FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from --- to ---
Commission file number 0-12014
IMPERIAL OIL LIMITED
(Exact name of registrant as specified in its charter)
CANADA | 98-0017682 | |||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|||
237 Fourth Avenue S.W. Calgary, Alberta, Canada |
T2P 3M9 | |||
(Address of principal executive offices) | (Postal Code) |
Registrants telephone number, including area code: 1-800-567-3776
The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 91 days.
YES ü NO
The registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ü NO
The registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Securities Exchange Act of 1934).
Large accelerated filer ü Accelerated filer
Non-accelerated filer Smaller reporting company
The registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES NO ü
The number of common shares outstanding, as of June 30, 2013, was 847,599,011.
IMPERIAL OIL LIMITED
In this report all dollar amounts are expressed in Canadian dollars unless otherwise stated. This report should be read in conjunction with the companys Annual Report on Form 10-K for the year ended December 31, 2012.
Statements in this report regarding future events or conditions are forward-looking statements. Actual results could differ materially due to the impact of market conditions, changes in law or governmental policy, changes in operating conditions and costs, changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other technical and economic factors.
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 under government payment transparency reports.
2
CONSOLIDATED STATEMENT OF INCOME
(U.S. GAAP, unaudited)
Second Quarter | Six Months to June 30 |
|||||||||||||
millions of Canadian dollars |
2013 | 2012 | 2013 | 2012 | ||||||||||
REVENUES AND OTHER INCOME |
||||||||||||||
Operating revenues (a) (b) |
7,894 | 7,452 | 15,893 | 14,946 | ||||||||||
Investment and other income (note 3) |
64 | 63 | 79 | 102 | ||||||||||
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|
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TOTAL REVENUES AND OTHER INCOME |
7,958 | 7,515 | 15,972 | 15,048 | ||||||||||
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EXPENSES |
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Exploration |
21 | 18 | 44 | 46 | ||||||||||
Purchases of crude oil and products (c) |
5,001 | 4,645 | 9,976 | 9,031 | ||||||||||
Production and manufacturing (d) |
1,468 | 1,247 | 2,649 | 2,224 | ||||||||||
Selling and general |
252 | 247 | 506 | 531 | ||||||||||
Federal excise tax (a) |
330 | 340 | 656 | 656 | ||||||||||
Depreciation and depletion |
452 | 178 | 637 | 368 | ||||||||||
Financing costs (note 5) |
2 | - | 2 | - | ||||||||||
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|
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TOTAL EXPENSES |
7,526 | 6,675 | 14,470 | 12,856 | ||||||||||
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|
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INCOME BEFORE INCOME TAXES |
432 | 840 | 1,502 | 2,192 | ||||||||||
INCOME TAXES |
105 | 205 | 377 | 542 | ||||||||||
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NET INCOME |
327 | 635 | 1,125 | 1,650 | ||||||||||
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PER SHARE INFORMATION (Canadian dollars) |
||||||||||||||
Net income per common share - basic (note 8) |
0.39 | 0.75 | 1.33 | 1.95 | ||||||||||
Net income per common share - diluted (note 8) |
0.38 | 0.75 | 1.32 | 1.94 | ||||||||||
Dividends per common share |
0.12 | 0.12 | 0.24 | 0.24 | ||||||||||
(a) Federal excise tax included in operating revenues |
330 | 340 | 656 | 656 | ||||||||||
(b) Amounts from related parties included in operating revenues |
364 | 938 | 1,225 | 1,645 | ||||||||||
(c) Amounts to related parties included in purchases of crude oil
and |
1,283 | 1,022 | 2,526 | 1,555 | ||||||||||
(d) Amounts to related parties included in production and
manufacturing |
84 | 71 | 170 | 105 |
The information in the Notes to Consolidated Financial Statements is an integral part of these statements.
3
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(U.S. GAAP, unaudited)
Second Quarter | Six Months to June 30 |
|||||||||||||
millions of Canadian dollars |
2013 | 2012 | 2013 | 2012 | ||||||||||
Net income |
327 | 635 | 1,125 | 1,650 | ||||||||||
Other comprehensive income, net of income taxes |
||||||||||||||
Post-retirement benefit liability adjustment (excluding amortization) |
- | - | (102) | (117 | ) | |||||||||
Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs |
51 | 51 | 102 | 99 | ||||||||||
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|
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Total other comprehensive income/(loss) |
51 | 51 | - | (18 | ) | |||||||||
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|
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Comprehensive income |
378 | 686 | 1,125 | 1,632 | ||||||||||
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|
The information in the Notes to Consolidated Financial Statements is an integral part of these statements.
