 31, 2022 as a result of the company purchasing the maximum allowable number of shares under the program.
On April 29, 2022 the company announced its intention to launch a substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $2,500,000,000 of its common shares. The substantial issuer bid will be made through a modified Dutch auction, with a tender price range to be determined by the company at the time of commencement of the offer. Shares may also be tendered by way of a proportionate tender, which will result in a shareholder maintaining their proportionate share ownership. ExxonMobil has advised Imperial that it intends to make a proportionate tender in connection with the offer in order to maintain its proportionate share ownership at approximately 69.6 percent following completion of the offer. Nothing in this report shall constitute an offer to purchase or a solicitation of an offer to sell any shares.
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, 2020
     734,077       1,357  
Issued under employee share-based awards
     7       -  
Purchases at stated value
     (56,004     (105
Balance as at December 31, 2021
     678,080       1,252  
Issued under employee share-based awards
  
 
-
 
    -  
Purchases at stated value
  
 
(8,936
 
 
(15
Balance as at March 31, 2022
  
 
669,144
 
 
 
1,237
 
 
15
IMPERIAL OIL LIMITED
 
 
 
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:
 
 
 
 
 
 
 
 
 
 
       Three Months  
       to March 31  
    
 
2022
 
     2021  
Net income (loss) per common share - basic
                 
Net income (loss)
(millions of Canadian dollars)
  
 
1,173
 
     392  
Weighted average number of common shares outstanding
(millions of shares)
  
 
670.5
 
     734.1  
Net income (loss) per common share
(dollars)
  
 
1.75
 
     0.53  
     
Net income (loss) per common share - diluted
                 
Net income (loss)
(millions of Canadian dollars)
  
 
1,173
 
     392  
Weighted average number of common shares outstanding
(millions of shares)
  
 
670.5
 
         734.1  
Effect of employee share-based awards
(millions of shares)
  
 
1.4
 
     1.6  
Weighted average number of common shares outstanding, assuming dilution
(millions of shares)
  
 
671.9
 
     735.7  
Net income (loss) per common share
(dollars)
  
 
1.75
 
     0.53  
     
Dividends per common share - declared
(dollars)
  
 
0.34
 
     0.22   
 
16

IMPERIAL OIL LIMITED
 
 
 
10. Other comprehensive income (loss) information
Changes in accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
millions of Canadian dollars
  
 
    2022
 
           2021  
Balance at January 1
  
 
(1,177
       (1,989
Postretirement benefits liability adjustment:
                   
Current period change excluding amounts reclassified from accumulated other comprehensive income
  
 
24
 
       54  
Amounts reclassified from accumulated other comprehensive income
  
 
21
 
       33   
 
Balance at March 31
  
 
 
 
(1,132
 
    
 
 
 
(1,902
 
 
 
 
 
 
 
Amounts reclassified out of accumulated other comprehensive income (loss) - before tax income (expense):
 
 
 
 
 
 
 
 
 
   
    
 
Three Months
 
       to March 31  
millions of Canadian dollars
  
 
    2022
 
           2021  
Amortization of postretirement benefits liability adjustment included in net benefit cost
(a)
  
 
(28
       (44 )  
(a) This accumulated other comprehensive income component is included in the computation of net benefit cost (note 4).
 
 
 
 
 
 
 
Income tax expense (credit) for components of other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
   
       Three Months  
     to March 31  
millions of Canadian dollars
  
 
    2022
 
           2021  
Postretirement benefits liability adjustments:
                   
Postretirement benefits liability adjustment (excluding amortization)
  
 
8
 
       17  
Amortization of postretirement benefits liability adjustment included in net benefit cost
  
 
7
 
       11  
     
Total
  
 
15
 
       28   
 
17

IMPERIAL OIL LIMITED
 
 
 
