Imperial announces second quarter 2020 financial and operating results

CALGARY, Alberta – Imperial Oil Limited (TSX:IMO):

• Net loss of $526 million primarily driven by lower Upstream realizations and Downstream margins
• Managed operational and financial impacts of COVID-19
• Optimized turnaround activities at key assets with significant cost efficiencies
• Reduced year-to-date production and manufacturing expenses by over $450 million versus 2019
• Year-to-date capital expenditures on track to meet reduced guidance of $1.1 billion to $1.2 billion
• Maintained quarterly dividend at 22 cents per share
• Total debt remained stable at $5.2 billion

Imperial recorded an estimated net loss of $526 million in the second quarter of 2020, primarily driven by lower realizations in the Upstream and lower margins in the Downstream as a result of COVID-19 market impacts. This is partially offset by the reversal of the non-cash inventory revaluation charge of $281 million recorded in the first quarter of 2020.

While economic activity has improved substantially from the historic lows experienced early in the second quarter, the ongoing effects of the COVID-19 pandemic have resulted in unprecedented impacts across society and industry, and Imperial has responded.

Imperial has implemented a number of capital and expense reduction measures throughout the second quarter, making significant progress towards achieving the company’s revised 2020 targets. “We have focused our spending on efficient high-value opportunities, and taken swift action to respond to market conditions, advancing and adjusting downtime to align with the weak margin environment,” said Brad Corson, chairman, president and chief executive officer. “Given the significant capital and expense reductions achieved in the quarter and the strength of our balance sheet, we are highly confident in our ability to meet our targets, improve cash flow and continue to deliver value to our shareholders.”

Imperial has made significant progress on improving costs, with recent efforts contributing to production and manufacturing expense reductions totalling $306 million across the company’s segments compared to the first quarter, and $458 million in the first half of 2020 versus the first half of 2019. In addition, Imperial’s capital and exploration expenditures totalled $207 million in the quarter as the company executed its revised capital plans. These results demonstrate the resilience within Imperial’s operational portfolio, and the company’s ability to meet its revised spending targets while maintaining the flexibility to respond to improving business conditions.

Upstream production for the second quarter was 347,000 gross oil-equivalent barrels per day, compared to 400,000 barrels per day in the second quarter of 2019, as turnaround activities were revised in response to COVID-19. The turnaround of one of the plants at Kearl was advanced and extended, which enabled the company to optimize the workforce and successfully complete the turnaround with an estimated 40 percent cost savings compared with original plans. Building upon this success, the company decided to advance and extend the turnaround of the second plant. Work originally planned for the fall began in mid-July, and is expected to continue to late August.

Despite the extension of turnaround activity, second quarter Kearl production of 190,000 gross barrels per day exceeded the company’s guidance, with the site achieving its highest-ever first half production at 208,000 gross barrels per day. The reliability and cost benefits of Kearl’s new crushers were again evident this quarter, supporting strong production rates of nearly 300,000 gross barrels per day at the site during the more than two-week period between the two turnarounds.

In the Downstream, refinery throughput averaged 278,000 barrels per day, with overall utilization at 66 percent for the quarter, impacted by COVID-19 – related demand weakness and turnaround activity. Taking advantage of this period of lower demand, Imperial quickly adapted to revise the turnaround programs at the Sarnia and Strathcona refineries, minimizing costs and throughput impacts, while effectively managing health and safety needs. Demand for petroleum products steadily improved during the quarter, with June sales nearly 100,000 barrels per day greater than the April average. Demand for the company’s asphalt remained strong throughout the quarter, enabling Imperial to achieve several monthly production and sales records for asphalt.

“The difficult market conditions in the quarter demonstrated the benefits of Imperial’s integrated business model and strong balance sheet as the company progressed key projects and maintained its dividend without increasing its debt,” said Corson. The company’s financial performance steadily improved as the second quarter progressed, with the company focusing on execution of its revised operational and financial management activities, strategically advancing key maintenance projects to minimize costs and margin loss. “Imperial’s assets are well-positioned for strong performance and ready to respond to an improving business environment going forward,” Corson added.

