Imperial announces second-quarter 2003 earnings
Toronto, July 23, 2003— Imperial Oil Limited today announced second-quarter net earnings of $514 million or $1.38 a share, compared with $310 million or 82 cents a share in 2002. The main factors in the increase were improved industry margins on sales of petroleum products, higher prices for natural gas and increased production of crude oil.
Net earnings in the first half of 2003 were $1,052 million or $2.80 a share, compared with $420 million or $1.11 a share during the same period last year. The main contributors to that increase were higher prices for natural gas and crude oil, and improved petroleum-product margins.
Results in both periods also benefited from lower income tax rates and favourable foreign-exchange effects on the company’s U.S.-dollar-denominated debt. However, the foreign-exchange benefits were more than offset by the negative impact of the higher Canadian dollar on resource and product prices.
Total revenues were $9,988 million during the first half of 2003, compared with $7,680 million in the same period last year.
Capital and exploration expenditures rose to $744 million at the end of the first half of 2003 from $624 million during the corresponding period of last year.
The company repurchased 6.8 million shares for $312 million during the first half of 2003, compared with 296,000 shares for $13 million during the same period last year. Since the buyback programs began in 1995, the company has repurchased 209.5 million shares for $5,481 million.
During June and July of this year, the company replaced its entire U.S.-dollar-denominated debt with long term Canadian-dollar loans.
The balance of cash and marketable securities was $964 million on June 30, 2003, compared with $575 million at the same time last year.
Tim Hearn, chairman, president and chief executive officer, said: “Imperial’s solid financial position, diversity of operations and quality resource base allowed us to capitalize on favourable market conditions and set new earnings records. Our capital investment program — aimed at progressing major growth and environmental initiatives in the oil sands, Mackenzie gas, East Coast offshore and petroleum product operations — is firmly on track.”
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Imperial Oil is one of the largest producers of crude oil in Canada and a major producer of natural gas. The company is the largest refiner and marketer of petroleum products — sold primarily under the Esso brand name — and a major producer of petrochemicals.
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| For further information: | | |
| | | |
| Investor relations | | Media relations |
| Jean Côté | | Richard O’Farrell |
| (416) 968-4262 | | (416) 968-4875 |
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IMPERIAL OIL LIMITED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
The company’s net earnings for the second quarter of 2003 were $514 million or $1.38 a share, compared with $310 million or $0.82 a share for the same quarter last year. Net earnings for the first six months of 2003 were $1,052 million or $2.80 a share, the highest six-month earnings on record, versus $420 million or $1.11 a share for the first half of 2002. Second quarter earnings increased primarily as a result of higher margins for petroleum products, higher prices for natural gas and increased production of crude oil. Earnings for the first six months increased mainly because of higher prices for natural gas and crude oil, and higher margins for petroleum products.
Benefits from income tax rate reductions and favourable foreign exchange effects on the company’s U.S.-dollar-denominated debt also contributed positively to both the second quarter and year-to-date earnings. However, the foreign exchange benefits were more than offset in both periods by the negative impact of the higher Canadian dollar on resource and product prices.
Total revenues were $4,510 million in the second quarter and $9,988 million in the first half of 2003, versus $4,195 million and $7,680 million in the same periods last year.
Natural resources
During the second quarter of 2003, net earnings from natural resources were $351 million compared with $251 million in the same period last year. Earnings increased due to higher prices for natural gas and higher Cold Lake bitumen and Syncrude volumes partly offset by lower natural gas volumes. Reduced federal and provincial income tax rates and settlement of various tax matters in the second quarter also contributed favourably to earnings. Year-to-date net earnings were a record $690 million versus $395 million during the same six-month period last year. Higher prices for crude oil and natural gas and higher production volumes of Cold Lake bitumen were the main reasons for the increased earnings in the first half of 2003 compared with last year.
Prices for natural gas averaged $6.80 a thousand cubic feet in the second quarter and $7.45 a thousand cubic feet in the first half of 2003, compared with $4.22 a thousand cubic feet and $3.73 a thousand cubic feet during the corresponding periods last year. Prices for conventional crude oil averaged $38.53 a barrel in the second quarter and $43.20 a barrel in the first six months this year, compared with $36.93 a barrel and $33.68 a barrel, respectively, in the second quarter and first half of 2002. Average prices for Cold Lake bitumen in the second quarter of 2003 were about 10 percent lower than last year’s second quarter prices, but bitumen prices for the first six months of 2003 averaged about 15 percent higher than the prices of the same period last year.
Gross production of natural gas during the second quarter of 2003 was 489 million cubic feet a day, compared with 532 million cubic feet a day during the same period last year. During the first half of the year, gross production was 488 million cubic feet a day, versus 544 million cubic feet a day in the first six months of 2002. The decrease was mainly due to reservoir decline. At the end of June, construction of facilities to increase production from Wizard Lake was nearing completion, with production expected to begin in the third quarter.
Total production of crude oil and natural gas liquids (NGLs) increased to 262 thousand barrels a day in the second quarter and 252 thousand barrels a day in the first six months of 2003 from 234 thousand barrels a day and 238 thousand barrels a day during the corresponding periods of 2002.
IMPERIAL OIL LIMITED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued .....)
In the second quarter and first six months of this year, gross production of conventional crude oil averaged 47 thousand barrels a day, compared with 51 thousand barrels a day and 52 thousand barrels a day during the corresponding periods in 2002. Production of NGLs available for sale was 25 thousand barrels a day in the second quarter and 26 thousand barrels a day during the first half of 2003, versus 26 thousand barrels a day and 28 thousand barrels a day in the corresponding periods last year. Natural reservoir decline in the Western Canadian Basin was the main reason for the reduced production.
