What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-08-01 · 84 added, 62 removed, 138 unchanged (51% of the section changed)

16 unchanged sentences

Reconciliation of net income (loss) excluding identified items

There were no identified items in the second quarter or year-to-date 2023 and 2022.

Third Quarter

millions of Canadian dollars 2023 2022 2023 2022

From Imperial's Consolidated statement of income

Net income (loss) (U.S.

GAAP) 1,601 2,031 3,524 5,613

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 1,601 1,823 3,524 5,405

IMPERIAL OIL LIMITED

Recent business environment

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

In addition, the Canadian WTI/WCS spread continued to recover in the second quarter, but remains weaker than the first half of 2022.

Refining margins declined on steady supply of diesel.

During the first quarter of 2023, the price of crude oil declined, impacted by higher inventory levels, and the price of crude oil remained relatively flat during the second quarter.

In the third quarter, crude oil prices increased as demand exceeded supply after OPEC+ oil producers further reduced oil output.

In addition, the Canadian WTI/WCS spread continued to recover in the third quarter, but remains weaker than 2022 on an annual basis.

Similarly, 2023 refining margins remain strong but fall short of 2022 levels on an annual basis.

Operating results

Second quarter 2023 vs.

second quarter 2022

Second Quarter

Third quarter 2023 vs.

third quarter 2022

Third Quarter

millions of Canadian dollars, unless noted 2023 2022

1 unchanged sentence

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

Net income (loss) excluding identified items¹ 1,601 1,823

Prior year third quarter results included favourable identified items 1 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 – Lower bitumen realizations were primarily driven by lower marker prices and the widening WTI/WCS spread.

Average bitumen realizations decreased by $43.63 per barrel, generally in line with WCS, and synthetic crude oil realizations decreased by $43.75 per barrel, generally in line with WTI.

Volumes – Lower volumes were primarily driven by the timing of planned turnaround activities at Syncrude, and production and steam cycle timing at Cold Lake.

Royalty – Lower royalties were primarily driven by weakened commodity prices.

Other – Includes favourable foreign exchange impacts of about $180 million, and lower operating expenses of about $130 million, resulting primarily from lower energy prices.

Price – Synthetic crude oil realizations decreased by $11.82 per barrel, generally in line with WTI.

Average bitumen realizations increased by $4.47 per barrel.

Higher bitumen realizations were primarily driven by the narrowing of the WTI/WCS spread, partially offset by lower marker prices.

Volumes – Higher volumes were primarily driven by increased plant capacity utilization and mine equipment productivity at Kearl, and annual turnaround timing and duration at Syncrude, partially offset by steam cycle timing and planned turnaround activity at Cold Lake.

Identified Items 1 – Prior year third quarter results included favourable identified items 1 related to the company's gain on the sale of interests in XTO Energy Canada.

Other – Includes lower operating expenses of about $160 million, and 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 2023 2022

6 unchanged sentences

Average foreign exchange rate (US$)

IMPERIAL OIL LIMITED

Second Quarter

Third Quarter

thousands of barrels per day 2023 2022

1 unchanged sentence

Kearl total gross production (thousands of barrels per day)

(a) In the second quarter of 2023, Syncrude gross production included about 0 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.

Lower production at Cold Lake was primarily driven by timing of production and steam cycles.

Lower production at Syncrude was primarily driven by the timing of the annual coker turnaround.

(a) In the third quarter of 2023, Syncrude gross production included about 0 thousand barrels per day of bitumen and other products (2022 - 7 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 increased plant capacity utilization and mine equipment productivity .

Lower production at Cold Lake was primarily driven by steam cycle timing and planned turnaround activity.

Higher production at Syncrude was primarily driven by annual turnaround timing and duration.

Net income (loss) factor analysis

1 unchanged sentence

Margins – Lower margins primarily reflect weaker market conditions.

Other – Includes higher turnaround impacts of about $230 million, reflecting the planned turnaround activities at Strathcona refinery, partially offset by favourable foreign exchange impacts of about $110 million.

Other – Includes favourable foreign exchange impacts of about $50 million, partially offset by higher turnaround impacts of about $50 million reflecting the planned turnaround activities at Sarnia refinery.

IMPERIAL OIL LIMITED

Refinery utilization and petroleum product sales

Second Quarter

Third Quarter

thousands of barrels per day, unless noted 2023 2022

2 unchanged sentences

Petroleum product sales 478 484

Lower refinery throughput in the second quarter of 2023 reflects the impact of planned turnaround activities at the Strathcona refinery.

Lower refinery throughput in the third quarter of 2023 reflects the impact of planned turnaround activities at Sarnia refinery.

Net income (loss) factor analysis

millions of Canadian dollars

IMPERIAL OIL LIMITED

Corporate and other

Second Quarter

Third Quarter

millions of Canadian dollars 2023 2022

1 unchanged sentence

Liquidity and capital resources

Second Quarter

Third Quarter

millions of Canadian dollars 2023 2022

Cash flow generated from (used in):

Cash flows from (used in):

Operating activities 2,359 3,089

3 unchanged sentences

Cash and cash equivalents at period end 2,716 3,576

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

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment, and lower proceeds from asset sales.

Cash flow used in financing activities primarily reflects:

Second Quarter

Cash flows from operating activities primarily reflect lower Downstream margins.

Cash flows used in investing activities primarily reflect the absence of proceeds from the sale of interests in XTO Energy Canada.

Cash flows used in financing activities primarily reflect:

Third Quarter

millions of Canadian dollars, unless noted 2023 2022

3 unchanged sentences

Number of shares purchased (millions) (a)

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

In the second quarter of 2022, share repurchases were made under the company's substantial issuer bid that commenced on May 6, 2022 and expired on June 10, 2022, and included 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, 2023, 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 29,207,635 common shares during the period June 29, 2023 to June 28, 2024.

