IMPERIAL OIL LTD 10-Q

Item 1. Financial statements Consolidated statement of income (U.S. GAAP, unaudited) Three Months to March 31 millions of Canadian dollars 2023 2022 Revenues and other income Revenues (a) 12,057 12,657 Investment and other income (note 3) 64 29 Total revenues and other income 12,121 12,686 Expenses Exploration 1 2 Purchases of crude oil and products (b) 7,478 8,350 Production and manufacturing (c) 1,756 1,659 Selling and general (c) 186 225 Federal excise tax and fuel charge 529 479 Depreciation and depletion 490 426 Non-service pension and postretirement benefit 20 4 Financing (d) (note 5) 16 7 Total expenses 10,476 11,152 Income (loss) before income taxes 1,645 1,534 Income taxes 397 361 Net income (loss) 1,248 1,173 Per share information (Canadian dollars) Net income (loss) per common share - basic (note 9) 2.14 1.75 Net income (loss) per common share - diluted (note 9) 2.13 1.75 (a) Amounts from related parties included in revenues. 3,136 3,959 (b) Amounts to related parties included in purchases of crude oil and products. 1,078 650 (c) Amounts to related parties included in production and manufacturing, and selling and general expenses. 135 118 (d) Amounts to related parties included in financing, (note 5). 39 4 The information in the notes to consolidated financial statements is an integral part of these statements. 3 IMPERIAL OIL LIMITED Consolidated statement of comprehensive income (U.S. GAAP, unaudited) Three Months to March 31 millions of Canadian dollars 2023 2022 Net income (loss) 1,248 1,173 Other comprehensive income (loss), net of income taxes Postretirement benefits liability adjustment (excluding amortization) 21 24 Amortization of postretirement benefits liability adjustment included in net benefit costs 10 21 Total other comprehensive income (loss) 31 45 Comprehensive income (loss) 1,279 1,218 The information in the notes to consolidated financial statements is an integral part of these statements. 4 IMPERIAL OIL LIMITED Consolidated balance sheet (U.S. GAAP, unaudited) millions of Canadian dollars As at Mar 31 2023 As at Dec 31 2022 Assets Current assets Cash and cash equivalents 2,243 3,749 Accounts receivable - net (a) 4,283 4,719 Inventories of crude oil and products 1,757 1,514 Materials, supplies and prepaid expenses 989 754 Total current assets 9,272 10,736 Investments and long-term receivables (b) 995 893 Property, plant and equipment, 54,991 54,568 less accumulated depreciation and depletion ( 24,549 ) ( 24,062 ) Property, plant and equipment, net 30,442 30,506 Goodwill 166 166 Other assets, including intangibles - net 1,240 1,223 Total assets 42,115 43,524 Liabilities Current liabilities Notes and loans payable 122 122 Accounts payable and accrued liabilities (a) (note 7) 5,930 6,194 Income taxes payable 505 2,582 Total current liabilities 6,557 8,898 Long-term debt (c) (note 6) 4,027 4,033 Other long-term obligations (note 7) 3,409 3,467 Deferred income tax liabilities 4,687 4,713 Total liabilities 18,680 21,111 Shareholders’ equity Common shares at stated value (d) (note 9) 1,079 1,079 Earnings reinvested 22,837 21,846 Accumulated other comprehensive income (loss) (note 10) ( 481 ) ( 512 ) Total shareholders’ equity 23,435 22,413 Total liabilities and shareholders’ equity 42,115 43,524 (a) Accounts receivable - net included net amounts receivable from related parties of $ 908 million (2022 - $ 1,108 million). (b) Investments and long-term receivables included amounts from related parties of $ 287 million (2022 - $ 288 million). (c) Long-term debt included amounts to related parties of $ 3,447 million (2022 - $ 3,447 million). (d) Number of common shares authorized and outstanding were 1,100 million and 584 million, respectively (2022 - 1,100 million and 584 million, respectively). The information in the notes to consolidated financial statements is an integral part of these statements. 5 IMPERIAL OIL LIMITED Consolidated statement of shareholders’ equity (U.S. GAAP, unaudited) Three Months to March 31 millions of Canadian dollars 2023 2022 Common shares at stated value (note 9) At beginning of period 1,079 1,252 Share purchases at stated value — ( 15 ) At end of period 1,079 1,237 Earnings reinvested At beginning of period 21,846 21,660 Net income (loss) for the period 1,248 1,173 Share purchases in excess of stated value — ( 434 ) Dividends declared ( 257 ) ( 228 ) At end of period 22,837 22,171 Accumulated other comprehensive income (loss) (note 10) At beginning of period ( 512 ) ( 1,177 ) Other comprehensive income (loss) 31 45 At end of period ( 481 ) ( 1,132 ) Shareholders’ equity at end of period 23,435 22,276 The information in the notes to consolidated financial statements is an integral part of these statements. 