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 September 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 | (I.R.S. Employer | |||
of incorporation or organization) | 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 9190 days.
YES ✓ NO
YES | ✓ | 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 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
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 ✓
YES | NO | ✓ |
The number of common shares outstanding, as of September 30, 20172018 was 837,581,329.792,702,836.
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)
Nine Months | ||||||||||||||||||||||||||||||||||
Third Quarter | Nine Months to September 30 | Third Quarter | to September 30 | |||||||||||||||||||||||||||||||
millions of Canadian dollars | millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
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Revenues and other income | Revenues and other income | |||||||||||||||||||||||||||||||||
Operating revenues(a) | 7,134 | 6,568 | 21,077 | 17,967 | ||||||||||||||||||||||||||||||
Investment and other income(note 3) | 24 | 874 | 270 | 945 | ||||||||||||||||||||||||||||||
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Revenues (a) | 9,697 | 7,134 | 27,113 | 21,077 | ||||||||||||||||||||||||||||||
Investment and other income(note 5) | 35 | 24 | 96 | 270 | ||||||||||||||||||||||||||||||
Total revenues and other income | Total revenues and other income | 7,158 | 7,442 | 21,347 | 18,912 | 9,732 | 7,158 | 27,209 | 21,347 | |||||||||||||||||||||||||
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Expenses | Expenses | |||||||||||||||||||||||||||||||||
Exploration | Exploration | 7 | 16 | 29 | 75 | 4 | 7 | 13 | 29 | |||||||||||||||||||||||||
Purchases of crude oil and products(b) | Purchases of crude oil and products(b) | 4,251 | 3,857 | 13,226 | 10,884 | 6,099 | 4,251 | 17,416 | 13,226 | |||||||||||||||||||||||||
Production and manufacturing(c) | Production and manufacturing(c) | 1,338 | 1,261 | 4,238 | 3,842 | 1,480 | 1,314 | 4,557 | 4,154 | |||||||||||||||||||||||||
Selling and general(c) | Selling and general(c) | 219 | 275 | 626 | 812 | 224 | 217 | 691 | 618 | |||||||||||||||||||||||||
Federal excise tax | Federal excise tax | 438 | 434 | 1,253 | 1,237 | 432 | 438 | 1,241 | 1,253 | |||||||||||||||||||||||||
Depreciation and depletion | Depreciation and depletion | 391 | 398 | 1,135 | 1,229 | 410 | 391 | 1,145 | 1,135 | |||||||||||||||||||||||||
Financing costs(note 5) | 18 | 19 | 49 | 52 | ||||||||||||||||||||||||||||||
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Non-service pension and postretirement benefit(d) | 27 | 26 | 80 | 92 | ||||||||||||||||||||||||||||||
Financing(note 7) | 30 | 18 | 79 | 49 | ||||||||||||||||||||||||||||||
Total expenses | Total expenses | 6,662 | 6,260 | 20,556 | 18,131 | 8,706 | 6,662 | 25,222 | 20,556 | |||||||||||||||||||||||||
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Income (loss) before income taxes | Income (loss) before income taxes | 496 | 1,182 | 791 | 781 | 1,026 | 496 | 1,987 | 791 | |||||||||||||||||||||||||
Income taxes | Income taxes | 125 | 179 | 164 | 60 | 277 | 125 | 526 | 164 | |||||||||||||||||||||||||
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Net income (loss) | Net income (loss) | 371 | 1,003 | 627 | 721 | 749 | 371 | 1,461 | 627 | |||||||||||||||||||||||||
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Per-share information(Canadian dollars) | ||||||||||||||||||||||||||||||||||
Net income (loss) per common share - basic(note 8) | 0.44 | 1.18 | 0.74 | 0.85 | ||||||||||||||||||||||||||||||
Net income (loss) per common share - diluted(note 8) | 0.44 | 1.18 | 0.74 | 0.85 | ||||||||||||||||||||||||||||||
Dividends per common share | 0.16 | 0.15 | 0.47 | 0.44 | ||||||||||||||||||||||||||||||
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(a) | Amounts from related parties included in operating revenues. | 756 | 448 | 2,801 | 1,457 | |||||||||||||||||||||||||||||
(b) | Amounts to related parties included in purchases of crude oil and products. | 604 | 623 | 1,919 | 1,540 | |||||||||||||||||||||||||||||
(c) | Amounts to related parties included in production and manufacturing, and selling and general expenses. | 127 | 133 | 415 | 394 | |||||||||||||||||||||||||||||
Per share information(Canadian dollars) | ||||||||||||||||||||||||||||||||||
Net income (loss) per common share - basic(note 10) | 0.94 | 0.44 | 1.79 | 0.74 | ||||||||||||||||||||||||||||||
Net income (loss) per common share - diluted(note 10) | 0.94 | 0.44 | 1.79 | 0.74 | ||||||||||||||||||||||||||||||
(a) Amounts from related parties included in revenues. | 1,809 | 756 | 4,951 | 2,801 | ||||||||||||||||||||||||||||||
(b) Amounts to related parties included in purchases of crude oil and products. | 1,071 | 604 | 3,337 | 1,919 | ||||||||||||||||||||||||||||||
(c) Amounts to related parties included in production and manufacturing, and selling and general expenses. | 136 | 127 | 433 | 415 | ||||||||||||||||||||||||||||||
(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)
Nine Months | ||||||||||||||||||||||||||||||||
Third Quarter | Nine Months to September 30 | Third Quarter | to September 30 | |||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Net income (loss) | 749 | 371 | 1,461 | 627 | ||||||||||||||||||||||||||||
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Net income (loss) | 371 | 1,003 | 627 | 721 | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income taxes | ||||||||||||||||||||||||||||||||
Post-retirement benefits liability adjustment (excluding amortization) | - | - | 41 | 100 | ||||||||||||||||||||||||||||
Amortization of post-retirement benefits liability adjustment included in net periodic benefit costs | 34 | 34 | 106 | 108 | ||||||||||||||||||||||||||||
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Postretirement benefits liability adjustment (excluding amortization) | - | - | (19 | ) | 41 | |||||||||||||||||||||||||||
Amortization of postretirement benefits liability adjustment included in net periodic benefit costs | 34 | 34 | 101 | 106 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) | 34 | 34 | 147 | 208 | 34 | 34 | 82 | 147 | ||||||||||||||||||||||||
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Comprehensive income (loss) | 405 | 1,037 | 774 | 929 | 783 | 405 | 1,543 | 774 | ||||||||||||||||||||||||
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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 | |||||||||||||||
Sept 30 | Dec 31 | |||||||||||||||
millions of Canadian dollars | As at Sept 30 | As at Dec 31 | 2018 | 2017 | ||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash | 833 | 391 | 1,148 | 1,195 | ||||||||||||
Accounts receivable, less estimated doubtful accounts(a) | 1,896 | 2,023 | 2,729 | 2,712 | ||||||||||||
Inventories of crude oil and products | 989 | 949 | 1,392 | 1,075 | ||||||||||||
Materials, supplies and prepaid expenses | 441 | 468 | 464 | 425 | ||||||||||||
Total current assets | 4,159 | 3,831 | 5,733 | 5,407 | ||||||||||||
Investments and long-term receivables | 931 | 1,030 | 837 | 865 | ||||||||||||
Property, plant and equipment, | 53,844 | 53,515 | 53,592 | 52,778 | ||||||||||||
less accumulated depreciation and depletion | (18,248 | ) | (17,182 | ) | (19,386 | ) | (18,305 | ) | ||||||||
Property, plant and equipment, net | 35,596 | 36,333 | 34,206 | 34,473 | ||||||||||||
