FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[ ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009March 31, 2010

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from — to —

Commission file number 0-12014

IMPERIAL OIL LIMITED

(Exact name of registrant as specified in its charter)

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 90 days.

YES  ü      NO      

The registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES  ü      NO      

The registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934).

The registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES           NO ü

The number of common shares outstanding, as of September 30, 2009,March 31, 2010, was 847,599,011.

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IMPERIAL OIL LIMITED

INDEX

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 Form 10-K for the year ended December 31, 2008.2009.

Statements in this report regarding future events or conditions are forward-looking statements. Actual results could differ materially due to the impact of market conditions, changes in law or governmental policy, changes in operating conditions and costs, changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other technical and economic factors.

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IMPERIAL OIL LIMITED

PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements.

The notes to the financial statements are an integral part of these financial statements.

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IMPERIAL OIL LIMITED

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

The notesinformation in the Notes to the financial statements areConsolidated Financial Statements is an integral part of these financial statements.

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IMPERIAL OIL LIMITED

The notesinformation in the Notes to the financial statements areConsolidated Financial Statements is an integral part of these financial statements.

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IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements. In the opinion of the management, the information furnished herein reflects all known accruals and adjustments necessary for a fair presentation of the financial position of the company as at September 30, 2009,March 31, 2010, and December 31, 2008,2009, and the results of operations and changes in cash flows for the ninethree months ended September 30, 2009March 31, 2010 and 2008.2009. All such adjustments are of a normal recurring nature. Subsequent events have been evaluated through November 5, 2009, the date the financial statements were issued. The company’s exploration and production activities are accounted for under the “successful efforts” method. Certain reclassifications to the prior year have been made to conform to the 20092010 presentation.

The results for the ninethree months ended September 30, 2009,March 31, 2010, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

Effective January 1, 2009,2010, the company adopted the authoritative guidance for fair value measurements as they relate to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis.variable-interest entities (VIEs). The guidance defines fair value, establishes a framework for measuring fair value when an entityrequires the enterprise to qualitatively assess if it is required to use a fair value measure for recognition or disclosure purposesthe primary beneficiary of the VIE and, expandsif so, the disclosures about fair value measures.VIE must be consolidated. The adoption did not have a materialany impact on the company’s financial statements. The company previously adopted the guidance as it relates to financial assets and liabilities that are measured at fair value and for nonfinancial assets and liabilities that are measured at fair value on a recurring basis.

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IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued…)

(unaudited)

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IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued…)

(unaudited)

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IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued…)

(unaudited)

Investment and other income includes gains and losses on asset sales as follows:

The components of net benefit cost included in production and manufacturing and selling and general expenses in the consolidated statement of income are as follows:

In the third quarter, the company entered into an agreement with an affiliated company of Exxon Mobil Corporation (ExxonMobil) that provides for a long-term variable-rate loan from ExxonMobil to the company of up to $5 billion (Canadian) at interest equivalent to Canadian market rates. The company has not drawn on this agreement.

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IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued…)

(unaudited)

From 1995 through 2008, the company purchased shares under fourteen 12-month normal course issuer bid share repurchase programs, as well as an auction tender. On June 25, 2009, another 12-month normal course issuer bid program was implemented with an allowable purchase of 42.4 million shares (five percent of the total on June 15, 2009), less shares purchased from Exxon Mobil Corporation and shares purchased by the employee savings plan and company pension fund. The results of these activities are as shown below:

Exxon Mobil Corporation’s participation in the above share repurchase maintained its ownership interest in Imperial at 69.6 percent.

The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.

The following table provides the calculation of net income per common share:

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IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued…)

(unaudited)

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IMPERIAL OIL LIMITED

OPERATING RESULTS

The company’s net income for the thirdfirst quarter of 20092010 was $547$476 million or $0.64$0.56 a share on a diluted basis, compared with $1,389$289 million or $1.57$0.33 a share for the same period last year. Net income for the first nine months of 2009 was $1,045 million or $1.22 a share on a diluted basis, versus $3,218 million or $3.60 a share for the first nine months of 2008.

Earnings in the thirdfirst quarter were down fromhigher than the same quarter in 2008 primarily due to lower2009, as higher Upstream crude oil and natural gas commodity prices as a result of the global economic downturn. In the Upstream, lower crude oil and natural gas commodity prices of about $950 millionearnings were partially offset by lower Downstream earnings. In the Upstream, earnings increased primarily due to the impact of higher crude oil commodity prices of about $550 million, partially offset by higher royalty costs due to fallinghigher commodity prices of about $200$180 million and the impactunfavourable foreign exchange effects of a weakerhigher Canadian dollar of about $115$100 million. Lower Downstream earnings in the third quarter of 2009 were impacted by reduced demand for products, resulting in lower overall downstream margins of about $160 million.

For the first nine months, earnings decreased primarily due to lower crude oil and natural gas commodity prices as a resultmargins of the global economic downturn. Lower upstream realizations were partially offset by lower royalty costs due to lower commodity prices and the impact of a lower Canadian dollar. Earnings in the first nine months of 2008 included a gain of $187 million from the sale of Rainbow pipeline.about $125 million.

