Imperial announces second quarter 2022 financial and operating results

• Quarterly net income of $2,409 million and cash flow from operating activities of $2,682 million
• Upstream production of 413,000 gross oil equivalent barrels per day, highest second quarter in over 30 years
• Sustained strong Downstream operating performance with quarterly refinery capacity utilization of 96%, fourth consecutive quarter above 90%
• Returned over $2.7 billion to shareholders in the quarter through dividends and successful completion of the company’s $2.5 billion substantial issuer bid program
• Renewed annual normal course issuer bid to purchase up to an additional 5% of outstanding shares, with plans to accelerate completion of the program by the end of October 2022
• Declared third quarter dividend of 34 cents per share
• Announced the proposed sale of interests in XTO Energy Canada for a total cash consideration of $1.9 billion ($940 million Imperial’s share), further focusing the company’s Upstream portfolio on long-life, low-decline oil sands assets
• Released annual Advancing Climate Solutions report, outlining the company’s progress and ongoing commitment to lowering greenhouse gas emissions

CALGARY, Alberta–(BUSINESS WIRE)–

Imperial reported estimated net income in the second quarter of $2,409 million, up from $1,173 million in the first quarter of 2022, driven by continued strong market conditions and improved operating performance. Cash flow from operating activities was $2,682 million up from $1,914 million in the first quarter of 2022.

“Our second quarter results are underpinned by an ongoing focus on safe and reliable operations, allowing us to capture significant value from our fully integrated assets amid continued commodity price strength, while also ensuring a stable supply of energy products to support growing demand,” said Brad Corson, chairman, president and chief executive officer.

Upstream production in the second quarter averaged 413,000 gross oil-equivalent barrels per day, the highest second quarter production in over 30 years. Kearl quarterly total gross production averaged 224,000 barrels per day, reflecting a full recovery in operating performance from the impacts of extreme cold weather experienced in the first quarter as well as the completion of its annual planned turnaround. Cold Lake quarterly production averaged 144,000 gross barrels per day, continuing to deliver strong operating performance while also completing a planned turnaround.

Following the impacts of extreme cold weather on Kearl operations in the first quarter of 2022 and the completion of its annual turnaround in the second quarter, Kearl production is expected to exceed 280,000 total gross barrels per day over the second half of the year. Consistent with this, Imperial is updating its annual full-year production guidance at Kearl to be around 245,000 total gross barrels per day.

“I am very pleased to see Kearl’s production performance recover to normal levels in the second quarter with the extreme cold weather related impacts now firmly behind us,” said Corson. “As I look ahead, Kearl’s accelerated journey to grow annual production to 280,000 total gross barrels per day remains on track and will create significant value for our shareholders.”

In the Downstream, quarterly refining throughput averaged 412,000 barrels per day with capacity utilization of 96%, the fourth consecutive quarter above 90%, as the company focuses on maximizing production to meet increased Canadian demand. Petroleum product sales in the quarter increased to an average of 480,000 barrels per day with Canadian fuel demand nearing pre-pandemic levels.

The company distributed over $2.7 billion to shareholders in the quarter through dividend payments and the successful completion of the company’s substantial issuer bid. In June, Imperial announced the renewal of its annual normal course issuer bid (NCIB) program, allowing the repurchase of up to five percent of its outstanding shares over a 12-month period ending on June 28, 2023. Imperial plans to accelerate its share purchases under the NCIB program and anticipates repurchasing all remaining allowable shares by the end of October 2022. The company also declared a third quarter dividend of 34 cents per share.

“In the first half of this year, Imperial has generated significant cash flow that has enabled record distributions to our shareholders and also increased the royalty and tax payments we make to federal and provincial governments that support the communities in which we operate,” said Corson. “The steps we have taken to further focus our portfolio, reduce costs and efficiently grow production position us to continue returning substantial cash to shareholders going forward.”

In June, Imperial announced together with ExxonMobil Canada that it had entered into an agreement with Whitecap Resources Inc. for the sale of XTO Energy Canada, which is jointly owned by Imperial and ExxonMobil Canada, for a total cash consideration of $1.9 billion ($940 million Imperial’s share). The sale is expected to close before the end of the third quarter 2022, subject to regulatory approvals. The divestment of XTO Energy Canada further delivers on Imperial’s strategy to maximize shareholder value by focusing the company’s Upstream resources on long-life, low-decline oil-sands assets.