4
CONSOLIDATED BALANCE SHEET
(U.S. GAAP, unaudited)
millions of Canadian dollars | As at June 30 2013 |
As at Dec 31 2012 |
||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash |
542 | 482 | ||||||
Accounts receivable, less estimated doubtful accounts |
2,227 | 1,976 | ||||||
Inventories of crude oil and products |
1,232 | 827 | ||||||
Materials, supplies and prepaid expenses |
377 | 280 | ||||||
Deferred income tax assets |
575 | 527 | ||||||
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|
|||||||
Total current assets |
4,953 | 4,092 | ||||||
Long-term receivables, investments and other long-term assets |
1,292 | 1,090 | ||||||
Property, plant and equipment, |
43,874 | 38,765 | ||||||
less accumulated depreciation and depletion |
(15,422 | ) | (14,843 | ) | ||||
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Property, plant and equipment, net |
28,452 | 23,922 | ||||||
Goodwill |
224 | 204 | ||||||
Other intangible assets, net |
53 | 56 | ||||||
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|
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TOTAL ASSETS |
34,974 | 29,364 | ||||||
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|
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LIABILITIES |
||||||||
Current liabilities |
||||||||
Notes and loans payable |
1,506 | 472 | ||||||
Accounts payable and accrued liabilities (a) (note 7) |
4,819 | 4,249 | ||||||
Income taxes payable |
1,062 | 1,184 | ||||||
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|
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Total current liabilities |
7,387 | 5,905 | ||||||
Long-term debt (b) (note 6) |
3,566 | 1,175 | ||||||
Other long-term obligations (note 7) |
4,196 | 3,983 | ||||||
Deferred income tax liabilities |
2,527 | 1,924 | ||||||
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|
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TOTAL LIABILITIES |
17,676 | 12,987 | ||||||
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|
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SHAREHOLDERS EQUITY |
||||||||
Common shares at stated value (c) |
1,566 | 1,566 | ||||||
Earnings reinvested |
18,187 | 17,266 | ||||||
Accumulated other comprehensive income (note 9) |
(2,455 | ) | (2,455 | ) | ||||
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|
|||||||
TOTAL SHAREHOLDERS EQUITY |
17,298 | 16,377 | ||||||
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|
|||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
34,974 | 29,364 | ||||||
|
|
(a) | Accounts payable and accrued liabilities included amounts receivable from related parties of $128 million (2012 - amounts receivable of $9 million). |
(b) | Long-term debt included amounts to related parties of $3,434 million (2012 - $1,040 million). |
(c) | Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2012 - 1,100 million and 848 million, respectively). |
The information in the Notes to Consolidated Financial Statements is an integral part of these statements.
5
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP, unaudited) inflow/(outflow) millions of Canadian dollars |
Second Quarter | |
Six Months to June 30 |
| ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
OPERATING ACTIVITIES |
||||||||||||||||
Net income |
327 | 635 | 1,125 | 1,650 | ||||||||||||
Adjustment for non-cash items: |
||||||||||||||||
Depreciation and depletion |
452 | 178 | 637 | 368 | ||||||||||||
(Gain)/loss on asset sales (note 3) |
(51 | ) | (55 | ) | (55 | ) | (84 | ) | ||||||||
Deferred income taxes and other |
141 | 169 | 170 | 217 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
5 | (1 | ) | (217 | ) | 139 | ||||||||||
Inventories, materials, supplies and prepaid expenses |
(177 | ) | 237 | (497 | ) | (194 | ) | |||||||||
Income taxes payable |
45 | 29 | (122 | ) | 88 | |||||||||||
Accounts payable and accrued liabilities |
113 | 155 | 508 | 226 | ||||||||||||
All other items - net (a) |
(117 | ) | (30 | ) | (214 | ) | (46 | ) | ||||||||
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|
|
|
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CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES |
738 | 1,317 | 1,335 | 2,364 | ||||||||||||
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|
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INVESTING ACTIVITIES |
||||||||||||||||
Additions to property, plant and equipment and intangibles |
(1,616 | ) | (1,290 | ) | (2,961 | ) | (2,435 | ) | ||||||||
Acquisition (note 10) |
- | - | (1,602 | ) | - | |||||||||||
Proceeds from asset sales |
54 | 61 | 62 | 139 | ||||||||||||
Repayment of loan from equity company |
- | 5 | 4 | 8 | ||||||||||||
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|
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES |
(1,562 | ) | (1,224 | ) | (4,497 | ) | (2,288 | ) | ||||||||
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|
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FINANCING ACTIVITIES |
||||||||||||||||
Short-term debt - net |
348 | - | 1,035 | - | ||||||||||||
Long-term debt issued |
799 | - | 2,394 | - | ||||||||||||
Reduction in capitalized lease obligations |
(2 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||||
Issuance of common shares under stock option plan |
- | 21 | - | 43 | ||||||||||||
Common shares purchased |
- | (60 | ) | - | (128 | ) | ||||||||||
Dividends paid |
(102 | ) | (102 | ) | (204 | ) | (195 | ) | ||||||||
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CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES |
1,043 | (142 | ) | 3,222 | (282 | ) | ||||||||||
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INCREASE (DECREASE) IN CASH |
219 | (49 | ) | 60 | (206 | ) | ||||||||||
CASH AT BEGINNING OF PERIOD |
323 | 1,045 | 482 | 1,202 | ||||||||||||
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CASH AT END OF PERIOD |
542 | 996 | 542 | 996 | ||||||||||||
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(a) Included contribution to registered pension plans |
(178 | ) | (147 | ) | (298 | ) | (244 | ) |
The information in the Notes to Consolidated Financial Statements is an integral part of these statements.
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. | Basis of financial statement preparation |
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission in the companys 2012 Annual Report on Form 10-K. In the opinion of the company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The companys exploration and production activities are accounted for under the successful efforts method.
The results for the six months ended June 30, 2013, are not necessarily indicative of the operations to be expected for the full year.
All amounts are in Canadian dollars unless otherwise indicated.