Item 2.
Management’s discussion and analysis of financial condition and results of operations
Non-GAAP
financial measures and other specified financial measures
Certain measures included in this document are not prescribed by U.S. Generally Accepted Accounting Principles (GAAP). These measures constitute
“non-GAAP
financial measures” under Securities and Exchange Commission Regulation G, and “specified financial measures” under National Instrument
52-112
Non-GAAP
and Other Financial Measures Disclosure
of the Canadian Securities Administrators.
Reconciliation of these
non-GAAP
financial measures to the most comparable GAAP measure, and other information required by these regulations have been provided.
Non-GAAP
financial measures and specified financial measures are not standardized financial measures under GAAP and do not have a standardized definition. As such, these measures may not be directly comparable to measures presented by other companies, and should not be considered a substitute for GAAP financial measures.
Net income (loss) excluding identified items
Net income (loss) excluding identified items is a
non-GAAP
financial measure that is total net income (loss) excluding individually significant
non-operational
events with an absolute corporate total earnings impact of at least $100 million in a given quarter. The net income (loss) impact of an identified item for an individual segment in a given quarter may be less than $100 million when the item impacts several segments or several periods. The most directly comparable financial measure that is disclosed in the financial statements is net income (loss) within the company’s Consolidated statement of income. Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant
non-operational
events from business results. The company believes this view provides investors increased transparency into business results and trends, and provides investors with a view of the business as seen through the eyes of management. Net income (loss) excluding identified items is not meant to be viewed in isolation or as a substitute for net income (loss) as prepared in accordance with U.S. GAAP. All identified items are presented on an
after-tax
basis.
Reconciliation of net income (loss) excluding identified items
There were no identified items in the first quarter of 2022 and 2021.
 
18

IMPERIAL OIL LIMITED
 
 
 
Current business environment
During the
COVID-19
pandemic, industry investment to maintain and increase production capacity was restrained to preserve capital, resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered. Across late 2021 and early 2022, this dynamic, along with supply chain constraints, and a continuation of demand recovery led to a steady increase in oil and natural gas prices. In the first quarter of 2022, tightness in the oil and natural gas markets was further exacerbated by Russia’s invasion of Ukraine and subsequent sanctions imposed upon business and other activities in Russia. The price of crude oil and certain regional natural gas indicators increased to levels not seen for several years.
Operating results
First quarter 2022 vs. first quarter 2021
 
       First Quarter  
millions of Canadian dollars, unless noted
  
 
2022
 
             2021  
Net income (loss)
(U.S. GAAP)
  
 
1,173
 
     392  
Net income (loss) per common share, assuming dilution
(dollars)
  
 
1.75
 
     0.53   
Upstream
Net income (loss) factor analysis
millions of Canadian dollars
 
LOGO
Price – Higher realizations were generally in line with increases in marker prices, driven primarily by increased demand and supply chain constraints. Average bitumen realizations increased by $42.17 per barrel generally in line with WCS and synthetic crude oil realizations increased by $49.83 per barrel generally in line with WTI.
Volumes – Lower volumes primarily driven by extreme cold weather and unplanned downtime at Kearl.
Royalty – Higher royalties primarily driven by improved commodity prices.
Marker prices and average realizations
       First Quarter  
Canadian dollars, unless noted
  
 
2022
 
     2021  
West Texas Intermediate
(US$)
  
 
95.01
 
             58.14  
Western Canada Select
(US$)
  
 
80.46
 
     45.64  
WTI/WCS Spread
(US$)
  
 
14.55
 
     12.50   
Bitumen
(per barrel)
  
 
89.36
 
     47.19  
Synthetic crude oil
(per barrel)
  
 
117.24
 
     67.41  
Average foreign exchange rate
(US$)
  
 
0.79
 
     0.79  
 
19

IMPERIAL OIL LIMITED
 
 
 
Production
       First Quarter  
thousands of barrels per day
  
 
2022
 
             2021  
Kearl
(Imperial’s share)
  
 
132
 
     178  
Cold Lake
  
 
140
 
     140  
Syncrude
(Imperial’s share) (a)
  
 
77
 
     79  
                   
Kearl total gross production
(thousands of barrels per day)
  
 
186
 
     251  
(a) In the first quarter of 2022, Syncrude (Imperial’s share) gross production included about 1 thousand barrels per day of bitumen (2021 - rounded to 0 thousand barrels per day) that was exported to the operator’s facilities using an existing interconnect pipeline.
Lower production at Kearl was primarily a result of extreme cold weather and unplanned downtime.
Downstream
Net income (loss) factor analysis
millions of Canadian dollars
 
LOGO
Margins – Higher margins primarily reflect improved market conditions.
 