During the quarter, Imperial released its annual Advancing Climate Solutions report outlining the company’s progress and ongoing commitment to lowering greenhouse gas emissions. Imperial is committed to providing energy solutions in a way that helps protect people, the environment and the communities where it operates, including mitigating the risks of climate change.

“Imperial is aggressively pursuing attractive opportunities that reduce emissions, increase production and support increased profitability,” said Corson. “We continue to progress a broad range of technology initiatives, including through our support of the Pathways Alliance and its application for carbon capture storage space, our recently announced plans for a lithium-extraction pilot in Alberta with potential use in battery-grade products and a hydrogen production feasibility study in Nanticoke that could help reduce the region’s greenhouse gas emissions.”

Second quarter highlights

• Net income of $2,409 million or $3.63 per share on a diluted basis, up from $366 million or $0.50 per share in the second quarter of 2021.
• Cash flows from operating activities of $2,682 million, up from $852 million in the same period of 2021. Cash flows from operating activities excluding working capital¹ of $2,783 million, up from $893 million in the same period of 2021.
• Capital and exploration expenditures totalled $314 million, up from $259 million in the second quarter of 2021.
• The company returned $2,728 million to shareholders in the second quarter of 2022, including $2,500 million from the company’s substantial issuer bid program completed in June and $228 million in dividends paid.
• Renewed share repurchase program, enabling the purchase of up to five percent of common shares outstanding, a maximum of 31,833,809 shares, during the 12-month period ending June 28, 2023. Consistent with the company’s commitment to returning surplus cash to shareholders, Imperial plans to accelerate its share purchases under the NCIB program and anticipates repurchasing all remaining allowable shares by the end of October 2022. Purchase plans may be modified at any time without prior notice.
• Production averaged 413,000 gross oil-equivalent barrels per day, highest second quarter in over 30 years, up from 401,000 barrels per day in the same period of 2021.
• Total gross bitumen production at Kearl averaged 224,000 barrels per day (159,000 barrels Imperial’s share), compared to 255,000 barrels per day (181,000 barrels Imperial’s share) in the second quarter of 2021, primarily driven by additional downtime. Following the impacts of extreme cold weather on Kearl operations in the first quarter of 2022 and the completion of its annual turnaround in the second quarter, Kearl production is expected to exceed 280,000 total gross barrels per day over the second half of the year. Consistent with this, Imperial is updating its annual full-year production guidance at Kearl to be around 245,000 total gross barrels per day.
• Gross bitumen production at Cold Lake averaged 144,000 barrels per day, up from 142,000 barrels per day in the second quarter of 2021, continuing to outperform the company’s annual production guidance of 135,000 to 140,000 gross barrels per day.
• The company’s share of gross production from Syncrude averaged 81,000 barrels per day, up from 47,000 barrels per day in the second quarter of 2021, primarily driven by the timing of planned turnaround activities.
• Refinery throughput averaged 412,000 barrels per day, up from 332,000 barrels per day in the second quarter of 2021. Capacity utilization reached 96 percent, up from 78 percent in the second quarter of 2021, as the company continues to maximize production to meet increased Canadian demand. Second quarter utilization represents the fourth consecutive quarter above 90%.
• Petroleum product sales were 480,000 barrels per day, up from 429,000 barrels per day in the second quarter of 2021. Increased sales were driven by rising demand following further easing of Canadian pandemic restrictions.
• Chemical net income of $53 million in the quarter, compared to $109 million in the second quarter of 2021. Lower income was primarily driven by lower polyethylene margins.
• Announced, together with ExxonMobil Canada, the proposed sale of XTO Energy Canada to Whitecap Resources for total cash consideration of $1.9 billion ($940 million Imperial’s share). The sale is expected to close before the end of the third quarter 2022, subject to regulatory approvals. The divestment of XTO Energy Canada further delivers on Imperial’s strategy to maximize shareholder value by focusing Upstream resources on long-life, low-decline oil-sands assets.
• Released annual Advancing Climate Solutions report outlining the company’s progress and ongoing commitment to lowering GHG emissions. Imperial is committed to providing energy solutions in a way that helps protect people, the environment and the communities where it operates, including mitigating the risks of climate change.
• Announced strategic collaboration with E3 Lithium to advance a lithium extraction pilot in Alberta. The project will draw lithium from under Imperial’s historic Leduc oil field using E3 Lithium’s proprietary technology with potential for commercial development of battery-grade products. As part of the agreement, Imperial may provide technical and development support in areas such as water and reservoir management.
• Signed agreement with Atura Power to study the potential for hydrogen production in Nanticoke, Ontario. The study will focus on the commercial and technical aspects of developing a regional hydrogen facility that could help reduce greenhouse gas emissions in the area’s industrial sector in support of Canada’s net-zero ambitions.