The company’s share of Syncrude’s gross production was 53 thousand barrels a day in the second quarter compared with 44 thousand barrels a day during the same period a year ago. Lower maintenance activity was the main reason for the higher production in the second quarter of this year. During the first six months of 2003, the company’s share of Syncrude production was 50 thousand barrels a day, compared with 51 thousand barrels a day in the first six months of 2002.
Gross production of Cold Lake bitumen averaged 137 thousand barrels a day during the second quarter and 129 thousand barrels a day in the first six months of 2003, versus 113 thousand barrels a day and 107 thousand barrels a day in the corresponding periods of 2002. Higher production was a result of increased volume from newly completed phases 11 to 13 offset in part by lower production from existing operations due to the cyclic nature of production at Cold Lake.
On June 3, 2003, the company hosted the official opening of its plant and field facilities for the phases 11 to 13 of Cold Lake operations. The $650-million project was completed on budget and on schedule at the end of 2002 and has been in production since that time. Construction of the project began in November 2000 and over four million work hours were carried out without a single lost-time incident for both employees and contractors.
On June 5, 2003, the company awarded the contract for drilling services for an exploration well on its deepwater acreage on the Scotian Slope. The prospect well, known as Balvenie, is located about 300 kilometers southeast of Halifax, Nova Scotia and is situated on one of two exploration licenses held by the company in the area. Drilling operations for the well began in early July and are expected to last two to three months.
On June 18, 2003, the company announced that financing agreements among all the participants of the Mackenzie Gas Project had been reached and the Preliminary Information Package (PIP) for the Mackenzie Gas Project was submitted to relevant regulatory authorities. On June 30 the regulatory agencies overseeing the project announced the PIP was complete and issued their Plan for Public Involvement. This document describes the opportunities available to the public to review and comment on the pipeline project. The company would lead the construction and operation of the proposed 1,300-kilometre pipeline to deliver natural gas produced in the Mackenzie Delta region to southern markets. The company owns the Taglu field, the largest of the three anchor fields in the project.
IMPERIAL OIL LIMITED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued .....)
Petroleum products
Net earnings from petroleum products were $102 million in the second quarter and a record $241 million in the first half of 2003, compared with net earnings of $15 million and a net loss of $22 million during the corresponding periods last year. Second quarter earnings increased due to higher petroleum product margins. Year-to-date earnings improved as a result of the strengthening of petroleum product margins and higher sales of petroleum products. The increased petroleum product volumes were principally due to higher demand for diesel, heating oil and gasoline.
At the end of the second quarter, the company achieved mechanical completion of the Dartmouth refinery low-sulphur motor gasoline facilities, ahead of schedule and without a safety incident.
Chemicals
Net earnings from chemical operations were $7 million in the second quarter and $13 million in the first half of 2003, compared with $11 million and $20 million during the corresponding periods of 2002. Reduced margins on sales of polyethylene as a result of higher feedstock costs and lower volumes were the main reasons for the decrease in earnings.
Corporate and other
Net earnings from corporate and other operations were $54 million in the second quarter and $108 million in the first half of 2003, versus $33 million and $27 million in the corresponding periods last year. Favourable foreign exchange effects on the company’s U.S.-dollar-denominated debt contributed to the improvement.
During June and July of this year, the company replaced its entire U.S.-dollar-denominated debt with long-term Canadian-dollar loans. The company realized foreign exchange currency gains of $110 million in the first half of this year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $672 million during the second quarter of 2003, compared with $530 million in the same period last year. The higher cash inflow was a result of increased earnings partly offset by higher working capital primarily due to timing of seasonal inventory builds. Year-to-date cash flow from operating activities was $1,372 million, versus $401 million during the first half of 2002. The increased cash inflow was mainly due to higher earnings and the timing of scheduled income tax payments. Total investing activities used $363 million of cash in the second quarter and $703 million in the first half of 2003, compared with $327 million and $565 million used during the corresponding periods last year.
Capital and exploration expenditures were $389 million in the second quarter and $744 million in the first six months of 2003, versus $365 million and $624 million in the corresponding periods a year ago. For the resources segment, the additional capital and exploration expenditures were used mainly on projects at Syncrude to maintain and expand oil production capacity. Petroleum products increased its capital expenditures mainly in projects to reduce the sulphur content of gasoline and to improve operating efficiency.
IMPERIAL OIL LIMITED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued .....)
During the second quarter, the company redeemed $400 million (U.S.) of its variable-rate U.S.-dollar debt for $546 million (Cdn). To replace the debt repaid in the second quarter, the company borrowed $546 million (Cdn) of variable-rate loans from Exxon Overseas Corporation. The company retired the remaining $200 million (U.S.) debt as of July 11, 2003 and replaced it with a similar variable-rate Canadian-dollar loan from Exxon Overseas Corporation.
On June 19, 2003, the company announced that it had received final acceptance from the Toronto Stock Exchange for a new normal course issuer bid to continue its existing share repurchase program that expired on June 20, 2003. The new share-purchase program enables the company to repurchase up to 18.6 million shares during the period from June 23, 2003, to June 22, 2004. During the first half of 2003, the company repurchased about 7 million shares for $312 million.
Cash dividends of $159 million were paid in the first six months of 2003. This compared with dividends of $160 million in the comparable period of 2002. Increased repurchase of shares reduced the number of shares outstanding and total dividend payments. On May 20, 2003, the company declared a quarterly dividend of 22 cents a share, an increase of one cent a share or about five percent, from the previous quarter, payable on July 1, 2003.
The above factors led to an increase in the company’s balance of cash and marketable securities to $964 million at June 30, 2003, from $575 million at the same time last year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks for the six months ended June 30, 2003 does not differ materially from that discussed on pages 10 and 11 in the company’s annual report to shareholders for the year ended December 31, 2002.
