Table of Contents
FORM
10-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 SeptemberJune 30, 2017

2020

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 
CANADA
98-0017682
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
505 Quarry Park Boulevard S.E. Calgary, Alberta, Canada
 
T2C 5N1
Calgary, Alberta, Canada T2C 5N1
(Address of principal executive offices) (Postal Code)

Registrant’s telephone number,
including
area code:
1-800-567-3776

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on
which registered
None
None
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  

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
✓
  NO   

The registrant is a large accelerated filer, an accelerated filer, a
non-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 Rule
12b-2
of the Exchange Act of 1934).

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 Rule
12b-2
of the Exchange Act of 1934).

YES  
  NO  
✓

The number of common shares outstanding, as of SeptemberJune 30, 20172020 was 837,581,329.

734,076,755.

Table of Contents
IMPERIAL OIL LIMITED

Table of contents

Page
Page
PART I.   FINANCIAL INFORMATION
3
Item 1.
Financial statements
3

Consolidated statement of income

3

Consolidated statement of comprehensive income

4

Consolidated balance sheet

5
Consolidated statement of shareholders’ equity

6
Consolidated statement of cash flows

6
7

Notes to the consolidated financial statements

7
8
Item 2.
Management’s discussion and analysis of financial condition and results of operations
15
18
Item 3.
Quantitative and qualitative disclosures about market risk
21
26
Item 4.   Controls and procedures
26
 
Item 4.Controls and procedures21
PART II.   OTHER INFORMATION
22
27
Item 1A.   Risk factors
27
Item 2.
Unregistered sales of equity securities and use of proceeds
22
28
Item 6.   Exhibits
29
 
Item 6.Exhibits23
SIGNATURES
24
30

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, 2016.2019. 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.

2
Table of Contents
IMPERIAL OIL LIMITED

PART I.  FINANCIAL INFORMATION

Item 1.   Financial statements

Item 1.
Financial statements
Consolidated statement of income (U.S. GAAP, unaudited)

        Third Quarter   

Nine Months

to September 30

 
millions of Canadian dollars  2017   2016   2017       2016    

 

 

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    

 

 

Total revenues and other income

   7,158    7,442    21,347    18,912    

 

 

Expenses

        

Exploration

   7    16    29    75    

Purchases of crude oil and products(b)

   4,251    3,857    13,226    10,884    

Production and manufacturing(c)

   1,338    1,261    4,238    3,842    

Selling and general(c)

   219    275    626    812    

Federal excise tax

   438    434    1,253    1,237    

Depreciation and depletion

   391    398    1,135    1,229    

Financing costs(note 5)

   18    19    49    52    

 

 

Total expenses

   6,662    6,260    20,556    18,131    

 

 

Income (loss) before income taxes

   496    1,182    791    781    

Income taxes

   125    179    164    60    

 

 

Net income (loss)

   371    1,003    627    721    

 

 

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    

 

 

(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    

             Six Months 
       Second Quarter      to June 30 
millions of Canadian dollars  
2020
  2019  
2020
  2019 
Revenues and other income
     
Revenues
(a)
  
 
3,666
 
  9,228  
 
10,330
 
  17,193 
Investment and other income
(note 4)
  
 
44
 
  33  
 
70
 
  50 
Total revenues and other income
  
 
3,710
 
  9,261  
 
10,400
 
  17,243 
Expenses
     
Exploration
  
 
3
 
  5  
 
4
 
  38 
Purchases of crude oil and products
(b) (note 13)
  
 
2,115
 
  5,662  
 
6,341
 
  10,557 
Production and manufacturing
(c)
  
 
1,273
 
  1,715  
 
2,852
 
  3,310 
Selling and general
(c)
  
 
183
 
  236  
 
349
 
  449 
Federal excise tax and fuel charge
  
 
369
 
  463  
 
820
 
  857 
Depreciation and depletion
(note 13)
  
 
413
 
  392  
 
886
 
  782 
Non-service
pension and postretirement benefit
  
 
30
 
  36  
 
60
 
  72 
Financing
(d) (note 7)
  
 
17
 
  23  
 
36
 
  51 
Total expenses
  
 
4,403
 
  8,532  
 
11,348
 
  16,116 
Income (loss) before income taxes
  
 
(693
) 
  729  
 
(948
) 
  1,127 
Income taxes
  
 
(167
) 
  (483)  
 
(234
) 
  (378) 
Net income (loss)
  
 
(526
) 
  1,212  
 
(714
) 
  1,505 
Per share information (Canadian dollars)
     
Net income (loss) per common share - basic
(note 11)
  
 
(0.72
) 
  1.58  
 
(0.97
) 
  1.95 
Net income (loss) per common share - diluted
(note 11)
  
 
(0.72
) 
  1.57  
 
(0.97
) 
  1.94 
(a)  Amounts from related parties included in revenues.
  
 
747
 
  2,234  
 
2,483
 
  3,956 
(b)  Amounts to related parties included in purchases of crude oil and products.
  
 
396
 
  908  
 
1,135
 
  1,636 
(c)   Amounts to related parties included in production and manufacturing, and selling and general expenses.
  
 
138
 
  161  
 
321
 
  322 
(d)  Amounts to related parties included in financing, (note 7).
  
 
14
 
  24  
 
38
 
  52 
The information in the notes to consolidated financial statements is an integral part of these statements.

3
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IMPERIAL OIL LIMITED

Consolidated statement of comprehensive income (U.S. GAAP, unaudited)

   Third Quarter   

Nine Months

to September 30

 
millions of Canadian dollars  2017   2016       2017       2016    

 

 

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    

 

 

Total other comprehensive income (loss)

   34    34    147    208    

 

 
        

 

 

Comprehensive income (loss)

   405    1,037    774    929    

 

 

              Six Months 
       Second Quarter       to June 30 
millions of Canadian dollars  
2020
  2019   
2020
  2019 
Net income (loss)
  
 
(526
) 
  1,212   
 
(714
) 
  1,505 
Other comprehensive income (loss), net of income taxes
      
Postretirement benefits liability adjustment (excluding amortization)
  
 
-
 
  -   
 
(114
) 
  18 
Amortization of postretirement benefits liability adjustment included in net periodic benefit costs
  
 
34
 
  28   
 
68
 
  55 
Total other comprehensive income (loss)
  
 
34
 
  28   
 
(46
) 
  73 
                   
Comprehensive income (loss)
  
 
(492
) 
  1,240   
 
(760
) 
  1,578 
The information in the notes to consolidated financial statements is an integral part of these statements.

4
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IMPERIAL OIL LIMITED

Consolidated balance sheet (U.S. GAAP, unaudited)

millions of Canadian dollars  

As at

Sept 30
2017

  

As at

Dec 31
2016

 
  

Assets

   

Current assets

   

Cash

   833   391 

Accounts receivable, less estimated doubtful accounts(a)

   1,896   2,023 

Inventories of crude oil and products

   989   949 

Materials, supplies and prepaid expenses

   441   468 
  

Total current assets

   4,159   3,831 

Investments and long-term receivables

   931   1,030 

Property, plant and equipment,

   53,844   53,515 

less accumulated depreciation and depletion

   (18,248)   (17,182) 
  

Property, plant and equipment, net

   35,596   36,333 

Goodwill

   186   186 

Other assets, including intangibles, net

   498   274 
  

Total assets

   41,370   41,654 
  

Liabilities

   

Current liabilities

   

Notes and loans payable(b)

   202   202 

Accounts payable and accrued liabilities(a) (note 7)

   3,041   3,193 

Income taxes payable

   59   488 
  

Total current liabilities

   3,302   3,883 

Long-term debt(c) (note 6)

   5,013   5,032 

Other long-term obligations(d) (note 7)

   3,698   3,656 

Deferred income tax liabilities

   4,336   4,062 
  

Total liabilities

   16,349   16,633 
  

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) 
  

Total shareholders’ equity

   25,021   25,021 
  

Total liabilities and shareholders’ equity

   41,370   41,654 
  
   
As at
June 30
  
As at
Dec 31
 
millions of Canadian dollars  
2020
  2019 
Assets
   
Current assets
   
Cash
  
 
233
 
  1,718 
Accounts receivable, less estimated doubtful accounts
(a) (note 5)
  
 
1,866
 
  2,699 
Inventories of crude oil and products
(note 13)
  
 
1,253
 
  1,296 
Materials, supplies and prepaid expenses
  
 
741
 
  616 
Total current assets
  
 
4,093
 
  6,329 
Investments and long-term receivables
(b) (note 5)
  
 
882
 
  891 
Property, plant and equipment,
  
 
55,358
 
  54,868 
less accumulated depreciation and depletion
  
 
(21,497
) 
  (20,665) 
Property, plant and equipment, net
  
 
33,861
 
  34,203 
Goodwill
(note 13)
  
 
166
 
  186 
Other assets, including intangibles, net
  
 
498
 
  578 
Total assets
  
 
39,500
 
  42,187 
Liabilities
   
Current liabilities
   
Notes and loans payable
(c)
  
 
228
 
  229 
Accounts payable and accrued liabilities
(a) (note 9)
  
 
3,176
 
  4,260 
Income taxes payable
  
 
-
 
  106 
Total current liabilities
  
 
3,404
 
  4,595 
Long-term debt
(d) (note 8)
  
 
4,965
 
  4,961 
Other long-term obligations
(note 9)
  
 
3,753
 
  3,637 
Deferred income tax liabilities
  
 
4,462
 
  4,718 
Total liabilities
  
 
16,584
 
  17,911 
Shareholders’ equity
   
Common shares at stated value
(e) (note 11)
  
 
1,357
 
  1,375 
Earnings reinvested
  
 
23,516
 
  24,812 
Accumulated other comprehensive income
(loss) (note 12)
  
 
(1,957
) 
  (1,911) 
Total shareholders’ equity
  
 
22,916
 
  24,276 
Total liabilities and shareholders’ equity
  
 
39,500
 
  42,187 
(a)
Accounts receivable, less estimated doubtful accounts included net amounts receivable from related parties of $87$317 million (2016(2019 - $172$1,007 million).
(b)
Investments and long-term receivables included amounts from related parties of $311 million (2019 - $296 million).
(c)
Notes and loans payable included amounts to related parties of $75$111 million (2016(2019 - $75$111 million).
(c)(d)
Long-term debt included amounts to related parties of $4,447 million (2016(2019 - $4,447 million).
(d)Other long-term obligations included amounts to related parties of $71 million (2016 - $104 million).
(e)
Number of common shares authorized and outstanding were 1,100 million and 838734 million, respectively (2016(2019 - 1,100 million and 848744 million, respectively).