Goodwill | 186 | 186 | 186 | 186 | ||||||||||||
Other assets, including intangibles, net | 498 | 274 | ||||||||||||||
Other assets, including intangibles, net(note 9) | 857 | 670 | ||||||||||||||
Total assets | 41,370 | 41,654 | 41,819 | 41,601 | ||||||||||||
Liabilities | ||||||||||||||||
Current liabilities | ||||||||||||||||
Notes and loans payable(b) | 202 | 202 | ||||||||||||||
Accounts payable and accrued liabilities(a) (note 7) | 3,041 | 3,193 | ||||||||||||||
Notes and loans payable(c) | 202 | 202 | ||||||||||||||
Accounts payable and accrued liabilities(a) (note 9) | 4,565 | 3,877 | ||||||||||||||
Income taxes payable | 59 | 488 | 11 | 57 | ||||||||||||
Total current liabilities | 3,302 | 3,883 | 4,778 | 4,136 | ||||||||||||
Long-term debt(c) (note 6) | 5,013 | 5,032 | ||||||||||||||
Other long-term obligations(d) (note 7) | 3,698 | 3,656 | ||||||||||||||
Long-term debt(d) (note 8) | 4,986 | 5,005 | ||||||||||||||
Other long-term obligations(e) (note 9) | 3,334 | 3,780 | ||||||||||||||
Deferred income tax liabilities | 4,336 | 4,062 | 4,742 | 4,245 | ||||||||||||
Total liabilities | 16,349 | 16,633 | 17,840 | 17,166 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Common shares at stated value(e) (note 8) | 1,547 | 1,566 | ||||||||||||||
Earnings reinvested(note 9) | 25,224 | 25,352 | ||||||||||||||
Accumulated other comprehensive income (loss)(note 10) | (1,750 | ) | (1,897 | ) | ||||||||||||
Common shares at stated value(f) (note 10) | 1,465 | 1,536 | ||||||||||||||
Earnings reinvested(note 11) | 24,247 | 24,714 | ||||||||||||||
Accumulated other comprehensive income (loss)(note 12) | (1,733 | ) | (1,815 | ) | ||||||||||||
Total shareholders’ equity | 25,021 | 25,021 | 23,979 | 24,435 | ||||||||||||
Total liabilities and shareholders’ equity | 41,370 | 41,654 | 41,819 | 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 $94 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)
Nine Months | ||||||||||||||||||||||||||||||||
Inflow (outflow) | Third Quarter | Nine Months to September 30 | Third Quarter | to September 30 | ||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
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Operating activities | ||||||||||||||||||||||||||||||||
Net income (loss) | 371 | 1,003 | 627 | 721 | 749 | 371 | 1,461 | 627 | ||||||||||||||||||||||||
Adjustments fornon-cash items: | ||||||||||||||||||||||||||||||||
Depreciation and depletion | 391 | 398 | 1,135 | 1,229 | 364 | 391 | 1,099 | 1,135 | ||||||||||||||||||||||||
(Gain) loss on asset sales(note 3) | (6 | ) | (909 | ) | (219 | ) | (952 | ) | ||||||||||||||||||||||||
Impairment of intangible assets(note 9) | 46 | - | 46 | - | ||||||||||||||||||||||||||||
(Gain) loss on asset sales(note 5) | (10 | ) | (6 | ) | (29 | ) | (219 | ) | ||||||||||||||||||||||||
Deferred income taxes and other | 131 | 215 | 294 | 35 | 276 | 131 | 485 | 294 | ||||||||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||||||||||
Accounts receivable | (297 | ) | 275 | 127 | (121 | ) | (104 | ) | (297 | ) | (17 | ) | 127 | |||||||||||||||||||
Inventories, materials, supplies and prepaid expenses | 104 | (7 | ) | (13 | ) | 112 | (179 | ) | 104 | (356 | ) | (13 | ) | |||||||||||||||||||
Income taxes payable | 19 | (13 | ) | (429 | ) | - | (78 | ) | 19 | (46 | ) | (429 | ) | |||||||||||||||||||
Accounts payable and accrued liabilities | 81 | (241 | ) | (159 | ) | (59 | ) | 78 | 81 | 102 | (159 | ) | ||||||||||||||||||||
All other items - net(a) | 43 | 51 | 320 | 299 | ||||||||||||||||||||||||||||
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All other items - net(a) (b) | 65 | 43 | 306 | 320 | ||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | 837 | 772 | 1,683 | 1,264 | 1,207 | 837 | 3,051 | 1,683 | ||||||||||||||||||||||||
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Investing activities | ||||||||||||||||||||||||||||||||
Additions to property, plant and equipment | (241 | ) | (189 | ) | (683 | ) | (893 | ) | ||||||||||||||||||||||||
Proceeds from asset sales(note 3) | 8 | 1,194 | 230 | 1,244 | ||||||||||||||||||||||||||||
Additions to property, plant and equipment(b) | (327 | ) | (241 | ) | (1,055 | ) | (683 | ) | ||||||||||||||||||||||||
Proceeds from asset sales(note 5) | 13 | 8 | 34 | 230 | ||||||||||||||||||||||||||||
Additional investments | (1 | ) | - | (1 | ) | (1 | ) | - | (1 | ) | - | (1 | ) | |||||||||||||||||||
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Loan to equity company | (38 | ) | - | (75 | ) | - | ||||||||||||||||||||||||||
Cash flows from (used in) investing activities | (234 | ) | 1,005 | (454 | ) | 350 | (352 | ) | (234 | ) | (1,096 | ) | (454 | ) | ||||||||||||||||||
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Financing activities | ||||||||||||||||||||||||||||||||
Short-term debt - net | - | (1,591 | ) | - | (1,679 | ) | ||||||||||||||||||||||||||
Long-term debt - additions(note 6) | - | - | - | 495 | ||||||||||||||||||||||||||||
Reduction in capitalized lease obligations(note 6) | (7 | ) | (6 | ) | (20 | ) | (21 | ) | ||||||||||||||||||||||||
Reduction in capitalized lease obligations(note 8) | (7 | ) | (7 | ) | (20 | ) | (20 | ) | ||||||||||||||||||||||||
Dividends paid | (136 | ) | (127 | ) | (390 | ) | (364 | ) | (155 | ) | (136 | ) | (421 | ) | (390 | ) | ||||||||||||||||
Common shares purchased(note 8) | (250 | ) | - | (377 | ) | - | ||||||||||||||||||||||||||
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Common shares purchased(note 10) | (418 | ) | (250 | ) | (1,561 | ) | (377 | ) | ||||||||||||||||||||||||
Cash flows from (used in) financing activities | (393 | ) | (1,724 | ) | (787 | ) | (1,569 | ) | (580 | ) | (393 | ) | (2,002 | ) | (787 | ) | ||||||||||||||||
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Increase (decrease) in cash | 210 | 53 | 442 | 45 | 275 | 210 | (47 | ) | 442 | |||||||||||||||||||||||
Cash at beginning of period | 623 | 195 | 391 | 203 | 873 | 623 | 1,195 | 391 | ||||||||||||||||||||||||
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Cash at end of period(b) | 833 | 248 | 833 | 248 | ||||||||||||||||||||||||||||
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Cash at end of period(c) | 1,148 | 833 | 1,148 | 833 | ||||||||||||||||||||||||||||
(a) Included contribution to registered pension plans. | (78 | ) | (44 | ) | (176 | ) | (120 | ) | (52 | ) | (78 | ) | (153 | ) | (176 | ) |
(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. |
Non-cash transaction
As a result of the Government of Ontario’s revocation of its cap and trade legislation, the company reclassified approximately $570 million of its Ontario carbon emission obligation from long-term liabilities to current liabilities. The impact of this reclassification was not reflected in “Accounts payable and accrued liabilities” and “All other items - net” lines on the Consolidated statement of cash flows as it was not a cash transaction.
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.
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 nine months ended September 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 |
2. Business segmentsEffective January 1, 2018, Imperial adopted the Financial Accounting Standards Board’s standard,Revenue from Contracts with Customers (Topic 606), 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 September 30, 2018 is shown below.