This report may contain forward-looking information. Actual results could differ materially due to market conditions, changes in law or government policy, changes in operating conditions and costs, changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other technical and economic factors.
IMPERIAL OIL LIMITED
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Second quarter | | Six months to June 30 |
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| |
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| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 |
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| |
| |
| |
|
| REVENUES | | | | | | | | | | | | | | | | |
| | Operating revenues | | | 4,472 | | | | 4,179 | | | | 9,924 | | | | 7,656 | |
| | Investment and other income | | | 38 | | | | 16 | | | | 64 | | | | 24 | |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL REVENUES | | | 4,510 | | | | 4,195 | | | | 9,988 | | | | 7,680 | |
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| | | |
| | | |
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| EXPENSES | | | | | | | | | | | | | | | | |
| | Exploration | | | 4 | | | | 6 | | | | 11 | | | | 15 | |
| | Purchases of crude oil and products | | | 2,655 | | | | 2,561 | | | | 6,077 | | | | 4,617 | |
| | Operating, selling and general | | | 804 | | | | 805 | | | | 1,638 | | | | 1,583 | |
| | Federal excise tax | | | 312 | | | | 307 | | | | 614 | | | | 597 | |
| | Depreciation and depletion | | | 177 | | | | 170 | | | | 357 | | | | 343 | |
| | Financing costs (4) | | | (57 | ) | | | (38 | ) | | | (114 | ) | | | (28 | ) |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL EXPENSES | | | 3,895 | | | | 3,811 | | | | 8,583 | | | | 7,127 | |
| | | |
| | | |
| | | |
| | | |
| |
| EARNINGS BEFORE INCOME TAXES | | | 615 | | | | 384 | | | | 1,405 | | | | 553 | |
| INCOME TAXES (5) | | | 101 | | | | 74 | | | | 353 | | | | 133 | |
| | | |
| | | |
| | | |
| | | |
| |
| NET EARNINGS | | | 514 | | | | 310 | | | | 1,052 | | | | 420 | |
| | | |
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| PER-SHARE INFORMATION – dollars | | | | | | | | | | | | | | | | |
| | Net earnings — basic (7) | | | 1.38 | | | | 0.82 | | | | 2.80 | | | | 1.11 | |
| | Net earnings — diluted (7) | | | 1.38 | | | | 0.82 | | | | 2.80 | | | | 1.11 | |
| | Dividends | | | 0.220 | | | | 0.210 | | | | 0.430 | | | | 0.420 | |
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Second quarter | | Six months to June 30 |
| | | |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
| RETAINED EARNINGS AT BEGINNING OF PERIOD | | | 3,610 | | | | 2,401 | | | | 3,277 | | | | 2,382 | |
| | Net earnings for the period | | | 514 | | | | 310 | | | | 1,052 | | | | 420 | |
| | Share purchases (7) | | | (151 | ) | | | — | | | | (277 | ) | | | (11 | ) |
| | Dividends | | | (83 | ) | | | (79 | ) | | | (162 | ) | | | (159 | ) |
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| | | |
| | | |
| | | |
| |
| RETAINED EARNINGS AT END OF PERIOD | | | 3,890 | | | | 2,632 | | | | 3,890 | | | | 2,632 | |
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IMPERIAL OIL LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Second quarter | | Six months to June 30 |
| inflow/(outflow) | |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
| OPERATING ACTIVITIES | | | | | | | | | | | | | | | | |
| | Net earnings | | | 514 | | | | 310 | | | | 1,052 | | | | 420 | |
| | Depreciation and depletion | | | 177 | | | | 170 | | | | 357 | | | | 343 | |
| | (Gain)/loss on asset sales, after tax | | | 1 | | | | (3 | ) | | | 1 | | | | (3 | ) |
| | Future income taxes and other | | | (84 | ) | | | (119 | ) | | | (242 | ) | | | (205 | ) |
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| | | |
| | | |
| | | |
| |
| | Cash flow from earnings | | | 608 | | | | 358 | | | | 1,168 | | | | 555 | |
| | | | | | | | | | | | | | | | | |
| | Accounts receivable | | | 294 | | | | 14 | | | | 20 | | | | (170 | ) |
| | Inventories and prepaids | | | (146 | ) | | | (30 | ) | | | (261 | ) | | | (177 | ) |
| | Income taxes payable | | | (22 | ) | | | (30 | ) | | | 121 | | | | (439 | ) |
| | Accounts payable and other | | | (62 | ) | | | 218 | | | | 324 | | | | 632 | |
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| |
| | Change in operating assets and liabilities | | | 64 | | | | 172 | | | | 204 | | | | (154 | ) |
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| | | |
| |
| CASH FROM OPERATING ACTIVITIES | | | 672 | | | | 530 | | | | 1,372 | | | | 401 | |
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| INVESTING ACTIVITIES | | | | | | | | | | | | | | | | |
| | Additions to property, plant and equipment | | | (380 | ) | | | (359 | ) | | | (725 | ) | | | (609 | ) |
| | Proceeds from asset sales | | | 17 | | | | 32 | | | | 22 | | | | 44 | |
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| CASH FROM (USED IN) INVESTING ACTIVITIES | | | (363 | ) | | | (327 | ) | | | (703 | ) | | | (565 | ) |
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| CASH FLOW BEFORE FINANCING ACTIVITIES | | | 309 | | | | 203 | | | | 669 | | | | (164 | ) |
| |
| FINANCING ACTIVITIES | | | | | | | | | | | | | | | | |
| | Short-term debt — net | | | — | | | | (460 | ) | | | — | | | | (460 | ) |