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 the first half of 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 and refining margins. In the first half 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. By the end of the second quarter, high prices had led to a tempering of demand for some products. Commodity and product prices are expected to remain volatile given the current global economic and geopolitical uncertainty affecting supply and demand.

Operating results

Upstream

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 $55.01 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $63.87 per barrel generally in line with WTI.

Volumes – Higher volumes primarily driven by the timing of turnaround activities at Syncrude, partially offset by downtime at Kearl.

Royalty – Higher royalties primarily driven by improved commodity prices.

Other – Includes higher operating expenses of about $180 million, primarily higher energy prices, partially offset by favourable foreign exchange impacts of about $60 million.

Downstream

Margins – Higher margins primarily reflect improved market conditions.

Other – Includes lower turnaround impacts of about $130 million, reflecting the absence of turnaround activities at Strathcona refinery, partially offset by higher operating expenses of about $70 million, primarily higher energy costs.

Improved refinery throughput in the second quarter of 2022 was primarily driven by reduced turnaround activity and increased demand.

Improved petroleum product sales in the second quarter of 2022 were mainly due to increased demand.

Chemicals

Corporate and other

Liquidity and capital resources

Cash flow generated from operating activities primarily reflects higher Upstream realizations and improved Downstream margins.

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment.

Cash flow used in financing activities primarily reflects:

On May 6, 2022, the company commenced a substantial issuer bid pursuant to which it offered to purchase for cancellation up to $2.5 billion of its common shares through a modified Dutch auction and proportionate tender offer. The substantial issuer bid was completed on June 15, 2022, with the company taking up and paying for 32,467,532 common shares at a price of $77.00 per share, for an aggregate purchase of $2.5 billion and 4.9 percent of Imperial’s issued and outstanding shares as the close of business on May 2, 2022. This included 22,597,379 shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

On June 27, 2022, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its existing share purchase program. The program enables the company to purchase up to a maximum of 31,833,809 common shares during the period June 29, 2022 to June 28, 2023. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will end should the company purchase the maximum allowable number of shares, or on June 28, 2023. Imperial plans to accelerate its share purchases under the normal course issuer bid program, and anticipates repurchasing all remaining allowable shares by the end of October 2022. Purchase plans may be modified at any time without prior notice.

Six months 2022 vs. six months 2021

Upstream

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 $49.08 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $58.99 per barrel generally in line with WTI.

Volumes – Lower volumes primarily driven by downtime at Kearl, partially offset by the timing of turnaround activities at Syncrude.

Royalty – Higher royalties primarily driven by improved commodity prices.

Other – Includes higher operating expenses of about $220 million, primarily higher energy prices, partially offset by favourable foreign exchange impacts of about $60 million.

Downstream

Margins – Higher margins primarily reflect improved market conditions.

Other – Includes lower turnaround impacts of about $130 million, reflecting the absence of turnaround activities at Strathcona refinery, partially offset by higher operating expenses of about $90 million, primarily higher energy costs.

Improved refinery throughput in 2022 was primarily driven by reduced turnaround activity and increased demand.

Improved petroleum product sales in 2022 primarily reflects increased demand.

Chemicals

Corporate and other

Liquidity and capital resources

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:

Key financial and operating data follow.