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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 89 added, 85 removed, 141 unchanged (55% of the section changed)

Management’s discussion and analysis of financial condition and results of operations

financial measures and other specified financial measures

Non-GAAP financial measures and other specified financial measures

Certain measures included in this document are not prescribed by U.S.

Generally Accepted Accounting Principles (GAAP).

These measures constitute “non-GAAP

financial measures” under Securities and Exchange Commission Regulation G, and “specified financial measures” under National Instrument 52-112

and Other Financial Measures Disclosure

of the Canadian Securities Administrators.

Reconciliation of these non-GAAP

financial measures to the most comparable GAAP measure, and other information required by these regulations, have been provided.

financial measures and specified financial measures are not standardized financial measures under GAAP and do not have a standardized definition.

These measures constitute “non-GAAP financial measures” under Securities and Exchange Commission Regulation G, and “specified financial measures” under National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure of the Canadian Securities Administrators.

Reconciliation of these non-GAAP financial measures to the most comparable GAAP measure, and other information required by these regulations, have been provided.

Non-GAAP financial measures and specified financial measures are not standardized financial measures under GAAP and do not have a standardized definition.

As such, these measures may not be directly comparable to measures presented by other companies, and should not be considered a substitute for GAAP financial measures.

Net income (loss) excluding identified items

Net income (loss) excluding identified items is a non-GAAP

financial measure that is total net income (loss) excluding individually significant non-operational

events with an absolute corporate total earnings impact of at least $100 million in a given quarter.

Net income (loss) excluding identified items is a non-GAAP financial measure that is total net income (loss) excluding individually significant non-operational events with an absolute corporate total earnings impact of at least $100 million in a given quarter.

The net income (loss) impact of an identified item for an individual segment in a given quarter may be less than $100 million when the item impacts several segments or several periods.

The most directly comparable financial measure that is disclosed in the financial statements is net income (loss) within the company’s Consolidated statement of income.

Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant non-operational

events from business results.

Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant non-operational events from business results.

The company believes this view provides investors increased transparency into business results and trends, and provides investors with a view of the business as seen through the eyes of management.

Net income (loss) excluding identified items is not meant to be viewed in isolation or as a substitute for net income (loss) as prepared in accordance with U.S.

All identified items are presented on an after-tax

All identified items are presented on an after-tax basis.

Reconciliation of net income (loss) excluding identified items

There were no identified items in the second quarter or year-to-date

2022 and 2021.

Third Quarter

millions of Canadian dollars 2022

From Imperial's Consolidated statement of income

Net income (loss) (U.S.

GAAP) 2,031 908 5,613 1,666

Less identified items included in Net income (loss)

Gain/(loss) on sale of assets 208 — 208 —

Subtotal of identified items 208 — 208 —

Net income (loss) excluding identified items 1,823 908 5,405 1,666

IMPERIAL OIL LIMITED

Current business environment

During the COVID-19

pandemic, industry investment to maintain and increase production capacity was restrained to preserve capital, resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered.

During the COVID-19 pandemic, industry investment to maintain and increase production capacity was restrained to preserve capital, resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered.

Across late 2021 and the first half of 2022, this dynamic, along with supply chain constraints and a continuation of demand recovery, led to a steady increase in oil and natural gas prices and refining margins.

1 unchanged sentence

The price of crude oil and certain regional natural gas indicators increased to levels not seen for several years.

By the end of the second quarter, high prices had led to a tempering of demand for some products.

Across the third quarter of 2022, high prices and economic uncertainty led to a tempering of demand for some products, causing crude oil prices and refining margins to soften relative to first half levels.

Commodity and product prices are expected to remain volatile given the current global economic and geopolitical uncertainty affecting supply and demand.

Operating results

Second quarter 2022 vs.

second quarter 2021

Second Quarter

Third quarter 2022 vs.

third quarter 2021

Third Quarter

millions of Canadian dollars, unless noted 2022

Net income (loss) (U.S.

GAAP) 2,031 908

Net income (loss) per common share, assuming dilution (dollars) 3.24 1.29

Net income (loss) excluding identified items¹ 1,823 908

Current quarter results include favourable identified items¹ of $208 million related to the company's gain on the sale of interests in XTO Energy Canada.

Net income (loss) factor analysis

2 unchanged sentences

Average bitumen realizations increased by $21.14 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $38.86 per barrel generally in line with WTI.

Volumes – Higher volumes primarily driven by the timing of turnaround activities at Syncrude, partially offset by downtime at Kearl.

Volumes – Lower volumes were the result of timing of planned turnaround activities at Syncrude, partially offset by higher volumes at Cold Lake, primarily driven by continued focus on sustained performance and production optimization.