The information in the notes to consolidated financial statements is an integral part of these statements.

5
Table of Contents
IMPERIAL OIL LIMITED

Consolidated statement of cash flowsshareholders’ equity (U.S. GAAP, unaudited)

Inflow (outflow)  Third Quarter  

    Nine Months

    to September 30

 
millions of Canadian dollars  2017  2016  2017  2016 

 

 

Operating activities

     

Net income (loss)

   371   1,003   627   721 

Adjustments fornon-cash items:

     

Depreciation and depletion

   391   398   1,135   1,229 

(Gain) loss on asset sales(note 3)

   (6)   (909)   (219)   (952) 

Deferred income taxes and other

   131   215   294   35 

Changes in operating assets and liabilities:

     

Accounts receivable

   (297)   275   127   (121) 

Inventories, materials, supplies and prepaid expenses

   104   (7)   (13)   112 

Income taxes payable

   19   (13)   (429)   - 

Accounts payable and accrued liabilities

   81   (241)   (159)   (59) 

All other items - net(a)

   43   51   320   299 

 

 

Cash flows from (used in) operating activities

   837   772   1,683   1,264 

 

 

Investing activities

     

Additions to property, plant and equipment

   (241)   (189)   (683)   (893) 

Proceeds from asset sales(note 3)

   8   1,194   230   1,244 

Additional investments

   (1)   -   (1)   (1) 

 

 

Cash flows from (used in) investing activities

   (234)   1,005   (454)   350 

 

 

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) 

Dividends paid

   (136)   (127)   (390)   (364) 

Common shares purchased(note 8)

   (250)   -   (377)   - 

 

 

Cash flows from (used in) financing activities

   (393)   (1,724)   (787)   (1,569) 

 

 

Increase (decrease) in cash

   210   53   442   45 

Cash at beginning of period

   623   195   391   203 

 

 

Cash at end of period(b)

   833   248   833   248 

 

 

(a)   Included contribution to registered pension plans.

   (78)   (44)   (176)   (120) 
(b)Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased.

       Second Quarter      Six Months
    to June 30		 
millions of Canadian dollars  
2020
  2019  
2020
  2019 
Common shares at stated value
(note 11)
     
At beginning of period
  
 
1,357
 
  1,427  
 
1,375
 
  1,446 
Share purchases at stated value
  
 
-
 
  (17)  
 
(18
) 
  (36) 
At end of period
  
 
1,357
 
  1,410  
 
1,357
 
  1,410 
Earnings reinvested
     
At beginning of period
  
 
24,204
 
  24,364  
 
24,812
 
  24,560 
Net income (loss) for the period
  
 
(526
) 
  1,212  
 
(714
) 
  1,505 
Share purchases in excess of stated value
  
 
-
 
  (351)  
 
(256
) 
  (693) 
Dividends declared
  
 
(162
) 
  (169)  
 
(324
) 
  (316) 
Cumulative effect of accounting change
(note 5)
  
 
-
 
  -  
 
(2
) 
  - 
At end of period
  
 
23,516
 
  25,056  
 
23,516
 
  25,056 
Accumulated other comprehensive income (loss)
(note 12)
     
At beginning of period
  
 
(1,991
) 
  (1,472)  
 
(1,911
) 
  (1,517) 
Other comprehensive income
(loss)
  
 
34
 
  28  
 
(46
) 
  73 
At end of period
  
 
(1,957
) 
  (1,444)  
 
(1,957
) 
  (1,444) 
Shareholders’ equity at end of period
  
 
22,916
 
  25,022  
 
22,916
 
  25,022 
The information in the notes to consolidated financial statements is an integral part of these statements.

6
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IMPERIAL OIL LIMITED

Consolidated statement of cash flows (U.S. GAAP, unaudited)
Inflow (outflow)      Second Quarter      Six Months
    to June 30		 
millions of Canadian dollars  
2020
  2019  
2020
  2019 
Operating activities
     
Net income
(loss)
  
 
(526
) 
  1,212  
 
(714
) 
  1,505 
Adjustments for
non-cash
items:
     
Depreciation and depletion
  
 
413
 
  392  
 
866
 
  782 
Impairment of intangible assets
(note 13)
  
 
-
 
  -  
 
20
 
  - 
(Gain) loss on asset sales
(note 4)
  
 
(10
) 
  (11)  
 
(17
) 
  (6) 
Inventory write-down to current market value
(note 13)
  
 
(281
) 
  -  
 
-
 
  - 
Deferred income taxes and other
  
 
(242
) 
  (471)  
 
(199
) 
  (475) 
Changes in operating assets and liabilities:
     
Accounts receivable
  
 
(310
) 
  99  
 
833
 
  (605) 
Inventories, materials, supplies and prepaid expenses
  
 
117
 
  (40)  
 
(82
) 
  (21) 
Income taxes payable
  
 
(2
) 
  (9)  
 
(106
) 
  (37) 
Accounts payable and accrued liabilities
  
 
(46
) 
  (175)  
 
(1,074
) 
  728 
All other items - net
(b)
  
 
71
 
  29  
 
80
 
  158 
Cash flows from (used in) operating activities
  
 
(816
) 
  1,026  
 
(393
) 
  2,029 
Investing activities
     
Additions to property, plant and equipment
  
 
(205
) 
  (394)  
 
(515
) 
  (825) 
Proceeds from asset sales
(note 4)
  
 
40
 
  14  
 
49
 
  36 
Loans to equity companies - net
  
 
(7
) 
  (49)  
 
(14
) 
  (103) 
Cash flows from (used in) investing activities
  
 
(172
) 
  (429)  
 
(480
) 
  (892) 
Financing activities
     
Reduction in finance lease obligations
(note 8)
  
 
(5
) 
  (6)  
 
(12
) 
  (13) 
Dividends paid
  
 
(162
) 
  (147)  
 
(326
) 
  (296) 
Common shares purchased
(note 11)
  
 
-
 
  (368)  
 
(274
) 
  (729) 
Cash flows from (used in) financing activities
  
 
(167
) 
  (521)  
 
(612
) 
  (1,038) 
Increase (decrease) in cash
  
 
(1,155
) 
  76  
 
(1,485
) 
  99 
Cash at beginning of period
  
 
1,388
 
  1,011  
 
1,718
 
  988 
Cash at end of period
(a)
  
 
233
 
  1,087  
 
233
 
  1,087 
(a)   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.
(b)   Included contributions to registered pension plans.
  
 
(41
) 
  (57)  
 
(100
) 
  (98) 
  
 
 
 
     
 
 
 
    
Income taxes (paid) refunded.
  
 
1
 
  23   (152)   46 
Interest (paid), net of capitalization.
  
 
(17
) 
  (23)   (36)   (51) 
The information in the notes to consolidated financial statements is an integral part of these statements.
7
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IMPERIAL OIL LIMITED
Notes to consolidated financial statements (unaudited)

1.  Basis of financial statement preparation

These unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles of the United States of America (GAAP) and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) in the company’s 20162019 annual report on Form
10-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 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 ninesix months ended SeptemberJune 30, 2017,2020, 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 changes
Effective January 1, 2020, Imperial adopted the Financial Accounting Standards Board’s update,
Financial Instruments—Credit Losses (Topic 326)
, as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote and considers past events, current conditions and expectations of the future. The standard did not have a material impact on the company’s financial statements.
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IMPERIAL OIL LIMITED

2.

3.  Business segments

Third Quarter             Upstream    Downstream     Chemical 
millions of Canadian dollars  2017  2016   2017  2016  2017   2016  

 

 

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 

 

 
   2,262   2,026   5,460   6,094   324    340 

 

 

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)   -   -   -    -  

 

 

Total expenses

   2,183   2,107   5,066   4,868   252    263 

 

 

Income (loss) before income taxes

   79   (81)   394   1,226   72    77 

Income taxes

   17   (55)   102   224   20    21 

 

 

Net income (loss)

   62   (26)   292   1,002   52    56 

 

 

Cash flows from (used in) operating activities

   479   432   268   264   99    73 

Capital and exploration expenditures(b)

   92   149   55   38   5    7 

 

 
Third Quarter          Corporate and Other     Eliminations   Consolidated 
millions of Canadian dollars  2017  2016   2017  2016  2017   2016  

 

 

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 

 

 
Second Quarter  Upstream            Downstream         Chemical        
millions of Canadian dollars  
2020
  2019  
2020
  2019  
2020
  2019 
Revenues and other income
            
Revenues
(a)
  
908 
  2,587   
2,587 
  6,375   
171 
  266 
Intersegment sales
  
262 
  1,116   
124 
  487   
27 
  48 
Investment and other income
(note 4)
  
10 
  4   
27 
  19   
1 
  - 
   
1,180 
  3,707   
2,738 
  6,881   
199 
  314 
Expenses
               
Exploration
  
3 
  5   
- 
  -   
- 
  - 
Purchases of crude oil and products
(note 13)
  