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, 2024.

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

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

Contractual obligations

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.

(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.

IMPERIAL OIL LIMITED

Six months 2023 vs.

six months 2022

Nine months 2023 vs.

nine months 2022

millions of Canadian dollars, unless noted 2023 2022

1 unchanged sentence

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

Net income (loss) excluding identified items¹ 3,524 5,405

Prior year results included favourable identified items 1 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 decreased by $25.31 per barrel, generally in line with WCS, and synthetic crude oil realizations decreased by $23.87 per barrel, generally in line with WTI.

Volumes – Lower volumes were primarily driven by the timing of planned turnaround activities at Syncrude, and production and steam cycle timing at Cold Lake, partially offset by the absence of extreme cold weather and reduced unplanned downtime at Kearl.

Volumes – Lower volumes were primarily driven by steam cycle timing at Cold Lake, and the absence of XTO Energy Canada production, partially offset by improved reliability and absence of extreme cold weather at Kearl.

Royalty – Lower royalties were primarily driven by weakened commodity prices.

Other – Includes favourable foreign exchange impacts of about $330 million, and lower operating expenses of about $50 million.

Identified Items 1 – Prior year results included favourable identified items 1 related to the company's gain on the sale of interests in XTO Energy Canada.

Other – Includes favourable foreign exchange impacts of about $400 million, and lower operating expenses of about $220 million, primarily due to lower energy prices.

Marker prices and average realizations

7 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

3 unchanged sentences

(a) In 2023, Syncrude gross production included about 1 thousand barrels per day of bitumen and other products (2022 - 4 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.

Higher production at Kearl was primarily driven by improved reliability as a result of the successful rollout of the winterization strategy, the absence of extreme cold weather, increased plant capacity utilization, and mine equipment productivity.

Lower production at Cold Lake was primarily driven by steam cycle timing.

Net income (loss) factor analysis

1 unchanged sentence

Margins – Lower margins primarily reflect weaker market conditions.

Other – Favourable foreign exchange impacts of about $190 million and improved volumes of about $110 million, partially offset by higher turnaround impacts of about $250 million, reflecting the planned turnaround activities at Strathcona refinery.

Other – Favourable foreign exchange impacts of about $240 million and improved volumes of about $140 million, partially offset by higher turnaround impacts of about $300 million, associated with the planned turnaround activities at the Strathcona and Sarnia refineries.

Refinery utilization and petroleum product sales

3 unchanged sentences

Petroleum product sales 469 471

Lower refinery throughput in 2023 reflects the impact of planned turnaround activities at the Strathcona refinery.

Net income (loss) factor analysis

6 unchanged sentences

millions of Canadian dollars 2023 2022

Cash flow generated from (used in):

Cash flows from (used in):

Operating activities 2,423 7,685

2 unchanged sentences

Increase (decrease) in cash and cash equivalents (1,033) 1,423

Cash flow generated from operating activities primarily reflects unfavourable working capital impacts, including an income tax catch-up payment of $2.1 billion, as well as lower Upstream realizations and Downstream margins.

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment, and lower proceeds from asset sales.

Cash flow used in financing activities primarily reflects:

Cash flows from operating activities primarily reflect unfavourable working capital impacts, including an income tax catch-up payment of $2.1 billion, as well as lower Upstream realizations and Downstream margins.

Cash flows used in investing activities primarily reflect the absence of proceeds from the sale of interests in XTO Energy Canada, and higher additions to property, plant and equipment.

Cash flows used in financing activities primarily reflect:

millions of Canadian dollars, unless noted 2023 2022

3 unchanged sentences

Number of shares purchased (millions) (a)

(a) The company did not purchase shares during the six months ended June 30, 2023.

In the six months ended June 30, 2022, 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.

(a) Share repurchases were made under the company's normal course issuer bid program.

In the second quarter of 2022, 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 concurrent with, but outside of, the normal course issuer bid, and by way of a proportionate tender under the company's substantial issuer bid.

On June 27, 2023, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid to continue its then existing share purchase program.

The program enabled the company to purchase up to a maximum of 29,207,635 common shares during the period June 29, 2023 to June 28, 2024.

This maximum included 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 advised the company that it intended to participate to maintain its ownership percentage at approximately 69.6 percent.

Imperial accelerated share purchases under the normal course issuer bid program during the third quarter and, subsequent to the end of the third quarter, the program completed on October 19, 2023 as a result of the company purchasing the maximum allowable number of shares under the program.

On October 27, 2023, 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

As previously communicated, 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

Forward-looking statements

1 unchanged sentence

Forward-looking statements can be identified by words such as believe, anticipate, intend, propose, plan, goal, seek, project, predict, target, estimate, expect, strategy, outlook, schedule, future, continue, likely, may, should, will and similar references to future periods.

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

The company’s purchases under the normal course issuer bid and plans to accelerate completion prior to year end;

and 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 in this release include, but are not limited to, the company’s intention to initiate a substantial issuer bid, including the size, structure, timing for determining the terms, pricing and commencement, and ExxonMobil’s intent to make a proportionate tender;

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

references to the use of derivative instruments and effectiveness of risk mitigation;

and the company’s belief that the commitment related to the long-term purchase agreement will not have a material effect on the company’s operations, financial condition or financial statements.

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, participation of the company’s majority shareholder and the results of periodic and ongoing evaluation of alternate uses of capital;

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;

1 unchanged sentence

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;

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

project management and schedules and timely completion of projects;

15 unchanged sentences

Quantitative and qualitative disclosures about market risk

Information about market risks for the six months ended June 30, 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.

Information about market risks for the nine months ended September 30, 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