7
IMPERIAL OIL LIMITED
2. | Business Segments |
Second Quarter | Upstream | Downstream | Chemical | |||||||||||||||||||
millions of dollars |
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
REVENUES AND OTHER INCOME |
||||||||||||||||||||||
Operating revenues (a) |
1,383 | 1,073 | 6,197 | 6,032 | 314 | 347 | ||||||||||||||||
Intersegment sales |
1,018 | 948 | 412 | 594 | 86 | 69 | ||||||||||||||||
Investment and other income |
45 | 38 | 18 | 22 | - | - | ||||||||||||||||
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| |||||||||||||||||
2,446 | 2,059 | 6,627 | 6,648 | 400 | 416 | |||||||||||||||||
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EXPENSES |
||||||||||||||||||||||
Exploration |
21 | 18 | - | - | - | - | ||||||||||||||||
Purchases of crude oil and products |
866 | 740 | 5,379 | 5,234 | 271 | 282 | ||||||||||||||||
Production and manufacturing (c) |
881 | 701 | 534 | 499 | 54 | 47 | ||||||||||||||||
Selling and general |
2 | - | 216 | 222 | 15 | 16 | ||||||||||||||||
Federal excise tax |
- | - | 330 | 340 | - | - | ||||||||||||||||
Depreciation and depletion (c) |
147 | 119 | 299 | 52 | 3 | 4 | ||||||||||||||||
Financing costs |
- | - | 2 | - | - | - | ||||||||||||||||
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| |||||||||||||||||
TOTAL EXPENSES |
1,917 | 1,578 | 6,760 | 6,347 | 343 | 349 | ||||||||||||||||
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INCOME BEFORE INCOME TAXES |
529 | 481 | (133) | 301 | 57 | 67 | ||||||||||||||||
INCOME TAXES |
132 | 121 | (36) | 69 | 15 | 18 | ||||||||||||||||
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| |||||||||||||||||
NET INCOME |
397 | 360 | (97) | 232 | 42 | 49 | ||||||||||||||||
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| |||||||||||||||||
Cash flows from (used in) operating activities |
588 | 599 | 99 | 591 | 52 | 99 | ||||||||||||||||
CAPEX (b) |
1,569 | 1,272 | 50 | 30 | 2 | 1 | ||||||||||||||||
Second Quarter | Corporate and Other | Eliminations | Consolidated | |||||||||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
REVENUES AND OTHER INCOME |
||||||||||||||||||||||
Operating revenues (a) |
- | - | - | - | 7,894 | 7,452 | ||||||||||||||||
Intersegment sales |
- | - | (1,516) | (1,611) | - | - | ||||||||||||||||
Investment and other income |
1 | 3 | - | - | 64 | 63 | ||||||||||||||||
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| |||||||||||||||||
1 | 3 | (1,516) | (1,611) | 7,958 | 7,515 | |||||||||||||||||
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EXPENSES |
||||||||||||||||||||||
Exploration |
- | - | - | - | 21 | 18 | ||||||||||||||||
Purchases of crude oil and products |
- | - | (1,515) | (1,611) | 5,001 | 4,645 | ||||||||||||||||
Production and manufacturing (c) |
- | - | (1) | - | 1,468 | 1,247 | ||||||||||||||||
Selling and general |
19 | 9 | - | - | 252 | 247 | ||||||||||||||||
Federal excise tax |
- | - | - | - | 330 | 340 | ||||||||||||||||
Depreciation and depletion (c) |
3 | 3 | - | - | 452 | 178 | ||||||||||||||||
Financing costs |
- | - | - | - | 2 | - | ||||||||||||||||
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TOTAL EXPENSES |
22 | 12 | (1,516) | (1,611) | 7,526 | 6,675 | ||||||||||||||||
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INCOME BEFORE INCOME TAXES |
(21) | (9) | - | - | 432 | 840 | ||||||||||||||||
INCOME TAXES |
(6) | (3) | - | - | 105 | 205 | ||||||||||||||||
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| |||||||||||||||||
NET INCOME |
(15) | (6) | - | - | 327 | 635 | ||||||||||||||||
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| |||||||||||||||||
Cash flows from (used in) operating activities |
(1) | 28 | - | - | 738 | 1,317 | ||||||||||||||||
CAPEX (b) |
16 | 5 | - | - | 1,637 | 1,308 |
(a) | Includes export sales to the United States of $1,306 million (2012- $1,133 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment. |
(b) | Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles, additions to capital leases and acquisition. |
(c) | A second quarter 2013 charge in the Downstream segment of $355 million ($264 million, after-tax) associated with the companys decision to convert the Dartmouth refinery to a terminal included the write-down of refinery plant and equipment not included in the terminal conversion of $245 million, reported as part of depreciation and depletion expenses, and decommissioning, environmental and employee-related costs of $110 million, reported as part of production and manufacturing expenses. Amounts incurred in the second quarter 2013 associated with decommissioning, environmental and employee-related costs were de-minimis. |
8
IMPERIAL OIL LIMITED
Six Months to June 30 | Upstream | Downstream | Chemical | |||||||||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
REVENUES AND OTHER INCOME |
||||||||||||||||||||||
Operating revenues (a) |
2,606 | 2,468 | 12,651 | 11,787 | 636 | 691 | ||||||||||||||||
Intersegment sales |
1,947 | 2,042 | 1,188 | 1,388 | 144 | 151 | ||||||||||||||||
Investment and other income |
47 | 41 | 30 | 55 | - | - | ||||||||||||||||
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| |||||||||||||||||
4,600 | 4,551 | 13,869 | 13,230 | 780 | 842 | |||||||||||||||||
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EXPENSES |
||||||||||||||||||||||
Exploration |
44 | 46 | - | - | - | - | ||||||||||||||||