512 
  1,802   
1,896 
  5,338   
119 
  171 
Production and manufacturing
  
884 
  1,171   
343 
  474   
46 
  70 
Selling and general
  
- 
  -   
135 
  201   
21 
  23 
Federal excise tax and fuel charge
  
- 
  -   
369 
  463   
- 
  - 
Depreciation and depletion
(note 13)
  
363 
  338   
40 
  46   
4 
  3 
Non-service
pension and postretirement benefit
  
- 
  -   
- 
  -   
- 
  - 
Financing
(note 7)
  
- 
  -   
- 
  -   
- 
  - 
Total expenses
  
1,762 
  3,316   
2,783 
        6,522   
190 
  267 
Income (loss) before income taxes
  
(582)
  391   
(45)
  359   
9 
  47 
Income taxes
  
(138)
  (594)  
(13)
  101   
2 
  9 
Net income (loss)
  
(444)
  985   
(32)
  258   
7 
  38 
Cash flows from (used in) operating activities
  
(968)
  585   
88 
  423   
46 
  52 
Capital and exploration expenditures
(b)
  
145 
  301   
51 
  111   
2 
  6 
Second Quarter      Corporate and other  Eliminations       Consolidated     
millions of Canadian dollars  
2020
  2019  
2020
  2019  
2020 
  2019 
Revenues and other income
            
Revenues
(a)
  
- 
  -   -   -   3,666         9,228 
Intersegment sales
  
- 
  -   
(413)
  (1,651)  
- 
  - 
Investment and other income
(note 4)
  
6 
  10   
- 
  -   
44 
  33 
   
6 
  10   
(413)
  (1,651)  
3,710 
  9,261 
Expenses
                 
Exploration
  
- 
  -   
- 
  -   
3 
  5 
Purchases of crude oil and products
(note 13)
  
- 
  -   
(412)
  (1,649)  
2,115 
  5,662 
Production and manufacturing
  
- 
  -   
- 
  -   
1,273 
  1,715 
Selling and general
  
28 
  14   
(1)
  (2)  
183 
  236 
Federal excise tax and fuel charge
  
- 
  -   
- 
  -   
369 
  463 
Depreciation and depletion
(note 13)
  
6 
  5   
- 
  -   
413 
  392 
Non-service
pension and postretirement
 
benefit
  
30 
  36   
- 
  -   
30 
  36 
Financing
(note 7)
  
17 
  23   
- 
  -   
17 
  23 
Total expenses
  
81 
  78   
(413)
  (1,651)  
4,403 
  8,532 
Income (loss) before income taxes
  
(75)
  (68)  
- 
  -   
(693)
  729 
Income taxes
  
(18)
  1   
- 
  -   
(167)
  (483)
Net income (loss)
  
(57)
  (69)  
- 
  -   
(526)
  1,212 
Cash flows from (used in) operating activities
  
1 
  (34)  
17 
  -   
(816)
  1,026 
Capital and exploration expenditures
(b)
  
9 
  11   
- 
  -   
207 
  429 
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IMPERIAL OIL LIMITED
(a)
Included export sales to the United States of $1,080$739 million (2016(2019 - $941$2,152 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
(b)
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to capitalfinance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.

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IMPERIAL OIL LIMITED

Nine Months to September 30              Upstream      Downstream   Chemical 
millions of Canadian dollars  2017  2016  2017  2016  2017  2016  

 

 

Revenues and other income

       

Operating revenues(a)

   5,166   3,699   15,087   13,470   824   798  

Intersegment sales

   1,494   1,516   792   689   191   156  

Investment and other income(note 3)

   17   22   248   919   (1)   1  

 

 
   6,677   5,237   16,127   15,078   1,014   955  

 

 

Expenses

       

Exploration

   29   75   -   -   -   -  

Purchases of crude oil and products

   3,089   2,584   12,037   10,139   573   518  

Production and manufacturing

   2,917   2,634   1,169   1,059   152   149  

Selling and general

   1   (3)   540   729   60   63  

Federal excise tax

   -   -   1,253   1,237   -   -  

Depreciation and depletion

   964   1,053   148   158   9   6  

Financing costs(note 5)

   5   (6)   -   -   -   -  

 

 

Total expenses

   7,005   6,337   15,147   13,322   794   736  

 

 

Income (loss) before income taxes

   (328)   (1,100)   980   1,756   220   219  

Income taxes

   (103)   (336)   230   363   59   59  

 

 

Net income (loss)

   (225)   (764)   750   1,393   161   160  

 

 

Cash flows from (used in) operating activities

   904   32   626   1,028   176   205  

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  
  
Nine Months to September 30              Corporate and Other      Eliminations   Consolidated 
millions of Canadian dollars  2017  2016  2017  2016  2017  2016  

 

 

Revenues and other income

       

Operating revenues(a)

   -   -   -   -   21,077   17,967  

Intersegment sales

   -   -   (2,477)   (2,361)   -   -  

Investment and other income(note 3)

   6   3   -   -   270   945  

 

 
   6   3   (2,477)   (2,361)   21,347   18,912  

 

 

Expenses

       

Exploration

   -   -   -   -   29   75  

Purchases of crude oil and products

   -   -   (2,473)   (2,357)   13,226   10,884  

Production and manufacturing

   -   -   -   -   4,238   3,842  

Selling and general

   29   27   (4)   (4)   626   812  

Federal excise tax

   -   -   -   -   1,253   1,237  

Depreciation and depletion

   14   12   -   -   1,135   1,229  

Financing costs(note 5)

   44   58   -   -   49   52  

 

 

Total expenses

   87   97   (2,477)   (2,361)   20,556   18,131  

 

 

Income (loss) before income taxes

   (81)   (94)   -   -   791   781  

Income taxes

   (22)   (26)   -   -   164   60  

 

 

Net income (loss)

   (59)   (68)   -   -   627   721  

 

 

Cash flows from (used in) operating activities

   (23)   (1)   -   -   1,683   1,264  

Capital and exploration expenditures(b)

   29   37   -   -   455   948  

Total assets as at September 30

   1,283   674   (336)   (337)   41,370   42,094  

 

 
Six Months to June 30  Upstream           Downstream         Chemical          
millions of Canadian dollars  
2020
  2019  
2020
  2019  
2020
  2019 
Revenues and other income
            
Revenues
(a)
  
2,560 
  4,827   
7,383 
  11,849   
387 
  517 
Intersegment sales
  
984 
  2,064   
692 
  935   
71 
  120 
Investment and other income
(note 4)
  
10 
  4   
42 
  29   
1 
  - 
   
3,554 
  6,895   
8,117 
  12,813   
459 
  637 
Expenses
       
 
         
Exploration
  
4 
  38   
- 
  -   
- 
  - 
Purchases of crude oil and products
(note 13)
  
2,162 
  3,388   
5,665 
  9,920   
259 
  364 
Production and manufacturing
  
1,992 
  2,327   
751 
  855   
109 
  128 
Selling and general
  
- 
  -   
316 
  380   
46 
  44 
Federal excise tax and fuel charge
  
- 
  -   
820 
  857   
- 
  - 
Depreciation and depletion
(note 13)
  
780 
  672   
86 
  92   
8 
  7 
Non-service
pension and postretirement
 
benefit
  
- 
  -   
- 
  -   
- 
  - 
Financing
(note 7)
  
- 
  -   
- 
  -   
- 
  - 
Total expenses
  
4,938 
  6,425   
7,638 
  12,104   
422 
  543 
Income (loss) before income taxes
  
(1,384)
  470   
479 
  709   
37 
  94 
Income tax expense (benefit)
  
(332)
  (573)   
109 
  194   
9 
  22 
Net income (loss)
  
(1,052)
  1,043   
370 
  515   
28 
  72 
Cash flows from (used in) operating activities
  
(504)
  865   
110 
  1,155   
43 
  100 
Capital and exploration expenditures
(b)
  
376 
  673   
127 
  240   
11 
  23 
Total assets as at June 30 (note 13)
  
33,591 
  35,059   
4,683 
  5,041   
404 
  451 
Six Months to June 30      Corporate and other  Eliminations         Consolidated       
millions of Canadian dollars  
2020
  2019  
2020
  2019  
2020
  2019 
Revenues and other income
            
Revenues
(a)
  
- 
  -   
- 
  -   
10,330 
  17,193 
Intersegment sales
  
- 
  -   
(1,747)
  (3,119)  
- 
  - 
Investment and other income
(note 4)
  
17 
  17   
- 
  -   
70 
  50 
   
17 
  17   
(1,747)
  (3,119)  
10,400 
  17,243 
Expenses
                  
Exploration
  
- 
  -   
- 
  -   
4 
  38 
Purchases of crude oil and products
(note 13)
  
- 
  -  
(1,745)
  (3,115)  
6,341 
  10,557 
Production and manufacturing
  
- 
  -   
- 
  -   
2,852 
  3,310 
Selling and general
  
(11)
  29   
(2)
  (4)  
349 
  449 
Federal excise tax and fuel charge
  
- 
  -   
- 
  -   
820 
  857 
Depreciation and depletion
(note 13)
  
12 
  11   
- 
  -   
886 
  782 
Non-service
pension and postretirement benefit
  
60 
  72   
- 
  -   
60 
  72 
Financing
(note 7)
  
36 
  51   
- 
  -   
36 
  51 
Total expenses
  
97 
  163   
(1,747)
  (3,119)  
11,348 
  16,116 
Income (loss) before income taxes
  
(80)
  (146)  
- 
  -   
(948)
  1,127 
Income tax expense (benefit)
  
(20)
  (21)  
- 
  -   
(234)
  (378)
Net income (loss)
  
(60)
  (125)  
- 
  -   
(714)
  1,505 
Cash flows from (used in) operating activities
  
(42)
  (91)  
- 
  -   
(393)
  2,029 
Capital and exploration expenditures
(b
)
  
24 
  22   
- 
  -   
538 
  958 
Total assets as at June 30
(note 13)
  
1,088 
  1,822   
(266)
  (444)  
39,500 
  41,929 
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IMPERIAL OIL LIMITED
(a)
Included export sales to the United States of $3,024$2,112 million (2016 - $2,704(2019—$3,816 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
(b)
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to capitalfinance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.

