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, 2010March 31, 2011

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)

 

CANADA  98-0017682

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

 (I.R.S. Employer
Identification No.)

237 Fourth Avenue S.W.

Calgary, Alberta, Canada

  T2P 3M9

(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  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).

 

Large accelerated filerü

  Accelerated filer    

Non-accelerated filer    

  Smaller reporting company    

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

YES          NOü

The number of common shares outstanding, as of September 30, 2010,March 31, 2011, was 847,599,011.

IMPERIAL OIL LIMITED

 

INDEX

 

INDEX
   PAGE  

PART I - Financial Information

  

Item 1 -1- Financial Statements.

  

Consolidated Statement of Income - Nine-Three Months ended September 30,March 31, 2011 and 2010 and 2009

   3  

Consolidated Balance Sheet - as at September 30, 2010March 31, 2011 and December 31, 20092010

   4  

Consolidated Statement of Cash Flows - NineThree Months ended September 30,March 31, 2011 and 2010 and 2009

   5  

Notes to the Consolidated Financial Statements

   6  

Item 2-

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

   11  

Item 3 -

Quantitative and Qualitative Disclosures about Market Risk.12

Item 4 -

Controls and Procedures.   13  

Item 4 - Controls and Procedures.

14

PART II - Other Information

  

Item 1A - Risk Factors

15

Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds.

   1514  

Item 4 -Submission of Matters to a Vote of Security Holders.

14

Item 6 -Exhibits.

   1615  

SIGNATURES

   1615  

 

 

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, 2009.2010.

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.

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements.

Item 1.  Financial Statements.

IMPERIAL OIL LIMITED

 

CONSOLIDATED STATEMENT OF INCOME                
(U.S. GAAP, unaudited)  Third Quarter       Nine Months to
September 30		       Three Months  
        to March 31  
millions of Canadian dollars  2010   2009        2010   2009   2011  2010  

REVENUES AND OTHER INCOME

              

Operating revenues (a)(b)

   5,828     5,547       18,053     15,461    6,852  6,134  

Investment and other income (4)

   23     14       103     73  
            

Investment and other income (3)

  19  32  

TOTAL REVENUES AND OTHER INCOME

   5,851     5,561       18,156     15,534    6,871  6,166  
            

EXPENSES

              

Exploration

   54     21       171     126    37  87  

Purchases of crude oil and products (c)

   3,462     3,126       10,759     8,577    3,980  3,661  

Production and manufacturing (5)(4)

   961     909       3,003     3,016    979  1,030  

Selling and general (5)(4)

   271     221       786     822    321  250  

Federal excise tax (a)

   345     331       971     951    315  304  

Depreciation and depletion

   187     194       561     584    188  182  

Financing costs(5)

   3     –       4     3    -  1  
            

TOTAL EXPENSES

   5,283     4,802       16,255     14,079    5,820  5,515  
            

INCOME BEFORE INCOME TAXES

   568     759       1,901     1,455    1,051  651  

INCOME TAXES

   150     212       490     410    270  175  
            

NET INCOME (3)

   418     547       1,411     1,045  
            

NET INCOME (2)

  781  476  

NET INCOME PER COMMON SHARE - BASIC (dollars) (8)

   0.49     0.64       1.66     1.23    0.92  0.56  

NET INCOME PER COMMON SHARE - DILUTED (dollars) (8)

   0.49     0.64       1.65     1.22    0.91  0.56  

DIVIDENDS PER COMMON SHARE (dollars)

   0.11     0.10       0.32     0.30    0.11  0.10  

(a) Federal excise tax included in operating revenues

   345     331       971     951    315  304  

(b) Amounts from related parties included in operating revenues

   560     432       1,607     1,198    482  608  

(c) Amounts to related parties included in purchases of crude oil and products

   774     813       1,786     2,161    1,115  523  

(d) Amounts to related parties included in production and manufacturing expenses

   68     52       190     163    53  55  

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)

millions of Canadian dollars

  

As at

Sept. 30

2010

 

As at

Dec. 31

2009

 

(U.S. GAAP, unaudited)

   As at    As at  
   Mar. 31    Dec. 31  

millions of Canadian dollars

   2011    2010  

ASSETS

      

Current assets

      

Cash

   51    513     301    267  

Accounts receivable, less estimated doubtful accounts

   1,810    1,714     2,243    2,000  

Inventories of crude oil and products

   733    564     913    527  

Materials, supplies and prepaid expenses

   255    247     322    246  

Deferred income tax assets

   460    467     577    498  
     

Total current assets

   3,309    3,505     4,356    3,538  

Long-term receivables, investments and other long-term assets

   763    854     854    870  

Property, plant and equipment,

   29,030    26,421     30,671    30,004  

less accumulated depreciation and depletion

   13,970    13,569     14,141    14,099  
     

Property, plant and equipment, net

   15,060    12,852     16,530    15,905  

Goodwill

   204    204     204    204  

Other intangible assets, net

   62    58     64    63  
     

TOTAL ASSETS

   19,398    17,473     22,008    20,580  
     

LIABILITIES

      