Purchases of crude oil and products |
1,723 | 1,761 | 10,999 | 10,255 | 531 | 596 | ||||||||||||||||
Production and manufacturing |
1,628 | 1,292 | 916 | 840 | 107 | 92 | ||||||||||||||||
Selling and general |
3 | 2 | 434 | 463 | 32 | 33 | ||||||||||||||||
Federal excise tax |
- | - | 656 | 656 | - | - | ||||||||||||||||
Depreciation and depletion |
275 | 248 | 351 | 108 | 6 | 7 | ||||||||||||||||
Financing costs |
- | - | 2 | - | - | - | ||||||||||||||||
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| |||||||||||||||||
TOTAL EXPENSES |
3,673 | 3,349 | 13,358 | 12,322 | 676 | 728 | ||||||||||||||||
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INCOME BEFORE INCOME TAXES |
927 | 1,202 | 511 | 908 | 104 | 114 | ||||||||||||||||
INCOME TAXES |
230 | 300 | 130 | 221 | 27 | 30 | ||||||||||||||||
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| |||||||||||||||||
NET INCOME |
697 | 902 | 381 | 687 | 77 | 84 | ||||||||||||||||
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| |||||||||||||||||
Cash flows from (used in) operating activities |
464 | 1,486 | 735 | 778 | 115 | 46 | ||||||||||||||||
CAPEX (b) |
4,507 | 2,417 | 77 | 53 | 3 | 2 | ||||||||||||||||
Total assets as at June 30 |
27,870 | 19,146 | 6,391 | 6,633 | 379 | 368 | ||||||||||||||||
Six Months to June 30 | Corporate and Other | Eliminations | Consolidated | |||||||||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
REVENUES AND OTHER INCOME |
||||||||||||||||||||||
Operating revenues (a) |
- | - | - | - | 15,893 | 14,946 | ||||||||||||||||
Intersegment sales |
- | - | (3,279) | (3,581) | - | - | ||||||||||||||||
Investment and other income |
2 | 6 | - | - | 79 | 102 | ||||||||||||||||
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| |||||||||||||||||
2 | 6 | (3,279) | (3,581) | 15,972 | 15,048 | |||||||||||||||||
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| |||||||||||||||||
EXPENSES |
||||||||||||||||||||||
Exploration |
- | - | - | - | 44 | 46 | ||||||||||||||||
Purchases of crude oil and products |
- | - | (3,277) | (3,581) | 9,976 | 9,031 | ||||||||||||||||
Production and manufacturing |
- | - | (2) | - | 2,649 | 2,224 | ||||||||||||||||
Selling and general |
37 | 33 | - | - | 506 | 531 | ||||||||||||||||
Federal excise tax |
- | - | - | - | 656 | 656 | ||||||||||||||||
Depreciation and depletion |
5 | 5 | - | - | 637 | 368 | ||||||||||||||||
Financing costs |
- | - | - | - | 2 | - | ||||||||||||||||
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|
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| |||||||||||||||||
TOTAL EXPENSES |
42 | 38 | (3,279) | (3,581) | 14,470 | 12,856 | ||||||||||||||||
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| |||||||||||||||||
INCOME BEFORE INCOME TAXES |
(40) | (32) | - | - | 1,502 | 2,192 | ||||||||||||||||
INCOME TAXES |
(10) | (9) | - | - | 377 | 542 | ||||||||||||||||
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| |||||||||||||||||
NET INCOME |
(30) | (23) | - | - | 1,125 | 1,650 | ||||||||||||||||
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| |||||||||||||||||
Cash flows from (used in) operating activities |
21 | 54 | - | - | 1,335 | 2,364 | ||||||||||||||||
CAPEX (b) |
26 | 9 | - | - | 4,613 | 2,481 | ||||||||||||||||
Total assets as at June 30 |
798 | 1,221 | (464) | (127) | 34,974 | 27,241 |
(a) | Includes export sales to the United States of $2,691 million (2012- $2,038 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment. |
(b) | Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles, additions to capital leases and acquisition. |
9
IMPERIAL OIL LIMITED
3. | Investment and other income |
Investment and other income included gains and losses on asset sales as follows: | ||||||||||||||
Second Quarter | Six Months to June 30 | |||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | ||||||||||
Proceeds from asset sales |
54 | 61 | 62 | 139 | ||||||||||
Book value of assets sold |
3 | 6 | 7 | 55 | ||||||||||
|
|
|
| |||||||||||
Gain/(loss) on asset sales, before tax |
51 | 55 | 55 | 84 | ||||||||||
|
|
|
| |||||||||||
Gain/(loss) on asset sales, after tax |
38 | 46 | 41 | 70 | ||||||||||
|
|
|
|
4. | Employee retirement benefits |
The components of net benefit cost were as follows:
| ||||||||||||||
Second Quarter | Six Months to June 30 | |||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | ||||||||||
Pension benefits: |
||||||||||||||
Current service cost |
45 | 41 | 90 | 80 | ||||||||||
Interest cost |
70 | 72 | 140 | 144 | ||||||||||
Expected return on plan assets |
(81 | ) | (72 | ) | (163 | ) | (144) | |||||||
Amortization of prior service cost |
5 | 6 | 11 | 11 | ||||||||||
Amortization of actuarial loss |
61 | 61 | 121 | 118 | ||||||||||
|
|
|
| |||||||||||
Net benefit cost |
100 | 108 | 199 | 209 | ||||||||||
|
|
|
| |||||||||||
Other post-retirement benefits: |
||||||||||||||
Current service cost |
2 | 2 | 5 | 4 | ||||||||||
Interest cost |
6 | 6 | 11 | 11 | ||||||||||
Amortization of actuarial loss |
2 | 2 | 5 | 4 | ||||||||||
|
|
|
| |||||||||||
Net benefit cost |
10 | 10 | 21 | 19 | ||||||||||
|
|
|
|
10
IMPERIAL OIL LIMITED
5. | Financing costs |
Six Months | ||||||||||||||||
Second Quarter | to June 30 | |||||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Debt related interest |
16 | 5 | 26 | 9 | ||||||||||||
Capitalized interest |