Second quarter highlights

• Net loss of $526 million or $0.72 per share on a diluted basis, compared to net income of $1,212 million or $1.57 per share in the second quarter of 2019, primarily driven by lower realizations in the Upstream, with bitumen realizations falling by nearly 80 percent compared to the second quarter of 2019, and lower margins in the Downstream. Second quarter 2020 results include a reversal of the non-cash inventory revaluation charge of $281 million recorded in the first quarter of 2020. Second quarter 2019 results included a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease.
• Cash flow used in operating activities was $816 million, compared to cash flow generated from operating activities of $1,026 million in the corresponding period of 2019, primarily reflecting lower realizations in the Upstream and lower margins in the Downstream.
• Capital and exploration expenditures totalled $207 million, compared with $429 million in the second quarter of 2019. Imperial remains committed to the previously announced plan to reduce capital spending by $500 million in 2020 versus its initial guidance with a focus on low capital, high-value initiatives. Total capital expenditures for the year continue to be anticipated at between $1.1 billion and $1.2 billion.
• Dividends paid totalled $162 million or $0.22 per share, up from $147 million or $0.19 per share in the second quarter of 2019. In light of the current industry environment, the company did not purchase shares consistent with the suspension of its share purchase program effective April 1.
• Production averaged 347,000 gross oil-equivalent barrels per day, compared to 400,000 barrels per day in the same period of 2019. Reduced production was driven mainly by the advancement and extension of planned turnaround activities in response to the current business environment.
• Total gross bitumen production at Kearl averaged 190,000 barrels per day (135,000 barrels Imperial’s share), compared to 207,000 barrels per day (147,000 barrels Imperial’s share) in the second quarter of 2019. Lower production was mainly due to the balancing of near-term production with demand through the advancement and extension of planned turnaround activities at one of Kearl’s two plants, partially offset by the addition of supplemental crushing facilities in 2020. A turnaround at Kearl’s second plant was advanced to a mid-July start, and is expected to run until late August. With the extended duration of these turnarounds, Imperial now expects total gross production at Kearl to average approximately 220,000 barrels per day for full-year 2020.
• Gross bitumen production at Cold Lake averaged 123,000 barrels per day, compared to 135,000 barrels per day in the same period of 2019. Lower production was mainly due to production timing associated with steam management and maintenance. Imperial expects full-year gross production at Cold Lake to average approximately 135,000 barrels per day.
• The company’s share of gross production from Syncrude averaged 50,000 barrels per day, compared to 80,000 barrels per day in the same period of 2019. Lower production was mainly due to the balancing of near-term production with demand and a revised turnaround schedule.
• Refinery throughput averaged 278,000 barrels per day, compared to 344,000 barrels per day in the second quarter of 2019. Capacity utilization was 66 percent, compared to 81 percent in the second quarter of 2019. Lower throughput was primarily due to reduced demand from the COVID-19 pandemic, partially offset by improved reliability mainly from the absence of the Sarnia fractionation tower incident which occurred in April 2019.
• Petroleum product sales were 357,000 barrels per day, compared to 477,000 barrels per day in the second quarter of 2019. Lower petroleum product sales were mainly due to reduced demand from the COVID-19 pandemic.
• Imperial named Western Canada recipient of the Canadian Centre for Diversity and Inclusion (CCDI)’s “Employer Initiative of the Year” award. The award recognizes Imperial’s approach to business development with Indigenous communities in Alberta’s Athabasca region.

Second quarter 2020 vs. second quarter 2019

The company recorded a net loss of $526 million or $0.72 per share on a diluted basis in the second quarter of 2020, compared to net income of $1,212 million or $1.57 per share in the same period of 2019. Second quarter 2020 results include a reversal of the non-cash inventory revaluation charge of $281 million recorded in the first quarter of 2020. Second quarter 2019 results included a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease.

Upstream recorded a net loss of $444 million in the second quarter of 2020, compared to net income of $985 million in the same period of 2019. Results were negatively impacted by lower realizations of about $1,210 million, the absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019, and lower volumes of about $200 million. These items were partially offset by a reversal of the non-cash inventory revaluation charge of $229 million recorded in the first quarter of 2020, lower royalties of about $200 million, lower operating expenses of about $170 million, and favourable foreign exchange effects of about $60 million.

West Texas Intermediate (WTI) averaged US$27.83 per barrel in the second quarter of 2020, down from US$59.91 per barrel in the same quarter of 2019. Western Canada Select (WCS) averaged US$16.73 per barrel and US$49.31 per barrel for the same periods. The WTI / WCS differential averaged approximately US$11 per barrel for the second quarter of 2020, essentially unchanged from the same period of 2019.

The Canadian dollar averaged US$0.72 in the second quarter of 2020, a decrease of US$0.03 from the second quarter of 2019.

Imperial’s average Canadian dollar realizations for bitumen decreased in the quarter, primarily due to a decrease in WCS. Bitumen realizations averaged $12.82 per barrel in the second quarter of 2020, compared to $57.19 per barrel in the second quarter of 2019. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $32.20 per barrel in the second quarter of 2020, compared to $79.96 per barrel in the same period of 2019.