| | Long-term debt issued (6) | | | 546 | | | | 500 | | | | 546 | | | | 500 | |
| | Repayment of long-term debt (6) | | | (546 | ) | | | — | | | | (546 | ) | | | — | |
| | Common shares purchased (7) | | | (171 | ) | | | — | | | | (312 | ) | | | (13 | ) |
| | Dividends paid | | | (80 | ) | | | (80 | ) | | | (159 | ) | | | (160 | ) |
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| | | |
| | | |
| | | |
| |
| CASH FROM (USED IN) FINANCING ACTIVITIES | | | (251 | ) | | | (40 | ) | | | (471 | ) | | | (133 | ) |
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| | | |
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| | | |
| |
| INCREASE (DECREASE) IN CASH | | | 58 | | | | 163 | | | | 198 | | | | (297 | ) |
| CASH AT BEGINNING OF PERIOD | | | 906 | | | | 412 | | | | 766 | | | | 872 | |
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| | | |
| | | |
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| CASH AT END OF PERIOD | | | 964 | | | | 575 | | | | 964 | | | | 575 | |
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IMPERIAL OIL LIMITED
CONSOLIDATED BALANCE SHEET
(unaudited)
| | | | | | | | | | | | |
| | | | | | As at | | As at |
| | | | | | June 30 | | Dec. 31 |
| millions of dollars | | 2003 | | 2002 |
| |
| |
|
| ASSETS | | | | | | | | |
| | | Current assets | | | | | | | | |
| | | | Cash | | | 964 | | | | 766 | |
| | | | Accounts receivable | | | 1,328 | | | | 1,348 | |
| | | | Inventories of crude oil and products | | | 653 | | | | 433 | |
| | | | Materials, supplies and prepaid expenses | | | 151 | | | | 110 | |
| | | | Future income tax assets | | | 308 | | | | 323 | |
| | | |
| | | |
| |
| | | Total current assets | | | 3,404 | | | | 2,980 | |
| | | | | | | | | |
| | | Investments and other long-term assets | | | 121 | | | | 134 | |
| | | Property, plant and equipment | | | 8,913 | | | | 8,552 | |
| | | Goodwill | | | 204 | | | | 204 | |
| | | Other intangible assets | | | 22 | | | | 24 | |
| | | |
| | | |
| |
| TOTAL ASSETS | | | 12,664 | | | | 11,894 | |
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| | | |
| |
| | | | | | | | | |
| LIABILITIES | | | | | | | | |
| | | Current liabilities | | | | | | | | |
| | | | Short-term debt | | | 72 | | | | 72 | |
| | | | Accounts payable and accrued liabilities | | | 2,334 | | | | 2,114 | |
| | | | Income taxes payable | | | 678 | | | | 557 | |
| | | |
| | | |
| |
| | | Total current liabilities | | | 3,084 | | | | 2,743 | |
| | | | | | | | | |
| | | Long-term debt (6) | | | 1,342 | | | | 1,466 | |
| | | Other long-term obligations | | | 1,301 | | | | 1,207 | |
| | | Future income tax liabilities | | | 1,142 | | | | 1,262 | |
| | | |
| | | |
| |
| TOTAL LIABILITIES | | | 6,869 | | | | 6,678 | |
| SHAREHOLDERS’ EQUITY | | | 5,795 | | | | 5,216 | |
| | | |
| | | |
| |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | | 12,664 | | | | 11,894 | |
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Approved by the directors July 23, 2003
| | | |
/s/ T.J. Hearn
Chairman, president and
chief executive officer | | /s/ P.A. Smith
Controller and
senior vice-president,
finance and administration |
IMPERIAL OIL LIMITED
BUSINESS SEGMENTS
(unaudited)
Second quarter
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Resources | | Products | | Chemicals |
| | | |
| |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
| |
| |
|
| REVENUES | | | | | | | | | | | | | | | | | | | | | | | | |
| | Operating revenues (a) | | | 792 | | | | 630 | | | | 3,433 | | | | 3,311 | | | | 247 | | | | 238 | |
| | Intersegment sales (b) | | | 573 | | | | 523 | | | | 327 | | | | 270 | | | | 62 | | | | 53 | |
| | Investment and other income | | | 19 | | | | 6 | | | | 11 | | | | 7 | | | | — | | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL REVENUES | | | 1,384 | | | | 1,159 | | | | 3,771 | | | | 3,588 | | | | 309 | | | | 291 | |
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| | | |
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| | | |
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| EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
| | Exploration (c) | | | 4 | | | | 6 | | | | — | | | | — | | | | — | | | | — | |
| | Purchases (b) | | | 580 | | | | 444 | | | | 2,796 | | | | 2,750 | | | | 234 | | | | 213 | |
| | Operating, selling & general (b) | | | 290 | | | | 286 | | | | 462 | | | | 459 | | | | 59 | | | | 56 | |
| | Federal excise tax | | | — | | | | — | | | | 312 | | | | 307 | | | | — | | | | — | |
| | Depreciation and depletion | | | 122 | | | | 115 | | | | 49 | | | | 50 | | | | 6 | | | | 5 | |
| | Financing costs | | | — | | | | 1 | | | | — | | | | 1 | | | | — | | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL EXPENSES | | | 996 | | | | 852 | | | | 3,619 | | | | 3,567 | | | | 299 | | | | 274 | |
| | | |
| | | |
| | | |
| | | |
| | | |
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| |
| EARNINGS BEFORE INCOME TAXES | | | 388 | | | | 307 | | | | 152 | | | | 21 | | | | 10 | | | | 17 | |
| INCOME TAXES | | | 37 | | | | 56 | | | | 50 | | | | 6 | | | | 3 | | | | 6 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| NET EARNINGS | | | 351 | | | | 251 | | | | 102 | | | | 15 | | | | 7 | | | | 11 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPORT SALES TO THE UNITED STATES | | | 305 | | | | 265 | | | | 158 | | | | 138 | | | | 147 | | | | 125 | |