(16 | ) | (5 | ) | (26 | ) | (9 | ) | ||||||||
|
|
|
|
|||||||||||||
Net interest expense |
- | - | - | - | ||||||||||||
Other interest |
2 | - | 2 | - | ||||||||||||
|
|
|
|
|||||||||||||
Total financing costs |
2 | - | 2 | - | ||||||||||||
|
|
|
|
6. | Long-term debt |
As at | As at | |||||||
June 30 | Dec 31 | |||||||
millions of dollars | 2013 | 2012 | ||||||
Long-term debt |
3,434 | 1,040 | ||||||
Capital leases |
132 | 135 | ||||||
|
|
|
|
|||||
Total long-term debt |
3,566 | 1,175 | ||||||
|
|
|
|
In the second quarter of 2013, the company increased its long-term debt by $799 million by drawing on its existing facility with an affiliated company of Exxon Mobil Corporation and increased short-term debt by $348 million by issuing additional commercial paper.
Subsequent to the second quarter of 2013, the company increased its total debt outstanding by $494 million by drawing on existing facilities. The increased debt was used to finance normal operations and major projects.
Also in the second quarter of 2013, the company increased the amount of its existing $250 million unsecured committed bank credit facility to $500 million with the maturity date unchanged in March 2014. The company has not drawn on the facility.
7. | Other long-term obligations |
As at | As at | |||||||
June 30 | Dec 31 | |||||||
millions of dollars | 2013 | 2012 | ||||||
Employee retirement benefits (a) |
2,593 | 2,717 | ||||||
Asset retirement obligations and other environmental liabilities (b) |
1,248 | 957 | ||||||
Share-based incentive compensation liabilities |
144 | 117 | ||||||
Other obligations |
211 | 192 | ||||||
|
|
|
|
|||||
Total other long-term obligations |
4,196 | 3,983 | ||||||
|
|
|
|
(a) | Total recorded employee retirement benefits obligations also included $52 million in current liabilities (December 31, 2012 - $52 million). |
(b) | Total asset retirement obligations and other environmental liabilities also included $168 million in current liabilities (December 31, 2012 - $168 million). |
11
IMPERIAL OIL LIMITED
8. | Net income per share |
Second Quarter | Six Months to June 30 |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net income per common share - basic |
||||||||||||||||
Net income (millions of dollars) |
327 | 635 | 1,125 | 1,650 | ||||||||||||
Weighted average number of common shares outstanding (millions of shares) |
847.6 | 848.0 | 847.6 | 847.9 | ||||||||||||
Net income per common share (dollars) |
0.39 | 0.75 | 1.33 | 1.95 | ||||||||||||
Net income per common share - diluted |
||||||||||||||||
Net income (millions of dollars) |
327 | 635 | 1,125 | 1,650 | ||||||||||||
Weighted average number of common shares outstanding (millions of shares) |
847.6 | 848.0 | 847.6 | 847.9 | ||||||||||||
Effect of share-based awards (millions of shares) |
3.2 | 3.6 | 3.1 | 3.5 | ||||||||||||
|
|
|
|
|||||||||||||
Weighted average number of common shares outstanding, assuming dilution (millions of shares) |
850.8 | 851.6 | 850.7 | 851.4 | ||||||||||||
Net income per common share (dollars) |
0.38 | 0.75 | 1.32 | 1.94 |
9. | Other comprehensive income information |
Changes in accumulated other comprehensive income:
millions of dollars | 2013 | 2012 | ||||||
Balance at January 1 |
(2,455 | ) | (2,238 | ) | ||||
Post-retirement benefits liability adjustment: |
||||||||
Current period change excluding amounts reclassified from accumulated other comprehensive income |
(102 | ) | (117 | ) | ||||
Amounts reclassified from accumulated other comprehensive income |
102 | 99 | ||||||
|
|
|||||||
Balance at June 30 |
(2,455 | ) | (2,256 | ) | ||||
|
|
Amounts reclassified out of accumulated other comprehensive income -
before-tax income/(expense):
Six Months | ||||||||||||||||
Second Quarter | to June 30 | |||||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Amortization of post-retirement benefit liability adjustment included in net periodic benefit cost (a) |
(68 | ) | (69 | ) | (137 | ) | (133 | ) |
(a) | This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 4). |
Income tax expense/(credit) for components of other comprehensive income:
Six Months | ||||||||||||||||
Second Quarter | to June 30 | |||||||||||||||
millions of dollars | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Post-retirement benefits liability adjustments: |
||||||||||||||||
Post-retirement benefits liability adjustment (excluding amortization) |
- | - | (35 | ) | (40 | ) | ||||||||||
Amortization of post-retirement benefit liability adjustment included in net periodic benefit cost |
17 | 18 | 35 | 34 | ||||||||||||
|
|
|
|
|||||||||||||
17 | 18 | - | (6 | ) | ||||||||||||
|
|
|
|
12
IMPERIAL OIL LIMITED
10. | Acquisition |
Description of the Transaction: On February 26, 2013, ExxonMobil Canada acquired Celtic Exploration Ltd. (Celtic). Immediately following the acquisition, Imperial acquired a 50-percent interest in Celtics assets and liabilities from ExxonMobil Canada for $1,608 million, financed by a combination of related party and third party debt (see note 6 for further details). Concurrently, a general partnership was formed to hold and operate the assets of Celtic. The name of the general partnership was changed to XTO Energy Canada (XTO Canada). XTO Canada is involved in the exploration for, production of, and transportation and sale of natural gas and crude oil, condensate and natural gas liquids.