Third Quarter | Upstream | Downstream | Chemical | |||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
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Revenues and other income | ||||||||||||||||||||||||
Operating revenues(a) | 1,668 | 1,316 | 5,204 | 4,971 | 262 | 281 | ||||||||||||||||||
Intersegment sales | 587 | 709 | 241 | 253 | 62 | 58 | ||||||||||||||||||
Investment and other income(note 3) | 7 | 1 | 15 | 870 | - | 1 | ||||||||||||||||||
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2,262 | 2,026 | 5,460 | 6,094 | 324 | 340 | |||||||||||||||||||
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Expenses | ||||||||||||||||||||||||
Exploration | 7 | 16 | - | - | - | - | ||||||||||||||||||
Purchases of crude oil and products | 947 | 861 | 4,014 | 3,827 | 179 | 188 | ||||||||||||||||||
Production and manufacturing | 893 | 887 | 394 | 323 | 51 | 51 | ||||||||||||||||||
Selling and general | 5 | (1 | ) | 167 | 238 | 19 | 22 | |||||||||||||||||
Federal excise tax | - | - | 438 | 434 | - | - | ||||||||||||||||||
Depreciation and depletion | 330 | 346 | 53 | 46 | 3 | 2 | ||||||||||||||||||
Financing costs(note 5) | 1 | (2 | ) | - | - | - | - | |||||||||||||||||
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Total expenses | 2,183 | 2,107 | 5,066 | 4,868 | 252 | 263 | ||||||||||||||||||
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Income (loss) before income taxes | 79 | (81 | ) | 394 | 1,226 | 72 | 77 | |||||||||||||||||
Income taxes | 17 | (55 | ) | 102 | 224 | 20 | 21 | |||||||||||||||||
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Net income (loss) | 62 | (26 | ) | 292 | 1,002 | 52 | 56 | |||||||||||||||||
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Cash flows from (used in) operating activities | 479 | 432 | 268 | 264 | 99 | 73 | ||||||||||||||||||
Capital and exploration expenditures(b) | 92 | 149 | 55 | 38 | 5 | 7 | ||||||||||||||||||
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Third Quarter | Corporate and Other | Eliminations | Consolidated | |||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
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Revenues and other income | ||||||||||||||||||||||||
Operating revenues(a) | - | - | - | - | 7,134 | 6,568 | ||||||||||||||||||
Intersegment sales | - | - | (890 | ) | (1,020 | ) | - | - | ||||||||||||||||
Investment and other income(note 3) | 2 | 2 | - | - | 24 | 874 | ||||||||||||||||||
| ||||||||||||||||||||||||
2 | 2 | (890 | ) | (1,020 | ) | 7,158 | 7,442 | |||||||||||||||||
| ||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Exploration | - | - | - | - | 7 | 16 | ||||||||||||||||||
Purchases of crude oil and products | - | - | (889 | ) | (1,019 | ) | 4,251 | 3,857 | ||||||||||||||||
Production and manufacturing | - | - | - | - | 1,338 | 1,261 | ||||||||||||||||||
Selling and general | 29 | 17 | (1 | ) | (1 | ) | 219 | 275 | ||||||||||||||||
Federal excise tax | - | - | - | - | 438 | 434 | ||||||||||||||||||
Depreciation and depletion | 5 | 4 | - | - | 391 | 398 | ||||||||||||||||||
Financing costs(note 5) | 17 | 21 | - | - | 18 | 19 | ||||||||||||||||||
| ||||||||||||||||||||||||
Total expenses | 51 | 42 | (890 | ) | (1,020 | ) | 6,662 | 6,260 | ||||||||||||||||
| ||||||||||||||||||||||||
Income (loss) before income taxes | (49 | ) | (40 | ) | - | - | 496 | 1,182 | ||||||||||||||||
Income taxes | (14 | ) | (11 | ) | - | - | 125 | 179 | ||||||||||||||||
| ||||||||||||||||||||||||
Net income (loss) | (35 | ) | (29 | ) | - | - | 371 | 1,003 | ||||||||||||||||
| ||||||||||||||||||||||||
Cash flows from (used in) operating activities | (9 | ) | 3 | - | - | 837 | 772 | |||||||||||||||||
Capital and exploration expenditures(b) | 7 | 11 | - | - | 159 | 205 | ||||||||||||||||||
|
Third Quarter | Nine Months to | |||||||||||||||||||||
millions of Canadian dollars | 2017 | September 30, 2017 | ||||||||||||||||||||
As | Change | As adjusted | As reported | Change | As adjusted | |||||||||||||||||
Production and manufacturing | 1,338 | (24) | 1,314 | 4,238 | (84) | 4,154 | ||||||||||||||||
Selling and general | 219 | (2) | 217 | 626 | (8) | 618 | ||||||||||||||||
Non-service pension and postretirement benefit | - | 26 | 26 | - | 92 | 92 |
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 September 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 |
Third Quarter | Upstream | Downstream | Chemical | |||||||||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Revenues and other income | ||||||||||||||||||||||||
Revenues(a) | 2,489 | 1,668 | 6,880 | 5,204 | 328 | 262 | ||||||||||||||||||
Intersegment sales | 771 | 587 | 425 | 241 | 79 | 62 | ||||||||||||||||||
Investment and other income(note 5) | 2 | 7 | 25 | 15 | 1 | - | ||||||||||||||||||
3,262 | 2,262 | 7,330 | 5,460 | 408 | 324 | |||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Exploration | 4 | 7 | - | - | - | - | ||||||||||||||||||
Purchases of crude oil and products | 1,566 | 947 | 5,567 | 4,014 | 239 | 179 | ||||||||||||||||||
Production and manufacturing(b) | 1,073 | 893 | 356 | 394 | 51 | 51 | ||||||||||||||||||
Selling and general (b) | - | 5 | 199 | 167 | 21 | 19 | ||||||||||||||||||
Federal excise tax | - | - | 432 | 438 | - | - | ||||||||||||||||||
Depreciation and depletion (c) | 309 | 330 | 91 | 53 | 4 | 3 | ||||||||||||||||||
Non-service pension and postretirement benefit(b) | - | - | - | - | - | - | ||||||||||||||||||
Financing(note 7) | - | 1 | - | - | - | - | ||||||||||||||||||
Total expenses | 2,952 | 2,183 | 6,645 | 5,066 | 315 | 252 | ||||||||||||||||||
Income (loss) before income taxes | 310 | 79 | 685 | 394 | 93 | 72 | ||||||||||||||||||
Income taxes | 88 | 17 | 183 | 102 | 24 | 20 | ||||||||||||||||||
Net income (loss) | 222 | 62 | 502 | 292 | 69 | 52 | ||||||||||||||||||
Cash flows from (used in) operating activities | 872 | 479 | 281 | 268 | 79 | 99 | ||||||||||||||||||
Capital and exploration expenditures(d) | 257 | 92 | 105 | 55 | 8 | 5 | ||||||||||||||||||
Third Quarter | Corporate and other | Eliminations | Consolidated | |||||||||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Revenues and other income | ||||||||||||||||||||||||
Revenues(a) | - | - | - | - | 9,697 | 7,134 | ||||||||||||||||||
Intersegment sales | - | - | (1,275 | ) | (890 | ) | - | - | ||||||||||||||||
Investment and other income(note 5) | 7 | 2 | - | - | 35 | 24 | ||||||||||||||||||
7 | 2 | (1,275 | ) | (890 | ) | 9,732 | 7,158 | |||||||||||||||||
Expenses | ||||||||||||||||||||||||
Exploration | - | - | - | - | 4 | 7 | ||||||||||||||||||
Purchases of crude oil and products | - | - | (1,273 | ) | (889 | ) | 6,099 | 4,251 | ||||||||||||||||
Production and manufacturing(b) | - | - | - | - | 1,480 | 1,338 | ||||||||||||||||||
Selling and general(b) | 6 | 29 | (2 | ) | (1 | ) | 224 | 219 | ||||||||||||||||
Federal excise tax | - | - | - | - | 432 | 438 | ||||||||||||||||||