| CASH FLOW FROM EARNINGS | | | 386 | | | | 325 | | | | 222 | | | | 25 | | | | 13 | | | | 16 | |
| CAPEX (c) | | | 232 | | | | 221 | | | | 144 | | | | 142 | | | | 13 | | | | 2 | |
Second quarter
| | | | | | | | | | | | | | | | | | |
| | | | Corporate | | Consolidated |
| | | |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
| REVENUES | | | | | | | | | | | | | | | | |
| | Operating revenues (a) | | | — | | | | — | | | | 4,472 | | | | 4,179 | |
| | Intersegment sales (b) | | | — | | | | — | | | | — | | | | — | |
| | Investment and other income | | | 8 | | | | 3 | | | | 38 | | | | 16 | |
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| | | |
| | | |
| | | |
| |
| TOTAL REVENUES | | | 8 | | | | 3 | | | | 4,510 | | | | 4,195 | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPENSES | | | | | | | | | | | | | | | | |
| | Exploration (c) | | | — | | | | — | | | | 4 | | | | 6 | |
| | Purchases (b) | | | — | | | | — | | | | 2,655 | | | | 2,561 | |
| | Operating, selling & general (b) | | | — | | | | 4 | | | | 804 | | | | 805 | |
| | Federal excise tax | | | — | | | | — | | | | 312 | | | | 307 | |
| | Depreciation and depletion | | | — | | | | — | | | | 177 | | | | 170 | |
| | Financing costs | | | (57 | ) | | | (40 | ) | | | (57 | ) | | | (38 | ) |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL EXPENSES | | | (57 | ) | | | (36 | ) | | | 3,895 | | | | 3,811 | |
| | | |
| | | |
| | | |
| | | |
| |
| EARNINGS BEFORE INCOME TAXES | | | 65 | | | | 39 | | | | 615 | | | | 384 | |
| INCOME TAXES | | | 11 | | | | 6 | | | | 101 | | | | 74 | |
| | | |
| | | |
| | | |
| | | |
| |
| NET EARNINGS | | | 54 | | | | 33 | | | | 514 | | | | 310 | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPORT SALES TO THE UNITED STATES | | | — | | | | — | | | | 610 | | | | 528 | |
| CASH FLOW FROM EARNINGS | | | (13 | ) | | | (8 | ) | | | 608 | | | | 358 | |
| CAPEX (c) | | | — | | | | — | | | | 389 | | | | 365 | |
| (a) | | Includes crude sales made by Products in order to optimize refining operations. |
| |
| (b) | | Consolidated amounts exclude intersegment transactions, as follows: |
| | | | | | | | | |
| | | 2003 | | 2002 |
| | |
| |
|
| Purchases | | | 955 | | | | 846 | |
| Operating expenses | | | 7 | | | | — | |
| | | |
| | | |
| |
| Total intersegment sales | | | 962 | | | | 846 | |
| | | |
| | | |
| |
| (c) | | Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment and additions to capital leases. |
IMPERIAL OIL LIMITED
BUSINESS SEGMENTS
(unaudited)
Six months to June 30
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Resources | | Products | | Chemicals |
| | | |
| |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
| |
| |
|
| REVENUES | | | | | | | | | | | | | | | | | | | | | | | | |
| | Operating revenues (a) | | | 1,796 | | | | 1,140 | | | | 7,601 | | | | 6,052 | | | | 527 | | | | 464 | |
| | Intersegment sales (b) | | | 1,208 | | | | 979 | | | | 705 | | | | 471 | | | | 127 | | | | 98 | |
| | Investment and other income | | | 31 | | | | 5 | | | | 19 | | | | 12 | | | | — | | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL REVENUES | | | 3,035 | | | | 2,124 | | | | 8,325 | | | | 6,535 | | | | 654 | | | | 562 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
| | Exploration (c) | | | 11 | | | | 15 | | | | — | | | | — | | | | — | | | | — | |
| | Purchases (b) | | | 1,313 | | | | 816 | | | | 6,296 | | | | 4,943 | | | | 501 | | | | 405 | |
| | Operating, selling & general (b) | | | 571 | | | | 535 | | | | 953 | | | | 927 | | | | 121 | | | | 115 | |
| | Federal excise tax | | | — | | | | — | | | | 614 | | | | 597 | | | | — | | | | — | |
| | Depreciation and depletion | | | 241 | | | | 227 | | | | 103 | | | | 105 | | | | 13 | | | | 11 | |
| | Financing costs | | | 1 | | | | 1 | | | | — | | | | 1 | | | | — | | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL EXPENSES | | | 2,137 | | | | 1,594 | | | | 7,966 | | | | 6,573 | | | | 635 | | | | 531 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| EARNINGS BEFORE INCOME TAXES | | | 898 | | | | 530 | | | | 359 | | | | (38 | ) | | | 19 | | | | 31 | |
| INCOME TAXES | | | 208 | | | | 135 | | | | 118 | | | | (16 | ) | | | 6 | | | | 11 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| NET EARNINGS | | | 690 | | | | 395 | | | | 241 | | | | (22 | ) | | | 13 | | | | 20 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPORT SALES TO THE UNITED STATES | | | 657 | | | | 405 | | | | 406 | | | | 318 | | | | 295 | | | | 249 | |
| CASH FLOW FROM EARNINGS | | | 811 | | | | 543 | | | | 355 | | | | (3 | ) | | | 17 | | | | 29 | |
| CAPEX (c) | | | 459 | | | | 407 | | | | 264 | | | | 213 | | | | 21 | | | | 4 | |
| TOTAL ASSETS AS AT June 30 (b) | | | 6,172 | | | | 5,565 | | | | 5,455 | | | | 4,871 | | | | 390 | | | | 373 | |
| CAPITAL EMPLOYED AS AT June 30 | | | 3,510 | | | | 3,065 | | | | 2,575 | | | | 2,275 | | | | 176 | | | | 155 | |
Six months to June 30
| | | | | | | | | | | | | | | | | | |
| | | | Corporate | | Consolidated |
| | | |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
| REVENUES | | | | | | | | | | | | | | | | |
| | Operating revenues (a) | | | — | | | | — | | | | 9,924 | | | | 7,656 | |
| | Intersegment sales (b) | | | — | | | | — | | | | — | | | | — | |