Refinery utilization and petroleum product sales
 
       First Quarter  
thousands of barrels per day, unless noted
  
 
2022
 
               2021  
Refinery throughput
  
 
399
 
     364   
Refinery capacity utilization (percent)
  
 
93
 
     85  
Petroleum product sales
  
 
447
 
     414  
Improved refinery throughput in the first quarter of 2022 primarily reflects increased demand.
Improved petroleum product sales in the first quarter of 2022 were mainly due to increased demand.
Chemicals
Net income (loss) factor analysis
millions of Canadian dollars
 
LOGO
 
20

IMPERIAL OIL LIMITED
 
 
 
Corporate and other
       First Quarter  
millions of Canadian dollars
  
 
2022
 
            2021  
Net income (loss)
(U.S. GAAP)
  
 
     (54
         (46
Liquidity and capital resources
 
       First Quarter  
millions of Canadian dollars
  
 
2022
 
            2021  
Cash flow generated from (used in):
                
Operating activities
  
 
1,914
 
    1,045  
Investing activities
  
 
(279
    (147
Financing activities
  
 
(639
    (202
Increase (decrease) in cash and cash equivalents
  
 
996
 
    696  
     
Cash and cash equivalents at period end
  
 
3,149
 
    1,467  
Cash flow generated from operating activities primarily reflects higher Upstream realizations, improved Downstream margins, and favourable working capital impacts.
Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment.
Cash flow used in financing activities primarily reflects:
       First Quarter  
millions of Canadian dollars, unless noted
  
 
2022
 
            2021  
Dividends paid
  
 
185
 
    162  
Per share dividend paid
(dollars)
  
 
0.27
 
      0.22   
Share repurchases
(a)
  
 
449
 
    -  
Number of shares purchased
(millions)
(a)
  
 
    8.9
  
    -  
(a) Share repurchases were made under the company’s normal course issuer bid program, and include shares purchased from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid.
 
The company completed share repurchases under its normal course issuer bid on January 31, 2022. The company did not purchase shares during the first quarter of 2021.
On April 29, 2022 the company announced its intention to launch a substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $2,500,000,000 of its common shares. The substantial issuer bid will be made through a modified Dutch auction, with a tender price range to be determined by the company at the time of commencement of the offer. Shares may also be tendered by way of a proportionate tender, which will result in a shareholder maintaining their proportionate share ownership. ExxonMobil has advised Imperial that it intends to make a proportionate tender in connection with the offer in order to maintain its proportionate share ownership at approximately 69.6 percent following completion of the offer. Nothing in this report shall constitute an offer to purchase or a solicitation of an offer to sell any shares.
 
21

IMPERIAL OIL LIMITED
 
 
 
Forward-looking statements
Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Forward-looking statements can be identified by words such as believe, anticipate, intend, propose, plan, goal, seek, project, predict, target, estimate, expect, strategy, outlook, schedule, future, continue, likely, may, should, will and similar references to future periods. Forward-looking statements in this release include, but are not limited to, references to the use of derivative instruments and effectiveness of risk mitigation; the company’s intention to initiate a substantial issuer bid, including the size, timing for determining the terms and pricing, commencement, structure and ExxonMobil’s intent to make a proportionate tender; updated earnings sensitivities; and the company’s continued evaluation of renewal of its normal course issuer bid program.
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, foreign exchange rates and general market conditions; production rates, growth and mix; project plans, timing, costs, technical evaluations and capacities and the company’s ability to effectively execute on these plans and operate its assets; that the necessary exemptive relief to proceed with the substantial issuer bid under applicable securities laws will be received on the timeline anticipated; ExxonMobil making a proportionate tender in connection with the substantial issuer bid; cash generation, financing sources and capital structure, including the timing and amount of share repurchases; capital and environmental expenditures; the adoption and impact of new facilities or technologies on reductions to GHG emissions intensity; receipt of regulatory approvals; applicable laws and government policies, including with respect to climate change and GHG emissions reductions; progression of
COVID-19
and its impacts on Imperial’s ability to operate its assets; the company’s ability to effectively execute on its business continuity plans and pandemic response activities; and commodity prices, foreign exchange rates and general market conditions could differ materially depending on a number of factors.
These factors include global, regional or local changes in supply and demand for oil, natural gas, and petroleum and petrochemical products and resulting price, differential and margin impacts, including foreign government action with respect to supply levels and prices, the impact of
COVID-19
on demand and the occurrence of wars; availability and allocation of capital; the receipt, in a timely manner, of regulatory and third-party approvals; project management and schedules and timely completion of projects; unanticipated technical or operational difficulties; management effectiveness and disaster response preparedness, including business continuity plans in response to
COVID-19;
operational hazards and risks; availability and performance of third-party service providers, including in light of restrictions related to
COVID-19;
environmental risks inherent in oil and gas exploration and production activities; political or regulatory events, including changes in law or government policy such as tax laws, production curtailment and actions in response to
COVID-19;
the results of research programs and new technologies, and ability to bring new technologies to commercial scale on a cost-competitive basis; cybersecurity incidents, including increased reliance on remote working arrangements; currency exchange rates; general economic conditions; 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.
 
