FORM10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[✓]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20172018
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 number0-12014
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.) | |
505 Quarry Park Boulevard S.E. | ||
Calgary, Alberta, Canada | T2C 5N1 | |
(Address of principal executive offices) | (Postal Code) |
Registrant’s 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 ✓ NO
The registrant has submitted electronically and posted on its corporate Webweb site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ✓ NO
The registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act of 1934).
Large accelerated filer | ✓ | Smaller reporting company | ||||||||||||
Non-accelerated filer | Emerging growth company | |||||||||||||
Accelerated filer |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
The registrant is a shell company (as defined in Rule12b-2 of the Exchange Act of 1934).
YES NO ✓
The number of common shares outstanding, as of June 30, 20172018 was 844,312,999.802,679,927.
In this report all dollar amounts are expressed in Canadian dollars unless otherwise stated. This report should be read in conjunction with the company’s annual report on Form10-K for the year ended December 31, 2016.2017. Note that numbers may not add due to rounding.
The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.
In this report, unless the context otherwise indicates, reference to “the company” or “Imperial” includes Imperial Oil Limited and its subsidiaries.
IMPERIAL OIL LIMITED
Consolidated statement of income (U.S. GAAP, unaudited)
Six Months | ||||||||||||||||||||||||||||||||||||
Second Quarter | Six Months to June 30 | Second Quarter | to June 30 | |||||||||||||||||||||||||||||||||
millions of Canadian dollars | millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||
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Revenues and other income | Revenues and other income | Revenues and other income | ||||||||||||||||||||||||||||||||||
Operating revenues(a) | 6,985 | 6,225 | 13,943 | 11,399 | ||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 48 | 23 | 246 | 71 | ||||||||||||||||||||||||||||||||
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Revenues(a) | Revenues(a) | 9,516 | 6,985 | 17,416 | 13,943 | |||||||||||||||||||||||||||||||
Investment and other income(note 5) | Investment and other income(note 5) | 27 | 48 | 61 | 246 | |||||||||||||||||||||||||||||||
Total revenues and other income | Total revenues and other income | 7,033 | 6,248 | 14,189 | 11,470 | Total revenues and other income | 9,543 | 7,033 | 17,477 | 14,189 | ||||||||||||||||||||||||||
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Expenses | Expenses | Expenses | ||||||||||||||||||||||||||||||||||
Exploration | Exploration | - | 42 | 22 | 59 | Exploration | 1 | - | 9 | 22 | ||||||||||||||||||||||||||
Purchases of crude oil and products(b) | Purchases of crude oil and products(b) | 4,642 | 4,041 | 8,975 | 7,027 | Purchases of crude oil and products(b) | 6,537 | 4,642 | 11,317 | 8,975 | ||||||||||||||||||||||||||
Production and manufacturing(c) | Production and manufacturing(c) | 1,525 | 1,310 | 2,900 | 2,581 | Production and manufacturing(c) | 1,646 | 1,495 | 3,077 | 2,840 | ||||||||||||||||||||||||||
Selling and general(c) | Selling and general(c) | 201 | 267 | 407 | 537 | Selling and general(c) | 273 | 198 | 467 | 401 | ||||||||||||||||||||||||||
Federal excise tax | Federal excise tax | 421 | 415 | 815 | 803 | Federal excise tax | 412 | 421 | 809 | 815 | ||||||||||||||||||||||||||
Depreciation and depletion | Depreciation and depletion | 352 | 407 | 744 | 831 | Depreciation and depletion | 358 | 352 | 735 | 744 | ||||||||||||||||||||||||||
Financing costs(note 5) | 17 | 18 | 31 | 33 | ||||||||||||||||||||||||||||||||
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Non-service pension and postretirement benefit(d) | Non-service pension and postretirement benefit(d) | 26 | 33 | 53 | 66 | |||||||||||||||||||||||||||||||
Financing(note 7) | Financing(note 7) | 26 | 17 | 49 | 31 | |||||||||||||||||||||||||||||||
Total expenses | Total expenses | 7,158 | 6,500 | 13,894 | 11,871 | Total expenses | 9,279 | 7,158 | 16,516 | 13,894 | ||||||||||||||||||||||||||
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Income (loss) before income taxes | Income (loss) before income taxes | (125 | ) | (252 | ) | 295 | (401) | Income (loss) before income taxes | 264 | (125 | ) | 961 | 295 | |||||||||||||||||||||||
Income taxes | Income taxes | (48 | ) | (71 | ) | 39 | (119) |
Income taxes | 68 | (48 | ) | 249 | 39 | |||||||||||||||||||||||
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Net income (loss) | Net income (loss) | (77 | ) | (181 | ) | 256 | (282) | Net income (loss) | 196 | (77 | ) | 712 | 256 | |||||||||||||||||||||||
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Per-share information(Canadian dollars) | ||||||||||||||||||||||||||||||||||||
Net income (loss) per common share - basic(note 8) | (0.09 | ) | (0.21 | ) | 0.30 | (0.33) | ||||||||||||||||||||||||||||||
Net income (loss) per common share - diluted(note 8) | (0.09 | ) | (0.21 | ) | 0.30 | (0.33) | ||||||||||||||||||||||||||||||
Dividends per common share | 0.16 | 0.15 | 0.31 | 0.29 | ||||||||||||||||||||||||||||||||
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Per share information(Canadian dollars) | Per share information(Canadian dollars) | |||||||||||||||||||||||||||||||||||
Net income (loss) per common share - basic(note 10) | Net income (loss) per common share - basic(note 10) | 0.24 | (0.09 | ) | 0.86 | 0.30 | ||||||||||||||||||||||||||||||
Net income (loss) per common share - diluted(note 10) | Net income (loss) per common share - diluted(note 10) | 0.24 | (0.09 | ) | 0.86 | 0.30 | ||||||||||||||||||||||||||||||
Dividends per common share - declared | Dividends per common share - declared | 0.19 | 0.16 | 0.35 | 0.31 | |||||||||||||||||||||||||||||||
(a) | Amounts from related parties included in operating revenues. | 1,008 | 446 | 2,045 | 1,009 | Amounts from related parties included in revenues. | 1,769 | 1,008 | 3,142 | 2,045 | ||||||||||||||||||||||||||
(b) | Amounts to related parties included in purchases of crude oil and products. | 706 | 286 | 1,315 | 917 | Amounts to related parties included in purchases of crude oil and products. | 1,374 | 706 | 2,266 | 1,315 | ||||||||||||||||||||||||||
(c) | Amounts to related parties included in production and manufacturing, and selling and general expenses. | 147 | 157 | 288 | 261 | Amounts to related parties included in production and manufacturing, and selling and general expenses. | 156 | 147 | 297 | 288 | ||||||||||||||||||||||||||
(d) | Prior year amounts have been reclassified. See note 2 for additional details. |
The information in the notes to consolidated financial statements is an integral part of these statements.
IMPERIAL OIL LIMITED
Consolidated statement of comprehensive income (U.S. GAAP, unaudited)
Six Months | ||||||||||||||||||||||||||||||||
Second Quarter | Six Months to June 30 | Second Quarter | to June 30 | |||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Net income (loss) | 196 | (77 | ) | 712 | 256 | |||||||||||||||||||||||||||
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Net income (loss) | (77 | ) | (181 | ) | 256 | (282) | ||||||||||||||||||||||||||
Other comprehensive income (loss), net of income taxes | ||||||||||||||||||||||||||||||||
Post-retirement benefits liability adjustment (excluding amortization) | - | - | 41 | 100 | ||||||||||||||||||||||||||||
Postretirement benefits liability adjustment (excluding amortization) | - | - | (19 | ) | 41 | |||||||||||||||||||||||||||
Amortization of post-retirement benefits liability adjustment included in net periodic benefit costs | 36 | 33 | 72 | 74 | ||||||||||||||||||||||||||||
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Amortization of postretirement benefits liability adjustment | 33 | 36 | 67 | 72 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) | 36 | 33 | 113 | 174 | 33 | 36 | 48 | 113 | ||||||||||||||||||||||||
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Comprehensive income (loss) | (41 | ) | (148 | ) | 369 | (108) | 229 | (41 | ) | 760 | 369 | |||||||||||||||||||||
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The information in the notes to consolidated financial statements is an integral part of these statements.