Depreciation and depletion(c) | 6 | 5 | - | - | 410 | 391 | ||||||||||||||||||
Non-service pension and postretirement benefit(b) | 27 | - | - | - | 27 | - | ||||||||||||||||||
Financing(note 7) | 30 | 17 | - | - | 30 | 18 | ||||||||||||||||||
Total expenses | 69 | 51 | (1,275 | ) | (890 | ) | 8,706 | 6,662 | ||||||||||||||||
Income (loss) before income taxes | (62 | ) | (49 | ) | - | - | 1,026 | 496 | ||||||||||||||||
Income taxes | (18 | ) | (14 | ) | - | - | 277 | 125 | ||||||||||||||||
Net income (loss) | (44 | ) | (35 | ) | - | - | 749 | 371 | ||||||||||||||||
Cash flows from (used in) operating activities | (25 | ) | (9 | ) | - | - | 1,207 | 837 | ||||||||||||||||
Capital and exploration expenditures(d) | 6 | 7 | - | - | 376 | 159 |
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) | The Downstream segment in 2018 included anon-cash impairment charge of $46 million, before tax, associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation. |
(d) | 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
Nine Months to September 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) | 5,166 | 3,699 | 15,087 | 13,470 | 824 | 798 | ||||||||||||||||||||||||||||||||||||||||||
Revenues(a) | 6,796 | 5,166 | 19,357 | 15,087 | 960 | 824 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment sales | 1,494 | 1,516 | 792 | 689 | 191 | 156 | 2,078 | 1,494 | 1,119 | 792 | 226 | 191 | ||||||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 17 | 22 | 248 | 919 | (1 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
6,677 | 5,237 | 16,127 | 15,078 | 1,014 | 955 | |||||||||||||||||||||||||||||||||||||||||||
Investment and other income(note 5) | 6 | 17 | 66 | 248 | 1 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||
|
| 8,880 | 6,677 | 20,542 | 16,127 | 1,187 | 1,014 | |||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | 29 | 75 | - | - | - | - | 13 | 29 | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Purchases of crude oil and products | 3,089 | 2,584 | 12,037 | 10,139 | 573 | 518 | 4,513 | 3,089 | 15,664 | 12,037 | 657 | 573 | ||||||||||||||||||||||||||||||||||||
Production and manufacturing | 2,917 | 2,634 | 1,169 | 1,059 | 152 | 149 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general | 1 | (3 | ) | 540 | 729 | 60 | 63 | |||||||||||||||||||||||||||||||||||||||||
Production and manufacturing(b) | 3,191 | 2,917 | 1,212 | 1,169 | 154 | 152 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general(b) | - | 1 | 569 | 540 | 65 | 60 | ||||||||||||||||||||||||||||||||||||||||||
Federal excise tax | - | - | 1,253 | 1,237 | - | - | - | - | 1,241 | 1,253 | - | - | ||||||||||||||||||||||||||||||||||||
Depreciation and depletion | 964 | 1,053 | 148 | 158 | 9 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Financing costs(note 5) | 5 | (6 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and depletion(c) | 927 | 964 | 191 | 148 | 11 | 9 | ||||||||||||||||||||||||||||||||||||||||||
Non-service pension and postretirement benefit(b) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Financing(note 7) | - | 5 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Total expenses | 7,005 | 6,337 | 15,147 | 13,322 | 794 | 736 | 8,644 | 7,005 | 18,877 | 15,147 | 887 | 794 | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (328 | ) | (1,100 | ) | 980 | 1,756 | 220 | 219 | 236 | (328 | ) | 1,665 | 980 | 300 | 220 | |||||||||||||||||||||||||||||||||
Income taxes | (103 | ) | (336 | ) | 230 | 363 | 59 | 59 | 64 | (103 | ) | 441 | 230 | 80 | 59 | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (225 | ) | (764 | ) | 750 | 1,393 | 161 | 160 | 172 | (225 | ) | 1,224 | 750 | 220 | 161 | |||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | 904 | 32 | 626 | 1,028 | 176 | 205 | 1,199 | 904 | 1,647 | 626 | 278 | 176 | ||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(b) | 286 | 745 | 128 | 145 | 12 | 21 | ||||||||||||||||||||||||||||||||||||||||||
Total assets as at September 30 | 35,387 | 36,975 | 4,671 | 4,403 | 365 | 379 | ||||||||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(d) | 646 | 286 | 250 | 128 | 19 | 12 | ||||||||||||||||||||||||||||||||||||||||||
Total assets as at September 30(c) | 34,570 | 35,387 | 5,426 | 4,671 | 427 | 365 | ||||||||||||||||||||||||||||||||||||||||||
Nine Months to September 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) | - | - | - | - | 21,077 | 17,967 | ||||||||||||||||||||||||||||||||||||||||||
Revenues(a) | - | - | - | - | 27,113 | 21,077 | ||||||||||||||||||||||||||||||||||||||||||
Intersegment sales | - | - | (2,477 | ) | (2,361 | ) | - | - | - | - | (3,423 | ) | (2,477 | ) | - | - | ||||||||||||||||||||||||||||||||
Investment and other income(note 3) | 6 | 3 | - | - | 270 | 945 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
6 | 3 | (2,477 | ) | (2,361 | ) | 21,347 | 18,912 | |||||||||||||||||||||||||||||||||||||||||
Investment and other income (note 5) | 23 | 6 | - | - | 96 | 270 | ||||||||||||||||||||||||||||||||||||||||||
|
| 23 | 6 | (3,423 | ) | (2,477 | ) | 27,209 | 21,347 | |||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Exploration | - | - | - | - | 29 | 75 | - | - | - | - | 13 | 29 | ||||||||||||||||||||||||||||||||||||
Purchases of crude oil and products | - | - | (2,473 | ) | (2,357 | ) | 13,226 | 10,884 | - | - | (3,418 | ) | (2,473 | ) | 17,416 | 13,226 | ||||||||||||||||||||||||||||||||
Production and manufacturing | - | - | - | - | 4,238 | 3,842 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general | 29 | 27 | (4 | ) | (4 | ) | 626 | 812 | ||||||||||||||||||||||||||||||||||||||||
Production and manufacturing(b) | - | - | - | - | 4,557 | 4,238 | ||||||||||||||||||||||||||||||||||||||||||
Selling and general(b) | 62 | 29 | (5 | ) | (4 | ) | 691 | 626 | ||||||||||||||||||||||||||||||||||||||||
Federal excise tax | - | - | - | - | 1,253 | 1,237 | - | - | - | - | 1,241 | 1,253 | ||||||||||||||||||||||||||||||||||||
Depreciation and depletion | 14 | 12 | - | - | 1,135 | 1,229 | ||||||||||||||||||||||||||||||||||||||||||
Financing costs(note 5) | 44 | 58 | - | - | 49 | 52 | ||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and depletion(c) | 16 | 14 | - | - | 1,145 | 1,135 | ||||||||||||||||||||||||||||||||||||||||||
Non-service pension and postretirement benefit(b) | 80 | - | - | - | 80 | - | ||||||||||||||||||||||||||||||||||||||||||
Financing(note 7) | 79 | 44 | - | - | 79 | 49 | ||||||||||||||||||||||||||||||||||||||||||
Total expenses | 87 | 97 | (2,477 | ) | (2,361 | ) | 20,556 | 18,131 | 237 | 87 | (3,423 | ) | (2,477 | ) | 25,222 | 20,556 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (81 | ) | (94 | ) | - | - | 791 | 781 | (214 | ) | (81 | ) | - | - | 1,987 | 791 | ||||||||||||||||||||||||||||||||
