Imperial announces 2019 financial and operating results

Imperial Oil Limited (TSX:IMO):

• Full-year earnings of $2,200 million; $4,429 million cash generated from operations
• Annual production of 398,000 gross oil-equivalent barrels per day, the highest in over 25 years
• Kearl supplemental crushing capacity online as planned
• Returned over $2 billion to shareholders in 2019 through share purchases and dividends

Estimated full-year 2019 net income was $2,200 million, including fourth quarter results of $271 million. 2019 results include a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease enacted in June.

The year was characterized by strong volume performance in the upstream, with Kearl’s gross production in excess of 200,000 barrels per day for the second year in a row and Syncrude’s highest annual production in nearly a decade. In the downstream, refinery throughput and petroleum product sales were impacted by significant planned turnaround activities and the fractionation tower incident at Sarnia.

Overall upstream gross oil-equivalent production averaged 398,000 barrels per day in 2019, with total liquids production of 374,000 barrels per day for the year, each at their highest levels in over 25 years. Kearl’s total gross production for 2019 averaged 205,000 barrels per day.

Consistent with plans, Kearl’s supplemental crushing facilities became operational and are expected to further improve reliability, reduce planned downtime, lower unit costs and enable the asset to achieve 240,000 barrels per day of total gross production in 2020.

In 2019, refinery throughput averaged 353,000 barrels per day, with petroleum product sales of 475,000 barrels per day. Throughout the year, refinery utilization rates and sales were impacted by significant planned turnaround activities at the Nanticoke and Sarnia refineries, and by the fractionation tower incident at Sarnia. The new tower was commissioned in December.

“2019 was a year of significant change for the industry in which we operate,” said Brad Corson, chairman, president and chief executive officer. “Against this backdrop, Imperial’s results demonstrate the strength and resilience of the company’s balanced and integrated business model, with cash generated from operating activities totalling $4.4 billion for 2019, the highest in over five years.”

Throughout the year, the company delivered on several key initiatives including startup of Kearl’s supplemental crushers and planned turnaround activities across the business. “Recent investments in growth, reliability, and cost and margin improvement provide a strong foundation for Imperial to continue to grow dividends and deliver value to our shareholders,” said Corson. “I am excited for the opportunity to build upon Imperial’s strengths and lead the company into the new decade.”

