CALGARY, Alberta–(BUSINESS WIRE)–Imperial Oil Limited (TSX:IMO):
Third quarter | Nine months | |||||||||||||||||||
millions of Canadian dollars, unless noted | 2018 | 2017 | % | 2018 | 2017 | % | ||||||||||||||
Net income (loss) (U.S. GAAP) | 749 | 371 | 102 | 1,461 | 627 | 133 | ||||||||||||||
Net income (loss) per common share, assuming dilution (dollars) | 0.94 | 0.44 | 114 | 1.79 | 0.74 | 142 | ||||||||||||||
Capital and exploration expenditures | 376 | 159 | 136 | 934 | 455 | 105 | ||||||||||||||
Estimated net income in the third quarter of 2018 was $749 million, an increase of $378 million compared with the net income of $371 million in the same period of 2017.
Imperial’s focus on reliability led to record gross production at Kearl of 244,000 barrels per day in the quarter, 20 percent, or 41,000 barrels per day, higher than the previous record. The strong performance increased year-to-date production to 202,000 barrels per day. With overall upstream production of 393,000 gross oil-equivalent barrels per day, up slightly from 2017, upstream earnings were $222 million, the highest level in four years.
The downstream continued to deliver strong results with quarterly earnings of $502 million. Refining throughput averaged 388,000 barrels per day and petroleum product sales averaged 516,000 barrels per day, the highest quarterly sales in nearly 30 years.
“Our refining network, access to logistics and ability to process price-advantaged crudes, both heavy and increasingly light, have been key factors in downstream performance year-to-date,” said Rich Kruger, chairman, president and chief executive officer. “Looking ahead, in the current challenging upstream price environment, we are uniquely positioned to benefit from widening light crude differentials.”
In terms of future growth potential, regulatory approvals for the Aspen in-situ project and Cold Lake expansion project were recently received. Both projects would utilize solvent-assisted, steam-assisted gravity drainage (SA-SAGD) technology to recover the bitumen resource. The regulatory approvals would support bitumen production of up to 150,000 barrels per day for the Aspen project and up to 50,000 barrels per day for the Cold Lake expansion project. The regulatory approvals are currently being reviewed. No final investment decisions have been made at this time.
Continuing with Imperial’s long standing commitment, nearly $600 million was returned to shareholders through dividends and share purchases in the quarter. During the first nine months of 2018, about $2 billion was returned to shareholders.
Third quarter highlights
Third quarter 2018 vs. third quarter 2017
The company’s net income for the third quarter of 2018 was $749 million or $0.94 per share on a diluted basis, an increase of $378 million compared to the net income of $371 million or $0.44 per share, for the same period 2017. Third quarter results for 2018 include a non-cash impairment charge of $33 million ($0.04 per share) associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation.
Upstream net income was $222 million in the third quarter, up $160 million from the same period of 2017. Improved results reflect the impact of higher Canadian crude oil realizations of about $320 million and higher Kearl volumes of $120 million, partially offset by lower Syncrude volumes of about $150 million and higher operating expenses of about $70 million.
West Texas Intermediate (WTI) averaged US$69.43 per barrel in the third quarter of 2018, up from US$48.23 per barrel in the same quarter of 2017. Western Canada Select (WCS) averaged US$47.49 per barrel and US$38.29 per barrel respectively for the same periods. The WTI / WCS differential widened to approximately US$22 per barrel in the third quarter of 2018, from around US$10 per barrel in the same period of 2017.
The Canadian dollar averaged US$0.76 in the third quarter of 2018, a decrease of US$0.04 from the third quarter of 2017.
Imperial’s average Canadian dollar realizations for bitumen and synthetic crudes increased generally in line with the North American benchmarks, adjusted for changes in exchange rates and transportation costs. Bitumen realizations averaged $50.42 per barrel for the third quarter of 2018, an increase of $11.40 per barrel versus the third quarter of 2017. Synthetic crude realizations averaged $89.70 per barrel, an increase of $28.56 per barrel for the same period of 2017.
Gross production of Cold Lake bitumen averaged 150,000 barrels per day in the third quarter, compared to 163,000 barrels per day in the same period last year. Lower volumes were primarily due to production timing associated with steam management.
Gross production of Kearl bitumen averaged 244,000 barrels per day in the third quarter (173,000 barrels Imperial’s share), up from 182,000 barrels per day (129,000 barrels Imperial’s share) during the third quarter of 2017. Higher production was mainly the result of improved operational reliability associated with ore preparation, enhanced piping durability and feed management, partially offset by planned turnaround activity.
The company’s share of gross production from Syncrude averaged 45,000 barrels per day, compared to 74,000 barrels per day in the third quarter of 2017. Lower production was due to a site-wide power disruption that occurred on June 20, 2018, resulting in a complete shutdown of all processing units. Production was progressively restored throughout the quarter and all cokers were back on-line by mid-September.
Downstream net income was $502 million in the third quarter, up $210 million from the third quarter of 2017. Earnings increased mainly due to stronger margins of about $220 million, partially offset by a non-cash impairment charge of $33 million associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation.
Refinery throughput averaged 388,000 barrels per day, up from 385,000 barrels per day in the third quarter of 2017. Capacity utilization increased to 92 percent from 91 percent in the third quarter of 2017.
Petroleum product sales were 516,000 barrels per day, up from 500,000 barrels per day in the third quarter of 2017. Sales growth continues to be driven by optimization across the full downstream value chain, and the expansion of Imperial’s logistic capabilities.
Chemical net income was $69 million in the third quarter, up $17 million from the same quarter of 2017, reflecting strong polyethylene pricing and advantaged feedstocks.
Corporate and other expenses were $44 million in the third quarter, compared to $35 million in the same period of 2017. As part of the implementation of the Financial Accounting Standards Board’s update, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, beginning January 1, 2018, Corporate and other includes all non-service pension and postretirement benefit expenses. Prior to 2018, the majority of these costs were allocated to the operating segments.
Cash flow generated from operating activities was $1,207 million in the third quarter, up from $837 million from the corresponding period in 2017, reflecting higher earnings.
Investing activities used net cash of $352 million in the third quarter, compared with $234 million used in the same period of 2017, reflecting higher additions to property, plant and equipment.
Cash used in financing activities was $580 million in the third quarter, compared with $393 million used in the third quarter of 2017. Dividends paid in the third quarter of 2018 were $155 million. The per share dividend paid in the third quarter was $0.19, up from $0.16 in the same period of 2017. During the third quarter, the company, under its share purchase program, purchased about 10 million shares for approximately $418 million, including shares purchased from Exxon Mobil Corporation.
The company’s cash balance was $1,148 million at September 30, 2018, versus $833 million at the end of third quarter 2017.
The company currently anticipates exercising its share purchases uniformly over the duration of the program. Purchase plans may be modified at any time without prior notice.
Nine months highlights
Nine months 2018 vs. nine months 2017
Net income in the first nine months of 2018 was $1,461 million, or $1.79 per share on a diluted basis, an increase of $834 million compared to a net income of $627 million or $0.74 per share in the first nine months of 2017.
Upstream net income was $172 million in the first nine months of 2018, an increase of $397 million compared to a net loss of $225 million from the same period of 2017. Improved results reflect the impact of higher Canadian crude oil realizations of about $670 million and higher Kearl volumes of about $120 million, partially offset by the impact of lower Cold Lake and Syncrude volumes of about $170 million, higher operating costs of about $120 million and higher royalties of about $60 million.
West Texas Intermediate averaged US$66.77 per barrel in the first nine months of 2018, up from US$49.40 per barrel in the same period of 2017. Western Canada Select averaged US$44.98 per barrel and US$37.57 per barrel respectively for the same periods. The WTI / WCS differential widened to approximately US$22 per barrel in the first nine months of 2018, from around US$12 per barrel in the same period of 2017.
The Canadian dollar averaged US$0.78 in the first nine months of 2018, an increase of about US$0.01 from the same period of 2017.
Imperial’s average Canadian dollar realizations for bitumen and synthetic crudes increased generally in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs. Bitumen realizations averaged $45.04 per barrel for the first nine months of 2018, an increase of $7.22 per barrel versus 2017. Synthetic crude realizations averaged $83.66 per barrel, an increase of $19.29 per barrel from the same period of 2017.
Gross production of Cold Lake bitumen averaged 145,000 barrels per day in the first nine months of 2018, compared to 161,000 barrels per day from the same period of 2017. Lower volumes were primarily due to planned maintenance and production timing associated with steam management.
Gross production of Kearl bitumen averaged 202,000 barrels per day in the first nine months of 2018 (144,000 barrels Imperial’s share) up from 179,000 barrels per day (127,000 barrels Imperial’s share) from the same period of 2017. Increased 2018 production reflects improved operational reliability associated with ore preparation, enhanced piping durability and feed management.
During the first nine months of 2018, the company’s share of gross production from Syncrude averaged 53,000 barrels per day, compared to 56,000 barrels per day from the same period of 2017. Syncrude year-to-date production was impacted by a site-wide power disruption that occurred on June 20 resulting in a complete shutdown of all processing units. Production was progressively restored throughout the third quarter 2018 and all cokers were back on-line by mid-September. Production in 2017 was impacted by repairs associated with the Syncrude Mildred Lake upgrader fire.
Downstream net income was $1,224 million, an increase of $474 million versus the prior year. Higher earnings primarily reflect stronger margins of about $910 million, partially offset by the impact of increased planned turnaround activity and reliability events of about $190 million, the absence of the $151 million gain on the sale of a surplus property in 2017, and a non-cash impairment charge of $33 million associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation.
Refinery throughput averaged 386,000 barrels per day in the first nine months of 2018, up from 381,000 barrels per day from the same period of 2017. Capacity utilization increased to 91 percent from 90 percent in the same period of 2017.
Petroleum product sales were 503,000 barrels per day in the first nine months of 2018, up from 492,000 barrels per day from the same period of 2017. Sales growth continues to be driven by optimization across the full downstream value chain, and the expansion of Imperial’s logistics capabilities.
Chemical net income was $220 million, an increase of $59 million versus the prior year, reflecting higher margins and volumes.
Corporate and other expenses were $155 million for the first nine months of 2018, compared to $59 million in the same period of 2017. Beginning January 1, 2018, Corporate and other includes all non-service pension and postretirement benefit expenses. Prior to 2018, the majority of these costs were allocated to the operating segments.
Cash flow generated from operating activities was $3,051 million in the first nine months of 2018, up from $1,683 million from the same period of 2017, primarily reflecting higher earnings.
Investing activities used net cash of $1,096 million in the first nine months of 2018, compared with $454 million used in the same period of 2017, reflecting higher additions to property, plant and equipment, and lower proceeds from asset sales.
Cash used in financing activities was $2,002 million in the first nine months of 2018, compared with $787 million used in the same period of 2017. Dividends paid in the first nine months of 2018 were $421 million. The per share dividend paid in the first nine months of 2018 was $0.51, up from $0.46 from the same period of 2017. During the first nine months of 2018, the company, under its share purchase program, purchased about 38.5 million shares for approximately $1,561 million, including shares purchased from Exxon Mobil Corporation.
Key financial and operating data follow.
Forward-looking statements
Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Actual future financial and operating results, including demand growth and energy source mix; production growth and mix; project plans, dates, costs and capacities; production rates; production life and resource recoveries; cost savings; product sales; financing sources; and capital and environmental expenditures could differ materially depending on a number of factors, such as changes in the supply of and demand for crude oil, natural gas, and petroleum and petrochemical products and resulting price and margin impacts; limitations on transportation for accessing markets; political or regulatory events, including changes in law or government policy; applicable royalty rates and tax laws; the receipt, in a timely manner, of regulatory and third-party approvals; third-party opposition to operations and projects; environmental risks inherent in oil and gas exploration and production activities; environmental regulation, including climate change and greenhouse gas restrictions; currency exchange rates; availability and allocation of capital; performance of third-party service providers; unanticipated operational disruptions; management effectiveness; commercial negotiations; project management and schedules; response to unexpected technological developments; operational hazards and risks; disaster response preparedness; the ability to develop or acquire additional reserves; and other factors discussed in this report and Item 1A of Imperial’s most recent 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.
In this report all dollar amounts are expressed in Canadian dollars unless otherwise stated. This report should be read in conjunction with Imperial’s most recent Form 10-K. 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.
Attachment I | ||||||||||||
Third Quarter | Nine Months | |||||||||||
millions of Canadian dollars, unless noted | 2018 | 2017 | 2018 | 2017 | ||||||||
Net Income (loss) (U.S. GAAP) | ||||||||||||
Total revenues and other income | 9,732 | 7,158 | 27,209 | 21,347 | ||||||||
Total expenses | 8,706 | 6,662 | 25,222 | 20,556 | ||||||||
Income (loss) before income taxes | 1,026 | 496 | 1,987 | 791 | ||||||||
Income taxes | 277 | 125 | 526 | 164 | ||||||||
Net income (loss) | 749 | 371 | 1,461 | 627 | ||||||||
Net income (loss) per common share (dollars) | 0.94 | 0.44 | 1.79 | 0.74 | ||||||||
Net income (loss) per common share – assuming dilution (dollars) | 0.94 | 0.44 | 1.79 | 0.74 | ||||||||
Other Financial Data | ||||||||||||
Gain (loss) on asset sales, after-tax | 6 | 5 | 21 | 191 | ||||||||
Total assets at September 30 | 41,819 | 41,370 | ||||||||||
Total debt at September 30 | 5,188 | 5,215 | ||||||||||
Interest coverage ratio – earnings basis (times covered) (a) | 14.9 | 25.7 | ||||||||||
Other long-term obligations at September 30 | 3,334 | 3,698 | ||||||||||
Shareholders’ equity at September 30 | 23,979 | 25,021 | ||||||||||
Capital employed at September 30 | 29,186 | 30,261 | ||||||||||
Return on average capital employed (percent) (b) | 4.8 | 7.0 | ||||||||||
Dividends declared on common stock | ||||||||||||
Total | 151 | 134 | 438 | 397 | ||||||||
Per common share (dollars) | 0.19 | 0.16 | 0.54 | 0.47 | ||||||||
Millions of common shares outstanding | ||||||||||||
At September 30 | 792.7 | 837.6 | ||||||||||
Average – assuming dilution | 800.5 | 844.9 | 816.9 | 848.4 | ||||||||
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