Recording of Assets Acquired and Liabilities Assumed: Imperial used the acquisition method of accounting to record its pro-rata share of the assets acquired and liabilities assumed. This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the assets acquired and liabilities assumed:
millions of dollars | ||||
Cash |
6 | |||
Accounts receivable |
38 | |||
Materials, supplies and prepaid expenses |
5 | |||
Property, plant and equipment (a) |
2,045 | |||
Goodwill (b) |
20 | |||
|
|
|||
Total assets acquired |
2,114 | |||
|
|
|||
Accounts payable and accrued liabilities |
62 | |||
Deferred income tax liabilities (c) |
377 | |||
Other long-term obligations |
67 | |||
|
|
|||
Total liabilities assumed |
506 | |||
|
|
|||
Net assets acquired |
1,608 | |||
|
|
(a) | Property, plant and equipment were measured primarily using an income approach. The fair value measurements of the oil and gas assets were based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs included Celtic resources, assumed future production profiles, commodity prices (mainly based on observable market inputs), risk adjusted discount rate of 10 percent, inflation of 2 percent and assumptions on the timing and amount of future development and operating costs. The property, plant and equipment additions were segmented to the Upstream business, with all of the assets in Canada. |
(b) | Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized in the Upstream reporting unit. Goodwill is not amortized and is not deductible for tax purposes. |
(c) | Deferred income taxes reflect the future tax consequences on the temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The deferred income taxes recorded as part of the acquisition were: |
millions of dollars | ||||
Property, plant and equipment |
414 | |||
|
|
|||
Total deferred income tax liabilities |
414 | |||
|
|
|||
Asset retirement obligations |
(17 | ) | ||
Other |
(20 | ) | ||
|
|
|||
Total deferred income tax assets |
(37 | ) | ||
|
|
|||
Net deferred income tax liabilities |
377 | |||
|
|
Actual and Pro Forma Impact of the Acquisition:
Revenues for XTO Canada from the acquisition date included in the companys consolidated financial statement of income for the six months ended June 30, 2013 were $31 million. After-tax earnings for XTO Canada from the acquisition date through June 30, 2013 were de minimis.
Transaction costs related to the acquisition were expensed as incurred and were de minimis in the six months ended June 30, 2013.
Pro forma revenues, earnings and basic and diluted earnings per share information as if the acquisition had occurred at the beginning of 2013 or the comparable prior reporting period is not presented, since the effect on Imperials consolidated second quarter 2013 financial results or the comparable prior reporting period, would not have been material.
13
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
OPERATING RESULTS
The companys net income for the second quarter of 2013 was $327 million or $0.38 a share on a diluted basis, compared with $635 million or $0.75 a share for the second quarter of 2012, a decrease of 49 percent. Net income in the first six months of 2013 was $1,125 million or $1.32 a share on a diluted basis, versus $1,650 million or $1.94 a share for the first half of 2012. Earnings in both the second quarter and first half of 2013 included a non-cash after tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal.
Other factors contributing to lower second quarter earnings included lower industry refining margins of about $285 million, higher start-up related operating costs at Kearl of about $90 million and lower bitumen production and higher maintenance costs at Cold Lake totalling about $80 million. These factors were partially offset by favourable impacts of about $220 million associated with improved refinery operations and lower maintenance activities, higher liquids realizations of about $130 million and higher volumes at Syncrude of about $45 million.
For the six months, other factors contributing to lower earnings included lower industry refining margins of about $155 million, higher start-up related operating costs at Kearl of about $145 million, lower liquids realizations of about $140 million and lower bitumen production and higher maintenance costs at Cold Lake totalling about $85 million. These factors were partially offset by lower royalty costs of about $195 million and improved refinery operations and lower refinery maintenance activities totalling about $105 million.
Upstream
Net income in the second quarter was $397 million, $37 million higher than the same period of 2012. Earnings increased primarily due to higher liquids realizations of about $130 million, higher volumes at Syncrude of about $45 million and lower royalty costs of about $35 million due to higher cost recovery for capital investments. These factors were partially offset by higher start-up related operating costs at Kearl of about $90 million. Sales of Kearl diluted bitumen continue to be expected in the third quarter of 2013. Earnings were also negatively impacted by lower bitumen production and higher costs at Cold Lake totalling about $80 million due to planned maintenance activities.