Fourth quarter highlights

• Net income of $271 million or $0.36 per share on a diluted basis, compared to net income of $853 million or $1.08 per share in the fourth quarter of 2018. Net income for the full-year 2019 was $2,200 million or $2.88 per share on a diluted basis.
• Cash generated from operating activities was $1,024 million, up from $871 million in the fourth quarter of 2018. Cash generated from operating activities for the full-year 2019 was $4,429 million.
• Capital and exploration expenditures totalled $414 million, compared with $493 million in the fourth quarter of 2018. Full-year capital and exploration expenditures totalled $1,814 million, consistent with previously provided guidance.
• The company returned $467 million to shareholders in the fourth quarter of 2019, including $166 million in dividends and $301 million in share purchases. Throughout the year, the company paid dividends of $631 million or $0.82 per share, and purchased about 38.7 million shares for $1,373 million.
• Production averaged 398,000 gross oil-equivalent barrels per day, compared to 431,000 barrels per day in the same period of 2018. Fourth quarter results reflect increased planned turnaround activities in 2019 compared to the same period of 2018.
• Total gross bitumen production at Kearl averaged 208,000 barrels per day (147,000 barrels Imperial’s share), compared to 217,000 barrels per day (154,000 barrels Imperial’s share) in the fourth quarter of 2018. A planned turnaround on one of the asset’s two plants began in early September and was completed in mid-October, impacting total gross production in the fourth quarter by an estimated 19,000 barrels per day (13,000 barrels Imperial’s share).
• Gross bitumen production at Cold Lake averaged 140,000 barrels per day, compared to 151,000 barrels per day in the same period of 2018. Volumes were impacted by reservoir performance at Nabiye.
• The company’s share of gross production from Syncrude averaged 66,000 barrels per day, compared to 89,000 barrels per day in the same period of 2018. A planned turnaround, which began in August and completed in November, impacted the company’s share of gross production in the quarter by an estimated 17,000 barrels per day.
• Shipments through the Edmonton rail terminal averaged 53,000 barrels per day in the fourth quarter, up from 52,000 barrels per day in the third quarter of 2019. Deliveries were ramped up from zero in October to 88,000 barrels per day in December.
• Refinery throughput averaged 321,000 barrels per day, compared to 408,000 barrels per day in the fourth quarter of 2018. Capacity utilization was 76 percent, compared to 96 percent in the fourth quarter of 2018. The company completed significant planned turnaround activities at the Nanticoke and Sarnia refineries between September and November and commissioned Sarnia’s new fractionation tower in December. As a result, refinery throughput was significantly stronger in December at 414,000 barrels per day.
• Petroleum product sales were 457,000 barrels per day, compared to 510,000 barrels per day in the fourth quarter of 2018. Lower volumes were mainly due to reduced refinery throughput.
• Strathcona refinery expansion completed. An expansion of the Strathcona refinery was completed in November and will enable increased heavy crude processing capability and asphalt production.
• Imperial’s ongoing commitment to research. In 2019, Imperial invested $170 million on research and development, with a focus on reducing greenhouse gas emissions intensity and increasing efficiencies within upstream operations.
• Lake Tourangeau dedication. In October, local Indigenous groups held a blessing and dedication ceremony before the start of construction on Imperial’s second compensation lake, which is part of the company’s commitment to replace fish habitat impacted by Kearl development. Lake Tourangeau was named by local elders to honour an Indigenous family that has maintained a trap line in the area for generations.

Fourth quarter 2019 vs. fourth quarter 2018

The company’s net income for the fourth quarter of 2019 was $271 million or $0.36 per share on a diluted basis, compared to net income of $853 million or $1.08 per share in the same period of 2018.

Upstream net income was $96 million in the fourth quarter, an increase of $406 million compared to a net loss of $310 million in the same period of 2018. Improved results reflect higher realizations of about $770 million and lower operating expenses of about $70 million. Results were negatively impacted by lower volumes of about $210 million, higher royalties of about $90 million and unfavourable foreign exchange effects.

West Texas Intermediate (WTI) averaged US$56.81 per barrel in the fourth quarter of 2019, down from US$59.54 per barrel in the same quarter of 2018. Western Canada Select (WCS) averaged US$41.16 per barrel and US$20.02 per barrel for the same periods. The WTI / WCS differential narrowed significantly during the fourth quarter of 2019 to average approximately US$16 per barrel for the quarter, compared to around US$40 per barrel in the same period of 2018.

The Canadian dollar averaged US$0.76 in the fourth quarter of 2019, essentially unchanged from the fourth quarter of 2018.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, supported primarily by an increase in WCS. Bitumen realizations averaged $42.80 per barrel in the fourth quarter of 2019, up from $16.73 per barrel in the fourth quarter of 2018. The company’s average Canadian dollar realizations for synthetic crude increased significantly relative to WTI in the quarter, primarily due to the narrowing of the western Canadian light crude differential. Synthetic crude realizations averaged $74.12 per barrel in the fourth quarter of 2019, up from $47.63 per barrel in the same period of 2018.

Total gross production of Kearl bitumen averaged 208,000 barrels per day in the fourth quarter (147,000 barrels Imperial’s share), compared to 217,000 barrels per day (154,000 barrels Imperial’s share) in the fourth quarter of 2018.

Gross production of Cold Lake bitumen averaged 140,000 barrels per day in the fourth quarter, compared to 151,000 barrels per day in the same period of 2018. Volumes were impacted by reservoir performance at Nabiye.

The company's share of gross production from Syncrude averaged 66,000 barrels per day, compared to 89,000 barrels per day in the fourth quarter of 2018. Lower production was mainly due to planned turnaround activity.