Income taxes | (22 | ) | (26 | ) | - | - | 164 | 60 | (59 | ) | (22 | ) | - | - | 526 | 164 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (59 | ) | (68 | ) | - | - | 627 | 721 | (155 | ) | (59 | ) | - | - | 1,461 | 627 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Cash flows from (used in) operating activities | (23 | ) | (1 | ) | - | - | 1,683 | 1,264 | (73 | ) | (23 | ) | - | - | 3,051 | 1,683 | ||||||||||||||||||||||||||||||||
Capital and exploration expenditures(b) | 29 | 37 | - | - | 455 | 948 | ||||||||||||||||||||||||||||||||||||||||||
Total assets as at September 30 | 1,283 | 674 | (336 | ) | (337 | ) | 41,370 | 42,094 | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Capital and exploration expenditures(d) | 19 | 29 | - | - | 934 | 455 | ||||||||||||||||||||||||||||||||||||||||||
Total assets as at September 30(c) | 1,727 | 1,283 | (331 | ) | (336 | ) | 41,819 | 41,370 |
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) | The Downstream segment in 2018 included anon-cash impairment charge of $46 million, before tax, associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation. |
(d) | 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
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:
Nine Months | ||||||||||||||||||||||||||||||||
Third Quarter | Nine Months to September 30 | Third Quarter | to September 30 | |||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Proceeds from asset sales | 8 | 1,194 | 230 | 1,244 | 13 | 8 | 34 | 230 | ||||||||||||||||||||||||
Book value of asset sales | 2 | 285 | 12 | 292 | 3 | 2 | 5 | 12 | ||||||||||||||||||||||||
Gain (loss) on asset sales, before tax(a) (b) | 6 | 909 | 219 | 952 | ||||||||||||||||||||||||||||
Gain (loss) on asset sales, after tax(a) (b) | 5 | 774 | 191 | 808 | ||||||||||||||||||||||||||||
Gain (loss) on asset sales, before tax(a) | 10 | 6 | 29 | 219 | ||||||||||||||||||||||||||||
Gain (loss) on asset sales, after tax(a) | 6 | 5 | 21 | 191 |
(a) | The nine months ended September 30, 2017 included a gain of $174 million ($151 million after tax) |
Employee retirement benefits |
The components of net benefit cost were as follows:
Nine Months | ||||||||||||||||||||||||||||||||
Third Quarter | Nine Months to September 30 | Third Quarter | to September 30 | |||||||||||||||||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Pension benefits: | ||||||||||||||||||||||||||||||||
Current service cost | 54 | 50 | 163 | 152 | 59 | 54 | 179 | 163 | ||||||||||||||||||||||||
Interest cost | 77 | 82 | 235 | 240 | 76 | 77 | 227 | 235 | ||||||||||||||||||||||||
Expected return on plan assets | (104 | ) | (101 | ) | (306 | ) | (300 | ) | (100 | ) | (104 | ) | (301 | ) | (306 | ) | ||||||||||||||||
Amortization of prior service cost | 2 | 2 | 7 | 7 | 1 | 2 | 3 | 7 | ||||||||||||||||||||||||
Amortization of actuarial loss (gain) | 43 | 39 | 132 | 121 | 43 | 43 | 130 | 132 | ||||||||||||||||||||||||
Net periodic benefit cost | 72 | 72 | 231 | 220 | 79 | 72 | 238 | 231 | ||||||||||||||||||||||||
Other post-retirement benefits: | ||||||||||||||||||||||||||||||||
Other postretirement benefits: | ||||||||||||||||||||||||||||||||
Current service cost | 4 | 4 | 12 | 12 | 5 | 4 | 13 | 12 | ||||||||||||||||||||||||
Interest cost | 6 | 7 | 18 | 20 | 5 | 6 | 16 | 18 | ||||||||||||||||||||||||
Amortization of actuarial loss (gain) | 2 | 3 | 6 | 10 | 2 | 2 | 5 | 6 | ||||||||||||||||||||||||
Net periodic benefit cost | 12 | 14 | 36 | 42 | 12 | 12 | 34 | 36 | ||||||||||||||||||||||||
IMPERIAL OIL LIMITED
Financing |
Third Quarter | Nine Months to September 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Debt-related interest | 24 | 32 | 73 | 95 | ||||||||||||
Capitalized interest | (7) | (11) | (29) | (37) | ||||||||||||
Net interest expense | 17 | 21 | 44 | 58 | ||||||||||||
Other interest | 1 | (2) | 5 | (6) | ||||||||||||
Total financing costs | 18 | 19 | 49 | 52 | ||||||||||||
IMPERIAL OIL LIMITED
Nine Months | ||||||||||||||||
Third Quarter | to September 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Debt-related interest | 36 | 24 | 98 | 73 | ||||||||||||
Capitalized interest | (6 | ) | (7 | ) | (19 | ) | (29 | ) | ||||||||
Net interest expense | 30 | 17 | 79 | 44 | ||||||||||||
Other interest | - | 1 | - | 5 | ||||||||||||
Total financing | 30 | 18 | 79 | 49 |
Long-term debt |
As at | As at | |||||||||||||||||
As at Sept 30 | As at Dec 31 | Sept 30 | Dec 31 | |||||||||||||||
millions of Canadian dollars | millions of Canadian dollars | 2017 | 2016 | 2018 | 2017 | |||||||||||||
Long-term debt | Long-term debt | 4,447 | 4,447 | 4,447 | 4,447 | |||||||||||||
Capital leases | Capital leases | 566 | 585 | 539 | 558 | |||||||||||||
Total long-term debt | Total long-term debt | 5,013 | 5,032 | 4,986 | 5,005 | |||||||||||||
Other long-term obligations |
As at | As at | |||||||||||||||||||
As at Sept 30 | As at Dec 31 | Sept 30 | Dec 31 | |||||||||||||||||
millions of Canadian dollars | millions of Canadian dollars | 2017 | 2016 | 2018 | 2017 | |||||||||||||||
Employee retirement benefits(a) | Employee retirement benefits(a) | 1,410 | 1,645 | 1,466 | 1,529 | |||||||||||||||
Asset retirement obligations and other environmental liabilities(b) | Asset retirement obligations and other environmental liabilities(b) | 1,577 | 1,544 | 1,473 | 1,460 | |||||||||||||||
Share-based incentive compensation liabilities | Share-based incentive compensation liabilities | 138 | 139 | 131 | 99 | |||||||||||||||
Other obligations | Other obligations | 573 | 328 | Other obligations | 264 | 692 | ||||||||||||||
Total other long-term obligations | Total other long-term obligations | 3,698 | 3,656 | 3,334 | 3,780 | |||||||||||||||
|
(a) | Total recorded employee retirement benefits obligations also included |
(b) | Total asset retirement obligations and other environmental liabilities also included |
(c) | Included carbon emission program obligations. Carbon emission program credits are recorded under other assets, including intangibles, net. |
On 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. In light of these announcements and the anticipated legislative process, the company recorded anon-cash impairment charge of $46 million, before tax, associated with the company’s net carbon emission program credits (obligation) as at September 30, 2018.
IMPERIAL OIL LIMITED
10. | Common shares |
As of Sept 30 | As of Dec 31 | |||||||||
thousands of shares | 2017 | 2016 | ||||||||
| ||||||||||
Authorized | 1,100,000 | 1,100,000 | ||||||||
Common shares outstanding | 837,581 | 847,599 | ||||||||
|
From 1995 through September 2017, the company had a series of12-month normal course issuer bid share purchase programs. Cumulatively, 916,563 thousand shares were purchased under these programs. Exxon Mobil Corporation’s participation in these programs, including concurrent programs outside the normal course issuer bids, maintained its ownership interest in Imperial at approximately 69.6 percent.