Royalty – Higher royalties primarily driven by improved commodity prices.

Other – Includes higher operating expenses of about $180 million, primarily higher energy prices, partially offset by favourable foreign exchange impacts of about $60 million.

Identified Items¹ – Current quarter results include favourable identified items¹ related to the company's gain on the sale of interests in XTO Energy Canada.

Other – Includes higher operating expenses of about $200 million, partially offset by favourable foreign exchange impacts of about $80 million.

¹ non-GAAP financial measure - see non-GAAP financial measures and other specified financial measures for definition and reconciliation

IMPERIAL OIL LIMITED

Marker prices and average realizations

Second Quarter

Third Quarter

Canadian dollars, unless noted 2022 2021

5 unchanged sentences

Average foreign exchange rate (US$)

IMPERIAL OIL LIMITED

Second Quarter

Third Quarter

thousands of barrels per day 2022 2021

1 unchanged sentence

Kearl total gross production (thousands of barrels per day)

(a) In the second quarter of 2022, Syncrude gross production included about 2 thousand barrels per day of bitumen (2021 - rounded to 0 thousand barrels per day) that was exported to the operator’s facilities using an existing interconnect pipeline.

Lower production at Kearl was primarily a result of downtime.

Higher production at Syncrude was primarily a result of the timing of turnaround activities.

(a) In the third quarter of 2022, Syncrude gross production included about 7 thousand barrels per day of bitumen and other products (2021 - 1 thousand barrels per day) that was exported to the operator's facilities using an existing interconnect pipeline.

Higher production at Cold Lake was primarily driven by continued focus on sustained performance and production optimization.

Lower production at Syncrude was primarily a result of the timing of planned turnaround activities.

Net income (loss) factor analysis

1 unchanged sentence

Margins – Higher margins primarily reflect improved market conditions.

Other – Includes lower turnaround impacts of about $130 million, reflecting the absence of turnaround activities at Strathcona refinery, partially offset by higher operating expenses of about $70 million, primarily higher energy costs.

Refinery utilization and petroleum product sales

Second Quarter

Third Quarter

thousands of barrels per day, unless noted 2022 2021

2 unchanged sentences

Petroleum product sales 484 485

Improved refinery throughput in the second quarter of 2022 was primarily driven by reduced turnaround activity and increased demand.

Improved petroleum product sales in the second quarter of 2022 were mainly due to increased demand.

Improved refinery throughput in the third quarter of 2022 was primarily driven by economic optimization across the downstream supply chain.

IMPERIAL OIL LIMITED

Net income (loss) factor analysis

millions of Canadian dollars

IMPERIAL OIL LIMITED

Margins – Lower margins primarily reflect weaker industry polyethylene margins.

Corporate and other

Second Quarter

Third Quarter

millions of Canadian dollars 2022 2021

1 unchanged sentence

Liquidity and capital resources

Second Quarter

Third Quarter

millions of Canadian dollars 2022 2021

5 unchanged sentences

Cash and cash equivalents at period end 3,576 1,875

Cash flow generated from operating activities primarily reflects higher Upstream realizations and improved Downstream margins.

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment.

Cash flow generated from operating activities primarily reflects higher Upstream realizations, improved Downstream margins, and favourable working capital impacts.

Cash flow generated from investing activities primarily reflects proceeds from the sale of interests in XTO Energy Canada, partially offset by higher additions to property, plant and equipment.

Cash flow used in financing activities primarily reflects:

Second Quarter

Third Quarter

millions of Canadian dollars, unless noted 2022 2021

2 unchanged sentences

Share repurchases (a)

Number of shares purchased (millions)

(a) Share repurchases were made under the company’s substantial issuer bid that commenced on May 6, 2022 and expired on June 10, 2022.

Includes shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

On May 6, 2022, the company commenced a substantial issuer bid pursuant to which it offered to purchase for cancellation up to $2.5 billion of its common shares through a modified Dutch auction and proportionate tender offer.

The substantial issuer bid was completed on June 15, 2022, with the company taking up and paying for 32,467,532 common shares at a price of $77.00 per share, for an aggregate purchase of $2.5 billion and 4.9 percent of Imperial’s issued and outstanding shares as the close of business on May 2, 2022.

This included 22,597,379 shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

On June 27, 2022, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its existing share purchase program.

The program enables the company to purchase up to a maximum of 31,833,809 common shares during the period June 29, 2022 to June 28, 2023.

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 28, 2023.

Imperial plans to accelerate its share purchases under the normal course issuer bid program, and anticipates repurchasing all remaining allowable shares by the end of October 2022.