Net income for the six months of 2013 was $697 million, $205 million lower than the same period of 2012. Earnings decreased primarily due to higher start-up related operating costs at Kearl of about $145 million, lower liquids realizations of about $140 million and lower bitumen production and higher maintenance costs at Cold Lake totalling about $85 million. These factors were partially offset by lower royalty costs of about $195 million.
The price differential between Brent crude oil, the benchmark for Atlantic basin markets, and West Texas Intermediate (WTI), a common benchmark for mid-continent North American oil markets, narrowed to $8.27 a barrel in U.S. dollars in the second quarter of 2013 and to $13.15 a barrel in U.S. dollars in the first six months of 2013, compared to $14.86 and $15.19 a barrel, respectively, in the corresponding periods last year. As discounts for WTI crude oil decreased, the companys average realizations in Canadian dollars on sales of conventional and synthetic crude oils increased about seven and 12 percent, respectively, in the second quarter of 2013 and about one and four percent, respectively, in the first six months of 2013. The companys average bitumen realizations in Canadian dollars in the second quarter of 2013 also increased about 15 percent to $65.66 a barrel as the price spread between light crude oil and Cold Lake bitumen narrowed. However, in the first six months of 2013, the companys average bitumen realizations in Canadian dollars were still down about 12 percent at $54.03 a barrel. The companys average realization on natural gas sales of $3.50 a thousand cubic feet for both second quarter and first six months of 2013 was higher by about $1.70 and $1.41 a thousand cubic feet, respectively, versus the same periods in 2012.
Gross production of Cold Lake bitumen averaged 144 thousand barrels a day during the second quarter of 2013, down eight thousand barrels a day from the same period last year. Lower volumes were primarily due to the largest-ever preventive maintenance of the Mahkeses facilities. The maintenance activities have been successfully completed, and the plant has returned to normal operations. For the six months, gross production averaged 154 thousand barrels a day, compared with 155 thousand barrels in the first half of 2012.
14
The companys share of Syncrudes gross production in the second quarter was 68 thousand barrels a day, up from 60 thousand barrels in the second quarter of 2012. Increased production was due to lower maintenance activities partially offset by the negative impact of weather on mine operations in mid-June. Planned maintenance activities of one of the three cokers originally scheduled for later in the year was advanced into June and is scheduled to complete by early August. During the first six months of 2013, the companys share of Syncrudes gross production was 67 thousand barrels a day essentially unchanged from the same period in 2012.
Gross production of conventional crude oil averaged 22 thousand barrels a day in the second quarter, versus 20 thousand barrels in the corresponding period in 2012. Gross production averaged 20 thousand barrels a day in the first half of 2013, unchanged from the same period in 2012.
Gross production of natural gas during the second quarter of 2013 was 204 million cubic feet a day, up from 195 million cubic feet in the same period last year. Higher production volumes reflected the contributions from XTO Canada (formerly Celtic) and the Horn River pilot which more than offset normal field decline. Gross production of natural gas during the six months of 2013 was 195 million cubic feet a day, essentially unchanged from 197 million cubic feet in the same period last year.
On April 26, production from the first of three proprietary paraffinic froth treatment trains began at the Kearl initial development. The process is producing pipeline quality bitumen as planned. For the quarter, Kearls production volume contribution was low, at four thousand barrels a day as synchronizing facilities and working toward stable operations was the focus. Line-fill operations are advanced, and diluted bitumen sales are expected to begin in the third quarter. We expect to reach 110,000 barrels a day (78,000 barrels a day Imperials share) later in 2013.
Downstream
Net income was negative $97 million in the second quarter versus $232 million in the second quarter of 2012. Earnings in the second quarter of 2013 included a non-cash after tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings were also negatively impacted by lower industry refining margins of about $285 million resulting from the narrowing price differential between Brent and WTI crude oils. These factors were partially offset by favourable impacts of about $220 million associated with improved refinery operations and lower refinery maintenance activities.
Six months net income was $381 million, a decrease of $306 million over the same period in 2012. Earnings in the first half of 2013 included a non-cash after tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings were also negatively impacted by lower industry refining margins of about $155 million resulting from the narrowing price differential between Brent and WTI crude oils. These factors were partially offset by favourable impacts of about $105 million associated with improved refinery operations and lower refinery maintenance activities.
Chemical
Net income was $42 million in the second quarter versus $49 million in the same quarter last year. Lower sales volumes for chemical products were partially offset by higher polyethylene margins. Six months net income was $77 million, down $7 million over the same period in 2012.
Corporate and Other
Net income effects from Corporate and Other were negative $15 million in the second quarter, versus negative $6 million in the same period of 2012. For the six months of 2013, net income effects from Corporate & Other were negative $30 million, versus negative $23 million last year.
15
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $738 million in the second quarter, versus $1,317 million in the corresponding period in 2012. Lower cash flow was primarily associated with inventory build as a result of lower pipeline apportionment and the start-up of Kearl initial development, versus an inventory draw during the same period in 2012 following planned refinery maintenance. Year-to-date cash flow generated from operating activities was $1,335 million, compared with $2,364 million in the same period last year. Lower cash flow was primarily due to lower net income and working capital effects.