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IMPERIAL OIL LIMITED

3.Investment and other income

4.  Investment and other income
Investment and other income included gains and losses on asset sales as follows:

   Third Quarter   

Nine Months

to September 30

 
  millions of Canadian dollars  2017     2016     2017     2016   
  

  Proceeds from asset sales

   8      1,194      230      1,244   

  Book value of asset sales

   2      285      12      292   
  

  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   
  
(a)The nine months ended September 30, 2017 included a gain of $174 million ($151 million after tax) for the sale of a surplus property in Ontario.
(b)Third quarter and nine months ended September 30, 2016, included gains of $0.8 billion ($0.7 billion, after tax) from the sale of company-owned Esso retail sites in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia and Newfoundland.

4.Employee retirement benefits

      Second Quarter   
    Six Months
    to June 30
 
millions of Canadian dollars 
2020
  2019   
2020
   2019 
Proceeds from asset sales
 
 
40
 
  14   
 
49
 
   36 
Book value of asset sales
 
 
30
 
  3   
 
32
 
   30 
Gain (loss) on asset sales, before tax
 
 
10
 
  11   
 
17
 
   6 
Gain (loss) on asset sales, after tax
 
 
9
 
  10   
 
15
 
   6 
5.  Allowance for current expected credit loss (CECL)
Effective January 1, 2020, the company adopted the Financial Accounting Standards Board’s update,
Financial Instruments – Credit Losses (Topic 326),
as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and supportable forecasts. The standard requires this expected loss methodology for trade receivables, certain other financial assets and
off-balance-sheet
credit exposures. The cumulative effect adjustment related to the adoption of this standard reduced “Earnings reinvested” in Shareholders’ equity by $2 million.
The company is exposed to credit losses primarily through sales of petroleum products, crude oil, natural gas liquids and natural gas, as well as loans to equity companies and joint venture receivables. A counterparty’s ability to pay is assessed through a credit review process that considers payment terms, the counterparty’s established credit rating or the company’s assessment of the counterparty’s credit worthiness, contract terms, and other risks. The company can require prepayment or collateral to mitigate certain credit risks.
The company groups financial assets into portfolios that share similar risk characteristics for purposes of determining the allowance for credit losses. Each reporting period, the company assesses whether a significant change in credit loss or risk has occurred. Among the quantitative and qualitative factors considered are historical financial data, current conditions, industry and country risk, current credit ratings and the quality of third-party guarantees secured from the counterparty. Financial assets are written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recognized in earnings. The company manages receivable portfolios using past due balances as a key credit quality indicator.
The company recognizes a credit allowance for
off-balance-sheet
credit exposures as a liability on the balance sheet, separate from the allowance for credit losses related to recognized financial assets. These exposures could include unfunded loans to equity companies and financial guarantees that cannot be cancelled unilaterally by the company.
During the first half of 2020, the COVID-19 pandemic spread rapidly through most areas of the world resulting in economic uncertainty, global financial market volatility, and negative effects in the credit markets. The company has considered these effects, along with the significantly lower balances of trade receivables at the end of the quarter, in its estimate of credit losses and concluded no material adjustment to credit allowances in the quarter was required. At June 30, 2020, the company’s evaluation of financial assets under
Financial Instruments – Credit Losses (Topic 326)
, as amended included $1,420 million of accounts receivable, net of allowances of $4 million, and investments and long-term receivables of $326 million. The company has determined that, at this time, 0 credit allowance is required for investments and long-term receivables. There is currently 0
off-balance-sheet
credit exposure.
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IMPERIAL OIL LIMITED
6.  Employee retirement benefits
The components of net benefit cost were as follows:

   Third Quarter  Nine Months
to September 30		 
  millions of Canadian dollars  2017  2016  2017  2016 
  

  Pension benefits:

     

Current service cost

   54   50   163   152 

Interest cost

   77   82   235   240 

Expected return on plan assets

   (104)   (101)   (306)   (300) 

Amortization of prior service cost

   2   2   7   7 

Amortization of actuarial loss (gain)

   43   39   132   121 
  

Net periodic benefit cost

   72   72   231   220 
  

  Other post-retirement benefits:

     

Current service cost

   4   4   12   12 

Interest cost

   6   7   18   20 

Amortization of actuarial loss (gain)

   2   3   6   10 
  

Net periodic benefit cost

   12   14   36   42 
  

5.Financing costs and additional notes and loans payable information

   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  
  

      Second Quarter  
    Six Months
    to June 30
 
millions of Canadian dollars 
2020
  2019  
    2020
      2019 
Pension benefits:
    
Current service cost
 
 
77
 
  57  
 
153
 
  114 
Interest cost
 
 
77
 
  81  
 
154
 
  162 
Expected return on plan assets
 
 
(98
) 
  (88)  
 
(196
) 
  (175) 
Amortization of prior service cost
 
 
3
 
  -  
 
7
 
  - 
Amortization of actuarial loss
(gain)
 
 
39
 
  38  
 
77
 
  75 
Net periodic benefit cost
 
 
98
 
  88  
 
195
 
  176 
Other postretirement benefits:
    
Current service cost
 
 
6
 
  4  
 
12
 
  8 
Interest cost
 
 
6
 
  6  
 
12
 
  11 
Amortization of actuarial loss
(gain)
 
 
3
 
  (1)  
 
6
 
  (1) 
Net periodic benefit cost
 
 
15
 
  9  
 
30
 
  18 
7. Financing costs
 
 
    Second Quarter
 
 
    Six Months
    to June 30
 
millions of Canadian dollars
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Debt-related interest
 
 
26
 
 
 
34
 
 
 
60
 
 
 
73
 
Capitalized interest
 
 
(9
) 
 
 
(11
) 
 
 
(24
) 
 
 
(22
) 
Net interest expense
 
 
17
 
 
 
23
 
 
 
36
 
 
 
51
 
Other interest
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Total financing
 
 
17
 
 
 
23
 
 
 
36
 
 
 
51
 
During the
second
quarter of 2020, in addition to existing credit facilities of $500 million, the company entered into a $500 million committed short-term line of credit to May 2021, and a $300 million committed short-term line of credit to June 2021. The company has not drawn on any of its credit facilities.
8.  Long-term debt
         As at
June 30		   As at
Dec 31		 
millions of Canadian dollars          
2020
   2019 
Long-term debt
    
 
4,447
 
   4,447 
Finance leases
          
 
518
 
   514 
Total long-term debt
          
 
4,965
 
   4,961 
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IMPERIAL OIL LIMITED

6.Long-term debt

     As at
Sept 30		   As at
Dec 31		 
millions of Canadian dollars  2017   2016 
  

Long-term debt

   4,447    4,447 

Capital leases

   566    585 
  

Total long-term debt

   5,013    5,032 
  

7.Other long-term obligations

     As at
Sept 30		   As at
Dec 31		 
millions of Canadian dollars  2017   2016 
  

Employee retirement benefits(a)

   1,410    1,645 

Asset retirement obligations and other environmental liabilities(b)

   1,577    1,544 

Share-based incentive compensation liabilities

   138    139 

Other obligations

   573    328 
  

Total other long-term obligations

   3,698    3,656 

 

 
9.  Other long-term obligations
           As at
June 30		   As at
Dec 31		 
millions of Canadian dollars            
2020
   2019 
Employee retirement benefits
(a)
      
 
1,977
 
   1,822 
Asset retirement obligations and other environmental liabilities
(b)
      
 
1,384
 
   1,388 
Share-based incentive compensation liabilities
      
 
54
 
   65 
Operating lease liability
(c)
      
 
107
 
   143 
Other obligations
      
 
231
 
   219 
Total other long-term obligations
            
 
3,753
 
   3,637 
(a)
Total recorded employee retirement benefits obligations also included $58 million in current liabilities (2016(2019 - $58 million).
(b)
Total asset retirement obligations and other environmental liabilities also included $108$124 million in current liabilities (2016(2019 - $108$124 million).

8.(c)Common shares
Total operating lease liability also included $106 million in current liabilities (2019 - $115 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $27 million (2019 - $6 million).

     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,

10.  Financial and derivative instruments
Financial instruments
The fair value of the company’s financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no material differences between the fair value of the company’s financial instruments and the recorded carrying value. At June 30, 2020 and December 31, 2019 the fair value of long-term debt ($4,447 million, excluding finance lease obligations) was primarily a level 2 measurement.
Derivative instruments
The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company haduses commodity-based contracts, including derivative instruments to manage commodity price risk. The company does not designate derivative instruments as a serieshedge for hedge accounting purposes.
Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of12-month normal course issuer bid share purchase programs. Cumulatively, 916,563 thousand shares derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.
At June 30, 2020, the carrying values of derivative instruments on the Consolidated balance sheet were purchased under these programs. Exxon Mobil Corporation’s participationgross assets of $27 million, gross liabilities of $74 million and collateral receivable of $70 million, with the net effects reflected in these programs, including concurrent programs outside“Accounts receivable, less estimated doubtful accounts” on the normal course issuer bids, maintained its ownership interestConsolidated balance sheet. At December 31, 2019 the carrying values of derivative instruments on the Consolidated balance sheet were gross assets of $0 million, gross liabilities of $2 million and collateral receivable of $6 million.
At June 30, 2020, the net notional forward long / (short) position of derivative instruments was (1,920,000) barrels for crude and (240,000) barrels for products. At December 31, 2019, the net notional forward long / (short) position of derivative instruments was (590,000) barrels for crude and 0 barrels for products.
Realized and unrealized gain or (loss) on derivative instruments recognized on the Consolidated statement of income is included in Imperial at approximately 69.6 percent.