6 IMPERIAL OIL LIMITED Consolidated statement of cash flows (U.S. GAAP, unaudited) Three Months to March 31 millions of Canadian dollars 2023 2022 Operating activities Net income (loss) 1,248 1,173 Adjustments for non-cash items: Depreciation and depletion 490 426 (Gain) loss on asset sales (note 3) ( 9 ) ( 20 ) Deferred income taxes and other ( 56 ) ( 331 ) Changes in operating assets and liabilities: Accounts receivable 436 ( 1,544 ) Inventories, materials, supplies and prepaid expenses ( 479 ) ( 364 ) Income taxes payable ( 2,077 ) 459 Accounts payable and accrued liabilities ( 255 ) 2,144 All other items - net (b) ( 119 ) ( 29 ) Cash flows from (used in) operating activities ( 821 ) 1,914 Investing activities Additions to property, plant and equipment ( 429 ) ( 304 ) Proceeds from asset sales (note 3) 14 24 Loans to equity companies - net 1 1 Cash flows from (used in) investing activities ( 414 ) ( 279 ) Financing activities Finance lease obligations - reduction (note 6) ( 5 ) ( 5 ) Dividends paid ( 266 ) ( 185 ) Common shares purchased (note 9) — ( 449 ) Cash flows from (used in) financing activities ( 271 ) ( 639 ) Increase (decrease) in cash and cash equivalents ( 1,506 ) 996 Cash and cash equivalents at beginning of period 3,749 2,153 Cash and cash equivalents at end of period (a) 2,243 3,149 (a)  Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less. (b)  Included contributions to registered pension plans. ( 42 ) ( 50 ) Income taxes (paid) refunded. ( 2,632 ) ( 223 ) Interest (paid), net of capitalization. ( 21 ) ( 12 ) The information in the notes to consolidated financial statements is an integral part of these statements. 7 IMPERIAL OIL LIMITED Notes to consolidated financial statements (unaudited) 1. Basis of financial statement preparation These unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) in the company’s 2022 annual report on Form 10-K. In the opinion of the company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The company’s exploration and production activities are accounted for under the “successful efforts” method. The results for the three months ended March 31, 2023, are not necessarily indicative of the operations to be expected for the full year. All amounts are in Canadian dollars unless otherwise indicated. 8 IMPERIAL OIL LIMITED 2. Business segments Three Months to March 31 Upstream Downstream Chemical millions of Canadian dollars 2023 2022 2023 2022 2023 2022 Revenues and other income Revenues (a) (b) 76 99 11,639 12,191 342 367 Intersegment sales 3,622 4,431 1,823 1,833 91 104 Investment and other income (note 3) 2 4 20 21 — — 3,700 4,534 13,482 14,045 433 471 Expenses Exploration 1 2 — — — — Purchases of crude oil and products 1,543 1,890 11,196 12,512 274 315 Production and manufacturing 1,287 1,249 411 356 58 54 Selling and general — — 157 147 26 23 Federal excise tax and fuel charge — — 528 479 1 — Depreciation and depletion 434 373 45 41 4 5 Non-service pension and postretirement benefit — — — — — — Financing (note 5) — — — — — — Total expenses 3,265 3,514 12,337 13,535 363 397 Income (loss) before income taxes 435 1,020 1,145 510 70 74 Income tax expense (benefit) 105 238 275 121 17 18 Net income (loss) 330 782 870 389 53 56 Cash flows from (used in) operating activities ( 398 ) 1,447 ( 419 ) 375 ( 32 ) 67 Capital and exploration expenditures (c) 321 222 74 68 4 1 Total assets as at March 31 29,059 29,182 9,535 10,179 477 501 Three Months to March 31 Corporate and other Eliminations Consolidated millions of Canadian dollars 2023 2022 2023 2022 2023 2022 Revenues and other income Revenues (a) (b) — — — — 12,057 12,657 Intersegment sales — — ( 5,536 ) ( 6,368 ) — — Investment and other income (note 3) 42 4 — — 64 29 42 4 ( 5,536 ) ( 6,368 ) 12,121 12,686 Expenses Exploration — — — — 1 2 Purchases of crude oil and products — — ( 5,535 ) ( 6,367 ) 7,478 8,350 Production and manufacturing — — — — 1,756 1,659 Selling and general 4 56 ( 1 ) ( 1 ) 186 225 Federal excise tax and fuel charge — — — — 529 479 Depreciation and depletion 7 7 — — 490 426 Non-service pension and postretirement benefit 20 4 — — 20 4 Financing (note 5) 16 7 — — 16 7 Total expenses 47 74 ( 5,536 ) ( 6,368 ) 10,476 11,152 Income (loss) before income taxes ( 5 ) ( 70 ) — — 1,645 1,534 