| | Investment and other income | | | 14 | | | | 7 | | | | 64 | | | | 24 | |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL REVENUES | | | 14 | | | | 7 | | | | 9,988 | | | | 7,680 | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPENSES | | | | | | | | | | | | | | | | |
| | Exploration (c) | | | — | | | | — | | | | 11 | | | | 15 | |
| | Purchases (b) | | | — | | | | — | | | | 6,077 | | | | 4,617 | |
| | Operating, selling & general (b) | | | — | | | | 7 | | | | 1,638 | | | | 1,583 | |
| | Federal excise tax | | | — | | | | — | | | | 614 | | | | 597 | |
| | Depreciation and depletion | | | — | | | | — | | | | 357 | | | | 343 | |
| | Financing costs | | | (115 | ) | | | (30 | ) | | | (114 | ) | | | (28 | ) |
| | | |
| | | |
| | | |
| | | |
| |
| TOTAL EXPENSES | | | (115 | ) | | | (23 | ) | | | 8,583 | | | | 7,127 | |
| | | |
| | | |
| | | |
| | | |
| |
| EARNINGS BEFORE INCOME TAXES | | | 129 | | | | 30 | | | | 1,405 | | | | 553 | |
| INCOME TAXES | | | 21 | | | | 3 | | | | 353 | | | | 133 | |
| | | |
| | | |
| | | |
| | | |
| |
| NET EARNINGS | | | 108 | | | | 27 | | | | 1,052 | | | | 420 | |
| | | |
| | | |
| | | |
| | | |
| |
| EXPORT SALES TO THE UNITED STATES | | | — | | | | — | | | | 1,358 | | | | 972 | |
| CASH FLOW FROM EARNINGS | | | (15 | ) | | | (14 | ) | | | 1,168 | | | | 555 | |
| CAPEX (c) | | | — | | | | — | | | | 744 | | | | 624 | |
| TOTAL ASSETS AS AT June 30 (b) | | | 964 | | | | 576 | | | | 12,664 | | | | 11,138 | |
| CAPITAL EMPLOYED AS AT June 30 | | | 1,006 | | | | 613 | | | | 7,267 | | | | 6,108 | |
| (a) | | Includes crude sales made by Products in order to optimize refining operations. |
| |
| (b) | | Consolidated amounts exclude intersegment transactions, as follows: |
| | | | | | | | | |
| | | 2003 | | 2002 |
| | |
| |
|
| Purchases | | | 2,033 | | | | 1,547 | |
| Operating expenses | | | 7 | | | | 1 | |
| | | |
| | | |
| |
| Total intersegment sales | | | 2,040 | | | | 1,548 | |
| | | |
| | | |
| |
| Intersegment receivables and payables | | | 317 | | | | 247 | |
| | | |
| | | |
| |
| (c) | | Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment and additions to capital leases. |
IMPERIAL OIL LIMITED
OPERATING STATISTICS
(unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Second quarter | | Six months to June 30 |
| | | |
| |
|
| | | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
GROSS CRUDE OIL AND NGL PRODUCTION
(thousands of barrels a day) | | | | | | | | | | | | | | | | |
| | Conventional | | | 47 | | | | 51 | | | | 47 | | | | 52 | |
| | Cold Lake | | | 137 | | | | 113 | | | | 129 | | | | 107 | |
| | Syncrude | | | 53 | | | | 44 | | | | 50 | | | | 51 | |
| | | |
| | | |
| | | |
| | | |
| |
| | Total crude oil production | | | 237 | | | | 208 | | | | 226 | | | | 210 | |
| | Natural gas liquids (NGLs) available for sale | | | 25 | | | | 26 | | | | 26 | | | | 28 | |
| | | |
| | | |
| | | |
| | | |
| |
| | Total crude oil and NGL production | | | 262 | | | | 234 | | | | 252 | | | | 238 | |
| | | |
| | | |
| | | |
| | | |
| |
| NGL SALES (thousands of barrels a day) | | | 29 | | | | 31 | | | | 38 | | | | 37 | |
NATURAL GAS
(millions of cubic feet a day) | | | | | | | | | | | | | | | | |
| | Production (gross) | | | 489 | | | | 532 | | | | 488 | | | | 544 | |
| | Production available for sale (gross) | | | 417 | | | | 466 | | | | 418 | | | | 476 | |
| | Sales | | | 444 | | | | 502 | | | | 442 | | | | 515 | |
| AVERAGE PRICES (dollars) | | | | | | | | | | | | | | | | |
| | Conventional crude oil sales (a barrel) | | | 38.53 | | | | 36.93 | | | | 43.20 | | | | 33.68 | |
| | Par crude oil price at Edmonton (a barrel) | | | 42.39 | | | | 40.58 | | | | 47.04 | | | | 37.30 | |
| | Heavy crude oil at Hardisty (Bow River, a barrel) | | | 31.80 | | | | 32.51 | | | | 35.96 | | | | 29.57 | |
| | Natural gas sales (a thousand cubic feet) | | | 6.80 | | | | 4.22 | | | | 7.45 | | | | 3.73 | |
PETROLEUM PRODUCTS SALES
(millions of litres a day) | | | | | | | | | | | | | | | | |
| | Gasolines | | | 33.2 | | | | 33.3 | | | | 32.6 | | | | 32.0 | |
| | Heating, diesel and jet fuels | | | 23.2 | | | | 22.3 | | | | 26.8 | | | | 24.6 | |
| | Heavy fuel oils | | | 5.1 | | | | 4.7 | | | | 4.8 | | | | 4.4 | |
| | Lube oils and other products | | | 5.7 | | | | 7.2 | | | | 5.2 | | | | 6.1 | |
| | | |
| | | |
| | | |
| | | |
| |
| | Net petroleum products sales | | | 67.2 | | | | 67.5 | | | | 69.4 | | | | 67.1 | |
| | Sales under purchase and sale agreements | | | 14.8 | | | | 14.7 | | | | 14.8 | | | | 13.7 | |
| | | |
| | | |
| | | |
| | | |
| |
| | Total petroleum products sales | | | 82.0 | | | | 82.2 | | | | 84.2 | | | | 80.8 | |
| | | |
| | | |
| | | |
| | | |
| |
TOTAL REFINERY THROUGHPUT
(millions of litres a day) | | | 72.9 | | | | 69.1 | | | | 71.9 | | | | 69.7 | |
REFINERY CAPACITY UTILIZATION
(percent) | | | 91 | | | | 87 | | | | 90 | | | | 88 | |
PETROCHEMICAL SALES
(thousands of tonnes a day) | | | 3.1 | | | | 3.7 | | | | 3.4 | | | | 3.7 | |
IMPERIAL OIL LIMITED
SHARE OWNERSHIP, TRADING AND PERFORMANCE
(unaudited)
| | | | | | | | | | | | | | | | | | | |
| | | | | Second quarter | | Six months to June 30 |
| | | | |
| |
|
| | | | | 2003 | | 2002 | | 2003 | | 2002 |
| | | | |
| |
| |
| |
|
RETURN ON AVERAGE CAPITAL EMPLOYED (a)
(rolling 4 quarters, percent) | | | | | | | | | | | 27.2 | | | | 15.0 | |