Current liabilities

      

Notes and loans payable

   229    109     229    229  

Accounts payable and accrued liabilities (a)(7)

   3,571    2,811     4,202    3,470  

Income taxes payable

   677    848     895    878  
     

Total current liabilities

   4,477    3,768     5,326    4,577  

Long-term debt (b)(6)

   228    31     526    527  

Other long-term obligations (7)

   2,443    2,839     2,880    2,753  

Deferred income tax liabilities

   1,504    1,396     1,512    1,546  
     

TOTAL LIABILITIES

   8,652    8,034     10,244    9,403  
     

SHAREHOLDERS’ EQUITY

      

Common shares at stated value (c)

   1,509    1,508     1,520    1,511  

Earnings reinvested

   10,389    9,252     11,743    11,090  

Accumulated other comprehensive income (9)

   (1,152)   (1,321)    (1,499)   (1,424) 
     

TOTAL SHAREHOLDERS’ EQUITY

   10,746    9,439     11,764    11,177  
     

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   19,398    17,473     22,008    20,580  
     

 

(a)Accounts payable and accrued liabilities included amounts payable to related parties of $335$492 million (2009(2010 - $59amounts receivable of $45 million).
(b)Long-term debt included amounts to related parties of $200$500 million (2009(2010 - nil)$500 million).
(c)Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2009(2010 - 1,100 million and 848 million, respectively).

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)

  Third Quarter     

Nine Months

to September 30

 
(U.S. GAAP, unaudited)  Three Months 
inflow/(outflow)  to March 31 

millions of Canadian dollars

   2010    2009      2010    2009    2011 2010 

OPERATING ACTIVITIES

          

Net income

   418    547      1,411    1,045     781    476  

Adjustment for non-cash items:

          

Depreciation and depletion

   187    194      561    584     188    182  

(Gain)/loss on asset sales (4)

   (12)   -      (58)   (32) 

(Gain)/loss on asset sales (3)

   (6)   (4) 

Deferred income taxes and other

   (17)   (6)     55    (49)    (90)   2  

Changes in operating assets and liabilities:

          

Accounts receivable

   (33)   149      (95)   (220)    (245)   (180) 

Inventories and prepaids

   (58)   108      (178)   (82)    (462)   (134) 

Income taxes payable

   60    (230)     (172)   (815)    17    (162) 

Accounts payable

   375    (86)     752    283     731    637  

All other items - net (a)

   45    22      (73)   (50)    45    97  
           

CASH FROM (USED IN) OPERATING ACTIVITIES

   965    698      2,203    664     959    914  
           

INVESTING ACTIVITIES

          

Additions to property, plant and equipment and intangibles

   (1,147)   (554)     (2,811)   (1,478)    (822)   (813) 

Proceeds from asset sales

   35    8      95    45     14    6  

Loans to equity company

   (1)   1      (1)   2     2    -  
           

CASH FROM (USED IN) INVESTING ACTIVITIES

   (1,113)   (545)     (2,717)   (1,431)    (806)   (807) 
           

FINANCING ACTIVITIES

          

Short-term debt - net

   28    -      117    (2) 

Long-term debt issued

   200    -      200    -  

Reduction in capitalized lease obligations

   (1)   (1) 

Issuance of common shares under stock option plan

   -    -      1    -     11    -  

Common shares purchased

   -    -      (3)   (490)    (36)   -  

Dividends paid

   (93)   (85)     (263)   (257)    (93)   (85) 
           

CASH FROM (USED IN) FINANCING ACTIVITIES

   135    (85)     52    (749)    (119)   (86) 
           

INCREASE (DECREASE) IN CASH

   (13)   68      (462)   (1,516)    34    21  

CASH AT BEGINNING OF PERIOD

   64    390      513    1,974     267    513  
           

CASH AT END OF PERIOD

   51    458      51    458     301    534  
           

(a) Includes contribution to registered pension plans.

   (13)   (6)     (378)   (173)    (66)   (70) 

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

IMPERIAL OIL LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.    Basis of financial statement presentation

1.Basis of financial statement presentation

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, 2010,March 31, 2011, and December 31, 2009,2010, and the results of operations and changes in cash flows for the ninethree months ended September 30, 2010March 31, 2011 and 2009.2010. All such adjustments are of a normal recurring nature. 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 20102011 presentation.

The results for the ninethree months ended September 30, 2010,March 31, 2011, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

2.    Accounting change for variable-interest entities

Effective January 1, 2010, the company adopted the authoritative guidance for variable-interest entities (VIEs). The guidance requires the enterprise to qualitatively assess if it is the primary beneficiary of the VIE and, if so, the VIE must be consolidated. The adoption did not have any impact on the company’s consolidated financial statements.

IMPERIAL OIL LIMITED

 

 

2.Business segments

 

3.    Business Segments

Third Quarter  Upstream     Downstream     Chemical 
Three Months to March 31  Upstream   Downstream   Chemical 
millions of dollars  2010 2009      2010 2009      2010   2009   2011     2010     2011     2010     2011     2010   

REVENUES AND OTHER INCOME

                        

Operating revenues

   908    921      4,655    4,380      265     246     1,174       1,241       5,347       4,610       331       283    

Intersegment sales

   879    955      416    365      79     69     1,157       948       711       571       89       70    

Investment and other income

   5    2      17    4      -     -     8       20       9       11       -       -    
                                
   1,792    1,878      5,088    4,749      344     315     2,339       2,209       6,067       5,192       420       353    
                                

EXPENSES

                        

Exploration

   54    21      -    -      -     -     37       87       -       -       -       -    

Purchases of crude oil and products

   545    568      4,047    3,729      244     218     861       787       4,769       4,187       307       276    

Production and manufacturing

   592    549      320    313      49     47     599       602       337       370       43       58    

Selling and general

   2    -      229    231      16     18     1       2       223       224       16       17    

Federal excise tax

   -    -      345    331      -     -     -       -       315       304       -       -    

Depreciation and depletion

   128    133      54    55      3     4     133       125       50       52       3       3    

Financing costs

   -    -      1    -      -     -     -       -       (1)      -       -       -    
                                

TOTAL EXPENSES

   1,321    1,271      4,996    4,659      312     287     1,631       1,603       5,693       5,137       369       354    
                                

INCOME BEFORE INCOME TAXES

   471    607      92    90      32     28     708       606       374       55       51       (1)   

INCOME TAXES

   123    168      23    28      9     9     180       162       98       16       13       -    
                                

NET INCOME

   348    439      69    62      23     19     528       444       276       39       38       (1)   
                                

Export sales to the United States

   377    405      295    379      161     141     549       507       251       298       200       165    

Cash flow from (used in) operating activities

   748    436      198    219      31     34     717       742       271       186       5       4    

CAPEX (a)

   1,151    504      45    64      1     6     818       855       36       38       2       6    

Total assets as at March 31

   14,527       11,190       6,955       6,323       456       414    
Third Quarter  Corporate and Other     Eliminations     Consolidated 
Three Months to March 31  Corporate and Other   Eliminations   Consolidated 
millions of dollars  2010 2009      2010 2009      2010   2009   2011   2010   2011   2010   2011   2010 

REVENUES AND OTHER INCOME

                        

Operating revenues

   -    -      -    -      5,828     5,547     -       -       -       -       6,852       6,134    

Intersegment sales

   -    -      (1,374)   (1,389)     -     -     -       -       (1,957)      (1,589)      -       -    

Investment and other income

   1    8      -    -      23     14     2       1       -       -       19       32    
                                
   1    8      (1,374)   (1,389)     5,851     5,561     2       1       (1,957)      (1,589)      6,871       6,166    
                                

EXPENSES

                        

Exploration

   -    -      -    -      54     21     -       -       -       -       37       87    

Purchases of crude oil and products

   -    -      (1,374)   (1,389)     3,462     3,126     -       -       (1,957)      (1,589)      3,980       3,661    

Production and manufacturing

   -    -      -    -      961     909     -       -       -       -       979       1,030    

Selling and general

   24    (28)     -    -      271     221     81       7       -       -       321       250    

Federal excise tax

   -    -      -    -      345     331     -       -       -       -       315       304    

Depreciation and depletion

   2    2      -    -      187     194     2       2       -       -       188       182    

Financing costs

   2    -      -    -      3     -     1       1       -       -       -       1    
                                

TOTAL EXPENSES

   28    (26)     (1,374)   (1,389)     5,283     4,802     84       10       (1,957)      (1,589)      5,820       5,515    
                                

INCOME BEFORE INCOME TAXES

   (27)   34      -    -      568     759     (82)      (9)      -       -       1,051       651    

INCOME TAXES

   (5)   7      -    -      150     212     (21)      (3)      
-  
  
   -       270       175    
                                

NET INCOME

   (22)   27      -    -      418     547     (61)      (6)      -       -       781       476    
                                

Export sales to the United States

   -    -      -    -      833     925     -        -       -       -       1,000       970    

Cash flow from (used in) operating activities

   (12)   9      -    -      965     698     (34)      (18)      -       -       959       914    

CAPEX (a)

   2    1      -    -      1,199     575     3       1       -       -       859       900    

Total assets as at March 31

   416       631       (346)      (223)      22,008       18,335    

 

(a)Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles and additions to capital leases.

IMPERIAL OIL LIMITED

 

 

Nine Months to September 30  Upstream      Downstream      Chemical 
millions of dollars  2010  2009       2010  2009       2010   2009 

REVENUES AND OTHER INCOME

            

Operating revenues

   3,159    2,560      14,081    12,217      813     684  

Intersegment sales

   2,790    2,309      1,449    1,110      212     216  

Investment and other income

   36    25      62    35      3     -  
                 
   5,985    4,894      15,592    13,362      1,028��    900  
                 

EXPENSES

            

Exploration

   171    126      -    -      -     -  

Purchases of crude oil and products

   1,985    1,400      12,471    10,162      754     650  

Production and manufacturing

   1,767    1,825      1,079    1,049      157     142  

Selling and general

   5    2      678    698      49     56  

Federal excise tax

   -    -      971    951      -     -  

Depreciation and depletion

   384    398      162    170      9     10  

Financing costs

   -    1      1    1      -     -  
                 

TOTAL EXPENSES

   4,312    3,752      15,362    13,031      969     858  
                 

INCOME BEFORE INCOME TAXES

   1,673    1,142      230    331      59     42  

INCOME TAXES

   435    309      54    105      15     12  
                 

NET INCOME

   1,238    833      176    226      44     30  
                 

Export sales to the United States

   1,295    1,232      919    938      487     361  

Cash flow from (used in) operating activities

   2,057    244      161    413      44     31  

CAPEX (a)

   2,838    1,422      129    167      9     12  

Total assets as at September 30

   12,754    9,887      6,401    6,359      425     416  
Nine Months to September 30  Corporate and Other      Eliminations      Consolidated 
millions of dollars  2010  2009       2010  2009       2010   2009 

REVENUES AND OTHER INCOME

            

Operating revenues

   -    -      -    -      18,053     15,461  

Intersegment sales

   -    -      (4,451)   (3,635)     -     -  

Investment and other income

   2    13      -    -      103     73  
                 
   2    13      (4,451)   (3,635)     18,156     15,534  
                 

EXPENSES

            

Exploration

   -    -      -    -      171     126  

Purchases of crude oil and products

   -    -      (4,451)   (3,635)     10,759     8,577  

Production and manufacturing

   -    -      -    -      3,003     3,016  

Selling and general

   54    66      -    -      786     822  

Federal excise tax

   -    -      -    -      971     951  

Depreciation and depletion

   6    6      -    -      561     584  

Financing costs

   3    1      -    -      4     3  
                 

TOTAL EXPENSES

   63    73      (4,451)   (3,635)     16,255     14,079  
                 

INCOME BEFORE INCOME TAXES

   (61)   (60)     -    -      1,901     1,455  

INCOME TAXES

   (14)   (16)     -    -      490     410  
                 

NET INCOME

   (47)   (44)     -    -      1,411     1,045  
                 

Export sales to the United States

   -    -      -    -      2,701     2,531  

Cash flow from (used in) operating activities

   (59)   (24)     -    -      2,203     664  

CAPEX (a)

   4    3      -    -      2,980     1,604  

Total assets as at September 30

   96    481      (278)   (321)     19,398     16,822  

(a)3.CapitalInvestment and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles and additions to capital leases.other income

IMPERIAL OIL LIMITED

4.    Investment and other income

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

 

   Third Quarter      

Nine Months

to September 30

 
millions of dollars  2010  2009       2010  2009 

Proceeds from asset sales

   35    8      95    45  

Book value of assets sold

   23    8      37    13  
           

Gain/(loss) on asset sales, before tax

   12    –      58    32  
           

Gain/(loss) on asset sales, after tax

   10    –      50    26  
           

 

5.    Employee retirement benefits

 

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:

 

 
   Third Quarter      

Nine Months

to September 30

 
millions of dollars  2010  2009       2010  2009 

Pension benefits:

       

Current service cost

   25    20      76    60  

Interest cost

   77    75      230    227  

Expected return on plan assets

   (69)   (67)     (206)   (201) 

Amortization of prior service cost

   5    4      13    13  

Recognized actuarial loss

   34    28      103    84  
           

Net benefit cost

   72    60      216    183  
           

Other post-retirement benefits:

       

Current service cost

   1    1      4    3  

Interest cost

   6    7      18    20  

Amortization of prior service cost

   -    -      (1)   -  

Recognized actuarial loss/(gain)

   -    -      -    (1) 
           

Net benefit cost

   7    8      21    22  
           

 

6.    Long-term debt

 

                 
      

As at

Sept. 30

         

As at

Dec. 31

 
millions of dollars      2010           2009 

Long-term debt (a)

    200       -  

Capital leases

    28       31  
             

Total long-term debt

    228       31  
             
   Three Months
to March 31		 
millions of dollars  2011   2010 

Proceeds from asset sales

   14     6  

Book value of assets sold

   8     2  

Gain/(loss) on asset sales, before tax

   6     4  

Gain/(loss) on asset sales, after tax

   4     4  

 

(a)4.In the third quarter of 2010, the company borrowed $200 million under an existing 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 agreement is effective until July 31, 2019, cancelable if ExxonMobil provides at least 370 days advance written notice.Employee retirement benefits

In the third quarter, to support the commercial paper program, the company entered into an unsecured committed bank credit facilityThe components of net benefit cost included in production and manufacturing and selling and general expenses in the amountconsolidated statement of $200 million that matures in July 2012.income are as follows:

   Three Months
to March 31		 
millions of dollars  2011  2010 

Pension benefits:

   

Current service cost

   29    25  

Interest cost

   78    77  

Expected return on plan assets

   (76)   (68) 

Amortization of prior service cost

   4    4  

Recognized actuarial loss

   40    34  

Net benefit cost

   75    72  

Other post-retirement benefits:

   

Current service cost

   1    1  

Interest cost

   6    6  

Recognized actuarial loss

   1    -  

Net benefit cost

   8    7  

IMPERIAL OIL LIMITED

 

 

7.    Other long-term obligations

5.Financing costs

 

   

As at
Sept. 30

           

As at
Dec. 31

 
millions of dollars  2010            2009 

Employee retirement benefits (a)

   1,253           1,682  

Asset retirement obligations and other environmental liabilities (b)

   796           806  

Share-based incentive compensation liabilities

   184           144  

Other obligations

   210           207  
                

Total other long-term obligations

   2,443           2,839  
                
   Three Months
to March 31		 
millions of dollars  2011  2010 

Debt related interest

   3    1  

Capitalized interest

   (3)   (1) 

Net interest expense

   -    -  

Other interest

   -    1  

Total financing costs

   -    1  

6.Long-term debt

millions of dollars  As at
Mar. 31
2011		        As at
Dec. 31
2010		 

Long-term debt

   500         500    

Capital leases

   26         27    
            

Total long-term debt

           526                 527    
            

7.Other long-term obligations

millions of dollars  As at
Mar. 31
2011		        As at
Dec. 31
2010		 

Employee retirement benefits (a)

   1,749       1,640  

Asset retirement obligations and other environmental liabilities (b)

   732       754  

Share-based incentive compensation liabilities

   173       127  

Other obligations

   226       232  
            

Total other long-term obligations

           2,880               2,753  
            

 

(a)Total recorded employee retirement benefits obligations also include $47 million in current liabilities (December 31, 20092010 - $47 million).
(b)Total asset retirement obligations and other environmental liabilities also include $112$134 million in current liabilities (December 31, 20092010 - $114$134 million).

8.    Net income per share

   Third Quarter         

Nine Months

to September 30

 
    2010   2009          2010     2009 

Net income per common share - basic

              

Net income (millions of dollars)

   418     547         1,411       1,045  

Weighted average number of common shares outstanding (millions of shares)

   847.6     847.6         847.6       850.5  

Net income per common share (dollars)

   0.49     0.64         1.66       1.23  

Net income per common share - diluted

              

Net income (millions of dollars)

   418     547         1,411       1,045  

Weighted average number of common shares outstanding (millions of shares)

   847.6     847.6         847.6       850.5  

Effect of employee share-based awards (millions of shares)

   7.1     7.3         6.9       7.0  
              

Weighted average number of common shares outstanding, assuming dilution (millions of shares)

   854.7     854.9         854.5       857.5  

Net income per common share (dollars)

   0.49     0.64         1.65       1.22  

9.    Comprehensive income

   Third Quarter       

Nine Months

to September 30

 
millions of dollars  2010   2009        2010   2009 

Net income

   418     547       1,411     1,045  

Post-retirement benefit liability adjustment (excluding amortization)

   -     -       84     (25) 

Amortization of post retirement benefit liability adjustment included in net periodic benefit costs

   28     23       85     70  
            

Other comprehensive income (net of income taxes)

   28     23       169     45  
            

Total comprehensive income

   446     570       1,580     1,090  
            

IMPERIAL OIL LIMITED

 

 

8.Net income per share

   Three Months
to March 31		 
    2011   2010 

Net income per common share - basic

    

Net income (millions of dollars)

   781     476  

Weighted average number of common shares outstanding (millions of shares)

   847.8     847.6  

Net income per common share (dollars)

   0.92     0.56  

Net income per common share - diluted

    

Net income (millions of dollars)

   781     476  

Weighted average number of common shares outstanding (millions of shares)

   847.8     847.6  

Effect of employee share-based awards (millions of shares)

   6.3     6.6  

Weighted average number of common shares outstanding,
assuming dilution (millions of shares)

   854.1     854.2  

Net income per common share (dollars)

   0.91     0.56  

9.Comprehensive income

   Three Months
to March 31		 
millions of dollars  2011  2010 

Net income

   781    476  

Post-retirement benefit liability adjustment (excluding amortization)

   (108)   84  

Amortization of post retirement benefit liability adjustment
included in net periodic benefit costs

   33    28  

Other comprehensive income (net of income taxes)

 

   

 

(75

 

) 

 

  

 

112

 

  

 

Total comprehensive income

   706    588  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OPERATING RESULTS

The company’s net income for the thirdfirst quarter of 20102011 was $418$781 million or $0.49$0.91 a share on a diluted basis, compared with $547$476 million or $0.64$0.56 a share for the same period last year. Net income for

Earnings in the first nine monthsquarter were higher than the same quarter in 2010 primarily due to stronger industry refining margins of 2010 was $1,411about $175 million, or $1.65 a share on a diluted basis, versus $1,045higher Syncrude and Cold Lake volumes of about $100 million or $1.22 a share for the nine months of 2009.

