Imperial books a profit on its refining business, as upstream operations struggle to break-even

Imperial books a profit on its refining business, as upstream operations struggle to break-even

Imperial Oil released is fourth quarter and full-year 2018 earnings results this week, giving investors a glimpse into its revenue streams.

Making money downstream

Imperial's downstream business earned more than $2.37 billion last year, a record profit, excluding divestitures. 

The company operates three refineries in Canada, with a combined capacity of over 420,000 bbl/day. Refinery throughput improved to 392,000 bbl/day in 2018, a 2% increase from the previous year, as capacity utilization rose to 93%. Imperial says fourth quarter throughput topped 400,000 bbl/day, as utilization rates jumped to 96%.

The company sold over 500,000 bbl/day of petroleum products in 2018, the highest in almost three decades. Imperial's petrochemicals division, located in Sarnia, also has a stellar year, earnings a $275 million profit, the second highest in the company's history.

Just below break-even upstream

Lower oil prices took a toll on Imperial's upstream operations, which lost $138 million in 2018.

The company produced 383,000 bbl/day last year (gross), including a record 206,000 bbl/day at the Kearl Mine.

Kearl ended the year on a high note, averaging 230,000 bbl/day for the last six months of 2018, slightly better than its nameplate capacity of 220,000 bbl/day. The company says the increase reflects improved reliability in its ore preparation plant, enhanced piping durability and better feed management. Two turnarounds were completed this past quarter, denting production by about 20,000 bbl/day. Imperial says it's working towards boosting capacity at Kearl to 240,000 bbl/day next year. 

Meanwhile at its Cold Lake in-situ operations, production declined to an average of 147,000 bbl/day last year, down 15,000 bbl/day from 2017, due to timing associated with steam management. The facility uses cyclic-steam stimulation to extract bitumen from the oil sands, which tends to have a less steady production rate than the more common steam-assisted gravity drainage (SAGD) operations. Cold Lake has a nameplate capacity of 180,000 bbl/day. 

Norman Wells also returned to service after being offline for more than two years. The facility averaged 7,000 bbl/day in the fourth quarter.

Despite high production volumes at Kearl and lower royalties, Imperial's bottom line was hit by lower oil prices, higher operating costs and lower in-situ volumes. Operating and capital expenses rose to $5.3 billion in 2018, up $1 billion from the previous year.

Idling takeaway capacity, at a time when more capacity is desperately needed

CEO Rich Kruger continues to be very critical of the Alberta government's recent decision to curtail production by about 9% in 2019, accusing Premier Rachel Notley of further damaging investor confidence in the province’s energy patch.

The recent cutbacks in production has narrowed the heavy oil discount to less than US$10 a barrel, making crude-by-rail uneconomical, and forcing more barrels into pipelines. Imperial cut its crude-by-rail shipments from 168,000 bbl/day in December to near zero in February, blaming the province for idling takeaway capacity.

As a parting shot, the CEO says his confidence in the market has been shaken, forcing the company to re-evaluate its capital spending plans, including the recently sanctioned $2.6 billion Aspen SAGD project.

For the full-year 2018, Imperial reported a profit of $2.3 billion, almost five-fold the previous year. The company boosted its 2019 capital budget by almost 70% y/y to about $2.4 billion, including $800 million dedicated to the Aspen project. 

EIA warns of rising light oil production and shortage of heavy sour crude

EIA warns of rising light oil production and shortage of heavy sour crude

Crude transport helps boost revenues at CN Rail, as negotiations continue with Alberta government

Crude transport helps boost revenues at CN Rail, as negotiations continue with Alberta government