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY
(rolling 4 quarters, percent) | | | | | | | | | | | 34.7 | | | | 19.3 | |
INTEREST COVERAGE RATIO — EARNINGS BASIS
(rolling 4 quarters, times covered) | | | | | | | | | | | 72.7 | | | | 25.9 | |
| SHARE OWNERSHIP | | | | | | | | | | | | | | | | |
| | Outstanding shares (thousands) | | | | | | | | | | | | | | | | |
| | | Monthly weighted average | | | 374,194 | | | | 378,863 | | | | 376,022 | | | | 378,888 | |
| | | At June 30 | | | | | | | | | | | 372,067 | | | | 378,863 | |
| | Number of shareholders | | | | | | | | | | | | | | | | |
| | | At June 30 | | | | | | | | | | | 15,738 | | | | 16,191 | |
| SHARE PRICES (dollars) | | | | | | | | | | | | | | | | |
| | High | | | 47.40 | | | | 49.38 | | | | 47.80 | | | | 49.38 | |
| | Low | | | 43.20 | | | | 43.76 | | | | 43.20 | | | | 41.13 | |
| | Close at June 30 | | | | | | | | | | | 47.10 | | | | 47.29 | |
| (a) | | Capital employed is defined as short and long-term debt and shareholders’ equity. |
IMPERIAL OIL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
These consolidated financial statements follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements, except for those changes implemented January 1, 2003 to reflect new accounting standards of the Canadian Institute of Chartered Accountants (CICA). The impact of the new CICA standard dealing with accounting for asset retirement obligations is discussed in note 2.
The new CICA standard dealing with accounting for asset retirement obligations changes the method of accruing for certain site-restoration costs. Under the new standard, the fair values of asset retirement obligations are recorded as liabilities on a discounted basis when they are incurred, which is typically at the time the related assets are installed. Amounts recorded for the related assets are increased by the amount of these obligations. Over time the liabilities will be accreted for the change in their present value and the initial capitalized costs will be depreciated over the useful lives of the related assets. There are no asset retirement liabilities set up for those assets which have an indeterminate useful life.
Estimated cash flows have been discounted at six percent. Implementation of the new standard has reduced site-restoration liabilities by $4 million to $506 million as of June 30, 2003. The total undiscounted amount of the estimated cash flows required to settle the obligations is $895 million. Payments to settle the obligations occur on an ongoing basis and will continue over the lives of the operating assets, which can exceed more than 25 years. This change in accounting standard has no impact on the cash flow profile of the company. The new standard has been applied retroactively, and the financial statements of prior periods have been restated.
The impact of adopting the new accounting for asset retirement obligations standard on the consolidated balance sheet and statement of earnings is:
Change in consolidated balance sheet
| | | | | | | | | |
| | | As at June 30 |
| | |
|
| millions of dollars - increase/(decrease) | | 2003 | | 2002 |
| |
| |
|
| Property, plant and equipment | | | 25 | | | | 19 | |
| | | |
| | | |
| |
| Total assets | | | 25 | | | | 19 | |
| | | |
| | | |
| |
| Other long-term obligations | | | (4 | ) | | | 22 | |
| Future income tax liabilities | | | 9 | | | | (1 | ) |
| Retained earnings | | | 20 | | | | (2 | ) |
| | | |
| | | |
| |
| Total liabilities and shareholders’ equity | | | 25 | | | | 19 | |
| | | |
| | | |
| |
Change in consolidated statement of earnings
| | | | | | | | | | | | | | | | | |
| | | Second quarter | | Six months to June 30 |
| | |
| |
|
| millions of dollars - increase/(decrease) | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
| Operating, selling and general expense | | | (12 | ) | | | (7 | ) | | | (24 | ) | | | (13 | ) |
| Depreciation and depletion expense | | | 1 | | | | 1 | | | | 1 | | | | 1 | |
| | | |
| | | |
| | | |
| | | |
| |
| Total expenses | | | (11 | ) | | | (6 | ) | | | (23 | ) | | | (12 | ) |
| Income taxes | | | 3 | | | | 2 | | | | 7 | | | | 4 | |
| | | |
| | | |
| | | |
| | | |
| |
| Net earnings | | | 8 | | | | 4 | | | | 16 | | | | 8 | |
| | | |
| | | |
| | | |
| | | |
| |
| Earnings per share — basic (dollars) | | | 0.02 | | | | 0.01 | | | | 0.04 | | | | 0.02 | |
| Earnings per share — diluted (dollars) | | | 0.02 | | | | 0.01 | | | | 0.04 | | | | 0.02 | |
IMPERIAL OIL LIMITED
| 3. | | Incentive compensation programs |
The company accounts for its incentive compensation programs, except for the incentive Stock option plan, by using the fair-value-based method. Under this method, compensation expense related to the units of these programs is recorded in the consolidated statement of earnings over the vesting period. The company accounts for its incentive stock option plan by using the intrinsic-value-based method and does not recognize compensation expense on the issuance of stock options because the exercise price is equal to the market value at the date of grant. If the fair-value-based method of accounting had been adopted to account for the incentive stock option plan, the impact on net earnings and earnings per share would have been negligible.