Although third quarter earnings wereand lower underlying business operations remained strong across all segments of the company. The lower third quarter earnings were primarily attributable torefinery planned maintenance activities at Syncrude, impacting earnings by about $90 million, and the unfavourable foreign exchange effects of a stronger Canadian dollar of about $70 million. These factors were partially offset by the combined impacts of upstream commodity prices and downstream margins totaling about $75 million. The company estimates that third-party pipeline reliability issues negatively impacted third quarter earnings by about $60 million; this effect, which will carry-over in fourth quarter results, has been reflected in the overall commodity price and margins factor above.

For the nine months, earnings increased primarily due to the impacts of higher upstream commodity prices of about $800 million, higher Syncrude volumes of about $90 million and improved refinery operations and lower refinery maintenance activities totaling about $75$85 million. These factors were partially offset by the unfavourable foreign exchange effects of athe stronger Canadian dollar of about $330 million,$70 million. Reliability and expense management improvements in all operating segments allowed the capture of higher royalty costs due to higher commodity prices of about $240 million, and lower overall downstream margins of about $110 million. Earningscrude oil realizations in the nine months of 2010 also included higher gain of about $25 million from sale of non-operating assets.Upstream and improved margins in petroleum product markets.

Upstream

Net income in the thirdfirst quarter was $348$528 million, versus $439$84 million inhigher than the same period of 2009.2010. Earnings decreasedincreased primarily due to higher costsvolumes and lower volumesmaintenance costs at Syncrude mainly a result of planned maintenance activities, totaling about $90 million. Earnings were also negatively impacted by the unfavourable foreign exchange effects of a stronger Canadian dollar of about $65 million and lower Cold Lake bitumen production and lower conventional volumes totaling about $25 million. These factors were partially offset by higher crude oil and natural gas commodity prices in the third quarter of 2010 which contributed to higher earnings of about $95 million. Third-party pipeline reliability issues in the third quarter negatively impacted the transportation of western crude oil. The company estimates the negative impact on earnings of about $45 million from lower realizations, the effect of which has been reflected in the commodity price factor above.

Net income for the nine months was $1,238 million versus $833 million during the same period last year. Higher crude oil and natural gas commodity prices in 2010 increased revenues, contributing to higher earnings of about $800$80 million. Earnings were also positively impacted by higher Syncrude volumes, reflecting improved reliability,Cold Lake bitumen production of about $90$30 million and higher crude oil commodity prices of about $30 million. These factors were partially offset by the impactunfavourable foreign exchange effects of athe stronger Canadian dollar of about $265 million and higher royalty costs due to higher commodity prices of about $240$50 million.

The average price of Brent crude oil in U.S. dollars, a common benchmark for world oil markets, was $76.85$105.01 a barrel in the thirdfirst quarter and $77.15 a barrel in the nine months of 2010,2011, up about 13 percent and 35almost 40 percent from the corresponding periodsperiod last year. The company’s average realizations on sales of Canadian conventional crude oil and synthetic crude oil from Syncrude production also increased. The company’s average bitumen realizations were also higher in the third quarter and in the first nine monthsquarter were about ten percent lower than that in the first quarter of 2010, but by less than the relative increase in light crude oil prices, reflecting a widened price spread between the lighter crude oils and Cold Lake bitumen, attributableprimarily due to third-partycontinuing impacts from third party pipeline outages.

integrity issues on heavy oil markets.

Gross production of Cold Lake bitumen averaged 139157 thousand barrels a day during the thirdfirst quarter, versus 145up from 148 thousand barrels in the same quarter last year. ForHigher volumes were the nine months, gross production was 143 thousand barrels a day this year, compared with 144 thousand barrels inresult of the same period of 2009. Lower volumes in both periods in 2010 were due toongoing development drilling program partially offset by the cyclic nature of production at Cold Lake.

The company’s share of Syncrude’s gross production in the thirdfirst quarter was 6680 thousand barrels a day, versus 7867 thousand barrels in the thirdfirst quarter of 2009. Lower volumes in the third quarter of 2010 were2010. Increased production was primarily the result of improved mining and upgrading reliability as well as lower planned maintenance activities, which began in September 2010 and will complete in late October 2010. During the nine months of the year, the company’s share of gross production from Syncrude averaged 71 thousand barrels a day, up from 66 thousand barrels in 2009. Increased production in the nine months of 2010 was due to improved operational reliability.activities.

Gross production of conventional crude oil averaged 22 thousand barrels a day in the thirdfirst quarter, down from 2524 thousand barrels in the third quarter of 2009. In the first nine months of thesame period last year, gross production was 23 thousand barrels a day, compared with 25 thousand barrels in 2009. Planned maintenance activities at the Norman Wells field anddue to natural reservoir decline were the main contributors to the lower production in both periods.decline.