IMPERIAL OIL LIMITED
Consolidated balance sheet (U.S. GAAP, unaudited)
As at | As at | |||||||||||||||
June 30 | Dec 31 | |||||||||||||||
millions of Canadian dollars | As at June 30 2017 | As at Dec 31 2016 | 2018 | 2017 | ||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash | 623 | 391 | 873 | 1,195 | ||||||||||||
Accounts receivable, less estimated doubtful accounts(a) | 1,599 | 2,023 | 2,625 | 2,712 | ||||||||||||
Inventories of crude oil and products | 1,044 | 949 | 1,221 | 1,075 | ||||||||||||
Materials, supplies and prepaid expenses | 490 | 468 | ||||||||||||||
Materials, supplies and prepaid expenses(b) | 456 | 425 | ||||||||||||||
Total current assets | 3,756 | 3,831 | 5,175 | 5,407 | ||||||||||||
Investments and long-term receivables | 907 | 1,030 | 860 | 865 | ||||||||||||
Property, plant and equipment, | 53,734 | 53,515 | 53,272 | 52,778 | ||||||||||||
less accumulated depreciation and depletion | (17,888 | ) | (17,182 | ) | (19,028 | ) | (18,305 | ) | ||||||||
Property, plant and equipment, net | 35,846 | 36,333 | 34,244 | 34,473 | ||||||||||||
Goodwill | 186 | 186 | 186 | 186 | ||||||||||||
Other assets, including intangibles, net | 410 | 274 | ||||||||||||||
Other assets, including intangibles, net(note 9) | 925 | 670 | ||||||||||||||
Total assets | 41,105 | 41,654 | 41,390 | 41,601 | ||||||||||||
Liabilities | ||||||||||||||||
Current liabilities | ||||||||||||||||
Notes and loans payable(b) | 203 | 202 | ||||||||||||||
Accounts payable and accrued liabilities(a) (note 7) | 2,962 | 3,193 | ||||||||||||||
Notes and loans payable(c) | 202 | 202 | ||||||||||||||
Accounts payable and accrued liabilities(a) (note 9) | 3,923 | 3,877 | ||||||||||||||
Income taxes payable | 40 | 488 | 89 | 57 | ||||||||||||
Total current liabilities | 3,205 | 3,883 | 4,214 | 4,136 | ||||||||||||
Long-term debt(c) (note 6) | 5,019 | 5,032 | ||||||||||||||
Other long-term obligations(d) (note 7) | 3,678 | 3,656 | ||||||||||||||
Long-term debt(d) (note 8) | 4,992 | 5,005 | ||||||||||||||
Other long-term obligations(e) (note 9) | 3,943 | 3,780 | ||||||||||||||
Deferred income tax liabilities | 4,203 | 4,062 | 4,476 | 4,245 | ||||||||||||
Total liabilities | 16,105 | 16,633 | 17,625 | 17,166 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Common shares at stated value (e) (note 8) | 1,560 | 1,566 | ||||||||||||||
Earnings reinvested(note 9) | 25,224 | 25,352 | ||||||||||||||
Accumulated other comprehensive income (loss)(note 10) | (1,784 | ) | (1,897 | ) | ||||||||||||
Common shares at stated value(f) (note 10) | 1,483 | 1,536 | ||||||||||||||
Earnings reinvested(note 11) | 24,049 | 24,714 | ||||||||||||||
Accumulated other comprehensive income (loss)(note 12) | (1,767 | ) | (1,815 | ) | ||||||||||||
Total shareholders’ equity | 25,000 | 25,021 | 23,765 | 24,435 | ||||||||||||
Total liabilities and shareholders’ equity | 41,105 | 41,654 | 41,390 | 41,601 | ||||||||||||
(a) | Accounts receivable, less estimated doubtful accounts included net amounts receivable from related parties of |
(b) | Investments and long-term receivables included amounts from related parties of $56 million (2017 - $19 million). |
(c) | Notes and loans payable included amounts to related parties of $75 million |
Long-term debt included amounts to related parties of $4,447 million |
Other long-term obligations included amounts to related parties of |
Number of common shares authorized and outstanding were 1,100 million and |
The information in the notes to consolidated financial statements is an integral part of these statements.
IMPERIAL OIL LIMITED
Consolidated statement of cash flows (U.S. GAAP, unaudited)
Inflow (outflow) | Second Quarter | Six Months to June 30 | ||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||||
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Operating activities | ||||||||||||||||||
Net income (loss) | (77 | ) | (181 | ) | 256 | (282) | ||||||||||||
Adjustments fornon-cash items: | ||||||||||||||||||
Depreciation and depletion | 352 | 407 | 744 | 831 | ||||||||||||||
(Gain) loss on asset sales(note 3) | (31 | ) | (13 | ) | (213 | ) | (43) | |||||||||||
Deferred income taxes and other | (37 | ) | (98 | ) | 163 | (180) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||
Accounts receivable | 146 | (338 | ) | 424 | (396) | |||||||||||||
Inventories, materials, supplies and prepaid expenses | (45 | ) | 151 | (117 | ) | 119 | ||||||||||||
Income taxes payable | 16 | 22 | (448 | ) | 13 | |||||||||||||
Accounts payable and accrued liabilities | (30 | ) | 371 | (240 | ) | 182 | ||||||||||||
All other items - net(a) | 198 | 122 | 277 | 248 | ||||||||||||||
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Cash flows from (used in) operating activities | 492 | 443 | 846 | 492 | ||||||||||||||
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Investing activities | ||||||||||||||||||
Additions to property, plant and equipment | (320 | ) | (313 | ) | (442 | ) | (704) | |||||||||||
Proceeds from asset sales(note 3) | 39 | 17 | 222 | 50 | ||||||||||||||
Additional investments | - | (1 | ) | - | (1) | |||||||||||||
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Cash flows from (used in) investing activities | (281 | ) | (297 | ) | (220 | ) | (655) | |||||||||||
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Financing activities | ||||||||||||||||||
Short-term debt - net | - | 20 | - | (88) | ||||||||||||||
Long-term debt - additions(note 6) | - | - | - | 495 | ||||||||||||||
Reduction in capitalized lease obligations | (6 | ) | (8 | ) | (13 | ) | (15) | |||||||||||
Dividends paid | (127 | ) | (118 | ) | (254 | ) | (237) | |||||||||||
Common shares purchased(note 8) | (127 | ) | - | (127 | ) | - | ||||||||||||
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Cash flows from (used in) financing activities | (260 | ) | (106 | ) | (394 | ) | 155 | |||||||||||
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Increase (decrease) in cash | (49 | ) | 40 | 232 | (8) | |||||||||||||
Cash at beginning of period | 672 | 155 | 391 | 203 | ||||||||||||||
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Cash at end of period(b) | 623 | 195 | 623 | 195 | ||||||||||||||
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(a) Included contribution to registered pension plans. | (58 | ) | (45 | ) | (98 | ) | (76) | |||||||||||
(b) Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased. |
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The information in the notes to consolidated financial statements is an integral part of these statements.
Six Months | ||||||||||||||||||
Inflow (outflow) | Second Quarter | to June 30 | ||||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||||
Operating activities | ||||||||||||||||||
Net income (loss) | 196 | (77 | ) | 712 | 256 | |||||||||||||
Adjustments fornon-cash items: | ||||||||||||||||||
Depreciation and depletion | 358 | 352 | 735 | 744 | ||||||||||||||
(Gain) loss on asset sales(note 5) | (9 | ) | (31 | ) | (19 | ) | (213 | ) | ||||||||||
Deferred income taxes and other | 24 | (37 | ) | 209 | 163 | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||
Accounts receivable | (340 | ) | 146 | 87 | 424 | |||||||||||||
Inventories, materials, supplies and prepaid expenses | 40 | (45 | ) | (177 | ) | (117 | ) | |||||||||||
Income taxes payable | 16 | 16 | 32 | (448 | ) | |||||||||||||
Accounts payable and accrued liabilities | 439 | (30 | ) | 24 | (240 | ) | ||||||||||||
All other items - net (a) (b) | 135 | 198 | 241 | 277 | ||||||||||||||
Cash flows from (used in) operating activities | 859 | 492 | 1,844 | 846 | ||||||||||||||
Investing activities | ||||||||||||||||||
Additions to property, plant and equipment(b) | (357 | ) | (320 | ) | (728 | ) | (442 | ) | ||||||||||
Proceeds from asset sales(note 5) | 9 | 39 | 21 | 222 | ||||||||||||||
Loan to equity company | (31 | ) | - | (37 | ) | - | ||||||||||||
Cash flows from (used in) investing activities | (379 | ) | (281 | ) | (744 | ) | (220 | ) | ||||||||||
Financing activities | ||||||||||||||||||
Reduction in capitalized lease obligations(note 8) | (7 | ) | (6 | ) | (13 | ) | (13 | ) | ||||||||||
Dividends paid | (132 | ) | (127 | ) | (266 | ) | (254 | ) | ||||||||||
Common shares purchased(note 10) | (893 | ) | (127 | ) | (1,143 | ) | (127 | ) | ||||||||||
Cash flows from (used in) financing activities | (1,032 | ) | (260 | ) | (1,422 | ) | (394 | ) | ||||||||||
Increase (decrease) in cash | (552 | ) | (49 | ) | (322 | ) | 232 | |||||||||||
Cash at beginning of period | 1,425 | 672 | 1,195 | 391 | ||||||||||||||
Cash at end of period(c) | 873 | 623 | 873 | 623 | ||||||||||||||
(a) | Included contribution to registered pension plans. | (57 | ) | (58 | ) | (101 | ) | (98 | ) | |||||||||
(b) | The impact of carbon emission programs are included in additions to property, plant and equipment, and all other items, net. | |||||||||||||||||
(c) | Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased. | |||||||||||||||||
The information in the notes to consolidated financial statements is an integral part of these statements. |
IMPERIAL OIL LIMITED
Notes to consolidated financial statements (unaudited)
1. Basis of financial statement preparation
These unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles of the United States of America (GAAP) 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 (SEC) in the company’s 20162017 annual report on Form10-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. Prior year’s data has been reclassified in certain cases to conform to the current presentation basis.