As of | As of | |||||||
Sept 30 | Dec 31 | |||||||
thousands of shares | �� | 2018 | 2017 | |||||
Authorized | 1,100,000 | 1,100,000 | ||||||
Common shares outstanding | 792,703 | 831,242 |
The current12-month normal course issuer bid program was announced oncame into effect June 22, 2017,27, 2018, under which Imperial plans towill 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 - Third quarter | - | - | ||||||
- Full year | 1 | - | ||||||
2017 - Third quarter | 6,732 | 250 | ||||||
-Year-to-date | 10,018 | 377 | ||||||
| ||||||||
Cumulative purchase to date | 916,563 | 16,085 | ||||||
|
IMPERIAL OIL LIMITED
The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.
The company’s common share activities are summarized below:
Thousands of | Millions of | |||||||
shares | 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 | (38,539 | ) | (71 | ) | ||||
Balance as at September 30, 2018 | 792,703 | 1,465 |
The following table provides the calculation of net incomebasic and diluted earnings per common share:share and the dividends declared by the company on its outstanding common shares:
Nine Months | ||||||||||||||||
Third Quarter | to September 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) per common share - basic | ||||||||||||||||
Net income (loss)(millions of Canadian dollars) | 371 | 1,003 | 627 | 721 | ||||||||||||
Weighted average number of common shares outstanding(millions of shares) | 841.8 | 847.6 | 845.5 | 847.6 | ||||||||||||
Net income (loss) per common share(dollars) | 0.44 | 1.18 | 0.74 | 0.85 | ||||||||||||
Net income (loss) per common share - diluted | ||||||||||||||||
Net income (loss)(millions of Canadian dollars) | 371 | 1,003 | 627 | 721 | ||||||||||||
Weighted average number of common shares outstanding(millions of shares) | 841.8 | 847.6 | 845.5 | 847.6 | ||||||||||||
Effect of employee share-based awards(millions of shares) | 3.1 | 3.2 | 2.9 | 3.0 | ||||||||||||
Weighted average number of common shares outstanding, assuming dilution(millions of shares) | 844.9 | 850.8 | 848.4 | 850.6 | ||||||||||||
Net income (loss) per common share(dollars) | 0.44 | 1.18 | 0.74 | 0.85 | ||||||||||||
Nine Months | ||||||||||||||||
Third Quarter | to September 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings reinvested at beginning of period | 25,224 | 23,160 | 25,352 | 23,687 | ||||||||||||
Net income (loss) for the period | 371 | 1,003 | 627 | 721 | ||||||||||||
Share purchases in excess of stated value | (237 | ) | - | (358 | ) | - | ||||||||||
Dividends declared | (134 | ) | (127 | ) | (397 | ) | (373 | ) | ||||||||
Earnings reinvested at end of period | 25,224 | 24,036 | 25,224 | 24,036 | ||||||||||||
Nine Months | ||||||||||||||||
Third Quarter | to September 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income (loss) per common share - basic | ||||||||||||||||
Net income (loss)(millions of Canadian dollars) | 749 | 371 | 1,461 | 627 | ||||||||||||
Weighted average number of common shares outstanding(millions of shares) | 797.6 | 841.8 | 814.2 | 845.5 | ||||||||||||
Net income (loss) per common share(dollars) | 0.94 | 0.44 | 1.79 | 0.74 | ||||||||||||
Net income (loss) per common share - diluted | ||||||||||||||||
Net income (loss)(millions of Canadian dollars) | 749 | 371 | 1,461 | 627 | ||||||||||||
Weighted average number of common shares outstanding(millions of shares) | 797.6 | 841.8 | 814.2 | 845.5 | ||||||||||||
Effect of employee share-based awards(millions of shares) | 2.9 | 3.1 | 2.7 | 2.9 | ||||||||||||
Weighted average number of common shares outstanding, assuming dilution(millions of shares) | 800.5 | 844.9 | 816.9 | 848.4 | ||||||||||||
Net income (loss) per common share(dollars) | 0.94 | 0.44 | 1.79 | 0.74 | ||||||||||||
Dividends per common share - declared(dollars) | 0.19 | 0.16 | 0.54 | 0.47 |
IMPERIAL OIL LIMITED
Earnings reinvested |
Nine Months | ||||||||||||||||
Third Quarter | to September 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Earnings reinvested at beginning of period | 24,049 | 25,224 | 24,714 | 25,352 | ||||||||||||
Net income (loss) for the period | 749 | 371 | 1,461 | 627 | ||||||||||||
Share purchases in excess of stated value | (400 | ) | (237 | ) | (1,490 | ) | (358 | ) | ||||||||
Dividends declared | (151 | ) | (134 | ) | (438 | ) | (397 | ) | ||||||||
Earnings reinvested at end of period | 24,247 | 25,224 | 24,247 | 25,224 |
12. | Other comprehensive income (loss) information |
Changes in accumulated other comprehensive income (loss):
millions of Canadian dollars | 2017 | 2016 | 2018 | 2017 | ||||||||||||
| ||||||||||||||||
Balance at January 1 | (1,897 | ) | (1,828 | ) | (1,815 | ) | (1,897 | ) | ||||||||
Post-retirement benefits liability adjustment: | ||||||||||||||||
Postretirement benefits liability adjustment: | ||||||||||||||||
Current period change excluding amounts reclassified from accumulated other comprehensive | 41 | 100 | (19 | ) | 41 | |||||||||||
Amounts reclassified from accumulated other comprehensive income | 106 | 108 | 101 | 106 | ||||||||||||
| ||||||||||||||||
Balance at September 30 | (1,750 | ) | (1,620 | ) | (1,733 | ) | (1,750 | ) | ||||||||
|
Amounts reclassified out of accumulated other comprehensive income (loss) -before-tax income (expense):
Third Quarter | Nine Months to September 30 | |||||||||||||||
millions of Canadian dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Amortization of post-retirement benefits liability adjustment | (47 | ) | (44 | ) | (145 | ) | (138 | ) | ||||||||
(a) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 4). |
|
Nine Months | ||||||||||||||||
Third Quarter | to September 30 | |||||||||||||||
millions of Canadian dollars | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost(a) | (46 | ) | (47 | ) | (138 | ) | (145 | ) |
(a) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 6).
Income tax expense (credit) for components of other comprehensive income (loss):
Third Quarter | Nine Months to September 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 | 10 | 39 | 30 | ||||||||||||
Total | 13 | 10 | 55 | 67 | ||||||||||||
Nine Months | ||||||||||||||||
Third Quarter | to September 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 in net periodic benefit cost | 12 | 13 | 37 | 39 | ||||||||||||
Total | 12 | 13 | 30 | 55 |
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 will be included in the 2018 results. 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 to be recorded on the balance sheet as a right of use asset and a lease liability. Imperial expects to use the transition method that applies the new lease standard at January 1, 2019 and recognizes any cumulative effect adjustment to the opening balance of the 2019 retained earnings. The company acquired lease accounting software to facilitate implementation, and is currently 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.year.
IMPERIAL OIL LIMITED
In March 2017, the FASB issued an Accounting Standards Update2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires that the service cost component of net benefit costs be reported in the same line in the income statement as other compensation costs and that the other components of net benefit costs be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs will be eligible for capitalization. Imperial will adopt the update beginning January 1, 2018. As a result of Imperial’s adoption of the update, the company expects to add a new lineNon-service pension and other postretirement benefit expense to its consolidated statement of income. This line would reflect the other components of net benefit costs as described in the Accounting Standards Update and would include amounts that were previously included in Production and manufacturing expenses, and Selling and general expenses. As of January 1, 2018, these costs will no longer be considered for capitalization. The impact from this change on the company’s net income is not expected to be material. Furthermore, as part of the adoption of the update, the company expects it will include all of these costs in its Corporate and Other expenses.