Investing activities used net cash of $1,562 million in the second quarter, compared with $1,224 million in the same period of 2012. Additions to property, plant and equipment were $1,616 million in the second quarter, compared with $1,290 million during the same quarter 2012. Expenditures during the quarter were primarily directed towards the advancement of Kearl expansion and Cold Lake Nabiye projects. The Kearl expansion is expected to bring on additional production of 110,000 barrels of bitumen a day, before royalties, of which the companys share would be about 78,000 barrels a day. Start-up is expected late 2015. The Nabiye expansion at Cold Lake is expected to bring on additional production of more than 40,000 barrels of bitumen a day, before royalties. Start-up is expected to be late 2014.
Cash from financing activities was $1,043 million in the second quarter, compared with cash used in financing activities of $142 million in the second quarter of 2012. In the second quarter, the company increased its long-term debt level by $799 million by drawing on an existing facility and issued additional commercial paper which increased short-term debt by $348 million. Subsequent to the second quarter of 2013, the company increased its total debt outstanding by $494 million by drawing on existing facilities. The increased debt was used to finance normal operations and major projects.
The above factors led to an increase in the companys balance of cash to $542 million at June 30, 2013, from $482 million at the end of 2012.
Subsequent to the second quarter, the company has entered into additional long-term pipeline transportation agreements to ship heavy crude oil blend. These agreements, which have a total commitment of about $3 billion, will support the companys long-term growth in oil sands production. The company expects to fulfill these commitments in the normal course of business.
16
Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
Information about market risks for the six months ended June 30, 2013 does not differ materially from that discussed on page 23 in the companys Annual Report on Form 10-K for the year ended December 31, 2012 and Form 10-Q for the quarter ended March 31, 2013 except for the following:
Earnings sensitivity (a) millions of dollars after tax |
||||
Nine dollars (U.S.) a barrel change in crude oil prices |
+ (-) | 390 | ||
Nine cents decrease (increase) in the value of the Canadian dollar versus the U.S. dollar |
+ (-) | 575 |
(a) | The amount quoted to illustrate the impact of the sensitivity represents a change of about 10 percent in the value of the rate at the end of the second quarter 2013. The sensitivity calculation shows the impact on annual net income that results from a change in one factor, after tax and royalties and holding all other factors constant. While the sensitivity is applicable under current conditions, it may not apply proportionately to larger fluctuations. |
The sensitivity of net income to changes in crude oil prices increased from the first quarter of 2013 by about $6 million (after tax) a year for each one U.S. dollar change. The sensitivity of net income to changes in the Canadian dollar versus the U.S. dollar increased from the first quarter of 2013 by about $7 million (after tax) a year for each one-cent change. The increase in both areas was primarily a result of the impact of production from the Kearl initial development which began in the second quarter of 2013.
Item 4. | Controls and Procedures. |
As indicated in the certifications in Exhibit 31 of this report, the companys principal executive officer and principal financial officer have evaluated the companys disclosure controls and procedures as of June 30, 2013. Based on that evaluation, these officers have concluded that the companys disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
There has not been any change in the companys internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting.
17
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Issuer Purchases of Equity Securities (1) (2)
Period | (a) Total number of shares (or units) purchased |
(b) Average price paid per share (or unit) |
(c) Total number of units) purchased as part of publicly announced plans or programs |
(d) Maximum number (or approximate dollar value) of shares (or units) under the plans or programs | ||||
April 2013 (Apr 1- Apr 30)
|
0 | 0 | 0 | 41,508,309 | ||||
May 2013 (May 1 May 31)
|
0 | 0 | 0 | 41,411,918 | ||||
June 2013 (June 1 June 30)
|
0 | 0 | 0 | 41,310,354 |
(1) | On June 21, 2012, 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 share repurchase program. The new program enables the company to repurchase up to a maximum of 42,379,951 common shares, including common shares purchased for the companys employee savings plan, the companys employee retirement plan and from Exxon Mobil Corporation during the period June 25, 2012 to June 24, 2013. The program ended on June 24, 2013. |
(2) | On June 21, 2013, 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 share repurchase program. The new program enables the company to repurchase up to a maximum of 1,000,000 common shares, including common shares purchased for the companys employee savings plan, the companys employee retirement plan and from Exxon Mobil Corporation during the period June 25, 2013 to June 24, 2014. If not previously terminated, the program will end on June 24, 2014. |
The company will continue to evaluate its share-purchase program in the context of its overall capital activities.
18
Item 6. | Exhibits. |
(31.1) Certification by the principal executive officer of the company pursuant to Rule 13a-14(a).
(31.2) Certification by the principal financial officer of the company pursuant to Rule 13a-14(a).
(32.1) Certification by the chief executive officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
(32.2) Certification by the chief financial officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
IMPERIAL OIL LIMITED | ||||||
(Registrant) | ||||||
/s/ Paul J. Masschelin | ||||||
Date: August 6, 2013 | ------------------------------------------------- | |||||
(Signature) | ||||||
Paul J. Masschelin | ||||||
Senior Vice-President, Finance and Administration and Controller | ||||||
(Principal Accounting Officer) |
/s/ Brent A. Latimer | ||||||
Date: August 6, 2013 | ------------------------------------------------- | |||||
(Signature) | ||||||
Brent A. Latimer | ||||||
Assistant Secretary |
19