The company’s exploration and production activities are accounted for under the “successful efforts” method.
The results for the six months ended June 30, 2017,2018, are not necessarily indicative of the operations to be expected for the full year.
All amounts are in Canadian dollars unless otherwise indicated.
IMPERIAL OIL LIMITED
2. Accounting changes
Effective January 1, 2018, Imperial adopted the Financial Accounting Standards Board’s standard,Revenue from Contracts with Customers, as amended. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry and transaction specific requirements, and expands disclosure requirements. The standard was adopted using the modified retrospective method, under which prior year results are not restated, but supplemental information is provided for any material impacts of the standard on 2018 results. The adoption of the standard did not have a material impact on any of the lines reported in the company’s consolidated financial statements. The cumulative effect of adoption of the new standard was de minimis. The company did not elect any practical expedients that require disclosure. See note 4 for additional details.
Effective January 1, 2018, Imperial adopted the Financial Accounting Standards Board’s standard update, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires separate presentation of the service cost component from other components of net benefit costs. The other components are reported in a new line on the company’s consolidated statement of income,“Non-service pension and postretirement benefit”. Imperial elected to use the practical expedient which uses the amounts disclosed in the pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements, as it is impracticable to determine the amounts capitalized in those periods. Beginning in 2018, the other components of net benefit costs are included in the Corporate and other expenses. The“Non-service pension and postretirement benefit” line reflects thenon-service costs, which primarily includes interest costs, expected return on plan assets, and amortization of actuarial gains and losses, that were previously included in “Production and manufacturing” and “Selling and general” expenses. Additionally, only the service cost component of net benefit costs is eligible for capitalization in situations where it is otherwise appropriate to capitalize employee costs in connection with the construction or production of an asset.
The impact of the retrospective presentation change on Imperial’s consolidated statement of income for the period ended June 30, 2018 is shown below.
Second Quarter | Six Months to | |||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | June 30, 2017 | ||||||||||||||||||||||||||
As reported | Change | As adjusted | As reported | Change | As adjusted | |||||||||||||||||||||||
Production and manufacturing | 1,525 | (30) | 1,495 | 2,900 | (60) | 2,840 | ||||||||||||||||||||||
Selling and general | 201 | (3) | 198 | 407 | (6) | 401 | ||||||||||||||||||||||
Non-service pension and postretirement benefit | - | 33 | 33 | - | 66 | 66 |
Effective January 1, 2018, Imperial adopted the Financial Accounting Standards Board’s standard update, Financial Instruments - Overall (Subtopic825-10):Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires investments in equity securities other than consolidated subsidiaries and equity method investments to be measured at fair value, with changes in the fair value recognized through net income. The company elected a modified approach for equity securities that do not have a readily determinable fair value. This modified approach measures investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. There was no cumulative effect related to the adoption of this standard. The carrying value of equity securities without readily determinable fair values as at June 30, 2018 were not significant to Imperial.
The standard also expanded disclosures related to financial statements. The company’s only notable financial instrument is long-term debt ($4,447 million, excluding capitalized lease obligations), where the difference between fair value and carrying value was de minimis. The fair value of long-term debt was primarily a level 2 measurement.
IMPERIAL OIL LIMITED
3. Business segments
Second Quarter | Upstream | Downstream | Chemical | Upstream | Downstream | Chemical | ||||||||||||||||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||
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Revenues and other income | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues(a) | 1,787 | 1,403 | 4,909 | 4,559 | 289 | 263 | ||||||||||||||||||||||||||||||||||||||||||
Revenues(a) | 2,318 | 1,787 | 6,870 | 4,909 | 328 | 289 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment sales | 289 | 328 | 242 | 211 | 62 | 54 | 650 | 289 | 332 | 242 | 74 | 62 | ||||||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 5 | 2 | 42 | 20 | (2) | - | ||||||||||||||||||||||||||||||||||||||||||
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2,081 | 1,733 | 5,193 | 4,790 | 349 | 317 | |||||||||||||||||||||||||||||||||||||||||||
Investment and other income(note 5) | 3 | 5 | 19 | 42 | - | (2 | ) | |||||||||||||||||||||||||||||||||||||||||
|
| 2,971 | 2,081 | 7,221 | 5,193 | 402 | 349 | |||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | - | 42 | - | - | - | - | 1 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Purchases of crude oil and products | 1,026 | 905 | 4,014 | 3,555 | 193 | 171 | 1,573 | 1,026 | 5,803 | 4,014 | 216 | 193 | ||||||||||||||||||||||||||||||||||||
Production and manufacturing | 1,051 | 838 | 426 | 421 | 48 | 51 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general | (7) | (3) | 185 | 253 | 19 | 19 | ||||||||||||||||||||||||||||||||||||||||||
Production and manufacturing(b) | 1,106 | 1,051 | 488 | 426 | 52 | 48 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general(b) | - | (7 | ) | 197 | 185 | 23 | 19 | |||||||||||||||||||||||||||||||||||||||||
Federal excise tax | - | - | 421 | 415 | - | - | - | - | 412 | 421 | - | - | ||||||||||||||||||||||||||||||||||||
Depreciation and depletion | 298 | 350 | 47 | 51 | 3 | 2 | 300 | 298 | 49 | 47 | 4 | 3 | ||||||||||||||||||||||||||||||||||||
Financing costs(note 5) | - | (1) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Non-service pension and postretirement benefit(b) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Financing(note 7) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Total expenses | 2,368 | 2,131 | 5,093 | 4,695 | 263 | 243 | 2,980 | 2,368 | 6,949 | 5,093 | 295 | 263 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (287) | (398) | 100 | 95 | 86 | 74 | (9 | ) | (287 | ) | 272 | 100 | 107 | 86 | ||||||||||||||||||||||||||||||||||
Income taxes | (86) | (108) | 22 | 24 | 22 | 19 | (3 | ) | (86 | ) | 71 | 22 | 29 | 22 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (201) | (290) | 78 | 71 | 64 | 55 | (6 | ) | (201 | ) | 201 | 78 | 78 | 64 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | 117 | 82 | 302 | 295 | 100 | 72 | (10 | ) | 117 | 776 | 302 | 116 | 100 | |||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(b) | 91 | 250 | 39 | 64 | 3 | 8 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(c) | 183 | 91 | 88 | 39 | 7 | 3 | ||||||||||||||||||||||||||||||||||||||||||
Second Quarter | Corporate and Other | Eliminations | Consolidated | Corporate and other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues and other income | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues(a) | - | - | - | - | 6,985 | 6,225 | ||||||||||||||||||||||||||||||||||||||||||
Revenues(a) | - | - | - | - | 9,516 | 6,985 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment sales | - | - | (593) | (593) | - | - | - | - | (1,056 | ) | (593 | ) | - | - | ||||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 3 | 1 | - | - | 48 | 23 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
3 | 1 | (593) | (593) | 7,033 | 6,248 | |||||||||||||||||||||||||||||||||||||||||||
Investment and other income(note 5) | 5 | 3 | - | - | 27 | 48 | ||||||||||||||||||||||||||||||||||||||||||
|
| 5 | 3 | (1,056 | ) | (593 | ) | 9,543 | 7,033 | |||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | - | - | - | - | - | 42 | - | - | - | - | 1 | - | ||||||||||||||||||||||||||||||||||||
Purchases of crude oil and products | - | - | (591) | (590) | 4,642 | 4,041 | - | - | (1,055 | ) | (591 | ) | 6,537 | 4,642 | ||||||||||||||||||||||||||||||||||
Production and manufacturing | - | - | - | - | 1,525 | 1,310 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general | 6 | 1 | (2) | (3) | 201 | 267 | ||||||||||||||||||||||||||||||||||||||||||
Production and manufacturing(b) | - | - | - | - | 1,646 | 1,525 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general(b) | 54 | 6 | (1 | ) | (2 | ) | 273 | 201 | ||||||||||||||||||||||||||||||||||||||||
Federal excise tax | - | - | - | - | 421 | 415 | - | - | - | - | 412 | 421 | ||||||||||||||||||||||||||||||||||||
Depreciation and depletion | 4 | 4 | - | - | 352 | 407 | 5 | 4 | - | - | 358 | 352 | ||||||||||||||||||||||||||||||||||||
Financing costs(note 5) | 17 | 19 | - | - | 17 | 18 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Non-service pension and postretirement benefit(b) | 26 | - | - | - | 26 | - | ||||||||||||||||||||||||||||||||||||||||||
Financing(note 7) | 26 | 17 | - | - | 26 | 17 | ||||||||||||||||||||||||||||||||||||||||||