the following lines on a

before-tax
basis:
       Second Quarter   
    Six Months
    to June 30
 
millions of Canadian dollars  
2020
  2019   
2020
  2019 
Revenues
  
 
(9
) 
  -   
 
(8
) 
  (2) 
Purchases of crude oil and products
  
 
(52
) 
  -   
 
(18
) 
  (6) 
Total
  
 
(61
) 
  -   
 
(26
) 
  (8) 
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IMPERIAL OIL LIMITED
11.  Common shares
   As of
June 30		   
As of
Dec 31
 
thousands of shares  
2020
   2019 
Authorized
  
 
1,100,000
 
   1,100,000 
Common shares outstanding
  
 
734,077
 
   743,902 
The current
12-month
normal course issuer bid program that was announcedin place during the second quarter of 2020, came into effect on June 22, 2017,27, 2019. The program enabled the company to purchase up to a maximum of 38,211,086 common shares (5 percent of the total shares on June 13, 2019), which included shares purchased under which Imperial plansthe normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to continuemaintain its share purchaseownership percentage at approximately 69.6 percent. The program ended on June 26, 2020, and purchases under this program were suspended on April 1, 2020. Upon expiration, the company had purchased 28,697,514 shares under the program.
The current
12-month
limited normal course issuer bid program came into effect on June 29, 2020 and is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan. The program enables the company to purchase up to a maximum of 25,395,92750,000 common shares, (3 percent of the total shares on June 13, 2017), 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 shares		  Millions
of dollars		 
Balance as at December 31, 2018
   782,565          1,446 
Issued under employee share-based awards
   1   - 
Purchases at stated value
   (38,664)   (71) 
Balance as at December 31, 2019
   743,902   1,375 
Issued under employee share-based awards
   -   - 
Purchases at stated value
   (9,825)   (18) 
Balance as at June 30, 2020
      734,077   1,357 
The following table provides the calculation of net incomebasic and diluted earnings per common share:

       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 
                     

share and the dividends declared by the company on its outstanding common shares:
           Six Months 
       Second Quarter       to June 30 
    
2020
  2019   
2020
  2019 
Net income (loss) per common share - basic
      
Net income (loss)
(millions of Canadian dollars)
  
 
(526
) 
  1,212   
 
(714
) 
  1,505 
Weighted average number of common shares outstanding
(millions of shares)
  
 
734.1
 
  767.4   
 
736.5
 
  772.5 
Net income (loss) per common share
(dollars)
  
 
(0.72
) 
  1.58   
 
(0.97
) 
  1.95 
Net income (loss) per common share - diluted
      
Net income (loss)
(millions of Canadian dollars)
  
 
(526
) 
  1,212   
 
(714
) 
  1,505 
Weighted average number of common shares outstanding
(millions of shares)
  
 
734.1
 
  767.4   
 
736.5
 
  772.5 
Effect of employee share-based awards
(millions of shares) (a)
  
 
-
 
  2.5   
 
-
 
  2.4 
Weighted average number of common shares outstanding, assuming dilution
(millions of shares)
  
 
734.1
 
  769.9   
 
736.5
 
  774.9 
Net income (loss) per common share
(dollars)
  
 
(0.72
) 
  1.57   
 
(0.97
) 
  1.94 
Dividends per common share - declared
(dollars)
  
 
0.22
 
  0.22   
 
0.44
 
  0.41 
9.
(a)
Earnings reinvested
For Second Quarter 2020 and Six Months to June 30, 2020, the Net income (loss) per common share – diluted excludes the effect of 2.0 million employee share-based awards. Share-based awards have the potential to dilute basic earnings per share in the future.

      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 
                  

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IMPERIAL OIL LIMITED

10.Other comprehensive income (loss) information

12.  Other comprehensive income (loss) information
Changes in accumulated other comprehensive income (loss):

millions of Canadian dollars  2017  2016 

 

 

Balance at January 1

   (1,897)   (1,828) 

Post-retirement benefits liability adjustment:

   

Current period change excluding amounts reclassified from accumulated other comprehensive
income

   41   100 

Amounts reclassified from accumulated other comprehensive income

   106   108 

 

 

Balance at September 30

   (1,750)   (1,620) 

 

 

millions of Canadian dollars  
2020
  2019 
Balance at January 1
  
 
(1,911
) 
  (1,517) 
Postretirement benefits liability adjustment:
   
Current period change excluding amounts reclassified from accumulated other comprehensive income
  
 
(114
) 
  18 
Amounts reclassified from accumulated other comprehensive income
  
 
       68
 
             55 
Balance at June 30
  
 
(1,957
) 
  (1,444) 
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
included in net periodic benefit cost (a)

   (47)   (44)   (145)   (138) 
  

(a)    This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 4).

     

       Second Quarter      Six Months
    to June 30		 
millions of Canadian dollars  
2020
  2019  
2020
  2019 
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost
(a)
  
 
(45
) 
  (37)  
 
(90
) 
  (74) 
(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
net periodic benefit cost

   13    10    39    30 
  

Total

   13    10    55    67 
  

11.Recently issued accounting standards

       Second Quarter       Six Months
    to June 30		 
millions of Canadian dollars  
2020
   2019   
2020
  2019 
Postretirement benefits liability adjustments:
       
Postretirement benefits liability adjustment (excluding amortization)
  
 
-
 
   -   
 
(37
) 
  7 
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost
  
 
11
 
   9   
 
22
 
  19 
Total
  
 
11
 
   9   
 
(15
) 
  26 
13.  Miscellaneous financial information
Crude oil and product inventories are carried at the lower of current market value or cost, determined under the
last-in,
first-out
method (LIFO). In May 2014, the Financial Accounting Standards Board (FASB) issuedfirst quarter of 2020, a new standard,Revenue from Contracts
non-cash
charge of $281 million
after-tax
was recorded associated with Customers.the carrying value of crude oil inventory exceeding the current market value. In the second quarter of 2020, the first quarter’s temporary
non-cash
inventory charge was reversed. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is requiredinventory balance will continue to be adopted beginning January 1, 2018.
re-evaluated
at the end of each quarter. At
year-end,
any adjustment to the carrying value is considered a permanent adjustment.
As disclosed in Imperial’s 2019 Form
10-K,
goodwill is tested for impairment annually or more frequently if events or circumstances indicate it might be impaired. In the first quarter of 2020, with the change in economic conditions and the reduction in the company’s market capitalization, the company assessed its goodwill balances for impairment and recognized a
non-cash
goodwill impairment charge of $20 million in the company’s Upstream segment. The company expects to adopt the standard using the modified retrospective method, under which prior years’ results are not restated, but supplemental informationgoodwill impairment is reflected in “Depreciation and depletion” on the impactConsolidated statement of the new standard will be included in the 2018 results. The impact from the standard is not expected to have a material effectincome and “Goodwill” on the company’s financial statements.

In February 2016,Consolidated balance sheet. The remaining balance of goodwill is associated with the FASB issued a new standard, Leases. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as a lease asset and lease liability. The standard is required to be adopted beginning January 1, 2019. Imperial is evaluating the standard and its effect on the company’s financial statements and plans to adopt it in 2019.

Downstream segment.

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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

Current economic conditions
In early 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the COVID-19 pandemic spread rapidly across Canada and the world resulting in substantial reductions in consumer and business activity and significantly reduced local and global demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key
oil-producing
countries which led to sharp declines in prices for crude oil, natural gas, and petroleum products. During the second quarter, 2017 vs. thirdthe effects of COVID-19 continued to affect the world’s major economies, and market conditions reflected considerable uncertainty. In Canada, consumer and business activity exhibited some signs of recovery, but relative to prior periods continues to be negatively affected by the pandemic. Key
oil-producing
countries have taken steps to reduce oversupply of crude oil and petroleum products, and credit markets appear to have stabilized, providing sufficient liquidity to credit-worthy companies.
In late March, the company announced significant reductions in 2020 capital and operating expense spending plans. Capital and exploration expenditures in 2020 are expected to be $1.1 billion to $1.2 billion, compared to the previously announced $1.6 billion to $1.7 billion. In addition, Imperial has identified and progressed opportunities to reduce 2020 operating expenses by $500 million compared to 2019 levels.
During the second quarter 2016

of 2020, the company entered into two additional committed short-term lines of credit totalling $800 million to supplement its existing lines of credit of $500 million. Both credit facilities will expire within one year and may be renewed or replaced according to the company’s financing needs and business environment. At the end of June 30, 2020, the company’s cash balance was $233 million, and