22

IMPERIAL OIL LIMITED
 
 
 
Item 3.  Quantitative and qualitative disclosures about market risk
Information about market risks for the three months ended March 31, 2022, does not differ materially from that discussed on page 33 of the company’s annual report on Form
10-K
for the year ended December 31, 2021. The following table details those earnings sensitivities that have been updated from the fiscal
year-end
to reflect current market conditions.
 
Earnings Sensitivities
(a)
 
millions of Canadian dollars after tax
 
One dollar (U.S.) per barrel increase (decrease) in crude oil prices
   + (-)     105  
One dollar (U.S.) per barrel increase (decrease) in light and heavy crude price differentials
   + (-)     35  
One cent decrease (increase) in the value of the Canadian dollar versus the U.S. dollar
   + (-)             200  
(a)
   Each sensitivity calculation shows the annual impact on net income resulting from a change in one factor, after tax and royalties and holding all other factors constant. These sensitivities have been updated to reflect current market conditions. They may not apply proportionately to larger fluctuations.
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 March 31, 2022. 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.
 
23

Table of Contents
IMPERIAL OIL LIMITED
 
 
 
PART II. OTHER INFORMATION
Item 1.  Legal proceedings
Imperial has elected to use a $1 million threshold for disclosing environmental proceedings.
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)
 
 
 
 
 
January 2022
           
(January 1 - January 31)
  
 
8,936,150
 
  
 
50.30
 
  
 
8,936,150
 
  
 
-
 
February 2022
           
(February 1 - February 28)
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
March 2022
           
(March 1 - March 31)
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
(a)
On June 23, 2021, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid to continue its existing share purchase program. The program enabled the company to purchase up to a maximum of 35,583,671 common shares during the period June 29, 2021 to June 28, 2022. This maximum included 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 advised the company that it intended to participate to maintain its ownership percentage at approximately 69.6 percent. The program ended on January 31, 2022 as a result of the company purchasing the maximum allowable number of shares under the program.
On April 29, 2022 the company announced its intention to launch a substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $2,500,000,000 of its common shares. The substantial issuer bid will be made through a modified Dutch auction, with a tender price range to be determined by the company at the time of commencement of the offer. Shares may also be tendered by way of a proportionate tender, which will result in a shareholder maintaining their proportionate share ownership. ExxonMobil has advised Imperial that it intends to make a proportionate tender in connection with the offer in order to maintain its proportionate share ownership at approximately 69.6 percent following completion of the offer. Nothing in this report shall constitute an offer to purchase or a solicitation of an offer to sell any shares.
The company will continue to evaluate the renewal of its normal course issuer bid share purchase program in June 2022 in the context of its overall capital activities.
Purchase plans may be modified at any time without prior notice.
 
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Table of Contents
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 (formatted as Inline XBRL).
(104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
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Table of Contents
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:
  
May 4, 2022
 
/s/ Daniel E. Lyons
 
     (Signature)
     Daniel E. Lyons
     Senior vice-president, finance and
     administration, and controller
     (Principal accounting officer)
Date:
  
May 4, 2022
 
/s/ Cathryn Walker
 
     (Signature)
     Cathryn Walker
     Assistant corporate secretary
 
26