Total expenses | 27 | 24 | (593) | (593) | 7,158 | 6,500 | 111 | 27 | (1,056 | ) | (593 | ) | 9,279 | 7,158 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (24) | (23) | - | - | (125) | (252) | (106 | ) | (24 | ) | - | - | 264 | (125 | ) | |||||||||||||||||||||||||||||||||
Income taxes | (6) | (6) | - | - | (48) | (71) | (29 | ) | (6 | ) | - | - | 68 | (48 | ) | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (18) | (17) | - | - | (77) | (181) | (77 | ) | (18 | ) | - | - | 196 | (77 | ) | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | (27) | (6) | - | - | 492 | 443 | (23 | ) | (27 | ) | - | - | 859 | 492 | ||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(b) | 10 | 13 | - | - | 143 | 335 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(c) | 6 | 10 | - | - | 284 | 143 |
IMPERIAL OIL LIMITED
(a) | Included export sales to the United States of |
(b) | As part of the implementation of Accounting Standard Update, Compensation – Retirement Benefits (Topic 715), beginning January 1, 2018, Corporate and other includes allnon-service pension and postretirement benefit expense. Prior to 2018, the majority of these costs were allocated to the operating segments. See note 2 for additional details. |
(c) | Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to capital leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits. |
IMPERIAL OIL LIMITED
Six Months to June 30 | Upstream | Downstream | Chemical | Upstream | Downstream | Chemical | ||||||||||||||||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues and other income | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues(a) | 3,498 | 2,383 | 9,883 | 8,499 | 562 | 517 | ||||||||||||||||||||||||||||||||||||||||||
Revenues(a) | 4,307 | 3,498 | 12,477 | 9,883 | 632 | 562 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment sales | 907 | 807 | 551 | 436 | 129 | 98 | 1,307 | 907 | 694 | 551 | 147 | 129 | ||||||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 10 | 21 | 233 | 49 | (1) | - | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
4,415 | 3,211 | 10,667 | 8,984 | 690 | 615 | |||||||||||||||||||||||||||||||||||||||||||
Investment and other income(note 5) | 4 | 10 | 41 | 233 | - | (1 | ) | |||||||||||||||||||||||||||||||||||||||||
|
| 5,618 | 4,415 | 13,212 | 10,667 | 779 | 690 | |||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | 22 | 59 | - | - | - | - | 9 | 22 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Purchases of crude oil and products | 2,142 | 1,723 | 8,023 | 6,312 | 394 | 330 | 2,947 | 2,142 | 10,097 | 8,023 | 418 | 394 | ||||||||||||||||||||||||||||||||||||
Production and manufacturing | 2,024 | 1,747 | 775 | 736 | 101 | 98 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general | (4) | (2) | 373 | 491 | 41 | 41 | ||||||||||||||||||||||||||||||||||||||||||
Production and manufacturing(b) | 2,118 | 2,024 | 856 | 775 | 103 | 101 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general(b) | - | (4 | ) | 370 | 373 | 44 | 41 | |||||||||||||||||||||||||||||||||||||||||
Federal excise tax | - | - | 815 | 803 | - | - | - | - | 809 | 815 | - | - | ||||||||||||||||||||||||||||||||||||
Depreciation and depletion | 634 | �� | 707 | 95 | 112 | 6 | 4 | 618 | 634 | 100 | 95 | 7 | 6 | |||||||||||||||||||||||||||||||||||
Financing costs(note 5) | 4 | (4) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Non-service pension and postretirement benefit(b) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Financing(note 7) | - | 4 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Total expenses | 4,822 | 4,230 | 10,081 | 8,454 | 542 | 473 | 5,692 | 4,822 | 12,232 | 10,081 | 572 | 542 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (407) | (1,019) | 586 | 530 | 148 | 142 | (74 | ) | (407 | ) | 980 | 586 | 207 | 148 | ||||||||||||||||||||||||||||||||||
Income taxes | (120) | (281) | 128 | 139 | 39 | 38 | (24 | ) | (120 | ) | 258 | 128 | 56 | 39 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (287) | (738) | 458 | 391 | 109 | 104 | (50 | ) | (287 | ) | 722 | 458 | 151 | 109 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | 425 | (400) | 358 | 764 | 77 | 132 | 327 | 425 | 1,366 | 358 | 199 | 77 | ||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(b) | 194 | 596 | 73 | 107 | 7 | 14 | ||||||||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(c) | 389 | 194 | 145 | 73 | 11 | 7 | ||||||||||||||||||||||||||||||||||||||||||
Total assets as at June 30 | 35,527 | 37,166 | 4,334 | 5,239 | 384 | 393 | 34,781 | 35,527 | 5,090 | 4,334 | 408 | 384 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Six Months to June 30 | Corporate and Other | Eliminations | Consolidated | Corporate and other | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues and other income | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues(a) | - | - | - | - | 13,943 | 11,399 | ||||||||||||||||||||||||||||||||||||||||||
Revenues(a) | - | - | - | - | 17,416 | 13,943 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment sales | - | - | (1,587) | (1,341) | - | - | - | - | (2,148 | ) | (1,587 | ) | - | - | ||||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 4 | 1 | - | - | 246 | 71 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
4 | 1 | (1,587) | (1,341) | 14,189 | 11,470 | |||||||||||||||||||||||||||||||||||||||||||
Investment and other income(note 5) | 16 | 4 | - | - | 61 | 246 | ||||||||||||||||||||||||||||||||||||||||||
|
| 16 | 4 | (2,148 | ) | (1,587 | ) | 17,477 | 14,189 | |||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | - | - | - | - | 22 | 59 | - | - | - | - | 9 | 22 | ||||||||||||||||||||||||||||||||||||
Purchases of crude oil and products | - | - | (1,584) | (1,338) | 8,975 | 7,027 | - | - | (2,145 | ) | (1,584 | ) | 11,317 | 8,975 | ||||||||||||||||||||||||||||||||||
Production and manufacturing | - | - | - | - | 2,900 | 2,581 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general | - | 10 | (3) | (3) | 407 | 537 | ||||||||||||||||||||||||||||||||||||||||||
Production and manufacturing(b) | - | - | - | - | 3,077 | 2,900 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general(b) | 56 | - | (3 | ) | (3 | ) | 467 | 407 | ||||||||||||||||||||||||||||||||||||||||
Federal excise tax | - | - | - | - | 815 | 803 | - | - | - | - | 809 | 815 | ||||||||||||||||||||||||||||||||||||
Depreciation and depletion | 9 | 8 | - | - | 744 | 831 | 10 | 9 | - | - | 735 | 744 | ||||||||||||||||||||||||||||||||||||
Financing costs(note 5) | 27 | 37 | - | - | 31 | 33 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Non-service pension and postretirement benefit (b) | 53 | - | - | - | 53 | - | ||||||||||||||||||||||||||||||||||||||||||
Financing(note 7) | 49 | 27 | - | - | 49 | 31 | ||||||||||||||||||||||||||||||||||||||||||
Total expenses | 36 | 55 | (1,587) | (1,341) | 13,894 | 11,871 | 168 | 36 | (2,148 | ) | (1,587 | ) | 16,516 | 13,894 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (32) | (54) | - | - | 295 | (401) | (152 | ) | (32 | ) | - | - | 961 | 295 | ||||||||||||||||||||||||||||||||||
Income taxes | (8) | (15) | - | - | 39 | (119) | (41 | ) | (8 | ) | - | - | 249 | 39 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (24) | (39) | - | - | 256 | (282) | (111 | ) | (24 | ) | - | - | 712 | 256 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | (14) | (4) | - | - | 846 | 492 | (48 | ) | (14 | ) | - | - | 1,844 | 846 | ||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(b) | 22 | 26 | - | - | 296 | 743 | ||||||||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(c) | 13 | 22 | - | - | 558 | 296 | ||||||||||||||||||||||||||||||||||||||||||
Total assets as at June 30 | 1,071 | 662 | (211) | (216) | 41,105 | 43,244 | 1,438 | 1,071 | (327 | ) | (211 | ) | 41,390 | 41,105 | ||||||||||||||||||||||||||||||||||
|
IMPERIAL OIL LIMITED
(a) | Included export sales to the United States of |
(b) | As part of the implementation of Accounting Standard Update, Compensation – Retirement Benefits (Topic 715), beginning January 1, 2018, Corporate and other includes allnon-service pension and postretirement benefit expense. Prior to 2018, the majority of these costs were allocated to the operating segments. See note 2 for additional details. |
(c) | Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to capital leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits. |
IMPERIAL OIL LIMITED
4. Accounting policy for revenue recognition
Imperial generally sells crude oil, natural gas and petroleum and chemical products under short-term agreements at prevailing market prices. In some cases, products may be sold under long-term agreements, with periodic price adjustments to reflect market conditions.
Revenue is recognized at the amount the company expects to receive when the customer has taken control, which is typically when title transfers and the customer has assumed the risks and rewards of ownership. The prices of certain sales are based on price indexes that are sometimes not available until the next period. In such cases, estimated realizations are accrued when the sale is recognized, and are finalized when final information is available. Such adjustments to revenue from performance obligations satisfied in previous periods are not significant. Payment for revenue transactions is typically due within 30 days. Future volume delivery obligations that are unsatisfied at the end of the period are expected to be fulfilled through ordinary production or purchases. These performance obligations are based on market prices at the time of the transaction and are fully constrained due to market price volatility.