Upstream

Net income in the thirdfirst quarter was $439$444 million, versus $999$302 million inhigher than the same period of 2008. Earnings decreased primarily2009. Higher crude oil commodity prices in the first quarter of 2010 increased revenues, contributing to higher earnings of about $550 million. This positive earnings factor was partially offset by higher royalties due to lower crude oil and natural gashigher commodity prices of about $950$180 million as a result ofand the global economic downturn. Lower realizations were partially offset by lower royalty costs due to lower commodity prices of about $200 million, the impactunfavourable foreign exchange effects of a lowerhigher Canadian dollar of about $115 million and lower energy costs of about $95 million.

Net income for the first nine months was $833 million versus $2,587 million during the same period last year. Crude oil and natural gas commodity prices were lower by about $3,000 million compared to the first nine months of 2008. Earnings were also negatively impacted by lower cyclical Cold Lake heavy oil production of about $50 million, lower Syncrude volumes of about $30 million and lower conventional volumes from expected reservoir decline of about $30 million. These factors were partially offset by lower royalty costs due to lower commodity prices of about $750 million and the impact of a lower Canadian dollar of about $590$100 million.

The average price of Brent crude oil in U.S. dollars, a common benchmark for world oil markets, was $68.29 a barrel in the third quarter and $57.26at $76.32 a barrel, in the first nine months of 2009, downquarter, increased about 41 percent and 4872 percent from the corresponding periodssame quarter last year. The company’s average realizations on sales of Canadian conventional crude oil mirroredalso increased. Prices for Canadian heavier crude oil were also higher along with the same trend aslighter crude oil. The company’s average bitumen realizations were favourably impacted by the lower spread between light and heavy crude oils in world prices, decreasing about 43 percent in the third quarter and about 47 percent in the first nine months of the year,markets, compared to the same periodsquarter last year.

Gross production of Cold Lake bitumen returned to expected levels and averaged 148 thousand barrels a day during the first quarter, unchanged from the same quarter last year.

The company’s average realizations for Cold Lake heavy oil also declined about 40 percentshare of Syncrude’s gross production in the thirdfirst quarter was 67 thousand barrels a day, slightly lower than 68 thousand barrels during the same period a year ago. Volumes in the first quarter of 2010 were impacted by the advancement of planned maintenance activities originally scheduled for later in the year. The maintenance activities were completed, and the impacted operating units returned to normal operations in the quarter.

In the first three quartersquarter, gross production of 2009, comparedconventional crude oil averaged 24 thousand barrels a day, down from 26 thousand barrels in the same period last year, due to corresponding periodsnatural reservoir decline.

Gross production of natural gas during the first quarter of 2010 decreased to 273 million cubic feet a day from 307 million cubic feet in the same period last year. The declineLower production was less than that of lighter crude oil,primarily due to the narrowing price spread between light crude oilmaintenance activities and Cold Lake heavy oil.

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IMPERIAL OIL LIMITED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

RESULTS OF OPERATIONS (continued ........)

The company’s average realizations for natural gas averaged $2.90 a thousand cubic feet in the third quarter, down from $9.20 in the same quarter last year. For the nine months of 2009, realizations for natural gas averaged $4.07 a thousand cubic feet, down from $9.16 in 2008.

Gross production of Cold Lake heavy oil averaged 145 thousand barrels a day during the third quarter, versus 143 thousand barrels in the same quarter last year. The cyclic nature of production at Cold Lake and lower maintenance activities contributed primarily to the increase in production in the third quarter of 2009. For the first nine months, gross production was 144 thousand barrels a day this year, compared with 147 thousand barrels in the same period of 2008. Lower production in the first nine months of 2009 was primarily due to the cyclic nature of production at Cold Lake.

The company’s share of Syncrude’s gross production in the third quarter was 78 thousand barrels a day, versus 79 thousand barrels in the third quarter of 2008. During the first nine months of 2009, the company’s share of gross production from Syncrude averaged 66 thousand barrels a day, down from 71 thousand barrels in 2008. Planned maintenance activities in the first half of 2009, which included design modifications to improve long-term operational performance, contributed to the reduced production in the first nine months of 2009.

Gross production of conventional crude oil averaged 25 thousand barrels a day in both the third quarter and nine months of 2009, essentially the same as corresponding periods in 2008.

Gross production of natural gas during the third quarter of 2009 decreased to 291 million cubic feet a day from 309 million cubic feet in the same period last year. In the first nine months of the year, gross production was 294 million cubic feet a day, down from 315 million cubic feet in the first nine months of 2008. The lower production volume was primarily a result of natural reservoir decline.

