Imperial Oil's second quarter profits plunge 90%
Imperial Oil surprised the market today and announced a 90% drop in second quarter earnings. Higher oil production failed to offset lower oil prices and the recent increase in Aberta's corporate tax rate, which cost the company a $320 million charge in Q2.
Gross production averaged 344,000 barrels of oil equivalent per day (boe/d), the company’s best performance in nearly 8 years. The 20% increase was attributed to recently expanded production capacity at the Kearl Lake Oil Sands Mine and the Cold Lake thermal in-situ facility.
Sale price for produced bitumen and crude oil declined about 35% (in Canadian dollar terms) to $49.16 and $75.20 per barrel, respectively.
Capital expenditures for the quarter were down 41% from the previous year, reflecting a slow-down in construction now that the Kearl and Cold Lake expansions are complete. The company did not give guidance on any future job cuts or divestitures but noted the outlook was bleak and more needs to be done to reduce costs at the corporation.
KEARL LAKE OIL SANDS MINE
The Kearl facility produced an average of 130,000 bpd in the second quarter, up from 73,000 bpd for the same period last year. Kearl averaged 113,000 bpd for the first 6 months of 2015.
The Kearl Expansion project started-up in the second quarter, well ahead of schedule. The newly expanded plant now brings the total design capacity to 220,000 bpd and should have better reliability.
The company did not provide guidance on any future stages of expansion at Kearl.
Production at the newly expanded Cold Lake facility averaged 161,000 bpd in the second quarter, a 17% improvement from the previous year. Cold Lake averaged 156,000 bpd for the first 6 months of the year.
Production from the Nabiye expansion continues to ramp-up to full capacity. The expansion is expected to produce 40,000 bpd by the end of 2015.
The company filed for regulatory approval of the Midzaghe project, also located in the Cold Lake area. Midzaghe is a solvent-assisted, steam-assisted gravity drainage (SA-SAGD) project which will have an expected production capacity of 45,000 bpd once built. The company has not yet made a final investment decision on the project and is currently in consultation with stakeholders. Midzaghe has a forecasted start-up date of 2022 at the earliest.
Imperial Oil and its parent company ExxonMobil also operate the Syncrude facility, which added 52,000 bpd of synthetic crude oil to the company’s total oil production. Imperial Oil has a 25% stake in the Syncrude operation.
In contrast to other integrated oil companies, refining margins actually contracted at Imperial. Refining throughput averaged 373,000 bpd, down from 418,000 bpd for the same period last year. Downstream net income fell 41% to $215 million. The weakness was blamed on a maintenance turnaround at the Sarnia Refinery and higher than expected maintenance costs.
Imperial/ExxonMobil are also partners in the WCC LNG Project, located in Prince Rupert, BC. The project was originally supposed to begin construction in 2017 but the company noted it will not be making an investment decision anytime in the near future.
Imperial Oil stock trades on the TSX (TSX:IOL) and currently yields a 1% dividend, or $0.13 per share per quarter. The 130 year old corporation is 69.6% owned by ExxonMobil and is Canada’s second largest energy company.