“Revenues” and “Accounts receivable, less estimated doubtful accounts” primarily arise from contracts with customers. Long-term receivables are primarily fromnon-customers. Contract assets are mainly from marketing assistance programs and are not significant. Contract liabilities are mainly customer prepayments, loyalty programs and accruals of expected volume discounts, and are not significant.
5. Investment and other income
Investment and other income included gains and losses on asset sales as follows:
Six Months | ||||||||||||||||||||||||||||||||
Second Quarter | Six Months to June 30 | Second Quarter | to June 30 | |||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Proceeds from asset sales | 39 | 17 | 222 | 50 | 9 | 39 | 21 | 222 | ||||||||||||||||||||||||
Book value of assets sold | 9 | 4 | 10 | 7 | ||||||||||||||||||||||||||||
Book value of asset sales | - | 9 | 2 | 10 | ||||||||||||||||||||||||||||
Gain (loss) on asset sales, before tax(a) | 31 | 13 | 213 | 43 | 9 | 31 | 19 | 213 | ||||||||||||||||||||||||
Gain (loss) on asset sales, after tax(a) | 28 | 10 | 186 | 34 | 8 | 28 | 15 | 186 | ||||||||||||||||||||||||
(a) | The six months ended June 30, 2017 included a gain of $174 million ($151 million after tax) |
6. Employee retirement benefits
The components of net benefit cost were as follows:
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Pension benefits: | ||||||||||||||||
Current service cost | 54 | 51 | 109 | 102 | ||||||||||||
Interest cost | 79 | 79 | 158 | 158 | ||||||||||||
Expected return on plan assets | (101 | ) | (100 | ) | (202 | ) | (199 | ) | ||||||||
Amortization of prior service cost | 2 | 3 | 5 | 5 | ||||||||||||
Amortization of actuarial loss (gain) | 45 | 41 | 89 | 82 | ||||||||||||
Net periodic benefit cost | 79 | 74 | 159 | 148 | ||||||||||||
Other post-retirement benefits: | ||||||||||||||||
Current service cost | 4 | 4 | 8 | 8 | ||||||||||||
Interest cost | 6 | 6 | 12 | 13 | ||||||||||||
Amortization of actuarial loss (gain) | 2 | 4 | 4 | 7 | ||||||||||||
Net periodic benefit cost | 12 | 14 | 24 | 28 | ||||||||||||
The company expects to make contributions in 2017 of about $281 million to funded registered pension plans, an increase of $64 million from theyear-end 2016 estimate of $217 million.
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Debt-related interest | 27 | 32 | 49 | 63 | ||||||||||||
Capitalized interest | (10 | ) | (13 | ) | (22 | ) | (26 | ) | ||||||||
Net interest expense | 17 | 19 | 27 | 37 | ||||||||||||
Other interest | - | (1 | ) | 4 | (4 | ) | ||||||||||
Total financing costs | 17 | 18 | 31 | 33 | ||||||||||||
Six Months | ||||||||||||||||
Second Quarter | to June 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Pension benefits: | ||||||||||||||||
Current service cost | 60 | 54 | 120 | 109 | ||||||||||||
Interest cost | 75 | 79 | 151 | 158 | ||||||||||||
Expected return on plan assets | (100 | ) | (101 | ) | (201 | ) | (202 | ) | ||||||||
Amortization of prior service cost | 1 | 2 | 2 | 5 | ||||||||||||
Amortization of actuarial loss (gain) | 43 | 45 | 87 | 89 | ||||||||||||
Net periodic benefit cost | 79 | 79 | 159 | 159 | ||||||||||||
Other postretirement benefits: | ||||||||||||||||
Current service cost | 4 | 4 | 8 | 8 | ||||||||||||
Interest cost | 6 | 6 | 11 | 12 | ||||||||||||
Amortization of actuarial loss (gain) | 1 | 2 | 3 | 4 | ||||||||||||
Net periodic benefit cost | 11 | 12 | 22 | 24 |
IMPERIAL OIL LIMITED
7. Financing and additional notes and loans payable information
As at June 30 | As at Dec 31 | |||||||||
millions of Canadian dollars | 2017 | 2016 | ||||||||
Long-term debt | 4,447 | 4,447 | ||||||||
Capital leases | 572 | 585 | ||||||||
Total long-term debt | 5,019 | 5,032 | ||||||||
Six Months | ||||||||||||||||
Second Quarter | to June 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Debt-related interest | 32 | 27 | 62 | 49 | ||||||||||||
Capitalized interest | (6 | ) | (10 | ) | (13 | ) | (22 | ) | ||||||||
Net interest expense | 26 | 17 | 49 | 27 | ||||||||||||
Other interest | - | - | - | 4 | ||||||||||||
Total financing | 26 | 17 | 49 | 31 |
8. Long-term debt
As at | As at | |||||||
June 30 | Dec 31 | |||||||
millions of Canadian dollars | 2018 | 2017 | ||||||
Long-term debt | 4,447 | 4,447 | ||||||
Capital leases | 545 | 558 | ||||||
Total long-term debt | 4,992 | 5,005 |
9. Other long-term obligations
As at | As at | |||||||||||||||||||
As at June 30 | As at Dec 31 | June 30 | Dec 31 | |||||||||||||||||
millions of Canadian dollars | millions of Canadian dollars | 2017 | 2016 | 2018 | 2017 | |||||||||||||||
Employee retirement benefits(a) | Employee retirement benefits(a) | 1,468 | 1,645 | 1,501 | 1,529 | |||||||||||||||
Asset retirement obligations and other environmental liabilities(b) | Asset retirement obligations and other environmental liabilities(b) | 1,588 | 1,544 | 1,471 | 1,460 | |||||||||||||||
Share-based incentive compensation liabilities | Share-based incentive compensation liabilities | 124 | 139 | 129 | 99 | |||||||||||||||
Other obligations | Other obligations | 498 | 328 | Other obligations | 842 | 692 | ||||||||||||||
Total other long-term obligations | Total other long-term obligations | 3,678 | 3,656 | 3,943 | 3,780 | |||||||||||||||
|
(a) | Total recorded employee retirement benefits obligations also included |
(b) | Total asset retirement obligations and other environmental liabilities also included |
As of June 30 | As of Dec 31 | |||||||||
thousands of shares | 2017 | 2016 | ||||||||
| ||||||||||
Authorized | 1,100,000 | 1,100,000 | ||||||||
Common shares outstanding | 844,313 | 847,599 | ||||||||
|
From 1995 throughOn July 3, 2018, the Government of Ontario revoked its carbon emission cap and trade regulation, prohibiting all trading of emissions allowances. On July 25, 2018, the Government of Ontario introduced legislation proposing to repeal Ontario’s cap and trade legislation and providing the framework for the wind down of the cap and trade program. The company’s net carbon emission program credits (obligations) reflected in the Consolidated balance sheet approximately totalled $65 million at June 2017,30, 2018. Imperial will continue to assess this financial position in light of these announcements and the company purchasedanticipated legislative process.
IMPERIAL OIL LIMITED
10. Common shares under a series of
As of | As of | |||||||
June 30 | Dec 31 | |||||||
thousands of shares | 2018 | 2017 | ||||||
Authorized | 1,100,000 | 1,100,000 | ||||||
Common shares outstanding | 802,680 | 831,242 |
The12-month normal course issuer bid shareprogram that was in place during the second quarter of 2018 came into effect in June of 2017 and was amended on April 27, 2018. The program enabled the company to purchase programs, as well as an auction tender. Exxon Mobil Corporation’s participation in these programs, including its participation in concurrent programs outsideup to a maximum of 42,326,545 common shares (5 percent of the total shares on June 13, 2017), which included shares purchased under the normal course issuer bids, maintainedbid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to maintain its ownership interestpercentage in Imperial at approximately 69.6 percent. On June 22, 2017, the
The company announced another12-month normal course issuer bid program effective June 27, 2018 and will continue its existing share purchase program. The program enables the company to purchase up to a maximum of 25,395,92740,391,196 common shares (3(5 percent of the total shares on June 13, 2017)2018) which includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The results of these activities are as shown below:
year | Purchased shares thousands | Millions of dollars | ||||||
| ||||||||
1995 - 2015 | 906,544 | 15,708 | ||||||
2016 - Second quarter | - | - | ||||||
- Full year | 1 | - | ||||||
2017 - Second quarter | 3,286 | 127 | ||||||
-Year-to-date | 3,286 | 127 | ||||||
| ||||||||
Cumulative purchase to date | 909,831 | 15,835 | ||||||
|
The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.