Downstream

Net income was $62$39 million in the thirdfirst quarter of 2009,2010, compared with $270$202 million in the same period a year ago. When compared to the same period in 2008, earningsEarnings were lower in the third quarter mainly due to lower overall margins of 2009about $125 million. Earnings were also negatively impacted by reduced demand for products, resulting in lower overall downstream margins of about $160 million. North American refining margins in the third quarter of 2008 were significantly higher as a result of Hurricane Gustav in the Gulf of Mexico. Also impacting third quarter 2009 earnings were lower sales volumes due to the slowdown in the economy.

Nine-month net income was $226 million, compared with $539 million in 2008. Earnings in the first nine months of 2008 included a gain of $187 million from the sale of Rainbow pipeline. Also impacting earnings in 2009 were lower overall downstream margins of about $90 million and lower sales volumes of about $60 million due to the slowdown in the economy. Higher planned maintenance activities at the refineries also negatively impacted earnings by $30 million. These factors were partially offset by the favourable impactunfavourable foreign exchange effects of a weakerhigher Canadian dollar of about $65 million.

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IMPERIAL OIL LIMITED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (continued ...)

$30 million and higher costs associated with planned maintenance activities in the first quarter of 2010.

Chemical

Net income was $19negative $1 million in the thirdfirst quarter, compared with $38$3 million in the same quarter last year. Earnings were lowerHigher costs associated with planned maintenance activities on the Sarnia ethylene cracker in the first quarter primarily due to lower margins for polyethylene products. Nine-month net income was $30 million, compared with $72 millionof 2010 more than offset improvements in 2008. Earnings in 2009 were negatively impacted by the slow economy, with lower overall margins and sales volumes.industry margins.

Corporate and other

Net income effects from Corporate and other were $27negative $6 million in the thirdfirst quarter, compared with $82negative $58 million in the same period of 2008. The decrease in2009. Favourable earnings effects in the third quarter reflected changes in share-based compensation charges. For the nine months of 2009, net income effects were negative $44 million, versus $20 million last year. Unfavourable earnings effects in the first nine months of 2009 were primarily due to higherlower share-based compensation charges and lower interest income from lower yields on cash balances.charges.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $698$914 million during the thirdfirst quarter of 2009,2010, compared with $1,635cash flow used in operating activities of $296 million in the same period last year. LowerHigher cash flow was primarily driven by higher earnings. Timing of scheduled income tax payments, higher payable balances due to timing of expenditures and lower net income. Year-to-dateseasonal inventory builds also contributed to higher cash flow from operating activities was $664 million, compared with $3,351 millionflows. Funding contributions to the company’s registered pension plan were lower in the first quarter than the same period last year. Lower cash flow was primarily dueyear, but are expected to lower net income and timingincrease in the second quarter of scheduled income tax payments.2010.

Investing activities used net cash of $545 million in the third quarter and $1,431$807 million in the first nine months of 2009,quarter, an increase of $238 million and $850$400 million from the corresponding periodsperiod in 2008.2009. Additions to property, plant and equipment were $554$813 million in the thirdfirst quarter, compared with $326$411 million during the same quarter of 2008, and $1,478 million in2009. For the first three quarters of 2009, compared with $839 million inUpstream segment, expenditures during the same period last year. Expendituresquarter were primarily for advancing the Kearl oil sands project. Other upstream investments included development drilling at Cold Lake, facilities improvements at Syncrude, exploration drilling at Horn River and development drillingenvironmental and other projects at conventional fields in Western Canada. For theSyncrude. The Downstream segment,segment’s capital expenditures were focused mainly on refinery projects to increase sulphur recovery and reduce sulphur dioxide emissions, upgrade water management systems as well as enhanceimprove reliability, feedstock flexibility, energy efficiency and energy efficiency. Proceeds from asset sales were $8 million in the third quarter and $45 million in the first nine months of 2009, compared with $19 million and $260 million in the corresponding periods of 2008. The 2008 results included proceeds from the sale of Rainbow pipeline.air quality.

During the first nine monthsquarter of 2009,2010, the company repurchased about 12 million shares for $490 million, including shares purchased from ExxonMobil. However, there were essentially nodid not make any share repurchases inoutside of those to offset the third quarterdilutive effects from the exercise of 2009,stock options, as cash flow from operations was used to fund growth projects such as Kearl. The company will continue to evaluate its share-purchase program in the context of its overall capital activities.

Cash dividends of $257 million were paid in the first nine months of 2009, compared with dividends of $242 million in the same period of 2008. Per-share dividends declared in the first three quarters of 2009 totaled $0.30, up from $0.28 in the same period of 2008.

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IMPERIAL OIL LIMITED

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

RESULTS OF OPERATIONS (continued ........)

InCash dividends of $85 million were paid in the thirdfirst quarter of 2010 compared with dividends of $86 million in the company entered into an agreement with an affiliated companyfirst quarter of Exxon Mobil Corporation (ExxonMobil) that provides for a long-term variable-rate loan from ExxonMobil to the company of up to $5 billion (Canadian) at interest equivalent to Canadian market rates. The company has not drawn on this agreement.2009.

The above factors led to a decreasean increase in the company’s balance of cash and marketable securities to $458$534 million at September 30, 2009,March 31, 2010, from $1,974$513 million at the end of 2008.2009.