Income tax expense (benefit) — ( 16 ) — — 397 361 Net income (loss) ( 5 ) ( 54 ) — — 1,248 1,173 Cash flows from (used in) operating activities 28 25 — — ( 821 ) 1,914 Capital and exploration expenditures (c) 30 5 — — 429 296 Total assets as at March 31 3,815 4,136 ( 771 ) ( 188 ) 42,115 43,810 9 IMPERIAL OIL LIMITED (a) Includes export sales to the United States of $ 2,375 million (2022 - $ 2,504 million). (b) Revenues include both revenue within the scope of ASC 606 and outside the scope of ASC 606 . Trade receivables in "Accounts receivable – net" reported on the Consolidated balance sheet include both receivables within the scope of ASC 606 and those outside the scope of ASC 606 . Revenue and receivables outside the scope of ASC 606 primarily relate to physically settled commodity contracts accounted for as derivatives. Contractual terms, credit quality, and type of customer are generally similar between those revenues and receivables within the scope of ASC 606 and those outside it. Revenues Three Months to March 31 millions of Canadian dollars 2023 2022 Revenue from contracts with customers 10,520 10,864 Revenue outside the scope of ASC 606 1,537 1,793 Total 12,057 12,657 (c) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions and the company’s share of similar costs for equity companies. CAPEX excludes the purchase of carbon emission credits. 10 IMPERIAL OIL LIMITED 3. Investment and other income Investment and other income included gains and losses on asset sales as follows: Three Months to March 31 millions of Canadian dollars 2023 2022 Proceeds from asset sales 14 24 Book value of asset sales 5 4 Gain (loss) on asset sales, before tax 9 20 Gain (loss) on asset sales, after tax 8 16 4. Employee retirement benefits The components of net benefit cost were as follows: Three Months to March 31 millions of Canadian dollars 2023 2022 Pension benefits: Service cost 41 70 Interest cost 93 73 Expected return on plan assets ( 93 ) ( 103 ) Amortization of prior service cost 4 4 Amortization of actuarial loss (gain) 11 22 Net benefit cost 56 66 Other postretirement benefits: Service cost 3 6 Interest cost 7 6 Amortization of actuarial loss (gain) ( 2 ) 2 Net benefit cost 8 14 5. Financing costs Three Months to March 31 millions of Canadian dollars 2023 2022 Debt-related interest 46 12 Capitalized interest ( 30 ) ( 5 ) Net interest expense 16 7 Other interest — — Total financing 16 7 11 IMPERIAL OIL LIMITED 6. Long-term debt millions of Canadian dollars As at Mar 31 As at Dec 31 2023 2022 Long-term debt 3,447 3,447 Finance leases 580 586 Total long-term debt 4,027 4,033 7. Other long-term obligations As at Mar 31 As at Dec 31 millions of Canadian dollars 2023 2022 Employee retirement benefits (a) 875 902 Asset retirement obligations and other environmental liabilities (b) 2,158 2,150 Share-based incentive compensation liabilities 99 101 Operating lease liability (c) 137 151 Other obligations 140 163 Total other long-term obligations 3,409 3,467 (a) Total recorded employee retirement benefits obligations also included $ 63 million in current liabilities (2022 - $ 63 million). (b) Total asset retirement obligations and other environmental liabilities also included $ 116 million in current liabilities (2022 - $ 116 million). (c) Total operating lease liability also included $ 100 million in current liabilities (2022 - $ 100 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $ 13 million (2022 - $ 14 million). 12 IMPERIAL OIL LIMITED 8. Financial and derivative instruments Financial instruments The fair value of the company’s financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no material differences between the fair value of the company’s financial instruments and the recorded carrying value. At March 31, 2023 and December 31, 2022, the fair value of long-term debt ($ 3,447 million, excluding finance lease obligations) was primarily a level 2 measurement. Derivative instruments The company’s size, strong capital structure and the complementary nature of its business segments reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company uses commodity-based contracts, including derivatives, to manage commodity price risk and to generate returns from trading. Commodity contracts held for trading purposes are presented in the Consolidated statement of income on a net basis in the line “Revenues”. The company does not designate derivative instruments as a hedge for hedge accounting purposes. Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity. The net notional long/(short) position of derivative instruments was: As at Mar 31 As at Dec 31 thousands of barrels 2023 2022 Crude 3,490 1,800 Products ( 400 ) ( 350 ) Realized and unrealized gain/(loss) on derivative instruments recognized in the Consolidated statement of income is included in the following lines on a before-tax basis: Three Months to March 31 millions of Canadian dollars 2023 2022 Revenues ( 23 ) 37 13 IMPERIAL OIL LIMITED The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement was as follows: At March 31, 2023 millions of Canadian dollars Fair value Effect of counterparty netting Effect of collateral netting Net carrying value Level 1 Level 2 Level 3 Total Assets Derivative assets (a) 13 26 — 39 ( 25 ) — 14 Liabilities Derivative liabilities (b) 17 47 — 64 ( 25 ) ( 3 ) 36 (a) Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable - net” and “Other assets, including intangibles - net”. (b) Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”. At December 31, 2022 millions of Canadian dollars Fair value Effect of counterparty netting Effect of collateral netting Net carrying value Level 1 Level 2 Level 3 Total Assets Derivative assets (a) 17 32 — 49 ( 27 ) — 22 Liabilities Derivative liabilities (b) 21 20 — 41 ( 27 ) ( 4 ) 10 (a) Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable - net” and “Other assets, including intangibles - net”. (b) Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”. At March 31, 2023 and December 31, 2022, the company had $ 9 million and $ 14 million, respectively, of collateral under a master netting arrangement not offset against the derivatives on the Consolidated balance sheet in “Accounts receivable - net”, primarily related to initial margin requirements. 14 IMPERIAL OIL LIMITED 9. Common shares thousands of shares As of Mar 31 2023 As of Dec 31 2022 Authorized 1,100,000 1,100,000 Common shares outstanding 584,153 584,153 The company’s common share activities are summarized below: Thousands of shares Millions of dollars Balance as at December 31, 2021 678,080 1,252 Issued under employee share-based awards — — Purchases at stated value ( 93,927 ) ( 173 ) Balance as at December 31, 2022 584,153 1,079 Issued under employee share-based awards — — Purchases at stated value — — Balance as at March 31, 2023 584,153 1,079 The following table provides the calculation of basic and diluted earnings per common share and the dividends declared by the company on its outstanding common shares: Three Months to March 31 2023 2022 Net income (loss) per common share – basic Net income (loss) (millions of Canadian dollars) 1,248 1,173 Weighted average number of common shares outstanding (millions of shares) 584.2 670.5 Net income (loss) per common share (dollars) 2.14 1.75 Net income (loss) per common share – diluted Net income (loss) (millions of Canadian dollars) 1,248 1,173 Weighted average number of common shares outstanding (millions of shares) 584.2 670.5 Effect of employee share-based awards (millions of shares) 1.2 1.4 Weighted-average number of common shares outstanding, assuming dilution (millions of shares) 585.4 671.9 Net income (loss) per common share (dollars) 2.13 1.75 Dividends per common share – declared (dollars) 0.44 0.34 15 IMPERIAL OIL LIMITED 10. Other comprehensive income (loss) information Changes in accumulated other comprehensive income (loss): millions of Canadian dollars 2023 2022 Balance at January 1 ( 512 ) ( 1,177 ) Postretirement benefits liability adjustment: Current period change excluding amounts reclassified from accumulated other comprehensive income 21 24 Amounts reclassified from accumulated other comprehensive income 10 21 Balance at March 31 ( 481 ) ( 1,132 ) Amounts reclassified out of accumulated other comprehensive income (loss) - before-tax income (expense): Three Months to March 31 millions of Canadian dollars 2023 2022 Amortization of postretirement benefits liability adjustment included in net benefit cost (a) ( 13 ) ( 28 ) (a) This accumulated other comprehensive income component is included in the computation of net benefit cost (note 4). Income tax expense (credit) for components of other comprehensive income (loss): Three Months to March 31 millions of Canadian dollars 2023 2022 Postretirement benefits liability adjustments: Postretirement benefits liability adjustment (excluding amortization) 7 8 Amortization of postretirement benefits liability adjustment included in net benefit cost 3 7 Total 10 15 16 IMPERIAL OIL LIMITED