IMPERIAL OIL LIMITED
Item 2. | Management’s discussion and analysis of financial condition and results of operations |
Operating results
Third quarter 20172018 vs. third quarter 20162017
The company’s net income for the third quarter of 20172018 was $371$749 million or $0.44per-share$0.94 per share on a diluted basis, an increase of $378 million compared to the net income of $1,003$371 million or $1.18per-share$0.44 per share, for the same period last year.2017. Third quarter 2016 results includedfor 2018 include a $716non-cash impairment charge of $33 million gain from($0.04 per share) associated with the saleGovernment of retail sites.Ontario’s revocation of its carbon emission cap and trade regulation.
Upstream recorded net income was $222 million in the third quarter, of $62up $160 million compared to a net loss of $26 million infrom the same period of 2016. Results in the third quarter of 2017 reflected2017. Improved results reflect the impact of higher Canadian crude oil realizations of about $190$320 million and higher Kearl volumes of about $50 million. These impacts were$120 million, partially offset by lower Syncrude and conventional volumes of about $80$150 million including the absence of production at Norman Wells, and higher royaltiesoperating expenses of about $50$70 million.
West Texas Intermediate (WTI) averaged US$48.2369.43 per barrel in the third quarter of 2017,2018, up from US$44.9448.23 per barrel in the same quarter of 2016.2017. Western Canada Select (WCS) averaged US$38.2947.49 per barrel and US$31.4338.29 per barrel respectively for the same periods. The WTI / WCS differential narrowedwidened to 21 percentapproximately US$22 per barrel in the third quarter of 2017,2018, from 30 percentaround US$10 per barrel in the same period of 2016.2017.
The Canadian dollar averaged US$0.800.76 in the third quarter of 2017, an increase2018, a decrease of US$0.030.04 from the third 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 $39.02$50.42 per barrel for the third quarter of 2017,2018, an increase of $8.86$11.40 per barrel versus the third quarter of 2016.2017. Synthetic crude realizations averaged $61.14$89.70 per barrel, an increase of $2.17$28.56 per barrel for the same period of 2016.2017.
Gross production of Cold Lake bitumen averaged 163,000150,000 barrels per day in the third quarter, up from 157,000compared to 163,000 barrels per day in the same period last year. The higher production was mainlyLower volumes were primarily due to theproduction timing of theassociated with steam cycles.management.
Gross production of Kearl bitumen averaged 182,000244,000 barrels per day in the third quarter (129,000(173,000 barrels Imperial’s share), up from 159,000182,000 barrels per day (113,000(129,000 barrels Imperial’s share) during the third quarter of 2016.2017. Higher production was mainly the result of improved reliability.operational reliability associated with ore preparation, enhanced piping durability and feed management, partially offset by planned turnaround activity.
The company’s share of gross production from Syncrude averaged 74,00045,000 barrels per day, compared to 85,00074,000 barrels per day in the third quarter of 2016. Repairs associated with2017. Lower production was due to a site-wide power disruption that occurred on June 20, 2018, resulting in a complete shutdown of all processing units. Production was progressively restored throughout the Syncrude Mildred Lake upgrader firequarter and all cokers were completed in late July. Lower third quarter volumes reflect the impact of the fire on operations, when compared to the same quarter in 2016.backon-line bymid-September.
Downstream net income was $292$502 million in the third quarter, compared to $1,002up $210 million infrom the same periodthird quarter of 2016.2017. Earnings decreasedincreased mainly due to the absence of a $716 million gain from the sale of company-owned retail sites and higher refining turnaround activity of about $100 million. These factors were partly offset by higher refiningstronger margins of about $140 million.$220 million, partially offset by anon-cash impairment charge of $33 million associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation.
Refinery throughput averaged 385,000388,000 barrels per day, compared to 407,000up from 385,000 barrels per day in the third quarter of 2016. Reduced throughput reflects2017. Capacity utilization increased turnaround activity associated with the Nanticoke refineryto 92 percent from 91 percent in the third quarter of 2017.
IMPERIAL OIL LIMITED
Petroleum product sales were 500,000516,000 barrels per day, compared to 505,000up from 500,000 barrels per day in the third quarter of 2016.
IMPERIAL OIL LIMITED
2017. Sales growth continues to be driven by optimization across the full downstream value chain, and the expansion of Imperial’s logistic capabilities.
Chemical net income was $52$69 million in the third quarter, up $17 million from the same quarter of 2017, reflecting strong polyethylene pricing and advantaged feedstocks.
Corporate and other expenses were $44 million in the third quarter, compared to $56 million in the same quarter of 2016.
Net income effects from Corporate and Other were negative $35 million in the third quarter, compared to negative $29 million in the same period of 2016.2017. As part of the implementation of the Financial Accounting Standards Board’s update, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, beginning January 1, 2018, Corporate and other includes allnon-service pension and postretirement benefit expenses. Prior to 2018, the majority of these costs were allocated to the operating segments.
IMPERIAL OIL LIMITED
Nine months 20172018 vs. nine months 20162017
Net income in the first nine months of 20172018 was $1,461 million, or $1.79 per share on a diluted basis, an increase of $834 million compared to a net income of $627 million or $0.74per-share on a diluted basis versus net income of $721 million or $0.85 per-share per share in the first nine months of 2016.2017.
Upstream recorded a net loss of $225income was $172 million in the first nine months of 2017,2018, an increase of $397 million compared to a net loss of $764$225 million from the same period of 2016. Results reflected2017. Improved results reflect the impact of higher Canadian crude oil realizations of about $940$670 million and higher Kearl volumes of about $50 million. These impacts were$120 million, partially offset by the impact of lower Cold Lake and Syncrude volumes of about $170 million, higher operating costs of about $120 million and higher royalties of about $150 million, lower Syncrude and conventional volumes of about $130 million, including the absence of production at Norman Wells, higher energy costs of about $90 million, and higher operating expenses at Syncrude of about $90$60 million.
West Texas Intermediate averaged US$49.4066.77 per barrel in the first nine months of 2017,2018, up from US$41.5449.40 per barrel in the same period of 2016.2017. Western Canada Select averaged US$37.5744.98 per barrel and US$27.7437.57 per barrel respectively for the same periods. The WTI / WCS differential narrowedwidened to 24 percentapproximately US$22 per barrel in the first nine months of 2017,2018, from 33 percentaround US$12 per barrel in the same period of 2016.2017.
During the first nine months of 2017, the Canadian dollar strengthened relative to the US dollar versus the same period of 2016. The Canadian dollar averaged US$0.770.78 in the first nine months of 2017,2018, an increase of about US$0.01 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 $37.82$45.04 per barrel for the first nine months of 2017,2018, an increase of $14.05$7.22 per barrel versus the same period of 2016.2017. Synthetic crude realizations averaged $64.37$83.66 per barrel, an increase of $10.92$19.29 per barrel from the same period of 2016.2017.
Gross production of Cold Lake bitumen averaged 161,000145,000 barrels per day in the first nine months of 2017,2018, compared to 162,000161,000 barrels per day from the same period of 2016.2017. Lower volumes were primarily due to planned maintenance and production timing associated with steam management.
Gross production of Kearl bitumen averaged 179,000202,000 barrels per day in the first nine months of 2017 (127,0002018 (144,000 barrels Imperial’s share) up from 169,000179,000 barrels per day (120,000(127,000 barrels Imperial’s share) from the same period of 2016.2017. Increased 20172018 production reflects improved operational reliability associated with the mining and ore preparation, operations.enhanced piping durability and feed management.
During the first nine months of 2017,2018, the company’s share of gross production from Syncrude averaged 56,00053,000 barrels per day, compared to 61,00056,000 barrels per day from the same period of 2016.2017. Syncrude year to dateyear-to-date production was impacted by a site-wide power disruption that occurred on June 20 resulting in a complete shutdown of all processing units. Production was progressively restored throughout the Marchthird quarter 2018 and all cokers were backon-line bymid-September. Production in 2017 fire atwas impacted by repairs associated with the Syncrude Mildred Lake upgrader and planned maintenance. In 2016, production was impacted by the Alberta wildfires and planned maintenance.fire.