Downstream net income was $225 million in the fourth quarter, compared to $1,142 million in the fourth quarter of 2018. Earnings were negatively impacted by lower margins of about $680 million and planned turnaround activities of about $220 million.

Refinery throughput averaged 321,000 barrels per day, compared to 408,000 barrels per day in the fourth quarter of 2018. Capacity utilization was 76 percent, compared to 96 percent in the fourth quarter of 2018. Reduced throughput was mainly due to planned turnaround activity at Nanticoke.

Petroleum product sales were 457,000 barrels per day, compared to 510,000 barrels per day in the fourth quarter of 2018. Lower petroleum product sales were mainly due to lower refinery throughput.

Chemical recorded a net loss of $2 million in the fourth quarter, compared to net income of $55 million from the same quarter of 2018, primarily due to lower margins.

Corporate and other expenses were $48 million in the fourth quarter, compared to $34 million in the same period of 2018.

Cash flow generated from operating activities was $1,024 million in the fourth quarter, up from $871 million in the corresponding period in 2018, primarily reflecting favourable working capital effects, partially offset by lower earnings.

Investing activities used net cash of $399 million in the fourth quarter, compared with $463 million used in the same period of 2018.

Cash used in financing activities was $438 million in the fourth quarter, compared with $568 million used in the fourth quarter of 2018. Dividends paid in the fourth quarter of 2019 were $166 million. The per share dividend paid in the fourth quarter was $0.22, up from $0.19 in the same period of 2018. During the fourth quarter, the company, under its share purchase program, purchased about 9 million shares for $301 million, including shares purchased from Exxon Mobil Corporation. In the fourth quarter of 2018, the company purchased about 10.1 million shares for $410 million.

The company’s cash balance was $1,718 million at December 31, 2019, versus $988 million at the end of 2018.

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.

Full-year highlights

• Net income of $2,200 million, compared to net income of $2,314 million in 2018.
• Net income per share on a diluted basis was $2.88, up from net income per share of $2.86 in 2018.
• Cash flow generated from operating activities was $4,429 million, up from $3,922 million in 2018.
• Capital and exploration expenditures totalled $1,814 million. In 2020, capital and exploration expenditures are expected to range between $1.6 billion to $1.7 billion.
• Gross oil-equivalent production averaged 398,000 barrels per day, up from 383,000 barrels per day in 2018.
• Refinery throughput averaged 353,000 barrels per day, compared to 392,000 barrels per day in 2018.
• Petroleum product sales were 475,000 barrels per day, compared to 504,000 barrels per day in 2018.
• Per share dividends declared during the year totalled $0.85, up from $0.73 per share in 2018.
• Returned over $2 billion to shareholders through share purchases and dividends.

Full-year 2019 vs. full-year 2018

Net income in 2019 was $2,200 million, or $2.88 per share on a diluted basis, compared to net income of $2,314 million or $2.86 per share in 2018. 2019 results include a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022.

Upstream net income was $1,348 million for the year, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, 2019 net income was $659 million, up $797 million compared to a net loss of $138 million in 2018. Improved results reflect higher crude oil realizations of about $1,000 million, as well as higher volumes of about $350 million primarily at Syncrude and Norman Wells. Results were negatively impacted by higher royalties of about $230 million, higher operating expenses of about $190 million and lower Cold Lake volumes of about $120 million.

West Texas Intermediate averaged US$57.03 per barrel in 2019, down from US$65.03 per barrel in 2018. Western Canada Select averaged US$44.29 per barrel and US$38.71 per barrel for the same periods. The WTI / WCS differential narrowed to average approximately US$13 per barrel in 2019, from around US$26 per barrel in 2018.

The Canadian dollar averaged US$0.75 in 2019, a decrease of US$0.02 from 2018.

Imperial's average Canadian dollar realizations for bitumen increased in 2019, supported primarily by an increase in WCS and lower diluent costs. Bitumen realizations averaged $50.02 per barrel, up from $37.56 per barrel in 2018. The company's average Canadian dollar realizations for synthetic crude increased relative to WTI, primarily due to the narrowing of the western Canadian light crude differential. Synthetic crude realizations averaged $74.47 per barrel, up from $70.66 per barrel in 2018.

