Imperial Announces First Quarter 2022 Financial & Operating Results

Source: www.gulfoilandgas.com 4/29/2022, Location: North America

- Highest first quarter net income in over 30 years of $1,173 million with Upstream income of $782 million and Downstream income of $389 million, driven primarily by strong market conditions
- Highest first quarter cash flow from operating activities in over 30 years of $1,914 million, with free cash flową of $1,635 million
- Upstream production of 380,000 barrels per day, impacted by extreme cold weather and unplanned downtime at Kearl
- Downstream quarterly refinery capacity utilization of 93%, third consecutive quarter above 90%
- Completed construction of the Sarnia Products Pipeline providing enhanced access to the high-value Toronto market and reducing transportation costs
- Declared second quarter dividend of 34 cents per share
- Announced intention to initiate a substantial issuer bid to purchase up to $2.5 billion of its common shares

Imperial reported estimated net income in the first quarter of $1,173 million up from $813 million in the fourth quarter of 2021, driven primarily by strong market conditions. Cash flow from operating activities was $1,914 million up from $1,632 million in the fourth quarter of 2021. Both net income and cash flow from operating activities represent the highest first quarter result in over 30 years.

“Imperial achieved strong financial results across all business lines in the first quarter as pandemic restrictions were lifted and commodity prices further strengthened,” said Brad Corson, chairman, president and chief executive officer. “With strong margins across all our businesses, we are very well positioned to continue generating substantial free cash flow1 this year.”

Upstream production in the first quarter averaged 380,000 gross oil-equivalent barrels per day. At Kearl, quarterly total gross production averaged 186,000 barrels per day with operations impacted by extreme cold weather and unplanned downtime. Subsequent to the first quarter, Kearl’s April month-to-date production increased to about 250,000 total gross barrels per day. At Cold Lake, the company’s strategic focus on reliability and optimization continued to drive strong operating performance with quarterly production of 140,000 gross barrels per day.

In the Downstream, quarterly refining throughput averaged 399,000 barrels per day with capacity utilization of 93% representing the third consecutive quarter with utilization above 90%. Quarterly petroleum product sales averaged 447,000 barrels per day as pandemic restrictions began lifting late in the quarter.

During the quarter, construction of the Sarnia Products Pipeline was completed ahead of schedule, with start-up and commissioning completed in April. The pipeline provides enhanced access into the high-value Toronto market and is expected to reduce annual transportation costs by $40 million.

Chemical first quarter net income was $56 million, compared to net income of $64 million in the fourth quarter of 2021, as margins eased from record highs.

During the quarter, Imperial returned $449 million to shareholders through the accelerated completion of the company’s normal course issuer bid, with the program concluding on January 31, 2022. The company also paid $185 million in dividends, and declared a second quarter dividend of 34 cents per share. “Imperial has a long track record of returning surplus cash to shareholders and I am pleased to announce the company’s plans to initiate a substantial issuer bid returning up to $2.5 billion to shareholders in the second quarter of 2022,” said Corson.

Imperial continues to advance lower emission solutions in support of its sustainability goals, including its recently announced oil sands greenhouse gas intensity reduction goal of 30 percent by 2030 from 2016 levels. Imperial is a member of the Oil Sands Pathways to Net Zero alliance that is working with federal and provincial governments with a goal to achieve net zero greenhouse gas emissions from oil sands operations by 2050. The company also continues to progress plans for a world-class renewable diesel manufacturing facility at its Strathcona refinery, to provide Canada with a large new domestic source of renewable fuel to help reduce Scope 3 emissions.

“Imperial remains confident in our ability to reduce emissions and advance lower-emission technologies. We are also encouraged by recent steps taken by the federal government to support investment tax credits on large-scale carbon capture projects to help Canada achieve its climate goals,” said Corson. “Continued collaboration and our long history of research and development will continue to serve us well on this journey.”

First quarter highlights
- Net income of $1,173 million or $1.75 per share on a diluted basis, the highest first quarter in over 30 years, up from $392 million or $0.53 per share in the first quarter of 2021. Improved net income was primarily driven by strong market conditions.
- Cash flows from operating activities of $1,914 million, the highest first quarter in over 30 years, up from $1,045 million in the same period of 2021. Cash flows from operating activities excluding working capitalą of $1,219 million, compared with $1,068 million in the same period of 2021. Changes in working capital of $695 million includes $459 million of income taxes payable in the first quarter of 2023.
- Capital and exploration expenditures totalled $296 million, up from $163 million in the first quarter of 2021.
- The company returned $634 million to shareholders in the first quarter of 2022, including $449 million from the accelerated completion of the company’s normal course issuer bid program on January 31, 2022 and $185 million in dividends paid.
- Announced intention to initiate a substantial issuer bid to purchase for cancellation up to $2.5 billion of its common shares. The company anticipates that the terms and pricing will be determined and the offer will commence during the next two weeks.
- Production averaged 380,000 gross oil-equivalent barrels per day, compared to 432,000 barrels per day in the same period of 2021. Production was impacted by extreme cold weather and unplanned downtime at Kearl.
- Total gross bitumen production at Kearl averaged 186,000 barrels per day (132,000 barrels Imperial's share), compared to 251,000 barrels per day (178,000 barrels Imperial's share) in the first quarter of 2021. Production was impacted by extreme cold weather and unplanned downtime. April month-to-date production has since increased to about 250,000 total gross barrels per day.
- Gross bitumen production at Cold Lake averaged 140,000 barrels per day, consistent with the first quarter of 2021, driven by continued strong operating performance and efficiently offsetting production decline.
- The company's share of gross production from Syncrude averaged 77,000 barrels per day, compared to 79,000 barrels per day in the first quarter of 2021. Syncrude continues to leverage the interconnect pipeline to capture value, achieving record first quarter bitumen production.
- The previously announced marketing process for Imperial and ExxonMobil Canada’s interests in XTO Energy Canada is on-going, with bids received now under evaluation. A definitive decision to sell the assets has not yet been made and operations will continue as normal throughout the marketing process and should the process not result in a sale.
- Refinery throughput averaged 399,000 barrels per day, up from 364,000 barrels per day in the first quarter of 2021. Capacity utilization was 93 percent, up from 85 percent in the first quarter of 2021, the third consecutive quarter with utilization above 90 percent. Higher throughput and utilization were driven primarily by increased demand.
- Petroleum product sales were 447,000 barrels per day, up from 414,000 barrels per day in the first quarter of 2021. Higher petroleum product sales were driven primarily by increased demand.
- Completed construction of the Sarnia Products Pipeline ahead of schedule, with commissioning and start-up completed in April. The pipeline provides enhanced access into the high-value Toronto market and is expected to reduce annual transportation costs by $40 million.
- Chemical net income of $56 million in the quarter, compared to $67 million in the first quarter of 2021 as margins eased from record highs.
- Announced expanded partnership with Loblaw’s PC Optimum loyalty program, offering Canadians the opportunity to redeem PC Optimum points at more than 2,000 Esso stations across Canada.

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
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

Production
Lower production at Kearl was primarily a result of extreme cold weather and unplanned downtime.

Downstream
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
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.

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.

Key financial and operating data follow.

Additional information regarding the tender offer
The tender offer described in this communication (the “Offer”) has not yet commenced. This communication is for informational purposes only. This communication is not a recommendation to buy or sell Imperial Oil Limited shares or any other securities, and it is neither an offer to purchase nor a solicitation of an offer to sell Imperial Oil Limited Shares or any other securities.


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