Purchase plans may be modified at any time without prior notice.

In June 2022, the company reduced its existing $500 million committed long-term line of credit to $250 million and extended the maturity date to June 30, 2023.

The company also extended one of its $250 million committed long-term lines of credit to June 30, 2024.

The company has not drawn on any of its outstanding $750 million of available credit facilities.

Number of shares purchased (millions) (a)

(a) Share repurchases were made under the company's normal course issuer bid program, and include shares purchased from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid.

During the third quarter of 2022, the company decreased its long-term debt by $1 billion by partially repaying an existing facility with an affiliated company of ExxonMobil.

IMPERIAL OIL LIMITED

Six months 2022 vs.

six months 2021

Nine months 2022 vs.

nine months 2021

millions of Canadian dollars, unless noted 2022

1 unchanged sentence

Net income (loss) per common share, assuming dilution (dollars)

Net income (loss) excluding identified items¹ 5,405 1,666

Current year results include favourable identified items¹ of $208 million related to the company's gain on the sale of interests in XTO Energy Canada.

Net income (loss) factor analysis

2 unchanged sentences

Average bitumen realizations increased by $38.71 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $51.90 per barrel generally in line with WTI.

Volumes – Lower volumes primarily driven by downtime at Kearl, partially offset by the timing of turnaround activities at Syncrude.

Volumes – Lower volumes were primarily the result of downtime at Kearl in the first half of the year.

Royalty – Higher royalties primarily driven by improved commodity prices.

Identified Items¹ – Current year results include favourable identified items¹ related to the company's gain on the sale of interests in XTO Energy Canada.

Other – Includes higher operating expenses of about $430 million, primarily higher energy prices, partially offset by favourable foreign exchange impacts of about $130 million.

Average realizations and marker prices

Marker prices and average realizations

Canadian dollars, unless noted 2022 2021

5 unchanged sentences

Average foreign exchange rate (US$)

¹ non-GAAP financial measure - see non-GAAP financial measures and other specified financial measures for definition and reconciliation

IMPERIAL OIL LIMITED

2 unchanged sentences

Kearl total gross production (thousands of barrels per day)

(a) In 2022, Syncrude gross production included about 2 thousand barrels per day of bitumen (2021 - rounded to 0 thousand barrels per day) that was exported to the operator’s facilities using an existing interconnect pipeline.

Lower production at Kearl was primarily a result of downtime.

Higher production at Syncrude was primarily a result of the timing of turnaround activities.

(a) In 2022, Syncrude gross production included about 4 thousand barrels per day of bitumen and other products (2021 - 1 thousand barrels per day) that was exported to the operator's facilities using an existing interconnect pipeline.

Lower production at Kearl was primarily a result of downtime in the first half of the year.

Net income (loss) factor analysis

1 unchanged sentence

Margins – Higher margins primarily reflect improved market conditions.

Other – Includes lower turnaround impacts of about $140 million, reflecting the absence of turnaround activities at Strathcona refinery and favourable foreign exchange impacts of about $70 million, partially offset by higher operating expenses of about $130 million, primarily from higher energy costs.

Refinery utilization and petroleum product sales

7 unchanged sentences

millions of Canadian dollars

Margins – Lower margins primarily reflect weaker industry polyethylene margins.

IMPERIAL OIL LIMITED

10 unchanged sentences

Cash flow generated from operating activities primarily reflects higher Upstream realizations, improved Downstream margins, and favourable working capital impacts.

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment.

Cash flow used in investing activities primarily reflects proceeds from the sale of interests in XTO Energy Canada, partially offset by higher additions to property, plant and equipment.

Cash flow used in financing activities primarily reflects:

6 unchanged sentences

Includes shares purchased from Exxon Mobil Corporation concurrent with, but outside of, the normal course issuer bid, and by way of a proportionate tender under the company’s substantial issuer bid.

During the third quarter of 2022, the company decreased its long-term debt by $1 billion by partially repaying an existing facility with an affiliated company of ExxonMobil.

This included 22,597,379 shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

Subsequent to the end of the third quarter, the company completed all share repurchases under its normal course issuer bid on October 21, 2022.

On October 28, 2022 the company announced its intention to launch a substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $1.5 billion of its common shares.

The substantial issuer bid will be made through a modified Dutch auction, with a tender price range to be determined by the company at the time of commencement of the offer.

Shares may also be tendered by way of a proportionate tender, which will result in a shareholder maintaining their proportionate share ownership.

ExxonMobil has advised Imperial that it intends to make a proportionate tender in connection with the offer in order to maintain its proportionate share ownership at approximately 69.6 percent following completion of the offer.