Downstream net income was $750$1,224 million, compared to $1,393an increase of $474 million fromversus the same periodprior year. Higher earnings primarily reflect stronger margins of 2016. Earnings decreased mainly due toabout $910 million, partially offset by the impact of increased planned turnaround activity and reliability events of about $190 million, the absence of a $719the $151 million gain from the sale of company-owned retail sites and lower marketing margins of approximately $170 million associated with the impact of the retail divestment. These factors were partially offset by a gain of $151 million fromon the sale of a surplus property in 2017, and higher industry refining marginsanon-cash impairment charge of about $90 million.$33 million associated with the Government of Ontario’s revocation of its carbon emission cap and trade regulation.
Refinery throughput averaged 381,000386,000 barrels per day in the first nine months of 2017,2018, up from 351,000381,000 barrels per day from the same period of 2016.2017. Capacity utilization increased to 9091 percent from 8390 percent in the same period of 2016, reflecting reduced turnaround maintenance activity.2017.
Petroleum product sales were 492,000503,000 barrels per day in the first nine months of 2017,2018, up from 481,000492,000 barrels per day from the same period of 2016.2017. Sales growth continues to be driven by strong collaborationoptimization across ourthe full downstream value chain, and the expansion of Imperial’s wholesale, industrial and commercial networks.logistics capabilities.
Chemical net income was $161 million, up from $160 million from the same period of 2016.
IMPERIAL OIL LIMITED
ForChemical net income was $220 million, an increase of $59 million versus the prior year, reflecting higher margins and volumes.
Corporate and other expenses were $155 million for the first nine months of 2017, net income effects from Corporate and Other were negative2018, compared to $59 million versus negative $68 million fromin the same period of 2016.2017. Beginning January 1, 2018, Corporate and other includes allnon-service pension and postretirement benefit expenses. Prior to 2018, the majority of these costs were allocated to the operating segments.
IMPERIAL OIL LIMITED
Liquidity and capital resources
Cash flow generated from operating activities was $1,207 million in the third quarter, up from $837 million from the corresponding period in 2017, reflecting higher earnings.
Investing activities used net cash of $352 million in the third quarter, compared with $772 million in the corresponding period in 2016.
Investing activities used net cash of $234 million in the third quarter, compared with $1,005 million cash generated from investing activitiesused in the same period of 2016,2017, reflecting lower proceeds from asset sales.
Cash used in financing activities was $393 million in the third quarter, compared with $1,724 million in the third quarter of 2016, reflecting the absence of debt repayments. Dividends paid in the third quarter of 2017 were $136 million. Theper-share dividend paid in the third quarter was $0.16, up from $0.15 in the same period of 2016. In the second quarter of 2017, Imperial resumed share purchases under its share buyback program. During the third quarter, the company purchased about 6.7 million shares for approximately $250 million.
The company’s cash balance was $833 million at September 30, 2017, versus $248 million at the end of the third quarter of 2016.
Cash flow generated from operating activities was $1,683 million in the first nine months of 2017, compared with $1,264 million in 2016, reflecting higher earnings, excluding the impact of asset sales, partially offset by unfavourable working capital effects.
Investing activities used net cash of $454 million in the first nine months of 2017, compared with cash generated from investing activities of $350 million from the same period of 2016, reflecting lower proceeds from asset sales partially offset by lower additions to property, plant and equipment.
Cash used in financing activities was $787$580 million in the third quarter, compared with $393 million used in the third quarter of 2017. Dividends paid in the third quarter of 2018 were $155 million. The per share dividend paid in the third quarter was $0.19, up from $0.16 in the same period of 2017. During the third quarter, the company, under its share purchase program, purchased about 10 million shares for approximately $418 million, including shares purchased from Exxon Mobil Corporation.
The company’s cash balance was $1,148 million at September 30, 2018, versus $833 million at the end of third quarter 2017.
Cash flow generated from operating activities was $3,051 million in the first nine months of 2017, compared with $1,5692018, up from $1,683 million from the same period of 2016,2017, primarily reflecting higher earnings.
Investing activities used net cash of $1,096 million in the absencefirst nine months of debt repayments.2018, compared with $454 million used in the same period of 2017, reflecting higher additions to property, plant and equipment, and lower proceeds from asset sales.
Cash used in financing activities was $2,002 million in the first nine months of 2018, compared with $787 million used in the same period of 2017. Dividends paid in the first nine months of 20172018 were $390$421 million. Theper-share per share dividend paid in the first nine months of 20172018 was $0.46,$0.51, up from $0.43 for$0.46 from the same period of 2016.
2017. During the first nine months of 20172018, the company, under its share purchase program, purchased about 1038.5 million shares for $377approximately $1,561 million, including shares purchased from Exxon Mobil Corporation.
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 will be included in the 2018 results. 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 to be recorded on the balance sheet as a right of use asset and a lease liability. Imperial expects to use the transition method that applies the new lease standard at January 1, 2019 and recognizes any cumulative effect adjustment to the opening balance of the 2019 retained earnings. The company acquired lease accounting software to facilitate implementation, and is currently 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.year.
IMPERIAL OIL LIMITED
In March 2017, the FASB issued an Accounting Standards Update2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires that the service cost component of net benefit costs be reported in the same line in the income statement as other compensation costs and that the other components of net benefit costs be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs will be eligible for capitalization. Imperial will adopt the update beginning January 1, 2018. As a result of Imperial’s adoption of the update, the company expects to add a new lineNon-service pension and other postretirement benefit expense to its consolidated statement of income. This line would reflect the other components of net benefit costs as described in the Accounting Standards Update and would include amounts that were previously included in Production and manufacturing expenses, and Selling and general expenses. As of January 1, 2018, these costs will no longer be considered for capitalization. The impact from this change on the company’s net income is not expected to be material. Furthermore, as part of the adoption of the update, the company expects it will include all of these costs in its Corporate and Other expenses.
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. Quantitative and qualitative disclosures about market risk
Information about market risks for the nine months ended September 30, 2017,2018, does not differ materially from that discussed on page 2224 of the company’s annual report on Form10-K for the year ended December 31, 2016.2017 and Form10-Q for the quarter ended June 30, 2018.
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, 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 2. Unregistered sales of equity securities and use of proceeds
Issuer purchases of equity securities
Total number of | Average price | Total number of | Maximum number | |||||
July 2017 (Jul 1 – Jul 31) | - | - | - | 25,395,927 | ||||
August 2017 (Aug 1 – Aug 31) | 3,876,648 | 36.42 | 3,876,648 | 21,519,279 | ||||
September 2017 (Sept 1 – Sept 30) | 2,855,022 | 38.10 | 2,855,022 | 18,664,257 (b) |
Total number of shares purchased | Average price paid per share (Canadian dollars) | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs (a) | |||||||||||||||
July 2018 | ||||||||||||||||||
(July 1 - July 31) | 3,379,344 | 43.72 | 3,379,344 | 36,529,089 | ||||||||||||||
August 2018 | ||||||||||||||||||
(August 1 - August 31) | 3,540,254 | 41.69 | 3,540,254 | 32,988,835 | ||||||||||||||
September 2018 | ||||||||||||||||||
(September 1 - September 30) | 3,057,493 | 40.09 | 3,057,493 | 29,931,342 | (b) |
(a) | On June 22, |
(b) | 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.
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: | /s/ | ------------------------------------------------ | ||||
(Signature) | ||||||
Daniel E. Lyons | ||||||
Senior vice-president, finance and administration, and controller | ||||||
(Principal accounting officer) | ||||||
Date: | /s/ Cathryn Walker | ------------------------------------------------ | ||||
(Signature) | ||||||
Cathryn Walker | ||||||
Assistant corporate secretary |
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