Gross production of natural gas during the thirdfirst quarter of 20102011 was 284269 million cubic feet a day, down slightly from 291273 million cubic feet in the same period last year. In the nine months of the year, gross production was 282 million cubic feet a day, down from 294 million cubic feet in the nine months of 2009. The lower production volume was primarily a result of maintenance activities and natural reservoir decline.

The company is currently reconfiguring its Kearl project development plan is being reconfigured from a three-phase to include a combination of debottlenecking and expansion to minimize facility requirements and to reducetwo-phase strategy. Production from the plant footprint. The approach will leverage our execution learnings, take advantage of the investments in infrastructure that would not need to be duplicated in the future and will utilize our successful “design one, build many” approach to replicate facilities. The overall production profile and total resource developed at Kearl remain relatively unchanged for the reconfigured project. It is expected that the capital investments’ spending profile of the firstinitial development phase of the project will be higher based onat 110,000 barrels of bitumen a day. A second phase expansion with debottlenecking of both phases will be used to reach the adjustments mentioned above.regulatory capacity of 345,000 barrels a day as approved under the original three-phase strategy. Full lease unit development costs are expected to remain the same.

Downstream

Net income was $69$276 million in the thirdfirst quarter of 2010, compared with $622011, $237 million inhigher than the same period a year ago. Improved refinery operationsEarnings benefited from stronger industry refining margins of about $175 million due in part to favourably priced crude mix processed and improved demand for petroleum products, as well as improved sales volumes when compared to the low levels in the third quarter of 2009 contributed about $25 million to the earnings increase. These factors were partially offset by lower overall marginsfavourable impact of about $20$85 million which included the negative impact of the third-party pipeline outages.

Nine-month net income was $176 million, comparedassociated with $226 million in 2009. Lower earnings were primarily due to lower overall margins of about $110 million and the unfavourable effects of a stronger Canadian dollar of about $60 million.planned refinery maintenance activities. These factors were partially offset by the favourable impactsunfavourable effects of the stronger Canadian dollar of about $75 million associated with improved refinery operations and lower refinery maintenance activities and $35 million gain from sale of non-operating assets.$20 million.

Chemical

Net income was $23$38 million in the thirdfirst quarter, $4$39 million higher than the same quarter last year. Improved industry margins for polyethylene and intermediate products were partially offset byacross all product channels, lower sales volumes for polyethylene products. Nine-month net income was $44 million, up $14 million from the same period in 2009. Improved industry margins were partially offset by lower sales volumes for polyethylene products and higher costs due to lower planned maintenance activities.

activities, and higher polyethylene sales volumes were the main contributors to the increase.

Corporate and other

Net income effects were negative $22$61 million in the thirdfirst quarter, compared with $27negative $6 million in the same period of 2009. The change in2010. Unfavourable earnings effects wasin the first quarter were primarily due to changes in share-based compensation charges in the third quarter of 2010. For the nine months of 2010, net income was negative $47 million, in line with the negative $44 million reported last year.charges.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $965$959 million during the thirdfirst quarter of 2010,2011, compared with $698$914 million in the same period last year.of 2010. Higher cash flow was primarily driven by working capital effectshigher earnings partially offset by lower earnings. Year-to-date cash flow generated from operating activities was $2,203 million, compared with $664 million in the same period last year. Higher cash flow was primarily due to higher earnings and working capital effects, partially offset by higher 2010 funding contributions to the company’s registered pension plan.effects.

Investing activities used net cash of $1,113$806 million in the thirdfirst quarter, an increase of $568compared to $807 million fromin the corresponding period in 2009.2010. Additions to property, plant and equipment were $1,147$822 million in the thirdfirst quarter, compared with $554$813 million during the same quarter 2009.2010. For the Upstream segment, expenditures during the quarter were primarily directed towards the advancement of the Kearl oil sands project. Other investments included environmental and other projects at Syncrude, development drilling at Cold Lake and advancing the Nabiye project, the next phase of expansion at Cold Lake, as well as exploration drilling at Horn River as well as environmental and other projects at Syncrude.River. The Downstream segment’s capital expenditures were focused mainly on refinery projects to improve reliability, feedstock flexibility, energy efficiency and air emissions.environmental performance.

Cash from financing activities was $135 million in the third quarter, compared with cash used in financing activities of $85was $119 million in the thirdfirst quarter 2011, compared with $86 million in the first quarter of 2009. In the third quarter, the company increased its debt level by $228 million by drawing on existing facilities.

2010. During the thirdfirst quarter of 2010,2011, the company did not make any share repurchases except those to offset the dilutive effects from the exercise of stock options. The company will continue to evaluate its share-purchase program in the context of its overall capital project activities.

Cash dividends of $93 million were paid in the thirdfirst quarter of 20102011, compared with dividends of $85 million in the same period of 2009.first quarter 2010. Per-share dividends declaredpaid in the first nine months of 2010quarter 2011 totaled $0.32,$0.11, up from $0.30$0.10 in the same period of 2009.2010.