Total gross production of Kearl bitumen averaged 205,000 barrels per day in 2019 (145,000 barrels Imperial's share), compared to 206,000 barrels per day (146,000 barrels Imperial's share) in 2018.

Gross production of Cold Lake bitumen averaged 140,000 barrels per day in 2019, compared to 147,000 barrels per day in 2018.

During 2019, the company's share of gross production from Syncrude averaged 73,000 barrels per day, up from 62,000 barrels per day in 2018. Higher production was mainly due to the absence of production impacts from the 2018 power disruption.

Downstream net income was $961 million, compared to $2,366 million in 2018. Earnings were negatively impacted by lower margins of about $1,130 million, reliability events of about $150 million, including the fractionation tower incident at Sarnia, higher net planned turnaround impacts of about $140 million, and lower sales volumes of about $130 million. These factors were partially offset by favourable foreign exchange impacts of about $90 million.

Refinery throughput averaged 353,000 barrels per day in 2019, compared to 392,000 barrels per day in 2018. Capacity utilization was 83 percent, compared to 93 percent in 2018. Reduced throughput was mainly due to higher planned turnaround activities and impacts from the Sarnia fractionation tower incident.

Petroleum product sales were 475,000 barrels per day in 2019, compared to 504,000 barrels per day in 2018. Lower petroleum product sales were mainly due to lower refinery throughput.

Chemical net income was $108 million in 2019, compared to $275 million in 2018, primarily due to lower margins.

Corporate and other expenses were $217 million in 2019, compared to $189 million in 2018.

Cash flow generated from operating activities was $4,429 million in 2019, up from $3,922 million in 2018, primarily reflecting favourable working capital effects, partially offset by lower earnings excluding the impact associated with the Alberta corporate income tax rate decrease.

Investing activities used net cash of $1,704 million in 2019, compared with $1,559 million used in 2018, primarily reflecting higher additions to property, plant and equipment.

Cash used in financing activities was $1,995 million in 2019, compared with $2,570 million used in 2018. Dividends paid in 2019 were $631 million. The per share dividend paid in 2019 was $0.82, up from $0.70 in 2018. During 2019, the company, under its share purchase program, purchased about 38.7 million shares for $1,373 million, including shares purchased from Exxon Mobil Corporation. In 2018, the company purchased about 48.7 million shares for $1,971 million.

Key financial and operating data follow.

Forward-looking statements

Statements of future events or conditions in this release, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Forward-looking statements can be identified by words such as believe, anticipate, propose, plan, goal, target, estimate, expect, future, continue, likely, may, should, will and similar references to future periods. Disclosure related to Kearl production outlook and growth, including the impact of supplemental crushing facilities; the company’s strength and resilience from integration; the ability to grow dividends and deliver shareholder value; the ability to reduce greenhouse gas emissions intensity and increase efficiency through research and development; the capacity and production impact of the Strathcona refinery expansion; anticipated purchases under the share purchase program; and planned capital and exploration expenditures constitute forward-looking statements.

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 and foreign exchange rates; production rates, growth and mix; project plans, dates, costs, capacities and execution; production life and resource recoveries; cost savings; applicable laws and government policies; and capital and environmental expenditures could differ materially depending on a number of factors. These factors include changes in the supply of and demand for crude oil, natural gas, and petroleum and petrochemical products and resulting price and margin impacts; transportation for accessing markets; political or regulatory events, including changes in law or government policy, applicable royalty rates and tax laws; 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 regulation and changes to such regulation; currency exchange rates; availability and allocation of capital; availability and performance of third party service providers; unanticipated operational disruptions; management effectiveness; project management and schedules; response to technological developments; operational hazards and risks; cybersecurity incidents; disaster response preparedness; the ability to develop or acquire additional reserves; 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.

In this release all dollar amounts are expressed in Canadian dollars unless otherwise stated. This release 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 release can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.

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