What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-02 · 40 added, 139 removed, 91 unchanged (66% of the section changed)

3 unchanged sentences

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 Non-GAAP and Other Financial Measures Disclosure of the Canadian Securities Administrators.

These measures constitute “non-GAAP financial measures” under Securities and Exchange Commission Regulation G and Item 10(e) of Regulation S-K, 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.

10 unchanged sentences

Reconciliation of net income (loss) excluding identified items

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

There were no identified items in the first quarter of 2023 and 2022.

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.

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.

In the first half of 2022, tightness in the oil and natural gas markets was further exacerbated by Russia’s invasion of Ukraine and subsequent sanctions imposed upon business and other activities in Russia.

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

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.

Recent business environment

During the first quarter of 2023, the price of crude oil decreased as the global oil market saw higher inventory levels.

The increase in inventory levels was followed by announcements early in the second quarter of decreased production in certain key oil-producing countries.

In addition, the Canadian WTI/WCS spread continued to widen in January and February before beginning to recover in March.

Refining margins remained high due to low inventory levels of petroleum products.

Operating results

Third quarter 2022 vs.

third quarter 2021

Third Quarter

First quarter 2023 vs.

first quarter 2022

First Quarter

millions of Canadian dollars, unless noted 2023

2 unchanged sentences

Net income (loss) per common share, assuming dilution (dollars) 2.13 1.75

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

millions of Canadian dollars

Price – Higher realizations were generally in line with increases in marker prices, driven primarily by increased demand and supply chain constraints.

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 – 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.

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

Third Quarter

Canadian dollars, unless noted 2022 2021

West Texas Intermediate (US$ per barrel)

Western Canada Select (US$ per barrel)

WTI/WCS Spread (US$ per barrel)

Bitumen (per barrel)

Synthetic crude oil (per barrel)

Average foreign exchange rate (US$)

Third Quarter

thousands of barrels per day 2022 2021

Kearl (Imperial's share)

Kearl total gross production (thousands of barrels per day)

(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

millions of Canadian dollars

Margins – Higher margins primarily reflect improved market conditions.

Refinery utilization and petroleum product sales

Third Quarter

thousands of barrels per day, unless noted 2022 2021

Refinery throughput 426 404

Refinery capacity utilization (percent)

Petroleum product sales 484 485

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

Margins – Lower margins primarily reflect weaker industry polyethylene margins.

Corporate and other

Third Quarter

millions of Canadian dollars 2022 2021

Net income (loss) (U.S.

Liquidity and capital resources

Third Quarter

millions of Canadian dollars 2022 2021

Cash flow generated from (used in):

Operating activities 3,089 1,947

Investing activities 364 (259)

Financing activities (2,744) (589)

Increase (decrease) in cash and cash equivalents 709 1,099

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

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:

Third Quarter

millions of Canadian dollars, unless noted 2022 2021

Dividends paid

Per share dividend paid (dollars)

Share repurchases (a)

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

Nine months 2022 vs.

nine months 2021

millions of Canadian dollars, unless noted 2022

Net income (loss) (U.S.

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

millions of Canadian dollars

Price – Higher realizations were generally in line with increases in marker prices, driven primarily by increased demand and supply chain constraints.

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 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.

Price – Lower bitumen realizations were primarily driven by lower marker prices and the widening WTI/WCS spread.

Average bitumen realizations decreased by $39.03 per barrel, generally in line with WCS, and synthetic crude oil realizations decreased by $14.79 per barrel, generally in line with WTI.

Volumes – Higher volumes were primarily driven by the absence of extreme cold weather, and reduced unplanned downtime at Kearl as a result of the successful rollout of the winterization strategy.

Royalty – Lower royalties primarily driven by weakened commodity prices.

Other – Includes favourable foreign exchange impacts of about $150 million, partly offset by higher operating expenses of about $80 million.

Marker prices and average realizations

First Quarter

Canadian dollars, unless noted 2023 2022

4 unchanged sentences

Synthetic crude oil (per barrel)

102.45 117.24

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

First Quarter

thousands of barrels per day 2023 2022

1 unchanged sentence

Kearl total gross production (thousands of barrels per day)

(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.

(a) In the first quarter of 2023, Syncrude gross production included about 2 thousand barrels per day of bitumen and other products (2022 - 2 thousand barrels per day) that were exported to the operator's facilities using an existing interconnect pipeline.

Higher production at Kearl was primarily driven by the absence of extreme cold weather, and reduced unplanned downtime as a result of the successful rollout of the winterization strategy.

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.

Other – Improved volumes of about $90 million and favourable foreign exchange impacts of about $80 million.

Refinery utilization and petroleum product sales

First Quarter

thousands of barrels per day, unless noted 2023 2022

2 unchanged sentences

Petroleum product sales 455 447

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

Improved petroleum product sales in 2022 primarily reflects increased demand.

Improved refinery throughput in the first quarter of 2023 was primarily driven by lower planned maintenance.

Net income (loss) factor analysis

millions of Canadian dollars

Margins – Lower margins primarily reflect weaker industry polyethylene margins.

IMPERIAL OIL LIMITED

Corporate and other

First Quarter

millions of Canadian dollars 2023 2022

1 unchanged sentence

Liquidity and capital resources

First Quarter

millions of Canadian dollars 2023 2022

4 unchanged sentences

Increase (decrease) in cash and cash equivalents (1,506) 996

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 proceeds from the sale of interests in XTO Energy Canada, partially offset by higher additions to property, plant and equipment.

Cash and cash equivalents at period end 2,243 3,149

Cash flow used in operating activities primarily reflects unfavourable working capital impacts including, an income tax catch-up payment of $2.1 billion and lower Upstream realizations, partly offset by improved Downstream margins.

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

Cash flow used in financing activities primarily reflects:

First Quarter

millions of Canadian dollars, unless noted 2023 2022

3 unchanged sentences

Number of shares purchased (millions) (a)

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

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.

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 at 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.

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

(a) The company did not purchase shares during the first quarter of 2023.

In the first quarter of 2022, share repurchases were made under the company's normal course issuer bid program, and included shares purchased from Exxon Mobil Corporation concurrent with, but outside of, the normal course issuer bid.

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.

In the second quarter of 2023, the company entered into a long-term purchase agreement with a third party for about $3 billion.

It has no impact on the 2023 and 2024 obligations disclosed in Imperial's 2022 annual report on Form 10-K.

The company does not believe that the increased obligation will have a material effect on Imperial's operations, financial condition or financial statements.

IMPERIAL OIL LIMITED

3 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;

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.

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

Forward-looking statements are based on the company's current expectations, estimates, projections and assumptions at the time the statements are made.

1 unchanged sentence

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;

for shareholder returns, assumptions such as cash flow forecasts, financing sources and capital structure;

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

capital and environmental expenditures;

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;

and commodity prices, foreign exchange rates and general market conditions could differ materially depending on a number of factors.

1 unchanged sentence

availability and allocation of capital;

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;

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;

availability and performance of third-party service providers;

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

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;

political or regulatory events, including changes in law or government policy;

management effectiveness and disaster response preparedness;

operational hazards and risks;

9 unchanged sentences

Quantitative and qualitative disclosures about market risk

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.

Information about market risks for the three months ended March 31, 2023, does not differ materially from that discussed on page 32 of the company’s annual report on Form 10-K for the year ended December 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