IMPERIAL OIL LIMITEDThe company’s common share activities are summarized below:
Thousands of shares | Millions of dollars | |||||||
Balance as at December 31, 2016 | 847,599 | 1,566 | ||||||
Issued under employee share-based awards | 2 | - | ||||||
Purchases at stated value | (16,359 | ) | (30 | ) | ||||
Balance as at December 31, 2017 | 831,242 | 1,536 | ||||||
Issued under employee share-based awards | - | - | ||||||
Purchases at stated value | (28,562 | ) | (53 | ) | ||||
Balance as at June 30, 2018 | 802,680 | 1,483 |
The following table provides the calculation of net incomebasic and diluted earnings per common share:
Second Quarter | Six Months to June 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) per common share - basic | ||||||||||||||||
Net income (loss) (millions of Canadian dollars) | (77 | ) | (181 | ) | 256 | (282 | ) | |||||||||
Weighted average number of common shares outstanding (millions of shares) | 847.0 | 847.6 | 847.3 | 847.6 | ||||||||||||
Net income (loss) per common share (dollars) | (0.09 | ) | (0.21 | ) | 0.30 | (0.33 | ) | |||||||||
Net income (loss) per common share - diluted | ||||||||||||||||
Net income (loss) (millions of Canadian dollars) | (77 | ) | (181 | ) | 256 | (282 | ) | |||||||||
Weighted average number of common shares outstanding (millions of shares) | 847.0 | 847.6 | 847.3 | 847.6 | ||||||||||||
Effect of employee share-based awards (millions of shares) | 2.9 | 3.0 | 2.8 | 2.9 | ||||||||||||
Weighted average number of common shares outstanding, assuming dilution (millions of shares) | 849.9 | 850.6 | 850.1 | 850.5 | ||||||||||||
Net income (loss) per common share (dollars) | (0.09 | ) | (0.21 | ) | 0.30 | (0.33 | ) | |||||||||
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings reinvested at beginning of period | 25,558 | 23,467 | 25,352 | 23,687 | ||||||||||||
Net income (loss) for the period | (77 | ) | (181 | ) | 256 | (282 | ) | |||||||||
Share purchases in excess of stated value | (121 | ) | - | (121 | ) | - | ||||||||||
Dividends declared | (136 | ) | (127 | ) | (263 | ) | (246 | ) | ||||||||
Earnings reinvested at end of period | 25,224 | 23,160 | 25,224 | 23,160 | ||||||||||||
Second Quarter | Six Months to June 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income (loss) per common share - basic | ||||||||||||||||
Net income (loss)(millions of Canadian dollars) | 196 | (77 | ) | 712 | 256 | |||||||||||
Weighted average number of common shares outstanding(millions of shares) | 816.1 | 847.0 | 822.6 | 847.3 | ||||||||||||
Net income (loss) per common share(dollars) | 0.24 | (0.09 | ) | 0.86 | 0.30 | |||||||||||
Net income (loss) per common share - diluted | ||||||||||||||||
Net income (loss)(millions of Canadian dollars) | 196 | (77 | ) | 712 | 256 | |||||||||||
Weighted average number of common shares outstanding(millions of shares) | 816.1 | 847.0 | 822.6 | 847.3 | ||||||||||||
Effect of employee share-based awards(millions of shares) | 2.7 | 2.9 | 2.6 | 2.8 | ||||||||||||
Weighted average number of common shares outstanding, assuming dilution(millions of shares) | 818.8 | 849.9 | 825.2 | 850.1 | ||||||||||||
Net income (loss) per common share(dollars) | 0.24 | (0.09 | ) | 0.86 | 0.30 |
IMPERIAL OIL LIMITED
11. Earnings reinvested
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Earnings reinvested at beginning of period | 24,861 | 25,558 | 24,714 | 25,352 | ||||||||||||
Net income (loss) for the period | 196 | (77 | ) | 712 | 256 | |||||||||||
Share purchases in excess of stated value | (853 | ) | (121 | ) | (1,090 | ) | (121 | ) | ||||||||
Dividends declared | (155 | ) | (136 | ) | (287 | ) | (263 | ) | ||||||||
Earnings reinvested at end of period | 24,049 | 25,224 | 24,049 | 25,224 |
12. Other comprehensive income (loss) information
Changes in accumulated other comprehensive income (loss):
millions of Canadian dollars | 2018 | 2017 | ||||||
Balance at January 1 | (1,815 | ) | (1,897 | ) | ||||
Postretirement benefits liability adjustment: | ||||||||
Current period change excluding amounts reclassified | (19 | ) | 41 | |||||
Amounts reclassified from accumulated other comprehensive income | 67 | 72 | ||||||
Balance at June 30 | (1,767 | ) | (1,784 | ) |
Amounts reclassified out of accumulated other comprehensive income (loss) -before-tax income (expense):
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Amortization of postretirement benefits liability adjustment | (46 | ) | (49 | ) | (92 | ) | (98 | ) |
Changes in accumulated other comprehensive income (loss): | ||||||||
millions of Canadian dollars | 2017 | 2016 | ||||||
| ||||||||
Balance at January 1 | (1,897) | (1,828) | ||||||
Post-retirement benefits liability adjustment: | ||||||||
Current period change excluding amounts reclassified from accumulated other comprehensive income | 41 | 100 | ||||||
Amounts reclassified from accumulated other comprehensive income | 72 | 74 | ||||||
| ||||||||
Balance at June 30 | (1,784) | (1,654) | ||||||
|
Amounts reclassified out of accumulated other comprehensive income (loss) -before-tax income (expense): |
| |||||||||||||||
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost (a) | (49 | ) | (48 | ) | (98 | ) | (94 | ) | ||||||||
(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 (loss):
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Post-retirement benefits liability adjustments: | ||||||||||||||||
Post-retirement benefits liability adjustment (excluding amortization) | - | - | 16 | 37 | ||||||||||||
Amortization of post-retirement benefits liability adjustment included in | 13 | 15 | 26 | 20 | ||||||||||||
Total | 13 | 15 | 42 | 57 | ||||||||||||
Second Quarter | Six Months to June 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Postretirement benefits liability adjustments: | ||||||||||||||||
Postretirement benefits liability adjustment (excluding amortization) | - | - | (7 | ) | 16 | |||||||||||
Amortization of postretirement benefits liability adjustment included | 13 | 13 | 25 | 26 | ||||||||||||
Total | 13 | 13 | 18 | 42 |
13. Recently issued accounting standards
In May 2014,Effective January 1, 2019, Imperial will adopt the Financial Accounting Standards Board (FASB) issued a newBoard’s standard,Revenue from Contracts with CustomersLeases (Topic 842). The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2018. The company expects to adopt the standard using the modified retrospective method, under which prior years’ results are not restated, but supplemental information on the impact of the new standard is provided for in the 2018 results. Imperial continues to evaluate other areas of the standard. The impact from the standard is not expected to have a material effect on the company’s financial statements.
In February 2016, the FASB issued a new standard,Leases., as amended. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as a right of use asset and a lease liability. The company acquired lease accounting software to facilitate implementation, and is currently installing, configuring and testing the software. Based on leases outstanding at the end of 2017, the company estimates the operating lease right of use asset and lease liability.liability would have been in the range of $200 million to $250 million at that time. The effect on Imperial’s consolidated balance sheet as a result of implementing the standard is required to be adopted beginningon January 1, 2019. Imperial is evaluating2019 could differ considerably depending on operating leases commenced in 2018 as well as interest rates and other factors such as the standard and its effect onexpiry or renewal of leases during the company’s financial statements and plans to adopt it in 2019.
In March 2017, the FASB issued an Accounting Standards Update,2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires the service cost component of net benefit costs to be reported in the same line in the income statement as other compensation costs and the other components of net benefit costs to be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs will be eligible for capitalization. The update is required to be adopted beginning January 1, 2018. Imperial is evaluating the standard and its effect on the company’s financial statements.
IMPERIAL OIL LIMITED
Item 2. | Management’s discussion and analysis of financial condition and results of operations |
Operating results
Second quarter 20172018 vs. second quarter 20162017
The company’s net lossincome for the second quarter of 20172018 was $77$196 million or $0.09per-share$0.24 per share on a diluted basis, an increase of $273 million compared to the net loss of $181$77 million or $0.21per-share$0.09 per share, for the same period last year.
Upstream recorded a net loss in the second quarter of $201$6 million compared to a net loss of $290$201 million in the same period of 2016. Results in the second quarter of 2017 reflected2017. Improved results reflect the impact of higher Canadian crude oil realizations of about $140$280 million, and favorable foreign exchange impacts, partially offset by higher energyroyalty costs of about $50 million and higher operating costsexpenses of about $50 million primarily at Syncrude.mainly associated with planned turnarounds.
West Texas Intermediate (WTI) averaged US$48.2067.91 per barrel in the second quarter of 2017,2018, up from US$45.6448.20 per barrel in the same quarter of 2016.2017. Western Canada Select (WCS) averaged US$37.1848.81 per barrel and US$32.3637.18 per barrel respectively for the same periods. The WTI / WCS differential narrowedwidened to 23 percentapproximately US$19 per barrel in the second quarter of 2017,2018, from 29 percentapproximately US$11 per barrel in the same period of 2016.2017.