The above factors led to a decreasean increase in the company’s balance of cash to $51$301 million at September 30, 2010,March 31, 2011, from $513$267 million at the end of 2009.2010.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the ninethree months ended September 30, 2010March 31, 2011 does not differ materially from that discussed on page 23 in the company’s annual report on Form 10-K for the year ended December 31, 2009. Additional discussion of risk is highlighted in Part II, Item 1A, Risk Factors, on page 15 of the Form 10-Q for the quarterly period ended September 30, 2010.

Item 4.Controls and Procedures.

Item 4.  Controls and Procedures.

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 September 30, 2010.March 31, 2011. 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.

PART II - OTHER INFORMATION

Item 1A.     Risk Factors

Information about risk factors does not differ materially from the discussion found in Item 1A of the company’s Annual Report on Form 10-K for 2009. The company’s activities in deep water oil and gas exploration are limited. However, there are operational risks inherent in oil and gas exploration and production activities, as well as the potential to incur substantial financial liabilities if those risks are not effectively managed. The ability to insure such risks is limited by the capacity of the applicable insurance markets, which may not be sufficient to cover the likely cost of a major adverse operating event such as a deepwater well blowout. Accordingly, the company’s primary focus is on prevention, including through our rigorous Operations Integrity Management System. Our future results will depend on the continued effectiveness of these efforts.

Future changes to laws and regulations may have the effect of increasing the cost of, and reducing available opportunities for, offshore exploration and production.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the period JulyJanuary 1, 20102011 to September 30, 2010,March 31, 2011, the company issued 11,727602,214 common shares to employees or former employees outside the U.S.A. for $15.50 per share upon the exercise of stock options. These issuances were not registered under theSecurities Act in reliance on Regulation S thereunder.

Issuer Purchases of Equity Securities (1)

 

Period (a) Total
number of    
shares (or
units)
purchased		  (b) Average
price paid
per share (or    
unit)		  

(c) Total

number of
shares (or units)    
purchased as

part of publicly
announced

plans or

programs

  

(d) Maximum

number (or
approximate dollar    
value) of shares (or
units) that may yet
be purchased

under the plans or
programs

July 2010

(July 1- July 31)

 

 -  -  -  42,274,061

August 2010

(August 1 - August 31)

 

 -  -  -  42,187,921

September 2010

(Sept 1 - Sept 30)

 

 11,727  $38.3551  11,727  42,089,441
Period (a) Total
number of
shares (or
units)
purchased		  (b) Average
price paid
per share (or
unit)		  (c) Total
number of
shares (or
units)
purchased
as part  of
publicly
announced
plans or
programs		  

(d) Maximum
number (or
approximate
dollar value) of
shares (or units)
that may yet  be
purchased

under the plans
or programs

 

January 2011

(January 1 - January 31)

  -    N/A    -    41,621,691  
     

February 2011

(February 1 - February 28)

  107,574   $44.88    107,574    41,439,964  
     

March 2011

(March 1 - March 31)

 

  

 

602,766

 

  

 

 $

 

50.93

 

  

 

  

 

602,766

 

  

 

  

 

40,767,472

 

  

 

 

 (1)On June 23, 2010, 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 share repurchase program. The new program enables the company to repurchase up to a maximum of 42,380,333 common shares, including common shares purchased for the company’s employee savings plan, the company’s employee retirement plan and from Exxon Mobil Corporation during the period June 25, 2010 to June 24, 2011. If not previously terminated, the program will end on June 24, 2011.

The company will continue to evaluate its share-purchaseshare purchase program in the context of its overall capital activities.

Item 4.  Submission of Matters to a Vote of Security Holders.

At the annual meeting of shareholders on April 28, 2011, all of the management’s nominee directors were elected to hold office until the close of the next annual meeting. The votes for the directors were: K.T. Hoeg 738,106,214 shares for and 997,911 shares withheld, B. H. March 725,214,301 shares for and 13,889,824 shares withheld, J.M. Mintz 738,693,464 shares for and 410,661 shares withheld, R.C. Olsen 686,307,977 shares for and 52,796,148 shares withheld, D.S. Sutherland 738,782,411 shares for and 321,714 shares withheld, S.D. Whittaker 738,457,594 shares for and 646,531 shares withheld, and V.L. Young 738,786,854 shares for and 317,271 shares withheld.

At the same annual meeting of shareholders, PricewaterhouseCoopers LLP were reappointed as the auditors by a vote of 745,950,692 shares for and 1,085,455 shares withheld from the reappointment of the auditors.

Item 6.  Exhibits.

(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 Rule 13a-14(a).

(32.1) Certification by the chief executive officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

(32.2) Certification by the chief financial officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

SIGNATURES

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:    November 3, 2010May 4, 2011  /s/ Paul J. Masschelin
  (Signature)
  Paul J. Masschelin
  Senior Vice-President, Finance and
  Administration and Treasurer
  (Principal Accounting Officer)
Date:    November 3, 2010May 4, 2011  /s/ Brent A. Latimer
  (Signature)
  Brent A. Latimer
  Assistant Secretary

 

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