it
has not drawn on any of its lines of credit.
The company’s net incometotal debt did not increase during the second quarter.
The effect of COVID-19 and the current business environment on supply and demand patterns has negatively impacted Imperial’s financial and operating results in the first six months of 2020. Unless industry conditions seen thus far in 2020 improve significantly in the latter half of the year, the company expects lower realized prices for its products to result in substantially lower earnings and cash generated from operations than in 2019. In response to these conditions, the company operated certain assets at reduced rates in the second quarter of 2020, and extended plans to operate certain assets at reduced rates in the third quarter. The company advanced the start and extended the duration of a planned turnaround at one of Kearl’s two plants in an effort to reduce
on-site
staffing levels and to better balance near-term production with demand. The turnaround began early May and was completed late June. While Kearl’s total gross production was reduced to an average of 190,000 barrels per day (135,000 barrels Imperial’s share) for the second quarter of 2020, total gross production was up from the previously announced estimate of approximately 150,000 barrels per day for the quarter, primarily driven by a partial recovery in market demand and strong plant performance. A planned turnaround at the second of Kearl’s two plants was also advanced and began
mid-July,
with anticipated completion late August. With the extended duration of these turnarounds, Imperial now expects total gross production at Kearl to average approximately 220,000 barrels per day for the full-year 2020, compared to the previous annual estimate of 240,000 barrels per day for 2020. At Cold Lake, Imperial expects full-year gross production to average approximately 135,000 barrels per day, compared to the previous annual estimate of 140,000 barrels per day for 2020. Regarding Syncrude, coker turnaround activities, which had previously been deferred to the third quarter, began early May and are expected to extend until late September. Additionally, the company continues to evaluate and adjust the timing and scope of 2017 was $371other maintenance activities across its operations. These activities will be managed to ensure the health and safety of site personnel. Refinery utilization rates and petroleum product sales were reduced through the second quarter of 2020, driven by the significant decline in demand for petroleum products in Canada, but are expected to improve in the third quarter. However, the length and severity of decreased demand due to COVID-19 and the current business environment are highly uncertain, with the future supply and demand patterns inherently difficult to predict.
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IMPERIAL OIL LIMITED
The company has reviewed its near-term spending reductions, near-term production impacts and expected near-term price levels to determine whether they put its long-lived assets at risk for impairment. Despite the challenging environment, the company’s view of long-term supply and demand fundamentals has not changed significantly. However, the company continues to assess its strategic plans and longer-term price views, taking into account current and developing industry and economic conditions, as part of its annual planning process. Depending on the outcome of that process, including in particular any significant future changes in the company’s strategic plans or longer-term price views, a portion of the company’s long-lived assets could be at risk for impairment. Due to interdependencies among the many elements critical to that planning process that are still unresolved or uncertain, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges.
As disclosed in Imperial’s 2019 Form
10-K,
low crude oil and natural gas prices can impact the company’s estimates of proved reserves as reported under U.S. Securities and Exchange Commission (SEC) rules. Imperial’s average
year-to-date
realizations for crude oil have been significantly affected by low prices since the end of the first quarter. Similar to downward revisions of proved bitumen reserves at
year-end
2016 that resulted from low prices, if average prices seen thus far in 2020 persist for the remainder of the year, under the SEC definition of proved reserves, certain quantities that qualified as proved reserves at
year-end
2019, primarily proved bitumen reserves at Kearl (totalling approximately 60 percent of the company’s 3.5 billion oil-equivalent barrels of net proved reserves), will not qualify as proved reserves at
year-end
2020. Proved reserves estimates can be impacted by a number of factors including completion of development projects, reservoir performance, regulatory approvals, government policies, consumer preferences, changes in the amount and timing of capital investments, royalty framework, and significant changes in long-term oil and gas price levels. The company does not expect the operation of the underlying projects or its outlook for future production volumes to be affected by a possible downward revision of reported proved reserves under the SEC definition.
During the second quarter of 2020, Canadian federal and provincial governments introduced plans and programs to support business and economic activities in response to the disruptive impacts from the COVID-19 pandemic. The Government of Canada implemented the Canada Emergency Wage Subsidy as part of its COVID-19 Economic Response Plan. The company received wage subsidies under this program and, if eligible, intends to continue to apply for these wage subsidies. Additionally, the Government of Alberta announced its Recovery Plan, including a proposed acceleration of the Alberta corporate income tax rate decrease originally legislated in 2019. If enacted, the Alberta corporate income tax rate is reduced to eight percent beginning July 1, 2020, compared with a previously legislated reduction to eight percent beginning January 1, 2022. The cumulative effect of this proposed change on the company’s financial statements is not expected to be significant.
The company has taken steps, in line with federal and provincial guidelines and restrictions, to limit the spread of COVID-19 among employees, contractors and the broader community, while also maintaining operations to ensure reliable supply of products to customers as a provider of essential services. Further measures have been implemented across the organization, including voluntary COVID-19 testing and modified work schedules at remote camp facilities. The company maintains robust business continuity plans, which have been activated to minimize the impact of COVID-19 on workforce productivity. These measures have been effective in managing the COVID-19 outbreak at Kearl and reducing the number of infections. In June, Alberta Health Services declared the outbreak at Kearl to be over.
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IMPERIAL OIL LIMITED
Operating results
Second quarter 2020 vs. second quarter 2019
The company recorded a net loss of $526 million or $0.44per-share$0.72 per share on a diluted basis in the second quarter of 2020, compared to the net income of $1,003$1,212 million or $1.18per-share for$1.57 per share in the same period last year. Thirdof 2019. Second quarter 20162020 results include a reversal of the
non-cash
inventory revaluation charge of $281 million recorded in the first quarter of 2020. Second quarter 2019 results included a $716favourable impact, largely
non-cash,
of $662 million gain fromassociated with the sale of retail sites.

Alberta corporate income tax rate decrease.

Upstream recorded net income in the third quarter of $62 million, compared to a net loss of $26$444 million in the second quarter of 2020, compared to net income of $985 million in the same period of 2016.2019. Results in the third quarter of 2017 reflected the impact of higher Canadian crude oilwere negatively impacted by lower realizations of about $190$1,210 million, the absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019, and higher Kearllower volumes of about $50$200 million. These impactsitems were partially offset by lower Syncrude and conventional volumesa reversal of about $80the
non-cash
inventory revaluation charge of $229 million includingrecorded in the absencefirst quarter of production at Norman Wells, and higher2020, lower royalties of about $50$200 million, lower operating expenses of about $170 million, and favourable foreign exchange effects of about $60 million.

West Texas Intermediate (WTI) averaged US$48.2327.83 per barrel in the thirdsecond quarter of 2017, up2020, down from US$44.9459.91 per barrel in the same quarter of 2016.2019. Western Canada Select (WCS) averaged US$38.2916.73 per barrel and US$31.4349.31 per barrel respectively for the same periods. The WTI / WCS differential narrowed to 21 percent inaveraged approximately US$11 per barrel for the thirdsecond quarter of 2017,2020, essentially unchanged from 30 percent in the same period of 2016.

2019.

The Canadian dollar averaged US$0.800.72 in the thirdsecond quarter of 2017, an increase2020, a decrease of US$0.03 from the thirdsecond quarter of 2016.

2019.

Imperial’s average Canadian dollar realizations for bitumen anddecreased in the quarter, primarily due to a decrease in WCS. Bitumen realizations averaged $12.82 per barrel in the second quarter of 2020, compared to $57.19 per barrel in the second quarter of 2019. The company’s average Canadian dollar realizations for synthetic crudes increasedcrude decreased generally in line with the North American benchmarks,WTI, adjusted for changes in exchange rates and transportation costs. Bitumen realizations averaged $39.02 per barrel for the third quarter of 2017, an increase of $8.86 per barrel versus the third quarter of 2016. Synthetic crude realizations averaged $61.14$32.20 per barrel an increasein the second quarter of $2.172020, compared to $79.96 per barrel forin the same period of 2016.

2019.

Total gross production of Kearl bitumen averaged 190,000 barrels per day in the second quarter (135,000 barrels Imperial’s share), compared to 207,000 barrels per day (147,000 barrels Imperial’s share) in the second quarter of 2019. Lower production was mainly due to the balancing of near-term production with demand through the advancement and extension of planned turnaround activities, at one of Kearl’s two plants, partially offset by the addition of supplemental crushing facilities in 2020.
Gross production of Cold Lake bitumen averaged 163,000123,000 barrels per day in the thirdsecond quarter, up from 157,000compared to 135,000 barrels per day in the same period last year. The higherof 2019. Lower production was mainly due to theproduction timing of theassociated with steam cycles.

Gross production of Kearl bitumen averaged 182,000 barrels per day in the third quarter (129,000 barrels Imperial’s share) up from 159,000 barrels per day (113,000 barrels Imperial’s share) during the third quarter of 2016. Higher production was mainly the result of improved reliability.

management and maintenance.

The company’s share of gross production from Syncrude averaged 74,00050,000 barrels per day, compared to 85,00080,000 barrels per day in the thirdsecond quarter of 2016. Repairs associated with the Syncrude Mildred Lake upgrader fire were completed in late July.2019. Lower third quarter volumes reflect the impact of the fire on operations, when comparedproduction was mainly due to the same quarter in 2016.

balancing of near-term production with demand and a revised turnaround schedule.

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IMPERIAL OIL LIMITED
Downstream recorded a net income was $292loss of $32 million in the thirdsecond quarter of 2020, compared to $1,002net income of $258 million in the same period of 2016. Earnings decreased mainly2019. Results were negatively impacted by lower margins of about $400 million including the effects of reduced demand from the COVID-19 pandemic, and lower sales volumes of about $120 million. These items were partially offset by improved reliability of about $100 million, primarily due to the absence of a $716 million gain from the sale of company-owned retail sites and higher refining turnaround activitySarnia fractionation tower incident which occurred in April 2019, lower operating expenses of about $100 million. These factors were partly offset by higher refining margins$90 million, and a reversal of about $140 million.

the

non-cash
inventory revaluation charge of $52 million recorded in the first quarter of 2020.
Refinery throughput averaged 385,000278,000 barrels per day, compared to 407,000344,000 barrels per day in the thirdsecond quarter of 2016. Reduced throughput reflects increased turnaround activity associated with the Nanticoke refinery2019. Capacity utilization was 66 percent, compared to 81 percent in the thirdsecond quarter 2017.

of 2019. Lower throughput was primarily due to reduced demand from the COVID-19 pandemic, partially offset by improved reliability mainly driven by the absence of the Sarnia fractionation tower incident.

Petroleum product sales were 500,000357,000 barrels per day, compared to 505,000477,000 barrels per day in the thirdsecond quarter of 2016.

IMPERIAL OIL LIMITED

2019. Lower petroleum product sales were mainly due to reduced demand from the COVID-19 pandemic.

Chemical net income was $52$7 million in the thirdsecond quarter, compared to $56$38 million infrom the same quarter of 2016.

Net income effects from 2019.