The Canadian dollar averaged US$0.740.78 in the second quarter of 2017, a decrease2018, an increase of US$0.04 from the second quarter of 2016.2017.
Imperial’s average Canadian dollar realizations for bitumen and synthetic crudes increased generally in line with the North American benchmarks, adjusted for changes in exchange rates and transportation costs. Bitumen realizations averaged $38.22$48.90 per barrel for the second quarter of 2017,2018, an increase of $8.77$10.68 per barrel versus the second quarter of 2016.2017. Synthetic crude realizations averaged $65.07$86.31 per barrel, an increase of $6.49$21.24 per barrel for the same period of 2016.2017.
Gross production of Cold Lake bitumen averaged 160,000133,000 barrels per day in the second quarter, compared to 163,000160,000 barrels per day in the same period last year. Lower volumes were primarily due to planned maintenance and production timing.
Gross production of Kearl bitumen averaged 171,000180,000 barrels per day in the second quarter (121,000(128,000 barrels Imperial’s share), up from 155,000171,000 barrels per day (110,000(121,000 barrels Imperial’s share) during the second quarter of 2016.2017. Higher production was mainly due to the absenceresult of the Alberta wildfires. In the second quarter of 2017, Kearl production was impactedmining optimization, partially offset by planned turnaround activities of about 38,000 barrels per day (27,000 barrels Imperial’s share).activities.
The company’s share of gross production from Syncrude averaged 27,00050,000 barrels per day, up from 18,00027,000 barrels per day in the second quarter of 2016. Syncrude second quarter 20172017. Higher production was impacted bydue to the fire atabsence of the Syncrude Mildred Lake upgrader fire that occurred inmid-March and March 2017, partially offset by planned maintenance. Higher production wasturnaround activities and a power disruption that occurred on June 20, 2018, resulting in a complete shutdown of all processing units for the resultremainder of the absence ofsecond quarter. Recovery from the Alberta wildfirespower outage is ongoing with partial production restored in July and lower planned maintenance compared with the same period of 2016.return to full rates anticipated in September.
Downstream net income was $78$201 million in the second quarter, up from $71$78 million in the same periodsecond quarter of 2016.2017. Earnings increased mainly due to reducedstronger margins of about $390 million, partially offset by the impact of increased planned turnaround activity of about $130$200 million, and lower marketing expenses, partly offset by lower marketing margins of about $80 million, including the impact of the retail divestment and lower industry margins, as well as lower refining margins of about $70 million, mainly due to crude supply disruption associated with the Syncrude fire at its Mildred Lake upgrader in March.a stronger Canadian dollar.
Refinery throughput averaged 358,000363,000 barrels per day, up from 246,000358,000 barrels per day in the second quarter of 2016. Increased throughput reflects reduced turnaround activity2017. Capacity utilization increased to 86 percent from 85 percent in the second quarter 2017, compared to the same period of 2016.2017.
Petroleum product sales were 486,000510,000 barrels per day, up from 470,000486,000 barrels per day in the second quarter of 2016.2017. Sales growth continues to be driven by strong collaborationoptimization across our downstreamthe full Downstream value chain, and the expansion of Imperial’s retail, wholesale, industrial and commercial networks.
IMPERIAL OIL LIMITED
Chemical net income was $64of $78 million in the second quarter upmatched best-ever quarterly results. Earnings increased $14 million from $55 million in the same quarterperiod of 2016.2017, benefitting from increased volumes and margins.
Net income effects from Corporate and Otherother expenses were negative $18$77 million in the second quarter, compared to negative $17$18 million in the same period of 2016.
IMPERIAL OIL LIMITED
Six months 20172018 vs. six months 20162017
Net income in the first six months of 20172018 was $712 million, or $0.86 per share on a diluted basis, an increase of $456 million compared to a net income of $256 million or $0.30per-share on a diluted basis versus a net loss of $282 million or $0.33 per-share per share in the first six months of 2016.2017.
Upstream recorded a net loss of $287$50 million in the first six months of 2017,2018, compared to a net loss of $738$287 million from the same period of 2016. Results reflected2017. Improved results reflect the impact of higher Canadian crude oil realizations of about $740$350 million, partially offset by the impact of higher royalties of about $100 million and energyoperating costs of about $80$50 million mainly associated with planned turnarounds. Results also reflect the impact of higher operating expenses at Syncruderoyalties and the strengthening of about $70 million and lower volumes of about $70 million, including the absence of production at Norman Wells.Canadian dollar compared to the prior year.
West Texas Intermediate averaged US$49.9665.44 per barrel in the first six months of 2017,2018, up from US$39.7849.96 per barrel in the same period of 2016.prior year. Western Canada Select averaged US$37.2243.74 per barrel and US$25.8837.22 per barrel respectively for the same periods. The WTI / WCS differential narrowedwidened to 26 percentapproximately US$22 per barrel in the first six months of 2017,2018, from 35 percentapproximately US$13 per barrel in the same period of 2016.2017.
The Canadian dollar averaged US$0.750.78 in the first six months of 2017, essentially unchanged2018, an increase of about US$0.03 from the same period of 2016.2017.
Imperial’s average Canadian dollar realizations for bitumen and synthetic crudes increased generally in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs. Bitumen realizations averaged $37.21$41.84 per barrel for the first six months of 2017,2018, an increase of $16.45$4.63 per barrel versus the same period of 2016.2017. Synthetic crude realizations averaged $67.00$81.24 per barrel, an increase of $18.41$14.24 per barrel from the same period of 2016.2017.
Gross production of Cold Lake bitumen averaged 159,000143,000 barrels per day in the first six months of 2017,2018, compared to 164,000159,000 barrels per day from the same period of 2016.2017. Lower volumes were primarily due to the timing of steam cycles.planned maintenance and production timing.
Gross production of Kearl bitumen averaged 177,000181,000 barrels per day in the first six months of 2017 (125,0002018 (128,000 barrels Imperial’s share) up from 175,000177,000 barrels per day (124,000(125,000 barrels Imperial’s share) from the same period of 2016.2017.
During the first six months of 2017,2018, the company’s share of gross production from Syncrude averaged 46,00057,000 barrels per day, compared to 49,000up from 46,000 barrels per day from the same period of 2016. Syncrude year to date2017. Higher production was impacted bydue to the absence of the impact associated with the March 2017 fire at the Syncrude Mildred Lake upgrader, partially offset by planned turnaround activities, and planned maintenance. In 2016,a power disruption that occurred on June 20, 2018, resulting in a complete shutdown of all processing units for the remainder of the second quarter. Recovery from the power outage is ongoing with partial production was impacted by the Alberta wildfiresrestored in July and planned maintenance.return to full rates anticipated in September.
Downstream net income was $458$722 million, up from $391an increase of $264 million fromversus the same periodprior year. Higher earnings reflect stronger margins of 2016. Earningsabout $690 million, partially offset by the impact of increased mainly due toplanned turnaround activity of about $200 million, the impact of a gainstronger Canadian dollar of about $60 million and the absence of the $151 million fromgain on the sale of a surplus property and reduced planned turnaround activity of about $130 million. This was partially offset by lower marketing margins of approximately $140 million, including the impact of the retail divestment and lower industry margins, as well as lower refining margins of about $50 million, partly due to crude supply disruption associated with the fire at Syncrude’s Mildred Lake upgrader in March.2017.
Refinery throughput averaged 378,000386,000 barrels per day in the first six months of 2017,2018, up from 323,000378,000 barrels per day from the same period of 2016.2017. Capacity utilization increased to 9091 percent from 7790 percent in the same period of 2016, reflecting reduced turnaround activity.2017.
Petroleum product sales were 486,000494,000 barrels per day in the first six months of 2017,2018, up from 469,000486,000 barrels per day from the same period of 2016.2017. Sales growth continues to be driven by strong collaborationoptimization across our downstreamthe full Downstream value chain, and the expansion of Imperial’s retail, wholesale, industrial and commercial networks.logistics capabilities.
Chemical net income was $109$151 million, up from $104$109 million fromin the same periodfirst half of 2016.2017, primarily due to higher margins and volumes.
For
IMPERIAL OIL LIMITED
Corporate and other expenses were $111 million for the first six months of 2017, net income effects from Corporate and Other were negative2018, compared to $24 million versus negative $39 million fromin the same period of 2016.
IMPERIAL OIL LIMITED
Liquidity and capital resources
Cash flow generated from operating activities was $492$859 million in the second quarter, an increase of $367 million from the corresponding period in 2017, reflecting higher earnings.
Investing activities used net cash of $379 million in the second quarter, compared with $443$281 million used in the correspondingsame period of 2017.
Cash used in 2016.
Investingfinancing activities used net cash of $281was $1,032 million in the second quarter, compared with $297$260 million used in the same period of 2016.
Cash used in financing activities was $260 million in the second quarter, compared with $106 million in the second quarter of 2016.2017. Dividends paid in the second quarter of 20172018 were $127$132 million. Theper-share per share dividend paid in the second quarter was $0.15,$0.16, up from $0.14$0.15 in the same period of 2016. In2017. During the second quarter, of 2017, Imperial resumed share purchases under its share buyback program. Thethe company purchased about 3.321.4 million shares for approximately $127$893 million.