The company expects to purchase shares on the market to fully offset the dilutive effects from the exercise of incentive stock options. The company does not plan to issue stock options in the future.
| | | | | | | | | | | | | | | | | |
| | | Second quarter | | Six months to June 30 |
| | |
| |
|
| millions of dollars | | 2003 | | 2002 | | 2003 | | 2002 |
| |
| |
| |
| |
|
| Debt related interest | | | 8 | | | | 11 | | | | 16 | | | | 19 | |
| Other interest | | | 1 | | | | 1 | | | | 2 | | | | 2 | |
| | | |
| | | |
| | | |
| | | |
| |
| Total interest expense | | | 9 | | | | 12 | | | | 18 | | | | 21 | |
| Foreign exchange expense (gain) on long-term debt | | | (66 | ) | | | (50 | ) | | | (132 | ) | | | (49 | ) |
| | | |
| | | |
| | | |
| | | |
| |
| Total financing costs | | | (57 | ) | | | (38 | ) | | | (114 | ) | | | (28 | ) |
| | | |
| | | |
| | | |
| | | |
| |
During the second quarter of 2003, tax rate reductions enacted by the Federal government and the provincial government of Alberta and settlement of various tax matters benefited results, mainly in the resources segment, by $109 million. In the second quarter of 2002, tax settlement and income tax rate changes benefited earnings by $53 million.
IMPERIAL OIL LIMITED
| | | | | | | | | | | | | |
| | | | | | | As at | | As at |
| | | | | Interest | | June 30 | | Dec. 31 |
| Issued | | Maturity date | | rate | | 2003 | | 2002 |
| |
| |
| |
| |
|
| 1989 | | September 1, 2004 (2002 – $600 million (U.S.); 2003 – $200 million (U.S.)) (a) | | Variable | | | 268 | | | | 946 | |
| 2002 | | May 7, 2004 (b) | | Variable | | | 500 | | | | 500 | |
| 2003 | | May 26, 2005 (a) | | Variable | | | 500 | | | | — | |
| 2003 | | January 19, 2006 (a) | | Variable | | | 46 | | | | — | |
| | | | | | | |
| | | |
| |
| Long-term debt (at period-end exchange rate) | | | | | 1,314 | | | | 1,446 | |
| Capital leases | | | | | 28 | | | | 20 | |
| | | | | | | |
| | | |
| |
| Total long-term debt | | | | | 1,342 | | | | 1,466 | |
| | | | | | | |
| | | |
| |
| (a) | | During the second quarter of 2003, the company redeemed $400 million (U.S.) of its variable-rate U.S.-dollar debt for $546 million (Cdn) and retired the remaining $200 million (U.S.) for $272 million (Cdn) on July 11, 2003. To replace the debt repaid in the second quarter, the company borrowed $546 million (Cdn) variable-rate loans from Exxon Overseas Corporation at interest equivalent to Canadian market rates. |
| |
| (b) | | The $500 million (Cdn) medium-term notes’ initial maturity date is May 7, 2004. The company intends to refinance these notes beyond the initial maturity date under the existing one-billion-dollar Medium Term Notes Program. |
| | | | | | | | | |
| | | As at | | As at |
| | | June 30 | | Dec. 31 |
| thousands of shares | | 2003 | | 2002 |
| |
| |
|
| Authorized | | | 450,000 | | | | 450,000 | |
| Common shares outstanding | | | 372,067 | | | | 378,863 | |
In 1995 through 2002, the company purchased shares under eight 12-month normal course share purchase programs, as well as an auction tender. On June 23, 2003, another 12-month normal course program was implemented with an allowable purchase up to 18.6 million shares (five percent of the total on June 19, 2003), less any shares purchased by the employee savings plan and company pension fund. The results of these activities are as shown below:
| | | | | | | | | | |
| | | | millions of |
| | | |
|
| Year | | Shares | | Dollars |
| |
| |
|
| | 1995 – 2001 | | | 202.4 | | | | 5,156 | |
| | 2002 – Second quarter | | | — | | | | — | |
| | Full year | | | 0.3 | | | | 13 | |
| | 2003 – Second quarter | | | 3.8 | | | | 171 | |
| | Year-to-date | | | 6.8 | | | | 312 | |
| Cumulative purchases to date | | | 209.5 | | | | 5,481 | |
Exxon Mobil Corporation’s participation in the above maintained its ownership interest in Imperial at 69.6 percent.
The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of retained earnings.
There is no significant dilutive effect on basic net earnings per share from the outstanding incentive stock options described in note 3.