Corporate and Otherother expenses were negative $35$57 million in the thirdsecond quarter, compared to negative $29$69 million in the same period of 2016.

2019.

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IMPERIAL OIL LIMITED

Nine

Six months 20172020 vs. ninesix months 2016

2019

Net incomeloss in the first ninesix months of 20172020 was $627$714 million, or $0.74per-share$0.97 per share on a diluted basis, versuscompared to net income of $721$1,505 million or $0.85 per-share$1.94 per share in the first ninesix months of 2016.

2019. 2019 results included a favourable impact, largely

non-cash,
of $662 million associated with the Alberta corporate income tax rate decrease.
Upstream recorded a net loss of $225$1,052 million infor the first ninesix months of 2017,the year, compared to a net lossincome of $764$1,043 million fromin the same period of 2016.2019. Results reflected the impact of higher Canadian crude oilwere negatively impacted by lower realizations of about $940$1,800 million, the absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019, and higher Kearllower volumes of about $50$210 million. These impactsitems were partially offset by higherlower royalties of about $150$310 million, lower Syncrude and conventional volumesoperating expenses of about $130$190 million, including the absence of production at Norman Wells, higher energy costsand favourable foreign exchange effects of about $90 million, and higher operating expenses at Syncrude of about $90$110 million.

West Texas Intermediate averaged US$49.4036.66 per barrel in the first ninesix months of 2017, up2020, down from US$41.5457.45 per barrel in the same period of 2016.2019. Western Canada Select averaged US$37.5721.20 per barrel and US$27.7445.88 per barrel respectively for the same periods. The WTI / WCS differential narrowedwidened to 24 percentaverage approximately US$15 per barrel in the first ninesix months of 2017,2020, from 33 percentaround US$12 per barrel in the same period of 2016.

During the first nine months of 2017, the Canadian dollar strengthened relative to the US dollar versus the same period of 2016. 2019.

The Canadian dollar averaged US$0.770.73 in the first ninesix months of 2017, an increase2020, a decrease of about US$0.010.02 from the same period of 2016.

in 2019.

Imperial’s average Canadian dollar realizations for bitumen and synthetic crudes increased generally in line with the North American benchmarks, adjusted for changesdecreased in the exchange rate and transportation costs.first six months of 2020, primarily due to a decrease in WCS. Bitumen realizations averaged $37.82$15.54 per barrel, for the first nine months of 2017, an increase of $14.05 per barrel versus the same period of 2016. Synthetic crude realizations averaged $64.37 per barrel, an increase of $10.92compared to $53.20 per barrel from the same period in 2019. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI in the first six months of 2016.

2020, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $48.10 per barrel, compared to $74.77 per barrel from the same period in 2019.

Total gross production of Kearl bitumen averaged 208,000 barrels per day in the first six months of 2020 (147,000 barrels Imperial’s share), up from 193,000 barrels per day (137,000 barrels Imperial’s share) in the same period of 2019. Higher production was mainly due to the addition of supplemental crushing facilities in 2020, partially offset by the balancing of near-term production with demand through the advancement and extension of planned turnaround activities.
Gross production of Cold Lake bitumen averaged 161,000131,000 barrels per day in the first ninesix months of 2017,2020, compared to 162,000 barrels per day from the same period of 2016.

Gross production of Kearl bitumen averaged 179,000140,000 barrels per day in the first nine months of 2017 (127,000 barrels Imperial’s share) up from 169,000 barrels per day (120,000 barrels Imperial’s share) from the same period of 2016. Increased 2017 production reflects improved reliability associated with the mining and ore preparation operations.

2019.

During the first ninesix months of 2017,2020, the company’s share of gross production from Syncrude averaged 56,00061,000 barrels per day, compared to 61,00079,000 barrels per day fromin the same period of 2016. Syncrude year to date2019. Lower production was impacted bymainly due to the March 2017 fire at the Syncrude Mildred Lake upgrader and planned maintenance. In 2016,balancing of near-term production was impacted by the Alberta wildfires and planned maintenance.

with demand.

Downstream net income was $750$370 million, compared to $1,393$515 million fromin the same period of 2016. Earnings decreased mainly due to2019. Results were negatively impacted by lower margins of about $250 million including the absenceeffects of a $719 million gainreduced demand from the sale of company-owned retail sitesCOVID-19 pandemic, and lower marketing marginssales volumes of approximately $170 million associated with the impact of the retail divestment.about $150 million. These factorsitems were partially offset by a gain of $151 million from the sale of a surplus property and higher industry refining marginsimproved reliability of about $90$160 million, including the absence of the Sarnia fractionation tower incident which occurred in April 2019, and lower operating expenses of about $80 million.

Refinery throughput averaged 381,000330,000 barrels per day in the first ninesix months of 2017, up from 351,0002020, compared to 364,000 barrels per day fromin the same period of 2016.2019. Capacity utilization increasedwas 78 percent, compared to 90 percent from 8386 percent in the same period of 2016, reflecting2019. Lower throughput was primarily due to reduced turnaround maintenance activity.

demand from the COVID-19 pandemic, partially offset by improved reliability including the absence of the Sarnia fractionation tower incident.

Petroleum product sales were 492,000409,000 barrels per day in the first ninesix months of 2017, up from 481,0002020, compared to 477,000 barrels per day fromin the same period of 2016. Sales growth continues2019. Lower petroleum product sales were mainly due to be driven by strong collaboration across our downstream value chain andreduced demand from the expansionCOVID-19 pandemic.
22
Table of Imperial’s wholesale, industrial and commercial networks.

Contents

IMPERIAL OIL LIMITED
Chemical net income was $161$28 million up from $160in the first six months of 2020, compared to $72 million fromin the same period of 2016.

IMPERIAL OIL LIMITED

For2019.

Corporate and other expenses were $60 million in the first ninesix months of 2017, net income effects from Corporate and Other were negative $592020, compared to $125 million versus negative $68 million fromin the same period of 2016.

2019, mainly due to lower share-based compensation charges.

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IMPERIAL OIL LIMITED

Liquidity and capital resources

Cash flow used in operating activities was $816 million in the second quarter, compared with cash flow generated from operating activities was $837 million in the third quarter, compared with $772of $1,026 million in the corresponding period in 2016.

2019, primarily reflecting lower realizations in the Upstream and lower margins in the Downstream.

Investing activities used net cash of $234$172 million in the thirdsecond quarter, compared with $1,005$429 million cash generated from investing activitiesused in the same period of 2016,2019, primarily 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$167 million in the first nine months of 2017,second quarter, compared with $1,569$521 million used in the second quarter of 2019. Dividends paid in the second quarter of 2020 were $162 million. The per share dividend paid in the second quarter was $0.22, up from $0.19 in the same period of 2016, reflecting the absence of debt repayments. Dividends paid in the first nine months of 2017 were $390 million. Theper-share dividend paid in the first nine months of 2017 was $0.46, up from $0.43 for the same period of 2016.

2019. During the first nine monthssecond quarter, the company did not purchase shares consistent with the suspension of 2017its share purchase program effective April 1, 2020. In the second quarter of 2019, the company purchased about 109.8 million shares for $377$368 million, including shares purchased from Exxon Mobil Corporation.

Recently issued accounting standards

In

The company’s cash balance was $233 million at June 30, 2020, versus $1,087 million at the end of second quarter 2019.
During the second quarter of 2020, in addition to existing credit facilities of $500 million, the company entered into a $500 million committed short-term line of credit to May 2014, the Financial Accounting Standards Board (FASB) issued2021, and a new standard,Revenue from Contracts with Customers. 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$300 million committed short-term line of credit to be adopted beginning January 1, 2018.June 2021. The company expects to adopt the standard using the modified retrospective method, under which prior years’ results arehas not restated, but supplemental informationdrawn on the impactany of the new standard will be includedits credit facilities.
Cash flow used in operating activities was $393 million in the 2018 results. The impactfirst six months of 2020, compared with cash flow generated 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. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as a lease asset and lease liability. The standard is required to be adopted beginning January 1, 2019. Imperial is evaluating the standard and its effect on the company’s financial statements and plans to adopt it in 2019.

IMPERIAL OIL LIMITED

In March 2017, the FASB issued an Accounting Standards Update2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentationoperating activities 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$2,029 million in the same lineperiod of 2019, primarily reflecting lower realizations in the income statement as other compensation costsUpstream and unfavourable working capital impacts.

Investing activities used net cash of $480 million in the first six months of 2020, compared with $892 million used in the same period of 2019, primarily reflecting lower additions to property, plant and equipment.
Cash used in financing activities was $612 million in the first six months of 2020, compared with $1,038 million used in the same period of 2019. Dividends paid in the first six months of 2020 were $326 million. The per share dividend paid in the first six months of 2020 was $0.44, up from $0.38 in the same period of 2019. During the first six months of 2020, the company, under its share purchase program, purchased about 9.8 million shares for $274 million, including shares purchased from Exxon Mobil Corporation.
As previously announced, purchases under this program were suspended on April 1, 2020.
In the first six months of 2019, the company purchased about 19.8 million shares for $729 million.
On June 23, 2020, the company announced by news release that the other components of net benefit costs be presented separatelyit had received final approval from the service cost component. Additionally, onlyToronto Stock Exchange for a limited normal course issuer bid. The program is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan, and enables the service cost componentcompany to purchase up to a maximum of net benefit costs will be eligible for capitalization. Imperial will adopt50,000 common shares during the update beginning January 1, 2018. As a result of Imperial’s adoptionperiod June 29, 2020 to June 28, 2021. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the update,normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company expectsthat it intends to add a new lineNon-service pension and other postretirement benefit expenseparticipate to maintain 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 costsownership percentage at approximately 69.6 percent. The program 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,end should the company expects it will include allpurchase the maximum allowable number of these costs in its Corporate and Other expenses.

shares, or on June 28, 2021.