Total gross production of Kearl bitumen averaged 190,000 barrels per day in the second quarter (135,000 barrels Imperial’s share), compared to 207,000 barrels per day (147,000 barrels Imperial’s share) in the second quarter of 2019. Lower production was mainly due to the balancing of near-term production with demand through the advancement and extension of planned turnaround activities, at one of Kearl’s two plants, partially offset by the addition of supplemental crushing facilities in 2020.

Gross production of Cold Lake bitumen averaged 123,000 barrels per day in the second quarter, compared to 135,000 barrels per day in the same period of 2019. Lower production was mainly due to production timing associated with steam management and maintenance.

The company’s share of gross production from Syncrude averaged 50,000 barrels per day, compared to 80,000 barrels per day in the second quarter of 2019. Lower production was mainly due to the balancing of near-term production with demand and a revised turnaround schedule.

Downstream recorded a net loss of $32 million in the second quarter of 2020, compared to net income of $258 million in the same period of 2019. Results were negatively impacted by lower margins of about $400 million including the effects of reduced demand from the COVID-19 pandemic, and lower sales volumes of about $120 million. These items were partially offset by improved reliability of about $100 million, primarily due to the absence of the Sarnia fractionation tower incident which occurred in April 2019, lower operating expenses of about $90 million, and a reversal of the non-cash inventory revaluation charge of $52 million recorded in the first quarter of 2020.

Refinery throughput averaged 278,000 barrels per day, compared to 344,000 barrels per day in the second quarter of 2019. Capacity utilization was 66 percent, compared to 81 percent in the second quarter of 2019. Lower throughput was primarily due to reduced demand from the COVID-19 pandemic, partially offset by improved reliability mainly driven by the absence of the Sarnia fractionation tower incident.

Petroleum product sales were 357,000 barrels per day, compared to 477,000 barrels per day in the second quarter of 2019. Lower petroleum product sales were mainly due to reduced demand from the COVID-19 pandemic.

Chemical net income was $7 million in the second quarter, compared to $38 million from the same quarter of 2019.

Corporate and other expenses were $57 million in the second quarter, compared to $69 million in the same period of 2019.

Cash flow used in operating activities was $816 million in the second quarter, compared with cash flow generated from operating activities of $1,026 million in the corresponding period in 2019, primarily reflecting lower realizations in the Upstream and lower margins in the Downstream.

Investing activities used net cash of $172 million in the second quarter, compared with $429 million used in the same period of 2019, primarily reflecting lower additions to property, plant and equipment.

Cash used in financing activities was $167 million in the second quarter, compared with $521 million used in the second quarter of 2019. Dividends paid in the second quarter of 2020 were $162 million. The per share dividend paid in the second quarter was $0.22, up from $0.19 in the same period of 2019. During the second quarter, the company did not purchase shares consistent with the suspension of its share purchase program effective April 1, 2020. In the second quarter of 2019, the company purchased about 9.8 million shares for $368 million, including shares purchased from Exxon Mobil Corporation.

The company’s cash balance was $233 million at June 30, 2020, versus $1,087 million at the end of second quarter 2019.

Six months highlights

• Net loss of $714 million, compared to net income of $1,505 million in 2019.
• Net loss per share on a diluted basis was $0.97, compared to net income per share of $1.94 in 2019.
• Cash flow used in operating activities was $393 million, compared to cash flow generated from operating activities of $2,029 million in 2019.
• Capital and exploration expenditures totalled $538 million, compared to $958 million in 2019.
• Gross oil-equivalent production averaged 383,000 barrels per day, compared to 394,000 barrels per day in 2019.
• Refinery throughput averaged 330,000 barrels per day, compared to 364,000 barrels per day in 2019.
• Petroleum product sales were 409,000 barrels per day, compared to 477,000 barrels per day in 2019.
• Per share dividends declared during the year totalled $0.44, up from $0.41 per share in 2019.
• Returned $600 million to shareholders through dividends and share purchases.

Six months 2020 vs. six months 2019

Net loss in the first six months of 2020 was $714 million, or $0.97 per share on a diluted basis, compared to net income of $1,505 million or $1.94 per share in the first six months of 2019. 2019 results included a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease.

Upstream recorded a net loss of $1,052 million for the first six months of the year, compared to net income of $1,043 million in the same period of 2019. Results were negatively impacted by lower realizations of about $1,800 million, the absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019, and lower volumes of about $210 million. These items were partially offset by lower royalties of about $310 million, lower operating expenses of about $190 million, and favourable foreign exchange effects of about $110 million.

