Imperial Oil disappoints investors and reports a rare quarterly loss
Despite a strong performance operationally, Imperial Oil surprised analysts and declared a first quarter loss, an exceptionally rare event for the company. Heavy operating losses in their upstream business failed to offset gains in Imperial's refining and chemicals divisions.
Q1 BY THE NUMBERS
- Revenues: $5.2 billion versus $6.2 billion in Q1/15 (-16%)
- Upstream: $1.48 billion versus $1.8 billion in Q1/15 (-18%)
- Downstream: $4.19 million versus $4.96 billion in Q1/15 (-15%)
- Chemicals: $298 million versus $249 million in Q1/15 (+20%)
- Cash flow from operations: $49 million versus $232 million in Q1/15 (-79%)
- Net income/loss: -$101 million versus $421 million in Q1/15 (-124%)
- Upstream: -$448 million versus -$189 million in Q1/15
- Downstream: $320 million versus $565 million in Q1/15 (-43%)
- Chemicals: $49 million versus $66 million in Q1/15 (-26%)
- Capital expenditures: $408 million versus $1.05 billion in Q1/15 (-61%)
- Upstream: $346 billion versus $890 million in Q1/15 (-61%)
- Downstream: $43 million versus $125 million in Q1/15 (-66%)
- Chemicals: $13 million versus $23 million in Q1/15 (-43%)
- Total production: 421,000 boe/day versus 333,000 boe/day in Q1/15 (+33%)
- Production: 194,000 bbl/day of bitumen versus 95,000 bbl/day in Q1/15 (+104%)
Production declined 4% from the fourth quarter of last year due to maintenance activities at the mine site. Kearl has a nameplate capacity of 220,000 bbl/day with the most recent expansion completed last year. The wind down of construction at the mine site has helped Imperial reduce its capital spending considerably.
Kearl's partially de-asphalted diluted bitumen blend is now being processed at more than 35 refineries across North America.
- Production: 320,000 bbl/day of synthetic crude oil (80,000 bbl/day net to Imperial) versus 292,000 bbl/day in Q1/15 (+10%)
Syncrude’s upgrader utilization rates were greatly improved in the first quarter, thanks to better reliability at the plant compared to last year. One of three cokers at the upgrading facility began a six-week maintenance turnaround in early April.
Imperial is the operator of the Syncrude facility and has a 25% stake in the joint venture.
COLD LAKE IN-SITU
- Average production: 165,000 bbl/day versus 152,000 bbl/day in Q1/15 (+9%)
Production at Nabiye was said to be improving. Imperial also filed a regulatory application to expand Cold Lake using solvent-assisted, steam-assisted gravity drainage (SA-SAGD). The new 50,000 barrels per day in-situ facility could begin construction as early as 2019, with first-oil coming online as early as 2022. SA-SAGD has been successfully piloted by the company and has the potential to reduce greenhouse gas emissions and water consumption by 25% over traditional SAGD methods. Imperial Oil has yet to make a final investment decision on the expansion.
Q1 REALIZATION PRICES
- Bitumen: $11.92 versus $27.40 per barrel in Q1/15 (-56%)
- Synthetic crude oil (SCO): $46.32 versus $55.81 per barrel in Q1/15 (-17%)
- Conventional oil: $24.47 versus $27.21 per barrel in Q1/15 (-10%)
In US dollar terms, benchmark crude West Texas Intermediate declined 31% from the previous year. A weaker Canadian dollar helped cushion the decline in SCO prices but a wider heavy oil differential significantly reduced the selling price of bitumen produced at Kearl and Cold Lake.
As usual, Imperial did not provide a breakdown of upstream operating costs, except to note that costs are down 25% year-over-year due to higher production volumes and improved reliability.
REFINING & MARKETING
- Refinery throughput: 398,000 bbl/day versus 393,000 bbl/day in Q1/15 (+1%)
- Refinery utilization: 94% versus 93% in Q1/15
- Income from refining business: -43% year-over-year on lower crack spreads
Imperial recently sold off all its remaining company-owned gas stations (497 in total) for $2.8 billion. The transaction will be finalized later in 2016 subject to regulatory approval.
Imperial Oil is Canada's second largest integrated energy company with 5,700 employees and a market cap of about $35 billion. The company's debt-to-capitalization ratio is approximately 26%. Imperial stock (TSX:IMO) pays out a quarterly dividend of $0.14 per share. ExxonMobil owns 69.6% of the company.