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IMPERIAL OIL LIMITED
Forward-looking statements

Statements in this report regardingof future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Forward-looking statements can be identified by words such as believe, anticipate, intend, propose, plan, goal, seek, project, predict, target, estimate, expect, strategy, outlook, schedule, future, continue, likely, may, should, will and similar references to future periods. Forward-looking statements in this release include, but are not limited to, references to the use of derivative instruments and effectiveness of risk mitigation; credit market stability and liquidity; the capital outlook of $1.1 billion to $1.2 billion for 2020, and reduction of operating expenses by $500 million compared to 2019 levels; impacts from COVID-19 and an extended period of current industry conditions, including lower earnings, cash from operations and operating assets at reduced rates; changes to the timing and duration of Kearl and Syncrude turnaround activities; anticipated Kearl and Cold Lake production for the full-year 2020; timing and scope of other planned turnaround activities across operations; expected improvement in refinery utilization rates and petroleum products sales in the third quarter; the company’s view of long-term supply and demand fundamentals; the impacts of future reductions in long-term price outlooks, including impairment of long-lived assets; the impact of extended low oil and natural gas prices on proved reserves under SEC rules, including the possible downward revision of proved bitumen reserves; the intention to continue applying for the Canada Emergency Wage Subsidy; the cumulative effect of the Government of Alberta acceleration of corporate income tax rate decrease; the impact of measures implemented in response to COVID-19; and earnings sensitivities.
Forward-looking statements are based on the company’s current expectations, estimates, projections and assumptions at the time the statements are made. Actual future financial and operating results, including expectations and assumptions concerning demand growth and energy source, supply and mix; commodity prices, foreign exchange rates and general market conditions; production rates, growth and mix; project plans, timing, costs, technical evaluations and capacities and the company’s ability to effectively execute on these plans and operate its assets; progression or recurrence of COVID-19 and its impacts on Imperial’s ability to operate its assets, including the possible shutdown of facilities due to COVID-19 outbreaks; the company’s ability to effectively execute on its business continuity plans and pandemic response activities; the ability to achieve cost savings and adjust maintenance work; refinery utilization and product sales; applicable laws and government policies, including production curtailment and restrictions in response to COVID-19; financing sources and capital structure, including the ability to issue long-term debt; and capital and environmental expenditures could differ materially duedepending on a number of factors. These factors include global, regional or local changes in supply and demand for oil, natural gas, and petroleum and petrochemical products and resulting price, differential and margin impacts, including foreign government action with respect to supply levels and prices and the ongoing impact of market conditions,COVID-19 on demand; general economic conditions; availability and allocation of capital; currency exchange rates; transportation for accessing markets; political or regulatory events, including changes in law or governmentalgovernment policy changessuch as tax laws, production curtailment and actions in operating conditionsresponse to the progression or recurrence of COVID-19; availability and costs, changesperformance of third party service providers, including in project schedules, operating performance, demand forlight of restrictions related to COVID-19; management effectiveness and disaster response preparedness, including business continuity plans in response to COVID-19; environmental risks inherent in oil and gas commercial negotiationsexploration and production activities; environmental regulation, including climate change and greenhouse gas regulation and changes to such regulation; unanticipated technical or operational difficulties; project management and schedules and timely completion of projects; operational hazards and risks; cybersecurity incidents; and other technicalfactors discussed in Item 1A risk factors and economic factors.

Item 7 management’s discussion and analysis of financial condition and results of operations of Imperial Oil Limited’s most recent annual report on Form

10-K
and subsequent interim reports on Form
10-Q.
Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial. Imperial’s actual results may differ materially from those expressed or implied by its forward-looking statements and readers are cautioned not to place undue reliance on them. Imperial undertakes no obligation to update any forward-looking statements contained herein, except as required by applicable law.
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.
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IMPERIAL OIL LIMITED

Item 3. Quantitative and qualitative disclosures about market risk

Item 3.
Quantitative and qualitative disclosures about market risk
Information about market risks for the ninesix months ended SeptemberJune 30, 2017,2020, does not differ materially from that discussed on page 2255 of the company’s annual report on Form
10-K
for the year ended December 31, 2016.

Item 4. Controls and procedures

2019. The following table details those earnings sensitivities that have been updated from the fiscal year-end to reflect current market conditions.

Earnings Sensitivities (a)
millions of Canadian dollars after tax
One dollar (U.S.) per barrel increase (decrease) in crude oil prices
+ 
(-) 
120
(a)
Each sensitivity calculation shows the impact on net income resulting from a change in one factor, after tax and royalties and holding all other factors constant. These sensitivities have been updated to reflect current conditions. They may not apply proportionately to larger fluctuations.
Item 4.
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 SeptemberJune 30, 2017.2020. 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.

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IMPERIAL OIL LIMITED

PART II. OTHER INFORMATION

Item 1A.
Risk factors
The risk factors that are discussed in Item 2.  Unregistered sales1A of equity securitiesthe company’s annual report on Form
10-K
for the year ended December 31, 2019 reference risk factors related to commodity supply and usedemand, and public health. These risk factors encompass, among other things, production oversupply, as a result of proceeds

increased production in key producing countries as well as demand reduction due to the COVID-19 pandemic that was characterized as a global pandemic in March, 2020, and have led to volatility in commodity prices.

As a result of COVID-19, governments in many countries have mandated quarantines, closures,
stay-at-home
orders and travel restrictions that have had a significant impact on demand for the company’s products. While these effects are expected to be temporary and there has been some movement toward
pre-pandemic
activity levels, the duration of the business disruptions internationally and related financial impact cannot be reasonably estimated at this time and continued or new restrictions could continue to impact the demand for products.
Imperial’s future business results, including cash flows and financing needs, will be affected by the extent and duration of these conditions and the effectiveness of responsive actions that the company and others take, including our actions to reduce capital and operating expenses and government actions to address the COVID-19 pandemic. The impact of COVID-19 could also have an effect on the financial markets and result in an increase to the cost of capital. The company’s results will also be affected by any resulting negative impacts on national and global economies and markets from a prolonged decrease of economic activity.
The company has had positive COVID-19 cases at its operating sites that have not had a material impact on its operations or business. However, if the company’s mitigation and response efforts prove insufficient, large outbreaks of epidemics, pandemics or other health crises such as COVID-19 at operating sites, particularly in remote locations and where work camps are utilized, could impact the company’s personnel and its operations. The company could also be impacted by disruption to supply chains, methods of distribution and key third party service providers, which could impact the ability to produce or sell its products, as well as increasing the costs associated with its operations and decreasing revenues and margins.
The company has initiated numerous emergency response and business continuity plans, and a substantial portion of the company’s workforce has implemented remote working arrangements. If the company is not able to effectively operate and manage through these plans and alternative arrangements, the negative impacts could include reduced productivity and increased costs.
The COVID-19 pandemic continues to evolve and it is difficult to predict the ultimate impact of it or the timing of any resolution of the current supply imbalances. We continue to monitor market developments and evaluate the impacts of decreased demand on our production levels, as well as impacts on project development and future production.
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IMPERIAL OIL LIMITED
Item 2.
Unregistered sales of equity securities and use of proceeds
Issuer purchases of equity securities

    

  Total number of
      shares purchased    

  

    Average price    
  paid per share    
(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 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)
April 2020
(April 1 - April 30)
-
-
-
9,513,572
May 2020
(May 1 - May 31)
-
-
-
9,513,572
June 2020
(June 1 - June 26) (a)
-
-
-
-
(June 29 - June 30) (b)
-
-
-
50,000
(a)
The
12-month
normal course issuer bid program that was in place during the second quarter of 2020, came into effect on June 27, 2019. The program enabled the company to purchase up to a maximum of 38,211,086 common shares (5 percent of the total shares on June 13, 2019), which included shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. Exxon Mobil Corporation participated to maintain its ownership percentage at approximately 69.6 percent.
The program ended on June 26, 2020, and as previously announced, purchases under this program were suspended on April 1, 2020. Upon expiration, the company had purchased 28,697,514 shares under the program.
(b)
On June 22, 2017,23, 2020, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a newlimited normal course issuer bid and will continue its existing share purchase program.bid. The program is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan, and enables the company to purchase up to a maximum of 25,395,92750,000 common shares during the period June 27, 201729, 2020 to June 26, 2018, which28, 2021. This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will end should the company purchase the maximum allowable number of shares, or on June 26, 2018.28, 2021.
(b)In its most recent quarterly earnings release, the company stated that fourth quarter 2017 share purchases are anticipated to equal approximately $250 million. Purchase plans may be modified at any time without prior notice.

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

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IMPERIAL OIL LIMITED

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 of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
(32.2) Certification by the chief financial officer of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
(101) Interactive Data Files (formatted as Inline XBRL).
(104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
29
Table of the company pursuant to Rule13a-14(a).

(31.2)Contents Certification by the principal financial officer of the company pursuant to Rule13a-14(a).

(32.1) Certification by the chief executive officer of the company pursuant to Rule13a-14(b) and 18 U.S.C. Section 1350.

(32.2) Certification by the chief financial officer of the company pursuant to Rule13a-14(b) and 18 U.S.C. Section 1350.

IMPERIAL OIL LIMITED

SIGNATURES

Pursuant to the requirements of the
Securities 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:    October 31, 2017August 5, 2020 

/s/ Beverley A. Babcock

 
/s/ Daniel E. Lyons
---------------------------------------------------
 (Signature) (Signature)
 Beverley A. Babcock Daniel E. Lyons
 Senior Vice-President, Finance and Administration and Controller 
Senior vice-president, finance and
administration, and controller
(Principal Accounting Officer)
accounting officer)
Date:    October 31, 2017August 5, 2020 

/s/ Cathryn Walker

---------------------------------------------------
 (Signature) (Signature)
 Cathryn Walker
 Assistant Corporate Secretary Assistant corporate secretary

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