West Texas Intermediate averaged US$36.66 per barrel in the first six months of 2020, down from US$57.45 per barrel in the same period of 2019. Western Canada Select averaged US$21.20 per barrel and US$45.88 per barrel for the same periods. The WTI / WCS differential widened to average approximately US$15 per barrel in the first six months of 2020, from around US$12 per barrel in the same period of 2019.

The Canadian dollar averaged US$0.73 in the first six months of 2020, a decrease of US$0.02 from the same period in 2019.

Imperial’s average Canadian dollar realizations for bitumen decreased in the first six months of 2020, primarily due to a decrease in WCS. Bitumen realizations averaged $15.54 per barrel, compared to $53.20 per barrel from the same period in 2019. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI in the first six months of 2020, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $48.10 per barrel, compared to $74.77 per barrel from the same period in 2019.

Total gross production of Kearl bitumen averaged 208,000 barrels per day in the first six months of 2020 (147,000 barrels Imperial’s share), up from 193,000 barrels per day (137,000 barrels Imperial’s share) in the same period of 2019. Higher production was mainly due to the addition of supplemental crushing facilities in 2020, partially offset by the balancing of near-term production with demand through the advancement and extension of planned turnaround activities.

Gross production of Cold Lake bitumen averaged 131,000 barrels per day in the first six months of 2020, compared to 140,000 barrels per day in the same period of 2019.

During the first six months of 2020, the company’s share of gross production from Syncrude averaged 61,000 barrels per day, compared to 79,000 barrels per day in the same period of 2019. Lower production was mainly due to the balancing of near-term production with demand.

Downstream net income was $370 million, compared to $515 million in the same period of 2019. Results were negatively impacted by lower margins of about $250 million including the effects of reduced demand from the COVID-19 pandemic, and lower sales volumes of about $150 million. These items were partially offset by improved reliability of about $160 million, including the absence of the Sarnia fractionation tower incident which occurred in April 2019, and lower operating expenses of about $80 million.

Refinery throughput averaged 330,000 barrels per day in the first six months of 2020, compared to 364,000 barrels per day in the same period of 2019. Capacity utilization was 78 percent, compared to 86 percent in the same period of 2019. Lower throughput was primarily due to reduced demand from the COVID-19 pandemic, partially offset by improved reliability including the absence of the Sarnia fractionation tower incident.

Petroleum product sales were 409,000 barrels per day in the first six months of 2020, compared to 477,000 barrels per day in the same period of 2019. Lower petroleum product sales were mainly due to reduced demand from the COVID-19 pandemic.

Chemical net income was $28 million in the first six months of 2020, compared to $72 million in the same period of 2019.

Corporate and other expenses were $60 million in the first six months of 2020, compared to $125 million in the same period of 2019, mainly due to lower share-based compensation charges.

Cash flow used in operating activities was $393 million in the first six months of 2020, compared with cash flow generated from operating activities of $2,029 million in the same period of 2019, primarily reflecting lower realizations in the Upstream and unfavourable working capital impacts.

Investing activities used net cash of $480 million in the first six months of 2020, compared with $892 million used in the same period of 2019, primarily reflecting lower additions to property, plant and equipment.

Cash used in financing activities was $612 million in the first six months of 2020, compared with $1,038 million used in the same period of 2019. Dividends paid in the first six months of 2020 were $326 million. The per share dividend paid in the first six months of 2020 was $0.44, up from $0.38 in the same period of 2019. During the first six months of 2020, the company, under its share purchase program, purchased about 9.8 million shares for $274 million, including shares purchased from Exxon Mobil Corporation. As previously announced, purchases under this program were suspended on April 1, 2020. In the first six months of 2019, the company purchased about 19.8 million shares for $729 million.

Key financial and operating data follow.

Current economic conditions

In early 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the COVID-19 pandemic spread rapidly across Canada and the world resulting in substantial reductions in consumer and business activity and significantly reduced local and global demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key oil-producing countries which led to sharp declines in prices for crude oil, natural gas, and petroleum products. During the second quarter, the effects of COVID-19 continued to affect the world’s major economies, and market conditions reflected considerable uncertainty. In Canada, consumer and business activity exhibited some signs of recovery, but relative to prior periods continues to be negatively affected by the pandemic. Key oil-producing countries have taken steps to reduce oversupply of crude oil and petroleum products, and credit markets appear to have stabilized, providing sufficient liquidity to credit-worthy companies.

In late March, the company announced significant reductions in 2020 capital and operating expense spending plans.

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