The company’s cash balance was $623$873 million at June 30, 2017,2018, versus $195$623 million at the end of the second quarter of 2016.2017.
Cash flow generated from operating activities was $846$1,844 million in the first six months of 2017,2018, compared with $492$846 million in 2016,from the same period of 2017, reflecting higher earnings partially offset by unfavourableand working capital effects.
Investing activities used net cash of $220$744 million in the first six months of 2017,2018, compared with $655$220 million fromused in the same period of 2016,2017, reflecting lowerhigher additions to property, plant and equipment, and higherlower proceeds from asset sales.
Cash used in financing activities was $394$1,422 million in the first six months of 2017,2018, compared with cash provided by financing activities of $155$394 million fromused in the same period of 2016, reflecting the absence of debt issuance in the current year.2017. Dividends paid in the first six months of 20172018 were $254$266 million. Theper-share per share dividend paid in the first six months of 20172018 was $0.30,$0.32, up from $0.28 for$0.30 from the same period of 2016. In 2017,2017. During the company resumed share purchases under its share buyback program. Thefirst six months of 2018, the company purchased about 3.328.6 million shares for approximately $127 million.$1,143 million, including shares purchased from Exxon Mobil Corporation.
On April 27, 2018, the company announced by news release that it had received final approval from the Toronto Stock Exchange for an amendment to its normal course issuer bid to increase the number of common shares that it may purchase. Under the amendment, the number of common shares eligible for purchase increased to a maximum of 42,326,545 common shares during the period June 27, 2017 to June 26, 2018.
On June 22, 2017,2018, 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 existing share buybackpurchase program. The program enables the company to purchase up to a maximum of 25,395,92740,391,196 common shares during the period June 27, 20172018 to June 26, 2018, which2019. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will end should the company purchase the maximum allowable number of shares, or on June 26, 2018.2019.
Recently issued accounting standards
In May 2014,Effective January 1, 2019, Imperial will adopt the Financial Accounting Standards Board (FASB) issued a newBoard’s standard,Revenue from Contracts with CustomersLeases (Topic 842). The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2018. The company expects to adopt the standard using the modified retrospective method, under which prior years’ results are not restated, but supplemental information on the impact of the new standard is provided for in the 2018 results. Imperial continues to evaluate other areas of the standard. The impact from the standard is not expected to have a material effect on the company’s financial statements.
In February 2016, the FASB issued a new standard,Leases., as amended. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as a right of use asset and a lease liability. The company acquired lease accounting software to facilitate implementation, and is currently installing, configuring and testing the software. Based on leases outstanding at the end of 2017, the company estimates the operating lease right of use asset and lease liability.liability would have been in the range of $200 million to $250 million at that time. The effect on Imperial’s consolidated balance sheet as a result of implementing the standard is required to be adopted beginningon January 1, 2019. Imperial is evaluating2019 could differ considerably depending on operating leases commenced in 2018 as well as interest rates and other factors such as the standard and its effect onexpiry or renewal of leases during the company’s financial statements and plans to adopt it in 2019.
IMPERIAL OIL LIMITED
In March 2017, the FASB issued an Accounting Standards Update,2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net PeriodicPostretirement Benefit Cost. The update requires the service cost component of net benefit costs to be reported in the same line in the income statement as other compensation costs and the other components of net benefit costs to be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs will be eligible for capitalization. The update is required to be adopted beginning January 1, 2018. Imperial is evaluating the standard and its effect on the company’s financial statements.
Forward-looking statements
Statements in this report regarding future events or conditions are forward-looking statements. Actual future financial and operating 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.
IMPERIAL OIL LIMITED
Item 3. |
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Information about market risks for the six months ended June 30, 2017,2018, does not differ materially from that discussed on page 2249 of the company’s annual report on Form10-K for the year ended December 31, 2016.2017. The following table details those earnings sensitivities that have been updated from the fiscalyear-end to reflect current market conditions.
Earnings Sensitivities (a)
millions of Canadian dollars after tax | ||||||||
One dollar (U.S.) per barrel change in heavy crude oil prices | + (-) | 75 | ||||||
Ten cents per thousand cubic feet decrease (increase) in natural gas prices | + (-) | 4 | ||||||
One cent decrease (increase) in the value of the Canadian dollar versus the U.S. dollar | + (-) | 100 |
(a) | Each sensitivity calculation shows the impact on net income resulting from a change in one factor, after tax and royalties and holding all other factors constant. These sensitivities have been updated to reflect current conditions. They may not apply proportionately to larger fluctuations. |
Item 4. |
As indicated in the certifications in Exhibit 31 of this report, the company’s principal executive officer and principal financial officer have evaluated the company’s disclosure controls and procedures as of June 30, 2017.2018. Based on that evaluation, these officers have concluded that the company’s 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 Commission’s rules and forms.
There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
IMPERIAL OIL LIMITED
Item 1. | Legal proceedings |
On May 31, 2017,15, 2018, Imperial was charged by the Ontario Crownentered a guilty plea in the Ontario Court of Justice with respect to committing the offence of discharging or causing or permitting the discharge of a contaminant, namely coker stabilizer thermocracked gas and coker stabilizer thermocracked gas condensate, on June 11, 2015 from Imperial’s refinery in Sarnia, Ontario into the natural environment that caused or was likely to have caused an adverse effect contrary to section 14(1) of the Environmental Protection Act, R.S.O. 1990, c.E.19, as amended, which offence was allegedamended. Imperial is required to have occurred on June 11, 2015. No determination of impact can be made at this time.pay $650,000 plus a 25 percent victim fine surcharge.
Item 2. Unregistered sales of equity securities and use of proceeds
Item 2. | Unregistered sales of equity securities and use of proceeds |
Issuer purchases of equity securities
Total number of | Average price (dollars) |
Total number of | Maximum number under the plans or | |||||
April 2017 (Apr 1 – Apr 30) | - | - | - | 3,286,012 (c) | ||||
May 2017 (May 1 – May 31) | - | - | - | 3,286,012 (c) | ||||
June 2017 (June 1 – June 26)(a) (June 27 – June 30)(b) |
3,286,012 - |
38.56 - |
3,286,012 - |
- 25,395,927 (d) |
Total number of shares purchased | Average price paid (Canadian dollars) | Total number of as part of publicly announced plans or programs | Maximum number yet be purchased under the plans or programs (a) (b) | |||||||||||||||
April 2018 | ||||||||||||||||||
(April 1 - April 30) | 675,513 | 34.13 | 675,513 | 21,373,108 | ||||||||||||||
May 2018 | ||||||||||||||||||
(May 1 - May 31) | 10,876,173 | 41.39 | 10,876,173 | 10,496,935 | ||||||||||||||
June 2018 | ||||||||||||||||||
(June 1 - June 26) (a) | 9,322,449 | 42.80 | 9,322,449 | - | ||||||||||||||
(June 27 - June 30) (b) | 482,763 | 43.50 | 482,763 | 39,908,433 | (c) |
(a) | On June 22, |
On April 27, 2018, the company announced by news release that it had received final approval from the Toronto Stock Exchange for an amendment to its normal course issuer bid to increase the number of common shares that it may purchase. Under the amendment, the number of common shares eligible for purchase increased to a maximum of 42,326,545 common shares during the period June 27, 2017 to June 26, 2018. No other provisions of the normal course issuer bid were changed.
The program ended on June 26, 2018. Upon expiration, the company had purchased a total of 41,152,059 shares (of the maximum 42,326,545 shares available) under the program.
(b) | On June 22, |
(c) |
In its most recent quarterly earnings release, the company stated that |
The company will continue to evaluate its share purchase program in the context of its overall capital activities.
IMPERIAL OIL LIMITED
(31.1) Certification by the principal executive officer of the company pursuant to Rule13a-14(a). | ||
(31.2) Certification by the principal financial officer of the company pursuant to Rule13a-14(a). | ||
(32.1) Certification by the chief executive officer of the company pursuant to Rule13a-14(b) and 18 U.S.C. Section 1350. | ||
(32.2) Certification by the chief financial officer of the company pursuant to Rule13a-14(b) and 18 U.S.C. Section 1350. | ||
(101) Interactive data files. |
(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 Rule13a-14(a).
(32.1) Certification by the chief executive officer of the company pursuant to Rule13a-14(b) and 18 U.S.C. Section 1350.
(32.2) Certification by the chief financial officer of the company pursuant to Rule13a-14(b) and 18 U.S.C. Section 1350.
IMPERIAL OIL LIMITED
Pursuant to the requirements of theSecurities 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) | ||||||
Date: August 1, | /s/ ------------------------------------------------ | |||||
(Signature) | ||||||
Daniel E. Lyons | ||||||
Senior vice-president, finance and administration, and controller | ||||||
(Principal accounting officer) | ||||||
Date: August 1, | /s/ Cathryn Walker ------------------------------------------------ | |||||
(Signature) | ||||||
Cathryn Walker | ||||||
Assistant corporate secretary |
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