Nothing in this report shall constitute an offer to purchase or a solicitation of an offer to sell any shares.

IMPERIAL OIL LIMITED

Contractual obligations

During the third quarter of 2022, the company entered into a long-term raw material purchase agreement with a third-party, commencing in 2024, which includes a take-or-pay commitment of about $700 million.

The company does not believe that this increase in obligation, including prior obligations discussed in Imperial's 2021 annual report on Form 10-K, will have a material adverse effect on the company’s operations, financial conditions, or financial statements taken as a whole.

IMPERIAL OIL LIMITED

Forward-looking statements

2 unchanged sentences

Forward-looking statements in this release include, but are not limited to, references to the use of derivative instruments and effectiveness of risk mitigation;

purchases under the normal course issuer bid, including plans to accelerate completion by the end of October 2022;

the sale of XTO Energy Canada and expected closing timing, adjustments and estimated cash flow and gain;

the company’s intention to initiate a substantial issuer bid, including the size, timing for determining the terms and pricing, commencement, structure and ExxonMobil’s intent to make a proportionate tender;

the continued evaluation of the share purchase program in context of overall capital activities;

the company’s belief that the commitment related to the long-term raw material purchase agreement will not have a material adverse effect on the company;

and the expectation of commodity and product price volatility.

2 unchanged sentences

production rates, growth and mix;

for shareholder returns, assumptions such as cash flow forecasts, financing sources and capital structure, that the necessary exemptive relief to proceed with the substantial issuer bid under applicable securities laws will be received on the timeline anticipated, and ExxonMobil making a proportionate tender in connection with the substantial issuer bid;

project plans, timing, costs, technical evaluations and capacities and the company’s ability to effectively execute on these plans and operate its assets;

for shareholder returns, assumptions such as cash flow forecasts, financing sources and capital structure, participation of the company’s majority shareholder and the results of periodic and ongoing evaluation of alternate uses of capital;

capital and environmental expenditures;

that regulatory approvals related to the sale of XTO Energy Canada will be received in a timely manner and the sale will close as anticipated;

the adoption and impact of new facilities or technologies on reductions to GHG emissions intensity;

receipt of regulatory approvals;

the adoption and impact of new facilities or technologies on reductions to GHG emissions intensity, and any changes in the scope, terms, or costs of such projects;

applicable laws and government policies, including with respect to climate change and GHG emissions reductions;

progression of COVID-19

and its impacts on Imperial’s ability to operate its assets;

progression of COVID-19 and its impacts on Imperial’s ability to operate its assets;

and commodity prices, foreign exchange rates and general market conditions could differ materially depending 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, the impact of COVID-19

on demand and the occurrence of wars;

availability and allocation of capital;

unanticipated technical or operational difficulties;

operational hazards and risks;

the receipt, in a timely manner, of regulatory and third-party approvals;

the receipt, in a timely manner, of regulatory and third-party approvals, including for the company’s substantial issuer bid;

the results of research programs and new technologies, the ability to bring new technologies to commercial scale on a cost-competitive basis, and the competitiveness of alternative energy and other emission reduction technologies;

project management and schedules and timely completion of projects;

management effectiveness and disaster response preparedness, including business continuity plans in response to COVID-19;

unanticipated technical or operational difficulties;

lack of required support from governments and policymakers for adoption of new technologies for emissions reductions;

availability and performance of third-party service providers, including in light of restrictions related to COVID-19;

the results of research programs and new technologies, and ability to bring new technologies to commercial scale on a cost-competitive basis;

environmental risks inherent in oil and gas exploration and production activities;

political or regulatory events, including changes in law or government policy such as tax laws, production curtailment and actions in response to COVID-19;

political or regulatory events, including changes in law or government policy, environmental regulation including climate change and greenhouse gas regulation, and actions in response to COVID-19;

management effectiveness and disaster response preparedness, including business continuity plans in response to COVID-19;

operational hazards and risks;

cybersecurity incidents, including increased reliance on remote working arrangements;

1 unchanged sentence

general economic conditions;

and other factors discussed in Item 1A risk factors and 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.

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.

4 unchanged sentences

Quantitative and qualitative disclosures about market risk

Information about market risks for the six months ended June 30, 2022, does not differ materially from that discussed on page 33 of the company’s annual report on Form 10-K

for the year ended December 31, 2021 and on page 23 of the Form 10-Q for the quarter ended March 31, 2022.

Information about market risks for the nine months ended September 30, 2022, does not differ materially from that discussed on page 33 of the company’s annual report on Form 10-K for the year ended December 31, 2021 and on page 23 of the Form 10-Q for the quarter ended March 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis