IMPERIAL OIL LTD 10-K

Item 9A. Controls and procedures As indicated in the certifications in Exhibit 31 of this report, the company’s principal executive officer and principal financial officer have evaluated the company’s disclosure controls and procedures as of December 31, 2020. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Reference is made to page 69 of this report for “Management’s report on internal control over financial reporting” and page 70 for the “Report of independent registered public accounting firm” on the company’s internal control over financial reporting as of December 31, 2020. There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting. Item 9B. Other information None. 33 Table of Contents PART III Item 10. Directors, executive officers and corporate governance Sections of the company’s management proxy circular are contained in the “Proxy information section”, starting on page 113. The company’s management proxy circular is prepared in accordance with Canadian securities regulations. The company currently has seven directors. The articles of the company require that the board have between five and fifteen directors. Each director is elected to hold office until the close of the next annual meeting. Each of the seven individuals listed in the section entitled “Nominees for director” on pages 114 to 117 of this report have been nominated for election at the annual meeting of shareholders to be held May 4, 2021. All of the nominees, with the exception of M.R. Crocker, are now directors and have been since the dates indicated. D.C. Brownell is a current director and has chosen not to stand for re-election. Reference is made to the section under “Nominees for director”: ● “Director nominee tables”, on pages 114 to 117 of this report; Reference is made to the sections under “Corporate governance disclosure”: ● “Skills and experience of our board members and nominees”, on page 121 of this report. ● “Other public company directorships of our board members and nominees”, on page 125 of this report. ● The table entitled “Audit committee” under “Board and committee structure”, on page 132 of this report; ● “Ethical business conduct”, starting on page 144 of this report; and ● “Largest shareholder”, on page 148 of this report. Reference is made to the sections under “Company executives and executive compensation”: ● “Named executive officers of the company” and “Other executive officers of the company”, on pages 150 to 152 of this report. Item 11. Executive compensation Sections of the company’s management proxy circular are contained in the “Proxy information section”, starting on page 113. The company’s management proxy circular is prepared in accordance with Canadian securities regulations. Reference is made to the sections under “Corporate governance disclosure”: ● “Director compensation”, on pages 136 to 142 of this report; and ● “Share ownership guidelines of independent directors and chairman, president and chief executive officer”, on page 143 of this report. Reference is made to the following sections under “Company executives and executive compensation”: ● “Letter to shareholders from the executive resources committee on executive compensation”, starting on page 153 of this report; and ● “Compensation discussion and analysis”, on pages 156 to 180 of this report. 34 Table of Contents Item 12. Security ownership of certain beneficial owners and management and related stockholder matters Sections of the company’s management proxy circular are contained in the “Proxy information section”, starting on page 113. The company’s management proxy circular is prepared in accordance with Canadian securities regulations. Reference is made to the section under “Company executives and executive compensation” entitled “Equity compensation plan information”, within the “Compensation discussion and analysis” section, on page 178 of this report. Reference is made to the section under “Corporate governance disclosure” entitled “Largest shareholder”, on page 148 of this report. Reference is also made to the security ownership information for directors and executive officers of the company under the preceding Items 10 and 11. The compensation of the directors and executive officers of the company for the year-ended December 31, 2020 is described in the sections under “Nominees for director” starting on page 114, “Director compensation” starting on page 136 and “Company executives and executive compensation” starting on page 150. The following table shows the number of Imperial Oil Limited and Exxon Mobil Corporation common shares owned and restricted stock units held by each named executive officer, and the incumbent directors and executive officers as a group, as of February 16, 2021. Imperial Oil Limited Exxon Mobil Corporation Named executive officer Common shares (a) Restricted stock units (b) Common shares (a) Restricted stock units (b) B.W. Corson - 156,400 87,758 116,100 D.E. Lyons - 61,200 9,480 19,550 T.B. Redburn 3,571 101,500 - - S.P. Younger - 16,200 7,703 25,800 B.A. Jolly 29,491 63,150 - - Incumbent directors and executive officers as a group (17 people) 126,660 509,925 117,742 252,200 (a) No common shares are beneficially owned by reason of exercisable options. None of these individuals owns more than 0.01 percent of the outstanding shares of Imperial Oil Limited or Exxon Mobil Corporation. The directors and officers as a group own approximately 0.02 percent of the outstanding shares of Imperial Oil Limited, and less than 0.01 percent of the outstanding shares of Exxon Mobil Corporation. Information not being within the knowledge of the company has been provided by the directors and the executive officers individually. (b) Restricted stock units do not carry voting rights prior to the issuance of shares on settlement of the awards. 35 Table of Contents Item 13. Certain relationships and related transactions, and director independence Sections of the company’s management proxy circular are contained in the “Proxy information section”, starting on page 113. The company’s management proxy circular is prepared in accordance with Canadian securities regulations. Reference is made to the section under “Corporate governance disclosure” entitled “Independence of our board members and nominees”, on page 122 of this report. Reference is made to the section under “Corporate governance disclosure” entitled “Transactions with Exxon Mobil Corporation”, on page 148 of this report. D.C. Brownell is deemed a non-independent member of the board of directors and the executive resources committee, public policy and corporate responsibility committee, nominations and corporate governance committee and community collaboration and engagement committee under the relevant standards. As an employee of Exxon Mobil Corporation, D.C. Brownell is independent of the company’s management and is able to assist these committees by reflecting the perspective of the company’s shareholders. 36 Table of Contents Item 14. Principal accountant fees and services Auditor information The audit committee of the board of directors recommends that PwC be reappointed as the auditor of the company until the close of the next annual meeting. PwC has been the auditor of the company for more than five years and are located in Calgary, Alberta. PwC is a participating audit firm with the Canadian Public Accountability Board. Auditor fees The aggregate fees of PwC for professional services rendered for the audit of the company’s financial statements and other services for the fiscal years ended December 31, 2020 and December 31, 2019 were as follows: thousands of Canadian dollars 2020 2019 Audit fees 1,910 1,782 Audit-related fees 92 94 Tax fees - - All other fees - - Total fees 2,002 1,876 Audit fees included the audit of the company’s annual financial statements, internal control over financial reporting, and a review of the first three quarterly financial statements in 2020. Audit-related fees consisted of other assurance services including the audit of the company’s retirement plan and royalty statement audits for oil and gas producing entities. The company did not engage the auditor for any other services. The audit committee formally and annually evaluates the performance of the external auditor, recommends the external auditor to be appointed by the shareholders, recommends their remuneration and oversees their work. The audit committee also approves the proposed current year audit program of the external auditor, assesses the results of the program after the end of the program period and approves in advance any non-audit services to be performed by the external auditor after considering the effect of such services on their independence. All of the services rendered by the auditor to the company were approved by the audit committee. Auditor independence The audit committee continually discusses with PwC their independence from the company and from management. PwC have confirmed that they are independent with respect to the company within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Alberta, the Public Company Accounting Oversight Board (United States) (PCAOB) and the rules of the U.S. Securities and Exchange Commission. The company has concluded that the auditor’s independence has been maintained. 37 Table of Contents PART IV Item 15. Exhibits, financial statement schedules Reference is made to the table of contents in the “Financial section” on page 41 of this report. The following exhibits, numbered in accordance with Item 601 of Regulation S-K, are filed as part of this report: (3) (i) Restated certificate and articles of incorporation of the company (Incorporated herein by reference to Exhibit (3.1) to the company’s Form 8-K filed on May 3, 2006 (File No. 0-12014)). (ii) By-laws of the company (Incorporated herein by reference to Exhibit (3)(ii) to the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 0-12014)). (4) (vi) Description of capital stock. (Incorporated herein by reference to Exhibit (4)(vi) of the company’s Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 0-12014)). (10) (ii) (1)  Syncrude Ownership and Management Agreement, dated February 4, 1975 (Incorporated herein by reference to Exhibit 13(b) of the company’s Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on August 21, 1979 (File No. 2-65290)). (2)  Letter Agreement, dated February 8, 1982, between the Government of Canada and Esso Resources Canada Limited, amending Schedule “C” to the Syncrude Ownership and Management Agreement filed as Exhibit (10)(ii)(2) (Incorporated herein by reference to Exhibit (20) of the company’s Annual Report on Form 10-K for the year ended December 31, 1981 (File No. 2-9259)). (3)  Amendment to Syncrude Ownership and Management Agreement, dated March 10, 1982 (Incorporated herein by reference to Exhibit (10)(ii)(14) of the company’s Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-12014)). (4)  Alberta Cold Lake Transition Agreement, effective January 1, 2000, relating to the royalties payable in respect of the Cold Lake production project and terminating the Alberta Cold Lake Crown Agreement dated June 25, 1984. (Incorporated herein by reference to Exhibit (10)(ii)(20) of the company’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-12014)). (5)  Amendment to Syncrude Ownership and Management Agreement effective January 1, 2001 (Incorporated herein by reference to Exhibit (10)(ii)(22) of the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 0-12014)). (6)  Amendment to Syncrude Ownership and Management Agreement effective September 16, 1994 (Incorporated herein by reference to Exhibit (10)(ii)(23) of the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 0-12014)). (7)   Syncrude Bitumen Royalty Option Agreement, dated November 18, 2008, setting out the terms of the exercise by the Syncrude Joint Venture owners of the option contained in the existing Crown Agreement to convert to a royalty payable on the value of bitumen, effective January 1, 2009 (Incorporated herein by reference to Exhibit 1.01(10)(ii)(2) of the company’s Form 8-K filed on November 19, 2008 (File No. 0-12014)). (iii)(A) (1)  Form of Letter relating to Supplemental Retirement Income (Incorporated herein by reference to Exhibit (10)(c)(3) of the company’s Annual Report on Form 10-K for the year ended December 31, 1980 (File No. 2-9259)). (2)  Deferred Share Unit Plan for Nonemployee Directors. (Incorporated herein by reference to Exhibit (10)(iii)(A)(6) of the company’s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-12014)). (3)   Amended Restricted Stock Unit Plan with respect to Restricted Stock Units granted in 2011 and subsequent years, as amended effective November 14, 2011 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the company’s Form 8-K filed on February 23, 2012 (File No. 0-12014)). (4)   Amended Restricted Stock Unit Plan with respect to Restricted Stock Units granted in 2016 and subsequent years, as amended effective October 26, 2016 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the company’s Form 8-K filed on October 31, 2016 (File No. 0-12014)). 38 Table of Contents (5)   Amended Short Term Incentive Program with respect to awards granted in 2016 and subsequent years, as amended effective October 26, 2016 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the company’s Form 8-K filed on October 31, 2016 (File No. 0-12014)). (6)   Amended Restricted Stock Unit Plan with respect to Restricted Stock Units granted in 2020 and subsequent years, as amended effective November 24, 2020. (21) Imperial Oil Resources Limited is incorporated in Canada, and is a wholly-owned subsidiary of the company. The names of all other subsidiaries of the company are omitted because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as of December 31, 2020. (31.1) Certification by principal executive officer of Periodic Financial Report pursuant to Rule 13a-14(a). (31.2) Certification by principal financial officer of Periodic Financial Report pursuant to Rule 13a-14(a). (32.1) Certification by chief executive officer of Periodic Financial Report pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (32.2) Certification by chief financial officer of Periodic Financial Report pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (101) Interactive Data Files (formatted as Inline XBRL). (104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). Copies of Exhibits may be acquired upon written request of any shareholder to the vice president, investor relations, Imperial Oil Limited, 505 Quarry Park Boulevard S.E., Calgary, Alberta T2C 5N1, and payment of processing and mailing costs. Item 16. Form 10-K summary Not applicable. 39 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on February 24, 2021 by the undersigned, thereunto duly authorized. Imperial Oil Limited by /s/ Bradley W. Corson (Bradley W. Corson) Chairman, president and chief executive officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 24, 2021 by the following persons on behalf of the registrant and in the capacities indicated. Signature Title /s/ Bradley W. Corson (Bradley W. Corson) Chairman, president and chief executive officer and director (Principal executive officer) /s/ Daniel E. Lyons (Daniel E. Lyons) Senior vice-president, finance and administration, and controller (Principal financial officer and principal accounting officer) /s/ David C. Brownell (David C. Brownell) Director /s/ David W. Cornhill (David W. Cornhill) Director /s/ Krystyna T. Hoeg (Krystyna T. Hoeg) Director /s/ Miranda C. Hubbs (Miranda C. Hubbs) Director /s/ Jack M. Mintz (Jack M. Mintz) Director /s/ David S. Sutherland (David S. Sutherland) Director 40 Table of Contents Financial section Table of contents Page Financial information (U.S. GAAP) 42 Frequently used terms 43 Management’s discussion and analysis of financial condition and results of operations 45 Overview 45 Business environment and risk assessment 46 Results of operations 51 Liquidity and capital resources 57 Capital and exploration expenditures 60 Market risks and other uncertainties 61 Critical accounting estimates 63 Management’s report on internal control over financial reporting 69 Report of independent registered public accounting firm 70 Consolidated statement of income (U.S. GAAP) 74 Consolidated statement of comprehensive income (U.S. GAAP) 75 Consolidated balance sheet (U.S. GAAP) 76 Consolidated statement of shareholders’ equity (U.S. GAAP) 77 Consolidated statement of cash flows (U.S. GAAP) 78 Notes to consolidated financial statements 79 1. Summary of significant accounting policies 79 2. Accounting changes 85 3. Business segments 86 4. Income taxes 88 5. Employee retirement benefits 89 6. Other long-term obligations 94 7. Financial and derivative instruments 95 8. Share-based incentive compensation programs 97 9. Investment and other income 98 10. Litigation and other contingencies 98 11. Common shares 99 12. Miscellaneous financial information 100 13. Financing and additional notes and loans payable information 101 14. Leases 102 15. Long-term debt 104 16. Accounting for suspended exploratory well costs 104 17. Transactions with related parties 105 18. Other comprehensive income (loss) information 106 Supplemental information on oil and gas exploration and production activities (unaudited) 107 Quarterly financial data 112 41 Table of Contents Financial information (U.S. GAAP) millions of Canadian dollars 2020 2019 2018 2017 2016 Revenues 22,284 34,002 34,964 29,125 25,049 Net income (loss): Upstream (2,318 ) 1,348 (138 ) (706 ) (661 ) Downstream 553 961 2,366 1,040 2,754 Chemical 78 108 275 235 187 Corporate and other (170 ) (217 ) (189 ) (79 ) (115 ) Net income (loss) (1,857 ) 2,200 2,314 490 2,165 Cash and cash equivalents at year-end 771 1,718 988 1,195 391 Total assets at year-end 38,031 42,187 41,456 41,601 41,654 Long-term debt at year-end 4,957 4,961 4,978 5,005 5,032 Total debt at year-end 5,184 5,190 5,180 5,207 5,234 Other long-term obligations at year-end 4,100 3,637 2,943 3,780 3,656 Shareholders’ equity at year-end 21,418 24,276 24,489 24,435 25,021 Cash flow from operating activities 798 4,429 3,922 2,763 2,015 Per share information (Canadian dollars) Net income (loss) per common share - basic (2.53 ) 2.88 2.87 0.58 2.55 Net income (loss) per common share - diluted (2.53 ) 2.88 2.86 0.58 2.55 Dividends per common share - declared 0.88 0.85 0.73 0.63 0.59 42 Table of Contents Frequently used terms Listed below are definitions of several of Imperial’s key business and financial performance measures. The definitions are provided to facilitate understanding of the terms and how they are calculated. Capital employed Capital employed is a measure of net investment. When viewed from the perspective of how capital is used by the business, it includes the company’s property, plant and equipment, and other assets, less liabilities, excluding both short-term and long-term debt. When viewed from the perspective of the sources of capital employed in total for the company, it includes total debt and equity. Both of these views include the company’s share of amounts applicable to equity companies, which the company believes should be included to provide a more comprehensive measurement of capital employed. millions of Canadian dollars 2020 2019 2018 Business uses: asset and liability perspective Total assets 38,031 42,187 41,456 Less: Total current liabilities excluding notes and loans payable (3,153 ) (4,366 ) (3,753 ) Total long-term liabilities excluding long-term debt (8,276 ) (8,355 ) (8,034 ) Add: Imperial’s share of equity company debt 26 24 23 Total capital employed 26,628 29,490 29,692 Total company sources: Debt and equity perspective Notes and loans payable 227 229 202 Long-term debt 4,957 4,961 4,978 Shareholders’ equity 21,418 24,276 24,489 Add: Imperial’s share of equity company debt 26 24 23 Total capital employed 26,628 29,490 29,692 Return on average capital employed (ROCE) ROCE is a financial performance ratio. From the perspective of the business segments, ROCE is annual business segment net income divided by average business segment capital employed (an average of the beginning and end-of-year amounts). Segment net income includes Imperial’s share of segment net income of equity companies, consistent with the definition used for capital employed, and excludes the cost of financing. The company’s total ROCE is net income excluding the after-tax cost of financing divided by total average capital employed. The company has consistently applied its ROCE definition for many years and views it as the best measure of historical capital productivity in a capital-intensive, long-term industry. Additional measures, which are more cash flow based, are used to make investment decisions. millions of Canadian dollars 2020 2019 2018 Net income (loss) (1,857 ) 2,200 2,314 Financing (after-tax), including Imperial’s share of equity companies 52 66 77 Net income (loss) excluding financing (1,805 ) 2,266 2,391 Average capital employed 28,059 29,591 29,677 Return on average capital employed (percent) – corporate total (6.4 ) 7.7 8.1 43 Table of Contents Cash flows from operating activities and asset sales Cash flows from operating activities and asset sales is the sum of the net cash provided by operating activities and proceeds from asset sales reported in the Consolidated statement of cash flows. This cash flow reflects the total sources of cash both from operating the company’s assets and from the divesting of assets. The company employs a long-standing and regular disciplined review process to ensure that assets are contributing to the company’s strategic objectives. Assets are divested when they no longer meet these objectives or are worth considerably more to others. Because of the regular nature of this activity, the company believes it is useful for investors to consider sales proceeds together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions. millions of Canadian dollars 2020 2019 2018 Cash flows from operating activities 798 4,429 3,922 Proceeds from asset sales 82 82 59 Total cash flows from operating activities and asset sales 880 4,511 3,981 Operating costs Operating costs are the costs during the period to produce, manufacture, and otherwise prepare the company’s products for sale – including energy costs, staffing and maintenance costs. They exclude the cost of raw materials, taxes and interest expense and are on a before-tax basis. While the company is responsible for all revenue and expense elements of net income, operating costs represent the expenses most directly under the company’s control and therefore, are useful in evaluating the company’s performance. Reconciliation of operating costs millions of Canadian dollars 2020 2019 2018 From Imperial’s Consolidated statement of income Total expenses 24,796 32,055 32,026 Less: Purchases of crude oil and products 13,293 20,946 21,541 Federal excise tax and fuel charge 1,736 1,808 1,667 Financing 64 93 108 Subtotal 15,093 22,847 23,316 Imperial’s share of equity company expenses 64 76 74 Total operating costs 9,767 9,284 8,784 Components of operating costs millions of Canadian dollars 2020 2019 2018 From Imperial’s Consolidated statement of income Production and manufacturing 5,535 6,520 6,121 Selling and general 741 900 908 Depreciation and depletion (includes impairments) 3,293 1,598 1,555 Non-service pension and postretirement benefit 121 143 107 Exploration 13 47 19 Subtotal 9,703 9,208 8,710 Imperial’s share of equity company expenses 64 76 74 Total operating costs 9,767 9,284 8,784 44 Table of Contents Management’s discussion and analysis of financial condition and results of operations Overview The following discussion and analysis of Imperial’s financial results, as well as the accompanying financial statements and related notes to consolidated financial statements to which they refer, are the responsibility of the management of Imperial Oil Limited. The company’s accounting and financial reporting fairly reflect its business model involving exploration for, and production of, crude oil and natural gas and manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a variety of specialty products. Imperial, with its resource base, financial strength, disciplined investment approach and technology portfolio, is well-positioned to participate in substantial investments to develop new Canadian energy supplies. The company’s integrated business model, with significant investments in Upstream, Downstream and Chemical segments, generally reduces the company’s risk from changes in commodity prices. While commodity prices depend on supply and demand and may be volatile on a short-term basis, Imperial’s investment decisions are grounded on fundamentals reflected in its long-term business outlook, and use a disciplined approach in selecting and pursuing the most attractive investment opportunities. The corporate plan is a fundamental annual management process that is the basis for setting operating and capital objectives, in addition to providing the economic assumptions used for investment evaluation purposes. Volume projections are based on individual field production profiles, which are also updated annually. Price ranges for crude oil, natural gas, refined products and chemical products are based on corporate plan assumptions developed annually and are utilized for investment evaluation purposes. Major investment opportunities are evaluated over a range of potential market conditions. Once major investments are made, a reappraisal process is completed to ensure relevant lessons are learned and improvements are incorporated into future projects. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. 45 Table of Contents Business environment and risk assessment Long-term business outlook Given the uncertainty around the near-term impacts of COVID-19 on economic growth, energy demand and energy supply, and lack of precedent, the company is considering a range of recovery pathways to guide near-term plans. These pathways expect that energy demand will grow beyond 2019 levels as early as 2022 reflecting the phase out of COVID-19 impacts and re-establishment of long-term supply / demand fundamentals. The “Long-term business outlook” is based on Exxon Mobil Corporation’s Outlook for Energy , which combined with the near-term pathways is used to help inform the company’s long-term business strategies and investment plans. By 2040, the world’s population is projected at around 9.1 billion people, or about 1.6 billion more than in 2018. Coincident with this population increase, the company expects worldwide economic growth to average close to 2.5 percent per year, with economic output growing by around 75 percent by 2040. As economies and populations grow, and as living standards improve for billions of people, the need for energy is expected to continue to rise. Even with significant efficiency gains, global energy demand is projected to rise by more than 10 percent from 2018 to 2040. This increase in energy demand is expected to be driven by developing countries (i.e., those that are not member nations of the Organization for Economic Co-operation and Development (OECD)). Canada is expected to see flat to modest local energy demand growth through to 2040 and will continue to be a large supplier of energy exports to help meet rising global energy needs. As expanding prosperity helps drive global energy demand higher, increasing use of energy efficient technologies and practices, as well as lower-emission products will continue to help significantly reduce energy consumption and emissions per unit of economic output over time. Substantial efficiency gains are likely in all key aspects of the world’s economy through 2040, affecting energy requirements for power generation, transportation, industrial applications, and residential and commercial needs. Global electricity demand is expected to increase approximately 50 percent from 2018 to 2040, with developing countries likely to account for about 85 percent of the increase. Consistent with this projection, power generation is expected to remain the largest and fastest growing major segment of global primary energy demand, supported by a wide variety of energy sources. The share of coal fired generation is likely to decline substantially and approach 20 percent of the world’s electricity in 2040, versus nearly 40 percent in 2018, in part as a result of policies to improve air quality as well as reduce greenhouse gas emissions to address the risks related to climate change. From 2018 to 2040, the amount of electricity supplied using natural gas, nuclear power, and renewables is likely to nearly double, accounting for the entire growth in electricity supplies and offsetting the reduction of coal. Electricity from wind and solar is likely to increase about 400 percent, helping total renewables (including other sources, i.e., hydropower) to account for about 80 percent of the increase in electricity supplies worldwide through 2040. Total renewables will likely reach about 50 percent of global electricity supplies by 2040. Natural gas and nuclear are also expected to increase shares over the period to 2040, reaching more than 25 percent and about 10 percent of global electricity supplies respectively by 2040. Supplies of electricity by energy type will reflect significant differences across regions reflecting a wide range of factors including the cost and availability of various energy supplies and policy developments. Energy for transportation – including cars, trucks, ships, trains and airplanes – is expected to increase by about 20 percent from 2018 to 2040. Transportation energy demand is likely to account for over 60 percent of the growth in liquid fuels demand worldwide over this period. Light-duty vehicle demand for liquid fuels is projected to peak prior to 2025 and then decline to levels seen in the early-2010s by 2040 as the impact of better fuel economy and significant growth in electric cars, led by China, Europe, and the United States, work to offset growth in the worldwide car fleet of about 60 percent. By 2040, light-duty vehicles are expected to account for about 20 percent of global liquid fuels demand. During the same time period, nearly all the world’s commercial transportation fleets are likely to continue to run on liquid fuels, which are widely available and offer practical advantages in providing a large quantity of energy in small volumes. 46 Table of Contents Liquid fuels provide the largest share of global energy supplies today reflecting broad-based availability, affordability, ease of transportation, and fitness as a practical solution to meet a wide variety of needs. By 2040, global demand for liquid fuels is projected to grow to approximately 110 million oil-equivalent barrels per day, an increase of about 9 percent from 2018. The non-OECD share of global liquid fuels demand is expected to increase to about 65 percent by 2040, as liquid fuels demand in the OECD is likely to decline by close to 15 percent. Much of the global liquid fuels demand today is met by crude production from traditional conventional sources; these supplies will remain important, and significant development activity is expected to offset much of the natural declines from these fields. At the same time, a variety of emerging supply sources – including tight oil, deepwater, oil sands, natural gas liquids and biofuels – are expected to grow to help meet rising demand. The world’s resource base is sufficient to meet projected demand through 2040 as technology advances continue to expand the availability of economic and lower carbon supply options. However, timely investments will remain critical to meeting global needs with reliable and affordable supplies. Natural gas is a lower-emission, versatile and practical fuel for a wide variety of applications, and it is expected to grow the most of any primary energy type from 2018 to 2040, meeting about 50 percent of global energy demand growth. Global natural gas demand is expected to rise about 25 percent from 2018 to 2040, with about half of that increase coming from the Asia Pacific region. Significant growth in supplies of unconventional gas – the natural gas found in shale and other tight rock formations – will help meet these needs. In total, about 55 percent of the growth in natural gas supplies is expected to be from unconventional sources. At the same time, conventionally-produced natural gas is likely to remain the cornerstone of global supply, meeting more than two-thirds of worldwide demand in 2040. Liquefied natural gas (LNG) trade will expand significantly, meeting about 40 percent of the increase in global demand growth, with much of this supply expected to help meet rising demand in Asia Pacific. The world’s energy mix is highly diverse and will remain so through 2040. Oil is expected to remain the largest source of energy with its share remaining close to 30 percent in 2040. Coal is currently the second largest source of energy, but it is likely to lose that position to natural gas in the next few years. The share of natural gas is expected to reach more than 25 percent by 2040, while the share of coal falls to about two thirds of the natural gas share. Nuclear power is projected to grow significantly, as many nations are likely to expand nuclear capacity to address rising electricity needs as well as energy security and environmental issues. Total renewable energy is likely to exceed 15 percent of global energy by 2040, with biomass, hydro and geothermal contributing a combined share of more than 10 percent. Total energy supplied from wind, solar and biofuels is expected to increase rapidly, growing over 350 percent from 2018 to 2040, when they will likely be just over 6 percent of the world energy mix. The company anticipates that the world’s available oil and gas resource base will grow not only from new discoveries, but also from increases in previously discovered fields. Technology will underpin these increases. The investments to develop and supply resources to meet global demand through 2040 will be significant – even if demand remains flat. This reflects a fundamental aspect of the oil and natural gas business as the International Energy Agency (IEA) describes in its World Energy Outlook 2020 . According to the IEA’s Stated Energy Policies Scenario, the investment required to meet oil and natural gas supply requirements worldwide over the period 2019 to 2040 will be about US$17 trillion (measured in 2019 dollars). In the IEA’s Sustainable Development Scenario, which is in line with the objectives of the Paris Agreement on climate change, the investment need would still accumulate to US$12 trillion. 47 Table of Contents International accords and underlying regional and national regulations covering greenhouse gas emissions continue to evolve with uncertain timing and outcome, making it difficult to predict their business impact. Imperial’s estimates of potential costs related to greenhouse gas emissions align with applicable provincial and federal regulations. Additionally, Imperial uses ExxonMobil’s Outlook for Energy as a foundation for estimating energy supply and demand requirements from various energy sources and uses, and the Outlook for Energy takes into account policies established to reduce energy related greenhouse gas emissions. The climate accord reached at the Conference of the Parties (COP 21) in Paris set many new goals, and many related policies are still emerging. The Outlook for Energy reflects an environment with increasingly stringent climate policies and is consistent with the aggregation of Nationally Determined Contributions (NDCs), which were submitted by signatories to the United Nations Framework Convention on Climate Change (UNFCCC) 2015 Paris Agreement. The Outlook for Energy seeks to identify potential impacts of climate related policies, which often target specific sectors. It estimates potential impacts of these policies on consumer energy demand by using various assumptions and tools – including, depending on the sector, application of a proxy cost of carbon or assessment of targeted policies (i.e., automotive fuel economy standards). As people and nations look for ways to reduce risks of global climate change, they will continue to need practical solutions that do not jeopardize the affordability or reliability of the energy they need. The company continues to monitor the updates to the NDCs that nations are expected to provide in preparation for COP 26 in Glasgow in November 2021 as well as other policy developments in light of net zero ambitions recently formulated by some nations, including Canada. Practical solutions to the world’s energy and climate challenges will benefit from market competition in addition to well-informed, well-designed and transparent policy approaches that carefully weigh costs and benefits. Such policies are likely to help manage the risks of climate change while also enabling societies to pursue other high priority goals around the world – including clean air and water, access to reliable and affordable energy, and economic progress for all people. The company encourages sound policy solutions that reduce climate-related risks across the economy at the lowest societal cost. All practical and economically viable energy sources will need to be pursued to continue meeting global energy demand, recognizing the scale and variety of worldwide energy needs, as well as the importance of expanding access to modern energy to promote better standards of living for billions of people. The information provided in the “Long-term business outlook” includes internal estimates and projections based upon ExxonMobil’s internal data and analyses, as well as publicly available information from external sources including the International Energy Agency. 48 Table of Contents Upstream Imperial produces crude oil and natural gas for sale predominantly into North American markets. Imperial’s Upstream business strategies guide the company’s exploration, development, production, research and gas marketing activities. These strategies include maximizing asset reliability, accelerating development and application of high impact technologies, maximizing value by capturing new business opportunities and managing the existing portfolio, as well as pursuing sustainable improvements in organizational efficiency and effectiveness. These strategies are underpinned by a relentless focus on operations integrity, commitment to innovative technologies, disciplined approach to investing and cost management, development of employees and investment in the communities within which the company operates. Imperial has a significant oil and gas resource base and a large inventory of potential projects. The company continues to evaluate opportunities to support long-term growth. As future development projects bring new production online, Imperial expects growth from oil sands in-situ and mining, as well as unconventional resources, with the largest growth potential related to in-situ. Actual volumes will vary from year to year due to the factors described in Item 1A. “Risk factors”. The upstream industry environment has a history of significant price volatility. Market demand and prices experienced a sharp decline in the first half of 2020 largely driven by the COVID-19 pandemic. Following this decline, prices improved in the second half of the year as supply and demand began to rebalance. Prices for most of the company’s crude oil sold are referenced to Western Canada Select (WCS) and West Texas Intermediate (WTI) oil markets. In January 2019, the Government of Alberta’s temporary mandatory production curtailment regulations came into effect. Although the mandatory production curtailment decreased throughout 2019 and 2020, and was eliminated in December 2020, the regulatory authority to impose curtailment remains in place and there is the potential for curtailment to be re-imposed and increased. The duration of these regulations is uncertain. Imperial continually monitors the effects of these regulations and evaluates opportunities, including crude shipments by rail and the pace of the development of its Aspen in-situ oil sands project, as economically justified. Imperial believes prices over the long term will be driven by market supply and demand, with the demand side largely being a function of general economic activities, levels of prosperity, technology advances, consumer preference and government policies. On the supply side, prices may be significantly impacted by political events, logistics constraints, the actions of OPEC, governments and other factors. To manage the risks associated with price, Imperial evaluates annual plans and all major investments across a range of price scenarios. In 2020, Imperial re-assessed the long-term development plans of its unconventional portfolio in Alberta and no longer plans to further develop a significant portion of this portfolio. The decision resulted in a non-cash, after-tax impairment charge of $1,171 million in 2020, thereby reducing the carrying value of those assets to fair value. The company retains its interest in these resources. These non-core assets are non-producing, undeveloped assets and the company does not expect any material future cash expenditures related to this impairment. This decision is consistent with Imperial’s strategy of focusing its upstream resources and efforts on its key oil sands assets as well as on only the most attractive portions of its unconventional portfolio. Imperial continues to produce from its developed acreage. Kearl’s supplemental crushing facilities started operations in late 2019, with ramp-up of all units through early 2020. These facilities have further improved reliability, reduced planned downtime, lowered unit costs and enabled the asset to achieve higher volumes. As disclosed in the company’s 2019 Form 10-K, the original production target in 2020 for Kearl was 240,000 barrels per day (about 170,000 barrels Imperial’s share). As a result of market conditions, the company adjusted planned maintenance and turnaround activity, and revised its full-year guidance for Kearl total gross production to 220,000 barrels per day (about 156,000 barrels Imperial’s share). In 2020, Kearl achieved record annual total gross production of 222,000 barrels per day (158,000 barrels Imperial’s share). Imperial continues to progress initiatives to enable the asset to achieve 255,000 barrels per day of total gross production in 2021 (about 181,000 barrels Imperial’s share). In 2020, gross bitumen production at Cold Lake was impacted by ongoing steam management. The company plans to focus on base performance in the near-term and expects gross bitumen production at Cold Lake to average approximately 130,000 barrels per day in 2021. As described in more detail in Item 1A. “Risk factors”, environmental risks and climate related regulations, and COVID-19 could have negative impacts on the upstream business. 49 Table of Contents Downstream Imperial’s Downstream serves predominantly Canadian markets with refining, logistics and marketing assets. Imperial’s Downstream business strategies competitively position the company across a range of market conditions. These strategies include targeting industry leading performance in reliability, safety and operations integrity, as well as maximizing value from advanced technologies, capitalizing on integration across Imperial’s businesses, selectively investing for resilient and advantaged returns, operating efficiently and effectively, and providing quality, valued and differentiated products and services to customers. Imperial owns and operates three refineries in Canada, with aggregate distillation capacity of 428,000 barrels per day. Refining margins are largely driven by differences in commodity prices and are a function of the difference between what a refinery pays for its raw materials (primarily crude oil) and the market prices for the range of products produced (primarily gasoline, heating oil, diesel oil, jet fuel, fuel oil and asphalt). Crude oil and many products are widely traded with published prices, including those quoted on the New York Mercantile Exchange. Prices for these commodities are determined by the global and regional marketplaces and are influenced by many factors, including global and regional supply / demand balances, inventory levels, industry refinery operations, import / export balances, currency fluctuations, seasonal demand, weather and political climate. Imperial’s integration across the value chain, from refining to marketing, enhances overall value across the fuels business. In 2020, demand for petroleum products was significantly impacted by the COVID-19 pandemic, starting in the first half of the year. While there was some demand improvement in the second half of 2020, demand remained below 2019 levels. This unprecedented demand impact also adversely affected Imperial’s margins. As described in more detail in Item 1A. “Risk factors”, proposed carbon policy and other climate related regulations, as well as continued biofuels mandates, could have negative impacts on the downstream business. Imperial supplies petroleum products to the motoring public through Esso and Mobil-branded sites and independent marketers. At the end of 2020, there were about 2,400 sites operating under a branded wholesaler model whereby Imperial supplies fuel to independent third parties who own and operate sites in alignment with Esso and Mobil brand standards. Chemical North America continued to benefit from abundant supplies of natural gas and gas liquids, providing both low cost energy and feedstock for steam crackers. In 2020, margins were adversely impacted by continued industry capacity additions and effects related to COVID-19. Imperial maintains a competitive advantage through continued operational excellence, consistent product quality, investment and cost discipline, and integration of its chemical plant in Sarnia with the refinery. The company also benefits from its relationship with ExxonMobil’s North American chemical businesses, enabling Imperial to maintain a leadership position in its key market segments. 50 Table of Contents Results of operations In 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the COVID-19 pandemic spread rapidly across Canada and the world resulting in substantial reductions in consumer and business activity and significantly reduced local and global demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key oil-producing countries which led to increases in inventory levels and sharp declines in prices for crude oil, natural gas, and petroleum products. Market conditions continued to reflect considerable uncertainty throughout 2020 as consumer and business activity has exhibited some degree of recovery, but remained lower when compared to prior periods as a result of the pandemic. Despite actions taken by key oil-producing countries to reduce oversupply, and improved credit market conditions providing sufficient liquidity to credit-worthy companies, the unfavourable economic impacts appear increasingly likely to persist to some extent well into 2021. In late March, the company announced significant reductions in 2020 capital and operating expense spending plans. Capital and exploration expenditures for 2020 were $874 million, in line with the company’s most recent guidance of $900 million, and less than half of 2019 expenditures. Capital expenditures in 2021 are expected to be approximately $1.2 billion. In addition, full-year production and manufacturing expenses were $985 million lower than the prior year. This decrease enabled the company to surpass its $500 million expense reduction commitment made in 2020 by nearly double. The effect of COVID-19 and the current business environment on supply and demand patterns negatively impacted Imperial’s financial and operating results in 2020. Industry conditions seen in 2020 have led to lower realized prices for the company’s products and have resulted in substantially lower earnings and operating cash flow throughout 2020 in comparison to 2019. In response to these conditions, the company operated certain assets at reduced rates and adjusted planned maintenance and turnaround activities throughout the second and third quarters in an effort to reduce on-site staffing levels and to better balance production with demand. Refinery utilization rates and petroleum product sales were reduced through the second quarter of 2020, but saw some improvement in product demands in the second half of the year. The length and severity of COVID-19 impacts to demand and the current business environment are highly uncertain, with the future supply and demand patterns inherently difficult to predict. In the second quarter of 2020, Canadian federal and provincial governments introduced plans and programs to support business and economic activities in response to the disruptive impacts from the COVID-19 pandemic. The Government of Canada implemented the Canada Emergency Wage Subsidy (CEWS) as part of its COVID-19 Economic Response Plan, and has extended the CEWS until June 2021. The company received wage subsidies under this program and, if eligible, intends to continue to apply for these wage subsidies. Additionally, in the fourth quarter, the Alberta government enacted an accelerated reduction in the corporate income tax rate to eight percent beginning July 1, 2020, compared with a previously legislated reduction to eight percent beginning January 1, 2022. The corporate income tax rate change did not have a significant impact on the company’s financial statements. The company has taken steps, in line with federal and provincial guidelines and restrictions, to limit the spread of COVID-19 among employees, contractors and the broader community, while also maintaining operations to ensure reliable supply of products to customers as a provider of essential services. The company maintains robust business continuity plans, which have been activated to minimize the impact of COVID-19 on workforce productivity. 51 Table of Contents Consolidated millions of Canadian dollars 2020 2019 2018 Net income (loss) (1,857 ) 2,200 2,314 2020 Net loss in 2020 was $1,857 million, or $2.53 per share on a diluted basis, compared to net income of $2,200 million or $2.88 per share in 2019. Current year results reflect a non-cash impairment charge of $1,171 million after-tax, related to the company’s decision to no longer develop a significant portion of its unconventional portfolio, and a favourable impact of about $115 million after-tax, associated with the Canada Emergency Wage Subsidy (CEWS), which includes Imperial’s proportionate share of a joint venture. Full-year 2019 results included a favourable impact of $662 million associated with the Alberta corporate income tax rate decrease. 2019 Net income in 2019 was $2,200 million, or $2.88 per share on a diluted basis, compared to net income of $2,314 million or $2.86 per share in 2018. 2019 results include a favourable impact, largely non-cash, of $662 million associated with the Alberta corporate income tax rate decrease. On June 28, 2019, the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022. Upstream millions of Canadian dollars 2020 2019 2018 Net income (loss) (2,318 ) 1,348 (138 ) 2020 Upstream recorded a net loss of $2,318 million for the year, compared to net income of $1,348 million in 2019. Results were negatively impacted by lower realizations of about $2,620 million, a non-cash impairment charge of $1,171 million, related to the company’s decision to no longer develop a significant portion of its unconventional portfolio, absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019, and lower volumes of about $130 million. These items were partially offset by lower royalties of about $540 million, lower operating expenses of about $250 million, favourable foreign exchange impacts of about $100 million, and about $70 million associated with the CEWS received by the company which includes Imperial’s proportionate share of a joint venture. 2019 Upstream net income was $1,348 million for the year, reflecting the favourable impact associated with the decreased Alberta corporate income tax rate of $689 million. Excluding this impact, 2019 net income was $659 million, up $797 million compared to a net loss of $138 million in 2018. Improved results reflect higher crude oil realizations of about $1,000 million, as well as higher volumes of about $350 million primarily at Syncrude and Norman Wells. Results were negatively impacted by higher royalties of about $230 million, higher operating expenses of about $190 million and lower Cold Lake volumes of about $120 million. 52 Table of Contents Average realizations Canadian dollars 2020 2019 2018 Bitumen (per barrel) 25.69 50.02 37.56 Synthetic oil (per barrel) 49.76 74.47 70.66 Conventional crude oil (per barrel) 29.34 51.81 41.84 Natural gas liquids (per barrel) 13.85 22.83 38.66 Natural gas (per thousand cubic feet) 1.90 2.05 2.43 2020 WTI averaged US$39.26 per barrel in 2020, down from US$57.03 per barrel in 2019. WCS averaged US$26.87 per barrel and US$44.29 per barrel for the same periods. The WTI / WCS differential narrowed to approximately US$12 per barrel in 2020, from around US$13 per barrel in 2019. The Canadian dollar averaged US$0.75 in 2020, essentially unchanged from 2019. Imperial’s average Canadian dollar realizations for bitumen decreased in 2020 primarily due to a decrease in WCS. Bitumen realizations averaged $25.69 per barrel, compared to $50.02 per barrel in 2019. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $49.76 per barrel, compared to $74.47 per barrel in 2019. 2019 WTI averaged US$57.03 per barrel in 2019, down from US$65.03 per barrel in 2018. WCS averaged US$44.29 per barrel and US$38.71 per barrel for the same periods. The WTI / WCS differential narrowed to average approximately US$13 per barrel in 2019, from around US$26 per barrel in 2018. The Canadian dollar averaged US$0.75 in 2019, a decrease of US$0.02 from 2018. Imperial’s average Canadian dollar realizations for bitumen increased in 2019, supported primarily by an increase in WCS and lower diluent costs. Bitumen realizations averaged $50.02 per barrel, up from $37.56 per barrel in 2018. The company’s average Canadian dollar realizations for synthetic crude increased relative to WTI, primarily due to the narrowing of the western Canadian light crude differential. Synthetic crude realizations averaged $74.47 per barrel, up from $70.66 per barrel in 2018. 53 Table of Contents Crude oil and natural gas liquids (NGL) - production and sales (a) thousands of barrels per day 2020 2019 2018 gross net gross net gross net Bitumen 290 279 285 254 293 255 Synthetic oil (b) 69 68 73 65 62 60 Conventional crude oil 11 10 14 13 5 5 Total crude oil production 370 357 372 332 360 320 NGLs available for sale 2 2 2 1 1 2 Total crude oil and NGL production 372 359 374 333 361 322 Bitumen sales, including diluent (c) 401 387 406 NGL sales 2 6 6 Natural gas - production and production available for sale (a) millions of cubic feet per day 2020 2019 2018 gross net gross net gross net Production (d) (e) 154 150 145 144 129 126 Production available for sale (f) 115 108 94 (a) Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period. Gross production is the company’s share of production (excluding purchases) before deduction of the mineral owners’ or governments’ share or both. Net production excludes those shares. (b) The company’s synthetic oil production volumes were from the company’s share of production volumes in the Syncrude joint venture. (c) Diluent is natural gas condensate or other light hydrocarbons added to crude bitumen to facilitate transportation to market by pipeline and rail. (d) Gross production of natural gas includes amounts used for internal consumption with the exception of the amounts re-injected. (e) Net production is gross production less the mineral owners’ or governments’ share or both. Net production reported in the above table is consistent with production quantities in the net proved reserves disclosure. (f) Includes sales of the company’s share of net production and excludes amounts used for internal consumption. 2020 Total gross production of Kearl bitumen averaged 222,000 barrels per day in 2020 (158,000 barrels Imperial’s share), the highest annual production in the asset’s history, up from 205,000 barrels per day (145,000 barrels Imperial’s share) in 2019. Improved production was mainly due to the addition of supplemental crushing facilities in 2020, partially offset by the balancing of near term production with demand through the advancement and extension of planned turnaround activities. Gross production of Cold Lake bitumen averaged 132,000 barrels per day in 2020, compared to 140,000 barrels per day in 2019. During 2020, the company’s share of gross production from Syncrude averaged 69,000 barrels per day, compared to 73,000 barrels per day in 2019. 2019 Total gross production of Kearl bitumen averaged 205,000 barrels per day in 2019 (145,000 barrels Imperial’s share), compared to 206,000 barrels per day (146,000 barrels Imperial’s share) in 2018. Gross production of Cold Lake bitumen averaged 140,000 barrels per day in 2019, compared to 147,000 barrels per day in 2018. During 2019, the company’s share of gross production from Syncrude averaged 73,000 barrels per day, up from 62,000 barrels per day in 2018. Higher production was mainly due to the absence of production impacts from the 2018 power disruption. 54 Table of Contents Downstream millions of Canadian dollars 2020 2019 2018 Net income (loss) 553 961 2,366 2020 Downstream net income was $553 million, compared to $961 million in 2019. Results were negatively impacted by lower margins of about $710 million, and lower sales volumes of about $290 million. These items were offset by lower operating expenses of about $190 million, lower turnaround impacts of about $190 million primarily related to reduced turnaround activity in the current year and improved reliability of about $180 million, primarily due to the absence of the Sarnia fractionation tower incident which occurred in April 2019. 2019 Downstream net income was $961 million, compared to $2,366 million in 2018. Earnings were negatively impacted by lower margins of about $1,130 million, reliability events of about $150 million, including the fractionation tower incident at Sarnia, higher net planned turnaround impacts of about $140 million, and lower sales volumes of about $130 million. These factors were partially offset by favourable foreign exchange impacts of about $90 million. Refinery utilization thousands of barrels per day (a) 2020 2019 2018 Total refinery throughput (b) 340 353 392 Refinery capacity at December 31 428 423 423 Utilization of total refinery capacity (percent) 80 83 93 Sales thousands of barrels per day (a) 2020 2019 2018 Gasolines 215 249 255 Heating, diesel and jet fuels 146 167 183 Heavy fuel oils 20 21 26 Lube oils and other products 40 38 40 Net petroleum product sales 421 475 504 (a) Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period. (b) Crude oil and feedstocks sent directly to atmospheric distillation units. 2020 Refinery throughput averaged 340,000 barrels per day in 2020, compared to 353,000 barrels per day in 2019. Capacity utilization was 80 percent, compared to 83 percent in 2019. Lower throughput was driven by reduced demand due to the COVID-19 pandemic, partially offset by lower refinery turnaround activity and reliability events, including impacts from the Sarnia fractionation tower incident which occurred in April 2019. Petroleum product sales were 421,000 barrels per day in 2020, compared to 475,000 barrels per day in 2019. Lower petroleum product sales were primarily driven by reduced demand due to the COVID-19 pandemic. 2019 Refinery throughput averaged 353,000 barrels per day in 2019, compared to 392,000 barrels per day in 2018. Capacity utilization was 83 percent, compared to 93 percent in 2018. Reduced throughput was mainly due to higher planned turnaround activities and impacts from the Sarnia fractionation tower incident. Petroleum product sales were 475,000 barrels per day in 2019, compared to 504,000 barrels per day in 2018. Lower petroleum product sales were mainly due to lower refinery throughput. 55 Table of Contents Chemical millions of Canadian dollars 2020 2019 2018 Net income (loss) 78 108 275 Sales thousands of tonnes 2020 2019 2018 Polymers and basic chemicals 574 575 602 Intermediate and others 175 157 205 Total petrochemical sales 749 732 807 2020 Chemical net income was $78 million in 2020, compared to $108 million in 2019, primarily reflecting lower margins. 2019 Chemical net income was $108 million in 2019, compared to $275 million in 2018, primarily due to lower margins. Corporate and other millions of Canadian dollars 2020 2019 2018 Net income (loss) (170 ) (217 ) (189 ) 2020 Corporate and other expenses were $170 million in 2020, compared to $217 million in 2019. 2019 Corporate and other expenses were $217 million in 2019, compared to $189 million in 2018. 56 Table of Contents Liquidity and capital resources Sources and uses of cash millions of Canadian dollars 2020 2019 2018 Cash provided by (used in) Operating activities 798 4,429 3,922 Investing activities (802 ) (1,704 ) (1,559 ) Financing activities (943 ) (1,995 ) (2,570 ) Increase (decrease) in cash and cash equivalents (947 ) 730 (207 ) Cash and cash equivalents at end of year 771 1,718 988 The company issues long-term debt from time to time and maintains a commercial paper program. However, internally generated funds cover the majority of its financial requirements. Cash that may be temporarily surplus to the company’s immediate needs is carefully managed through counterparty quality and investment guidelines to ensure that it is secure and readily available to meet the company’s cash requirements and to optimize returns. Cash flows from operating activities are highly dependent on crude oil and natural gas prices, as well as petroleum and chemical product margins. In addition, to provide for cash flow in future periods, the company needs to continually find and develop new resources, and continue to develop and apply new technologies to existing fields in order to maintain or increase production. The company’s financial strength enables it to make large, long-term capital expenditures. Imperial’s portfolio of development opportunities and the complementary nature of its business segments help mitigate the overall risks for the company and its cash flows. Further, due to its financial strength, debt capacity and portfolio of opportunities, the risk associated with delay of any single project would not have a significant impact on the company’s liquidity or ability to generate sufficient cash flows for its operations and fixed commitments. Funding of registered retirement plans complies with federal and provincial pension regulations, and the company makes contributions to the plans based on an independent actuarial valuation completed at least once every three years depending on funding status. The most recent valuation of the company’s registered retirement plans was completed as at December 31, 2019. The company contributed $195 million to the registered retirement plans in 2020. Future funding requirements are not expected to affect the company’s existing capital investment plans or its ability to pursue new investment opportunities. Cash flow from operating activities 2020 Cash flow generated from operating activities was $798 million in 2020, compared to $4,429 million in 2019, primarily reflecting lower realizations in the Upstream and unfavourable working capital impacts. 2019 Cash flow generated from operating activities was $4,429 million in 2019, up from $3,922 million in 2018, primarily reflecting favourable working capital effects, partially offset by lower earnings excluding the impact associated with the Alberta corporate income tax rate decrease. Cash flow from investing activities 2020 Investing activities used net cash of $802 million in 2020, compared to $1,704 million used in 2019, primarily reflecting lower additions to property, plant and equipment. 2019 Investing activities used net cash of $1,704 million in 2019, compared with $1,559 million used in 2018, primarily reflecting higher additions to property, plant and equipment. 57 Table of Contents Cash flow from financing activities 2020 Cash used in financing activities was $943 million in 2020, compared to $1,995 million used in 2019. At the end of 2020, total debt outstanding was $5,184 million, compared with $5,190 million at the end of 2019. In response to market conditions, during the second quarter of 2020, the company entered into a $500 million committed short-term line of credit to May 2021, and a $300 million committed short-term line of credit to June 2021. These facilities were in addition to existing credit facilities of $500 million. The company has not drawn on these facilities. In November 2020, the company extended the maturity date of one of its existing $250 million committed short-term line of credit to November 2021. The company has not drawn on the facility. The maturity date of the other existing $250 million credit facility remains unchanged at November 2021. The company has not drawn on the facility. During 2020, the company, under its share purchase program, purchased about 9.8 million shares for $274 million. In response to market conditions, substantial purchases under the share purchase program were suspended on April 1, 2020. Dividends paid in 2020 were $649 million. The per share dividend paid in 2020 was $0.88, up from $0.82 in 2019. 2019 Cash used in financing activities was $1,995 million in 2019, compared with $2,570 million used in 2018. At the end of 2019, total debt outstanding was $5,190 million, compared with $5,180 million at the end of 2018. In September 2019, the company extended the maturity date of its existing long-term, variable-rate, Canadian dollar loan from ExxonMobil to June 30, 2025. All other terms and conditions remained unchanged. In November 2019, the company increased the capacity of its non-interest bearing, revolving demand loan with ExxonMobil from $75 million to $150 million. The loan represents ExxonMobil’s share of a working capital facility required to support purchasing, marketing, transportation and derivative arrangements for crude oil and diluent products undertaken by Imperial on behalf of ExxonMobil. At December 31, 2019 the company had borrowed $111 million under this arrangement. In November 2019, the company extended the maturity date of its existing $250 million committed long-term line of credit to November 2021. The company has not drawn on the facility. In December 2019, the company extended the maturity date of its existing $250 million committed short-term line of credit to December 2020. The company has not drawn on the facility. During 2019, the company, under its share purchase program, purchased about 38.7 million shares for $1,373 million, including shares purchased from Exxon Mobil Corporation. Dividends paid in 2019 were $631 million. The per share dividend paid in 2019 was $0.82, up from $0.70 in 2018. 58 Table of Contents Financial strength The table below shows Imperial’s consolidated debt-to-capital ratio. The data demonstrates the company’s creditworthiness: percent At December 31 2020 2019 2018 Debt to capital (a) 19 18 18 (a) Debt, defined as the sum of “Notes and loans payable” and “Long-term debt” (page 76), divided by capital, defined as the sum of debt and “Total shareholders’ equity” (page 76). Debt-related interest incurred in 2020, before capitalization of interest, was $102 million, compared with $138 million in 2019. The average effective interest rate on the company’s debt was 2.0 percent in 2020, compared with 2.7 percent in 2019. The company’s financial strength represents a competitive advantage of strategic importance providing it the opportunity to readily access capital markets under the full range of market conditions and enables the company to take on large, long-term capital commitments in the pursuit of maximizing shareholder value. Commitments The following table shows the company’s commitments outstanding at December 31, 2020. It combines data from the Consolidated balance sheet and from individual notes to the consolidated financial statements, where appropriate. Payment due by period millions of Canadian dollars Note reference 2021 2022 2024 2026 and Total to 2023 to 2025 beyond Long-term debt excluding finance lease obligations (a) 15 - 4,447 - - 4,447 Operating and finance leases (b) 14 152 174 117 1,080 1,523 Firm capital commitments (c) 133 20 - 162 315 Pension and other postretirement obligations (d) 5 223 121 127 1,692 2,163 Asset retirement obligations (e) 6 60 175 172 1,267 1,674 Other long-term purchase agreements (f) 786 1,610 1,341 8,380 12,117 (a) Long-term debt includes a loan from an affiliated company of ExxonMobil of $4,447 million. The payment by period for the related party long-term loan is estimated based on the right of the related party to cancel the loan on at least 370 days advance written notice. (b) Minimum commitments for finance and operating leases, both commenced and non-commenced, are shown on an undiscounted basis. Leases are primarily associated with storage tanks, rail cars, marine vessels, transportation facilities and service agreements. (c) Firm capital commitments represent legally-binding payment obligations to third parties where agreements specifying all significant terms have been executed for the construction and purchase of fixed assets and other permanent investments. In certain cases where the company executes contracts requiring commitments to a work scope, those commitments have been included to the extent that the amounts and timing of payments can be reliably estimated. Firm capital commitments related to capital projects are shown on an undiscounted basis. (d) The amount by which the benefit obligations exceeded the fair value of fund assets for pension and other postretirement plans at year end. The payments by period include expected contributions to funded pension plans in 2021 and estimated benefit payments for unfunded plans in all years. (e) Asset retirement obligations represent the fair value of legal obligations associated with site restoration on the retirement of assets with determinable useful lives. (f) Other long-term purchase agreements are non-cancelable, or cancelable only under certain conditions and long-term commitments other than unconditional purchase obligations. They include primarily transportation services agreements, raw material supply and community benefits agreements. Unrecognized tax benefits totalling $36 million have not been included in the company’s commitments table because the company does not expect there will be any cash impact from the final settlements as sufficient funds have been deposited with the Canada Revenue Agency. Further details on the unrecognized tax benefits can be found in note 4 to the financial statements on page 88. 59 Table of Contents Litigation and other contingencies As discussed in note 10 to the consolidated financial statements on page 98, a variety of claims have been made against Imperial and its subsidiaries. Based on a consideration of all relevant facts and circumstances, the company does not believe the ultimate outcome of any currently pending lawsuits against the company will have a material adverse effect on the company’s operations, financial condition, or financial statements taken as a whole. Additionally, as discussed in note 10, Imperial was contingently liable at December 31, 2020, for guarantees relating to performance under contracts. These guarantees do not have a material effect on the company’s operations, financial condition, or financial statements taken as a whole. There are no events or uncertainties beyond those already included in reported financial information that would indicate a material change in future operating results or financial condition. Capital and exploration expenditures Capital and exploration expenditures represent the combined total of additions at cost to property, plant and equipment; exploration expenses on a before-tax basis from the Consolidated statement of income; and the company’s share of similar costs for equity companies. Capital and exploration expenditures exclude the purchase of carbon emission credits. While Imperial’s management is responsible for all investments and elements of net income, particular focus is placed on managing the controllable aspects of this group of expenditures. millions of Canadian dollars 2020 2019 Upstream (a) 561 1,248 Downstream 251 484 Chemical 21 34 Corporate and other 41 48 Total 874 1,814 (a) Exploration expenses included. Total capital and exploration expenditures were $874 million in 2020, a decrease of $940 million from 2019. In response to the challenges presented by the COVID-19 pandemic and decreases in commodity prices, in the first quarter of 2020 the company provided an updated capital outlook of $1.1 billion to $1.2 billion (from original guidance of $1.6 billion to $1.7 billion). In the third quarter of 2020, the company further updated this capital outlook to about $900 million. For the Upstream segment, capital and exploration expenditures were $561 million in 2020, compared with $1,248 million in 2019. Investments were primarily related to sustaining activity in support of the company’s in-situ and oil sands assets. For the Downstream segment, capital expenditures were $251 million in 2020, compared with $484 million in 2019. Investments were primarily for enhancing the company’s distribution network as well as refinery projects to improve reliability, feedstock flexibility, energy efficiency and environmental performance. Total capital and exploration expenditures are expected to be approximately $1.2 billion in 2021. Actual spending could vary depending on the progress of individual projects. 60 Table of Contents Market risks and other uncertainties Crude oil, natural gas, petroleum product and chemical prices have fluctuated in response to changing market forces. The impacts of these price fluctuations on earnings from Upstream, Downstream and Chemical operations have varied. Imperial’s earnings are influenced by North American crude oil benchmark prices as well as changes in the differentials between these benchmarks and western Canadian prices for light and heavy crude oil. Imperial’s integrated business model reduces the company’s risk from changes in commodity prices. For instance, when light and heavy differentials between North American crude benchmarks and western Canadian prices widen together, Imperial is able to mitigate the impact of widening differentials on the Upstream through integration with Downstream investments in refineries, pipeline commitments and the Edmonton rail terminal. As an example, the negative impact of a widening differential in the Upstream is more than offset by the benefit of lower feedstock costs in the Downstream. At this time, Imperial is a net consumer of natural gas, used in Imperial’s Upstream operation and refineries. A decrease in the value of natural gas reduces Imperial’s operating expenses, thereby increasing Imperial’s earnings. In the competitive downstream and chemical environments, earnings are primarily determined by margin capture rather than absolute price levels on products sold. Refining margins are a function of the difference between what a refiner pays for its raw materials (primarily crude oil) and the market prices for the range of products produced. These prices in turn depend on global and regional supply / demand balances, inventory levels, refinery operations, import / export balances and weather. Industry crude oil and natural gas commodity prices and petroleum and chemical product prices are commonly benchmarked in U.S. dollars. The majority of Imperial’s sales and purchases are related to these industry U.S. dollar benchmarks. As the company records and reports its financial results in Canadian dollars, to the extent that the Canadian / U.S. dollar exchange rate fluctuates, the company’s earnings will be affected. Imperial is exposed to changes in interest rates, primarily on its debt which carries floating interest rates. The impact of a quarter percent change in interest rates affecting Imperial’s debt would not be material to earnings or cash flow. Imperial has access to significant sources of long-term and short-term liquidity. Internally generated funds are expected to cover the majority of financial requirements, supplemented by long-term and short-term debt as needed. The company’s potential exposure to commodity price and margin, and Canadian / U.S. dollar exchange rate fluctuations is summarized in the earnings sensitivities table, which shows the estimated annual effect, under current conditions, on the company’s after-tax net income. For any given period, the extent of actual benefit or detriment will be dependent on the price movements of individual types of crude oil and products, production and sales volumes, transportation capacity, costs and egress methods, and other factors. Accordingly, changes in benchmark prices for crude oil and crude oil differentials, and other factors listed in the table following, only provide broad indicators of changes in the earnings experienced in any particular period. 61 Table of Contents Earnings sensitivities (a) millions of Canadian dollars, after-tax One dollar (U.S.) per barrel increase (decrease) in crude oil prices + (-) 110 One dollar (U.S.) per barrel increase (decrease) in light and heavy crude price differentials (b) + (-) 40 Ten cents per thousand cubic feet decrease (increase) in natural gas prices + (-) 9 One dollar (U.S.) per barrel increase (decrease) in refining 2-1-1 margins (c) + (-) 140 One cent (U.S.) per pound increase (decrease) in sales margins for polyethylene + (-) 7 One cent decrease (increase) in the value of the Canadian dollar versus the U.S. dollar + (-) 90 (a) Each sensitivity calculation shows the impact on net income resulting from a change in one factor, after-tax and royalties and holding all other factors constant. These sensitivities have been updated to reflect current market conditions. They may not apply proportionately to larger fluctuations. (b) Light and heavy crude differentials represent the difference between WTI benchmark prices and western Canadian prices for light and heavy crudes. (c) The 2-1-1 crack spread is an indicator of the refining margin generated by converting two barrels of crude oil into one barrel of gasoline and one barrel of diesel. The demand for crude oil, natural gas, petroleum products and petrochemical products are generally linked closely with economic growth. The occurrence of recessions or other periods of low or negative economic growth, such as impacts due to the COVID-19 pandemic, will typically have a direct adverse impact on the company’s financial results. Although price levels of crude oil and natural gas may rise and fall significantly over the short to medium-term due to global economic conditions, political events, decisions by OPEC, governments and other factors, industry economics over the long-term will continue to be driven by market supply and demand. Accordingly, the company evaluates the viability of its major investments over a range of prices. The global energy markets can give rise to extended periods in which market conditions are adverse to one or more of the company’s businesses. Such conditions, along with the capital-intensive nature of the industry and very long lead times associated with many of the company’s projects, underscore the importance of maintaining a strong financial position. Management views the company’s financial strength as a competitive advantage. In general, segment results are not dependent on the ability to sell and / or purchase products to / from other segments. Where such intersegment sales take place, they are the result of efficiencies and competitive advantages from integrated business segments and refinery and chemical complexes. The company’s intersegment sales include crude oil produced by the Upstream and sold to the Downstream, as well as sales between refineries and the chemical plant related to raw materials, feedstocks and finished products. All intersegment sales are at market based prices. Refer to Note 3 for additional information on intersegment revenue. The company has an active asset management program in which underperforming assets are either improved to acceptable levels or considered for divestment. The asset management program includes a disciplined, regular review to ensure that assets are contributing to the company’s strategic objectives. Risk management The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company may use commodity-based contracts, including derivatives, to manage commodity price risk and for trading purposes. The company’s derivatives are not accounted for under hedge accounting. 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. No material market or credit risks to the company’s financial position, results of operations or liquidity exist as a result of the derivatives described in note 7 on page 95. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity. 62 Table of Contents Critical accounting estimates The company’s financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The company’s accounting and financial reporting fairly reflect its business model involving exploration for, and production of, crude oil and natural gas and manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a variety of specialty products. Imperial does not use financing structures for the purpose of altering accounting outcomes or removing debt from the balance sheet. The company’s significant accounting policies are summarized in note 1 to the consolidated financial statements on page 79. Oil and gas reserves Evaluations of oil and natural gas reserves are important to the effective management of upstream assets. They are an integral part of investment decisions about oil and gas properties such as whether development should proceed. The estimation of proved reserve volumes, which is based on the requirement of reasonable certainty, is an ongoing process based on rigorous technical evaluations, commercial and market assessments, detailed analysis of well information such as flow rates and reservoir pressures, and development and production costs, among other factors. The estimation of proved reserves is controlled by the company through long-standing approval guidelines. Reserves changes are made within a well-established, disciplined process driven by qualified geoscience and engineering professionals, assisted by the reserves management group which has significant technical experience, culminating in reviews with and approval by senior management and the company’s board of directors. Notably, the company does not use specific quantitative reserves targets to determine compensation. Key features of the reserves estimation process are covered in “Disclosure of reserves” in Item 1. Oil and natural gas reserves include both proved and unproved reserves. · Proved oil and natural gas reserves are determined in accordance with U.S. Securities and Exchange Commission (SEC) requirements. Proved reserves are those quantities of oil and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible under existing economic and operating conditions and government regulations. Proved reserves are determined using the average of first-day-of-the-month oil and natural gas prices during the reporting year. Proved reserves can be further subdivided into developed and undeveloped reserves. Proved developed reserves include amounts which are expected to be recovered through existing wells and facilities with existing equipment and operating methods. Proved undeveloped reserves include amounts expected to be recovered from new wells on undrilled proved acreage or from existing wells where a relatively major expenditure is required for completion. Proved undeveloped reserves are recognized only if a development plan has been adopted indicating that the reserves are scheduled to be drilled within five years, unless specific circumstances support a longer period of time. The percentage of proved developed reserves was 75 percent of total proved reserves at year-end 2020, a reduction from 89 percent in 2019. Although the company is reasonably certain that proved reserves will be produced, the timing and amount recovered can be affected by a number of factors including completion and optimization of development projects, reservoir performance, regulatory approvals, government policies, consumer preferences, royalty frameworks and significant changes in oil and gas price levels. · Unproved reserves are quantities of oil and natural gas with less than reasonable certainty of recoverability and include probable reserves. Probable reserves are reserves that, together with proved reserves, are as likely as not to be recovered. 63 Table of Contents Revisions can include upward or downward changes in previously estimated volumes of proved reserves for existing fields due to the evaluation or re-evaluation of already available geologic, reservoir or production data; new geologic, reservoir or production data; or changes in the average of first-day-of-the-month oil and natural gas prices and / or costs that are used in the estimation of reserves. Revisions can also result from significant changes in either development strategy or production equipment / facility capacity. At year-end 2016, downward revisions of proved developed and undeveloped bitumen reserves were a result of low prices. The entire 2.5 billion barrels of bitumen at Kearl and approximately 0.2 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the U.S. Securities and Exchange Commission definition of proved reserves. At year-end 2017, an additional 0.3 billion barrels of bitumen at Kearl and Cold Lake qualified as proved reserves resulting from improved prices in the year. As a result of improved prices in 2018, an additional 2.3 billion barrels of bitumen at Kearl qualified as proved reserves at year-end 2018. In 2019, downward revisions to proved bitumen reserves were driven by technical and development plan updates at Kearl, resulting in a decrease of 0.2 billion barrels, partially offset by an increase of 0.1 billion barrels at Cold Lake associated with an end of field life change driven by pricing. Downward revisions to proved synthetic oil reserves were a result of higher royalty obligations at Syncrude driven by pricing. Changes to liquids and natural gas proved reserves were the result of updated development plans at the Montney and Duvernay unconventional assets and the divestment of conventional properties. In 2020, downward revisions of proved bitumen reserves were a result of low prices. The 2.2 billion barrels of bitumen at Kearl and 0.6 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the U.S. Securities and Exchange Commission definition of proved reserves. Downward revisions to proved synthetic oil reserves were a result of lower prices, offset by the addition of proved undeveloped reserves associated with future development at Syncrude. Changes to the liquids and natural gas proved reserves were the result of updated development plans at the Montney and Duvernay unconventional assets and the divestment of conventional properties. Under the terms of certain contractual arrangements or government royalty regimes, lower prices can also increase proved reserves attributable to Imperial. The company does not expect its operations to be affected by the downward revision of reported proved reserves as disclosed under the U.S. Securities and Exchange Commission (SEC) definition. Unit-of-production depreciation The calculation of unit-of-production depreciation is a critical accounting estimate that measures the depreciation of upstream assets. Oil and natural gas reserve volumes are used as the basis to calculate unit-of-production depreciation rates for most upstream assets. Depreciation is calculated by taking the ratio of asset cost to total proved reserves or proved developed reserves applied to the actual cost of production. The volumes produced and asset cost are known, while proved reserves are based on estimates that are subject to some variability. In the event that the unit-of-production method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life than the reserves, and as such, the company uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life. To the extent that proved reserves for a property are substantially de-booked and that property continues to produce such that the resulting depreciation charge does not result in an equitable allocation of cost over the expected life, assets will be depreciated using a unit-of-production method based on reserves determined at the most recent SEC price which results in a more meaningful quantity of proved reserves, appropriately adjusted for production and technical changes. This approach was applied in 2017 and 2018, with the corresponding effect on depreciation expense being immaterial when compared to prior periods. This approach will also be applied in 2021 and the effect of this approach is anticipated to be immaterial compared to 2020. For 2019 and 2020, all properties had sufficient reserves at their relevant SEC prices which enabled equitable allocation of cost over the economic lives of the Upstream assets. 64 Table of Contents Impact of oil and gas reserves and prices and margins on testing for impairment The company tests assets or groups of assets for recoverability on an ongoing basis whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Among the events or changes in circumstances which could indicate that the carrying value of an asset or asset group may not be recoverable are the following: · A significant decrease in the market price of a long-lived asset; · A significant adverse change in the extent or manner in which an asset is being used or in its physical condition including a significant decrease in the company’s current and projected reserve volumes; · A significant adverse change in legal factors or in the business climate that could affect the value, including a significant adverse action or assessment by a regulator; · An accumulation of project costs significantly in excess of the amount originally expected; · A current-period operating loss combined with a history and forecast of operating or cash flow losses; and · A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Asset valuation analysis, profitability reviews and other periodic control processes assist Imperial in assessing whether events or changes in circumstances indicate the carrying amounts of any of its assets may not be recoverable. In general, Imperial does not view temporarily low prices or margins as an indication of impairment. Management believes prices over the long term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand fundamentals. On the supply side, industry production from mature fields is declining. This is being offset by investments to generate production from new discoveries, field developments and technological and efficiency advancements. OPEC investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic activities and levels of prosperity. Because the lifespans of the company’s major assets are measured in decades, the value of these assets is predominantly based on long-term views of future commodity prices and development and production costs. During the lifespan of these major assets, the company expects that oil and gas prices will experience significant volatility, and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing whether events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the company considers recent periods of operating losses in the context of its longer-term view of prices. While near-term prices are subject to wide fluctuations, longer-term price views are more stable and meaningful for purposes of assessing future cash flows. When the industry experiences a prolonged and deep reduction in commodity prices, the market supply and demand conditions may result in changes to the company’s price or margin assumptions it uses for its capital investment decisions. To the extent those changes result in a significant reduction to its oil prices or natural gas prices or margin ranges, the company may consider that situation, in conjunction with other events or changes in circumstances such as a history of operating losses, as an indicator of potential impairment for certain assets. In the upstream, the standardized measure of discounted cash flows included in the “Supplemental information on oil and gas exploration and production activities” is required to use prices based on the yearly average of first-day-of-the-month prices. These prices represent discrete points in time and could be higher or lower than the company’s price assumptions which are used for impairment assessments. The company believes the standardized measure does not provide a reliable estimate of the expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its oil and gas reserves and therefore does not consider it relevant in determining whether events or changes in circumstances indicate the need for an impairment assessment. 65 Table of Contents The company has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and ASC 932 , and relies on the company’s planning and budgeting cycle. If events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, the company estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on the company’s assumptions which are developed in the annual planning and budgeting process, and are consistent with the criteria management uses to evaluate investment opportunities. These evaluations make use of the company’s assumptions of future capital allocations, crude oil and natural gas commodity prices, including price differentials, refining and chemical margins, volumes, development and operating costs, foreign currency exchange rates and inflation rates. Volumes are based on projected field and facility production profiles, throughput, or sales. Management’s estimate of upstream production volumes used for projected cash flows makes use of proved reserve quantities and may include risk-adjusted unproved reserve quantities. Cash flow estimates for impairment testing exclude the effects of derivative instruments. An asset group is impaired if its estimated future undiscounted cash flows are less than the asset group’s carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. The assessment of fair value may be based on market prices if an active market exists for the asset group or may require the use of Level 3 inputs and assumptions that are based upon the views of a likely market participant. The principal parameters used to establish fair value can include estimates of acreage values and flowing production metrics from comparable market transactions, market-based estimates of historical cash flow multiples, and discounted cash flows. Inputs and assumptions used in discounted cash flow models include estimates of future production volumes, commodity prices which are consistent with the average of third-party industry experts and government agencies, drilling and development costs, and discount rates. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs would be recorded based on the company’s future development plans, the estimated economic chance of success and the length of time that the company expects to hold the properties. Properties that are not individually significant are aggregated by groups and amortized based on development risk and average holding period. In 2020, events or changes in circumstances indicated that the carrying amount of certain of the company’s long-lived assets may not be recoverable. Those situations primarily related to the annual review and approval of the company’s business and strategic plan. As part of this process the company assessed its full portfolio of assets which included its unconventional assets. Subsequently the company announced its decision to not further develop a significant portion of its unconventional portfolio in Alberta which resulted in a non-cash, after-tax impairment charge of $1,171 million in the company’s 2020 Upstream results, thereby reducing the carrying value of those assets to fair value. For certain other upstream properties, the undiscounted cash flows were compared to the carrying values and no other adjustments were necessary. Factors which could put further assets at risk of impairment in the future include reductions in the company’s price outlooks, changes in the allocation of capital, and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price increases. However, due to the inherent difficulty in predicting future commodity prices, and the relationship between industry prices and costs, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges related to the company’s long-lived assets. Supplemental information regarding oil and gas results of operations, capitalized costs and reserves is provided following the notes to consolidated financial statements. 66 Table of Contents Pension benefits The company’s pension plan is managed in compliance with the requirements of governmental authorities and meets funding levels as determined by independent third-party actuaries. Pension accounting requires explicit assumptions regarding, among others, the discount rate for the benefit obligations, the expected rate of return on plan assets and the long-term rate of future compensation increases. All pension assumptions are reviewed annually by senior management. These assumptions are adjusted only as appropriate to reflect long-term changes in market rates and outlook. The long-term expected rate of return on plan assets of 4.5 percent used in 2020, compares to actual returns of 8.4 percent and 6.9 percent achieved over the last 10- and 20-year periods respectively, ending December 31, 2020. If different assumptions are used, the obligation and expense could increase or decrease as a result. As an indication of the company’s potential exposure to changes in the critical assumptions such as the expected rate of return on plan assets and the discount rate for measuring the benefits obligation, a reduction of 1 percent in the discount rate would increase the plan benefits obligation by approximately $2.2 billion. Similarly, a reduction of 1 percent in the long-term rate of return on plan assets would increase the annual pension expense by approximately $85 million before tax. At Imperial, differences between actual returns on plan assets and the long-term expected returns are not recorded in pension expense in the year the differences occur. Such differences are deferred, along with other actuarial gains and losses, and are amortized into pension expense over the expected average remaining service life of employees. Employee benefits expense represented about 2 percent of total expenses in 2020. Asset retirement obligations and other environmental liabilities Legal obligations associated with site restoration on the retirement of assets with determinable useful lives are recognized when they are incurred, which is typically at the time the assets are installed. The obligations are initially measured at fair value and discounted to present value. Over time, the discounted asset retirement obligation amount will be accreted for the change in its present value, with this effect included in production and manufacturing expenses. As payments to settle the obligations occur on an ongoing basis and will continue over the lives of the operating assets, which can exceed 25 years, the discount rate will be adjusted only as appropriate to reflect long-term changes in market rates and outlook. For 2020, the obligations were discounted at 6 percent and the accretion expense was $82 million, before-tax, which was significantly less than 1 percent of total expenses in the year. There would be no material impact on the company’s reported financial results if a different discount rate had been used. Asset retirement obligations are not recognized for assets with an indeterminate useful life. Asset retirement obligations for these facilities generally become firm at the time the facilities are permanently shut down and dismantled. These obligations may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations, and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations. For these and non-operating assets, the company accrues provisions for environmental liabilities when it is probable that obligations have been incurred and the amount can be reasonably estimated. Asset retirement obligations and other environmental liabilities are based on engineering estimated costs, taking into account the anticipated method and extent of remediation consistent with legal requirements, current technology and the possible use of the location. Since these estimates are specific to the locations involved, there are many individual assumptions underlying the company’s total asset retirement obligations and provision for other environmental liabilities. While these individual assumptions can be subject to change, none of them is individually significant to the company’s reported financial results. Suspended exploratory well costs The company continues capitalization of exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. The facts and circumstances that support continued capitalization of suspended wells at year-end are disclosed in note 16 to the consolidated financial statements on page 104. 67 Table of Contents Tax contingencies The operations of the company are complex, and related tax interpretations, regulations and legislation are continually changing. Significant management judgment is required in the accounting for income tax contingencies and tax disputes because the outcomes are often difficult to predict. The benefits of uncertain tax positions that the company has taken or expects to take in its income tax returns are recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. A reserve is established for the difference between a position taken or expected to be taken in an income tax return and the amount recognized in the financial statements. The company’s unrecognized tax benefits and a description of open tax years are summarized in note 4 to the consolidated financial statements starting on page 88. 68 Table of Contents Management’s report on internal control over financial reporting Management, including the company’s chief executive officer and principal accounting officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over the company’s financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Imperial Oil Limited’s internal control over financial reporting was effective as of December 31, 2020. PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the company’s internal control over financial reporting as of December 31, 2020, as stated in their report which is included herein. /s/ Bradley W. Corson B.W. Corson Chairman, president and chief executive officer /s/ Daniel E. Lyons D.E. Lyons Senior vice-president, finance and administration, and controller (Principal accounting officer and principal financial officer) February 24, 2021 69 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Imperial Oil Limited Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Imperial Oil Limited and its subsidiaries (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 70 Table of Contents Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. The impact of proved oil and natural gas reserves on upstream property, plant and equipment, net As described in Notes 1 and 3 to the consolidated financial statements, the Company’s upstream property, plant and equipment (PP&E), net balance was $28,907 million as of December 31, 2020, and the related depreciation and depletion expense for the year ended December 31, 2020 was $3,084 million. Management uses the successful efforts method to account for its exploration and production activities. Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved) are capitalized when incurred. As disclosed by management, proved oil and natural gas reserve volumes are used as the basis to calculate unit-of-production depreciation rates for most upstream assets. The estimation of proved oil and natural gas reserve volumes is an ongoing process based on technical evaluations, commercial and market assessments, detailed analysis of well information such as flow rates and reservoir pressures, and development and production costs, among other factors. As further disclosed by management, reserves changes are made within a well-established, disciplined process driven by qualified geoscience and engineering professionals, assisted by the reserves management group (together management’s specialists). 71 Table of Contents The principal considerations for our determination that performing procedures relating to the impact of proved oil and natural gas reserves on upstream PP&E, net is a critical audit matter are (i) the significant judgment by management, including the use of management’s specialists, when developing the estimates of proved oil and natural gas reserve volumes, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence related to the data, methods, and assumptions used by management and its specialists in developing the estimates of proved oil and natural gas reserve volumes, and the assumptions related to development and production costs, as applicable. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimates of proved oil and natural gas reserve volumes. The work of management’s specialists was used in performing the procedures to evaluate the reasonableness of estimates of proved oil and natural gas reserve volumes. As a basis for using this work, management’s specialists’ qualifications were understood and the Company’s relationship with management’s specialists was assessed. The procedures performed also included evaluation of the methods and assumptions used by management’s specialists, tests of the data used by management’s specialists, and an evaluation of management’s specialists’ findings. These procedures also included, among others, testing the completeness and accuracy of the data related to future development and production costs. Additionally, these procedures included evaluating whether the assumptions related to development and production costs were reasonable considering the past performance of the Company and its business and strategic plan, as applicable. Impairment assessment of certain upstream property, plant and equipment, net As described in Notes 1 and 3 to the consolidated financial statements, the Company’s upstream property, plant and equipment (PP&E), net balance was $28,907 million as of December 31, 2020. If events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, management estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of cash flows of other groups of assets. These estimates of the future undiscounted cash flows make use of management’s assumptions of future capital allocations, crude oil and natural gas commodity prices including price differentials, upstream production volumes, development and operating costs, foreign currency exchange rates and inflation rates. Management’s estimate of upstream production volumes used for undiscounted cash flows makes use of proved reserve quantities and may include risk-adjusted unproved reserve quantities. As further disclosed by management, estimates of upstream production volumes are made within a well-established, disciplined process driven by qualified geoscience and engineering professionals, assisted by the reserves management group (together management’s specialists). An asset group is impaired if its estimated undiscounted cash flows are less than the asset group’s carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. The principal considerations for our determination that performing procedures relating to the impairment assessment of certain upstream PP&E, net is a critical audit matter are (i) the significant judgment by management, including the use of management’s specialists, when developing the estimates of future undiscounted cash flows, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to crude oil and natural gas commodity prices including price differentials, upstream production volumes, and development costs, as applicable. 72 Table of Contents Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s upstream PP&E, net impairment assessment over proved properties. These procedures also included, among others (i) testing management’s process for assessing the recoverability of carrying amounts of upstream PP&E, net; (ii) evaluating the appropriateness of the undiscounted cash flow models; (iii) testing the completeness and accuracy of underlying data used in the models; and (iv) evaluating the reasonableness of significant assumptions used by management related to crude oil and natural gas commodity prices including price differentials, upstream production volumes, and development costs. Evaluating the reasonableness of management’s assumptions related to future crude oil and natural gas commodity prices including price differentials involved comparing the assumption against observable market data. Evaluating development costs involved evaluating the reasonableness of the assumptions as compared to the past performance of the Company and its business and strategic plan. The work of management’s specialists was used in performing the procedures to evaluate the reasonableness of upstream production volumes. As a basis for using this work, management’s specialists’ qualifications were understood and the Company’s relationship with management’s specialists was assessed. The procedures performed also included evaluation of the methods and assumptions used by management’s specialists, tests of the data used by management’s specialists, and an evaluation of management’s specialists’ findings. /s/ PricewaterhouseCoopers LLP Chartered Professional Accountants Calgary, Canada February 24, 2021 We have served as the Company’s auditor since 1934. 73 Table of Contents Consolidated statement of income (U.S. GAAP) millions of Canadian dollars For the years ended December 31 2020 2019 2018 Revenues and other income Revenues (a) 22,284 34,002 34,964 Investment and other income (note 9) 104 99 135 Total revenues and other income 22,388 34,101 35,099 Expenses Exploration (note 16) 13 47 19 Purchases of crude oil and products (b) 13,293 20,946 21,541 Production and manufacturing (c) (note 12) 5,535 6,520 6,121 Selling and general (c) 741 900 908 Federal excise tax and fuel charge 1,736 1,808 1,667 Depreciation and depletion (includes impairments) (note 3, 12) 3,293 1,598 1,555 Non-service pension and postretirement benefit 121 143 107 Financing (d) (note 13) 64 93 108 Total expenses 24,796 32,055 32,026 Income (loss) before income taxes ( 2,408 ) 2,046 3,073 Income taxes (note 4) ( 551 ) ( 154 ) 759 Net income (loss) ( 1,857 ) 2,200 2,314 Per share information (Canadian dollars) Net income (loss) per common share - basic (note 11) ( 2.53 ) 2.88 2.87 Net income (loss) per common share - diluted (note 11) ( 2.53 ) 2.88 2.86 (a) Amounts from related parties included in revenues, (note 17). 5,107 8,569 6,383 (b) Amounts to related parties included in purchases of crude oil and products, (note 17). 2,484 3,305 4,092 (c) Amounts to related parties included in production and manufacturing, and selling and general expenses, (note 17). 579 628 566 (d) Amounts to related parties included in financing, (note 17). 61 98 89 The information in the notes to consolidated financial statements is an integral part of these statements. 74 Table of Contents Consolidated statement of comprehensive income (U.S. GAAP) millions of Canadian dollars For the years ended December 31 2020 2019 2018 Net income (loss) ( 1,857 ) 2,200 2,314 Other comprehensive income (loss), net of income taxes Postretirement benefits liability adjustment (excluding amortization) ( 212 ) ( 505 ) 158 Amortization of postretirement benefits liability adjustment included in net periodic benefit costs 134 111 140 Total other comprehensive income (loss) ( 78 ) ( 394 ) 298 Comprehensive income (loss) ( 1,935 ) 1,806 2,612 The information in the notes to consolidated financial statements is an integral part of these statements. 75 Table of Contents Consolidated balance sheet (U.S. GAAP) millions of Canadian dollars At December 31 2020 2019 Assets Current assets Cash 771 1,718 Accounts receivable - net (a) (note 2) 1,919 2,699 Inventories of crude oil and products (note 12) 1,161 1,296 Materials, supplies and prepaid expenses 673 616 Total current assets 4,524 6,329 Investments and long-term receivables (b) (note 2) 781 891 Property, plant and equipment, less accumulated depreciation and depletion 32,034 34,203 Goodwill (note 12) 166 186 Other assets, including intangibles - net 526 578 Total assets 38,031 42,187 Liabilities Current liabilities Notes and loans payable (c) (note 13) 227 229 Accounts payable and accrued liabilities (a) (note 12) 3,153 4,260 Income taxes payable - 106 Total current liabilities 3,380 4,595 Long-term debt (d) (note 15) 4,957 4,961 Other long-term obligations (note 6) 4,100 3,637 Deferred income tax liabilities (note 4) 4,176 4,718 Total liabilities 16,613 17,911 Commitments and contingent liabilities (note 10) Shareholders’ equity Common shares at stated value (e) (note 11) 1,357 1,375 Earnings reinvested 22,050 24,812 Accumulated other comprehensive income (loss) (note 18) ( 1,989 ) ( 1,911 ) Total shareholders’ equity 21,418 24,276 Total liabilities and shareholders’ equity 38,031 42,187 (a) Accounts receivable - net included net amounts receivable from related parties of $ 384 million (2019 – $ 1,007 million), (note 17). (b) Investments and long-term receivables included amounts from related parties of $ 313 million (2019 – $ 296 million), (note 17). (c) Notes and loans payable included amounts to related parties of $ 111 million (2019 – $ 111 million), (note 17). (d) Long-term debt included amounts to related parties of $ 4,447 million (2019 – $ 4,447 million), (note 17). (e) Number of common shares authorized and outstanding were 1,100 million and 734 million, respectively (2019 – 1,100 million and 744 million, respectively), (note 11). The information in the notes to consolidated financial statements is an integral part of these statements. Approved by the directors. /s/ Bradley W. Corson B.W. Corson Chairman, president and chief executive officer /s/ Daniel E. Lyons D.E. Lyons Senior vice-president, finance and administration, and controller 76 Table of Contents Consolidated statement of shareholders’ equity (U.S. GAAP) millions of Canadian dollars At December 31 2020 2019 2018 Common shares at stated value (note 11) At beginning of year 1,375 1,446 1,536 Share purchases at stated value ( 18 ) ( 71 ) ( 90 ) At end of year 1,357 1,375 1,446 Earnings reinvested At beginning of year 24,812 24,560 24,714 Net income (loss) for the year ( 1,857 ) 2,200 2,314 Share purchases in excess of stated value ( 256 ) ( 1,302 ) ( 1,881 ) Dividends declared ( 647 ) ( 646 ) ( 587 ) Cumulative effect of accounting change (note 2) ( 2 ) - - At end of year 22,050 24,812 24,560 Accumulated other comprehensive income (loss) (note 18) At beginning of year ( 1,911 ) ( 1,517 ) ( 1,815 ) Other comprehensive income (loss) ( 78 ) ( 394 ) 298 At end of year ( 1,989 ) ( 1,911 ) ( 1,517 ) Shareholders’ equity at end of year 21,418 24,276 24,489 The information in the notes to consolidated financial statements is an integral part of these statements. 77 Table of Contents Consolidated statement of cash flows (U.S. GAAP) millions of Canadian dollars Inflow (outflow) For the years ended December 31 2020 2019 2018 Operating activities Net income (loss) ( 1,857 ) 2,200 2,314 Adjustments for non-cash items: Depreciation and depletion (includes impairments) (note 3) 3,273 1,598 1,509 Impairment of intangible assets (note 12) 20 - 46 (Gain) loss on asset sales (note 9) ( 35 ) ( 46 ) ( 54 ) Deferred income taxes and other ( 521 ) ( 237 ) 806 Changes in operating assets and liabilities: Accounts receivable 780 ( 170 ) 224 Inventories, materials, supplies and prepaid expenses 78 ( 74 ) ( 338 ) Income taxes payable ( 106 ) 41 8 Accounts payable and accrued liabilities ( 1,087 ) 1,010 ( 764 ) All other items - net (b) 253 107 171 Cash flows from (used in) operating activities 798 4,429 3,922 Investing activities Additions to property, plant and equipmen t ( 868 ) ( 1,636 ) ( 1,491 ) Proceeds from asset sales (note 9) 82 82 59 Loans to equity companies - net ( 16 ) ( 150 ) ( 127 ) Cash flows from (used in) investing activities ( 802 ) ( 1,704 ) ( 1,559 ) Financing activities Short-term debt - net (note 13) - 36 - Reduction in finance lease obligations (note 15) ( 20 ) ( 27 ) ( 27 ) Dividends paid ( 649 ) ( 631 ) ( 572 ) Common shares purchased (note 11) ( 274 ) ( 1,373 ) ( 1,971 ) Cash flows from (used in) financing activities ( 943 ) ( 1,995 ) ( 2,570 ) Increase (decrease) in cash ( 947 ) 730 ( 207 ) Cash at beginning of year 1,718 988 1,195 Cash at end of year (a) 771 1,718 988 (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 when purchased. (b)  Included contributions to registered pension plans. ( 195 ) ( 211 ) ( 203 ) Income taxes (paid) refunded. ( 42 ) 145 ( 82 ) Interest (paid), net of capitalization. ( 62 ) ( 91 ) ( 110 ) Non-cash transactions In 2019, the company removed $ 570 million of assets and corresponding liabilities associated with the Government of Ontario’s revocation of its cap and trade legislation. The impact of this removal was not reflected in “Accounts payable and accrued liabilities” and “All other items - net” lines on the Consolidated statement of cash flows as it was not a cash transaction. The information in the notes to consolidated financial statements is an integral part of these statements. 78 Table of Contents Notes to consolidated financial statements The accompanying consolidated financial statements and the supporting a nd supplemental material are the responsibility of the management of Imperial Oil Limited. The company’s principal business is energy, involving the exploration for, and production of, crude oil and natural gas and manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a variety of specialty products. The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP), which requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Prior years’ data has been reclassified in certain cases to conform to the 2020 presentation basis. All amounts are in Canadian dollars unless otherwise indicated. 1. Summary of significant accounting policies Principles of consolidation The consolidated financial statements include the accounts of subsidiaries the company controls. Intercompany accounts and transactions are eliminated. Subsidiaries include those companies in which Imperial has both an equity interest and the continuing ability to unilaterally determine strategic, operating, investing and financing policies. Imperial Oil Resources Limited is the only significant subsidiary included in the consolidated financial statements and is wholly owned by Imperial Oil Limited. The consolidated financial statements also include the company’s share of the undivided interest in certain upstream assets, liabilities, revenues and expenses, including its 70.96 percent interest in the Kearl joint venture and its 25 percent interest in the Syncrude joint venture. Revenues Imperial generally sells crude oil, natural gas and petroleum and chemical products under short-term agreements at prevailing market prices. In some cases, products may be sold under long-term agreements, with periodic price adjustments to reflect market conditions. Revenue is recognized at the amount the company expects to receive when the customer has taken control, which is typically when title transfers and the customer has assumed the risks and rewards of ownership. The prices of certain sales are based on price indices that are sometimes not available until the next period. In such cases, estimated realizations are accrued when the sale is recognized, and are finalized when final information is available. Such adjustments to revenue from performance obligations satisfied in previous periods are not significant. Payment for revenue transactions is typically due within 30 days. Revenues include amounts billed to customers for shipping and handling. Shipping and handling costs incurred up to the point of final storage prior to delivery to a customer are included in “Purchases of crude oil and products” in the Consolidated statement of income. Delivery costs from final storage to customer are recorded as a marketing expense in “Selling and general” expenses. The company does not enter into ongoing arrangements whereby it is required to repurchase its products, nor does the company provide the customer with a right of return. Future volume delivery obligations that are unsatisfied at the end of the period are expected to be fulfilled through ordinary production or purchases. These performance obligations are based on market prices at the time of the transaction and are fully constrained due to market price volatility. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another are combined and recorded as exchanges measured at the book value of the item sold. “Revenues” and “Accounts receivable - net” primarily arise from contracts with customers. Long-term receivables are primarily from non-customers. Contract assets are mainly from marketing assistance programs and are not significant. Contract liabilities are mainly customer prepayments, loyalty programs and accruals of expected volume discounts, and are not significant. 79 Table of Contents Consumer taxes Taxes levied on the consumer and collected by the company are excluded from the Consolidated statement of income. These are primarily provincial taxes on motor fuels, the federal goods and services tax and the federal/provincial harmonized sales tax. Derivative instruments Imperial may use derivative instruments for trading purposes and to offset exposures associated with commodity prices, currency exchange rates and interest rates that arise from existing assets, liabilities, firm commitments and forecasted transactions. All derivative instruments, except those designated as normal purchase and normal sale, are recorded at fair value. Derivative assets and liabilities with the same counterparty are netted if the right of offset exists and certain other criteria are met. Collateral payables or receivables are netted against derivative assets and derivative liabilities respectively. Recognition and classification of the gain or loss that results from adjusting a derivative to fair value depends on the purpose for the derivative. The gains and losses resulting from changes in the fair value of derivatives are recorded under “Revenues” or “Purchases of crude oil and products” in the Consolidated statement of income. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 and 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market. Inventories Inventories are recorded at the lower of current market value or cost. The cost of crude oil and products is determined primarily using the last-in, first-out (LIFO) method. LIFO was selected over the alternative first-in, first-out and average cost methods because it provides a better matching of current costs with the revenues generated in the period. Inventory costs include expenditures and other charges (including depreciation), directly or indirectly incurred in bringing the inventory to its existing condition and location. Selling and general expenses are reported as period costs and excluded from inventory costs. Inventories of materials and supplies are valued at cost or less. Investments The company’s interests in the underlying net assets of affiliates it does not control, but over which it exercises significant influence, are accounted for using the equity method. They are recorded at the original cost of the investment plus Imperial’s share of earnings since the investment was made, less dividends received. Imperial’s share of the after-tax earnings of these investments is included in “Investment and other income” in the Consolidated statement of income. Investments in equity securities, other than consolidated subsidiaries and equity method investments, are measured at fair value, with changes in the fair value recognized in net income. The company uses a modified approach for equity securities that do not have a readily determinable fair value. This modified approach measures investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions in similar investment of the same issuer. Dividends from these investments are included in “Investment and other income”. These investments represent interests in non-publicly traded pipeline companies and a rail loading joint venture that facilitate the sale and purchase of liquids in the conduct of company operations. Other parties who also have an equity interest in these investments share in the risks and rewards according to their percentage of ownership. Imperial does not invest in these investments in order to remove liabilities from its balance sheet. 80 Table of Contents Property, plant and equipment Cost basis Imperial uses the “successful efforts” method to account for its exploration and production activities. Under this method, costs are accumulated on a field-by-field basis. Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved) are capitalized when incurred. Exploratory well costs are carried as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred. Development costs, including costs of productive wells and development dry holes, are capitalized. Maintenance and repair costs, including planned major maintenance, are expensed as i n curred. Improvements that increase or prolong the service life or capacity of an asset are capitalized. Depreciation, depletion and amortization Depreciation, depletion and amortization are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Depreciation and depletion for assets associated with producing properties begin at the time when production commences on a regular basis. Depreciation for other assets begins when the asset is in place and ready for its intended use. Assets under construction are not depreciated or depleted. Acquisition costs of proved properties are amortized using a unit-of-production method, computed on the basis of total proved oil and natural gas reserve volumes. Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using the unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods. Under the unit-of-production method, oil and natural gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank. In the event that the unit-of-production method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life than the reserves, and as such, the company uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life. Investments in mining heavy equipment and certain ore processing plant assets at oil sands mining properties are depreciated on a straight-line basis over a maximum of 15 years and 50 years respectively. Depreciation of other plant and equipment is calculated using the straight-line method, based on the estimated service life of the asset. To the extent that proved reserves for a property are substantially de-booked and that property continues to produce such that the resulting depreciation charge does not result in an equitable allocation of cost over the expected life, assets will be depreciated using a unit-of-production method based on reserves determined at the most recent SEC price which results in a more meaningful quantity of proved reserves, appropriately adjusted for production and technical changes. This approach was applied in 2017 and 2018, with the corresponding effect on depreciation expense being immaterial when compared to prior periods. This approach will also be applied in 2021 and the effect of this approach is anticipated to be immaterial compared to 2020. For 2019 and 2020, all properties had sufficient reserves at their relevant SEC prices which enabled equitable allocation of cost over the economic lives of the Upstream assets. Investments in refinery and chemical process manufacturing equipment are generally depreciated on a straight-line basis over a 25 -year life. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and the assets replaced are retired. 81 Table of Contents Impairment assessment The company tests assets or groups of assets for recoverability on an ongoing basis whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Among the events or changes in circumstances which could indicate that the carrying value of an asset or asset group may not be recoverable are the following: ● A significant decrease in the market price of a long-lived asset; ● A significant adverse change in the extent or manner in which an asset is being used or in its physical condition including a significant decrease in the company’s current and projected reserve volumes; ● A significant adverse change in legal factors or in the business climate that could affect the value, including a significant adverse action or assessment by a regulator; ● An accumulation of project costs significantly in excess of the amount originally expected; ● A current-period operating loss combined with a history and forecast of operating or cash flow losses; and ● A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Asset valuation analysis, profitability reviews and other periodic control processes assist Imperial in assessing whether events or changes in circumstances indicate the carrying amounts of any of its assets may not be recoverable. In general, Imperial does not view temporarily low prices or margins as an indication of impairment. Management believes prices over the long term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand fundamentals. On the supply side, industry production from mature fields is declining. This is being offset by investments to generate production from new discoveries, field developments and technological and efficiency advancements. OPEC investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic activities and levels of prosperity. Because the lifespans of the company’s major assets are measured in decades, the value of these assets is predominantly based on long-term views of future commodity prices and development and production costs. During the lifespan of these major assets, the company expects that oil and gas prices will experience significant volatility, and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing whether events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the company considers recent periods of operating losses in the context of its longer-term view of prices. While near-term prices are subject to wide fluctuations, longer-term price views are more stable and meaningful for purposes of assessing future cash flows. When the industry experiences a prolonged and deep reduction in commodity prices, the market supply and demand conditions may result in changes to the company’s price or margin assumptions it uses for its capital investment decisions. To the extent those changes result in a significant reduction to its oil prices or natural gas prices or margin ranges, the company may consider that situation, in conjunction with other events or changes in circumstances such as a history of operating losses, as an indicator of potential impairment for certain assets. In the upstream, the standardized measure of discounted cash flows included in the “Supplemental information on oil and gas exploration and production activities” is required to use prices based on the yearly average of first-day-of-the-month prices. These prices represent discrete points in time and could be higher or lower than the company’s price assumptions which are used for impairment assessments. The company believes the standardized measure does not provide a reliable estimate of the expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its oil and gas reserves and therefore does not consider it relevant in determining whether events or changes in circumstances indicate the need for an impairment assessment. 82 Table of Contents The company has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and ASC 932 , and relies on the company’s planning and budgeting cycle. If events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, the company estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on the company’s assumptions which are developed in the annual planning and budgeting process, and are consistent with the criteria management uses to evaluate investment opportunities. These evaluations make use of the company’s assumptions of future capital allocations, crude oil and natural gas commodity prices, including price differentials, refining and chemical margins, volumes, development and operating costs, foreign currency exchange rates and inflation rates. Volumes are based on projected field and facility production profiles, thr o ughput, or sales. Management’s estimate of upstream production volumes used for projected cash flows makes use of proved reserve quantities and may include risk-adjusted unproved reserve quantities. Cash flow estimates for impairment testing exclude the effects of derivative instruments. An asset group is impaired if its estimated future undiscounted cash flows are less than the asset group’s carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. The assessment of fair value may be based on market prices if an active market exists for the asset group or may require the use of Level 3 inputs and assumptions that are based upon the views of a likely market participant. The principal parameters used to establish fair value can include estimates of acreage values and flowing production metrics from comparable market transactions, market-based estimates of historical cash flow multiples, and discounted cash flows. Inputs and assumptions used in discounted cash flow models include estimates of future production volumes, commodity prices which are consistent with the average of third-party industry experts and government agencies, drilling and development costs, and discount rates. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs would be recorded based on the company’s future development plans, the estimated economic chance of success and the length of time that the company expects to hold the properties. Properties that are not individually significant are aggregated by groups and amortized based on development risk and average holding period. Gains on sales of proved and unproved properties are only recognized when there is neither uncertainty about the recovery of costs applicable to any interest retained nor any substantial obligation for future performance by the company. Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value. Gains or losses on assets sold are included in “Investment and other income” in the Consolidated statement of income. Interest capitalization Interest costs incurred to finance expenditures during the construction phase of projects are capitalized as part of property, plant and equipment and are depreciated over the service life of the related assets. The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use. Leases In situations where assets are leased, right of use assets and lease liabilities are established on the balance sheet for leases with an expected term greater than one year, by discounting the amounts fixed in the lease agreement for the duration of the lease which is reasonably certain, considering the probability of exercising any early termination and extension options. The portion of the fixed payment related to service costs for tankers and finance leases is excluded from the calculation of right of use assets and lease liabilities. Assets leased for nearly all of their useful lives are accounted for as finance leases. In general, leases are capitalized using the company’s incremental borrowing rate. See note 14 to the consolidated financial statements on page 102 for further details. 83 Table of Contents Goodwill and other intangible assets Goodwill is not subject to amortization. Goodwill is tested for impairment annually or more frequently if events or circumstances indicate it might be impaired. Impairment losses are recognized in current period earnings. The evaluation for impairment of goodwill is based on a comparison of the carrying values of goodwill and associated operating assets with the estimated present value of net cash flows from those operating assets. Intangible assets with determinable useful lives are amortized over the estimated service lives of the assets. Computer software development costs are amortized over a maximum of 15 years and customer lists are amortized over a maximum of 10 years. The amortization is included in “Depreciation and depletion” in the Consolidated statement of income. Asset retirement obligations and other environmental liabilities Legal obligations associated with site restoration on the retirement of assets with determinable useful lives are recognized when they are incurred, which is typically at the time the assets are installed. These obligations primarily relate to soil reclamation and remediation, and costs of abandonment and demolition of oil and gas wells and related facilities. The company uses estimates, assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation, technical assessments of the assets, estimated amounts and timing of settlements, the credit-adjusted risk-free rate to be used, and inflation rates. The obligations are initially measured at fair value and discounted to present value. A corresponding amount equal to that of the initial obligation is added to the capitalized costs of the related asset. Over time, the discounted asset retirement obligation amount will be accreted for the change in its present value, and the initial capitalized costs will be depreciated over the useful lives of the related assets. No asset retirement obligations are set up for those manufacturing, distribution , marketing and office facilities with an indeterminate useful life. Asset retirement obligations for these facilities generally become firm at the time the facilities are permanently shut down and dismantled. These obligations may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations, and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations. Provision for environmental liabilities of these assets is made when it is probable that obligations have been incurred and the amount can be reasonably estimated. Provisions for environmental liabilities are determined based on engineering estimated costs, taking into account the anticipated method and extent of remediation consistent with legal requirements, current technology and the possible use of the location. These provisions are not reduced by possible recoveries from third parties and projected cash expenditures are not discounted. Foreign-currency translation Monetary assets and liabilities in foreign currencies have been translated at the rates of exchange prevailing on December 31. Any exchange gains or losses are recognized in income. Share-based compensation The company awards share-based compensation to certain employees in the form of restricted stock units. Compensation expense is measured each reporting period based on the company’s current stock price and is recorded as “Selling and general” expenses in the Consolidated statement of income over the requisite service period of each award. See note 8 to the consolidated financial statements on page 97 for further details. 84 Table of Contents 2. Accounting changes Effective January 1, 2020, the company adopted the Financial Accounting Standards Board’s update, Financial Instruments – Credit Losses (Topic 326), as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and suppo r table forecasts. The standard requires this expected loss methodology for trade receivables, certain other financial assets and off-balance-sheet credit exposures. The cumulative effect adjustment related to the adoption of this standard reduced “Earnings reinvested” in Shareholders’ equity by $ 2 million. The company is exposed to credit losses primarily through sales of petroleum products, crude oil, natural gas liquids and natural gas, as well as loans to equity companies and joint venture receivables. A counterparty’s ability to pay is assessed through a credit review process that considers payment terms, the counterparty’s established credit rating or the company’s assessment of the counterparty’s credit worthiness, contract terms, and other risks. The company can require prepayment or collateral to mitigate certain credit risks. The company groups financial assets into portfolios that share similar risk characteristics for purposes of determining the allowance for credit losses and assesses if a significant change in the risk of credit loss has occurred. Among the quantitative and qualitative factors considered are historical financial data, current conditions, industry and country risk, current credit ratings and the quality of third-party guarantees secured from the counterparty. Financial assets are written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recognized in earnings. The company manages receivable portfolios using past due balances as a key credit quality indicator. The company recognizes a credit allowance for off-balance-sheet credit exposures as a liability on the balance sheet, separate from the allowance for credit losses related to recognized financial assets. These exposures could include unfunded loans to equity companies and financial guarantees that cannot be cancelled unilaterally by the company. At December 31, 2020, the company’s evaluation of financial assets under Financial Instruments – Credit Losses (Topic 326) , as amended, included $ 1,437 million of accounts receivable, net of allowances of $ 4 million, and investments and long-term receivables of $ 323 million. The company has determined that, at this time, no credit allowance is required for investments and long-term receivables, and for off-balance-sheet credit exposures. 85 Table of Contents 3. Business segments The company operates its business in Canada. The Upstream, Downstream and Chemical functions best define the operating segments of the business that are reported separately. The factors used to identify these reportable segments are based on the nature of the operations that are undertaken by each segment and the structure of the company’s internal organization. The Upstream segment is organized and operates to explore for and ultimately produce crude oil and its equivalent, and natural gas. The Downstream segment is organized and operates to refine crude oil into petroleum products and to distribute and market these products. The Chemical segment is organized and operates to manufacture and market hydrocarbon-based chemicals and chemical products. The above segmentation has been the long-standing practice of the company and is broadly understood across the petroleum and petrochemical industries. These functions have been defined as the operating segments of the company because they are the segments (a) that engage in business activities from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the company’s chief operating decision maker to make decisions about resources to be allocated to each segment and assess its performance; and (c) for which discrete financial information is available. Corporate and other includes assets and liabilities that do not specifically relate to business segments – primarily cash, capitalized interest costs, short-term borrowings, long-term debt and liabilities associated with incentive compensation, pension and other postretirement benefit liabilities. Net earnings effects under Corporate and other activities primarily include debt-related financing, corporate governance costs, non-service pension and postretirement benefit costs, share-based incentive compensation expenses and interest income. Segment accounting policies are the same as those described in the summary of significant accounting policies. Upstream, Downstream and Chemical expenses include amounts allocated from Corporate and other activities. The allocation is based on proportional segment expenses. Transfers of assets between segments are recorded at book amounts. Intersegment sales are made essentially at prevailing market prices. Assets and liabilities that are not identifiable by segment are allocated. 86 Table of Contents Upstream Downstream Chemical millions of Canadian dollars 2020 2019 2018 2020 2019 2018 2020 2019 2018 Revenues and other income Revenues (a) 6,263 9,479 8,525 15,178 23,591 25,200 843 932 1,239 Intersegment sales 2,527 3,763 2,634 1,480 1,597 1,542 165 229 279 Investment and other income (note 9) 7 17 11 78 47 95 - - - 8,797 13,259 11,170 16,736 25,235 26,837 1,008 1,161 1,518 Expenses Exploration (note 16) 13 47 19 - - - - - - Purchases of crude oil and products 4,834 6,528 5,833 12,047 19,332 19,326 579 667 831 Production and manufacturing (note 12) 3,852 4,440 4,305 1,468 1,829 1,606 215 251 210 Selling and general - - - 619 774 773 92 86 87 Federal excise tax and fuel charge - - - 1,736 1,808 1,667 - - - Depreciation and depletion (b) (note 12) 3,084 1,374 1,278 166 186 242 19 16 14 Non-service pension and postretirement benefit - - - - - - - - - Financing (note 13) 3 3 1 - - 2 - - - Total expenses 11,786 12,392 11,436 16,036 23,929 23,616 905 1,020 1,142 Income (loss) before income taxes ( 2,989 ) 867 ( 266 ) 700 1,306 3,221 103 141 376 Income tax expense (benefit) (c) (note 4) ( 671 ) ( 481 ) ( 128 ) 147 345 855 25 33 101 Net income (loss) ( 2,318 ) 1,348 ( 138 ) 553 961 2,366 78 108 275 Cash flows from (used in) operating activities 286 2,423 916 470 1,965 2,749 114 172 354 Capital and exploration expenditures (d) 561 1,248 991 251 484 383 21 34 25 Property, plant and equipment Cost 47,693 47,050 46,435 6,321 6,123 5,900 975 954 916 Accumulated depreciation and depletion ( 18,786 ) ( 15,889 ) ( 15,050 ) ( 3,962 ) ( 3,830 ) ( 3,763 ) ( 699 ) ( 680 ) ( 662 ) Net property, plant and equipment (e) 28,907 31,161 31,385 2,359 2,293 2,137 276 274 254 Total assets (f) (g) 31,835 34,554 34,829 4,554 5,179 5,119 408 416 438 Corporate and other Eliminations Consolidated millions of Canadian dollars 2020 2019 2018 2020 2019 2018 2020 2019 2018 Revenues and other income Revenues (a) - - - - - - 22,284 34,002 34,964 Intersegment sales - - - ( 4,172 ) ( 5,589 ) ( 4,455 ) - - - Investment and other income (note 9) 19 35 29 - - - 104 99 135 19 35 29 ( 4,172 ) ( 5,589 ) ( 4,455 ) 22,388 34,101 35,099 Expenses Exploration (note 16) - - - - - - 13 47 19 Purchases of crude oil and products - - - ( 4,167 ) ( 5,581 ) ( 4,449 ) 13,293 20,946 21,541 Production and manufacturing (note 12) - - - - - - 5,535 6,520 6,121 Selling and general 35 48 54 ( 5 ) ( 8 ) ( 6 ) 741 900 908 Federal excise tax and fuel charge - - - - - - 1,736 1,808 1,667 Depreciation and depletion (b) (note 12) 24 22 21 - - - 3,293 1,598 1,555 Non-service pension and postretirement benefit 121 143 107 - - - 121 143 107 Financing (note 13) 61 90 105 - - - 64 93 108 Total expenses 241 303 287 ( 4,172 ) ( 5,589 ) ( 4,455 ) 24,796 32,055 32,026 Income (loss) before income taxes ( 222 ) ( 268 ) ( 258 ) - - - ( 2,408 ) 2,046 3,073 Income tax expense (benefit) (c) (note 4) ( 52 ) ( 51 ) ( 69 ) - - - ( 551 ) ( 154 ) 759 Net income (loss) ( 170 ) ( 217 ) ( 189 ) - - - ( 1,857 ) 2,200 2,314 Cash flows from (used in) operating activities ( 64 ) ( 124 ) ( 116 ) ( 8 ) ( 7 ) 19 798 4,429 3,922 Capital and exploration expenditures (d) 41 48 28 - - - 874 1,814 1,427 Property, plant and equipment Cost 782 741 693 - - - 55,771 54,868 53,944 Accumulated depreciation and depletion ( 290 ) ( 266 ) ( 244 ) - - - ( 23,737 ) ( 20,665 ) ( 19,719 ) Net property, plant and equipment (e) 492 475 449 - - - 32,034 34,203 34,225 Total assets (f) (g) 1,632 2,536 1,548 ( 398 ) ( 498 ) ( 478 ) 38,031 42,187 41,456 87 Table of Contents (a) Includes export sales to the United States of $ 4,614 million (2019 - $ 7,190 million, 2018 - $ 6,661 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment. (b) In 2020, the Upstream segment included a non-cash impairment charge of $ 1,531 million, before-tax, related to the company’s decision not to further develop a significant portion of its unconventional portfolio. In 2018, the Downstream segment included a non-cash impairment charge of $ 46 million, before-tax, associated with the Government of Ontario’s revocation of its cap and trade legislation. (c) Segment results in 2019 include a largely non-cash favourable impact of $ 662 million associated with the Alberta corporate income tax rate decrease, with the largest impact in the Upstream segment. (d) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits. (e) Includes property, plant and equipment under construction of $ 1,874 million (2019 - $ 2,149 million, 2018 - $ 1,553 million). (f) Effective January 1, 2019, Imperial adopted the Financial Accounting Standards Board’s standard, Leases (Topic 842) , as amended. As at December 31, 2020, Total assets include operating lease right of use assets of $ 188 million (2019 - $ 260 million). An election was made not to restate prior periods. See note 14 for additional details. (g) In 2019, the company removed $ 570 million from Total assets and corresponding liabilities in the Downstream segment associated with the Government of Ontario’s revocation of its cap and trade legislation. 4. Income taxes millions of Canadian dollars 2020 2019 2018 Current income tax expense (benefit) (a) ( 27 ) 140 ( 14 ) Deferred income tax expense (benefit) (a) ( 524 ) ( 294 ) 773 Total income tax expense (benefit) (a) ( 551 ) ( 154 ) 759 Statutory corporate tax rate (percent) 25.0 26.0 26.9 Increase (decrease) resulting from: Enacted tax rate change (a) 0.1 ( 31.9 ) - Other (b) ( 2.2 ) ( 1.6 ) ( 2.2 ) Effective income tax rate 22.9 ( 7.5 ) 24.7 (a) On June 28, 2019 the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022. On December 9, 2020 the Alberta government enacted an accelerated decrease in the province’s general corporate income tax rate from 10 percent to 8 percent, effective July 1, 2020. The cumulative effect of the 2020 legislative tax changes on the company’s financial statements were immaterial. (b) Other decreases primarily relate to prior year adjustments, re-assessments and disposals. Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities. These differences in value are re-measured at each year-end using the tax rates and tax laws expected to apply when those differences are realized or settled in the future. Components of deferred income tax liabilities and assets as at December 31 were: millions of Canadian dollars 2020 2019 2018 Depreciation and amortization 5,319 5,164 5,726 Successful drilling and land acquisitions 363 750 856 Pension and benefits ( 534 ) ( 469 ) ( 336 ) Asset retirement obligation ( 403 ) ( 336 ) ( 381 ) Capitalized interest 120 117 121 LIFO inventory valuation ( 150 ) ( 276 ) ( 107 ) Tax loss carryforwards ( 460 ) ( 141 ) ( 658 ) Other ( 154 ) ( 161 ) ( 150 ) Net deferred income tax liabilities 4,101 4,648 5,071 88 Table of Contents Unrecognized tax benefits Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. The following table summarizes the movement in unrecognized tax benefits: millions of Canadian dollars 2020 2019 2018 Balance as of January 1 35 36 78 Additions based on current year’s tax position 2 - - Additions for prior years’ tax positions - 1 9 Reductions for prior years’ tax positions - - ( 2 ) Settlements with tax authorities ( 1 ) ( 2 ) ( 49 ) Balance as of December 31 36 35 36 The unrecognized tax benefit balances shown above are predominately related to tax positions that would reduce the company’s effective tax rate if the positions are favourably resolved. Unfavourable resolution of these tax positions generally would not increase the effective tax rate. The 2020, 2019 and 2018 changes in unrecognized tax benefits did not have a material effect on the company’s net income or cash flow. The company’s tax filings from 2016 to 2020 are subject to examination by the tax authorities. Tax filings from 2007 to 2015 have open objections and therefore are also subject to examination by the tax authorities. The Canada Revenue Agency has made certain adjustments to the company’s filings. Management has evaluated these adjustments and is formally disputing those matters to which the company disagrees. Many of these outstanding matters will not be resolved until after 2021. The impact on unrecognized tax benefits and the company’s effective income tax rate from these matters is not expected to be material. Resolution of the related tax positions could take many years to complete. It is difficult to predict the timing of resolution for tax positions since such timing is not entirely within the control of the company. The company classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense. 5. Employee retirement benefits Retirement benefits, which cover almost all retired employees and their surviving spouses, include pension income and certain health care and life insurance benefits. They are met through funded registered retirement plans and through unfunded supplementary benefits that are paid directly to recipients. Pension income benefits consist mainly of company-paid defined benefit plans that are based on years of service and final average earnings. The company shares in the cost of health care and life insurance benefits. The company’s benefit obligations are based on the projected benefit method of valuation that includes employee service to date and present compensation levels, as well as a projection of salaries to retirement. The expense and obligations for both funded and unfunded benefits are determined in accordance with accepted actuarial practices and U.S. GAAP. The process for determining retirement-income expense and related obligations includes making certain long-term assumptions regarding the discount rate, rate of return on plan assets and rate of compensation increases. The obligation and pension expense can vary significantly with changes in the assumptions used to estimate the obligation and the expected return on plan assets. 89 Table of Contents The benefit obligations and plan assets associated with the company’s defined benefit plans are measured on December 31. Pension benefits Other postretirement benefits 2020 2019 2020 2019 Assumptions used to determine benefit obligations at December 31 (percent) Discount rate 2.50 3.10 2.50 3.10 Long-term rate of compensation increase 4.00 4.50 4.00 4.50 millions of Canadian dollars Change in projected benefit obligation Projected benefit obligation at January 1 9,786 8,359 693 582 Current service cost 305 228 24 16 Interest cost 308 324 24 20 Actuarial loss (gain) (a) 811 1,053 152 99 Amendments - 283 - - Benefits paid (b) ( 494 ) ( 461 ) ( 20 ) ( 24 ) Projected benefit obligation at December 31 10,716 9,786 873 693 Accumulated benefit obligation at December 31 9,619 8,814 (a) Actuarial loss primarily driven by a decrease in the year-end discount rate from 3.10 percent to 2.50 percent, partially offset by the impact of a reduction in the long-term rate of compensation increase assumption from 4.50 percent to 4.00 percent. (b) Benefit payments for funded and unfunded plans. The discount rate for the purpose of calculating year-end postretirement benefits plan liabilities is determined by using the Canadian Institute of Actuaries recommended spot curve for high-quality, long-term Canadian corporate bonds with an average maturity (or duration) approximating that of the liabilities. For the measurement of the accumulated postretirement benefit obligation, the assumed health care cost trend rates start with 5.66 percent in 2021 and gradually decline to 3.57 percent by 2040 and beyond. Pension benefits Other postretirement benefits millions of Canadian dollars 2020 2019 2020 2019 Change in plan assets Fair value at January 1 8,599 7,691 Actual return (loss) on plan assets 1,073 1,114 Company contributions 195 211 Benefits paid (a) ( 441 ) ( 417 ) Fair value at December 31 9,426 8,599 Plan assets in excess of (less than) projected benefit obligation at December 31 Funded plans ( 641 ) ( 590 ) Unfunded plans ( 649 ) ( 597 ) ( 873 ) ( 693 ) Total (b) ( 1,290 ) ( 1,187 ) ( 873 ) ( 693 ) (a) Benefit payments for funded plans only. (b) Fair value of assets less projected benefit obligation shown above. Funding of registered retirement plans complies with federal and provincial pension regulations, and the company makes contributions to the plans based on an independent actuarial valuation. In accordance with authoritative guidance relating to the accounting for defined pension and other postretirement benefits plans, the underfunded status of the company’s defined benefit postretirement plans was recorded as a liability in the Consolidated balance sheet, and the changes in that funded status in the year in which the changes occurred was recognized through other comprehensive income. 90 Table of Contents Pension benefits Other postretirement benefits millions of Canadian dollars 2020 2019 2020 2019 Amounts recorded in the Consolidated balance sheet consist of: Current liabilities ( 27 ) ( 27 ) ( 31 ) ( 31 ) Other long-term obligations ( 1,263 ) ( 1,160 ) ( 842 ) ( 662 ) Total recorded ( 1,290 ) ( 1,187 ) ( 873 ) ( 693 ) Amounts recorded in accumulated other comprehensive income consist of: Net actuarial loss (gain) 2,232 2,256 272 133 Prior service cost 269 283 - - Total recorded in accumulated other comprehensive income, before-tax 2,501 2,539 272 133 The company establishes the long-term expected rate of return on plan assets by developing a forward-looking long-term return assumption for each asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class. The 2020 long-term expected return of 4.5 percent used in the calculations of pension expense compares to an actual rate of return of 8.4 percent and 6.9 percent over the last 10- and 20-year periods respectively, ending December 31, 2020. Pension benefits Other postretirement benefits 2020 2019 2018 2020 2019 2018 Assumptions used to determine net periodic benefit cost for years ended December 31 (percent) Discount rate 3.10 3.90 3.40 3.10 3.90 3.40 Long-term rate of return on funded assets 4.50 4.50 5.00 - - - Long-term rate of compensation increase 4.50 4.50 4.50 4.50 4.50 4.50 millions of Canadian dollars Components of net periodic benefit cost Current service cost 305 228 239 24 16 17 Interest cost 308 324 302 24 20 22 Expected return on plan assets ( 391 ) ( 349 ) ( 402 ) - - - Amortization of prior service cost 14 - 4 - - - Amortization of actuarial loss (gain) 153 149 175 13 ( 1 ) 6 Net periodic benefit cost 389 352 318 61 35 45 Changes in amounts recorded in accumulated other comprehensive income Net actuarial loss (gain) 129 288 ( 116 ) 152 99 ( 101 ) Amortization of net actuarial (loss) gain included in net periodic benefit cost ( 153 ) ( 149 ) ( 175 ) ( 13 ) 1 ( 6 ) Prior service cost - 283 - - - - Amortization of prior service cost included in net periodic benefit cost ( 14 ) - ( 4 ) - - - Total recorded in other comprehensive income ( 38 ) 422 ( 295 ) 139 100 ( 107 ) Total recorded in net periodic benefit cost and other comprehensive income, before-tax 351 774 23 200 135 ( 62 ) Costs for defined contribution plans, primarily the employee savings plan, were $ 47 million in 2020 (2019 - $ 43 million, 2018 - $ 41 million). 91 Table of Contents A summary of the change in accumulated other comprehensive income is shown in the table below: Total pension and other postretirement benefits millions of Canadian dollars 2020 2019 2018 (Charge) credit to other comprehensive income, before-tax ( 101 ) ( 522 ) 402 Deferred income tax (charge) credit (note 18) 23 128 ( 104 ) (Charge) credit to other comprehensive income, after-tax ( 78 ) ( 394 ) 298 The company’s investment strategy for pension plan assets reflects a long-term view, a careful assessment of the risks inherent in various asset classes and broad diversification to reduce the risk of the portfolio. Consistent with the long-term nature of the liability, the plan assets are primarily invested in global, market-cap-weighted indexed equity and domestic indexed bond funds to diversify risk while minimizing costs. The balance of the plan assets is largely invested in high-quality corporate and government debt securities. Studies are periodically conducted to establish the preferred target asset allocation. The target asset allocation for equity securities is 30 percent. The target allocation for debt securities is 67 percent. Plan assets for the remaining 3 percent are invested in venture capital partnerships that pursue a strategy of investment in U.S. and international early stage ventures. The 2020 fair value of the pension plan assets, including the level within the fair value hierarchy, is shown in the table below: Fair value measurements at December 31, 2020, using: millions of Canadian dollars Total Level 1 Level 2 Level 3 Net Asset Value Asset class Equity securities Canadian 222 222 Non-Canadian 2,690 2,690 Debt securities - Canadian Corporate 1,426 1,426 Government 4,825 4,825 Asset backed - - Equities – Venture capital 214 214 Cash 49 41 8 Total plan assets at fair value 9,426 41 9,385 92 Table of Contents The 2019 fair value of the pension plan assets, including the level within the fair value hierarchy, is shown in the table below: Fair value measurements at December 31, 2019, using: millions of Canadian dollars Total Level 1 Level 2 Level 3 Net Asset Value Asset class Equity securities Canadian 210 210 Non-Canadian 2,449 2,449 Debt securities - Canadian Corporate 1,379 1,379 Government 4,299 4,299 Asset backed 1 1 Equities – Venture capital 204 204 Cash 57 40 17 Total plan assets at fair value 8,599 40 8,559 A summary of pension plans with accumulated benefit obligation and projected benefit obligation in excess of plan assets is shown in the table below: Pension benefits millions of Canadian dollars 2020 2019 For funded pension plans with accumulated benefit obligation in excess of plan assets: (a) Accumulated benefit obligation 1,034 942 Fair value of plan assets 954 870 Accumulated benefit obligation less fair value of plan assets 80 72 For funded pension plans with projected benefit obligation in excess of plan assets: Projected benefit obligation 10,067 9,189 Fair value of plan assets 9,426 8,599 Projected benefit obligation less fair value of plan assets 641 590 For unfunded plans covered by book reserves: Projected benefit obligation 649 597 Accumulated benefit obligation 565 536 (a) The amounts shown for funded pension plans with accumulated benefit obligation in excess of plan assets represent the company’s proportionate share of a joint venture sponsored pension plan. For the company sponsored funded plan, the fair value of plan assets exceeded the accumulated benefit obligation in both 2020 and 2019. Cash flows Benefit payments expected in: millions of Canadian dollars Pension benefits Other postretirement benefits 2021 460 31 2022 460 32 2023 465 32 2024 465 33 2025 465 34 2026 - 2030 2,325 175 In 2021, the company expects to make cash contributions of about $ 164 million to its pension plans. 93 Table of Contents 6. Other long-term obligations millions of Canadian dollars 2020 2019 Employee retirement benefits (a) (note 5) 2,105 1,822 Asset retirement obligations and other environmental liabilities (b) (c) 1,676 1,388 Share-based incentive compensation liabilities (note 8) 45 65 Operating lease liability (note 14) 95 143 Other obligations 179 219 Total other long-term obligations 4,100 3,637 (a) Total recorded employee retirement benefits obligations also included $ 58 million in current liabilities (2019 – $ 58 million). (b) Total asset retirement obligations and other environmental liabilities also included $ 100 million in current liabilities (2019 – $ 124 million). (c) For 2020, the asset retirement obligations were discounted at 6 percent (2019 - 6 percent). Asset retirement obligations incurred in the current period were Level 3 fair value measurements. The following table summarizes the activity in the liability for asset retirement obligations: millions of Canadian dollars 2020 2019 2018 Balance as at January 1 1,400 1,417 1,397 Additions (deductions) 265 ( 23 ) ( 5 ) Accretion 82 80 85 Settlement ( 73 ) ( 74 ) ( 60 ) Balance as at December 31 1,674 1,400 1,417 94 Table of Contents 7. 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 December 31, 2020 and December 31, 2019, the fair value of long-term debt ($ 4,447 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 the Upstream, Downstream and Chemical businesses 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 derivative instruments to manage commodity price risk. 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: At December 31 2020 2019 Crude (barrels) ( 800,000 ) ( 590,000 ) Products (barrels) ( 390,000 ) - Realized and unrealized gain or (loss) on derivative instruments recognized in the Consolidated statement of income is included in the following lines on a before-tax basis: millions of Canadian dollars 2020 2019 2018 Revenues ( 13 ) ( 3 ) 6 Purchases of crude oil and products ( 21 ) ( 7 ) ( 24 ) Total ( 34 ) ( 10 ) ( 18 ) The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement is as follows: millions of Canadian dollars At December 31, 2020 Fair value Effect of counterparty netting Effect of collateral netting Net carrying value Level 1 Level 2 Level 3 Total Assets Derivative assets (a) 2 - - 2 ( 2 ) - - Liabilities Derivative liabilities (b) 12 - - 12 ( 2 ) ( 10 ) - (a) Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”. (b) Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”. 95 Table of Contents millions of Canadian dollars At December 31, 2019 Fair value Effect of Effect of Net counterparty collateral carrying Level 1 Level 2 Level 3 Total netting netting value Assets Derivative assets (a) - - - - - - - Liabilities Derivative liabilities (b) 2 - - 2 - ( 2 ) - (a) Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”. (b) Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities”. At December 31, 2020, the Company had $ 5 million 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. 96 Table of Contents 8. Share-based incentive compensation programs Share-based incentive compensation programs are designed to retain selected employees, reward them for high performance and promote individual contribution to sustained improvement in the company’s future business performance and shareholder value over the long-term. The nonemployee directors also participate in share-based incent i ve compensation programs. Restricted stock units and deferred share units Under the restricted stock unit plan, each unit entitles the recipient to the conditional right to receive from the company, upon vesting, an amount equal to the value of one common share of the company, based on the five-day average of the closing price of the company’s common shares on the Toronto Stock Exchange on and immediately prior to the vesting dates. For the majority of the units, fifty percent of the units vest on the third anniversary of the grant date, and the remainder vest on the seventh anniversary of the grant date. The company may also issue units to the chairman, president and chief executive officer where 50 percent of the units vest on the fifth anniversary of the grant date and the remainder vest on the tenth anniversary of the grant date, except that for awards granted prior to 2020, the vesting of the tenth anniversary portion is delayed until retirement if later than 10 years. The deferred share unit plan is made available to nonemployee directors. The nonemployee directors can elect to receive all or part of their eligible directors’ fees in units. The number of units granted is determined at the end of each calendar quarter by dividing the dollar amount of the nonemployee director’s fees for that calendar quarter elected to be received as deferred share units by the average closing price of the company’s shares for the five consecutive trading days (“average closing price”) immediately prior to the last day of the calendar quarter. Additional units are granted to represent dividends on unexercised units, and are calculated by dividing the cash dividend payable on the company’s shares by the average closing price immediately prior to the payment date for that dividend and multiplying the resulting number by the number of deferred share units held by the recipient, as adjusted for any share splits. Deferred share units cannot be exercised until after termination of service as a director, including termination due to death, and must be exercised in their entirety in one election no later than December 31 of the year following the year of termination of service. On the exercise date, the cash value to be received for the units is determined based on the company’s average closing price immediately prior to the date of exercise, as adjusted for any share splits. All units require settlement by cash payments with the following exceptions. The restricted stock unit program provides that, for units granted to Canadian residents, the recipient may receive one common share of the company per unit or elect to receive the cash payment for the units that vest on the seventh year anniversary of the grant date. For units where 50 percent vest on the fifth anniversary of the grant date and the remainder vest on the tenth anniversary of grant, the recipient may receive one common share of the company per unit or elect to receive cash payment for all that vest. The company accounts for all units by using the fair-value-based method. The fair value of awards in the form of restricted stock and deferred share units is the market price of the company’s stock. Under this method, compensation expense related to the units of these programs is measured each reporting period based on the company’s current stock price and is recorded in the Consolidated statement of income over the requisite service period of each award. The following table summarizes information about these units for the year ended December 31, 2020: Restricted Deferred stock units share units Outstanding at January 1, 2020 4,912,805 170,163 Granted 747,040 34,811 Vested / Exercised ( 1,187,630 ) ( 57,569 ) Forfeited and cancelled ( 8,895 ) - Outstanding at December 31, 2020 4,463,320 147,405 97 Table of Contents In 2020, net loss included a favourable impact of $ 2 million before tax associated with compensation programs (2019 - $ 34 million expense, 2018 - $ 32 million expense). Income tax expense associated with compensation programs for the year was $ 0 million (2019 - $ 9 million benefit, 2018 - $ 9 million benefit). Cash payments of $ 33 million were made for these programs in 2020 (2019 - $ 50 million, 2018 - $ 59 million). As of December 31, 2020, there was $ 45 million of total before-tax unrecognized compensation expense related to non-vested restricted stock units based on the company’s share price at the end of the current reporting period. The weighted average vesting period of non-vested restricted stock units is 4.1 years. All units under the deferred share programs have vested as of December 31, 2020. 9. Investment and other income Investment and other income includes gains and losses on asset sales as follows: millions of Canadian dollars 2020 2019 2018 Proceeds from asset sales 82 82 59 Book value of asset sales 47 36 5 Gain (loss) on asset sales, before-tax 35 46 54 Gain (loss) on asset sales, after-tax 32 42 38 10. Litigation and other contingencies A variety of claims have been made against Imperial and its subsidiaries in a number of lawsuits. Management has regular litigation reviews, including updates from corporate and outside counsel, to assess the need for accounting recognition or disclosure of these contingencies. The company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavourable outcome is reasonably possible and which are significant, the company discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of the company’s contingency disclosures, “significant” includes material matters, as well as other matters which management believes should be disclosed. Based on a consideration of all relevant facts and circumstances, the company does not believe the ultimate outcome of any currently pending lawsuits against the company will have a material adverse effect on the company’s operations, financial condition, or financial statements taken as a whole. Additionally, the company has other commitments arising in the normal course of business for operating and capital needs, all of which are expected to be fulfilled with no adverse consequences material to the company’s operations or financial condition. Unconditional purchase obligations, as defined by accounting standards, are those long-term commitments that are non-cancelable or cancelable only under certain conditions and that third parties have used to secure financing for the facilities that will provide the contracted goods and services. The company has no t entered into any unconditional purchase obligations. As a result of the completed sale of Imperial’s remaining company-owned Esso retail sites, the company was contingently liable at December 31, 2020, for guarantees relating to performance under contracts of other third-party obligations totalling $ 26 million (2019 - $ 30 million). At December 31, 2020 the company is contingently liable for up to $ 62 million, under existing indemnification arrangements, for costs associated with continuing a third-party pipeline project development (2019 - $ 64 million). 98 Table of Contents 11. Common shares thousands of shares At December 31 2020 2019 Authorized 1,100,000 1,100,000 Common shares outstanding 734,077 743,902 The current 12 -month limited normal course issuer bid program came into effect on June 29, 2020 and is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan. The pr o gram enables the company to purchase up to a maximum of 50,000 common shares, which 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 excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested. The company’s common share activities are summarized below: Thousands of Millions of shares dollars Balance as at January 1, 2018 831,242 1,536 Issued under employee share-based awards 2 - Purchases at stated value ( 48,679 ) ( 90 ) Balance as at December 31, 2018 782,565 1,446 Issued under employee share-based awards 1 - Purchases at stated value ( 38,664 ) ( 71 ) Balance as at December 31, 2019 743,902 1,375 Issued under employee share-based awards 7 - Purchases at stated value ( 9,832 ) ( 18 ) Balance as at December 31, 2020 734,077 1,357 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: 2020 2019 2018 Net income (loss) per common share – basic Net income (loss) (millions of Canadian dollars) ( 1,857 ) 2,200 2,314 Weighted average number of common shares outstanding (millions of shares) 735.3 762.7 807.5 Net income (loss) per common share (dollars) ( 2.53 ) 2.88 2.87 Net income (loss) per common share – diluted Net income (loss) (millions of Canadian dollars) ( 1,857 ) 2,200 2,314 Weighted average number of common shares outstanding (millions of shares) 735.3 762.7 807.5 Effect of employee share-based awards (millions of shares) (a) - 2.3 2.6 Weighted average number of common shares outstanding, assuming dilution (millions of shares) 735.3 765.0 810.1 Net income (loss) per common share (dollars) ( 2.53 ) 2.88 2.86 Dividends per common share – declared (dollars) 0.88 0.85 0.73 a) For 2020, the Net income (loss) per common share – diluted excludes the effect of 1.9 million employee share-based awards. Share-based awards have the potential to dilute basic earnings per share in the future. 99 Table of Contents 12. Miscellaneous financial information In 2020, net loss included an after-tax loss of $ 19 million (2019 – $ 22 million loss, 2018 – $ 16 million gain) attributable to the effect of changes in last-in, first-out (LIFO) inventories. The replacement cost of inventories was estimated to exceed their LIFO carrying values at December 31, 2020 by about $ 0.8 billion (2019 – $ 1.2 billion). Inventories of crude oil and products at year-end consisted of the following: millions of Canadian dollars 2020 2019 Crude oil 630 764 Petroleum products 403 396 Chemical products 55 64 Other 73 72 Total inventories of crude oil and products 1,161 1,296 Research expenditures are mainly spent on developing technologies to improve bitumen recovery, reduce costs and reduce the environmental impact of upstream operations, including technologies to reduce greenhouse gas emissions intensity, supporting environmental and process improvements in the refineries, as well as accessing ExxonMobil’s research worldwide. The company has scientific research agreements with affiliates of ExxonMobil, which provide for technical and engineering work to be performed by all parties, the exchange of technical information and the assignment and licencing of patents, and patent rights. These agreements provide mutual access to scientific and operating data related to nearly every phase of the petroleum and petrochemical operations of the parties. Net research and development costs charged to expenses in 2020 were $ 105 million (2019 – $ 133 million, 2018 – $ 110 million). These costs are included in expenses due to the uncertainty of future benefits. “Accounts payable and accrued liabilities” included accrued taxes other than income taxes of $ 344 million at December 31, 2020 (2019 – $ 397 million). In the second quarter of 2020, the Government of Canada implemented the Canada Emergency Wage Subsidy (CEWS) as part of its COVID-19 Economic Response Plan. The program’s intent is to help sustain employment levels by providing expense relief to companies during the pandemic. The company qualified for these wage subsidies which are recognized throughout the year when received. The relief provided under this program in 2020, about $ 155 million before tax, including the company’s proportionate share of a joint venture, is recognized as a reduction to expense and is included in the Consolidated statement of income, primarily as part of “Production and manufacturing”. In the first quarter of 2020, with the change in economic conditions and the reduction in the company’s market capitalization, the company assessed its goodwill balances for impairment and recognized a non-cash goodwill impairment charge of $ 20 million in the company’s Upstream segment. The goodwill impairment is reflected in “Depreciation and depletion” on the Consolidated statement of income and “Goodwill” on the Consolidated balance sheet. The remaining balance of goodwill is associated with the Downstream segment. 100 Table of Contents 13. Financing and additional notes and loans payable information millions of Canadian dollars 2020 2019 2018 Debt-related interest (a) 102 138 133 Capitalized interest ( 41 ) ( 48 ) ( 28 ) Net interest expense 61 90 105 Other interest 3 3 3 Total financing (b) 64 93 108 (a) Includes related party interest with ExxonMobil. (b) The weighted average interest rate on short-term borrowings in 2020 was 0.8 percent (2019 – 1.8 percent, 2018 – 1.5 percent). Average effective rate on the long-term borrowings with ExxonMobil in 2020 was 1.4 percent (2019 – 2.2 percent, 2018 – 2.0 percent). As at December 31, 2020, the company had borrowed $ 111 million under an arrangement with an affiliated company of ExxonMobil that provides for a non-interest bearing, revolving demand loan from ExxonMobil to the company of up to $ 150 million. The loan represents ExxonMobil’s share of a working capital facility required to support purchasing, marketing and transportation arrangements for crude oil and diluent products undertaken by Imperial on behalf of ExxonMobil. In response to market conditions, during the second quarter of 2020, the company entered into a $ 500 million committed short-term line of credit to May 2021 , and a $ 300 million committed short-term line of credit to June 2021 . These facilities were in addition to existing credit facilities of $ 500 million. The company has no t drawn on these facilities. In November 2020, the company extended the maturity date of one of its existing $ 250 million committed short-term line of credit to November 2021 . The company has no t drawn on the facility. The maturity date of the other existing $ 250 million credit facility remains unchanged at November 2021 . The company has no t drawn on the facility. 101 Table of Contents 14. Leases The company generally purchases the property, plant and equipment used in operations, but there are situations where assets are leased, primarily storage tanks, rail cars, marine vessels and transportation facilities. Right of use assets and lease liabilities are established on the balance sheet for leases with an expected term greater than one year, by discounting the amounts fixed in the lease agreement for the duration of the lease which is reasonably certain, considering the probability of exercising any early termination and extension options. The portion of the fixed payment related to service costs for tankers and finance leases is excluded from the calculation of right of use assets and lease liabilities. Usually, assets are leased only for a portion of their useful lives and are accounted for as operating leases. In limited situations assets are leased for nearly all of their useful lives and are accounted for as finance leases. In general, leases are capitalized using the company’s incremental borrowing rate. Variable payments under these lease agreements are not significant. Residual value guarantees, restrictions, or covenants related to leases, and transactions with related parties are also not significant. The company’s activities as a lessor are not material. The table below summarizes the total lease cost incurred: 2020 2019 millions of Canadian dollars Operating leases Finance leases Operating leases Finance leases Operating lease cost 157 151 Short-term and other (net of sublease rental income) 40 76 Amortization of right of use assets 29 55 Interest on lease liabilities 38 40 Total lease cost 197 67 227 95 The following table summarizes the amounts related to operating leases and finance leases recorded on the Consolidated balance sheet, weighted average remaining lease term and weighted average discount rates applied at December 31: 2020 2019 millions of Canadian dollars Operating leases Finance leases Operating leases Finance leases Right of use assets Included in Other assets, including intangibles, net 188 260 Included in Property, plant and equipment, net 532 546 Total right of use assets 188 532 260 546 Lease liability due within one year Included in Accounts payable and accrued liabilities 97 - 115 15 Included in Notes and loans payable 16 18 Long-term lease liability Included in Other long-term obligations 95 - 143 - Included in Long-term debt 510 514 Total lease liability 192 526 258 547 Weighted average remaining lease term (years) 4 38 4 40 Weighted average discount rate (percent) 2.5 7.3 2.6 7.5 102 Table of Contents The maturity analysis of the company’s lease liabilities as at December 31 are summarized below: 2020 millions of Canadian dollars, unless noted Operating leases Finance leases Maturity analysis of lease liabilities 2021 96 53 2022 49 52 2023 16 51 2024 12 50 2025 3 47 2026 and beyond 27 1,040 Total lease payments 203 1,293 Discount to present value ( 11 ) ( 767 ) Total lease liability 192 526 In addition to the operating lease liabilities in the table immediately above, at December 31, 2020, additional undiscounted commitments for leases not yet commenced totalled $ 27 million (2019 - $ 6 million). The table below summarizes the cash paid for amounts included in the measurement of lease liabilities and the right of use assets obtained in exchange for new lease liabilities: 2020 2019 millions of Canadian dollars Operating leases Finance leases Operating leases Finance leases Cash paid for amounts included in the measurement of lease liabilities Cash flows from operating activities 136 15 147 45 Cash flows from financing activities 20 27 Non-cash right of use assets recorded for lease liabilities For January 1 adoption of Leases (Topic 842) 298 In exchange for lease liabilities during the year 63 104 Disclosures under the previous lease standard – Leases (Topic 840) Net rental cost incurred under both cancelable and non-cancelable operating leases was $ 221 million in 2018. 103 Table of Contents 15. Long-term debt millions of Canadian dollars At December 31 2020 2019 Long-term debt (a) 4,447 4,447 Finance leases (b) 510 514 Total long-term debt 4,957 4,961 (a) Borrowed under an existing agreement with an affiliated company of ExxonMobil that provides for a long-term, variable-rate, Canadian dollar loan from ExxonMobil to the company of up to $ 7.75 billion at interest equivalent to Canadian market rates. The agreement is effective until June 30, 2025, cancelable if ExxonMobil provides at least 370 days advance written notice. (b) Finance leases are primarily associated with transportation facilities and services agreements. The average imputed rate was 7.3 percent in 2020 (2019 – 7.5 percent). Total finance lease obligations also include $ 16 million in current liabilities (2019 - $ 18 million). Principal payments on finance leases of approximately $ 15 million on average per year are due in each of the next four years after December 31, 2021. 16. Accounting for suspended exploratory well costs The company continues capitalization of exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. At December 31, 2020 the company had no capitalized suspended exploratory well costs (2019 - $ 0 million, 2018 - $ 0 million). Exploration activity often involves drilling multiple wells, over a number of years, to fully evaluate a project. At December 31, 2020 the company had no projects with exploratory wells costs capitalized (2019 - 0 , 2018 - 0 ) . 1 04 Table of Contents 17. Transactions with related parties Revenues and expenses of the company also include the results of transactions with affiliated companies of ExxonMobil in the normal course of operations. These were conducted on terms comparable to those which would have been conducted with unrelated parties and primarily consisted of the purchase and sale of crude oil, natural gas, petroleum and chemical products, as well as technical, engineering and research and development costs. Transactions with ExxonMobil also included amounts paid and received in connection with the company’s participation in a number of upstream activities conducted jointly in Canada. In addition, the company has existing agreements with ExxonMobil: a) To provide computer and customer support services to the company and to share common business and operational support services that allow the companies to consolidate duplicate work and systems; b) To operate certain western Canada production properties owned by ExxonMobil, as well as provide for the delivery of management, business and technical services to ExxonMobil in Canada. These agreements are designed to provide organizational efficiencies and to reduce costs. No separate legal entities were created from these arrangements. Separate books of account continue to be maintained for the company and ExxonMobil. The company and ExxonMobil retain ownership of their respective assets, and there is no impact on operations or reserves; c) To provide for the delivery of management, business and technical services to Syncrude Canada Ltd. by ExxonMobil; d) To provide for the option of equal participation in new upstream opportunities; and e) To enter into derivative agreements on each other’s behalf. Certain charges from ExxonMobil have been capitalized; they are not material in the aggregate. The amounts of purchases and sales by Imperial in 2020, with ExxonMobil, were $ 2,424 million and $ 5,101 million respectively (2019 - $ 3,245 million and $ 8,552 million respectively). As at December 31, 2020, the company had outstanding long-term loans of $ 4,447 million (2019 – $ 4,447 million) and short-term loans of $ 111 million (2019 – $ 111 million) from ExxonMobil (see note 15, Long-term debt, on page 104 and note 13, Financing and additional notes and loans payable information, on page 101 for further details). The amount of financing costs with ExxonMobil were $ 61 million (2019 - $ 96 million). Imperial has other related party transactions not detailed above in note 17, as they are not significant. 105 Table of Contents 18. Other comprehensive income (loss) information Changes in accumulated other comprehensive income (loss): millions of Canadian dollars 2020 2019 2018 Balance at January 1 ( 1,911 ) ( 1,517 ) ( 1,815 ) Postretirement benefits liability adjustment: Current period change excluding amounts reclassified from accumulated other comprehensive income ( 212 ) ( 505 ) 158 Amounts reclassified from accumulated other comprehensive income 134 111 140 Balance at December 31 ( 1,989 ) ( 1,911 ) ( 1,517 ) Amounts reclassified out of accumulated other comprehensive income (loss) - before-tax income (expense): millions of Canadian dollars 2020 2019 2018 Amortization of postretirement benefits liability adjustment included in net periodic benefit cost (a) ( 180 ) ( 148 ) ( 185 ) (a) This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 5). Income tax expense (credit) for components of other comprehensive income (loss): millions of Canadian dollars 2020 2019 2018 Postretirement benefits liability adjustments: Postretirement benefits liability adjustment (excluding amortization) ( 69 ) ( 165 ) 59 Amortization of postretirement benefits liability adjustment included in net periodic benefit cost 46 37 45 Total ( 23 ) ( 128 ) 104 106 Table of Contents Supplemental information on oil and gas exploration and production activities (unaudited) The information on pages 107 to 108 excludes items not related to oil and natural gas extraction, such as administrative and general expenses, pipeline operations, gas plant processing fees and gains or losses on asset sales. The company’s 25 percent interest in proved synthetic oil reserves in the Syncrude joint-venture is included as part of the company’s total proved oil and gas reserves and in the calculation of the standardized measure of discounted future cash flows, in accordance with U.S. Securities and Exchange Commission and U.S. Financial Accounting Standards Board rules. Results of operations, costs incurred in property acquisitions, exploration and development activities, and capitalized costs include the company’s share of Kearl, Syncrude and other unproved mineable acreages in the following tables. Results of operations millions of Canadian dollars 2020 2019 2018 Sales to customers (a) 2,066 3,927 3,264 Intersegment sales (a) (b) 1,777 2,627 1,964 3,843 6,554 5,228 Production expenses 3,977 4,467 4,342 Exploration expenses 13 47 19 Depreciation and depletion (includes impairments) 2,857 1,266 1,151 Income taxes (678 ) (487 ) (92 ) Results of operations (2,326 ) 1,261 (192 ) The amounts reported as costs incurred in property acquisitions, exploration and development activities include both capitalized costs and costs charged to expense during the year. Costs incurred also include new asset retirement obligations established in the current year, as well as increases or decreases to the asset retirement obligation resulting from changes in cost estimates or abandonment date. Costs incurred in property acquisitions, exploration and development activities millions of Canadian dollars 2020 2019 2018 Property costs (c) Proved - - - Unproved - 2 - Exploration costs 13 47 19 Development costs 816 1,176 966 Total costs incurred in property acquisitions, exploration and development activities 829 1,225 985 (a) Sales to customers or intersegment sales do not include the sale of natural gas and natural gas liquids purchased for resale, as well as royalty payments or diluent costs. These items are reported gross in note 3 in “Revenues”, “Intersegment sales” and in “Purchases of crude oil and products”. (b) Sales of crude oil to consolidated affiliates are at market value, using posted field prices. Sales of natural gas liquids to consolidated affiliates are at prices estimated to be obtainable in a competitive, arm’s-length transaction. (c) “Property costs” are payments for rights to explore for petroleum and natural gas and for purchased reserves (acquired tangible and intangible assets such as gas plants, production facilities and producing-well costs are included under “producing assets”). “Proved” represents areas where successful drilling has delineated a field capable of production. “Unproved” represents all other areas. 107 Table of Contents Capitalized costs millions of Canadian dollars 2020 2019 Property costs (a) Proved 2,070 2,236 Unproved 2,462 2,342 Producing assets 39,785 38,975 Incomplete construction 1,518 1,640 Total capitalized cost 45,835 45,193 Accumulated depreciation and depletion (18,551 ) (15,695 ) Net capitalized costs 27,284 29,498 (a) “Property costs” are payments for rights to explore for petroleum and natural gas and for purchased reserves (acquired tangible and intangible assets such as gas plants, production facilities and producing-well costs are included under “producing assets”). “Proved” represents areas where successful drilling has delineated a field capable of production. “Unproved” represents all other areas. Standardized measure of discounted future cash flows As required by the U.S. Financial Accounting Standards Board, the standardized measure of discounted future net cash flows is computed by applying first-day-of-the-month average prices, year-end costs and legislated tax rates and a discount factor of 10 percent to net proved reserves. The standardized measure includes costs for future dismantlement, abandonment and remediation obligations. The company believes the standardized measure does not provide a reliable estimate of the company’s expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its proved oil and gas reserves. The standardized measure is prepared on the basis of certain prescribed assumptions, including first-day-of-the-month average prices, which represent discrete points in time and therefore may cause significant variability in cash flows from year to year as prices change. Standardized measure of discounted future net cash flows related to proved oil and gas reserves millions of Canadian dollars 2020 2019 2018 Future cash flows 23,911 166,801 174,326 Future production costs (18,787 ) (127,911 ) (124,316 ) Future development costs (6,096 ) (24,759 ) (25,507 ) Future income taxes (155 ) (3,960 ) (5,232 ) Future net cash flows (1,127 ) 10,171 19,271 Annual discount of 10 percent for estimated timing of cash flows 1,065 (4,660 ) (10,537 ) Discounted future cash flows (62 ) 5,511 8,734 Changes in standardized measure of discounted future net cash flows related to proved oil and gas reserves millions of Canadian dollars 2020 2019 2018 Balance at beginning of year 5,511 8,734 5,136 Changes resulting from: Sales and transfers of oil and gas produced, net of production costs (447 ) (2,441 ) (1,117 ) Net changes in prices, development costs and production costs (a) (8,661 ) (3,117 ) 1,395 Extensions, discoveries, additions and improved recovery, less related costs 114 169 259 Development costs incurred during the year 563 1,016 923 Revisions of previous quantity estimates 459 (168 ) 2,157 Accretion of discount 623 643 584 Net change in income taxes 1,776 675 (603 ) Net change (5,573 ) (3,223 ) 3,598 Balance at end of year (62 ) 5,511 8,734 (a) SEC rules require the company’s reserves to be calculated on the basis of average first-day-of-the-month oil and natural gas prices during the reporting year. Future net cash flows are determined based on the net proved reserves as outlined in the Net Proved Reserves table. 108 Table of Contents Net proved reserves (a) Liquids (b) Natural gas Synthetic oil Bitumen Total oil-equivalent basis (c) millions of barrels billions of cubic feet millions of barrels millions of barrels millions of barrels Beginning of year 2018 44 641 473 946 1,570 Revisions 4 (66 ) 15 2,313 2,321 Improved recovery - - - - - (Sale) purchase of reserves in place - - - - - Discoveries and extensions 16 110 - - 34 Production (2 ) (46 ) (22 ) (93 ) (125 ) End of year 2018 62 639 466 3,166 3,800 Revisions (20 ) (33 ) (27 ) (134 ) (187 ) Improved recovery - - - - - (Sale) purchase of reserves in place - (24 ) - - (4 ) Discoveries and extensions 4 51 - - 13 Production (5 ) (52 ) (24 ) (93 ) (130 ) End of year 2019 41 581 415 2,939 3,492 Revisions (29 ) (348 ) (79 ) (2,757 ) (2,923 ) Improved recovery - - - - - (Sale) purchase of reserves in place - (10 ) - - (2 ) Discoveries and extensions - - 133 1 134 Production (5 ) (55 ) (25 ) (102 ) (141 ) End of year 2020 7 168 444 81 560 Net proved developed reserves included above, as of January 1, 2018 9 282 473 591 1,120 December 31, 2018 24 273 466 2,861 3,396 December 31, 2019 22 291 415 2,609 3,095 December 31, 2020 7 167 311 76 422 Net proved undeveloped reserves included above, as of January 1, 2018 35 359 - 355 450 December 31, 2018 38 366 - 305 404 December 31, 2019 19 290 - 330 397 December 31, 2020 - 1 133 5 138 (a) Net reserves are the company’s share of reserves after deducting the shares of mineral owners or governments or both. All reported reserves are located in Canada. Reserves of natural gas are calculated at a pressure of 14.73 pounds per square inch at 60°F. (b) Liquids include crude, condensate and natural gas liquids (NGLs). NGL proved reserves are not material and are therefore included under liquids. (c) Gas converted to oil-equivalent at six million cubic feet per one thousand barrels. The information above describes changes during the years and balances of proved oil and gas reserves at year-end 2018, 2019 and 2020. The definitions used are in accordance with the U.S. Securities and Exchange Commission’s Rule 4-10 (a) of Regulation S-X. Proved oil and natural gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations – prior to the time at which contracts providing the right to operate expire. In some cases, substantial new investments in additional wells and other facilities will be required to recover these proved reserves. 109 Table of Contents In accordance with SEC rules, the year-end reserves volumes, as well as the reserves change categories shown in the proved reserves tables are required to be calculated on the basis of average prices during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period. These reserves quantities were also used in calculating unit-of-production depreciation rates and in calculating the standardized measure of discounted net cash flow. Revisions can include upward or downward changes in previously estimated volumes of proved reserves for existing fields due to the evaluation or re-evaluation of already available geologic, reservoir or production data; new geologic, reservoir or production data; or changes in the average of first-day-of-the-month oil and natural gas prices and / or costs that are used in the estimation of reserves. Revisions can result from significant changes in either development strategy or production equipment / facility capacity. At year-end 2016, downward revisions of proved developed and undeveloped bitumen reserves were a result of low prices. The entire 2.5 billion barrels of bitumen at Kearl and approximately 0.2 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the U.S. Securities and Exchange Commission definition of proved reserves. At year-end 2017, an additional 0.3 billion barrels of bitumen at Kearl and Cold Lake qualified as proved reserves resulting from improved prices in the year. Downward revisions of proved developed synthetic oil reserves were a result of higher royalty obligations driven by higher pricing and mine plan updates. As a result of improved prices in 2018, an additional 2.3 billion barrels of bitumen at Kearl qualified as proved reserves at year-end 2018. In 2019, downward revisions to proved bitumen reserves were driven by technical and development plan updates at Kearl, resulting in a decrease of 0.2 billion barrels, partially offset by an increase of 0.1 billion barrels at Cold Lake associated with an end of field life change driven by pricing. Downward revisions to proved synthetic oil reserves were a result of higher royalty obligations at Syncrude driven by pricing. Changes to liquids and natural gas proved reserves were the result of updated development plans at the Montney and Duvernay unconventional assets and the divestment of conventional properties. In 2020, downward revisions of proved bitumen reserves were a result of low prices. The 2.2 billion barrels of bitumen at Kearl and 0.6 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the U.S. Securities and Exchange Commission definition of proved reserves. Downward revisions to proved synthetic oil reserves were a result of lower prices, offset by the addition of proved undeveloped reserves associated with future development at Syncrude. Changes to the liquids and natural gas proved reserves were the result of updated development plans at the Montney and Duvernay unconventional assets and the divestment of conventional properties. Under the terms of certain contractual arrangements or government royalty regimes, lower prices can also increase proved reserves attributable to Imperial. The company does not expect its operations to be affected by the downward revision of reported proved reserves as disclosed under the U.S. Securities and Exchange Commission (SEC) definition. Net proved reserves are determined by deducting the estimated future share of mineral owners or governments or both. For liquids and natural gas, net proved reserves are based on estimated future royalty rates as of the date the estimate is made incorporating the applicable governments’ oil and gas royalty regimes. For bitumen, net proved reserves are based on the company’s best estimate of average royalty rates over the remaining life of each of the Cold Lake and Kearl fields, and they incorporate the Alberta government’s oil sands royalty regime. For synthetic oil, net proved reserves are based on the company’s best estimate of average royalty rates over the remaining life of the project, and they incorporate the Alberta government’s oil sands royalty regime. In all cases, actual future royalty rates may vary with production, price and costs. 110 Table of Contents Net proved developed reserves are those volumes that are expected to be recovered through existing wells and facilities with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well or facility. Net proved undeveloped reserves are those volumes that are expected to be recovered as a result of future investments to drill new wells, to recomplete existing wells and / or to install facilities to collect and deliver the production from existing and future wells and facilities. 111 Table of Contents Quarterly financial data (a) 2020 2019 three months ended three months ended Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Financial data (millions of Canadian dollars) Total revenues and other income 6,033 5,955 3,710 6,690 8,122 8,736 9,261 7,982 Total expenses 7,496 5,952 4,403 6,945 7,757 8,182 8,532 7,584 Income (loss) before income taxes (1,463 ) 3 (693 ) (255 ) 365 554 729 398 Income taxes (317 ) - (167 ) (67 ) 94 130 (483 ) 105 Net income (loss) (1,146 ) 3 (526 ) (188 ) 271 424 1,212 293 Net income (loss) (millions of Canadian dollars) Upstream (1,192 ) (74 ) (444 ) (608 ) 96 209 985 58 Downstream 106 77 (32 ) 402 225 221 258 257 Chemical 23 27 7 21 (2 ) 38 38 34 Corporate and other (83 ) (27 ) (57 ) (3 ) (48 ) (44 ) (69 ) (56 ) Net income (loss) (1,146 ) 3 (526 ) (188 ) 271 424 1,212 293 Per share information (Canadian dollars) Net income (loss) per common share - basic (b) (1.56 ) - (0.72 ) (0.25 ) 0.36 0.56 1.58 0.38 Net income (loss) per common share - diluted (b) (1.56 ) - (0.72 ) (0.25 ) 0.36 0.56 1.57 0.38 Dividends per common share - declared 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.19 (a) Quarterly data has not been audited by the company’s independent auditors. (b) Computed using the average number of shares outstanding during each period. The sum of the four quarters may not add to the full year. 112 Table of Contents Proxy information section Table of contents Page Nominees for director 114 Director nominee tables 114 Majority voting policy 118 Corporate governance disclosure 119 Corporate governance disclosure at a glance 119 Statement of corporate governance practice 120 Composition of our board nominees 120 Tenure of our board nominees 120 Skills and experience of our board members and nominees 121 Independence of our board members and nominees 122 Committee membership of our board 123 Number of meetings 123 Attendance of our board members in 2020 124 Other public company directorships of our board members and nominees 125 Interlocking directorships of our board members 125 Director qualification and selection process 126 Director orientation, education and development 127 Board performance assessment 128 Board and committee structure 128 Director compensation 136 Share ownership guidelines of independent directors and chairman, president and chief executive officer 143 Ethical business conduct 144 Restrictions on insider trading 145 Diversity 145 Shareholder engagement 147 Largest shareholder 148 Transactions with Exxon Mobil Corporation 148 Company executives and executive compensation 150 Named executive officers of the company 150 Other executive officers of the company 151 Letter to shareholders from the executive resources committee on executive compensation 153 Compensation discussion and analysis 156 Overview 157 Compensation program 160 Compensation decision making process and considerations for named executive officers 169 Executive compensation tables and narratives 174 Appendix 181 Appendix A – Board of director and committee charters 181 113 Table of Contents Nominees for director The director nominee tables on the following pages provide information on the seven nominees proposed for election to the board of directors of the company. All of the nominees, with the exception of M.R. Crocker, are now directors and have been since the dates indicated. D.C. Brownell is a current director and has chosen not to stand for re-election. B.W. Corson was appointed to the board and as president of the company on September 17, 2019 and assumed the additional roles of chairman and chief executive officer on January 1, 2020. Included in these tables is information relating to the director nominees’ biographies, independence status, expertise, committee memberships, attendance, public board memberships and shareholdings in the company. The information is as of February 16, 2021, the effective date of this circular, unless otherwise indicated. For more information on our director nominees, please see the Statement of corporate governance practice starting on page 120. Director nominee tables David W. Cornhill Calgary, Alberta, Canada Nonemployee director (independent) Age: 67 Director since : November 29, 2017 Skills and experience: Leadership of large organizations, Operations/technical, Project management, Strategy development, Audit committee financial expert, Financial expertise, Executive compensation, Environment and sustainability, Risk management David Cornhill is a director of AltaGas Ltd., and is the chairman of the board of directors of TriSummit Utilities Inc. (formerly AltaGas Canada Inc.), a privately owned corporation. Mr. Cornhill is a founding shareholder of AltaGas (and its predecessors). He was chief executive officer of AltaGas from 1994 to 2016 and served as interim co-chief executive officer from July to December 2018. Prior to forming AltaGas, Mr. Cornhill served in various capacities with Alberta and Southern Gas Co. Ltd, including vice-president, finance and administration, treasurer and president and chief executive officer. Mr. Cornhill is an experienced leader in the business community and is a strong supporter of communities and community collaboration, investment and enhancement. He is a member of the Ivey Advisory Board at Western University. Mr. Cornhill holds a BSc (Hons.) degree and a MBA degree from Western University, and he was awarded an honorary Doctor of Laws degree by the University in 2015. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 12,500 (<0.01%) 8,184 20,684 11,600 32,284 Total market value as at February 16, 2021 ($) 332,125 217,449 549,574 308,212 857,786 Year over year change (#) 0 4,729 4,729 3,000 7,729 *Meets the necessary share ownership requirements Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Imperial Oil Limited board Audit committee Executive resources committee Public policy and corporate responsibility committee Nominations and corporate governance committee (Chair) Community collaboration and engagement committee 8 of 8 (100%) 4 of 5 (80%) 7 of 7 (100%) 3 of 3 (100%) 4 of 4 (100%) 2 of 2 (100%) - AltaGas Ltd. (2010 – present) - AltaGas Canada Inc. (2018 – 2020) - Alterra Power Corp. (2008 – 2018) - Painted Pony Energy Ltd. (2015 – 2017) *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: 661,610,537 (98.90%) Votes Withheld: 7,375,061 (1.10%) - AltaGas Ltd., Chairman of the board (1994 – 2019) - AltaGas Ltd., Interim co-CEO (July to December 2018) - AltaGas Ltd., Chief executive officer (1994 – 2016) 114 Table of Contents Bradley W. Corson Calgary, Alberta, Canada Non-independent director Age: 59 Director since : September 17, 2019 Skills and experience: Leadership of large organizations, Operations/technical, Project management, Global experience, Strategy development, Financial expertise, Government relations, Executive compensation, Environment and sustainability, Risk management Mr. Corson was appointed as president and a director of Imperial Oil Limited on September 17, 2019, and assumed the additional roles of chairman and chief executive officer on January 1, 2020. Mr. Corson has worked for Exxon Mobil Corporation and its predecessor companies since 1983 in various upstream and downstream assignments, with responsibilities in the United States, Hong Kong and London. In his previous position, Mr. Corson was vice-president of Exxon Mobil Corporation and president of ExxonMobil Upstream Ventures, a division of Exxon Mobil Corporation. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 0 0 0 156,400 156,400 Total market value as at February 16, 2021 ($) 0 0 0 4,155,548 4,155,548 Year over year change (#) 0 0 0 78,200 78,200 *Has three years from appointment as chairman and chief executive officer to meet the necessary share ownership requirements Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Imperial Oil Limited board (Chair) Community collaboration and engagement committee 8 of 8 (100%) 2 of 2 (100%) None *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: 644,504,046 (96.34%) Votes Withheld: 24,481,552 (3.66%) - President, Imperial Oil Limited (2019 – present) - President, ExxonMobil Upstream Ventures (2015 – 2019) (Affiliate) Matthew R. Crocker Spring, Texas, United States of America Non-independent director Age: 47 Director since : Not currently a member of the board; f irst nomination for election as director Skills and experience: Leadership of large organizations, Operations/technical, Project management, Global experience, Strategy development, Financial expertise, Government relations, Executive compensation, Environment and sustainability, Risk management M.R. (Matthew) Crocker is senior vice-president, fuels at ExxonMobil Fuels & Lubricants Company since September, 2020. He is responsible for the downstream global fuels value chain, from crude to customer. Mr. Crocker has also held leadership positions within refining, upstream business development, chemicals and controllers. Prior to his current position, Mr. Crocker was vice-president, strategy and portfolio management, covering the full scope of ExxonMobil’s upstream business. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 0 0 0 0 0 Total market value as at February 16, 2021 ($) 0 0 0 0 0 Year over year change (#) 0 0 0 0 0 *No share ownership guidelines apply Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Not currently a member of the board or any of its committees n/a None *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: n/a Votes Withheld: n/a - Senior vice president, fuels, ExxonMobil Fuels & Lubricants Company (2020 – Present) (Affiliate) - Vice-president, strategy and portfolio management, ExxonMobil Upstream Business Development Company (2019 – 2020) (Affiliate) - Special assignment, strategy and portfolio management, ExxonMobil Upstream Business Development Company (2019 ) (Affiliate) - Vice-president, intermediates, performance derivatives, ExxonMobil Chemical Company (2017 – 2019) (Affiliate) - Project executive, ExxonMobil Refining & Supply (2016 – 2017) (Affiliate) - Manager, Baytown refinery, Exxon Mobil Corporation (2014 – 2016) (Affiliate) 115 Table of Contents Krystyna T. Hoeg Toronto, Ontario, Canada Nonemployee director (independent) Age : 71 Director since : May 1, 2008 Skills and experience: Leadership of large organizations, Project management, Global experience, Strategy development, Audit committee financial expert, Financial expertise, Executive compensation, Environment and sustainability, Risk management Ms. Hoeg was the president and chief executive officer of Corby Distilleries Limited from 1996 until her retirement in February 2007. She previously held several positions in the finance and controllers functions of Allied Domecq PLC and Hiram Walker & Sons Limited. Prior to that, she spent five years in public practice as a chartered accountant with the accounting firm Touche Ross. She is currently a director of New Flyer Industries Inc. and is also a director of Samuel, Son & Co. Limited, Revera Inc. and Arterra Wines Canada Inc., privately owned corporations. Ms. Hoeg is a past chair of the board of the Michael Garron Hospital. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 0 46,713 46,713 16,200 62,913 Total market value as at February 16, 2021 ($) 0 1,241,164 1,241,164 430,434 1,671,598 Year over year change (#) 0 7,967 7,967 2,000 9,967 *Meets the necessary share ownership requirements Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Imperial Oil Limited board Audit committee (Chair) Executive resources committee Public policy and corporate responsibility committee Nominations and corporate governance committee Community collaboration and engagement committee 8 of 8 (100%) 5 of 5 (100%) 7 of 7 (100%) 3 of 3 (100%) 4 of 4 (100%) 2 of 2 (100%) - New Flyer Industries Inc. (2015 – Present) - Sun Life Financial Inc. (2002 – 2016) *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: 662,212,058 (98.99%) Votes Withheld: 6,773,540 (1.01%) None Miranda C. Hubbs Toronto, Ontario, Canada Nonemployee director (independent) Age: 54 Director since : July 26, 2018 Skills and experience: Global experience, Strategy development, Audit committee financial expert, Financial expertise, Information technology/cybersecurity oversight, Executive compensation, Environment and sustainability, Risk management Miranda Hubbs is currently an independent director of Nutrien Ltd. and PSP Investments (Public Sector Pension Investment Board). Ms. Hubbs serves as vice-chair of the board of the Canadian Red Cross and is a founding member and national co-chair of the Canadian Red Cross Tiffany Circle—Women Leading Through Philanthropy. Prior to retirement in 2011, Ms. Hubbs was executive vice president and managing director of McLean Budden. Ms. Hubbs holds a BSc from Western University and an MBA from Schulich School of Business at York University and is a CFA charterholder and a National Association of Corporate Directors Governance Fellow. Ms. Hubbs serves on the ICD Climate Strategy Advisory Board and the Global Risk Institute Sustainable Finance Advisory Committee, holds the Fundamentals of Sustainability Accounting credential from the Sustainability Accounting Standards Board, and has received her CERT Certificate in Cybersecurity Oversight issued by the Software Engineering Institute at Carnegie Mellon University. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 0 10,913 10,913 9,000 19,913 Total market value as at February 16, 2021 ($) 0 289,958 289,958 239,130 529,088 Year over year change (#) 0 6,306 6,306 3,000 9,306 *Meets the necessary share ownership requirements Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Imperial Oil Limited board Audit committee Executive resources committee Public policy and corporate responsibility committee Nominations and corporate governance committee Community collaboration and engagement committee (Chair) 8 of 8 (100%) 5 of 5 (100%) 7 of 7 (100%) 3 of 3 (100%) 4 of 4 (100%) 2 of 2 (100%) - Nutrien Ltd. (2018 – present) - Agrium Inc. (2016 – 2018) - Spectra Energy Corporation (2015 – 2017) *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: 665,197,308 (99.43%) Votes Withheld: 3,788,290 (0.57%) None 116 Table of Contents Jack M. Mintz Calgary, Alberta, Canada Nonemployee director (independent) Age : 69 Director since : April 21, 2005 Skills and experience: Global experience , Strategy development, Financial expertise, Government relations, Academic/research, Executive compensation, Environment and sustainability, Risk management Dr. Mintz is currently the President’s Fellow at the University of Calgary’s School of Public Policy, a position he has held since July 2015. Dr. Mintz also serves as the national policy advisor for EY (formerly Ernst & Young), Senior Fellow at the C.D. Howe Institute, Distinguished Fellow at the MacDonald-Laurier Institute and board member of the Canada West Foundation. From 2006 to 2015, Dr. Mintz was the founding Director and Palmer Chair in Public Policy for the University of Calgary, and from 1999 to 2006, he was the president and chief executive officer of the C.D. Howe Institute. Prior to 2007, he also held professor positions at Queen’s University and the Joseph L. Rotman School of Management at the University of Toronto. Dr. Mintz also has published widely in the fields of public economics and fiscal federalism, has been an advisor to governments on fiscal matters, and has frequently published articles in national newspapers and magazines. Dr. Mintz received the Order of Canada in 2015. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 1,000 (<0.01%) 42,205 43,205 16,200 59,405 Total market value as at February 16, 2021 ($) 26,570 1,121,387 1,147,957 430,434 1,578,391 Year over year change (#) 0 7,757 7,757 2,000 9,757 *Meets the necessary share ownership requirements Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Imperial Oil Limited board Audit committee Executive resources committee Public policy and corporate responsibility committee (Chair) Nominations and corporate governance committee Community collaboration and engagement committee 8 of 8 (100%) 5 of 5 (100%) 7 of 7 (100%) 3 of 3 (100%) 4 of 4 (100%) 2 of 2 (100%) - Morneau Shepell Inc. (2010 – 2020) *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: 659,539,737 (98.59%) Votes Withheld: 9,445,861 (1.41%) None David S. Sutherland Scottsdale, Arizona, United States of America Nonemployee director (independent) Age : 71 Director since : April 29, 2010 Skills and experience: Leadership of large organizations, Operations/technical, Global experience, Strategy development, Audit committee financial expert, Financial expertise, Government relations, Executive compensation, Environment and sustainability, Risk management In July 2007, Mr. Sutherland retired as president and chief executive officer of the former IPSCO, Inc. after spending 30 years with the company and more than five years as president and chief executive officer. Mr. Sutherland is the chairman of the board of United States Steel Corporation and director of GATX Corporation. Mr. Sutherland is also chairman of Graham Group Ltd., an employee owned corporation and is a director of Steelcraft Inc., a privately owned corporation. Mr. Sutherland is a former chairman of the American Iron and Steel Institute and served as a member of the board of directors of the Steel Manufacturers Association, the International Iron and Steel Institute, the Canadian Steel Producers Association and the National Association of Manufacturers. Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d) IMO Common Shares (% of class) IMO Deferred Share Units (DSU) Total Vested Equity Holdings (Common + DSU) Restricted Stock Units (RSU) Total Holdings * (Common + DSU + RSU) Holdings as at February 16, 2021 (#) 55,000 (<0.01%) 39,388 94,388 16,200 110,588 Total market value as at February 16, 2021 ($) 1,461,350 1,046,539 2,507,889 430,434 2,938,323 Year over year change (#) 0 7,627 7,627 2,000 9,627 *Meets the necessary share ownership requirements Board and Committee Membership Meeting Attendance 2020 Public Company Directorships in the Past Five Years* Imperial Oil Limited board Audit committee Executive resources committee (Chair) Public policy and corporate responsibility committee Nominations and corporate governance committee Community collaboration and engagement committee 8 of 8 (100%) 5 of 5 (100%) 6 of 7 (86%) 3 of 3 (100%) 4 of 4 (100%) 2 of 2 (100%) - GATX Corporation (2007 – Present) - United States Steel Corporation (2008 – Present) *no public board interlocks Voting Results of 2020 Annual General Meeting: Other Positions in the Past Five Years: (position, date office held, and status of employer) Votes in Favour: 662,963,880 (99.10%) Votes Withheld: 6,021,718 (0.90%) None 117 Table of Contents Footnotes to director nominee tables on pages 114 through 117: (a) The information includes the beneficial ownership of common shares of Imperial Oil Limited, which information not being within the knowledge of the company has been provided by the nominees individually. (b) The company’s plan for restricted stock units for nonemployee directors is described on page 139. The company’s plan for deferred share units for nonemployee directors is described on page 138. The company’s plan for restricted stock units for selected employees is described on page 163. (c) The numbers for the company’s restricted stock units represent the total of the outstanding restricted stock units received in 2014 through 2020 and deferred share units received since directors’ appointment. (d) The value for Imperial Oil Limited common shares, deferred share units and restricted stock units is based on the closing price for Imperial Oil Limited common shares on the Toronto Stock Exchange of $26.57 on February 16, 2021. Director and nominee holdings in Exxon Mobil Corporation (a) Director XOM Common Shares (#) XOM Restricted Stock (#) (b) Total Common Shares and Restricted Stock (#) Total Market Value of Common Shares and Restricted Stock ($) (c) D.C. Brownell (d) 3,217 77,000 80,217 5,294,927 B.W. Corson 87,758 116,100 203,858 13,456,164 M.R. Crocker 17,915 77,600 95,515 6,304,710 D.S. Sutherland 5,730 - 5,730 378,223 (a) Holdings as at February 16, 2021. The information includes the beneficial ownership of common shares of Exxon Mobil Corporation, which information not being within the knowledge of the company has been provided by the nominees and directors individually. None of these individuals own more than 0.01 percent of the outstanding shares of Exxon Mobil Corporation. D.W. Cornhill, K.T. Hoeg, M.C. Hubbs and J.M. Mintz do not own common shares or hold restricted stock of Exxon Mobil Corporation. (b) The numbers for Exxon Mobil Corporation restricted stock include outstanding restricted stock and restricted stock units granted under its restricted stock plan which is similar to the company’s restricted stock unit plan. (c) The value for Exxon Mobil Corporation common shares and restricted stock is based on the closing price for Exxon Mobil Corporation common shares on the New York Stock Exchange of $52.04 U.S., which is converted to Canadian dollars at the daily rate of exchange of $1.2684 provided by the Bank of Canada for February 16, 2021. (d) D.C. Brownell is a current director and has chosen not to stand for re-election. Mr. Brownell does not hold any Imperial Oil Limited common shares, restricted stock units or deferred share units. Majority voting policy In order to better align with the Canadian Coalition for Good Governance’s policy, “Governance Differences of Equity Controlled Corporations”, in 2012, the board of directors of the company passed a resolution adopting a majority voting policy. As of the date of this circular, Exxon Mobil Corporation holds 69.6 percent of the company’s shares. If Exxon Mobil Corporation’s shareholdings were ever to fall below 50 percent, the company’s policy provides that for any non-contested election of directors, any director nominee who receives a greater number of votes “withheld” from his or her election than votes “for” in such election shall tender his or her resignation. Within 90 days after certification of the election results, the board of directors will decide, through a process managed by the nominations and corporate governance committee and excluding the nominee in question, whether to accept the resignation. Absent a compelling reason for the director to remain on the board, the board shall accept the resignation. The board will promptly disclose its decision and, if applicable, the reasons for rejecting the tendered resignation. 118 Table of Contents Corporate governance disclosure Corporate governance at a glance Controlled company Yes Size of board 7 Number of independent directors 5 Women on board 2 Average attendance of directors at board and committee meetings 99% Independent chair of the executive sessions Yes In camera sessions of independent directors at every board meeting Yes Independent status of audit committee 100% Audit committee members financially literate All Independent status of executive resources committee 83% Independent status of nominations and corporate governance committee 83% Majority of independent directors on all committees Yes Individual director elections Yes Average tenure of director nominees (approximate) 6.5 years Average age of director nominees (approximate) 62 years Mandatory retirement age 72 years Majority voting policy Yes Separate board chair and CEO No Number of board interlocks None No director serves on more than two boards of another reporting issuer Yes Share ownership requirements for independent directors Yes Share ownership requirements for chairman and chief executive officer Yes Board orientation and education program Yes Code of business conduct and ethics Yes Board and committee charters Yes Position descriptions for the chairman and chief executive officer and the chair of each committee Yes Skills matrix for directors Yes Annual board evaluation process Yes Annual advisory vote on executive compensation No Dual-class shares No Change of control agreements No 119 Table of Contents Statement of corporate governance practice This section provides information pertaining to our board, the committees of the board, ethics, diversity and shareholder engagement. The company is committed to high corporate governance standards and best practices. The company’s corporate governance policies and practices comply with and in most cases exceed the requirements of National Instrument 52-110 Audit Committees (NI 52-110), National Policy 58-201 Corporate Governance Guidelines (NP 58-201) and National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101). The company’s common shares trade on the Toronto Stock Exchange and the NYSE American LLC and our corporate governance practices reflect the standards of these exchanges. In accordance with NYSE American LLC requirements for non-U.S. companies, the company is in compliance with NYSE American standards in all significant respects except as described on the company’s website at www.imperialoil.ca . The company continually reviews its governance practices and monitors regulatory changes. Composition of our board nominees More information on diversity, including on the board and among executive officers of the company, can be found at page 145. Tenure of our board nominees The board charter provides that incumbent directors will not be re-nominated if they have attained the age of 72, except under exceptional circumstances and at the request of the chairman. The company does not have term limits for independent directors because it values the comprehensive knowledge of the company that long serving directors possess and independent directors are expected to remain qualified to serve for a minimum of five years. The following chart shows the current years of service of the nominees for the board of directors and the year they would normally be expected to retire from the board. Name of director nominee Years of service on the board Year of expected retirement from the board for independent directors D.W. Cornhill 3 years 2026 B.W. Corson 1 year - M.R. Crocker (a) - - K.T. Hoeg 13 years 2022 M.C. Hubbs 2 years 2039 J.M. Mintz 16 years 2023 D.S. Sutherland 11 years 2022 (a) M.R. Crocker is being nominated for election as a director at the annual meeting of shareholders and is not currently a director. 120 Table of Contents Skills and experience of our board members and nominees Our directors bring a wide range of skills, diversity and experience. The current directors and director nominees collectively have the experience and expertise required to ensure effective oversight, stewardship and governance of the company. The key areas of experience and skills for each of the nominees for election as directors can also be found in each of the nominees tables on pages 114 through 117 of this circular. The table below sets out the diverse skill set required of the board and identifies the particular experience, qualifications, attributes, and skills of each director and nominee that led the board to conclude that such person should serve as a director of the company. D.C. Brownell (a) D.W. Cornhill B.W. Corson M.R. Crocker (b) K.T. Hoeg M.C. Hubbs J.M. Mintz D.S. Sutherland Leadership of large organizations ∎ ∎ ∎ ∎ ∎ ∎ Operations / technical ∎ ∎ ∎ ∎ ∎ Project management ∎ ∎ ∎ ∎ ∎ Global experience ∎ ∎ ∎ ∎ ∎ ∎ ∎ Strategy development ∎ ∎ ∎ ∎ ∎ ∎ ∎ ∎ Environment and sustainability ∎ ∎ ∎ ∎ ∎ ∎ ∎ ∎ Audit committee financial expert ∎ ∎ ∎ ∎ Financial expertise ∎ ∎ ∎ ∎ ∎ ∎ ∎ ∎ Government relations ∎ ∎ ∎ ∎ ∎ Academic / research ∎ Information technology / cybersecurity oversight ∎ Executive compensation ∎ ∎ ∎ ∎ ∎ ∎ ∎ ∎ Risk Management ∎ ∎ ∎ ∎ ∎ ∎ ∎ ∎ (a) D.C. Brownell is a current director and has chosen not to stand for re-election at the annual meeting of shareholders. (b) M.R. Crocker is being nominated for election as a director at the annual meeting of shareholders and is not currently a director. 121 Table of Contents Independence of our board members and nominees Five out of seven of the director nominees are independent. The board is currently composed of seven directors, six of whom will be standing for re-election at the annual meeting of shareholders on May 4, 2021. D.C. Brownell is a current director and has chosen not to stand for re-election. M.R. Crocker is not currently a director and is being nominated for election as a director. The majority of the board and nominees (five out of seven) are independent. The independent directors are not employees of the company. The board determines independence on the basis of the standards specified by National Instrument 52-110 Audit Committees (NI 52-110) , the U.S. Securities and Exchange Commission rules and the listing standards of the NYSE American LLC. The board has reviewed relevant relationships between the company and each nonemployee director and director nominee to determine compliance with these standards. Based on the directors’ responses to an annual questionnaire, the board determined that none of the independent directors has any interest, business or other relationship that could or could reasonably be perceived to constitute a material relationship with the company. B.W. Corson is a director and chairman, president and chief executive officer of the company and not considered to be independent. The board believes that Mr. Corson’s extensive knowledge of the business of the company and Exxon Mobil Corporation is beneficial to the other directors and his participation enhances the effectiveness of the board. D.C. Brownell is also a non-independent director as he is an employee of Exxon Mobil Corporation. Mr. Brownell has chosen not to stand for re-election at the annual meeting of shareholders. Director nominee, M.R. Crocker, holds the position of senior vice-president, fuels at ExxonMobil Fuels & Lubricants Company, a division of Exxon Mobil Corporation and if elected will also be a non-independent director. The company believes that Mr. Brownell, and Mr. Crocker, although deemed non-independent under the relevant standards by virtue of their employment, can be viewed as independent of the company’s management and that their ability to reflect the perspective of the company’s shareholders enhances the effectiveness of the board. Name of director Management Independent Not independent Reason for non-independent status D.C. Brownell ∎ D.C. Brownell is an employee of Exxon Mobil Corporation. Mr. Brownell has chosen not to stand for re-election and will cease to be a director on May 4, 2021. D.W. Cornhill ∎ B.W. Corson ∎ ∎ B.W. Corson is a director and chairman, president and chief executive officer of Imperial Oil Limited. M.R. Crocker ∎ M.R. Crocker is an employee of Exxon Mobil Corporation. Mr. Crocker is a nominee for election as a director at the annual meeting of shareholders. K.T. Hoeg ∎ M.C. Hubbs ∎ J.M. Mintz ∎ D.S. Sutherland ∎ 122 Table of Contents Committee membership of our board Each committee is chaired by a different independent director and all of the independent directors are members of each committee. The chart below shows the company’s current committee memberships and the chair of each committee. Director Nominations and corporate governance committee Audit committee (b) Public policy and corporate responsibility committee Executive resources committee Community collaboration and engagement committee D.C. Brownell (a) ∎ - ∎ ∎ ∎ D.W. Cornhill (c) ∎ Chair ∎ ∎ ∎ ∎ B.W. Corson (a) - - - - ∎ K.T. Hoeg (c) ∎ ∎ Chair ∎ ∎ ∎ M.C. Hubbs (c) ∎ ∎ ∎ ∎ ∎ Chair J.M. Mintz ∎ ∎ ∎ Chair ∎ ∎ D.S. Sutherland (c) ∎ ∎ ∎ ∎ Chair ∎ (a) Not independent directors. D.C. Brownell is a current director and has chosen not to stand for re-election. (b) All members of the audit committee are independent and financially literate within the meaning of National Instrument 52-110 Audit Committees and the listing standards of the NYSE American LLC. (c) Audit committee financial experts under U.S. regulatory requirements. Number of meetings The chart below shows the number of board, committee and annual meetings held in 2020. This includes seven regular meetings and one additional special meeting of the board that was held in relation to COVID-19 and market conditions that arose during 2020. Due to public health recommendations and restrictions related to COVID-19 and for the health and safety of our directors and employees, all meetings from March 2020 onwards were conducted virtually. More information on the board’s activities in relation to COVID-19 and market conditions can be found in the Risk oversight section starting on page 129. Board or committee Number of meetings held in 2020 Imperial Oil Limited board 8 Audit committee 5 Executive resources committee 7 Public policy and corporate responsibility committee 3 Nominations and corporate governance committee 4 Community collaboration and engagement committee 2 Annual meeting of shareholders 1 123 Table of Contents Attendance of our board members in 2020 99% board and committee meeting attendance from all members. The following chart provides a summary of the attendance record of each of the directors in 2020. The attendance record of each director nominee is also set out in his or her biographical information on pages 114 through 117. The attendance chart also provides an overall view of the attendance per committee. Senior management directors and other members of management periodically attend committee meetings at the request of the committee chair. Director Board Audit committee Executive resources committee Public policy and corporate responsibility committee Nominations and corporate governance committee Community collaboration and engagement committee Annual meeting Total Percentage by director D.C. Brownell 8 of 8 - 7 of 7 3 of 3 4 of 4 2 of 2 1 of 1 25 of 25 100% D.W. Cornhill 8 of 8 4 of 5 7 of 7 3 of 3 4 of 4 (chair) 2 of 2 1 of 1 29 of 30 97% B.W. Corson 8 of 8 (chair) - - - - 2 of 2 - 10 of 10 100% K.T. Hoeg 8 of 8 5 of 5 (chair) 7 of 7 3 of 3 4 of 4 2 of 2 1 of 1 30 of 30 100% M.C. Hubbs 8 of 8 5 of 5 7 of 7 3 of 3 4 of 4 2 of 2 (chair) 1 of 1 30 of 30 100% J.M. Mintz 8 of 8 5 of 5 7 of 7 3 of 3 (chair) 4 of 4 2 of 2 1 of 1 30 of 30 100% D.S. Sutherland 8 of 8 5 of 5 6 of 7 (chair) 3 of 3 4 of 4 2 of 2 1 of 1 29 of 30 97% Percentage by committee 100% 96% 98% 100% 100% 100% 100% 183 of 185 Overall attendance 98.9% 124 Table of Contents Other public company directorships of our board members and nominees No director or nominee serves on more than two boards of another reporting issuer. The following table shows which directors and nominees serve on the boards of other reporting issuers and the committee memberships in those companies. Name of director Other reporting issuers of which director or nominee is also a director Type of company Stock symbol: Exchange Committee appointments D.C. Brownell (a) - - - - D.W. Cornhill AltaGas Ltd. Diversified energy company ALA:TSX No committees B.W. Corson - - - - M.R. Crocker (b) - - - - K.T. Hoeg New Flyer Industries Inc. Manufacturer of heavy duty transit buses NFI:TSX Audit committee M.C. Hubbs Nutrien Ltd. Fertilizer manufacturing NTR:TSX, NYSE Corporate governance and nominating committee and Safety and sustainability committee (chair) J.M. Mintz - - - - D.S. Sutherland GATX Corporation Commercial rail vehicles and aircraft engines – shipping GMT:NYSE Compensation committee (chair) United States Steel Corporation Iron and steel X:NYSE Chairman of the board (a) D.C. Brownell is a current director and has chosen not to stand for re-election at the annual meeting of shareholders. (b) M.R Crocker is not currently a director and is being nominated for election as a director at the annual meeting of shareholders. Interlocking directorships of our board members As of the date of this proxy circular, there are no interlocking public company directorships among the directors listed in this circular. 125 Table of Contents Director qualification and selection process The nominations and corporate governance committee is responsible for identifying and recommending new candidates for board nomination. The committee identifies candidates from a number of sources, including executive search firms and referrals from existing directors. The process for selection is described in paragraph 10 (a) of the Board of Directors Charter found in Appendix A of this circular. The committee will consider potential future candidates as required. In considering the qualifications of potential nominees for election as directors, the nominations and corporate governance committee considers the work experience and other areas of expertise of the potential nominees, with the objective of providing for diversity among the nonemployee directors. The following key criteria are considered to be relevant to the work of the board of directors and its committees: Work experience ● Experience in leadership of businesses or other large organizations (Leadership of large organizations) ● Operations/technical experience (Operations / technical) ● Project management experience (Project management) ● Experience in working in a global work environment (Global experience) ● Experience in development of business strategy (Strategy development) ● Experience with environmental, health, community relations and/or safety policy, practices and management (Environment and sustainability) Other expertise ● Audit committee financial expert (also see the financial expert section in the audit committee table starting on page 132) ● Expertise in financial matters (Financial expertise) ● Expertise in managing relations with government (Government relations) ● Experience in academia or in research (Academic / research) ● Expertise in information technology and cybersecurity oversight (Information technology / cybersecurity oversight) ● Expertise in executive compensation policies and practices (Executive compensation) ● Expertise in oversight of risk management policies and practices (Risk management) The nominations and corporate governance committee may consider the following additional factors in assessing potential nominees: ● possessing expertise in any of the following areas: law, science, marketing, administration, social/political environment or community and civic affairs; ● individual competencies in business and other areas of endeavour in contributing to the collective experience of the directors; and ● providing diversity of age, regional association, gender and other diversity elements (including Aboriginal peoples, persons with disabilities and members of visible minorities). The nominations and corporate governance committee assesses the work experience and other expertise each existing director possesses and whether the candidate is able to fill any gaps in such experience, expertise and diversity of age, regional association, gender and other diversity elements. Consideration is also given to whether candidates possess the ability to contribute to the broad range of issues with which the board and its committees must deal, are able to devote the necessary amount of time to prepare for and attend board and committee meetings and are free of any potential legal impediment or conflict of interest. Candidates are expected to remain qualified to serve for a minimum of five years and independent directors are expected to achieve ownership of no less than 15,000 common shares, deferred share units and restricted share units within five years of becoming an independent director. When the committee is recommending candidates for re-nomination, it assesses such candidates against the criteria for re-nomination as set out in paragraph 10 (b) of the Board of Directors Charter found in Appendix A of this circular. Candidates for re-nomination are expected not to change their principal position, the thrust of their involvement or their regional association in a way that would significantly detract from their value as a director of the corporation. They are also expected to continue to be compatible with the criteria that led to their selection as nominees. 126 Table of Contents Director orientation, education and development The company regularly provides in-depth presentations to the directors on relevant and emerging issues and encourages continuing education opportunities. The corporate secretary organizes an orientation program for all new directors. In a series of meetings over several days, new directors are briefed by staff and functional managers on all significant areas of the company’s operations, industry specific topics, risk oversight and regulatory issues. New directors are also briefed on significant company policies, organizational structure, security, information technology management and on critical planning and reserves processes. They also receive key governance and disclosure documents and a comprehensive board manual which contains a record of historical information about the company, by-laws, company policies, the charters of the board and its committees, other relevant company business information, information on directors’ duties and additional board related activities and calendars. Continuing education is provided to board and committee members through regular presentations by management, which focus on providing more in-depth information about key aspects of the business. Subject to exceptional circumstances, each year the board has an extended meeting that focuses on a particular area of the company’s operations and includes a visit to one or more of the company’s operating sites or a site of relevance. Due to public health recommendations and restrictions related to COVID-19, a site visit was not possible in 2020. However, the board actively engaged with management on pandemic specific topics such as response and mitigation plans and actions, health and safety initiatives, and site-specific issues throughout the pandemic. Further, the board focused on strategic financial and business actions in response to the pandemic and challenging market conditions. It also held refresher reviews of key risk topics in connection with the pandemic, such as crisis communication. More information on the board’s activities in relation to COVID-19 and market conditions can be found in the Risk oversight section starting on page 129. Although 2020 was an unprecedented year with a number of unique challenges, the board and its committees continued to receive regular presentations and updates that focused on performance, strategy and opportunities for the business. Some of these presentations included an asset impairment review, an investor relations review, numerous environmental, social and governance reviews, climate risk and carbon policy updates, a review of environmental performance, community engagement and investment updates, ongoing reviews of upstream and downstream performance and improvement plans, a review on research and technology, and a competition and anti-corruption review. The board was also provided an information technology and cybersecurity update including strategic cybersecurity priorities, key security initiatives and mitigation efforts and system improvements throughout the year. Members of ExxonMobil’s management also provide reviews of various aspects of ExxonMobil’s global business. In 2020, the directors received a presentation on ExxonMobil’s information technology and cybersecurity framework and operations, as well as an overview of ExxonMobil’s industry environment, energy outlook update and corresponding strategic objectives. Members of the board also receive an extensive package of materials prior to each board meeting that provides a comprehensive summary on each agenda item to be discussed. Similarly, the committee members also receive a comprehensive summary on each agenda item to be discussed by that particular committee. Informational communications and other written publications or reports of interest to the directors are also forwarded routinely. The board members are canvassed as to whether there are any additional topics relevant to the board or to a specific committee that they would like to see addressed, and management schedules presentations covering these areas. In addition, at every meeting the board receives an extensive update from the chairman, president and chief executive officer on business environment trends, relevant geopolitical activities, federal government priorities, key provincial issues and competitor activities, as appropriate. Directors are encouraged to participate in other continuing education programs and events to ensure their skills and knowledge remain current. 127 Table of Contents Board performance assessment The board and its committees, as well as the performance of the directors, are assessed on an annual basis. For 2020, the directors engaged in a performance assessment with the chairman, president and chief executive officer, which includes discussion and evaluation of the board and each committee’s effectiveness in various areas. The chairman, president and chief executive officer also meets regularly with directors individually to discuss any outstanding issues. The nominations and corporate governance committee discuss a summary of these assessment outcomes in the first quarter of each year. Board and committee structure Leadership structure The company has chosen to combine the positions of chairman, president and chief executive officer. The board believes the interests of all shareholders are best served at the present time through a leadership model with a combined chairman and chief executive officer position. Through more than 37 years of experience with ExxonMobil and Imperial, the current chief executive officer possesses an in-depth knowledge of the evolving energy industry supply and demand fundamentals and the array of challenges to be faced by the company. The board believes that the extensive experience and other insights put the chief executive officer in the best position to provide broad leadership for the board as it considers strategy and exercises its fiduciary responsibilities. Further, the board has demonstrated its commitment and ability to provide independent oversight of management. The company does not have a lead director. While the chairman of the board is not an independent director, K.T. Hoeg, chair of the executive sessions of the board, provides leadership for the independent directors. The duties of the chair of the executive sessions include presiding at executive sessions, reviewing and modifying, if necessary, the agenda of the meetings of the board in advance to ensure that the board may successfully carry out its duties, and acting as a liaison with the chairman of the board, including the provision of feedback, as appropriate, from the executive sessions. The position description of the chair of the executive sessions, as well as the purpose of those executive sessions, are fully described in paragraphs 9 (c) and (d) of the Board of Directors Charter attached as Appendix A. Independent director executive sessions The executive sessions of the board are in camera meetings of the independent directors and are held in conjunction with every board meeting. These meetings are held in the absence of management. The independent directors held eight executive sessions in 2020. The purposes of the executive sessions of the board include the following: ● raising substantive issues that are more appropriately discussed in the absence of management; ● discussing the need to communicate to the chairman of the board any matter of concern raised by any committee or director; ● addressing issues raised but not resolved at meetings of the board and assessing any follow-up needs with the chairman of the board; ● discussing the quality, quantity, and timeliness of the flow of information from management that is necessary for the independent directors to effectively and responsibly perform their duties, and advising the chairman of the board of any changes required; and ● seeking feedback about board processes. In camera sessions of the board committees Various committees also regularly hold in camera sessions without management present. The audit committee regularly holds private sessions of the committee members as well as private meetings of the committee with each of the external auditor, the internal auditor and senior management as part of every regularly scheduled committee meeting. 128 Table of Contents Committee structure The board has created five committees to help carry out its duties. Each committee is chaired by a different independent director and all of the independent directors are members of each committee. D.C. Brownell is also a member of each committee, with the exception of the audit committee, which is composed entirely of independent directors. Mr. Brownell has chosen not to stand for re-election at the annual meeting of shareholders. It is anticipated that if elected, director nominee M.R. Crocker will also be a member of each committee, with the exception of the audit committee. B.W. Corson is also a member of the community collaboration and engagement committee. Board committees work on key issues in greater detail than would be possible at full board meetings, allowing directors to more effectively discharge their stewardship responsibilities. The independent chairs of the five committees are able to take a leadership role in executing the board’s responsibility with respect to a specific area of the company’s operations falling within the responsibility of the committee he or she chairs. The board and each committee have a written charter that can be found in Appendix A of this circular. The charters are reviewed and approved by the board annually. The charters set out the purpose, structure, position description for the chair, and the responsibility and authority of that committee. Risk oversight The company is governed by a comprehensive and well-established risk management system, and the company’s success in managing risk over time has been achieved through emphasis on execution of this disciplined management framework. 129 Table of Contents The company’s risk management system includes a process for identifying, prioritizing, measuring, and managing the principal risks across the company, as well as assessing the company’s response to these risks. The system is implemented through various policies, guidelines, processes and systems, including: ● energy outlook scenarios; ● strategic planning; ● risk management guidelines; ● code of ethics and standards of business conduct; ● delegation of authority guidelines; ● credit risk assessment guidelines; ● controls and operations integrity management systems; ● capital project management systems; ● IT risk management (including information technology, systems and cybersecurity); ● guidelines for the management and protection of information; and ● business continuity plans. For a discussion on the company’s risk management in relation to executive compensation, see the Compensation discussion and analysis section starting on page 156. The chairman, president and chief executive officer is charged with identifying the company’s principal risks and ensuring appropriate systems are in place to manage these risks. The board of directors is responsible for reviewing the principal risks and overseeing the implementation of the risk management system, with the various committees assisting in risk oversight for issues that fall under their responsibility. For example, the audit committee oversees the company’s system of internal accounting and financial controls, the executive resources committee oversees the compensation programs and practices in relation to risk management, and the public policy and corporate responsibility committee oversees the policies and practices that manage environment, health, safety and security risk, including the risks of climate change. This integrated risk management approach facilitates recognition and oversight of risk. The board and its committees carry out their risk oversight responsibility through regular reviews and assessments. The board carefully considers these risks in evaluating strategic plans and specific proposals for capital expenditures and budget additions. Topic-specific assessments, such as for compliance programs, controls, stewardship of business performance, regulatory changes, the company’s energy outlook, and climate risk and sustainability are conducted regularly and as necessary. Members of the board ask questions of management to ensure risks are identified, assessed, mitigated, and monitored. Each typical year, the board also visits one or more of the company’s operating sites or locations of importance for the company to better understand issues associated with the company’s business. However, a site visit was not possible in 2020 due to public health recommendations and restrictions related to COVID-19. COVID-19 and market conditions in 2020 The COVID-19 pandemic and market conditions within the energy industry in 2020 placed a significant emphasis on the board’s role in risk oversight. Throughout the year, the board continuously reviewed and discussed with management the impact of COVID-19 and market conditions on performance, business strategies, employees and the community through scheduled and special meetings and ad-hoc communication. The board also guided the company through prudent business and financial action in response to market conditions. This included significant adjustments to capital and operating expenditures, while maintaining focus on the health and safety of the company’s employees, contract partners, customers and communities and reliably supplying essential products to the company’s customers. Each committee supported the board by holding reviews and discussions of COVID-19 topics specific to their responsibilities. For example, the audit committee was responsible for maintaining the integrity of the financial statements, as well as ensuring that the quality and effectiveness of internal controls and procedures was not compromised as company adapted to work from home requirements. The public policy and corporate responsibility committee oversaw the activation of pandemic and emergency response plans and safety protocols for mitigating risk and maintaining the company’s focus on the health and safety of employees, contractors and the community. The community collaboration and engagement committee oversaw numerous initiatives to support the community through this challenging period, including a free fuel promotion for healthcare workers, donations of computers for online learning and donations of isopropyl alcohol to be used in disinfectant products. 130 Table of Contents The following table provides additional oversight and other information about the board and its five committees: Board of directors The board of directors is responsible for the stewardship of the corporation. The stewardship process is carried out by the board directly or through one or more of the committees of the board. The formal mandate of the board can be found within the Board of Directors Charter in Appendix A of this circular. Directors ●  B.W. Corson (chair) ●  D.C. Brownell ●  D.W. Cornhill ●  K.T. Hoeg ●  M.C. Hubbs ●  J.M. Mintz ●  D.S. Sutherland Number of meetings Eight meetings of the board of directors were held in 2020, which included one special meeting of the board. The independent directors hold executive sessions of the board in conjunction with every board meeting. These meetings are held in the absence of management. The independent directors held eight executive sessions in 2020. Board highlights in 2020 ●  Provided oversight in support of safety, environmental performance and sustainability. ●  Regularly discussed industry activity, market updates and company initiatives. ●  Regularly discussed operational and project updates. ●  Regularly discussed risk management and business controls environment. ●  Regularly reviewed information technology, systems and cybersecurity strategies (including trends, risks, preparedness, mitigation, response, system improvements and business continuity strategies) to assess the security and integrity of the company’s information, systems and assets. ●  Regularly assessed performance of the Kearl oil sands operations and monitored progress on reliability improvements. ●  Discussed comprehensive company strategy for all business lines. ●  Reviewed climate change policies, risks and Imperial’s climate strategy. ●  Provided oversight of the company’s response to the COVID-19 pandemic. ●  Approved prudent business and financial responses to market conditions including significant reductions to capital and operating expenses, and provided oversight over implementation of these actions. Role in risk oversight The company’s financial, execution and operational risk rests with management and the company is governed by well-established risk management systems. The board of directors are responsible for reviewing the company’s principal risks and overseeing the implementation of the appropriate systems to manage these risks. The board carefully considers these risks in evaluating the company’s strategic plans and specific proposals for capital expenditures and budget additions. It also approves and monitors compliance with the code of ethics and business conduct, and ensures that executive officers create a culture of integrity throughout the company. The board reviews the company’s information technology, systems and cybersecurity to ensure they adequately protect corporate information and assets. In 2020, the board’s role in risk oversight included the company’s response to the COVID-19 pandemic and market conditions, with a focus on the health and safety of the company’s employees, contract partners, customers and communities. Disclosure policy The company is committed to full, true and plain public disclosure of all material information in a timely manner, in order to keep security holders and the investing public informed about the company’s operations. The full details of the corporate disclosure policy can be found on the company’s internet site at www.imperialoil.ca . Independence The current board of directors is composed of seven directors, the majority of whom (five of seven) are independent. The five independent directors are not employees of the company. 131 Table of Contents Audit committee The role of the audit committee includes selecting and overseeing the independent auditor, reviewing the scope and results of the audit conducted by the independent auditor, and assisting the board in overseeing the integrity of the company’s financial statements. In addition, the committee’s role includes overseeing the company’s compliance with legal and regulatory requirements and the quality and effectiveness of internal controls, approving any changes in accounting principles and practices, and reviewing the results of monitoring activity under the company’s business ethics compliance program. The formal mandate of the committee can be found within the Audit Committee Charter in Appendix A of this circular. Committee members ●  K.T. Hoeg (chair) ●  M.C. Hubbs (vice-chair) ●  D.W. Cornhill ●  J.M. Mintz ●  D.S. Sutherland Number of meetings Five meetings of the audit committee were held in 2020. The committee members met in camera without management present and separately with the internal auditor and the external auditor at all regularly scheduled meetings. A pre-audit meeting also occurs prior to every regularly scheduled audit committee meeting with the chair of the audit committee and the chief financial officer and both the internal and external auditors. Committee highlights in 2020 ●  Reviewed and recommended for approval the interim and full year financial and operating results. ●  Reviewed and assessed the company’s system of internal controls and auditing procedures, and the results of the internal auditor’s audit program. ●  Reviewed and assessed the external auditor plan, performance and fees. ●  Reviewed evolving regulations and reporting obligations. ●  Reviewed the committee’s mandate and completed the committee self-assessment. ●  Performed external auditor performance evaluation. ●  Ensured the effectiveness of controls and procedures and integrity of financial statements was maintained while responding to the COVID-19 pandemic. Financial expertise The company’s board of directors has determined that D.W. Cornhill, K.T. Hoeg, M.C. Hubbs and D.S. Sutherland meet the definition of “audit committee financial expert”. The U.S. Securities and Exchange Commission has indicated that the designation of an audit committee financial expert does not make that person an expert for any purpose, or impose any duties, obligations or liability on that person that are greater than those imposed on members of the audit committee and board of directors in the absence of such designation or identification. All members of the audit committee are financially literate within the meaning of National Instrument 52-110 Audit Committees and the listing standards of the NYSE American LLC. Role in risk oversight The audit committee also has an important role in risk oversight. The audit committee oversees risks associated with financial and accounting matters, including compliance with legal and regulatory requirements, and the company’s financial reporting and internal controls systems. In addition, it reviews the scope of PricewaterhouseCoopers’ audit in light of risks associated with the energy industry, the regulatory environment and company-specific financial audit risks. The committee also reviews financial statements and internal and external audit results, and any changes proposed to accounting principles and practices. With respect to the COVID-19 pandemic, the audit committee is also responsible for ensuring the reporting and internal controls are maintained as the company implements various response measures, including work from home arrangements. Independence The audit committee is composed entirely of independent directors. All members met board approved independence standards, as that term is defined in National Instrument 52-110 Audit Committees , the U.S. Securities and Exchange Commission rules and the listing standards of the NYSE American LLC. 132 Table of Contents Executive resources committee The executive resources committee is responsible for corporate policy on compensation and for specific decisions on the compensation of the chief executive officer and key senior executives and officers reporting directly to that position. In addition to compensation matters, the committee is also responsible for succession plans and appointments to senior executive and officer positions, including the chief executive officer. The formal mandate of the committee can be found within the Executive Resources Committee Charter in Appendix A of this circular. Committee members ●  D.S. Sutherland (chair) ●  D.W. Cornhill (vice-chair) ●  D.C. Brownell ●  K.T. Hoeg ●  M.C. Hubbs ●  J.M. Mintz None of the members of the executive resources committee currently serves as a chief executive officer of another company. Number of meetings Seven meetings of the executive resources committee were held in 2020. Committee highlights in 2020 ●   Reviewed executive compensation program and principles. ●  Reviewed strategic work planning and talent strategy plans. ●  Reviewed workforce and organizational changes. ●  Reviewed harassment policy and process outcomes. ●  Continued focus on succession planning for senior management positions. ●  Appointed a senior vice-president, treasurer and three vice-president positions as part of normal succession. Committee members relevant skills and experience D.W. Cornhill, K.T. Hoeg, M.C. Hubbs and D.S. Sutherland had extensive and lengthy experience in managing and implementing their respective companies’ compensation policies and practices in their past role as chief executive officers or members of senior management. Mr. Cornhill, Ms. Hoeg, Dr. Mintz and Mr. Sutherland serve or have served on compensation committees of one or more public companies. Accordingly, committee members are able to use this experience and knowledge derived from their roles with other companies in judging the suitability of the company’s compensation policies and practices. Role in risk oversight The executive resources committee oversees the compensation programs and practices that are designed to encourage appropriate risk assessment and risk management. Independence The members of the executive resources committee are independent, with the exception of D.C. Brownell, who is not considered to be independent under the rules of the U.S. Securities and Exchange Commission, Canadian securities rules and the rules of the NYSE American LLC due to his employment with Exxon Mobil Corporation. However, the Canadian Coalition for Good Governance’s policy, “Governance Differences of Equity Controlled Corporations”, views Mr. Brownell as a related director and independent of management and who may participate as a member of the company’s executive resources committee. Mr. Brownell’s participation helps to ensure an objective process for determining compensation of the company’s officers and directors and assists the deliberations of this committee by bringing the views and perspectives of the majority shareholder. 133 Table of Contents Public policy and corporate responsibility committee The role of the public policy and corporate responsibility committee is to review and monitor the company’s policies and practices in matters of the environment, health, safety, security and sustainability. The committee monitors the company’s compliance with legislative, regulatory and corporate standards in these areas, and reviews trends and current and emerging public policy. It also assesses the potential impacts of public policy on corporate performance. The committee reviews safety and environmental performance, incidents and trends on a regular basis to ensure the company’s focus on the safety of its employees, contractors and stakeholders and on operating in an environmentally responsible manner. It also provides oversight over sustainability and climate risk, including regular reviews and assessment of sustainability performance and initiatives, as well as climate risk within the company’s risk management system and the strategies to address these risks. The formal mandate of the committee can be found within the Public Policy and Corporate Responsibility Committee Charter in Appendix A of this circular. Committee members ●  J.M. Mintz (chair) ●  D.S. Sutherland (vice-chair) ●  D.C. Brownell ●  D.W. Cornhill ●  K.T. Hoeg ●  M.C. Hubbs Number of meetings Three meetings of the public policy and corporate responsibility committee were held in 2020. Committee highlights in 2020 ●  Personnel and process safety systems, performance and incident review ●  Environmental performance review ●  COVID-19 pandemic response and economic recovery review (policy and regulations) ●  Updates on Canadian policy, regulatory change, and industry advocacy (clean fuel standard, plastics, UN Declaration on the Rights of Indigenous Peoples) ●  Review of climate change policies, risks, and Imperial’s climate strategy ●  Review of Imperial’s Sustainability Report and related environmental, social and corporate governance disclosures, including disclosure of greenhouse gas emissions Role in risk oversight The public policy and corporate responsibility committee reviews and monitors the company’s policies and practices in matters of environment, health, personnel and process safety and security, which policies and practices are intended to mitigate and manage risk in these areas. This includes specific reviews with respect to climate risk and the company’s strategies to address these risks. It also includes pandemic and emergency response and continuity planning, which is a significant focus of reviews and discussions in relation to the COVID-19 pandemic. The committee receives regular reports from management on these matters. Independence The members of the public policy and corporate responsibility committee are independent, with the exception of D.C. Brownell. Nominations and corporate governance committee The role of the nominations and corporate governance committee is to oversee issues of corporate governance as they apply to the company, including the overall performance of the board, review potential nominees for directorship and review the charters of the board and any of its committees. The formal mandate of the committee can be found within the Nominations and Corporate Governance Committee Charter in Appendix A of this circular. Committee members ●  D.W. Cornhill (chair) ●  J.M. Mintz (vice-chair) ●  D.C. Brownell ●  K.T. Hoeg ●  M.C. Hubbs ●  D.S. Sutherland Number of meetings Four meetings of the nominations and corporate governance committee were held in 2020. 134 Table of Contents Committee highlights in 2020 ●  Approval of the statement of corporate governance practices. ●  Engagement in board and committee self-assessment. ●  Recommendation of director compensation. ●  Recommendation to amend the board charter to add Environment and sustainability and Risk management to the directors’ skills matrix. Role in risk oversight The nominations and corporate governance committee oversees risk by implementing an effective program for corporate governance, including board composition and succession planning. Independence The members of the nominations and corporate governance committee are independent, with the exception of D.C. Brownell, who is not considered to be independent under the rules of the U.S. Securities and Exchange Commission, Canadian securities rules and the rules of the NYSE American LLC due to his employment with Exxon Mobil Corporation. However, the Canadian Coalition for Good Governance’s policy, “Governance Differences of Equity Controlled Corporations”, views Mr. Brownell as a related director and independent of management and who may participate as a member of the company’s nominations and corporate governance committee. Mr. Brownell’s participation helps to ensure an objective nominations process and assists the deliberations of this committee by bringing the views and perspectives of the majority shareholder. Community collaboration and engagement committee The role of the community collaboration and engagement committee is to oversee all of the company’s community investment activities, including charitable donations. The formal mandate of the committee can be found within the Community Collaboration and Engagement Committee Charter in Appendix A of this circular. Committee members ●  M.C. Hubbs (chair) ●  K.T. Hoeg (vice-chair) ●  D.C. Brownell ●  D.W. Cornhill ●  B.W. Corson ●  J.M. Mintz ●  D.S. Sutherland Number of meetings Two meetings of the community collaboration and engagement committee were held in 2020. Committee highlights in 2020 ●  Imperial invested more than $15M in Canadian communities in 2019 as reported using the London Benchmark Group Model – a global standard for measuring and reporting community investment ●  In 2019, Imperial paid more than $16.7M through community benefit agreements to Indigenous communities and successfully signed two additional agreements for Cold Lake ●  Responded to community needs during the COVID-19 pandemic ¡   Launched 2:1 employee donation matching, resulting in $500K in donations to more than 470 organizations across Canada ¡   Recognized healthcare heroes across Canada with a $2M campaign and provided free fuel vouchers to 80,000 front-line workers ¡   As part of Imperial’s 140th anniversary, donated $140,000 to mental health organizations in 14 operating areas across Canada ¡   Provided in-kind donations including 60 tonnes of isopropyl alcohol (IPA) to the Government of Canada to use in disinfectant products and 500 laptops to support student access to technology ●  Received Canadian Centre for Diversity and Inclusion’s western Canada “Employer Initiative of the Year” recognizing the company’s approach to Indigenous business development Independence The majority of the members of the community collaboration and engagement committee are independent (five out of seven) with the exception of B.W. Corson and D.C. Brownell. 135 Table of Contents Director compensation Director compensation discussion and analysis Directors’ compensation is intended to align the long-term financial interests of the directors with those of the shareholders. Nonemployee director compensation levels are reviewed by the nominations and corporate governance committee each year, and resulting recommendations are presented to the full board for approval. The nominations and corporate governance committee decided not to use an external research firm to assemble the comparator data to determine compensation for the July 1, 2020 - June 30, 2021 period. The committee relied instead on an internally-led assessment to provide competitive compensation and market data for directors’ compensation, which assisted the committee in making a compensation recommendation for the company’s directors. The internally-led assessment included a review of industry survey data, with a limited amount of this survey data being provided by an independent external consultant. The internal assessment maintained the compensation design philosophy, objectives and principles, and was consistent with previous methodology used in this analysis. Employees of the company or Exxon Mobil Corporation receive no extra pay for serving as directors. Nonemployee directors receive compensation consisting of cash and restricted stock units. Since 1999, the nonemployee directors have been able to receive all or part of their cash directors’ fees in the form of deferred share units. The purpose of the deferred share unit plan for nonemployee directors is to provide them with additional motivation to promote sustained improvement in the company’s business performance and shareholder value by allowing them to have all or part of their directors’ fees tied to the future growth in value of the company’s common shares. The deferred share unit plan is described in more detail on page 138. 136 Table of Contents Compensation decision making process and considerations The nominations and corporate governance committee relies on market comparisons with a group of major Canadian companies with national and international scope and complexity. The company draws its nonemployee directors from a wide variety of industrial sectors and, as such, a broad sample is appropriate for this purpose. The nominations and corporate governance committee does not target any specific percentile among comparator companies at which to align compensation for this group. The comparator companies included in the benchmark sample are as follows: Energy Non-Energy Canadian Natural Resources Limited Air Canada Cenovus Energy Inc. Bank of Nova Scotia Enbridge Inc. BCE Inc. Husky Energy Inc. Canadian National Railway Company Ovintiv Inc. Nutrien Ltd. Parkland Fuel Corporation Royal Bank of Canada Suncor Energy Inc. Sun Life Financial Inc. TC Energy Corporation Teck Resources Limited TELUS Corporation Thomson Reuters Corporation The Toronto-Dominion Bank Hedging policy Company policy prohibits all employees, including executives, and directors, from being a party to derivative or similar financial instruments, including puts, calls, or other options, future or forward contracts, or equity swaps or collars, with respect to the company or Exxon Mobil Corporation stock. For a discussion on the process by which the compensation of the company’s executive officers is determined, see the Compensation discussion and analysis section starting on page 156. Compensation details Board retainer The compensation of the nonemployee directors is assessed annually. In 2018, the board approved a change to the compensation paid to the nonemployee directors. Effective July 1, 2018, the nonemployee directors received an annual retainer for board membership of $110,000 per year. The retainer for each committee chaired was eliminated, and the grant of restricted stock units was increased from 2,600 to 3,000. The nominations and corporate governance committee has reviewed the compensation paid to the nonemployee directors in each subsequent year, and has recommended no changes to the compensation. The board subsequently approved each of these recommendations. 137 Table of Contents The following table summarizes the compensation terms for the nonemployee directors in 2020: Director compensation Annual retainer terms: (a) Cash retainer: Board membership $110,000 annually Committee chair None Equity based compensation: Restricted stock units 3,000 units (which vest on the 5 th and 10 th anniversary of date of grant) (a) The nonemployee directors may elect to take all or a portion of the cash retainer in the form of deferred share units. Nonemployee directors who are appointed to the board during any given year receive the full restricted stock unit grant and a prorated cash retainer based on the date of appointment. Equity based compensation Deferred share units In 1999, an additional form of long-term incentive compensation (“deferred share units”) was made available to nonemployee directors. Nonemployee directors may elect to receive all or a portion of their cash compensation in the form of deferred share units. The following table shows the portion of the retainer each nonemployee director elected to receive in cash and deferred share units in 2020. Director Election for 2020 director’s fees in cash (%) Election for 2020 director’s fees in deferred share units (%) D.W. Cornhill 25 75 K.T. Hoeg 0 100 M.C. Hubbs 0 100 J.M. Mintz 0 100 D.S. Sutherland 0 100 The number of deferred share units granted to a nonemployee director is determined at the end of each calendar quarter for that year, according to the following calculation: (i) the dollar amount of the nonemployee director’s fees for that calendar quarter that the director elected to receive as deferred share units; divided by (ii) the average of the closing price of the company’s shares on the Toronto Stock Exchange for the five consecutive trading days (“average closing price”) immediately prior to the last day of that calendar quarter. Those deferred share units are granted effective the last day of that calendar quarter. 138 Table of Contents A nonemployee director is also granted additional deferred share units to represent dividends on unexercised deferred share units. These additional units are granted on the dividend payment dates for the company’s common shares, according to the following calculation: (i) the cash dividend payable for a common share of the company divided by the average closing price immediately prior to the payment date for that dividend; multiplied by (ii) the number of unexercised deferred share units held by the nonemployee directors on the dividend record date. A nonemployee director may only exercise deferred share units by the end of the calendar year following the year of termination of service as a director of the company, including termination of service due to death. No deferred share units may be exercised unless all of the deferred share units are exercised on the same date. On the exercise date, the cash value to be received for the units is determined based on the company’s average closing price immediately prior to the date of exercise. Restricted stock units In addition to the cash fees described above, the company pays a significant portion of director compensation in restricted stock units to align director compensation with the long-term interests of shareholders. The restricted stock unit plan is described in more detail beginning on page 163. Up until 2015, an award of 2,000 restricted stock units was granted annually with 50 percent vesting on the third anniversary of the grant date and the remaining 50 percent vesting on the seventh anniversary of the grant date. On the third anniversary, directors receive a cash payment for the units to be vested. On the seventh anniversary, directors may elect to receive one common share for each unit or a cash payment for the units. In 2016, in order to better align the long-term financial interests of the directors with those of the shareholders, the vesting period of the restricted stock units was increased such that 50 percent vests on the fifth anniversary of the grant date and the remaining 50 percent vests on the tenth anniversary of the grant date. For all the units to be vested, directors may elect to receive one common share for each unit or a cash payment for the units. The vesting periods are not accelerated upon separation or retirement from the board, except in the event of death. In addition, in 2016, the number of restricted stock units granted annually was increased to 2,600 units. In 2018, the number of restricted stock units granted annually was increased to 3,000 units. In contrast to the forfeiture provisions for restricted stock units held by employees of the company, the restricted stock units awarded to nonemployee directors are not subject to risk of forfeiture at the time a director leaves the company’s board. This provision is designed to reinforce the independence of these board members. However, while on the board and for a 24-month period after leaving the company’s board, restricted stock units may be forfeited if the nonemployee director engages in direct competition with the company or otherwise engages in any activity detrimental to the company. The board agreed that the word “detrimental” shall not include any actions taken by a nonemployee director or former nonemployee director who acted in good faith and in the best interest of the company. Prior to vesting of the restricted stock units, the nonemployee directors receive amounts equivalent to the cash dividends paid to holders of common shares. The amount is determined for each cash dividend payment date by the following calculation: (i) the cash dividend payable for a common share divided by the average closing price immediately prior to the payment date for that dividend; multiplied by (ii) the number of unvested restricted stock units held by the nonemployee directors on the dividend record date. Other reimbursement Nonemployee directors are also reimbursed for travel and other expenses incurred for attendance at board and committee meetings. 139 Table of Contents Components of director compensation The following table sets out the details of compensation paid to the nonemployee directors in 2020. Director (a) Annual retainer for board membership ($) Restricted stock units (RSU) (#) Total fees paid in cash ($) (b) Total value of deferred share units (DSU) ($) (c) Total value of restricted stock units (RSU) ($) (d) All other compen- sation ($) (e) Total compensation ($) D.W. Cornhill 110,000 3,000 27,500 82,500 72,780 11,664 194,444 K.T. Hoeg 110,000 3,000 0 110,000 72,780 49,043 231,823 M.C. Hubbs 110,000 3,000 0 110,000 72,780 10,962 193,742 J.M. Mintz 110,000 3,000 0 110,000 72,780 45,185 227,965 D.S. Sutherland 110,000 3,000 0 110,000 72,780 42,773 225,553 (a) As directors employed by the company or Exxon Mobil Corporation in 2020, B.W. Corson and D.C. Brownell did not receive compensation for acting as directors. (b) “Total fees paid in cash” is the portion of the “Annual retainer for board membership” that the director elected to receive as cash. This amount is reported as “Fees earned” in the Director compensation table on page 141. (c) “Total value of deferred share units” is the portion of the “Annual retainer for board membership” that the director elected to receive as deferred share units, as set out in the previous table on page 138. This amount plus the “Total value of restricted stock units” amount is shown as “Share-based awards” in the Director compensation table on page 141. (d) The values of the restricted stock units shown are the number of units multiplied by the closing price of the company’s shares on the date of grant, which was $24.26. (e) Amounts under “All other compensation” consist of dividend equivalent payments on unvested restricted stock units and the value of additional deferred share units granted in lieu of dividends on unvested deferred share units. In 2020, D.W. Cornhill received $6,908 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $4,756 in lieu of dividends on deferred share units. K.T. Hoeg received $12,056 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $36,987 in lieu of dividends on deferred share units. M.C. Hubbs received $4,620 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $6,342 in lieu of dividends on deferred share units. J.M. Mintz received $12,056 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $33,129 in lieu of dividends on deferred share units. D.S. Sutherland received $12,056 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $30,717 in lieu of dividends on deferred share units. 140 Table of Contents Director compensation table The following table summarizes the compensation paid, payable, awarded or granted for 2020 to each of the nonemployee directors of the company. Name (a) Fees earned ($)(b) Share- based awards ($) (c) Option- based awards ($) Non-equity incentive plan compensation ($) Pension value ($) All other compensation ($) (d) Total ($) D.W. Cornhill 27,500 155,280 - - - 11,664 194,444 K.T. Hoeg 0 182,780 - - - 49,043 231,823 M.C. Hubbs 0 182,780 - - - 10,962 193,742 J.M. Mintz 0 182,780 - - - 45,185 227,965 D.S. Sutherland 0 182,780 - - - 42,773 225,553 (a) As directors employed by the company or Exxon Mobil Corporation in 2020, B.W. Corson and D.C. Brownell did not receive compensation for acting as directors. (b) Represents all fees awarded, earned, paid or payable in cash for services as a director. The nonemployee directors are able to receive all or part of their directors’ fees in the form of deferred share units. (c) Represents the value of the restricted stock units (calculated by multiplying the number of units by the closing price of the company’s shares on the date of grant), plus the value of deferred share units (calculated by the portion of the “Annual retainer for board membership” that the director elected to receive as deferred share units as noted on page 138). (d) Amounts under “All other compensation” consist of dividend equivalent payments on unvested restricted stock units and the value of additional deferred share units granted in lieu of dividends on unvested deferred share units. In 2020, D.W. Cornhill received $6,908 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $4,756 in lieu of dividends on deferred share units. K.T. Hoeg received $12,056 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $36,987 in lieu of dividends on deferred share units. M.C. Hubbs received $4,620 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $6,342 in lieu of dividends on deferred share units. J.M. Mintz received $12,056 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $33,129 in lieu of dividends on deferred share units. D.S. Sutherland received $12,056 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $30,717 in lieu of dividends on deferred share units. Five-year look back at total compensation paid to nonemployee directors Year Amount ($) 2016 1,342,664 2017 1,351,454 2018 1,500,739 2019 1,251,395 2020 1,073,527 141 Table of Contents Outstanding share-based awards and option-based awards for directors The following table sets forth all outstanding awards held by nonemployee directors of the company as at December 31, 2020 and does not include common shares owned by the director. Option-based awards Share-based awards Name (a) Number of securities underlying unexercised options (#) Option exercise price ($) Option expiration date Value of unexercised in-the- money options ($) Number of shares or units of shares that have not vested (#) (b) Market or payout value of share-based awards that have not vested ($) (c) D.W. Cornhill - - - - 19,784 477,981 K.T. Hoeg - - - - 62,913 1,519,978 M.C. Hubbs - - - - 19,913 481,098 J.M. Mintz - - - - 58,405 1,411,065 D.S. Sutherland - - - - 55,588 1,343,006 (a) As directors employed by the company or Exxon Mobil Corporation in 2020, B.W. Corson and D.C. Brownell did not receive compensation for acting as directors. (b) Represents restricted stock units and deferred share units held as of December 31, 2020. (c) Value is based on the closing price of the company’s shares on December 31, 2020 ($24.16). Incentive plan awards for directors – Value vested or earned during the year The following table sets forth the value of the awards that vested or were earned by each nonemployee director of the company in 2020. Name (a) Option-based awards – Value vested during the year ($) Share-based awards – Value vested during the year ($) (b) Non-equity incentive plan compensation – Value earned during the year ($) D.W. Cornhill - - - K.T. Hoeg - 23,118 - M.C. Hubbs - - - J.M. Mintz - 23,118 - D.S. Sutherland - 23,118 - (a) As directors employed by the company or Exxon Mobil Corporation in 2020, B.W. Corson and D.C. Brownell did not receive compensation for acting as directors. (b) Represents restricted stock units granted in 2013 and 2017, which vested in 2020. Value is based on the average of the weighted average price (as determined by the Toronto Stock Exchange) of common shares of the company on the vesting date and the four consecutive trading days immediately prior to the vesting date. 142 Table of Contents Share ownership guidelines of independent directors and chairman, president and chief executive officer Independent directors are required to hold the equivalent of at least 15,000 shares of Imperial Oil Limited, including common shares, deferred share units and restricted stock units. Independent directors are expected to reach this level within five years from the date of appointment to the board. The chairman, president and chief executive officer has separate share ownership requirements and must, within three years of his appointment, acquire shares of the company, including common shares and restricted stock units, of a value of no less than five times his base salary. The board of directors believes that these share ownership guidelines will result in an alignment of the interests of board members with the interests of all other shareholders. As of the date of this circular, the independent directors currently have holdings of 285,103 shares which is more than three times the required guideline. Minimum share ownership requirement Time to fulfill Chairman, president and chief executive officer 5 x base salary Within 3 years of appointment Independent directors 15,000 shares Within 5 years of initial appointment The chart below shows the shareholdings of the independent directors and the chairman, president and chief executive officer of the company as of February 16, 2021, the record date of the management proxy circular. Director Director since Amount acquired since last report ( February 13, 2020 to February 16, 2021) (#) Total holdings (includes common shares, deferred share units and restricted stock units) (#) Market value of total holdings (a) ($) Minimum shareholding requirement Minimum requirement met D.W. Cornhill November 29, 2017 7,729 32,284 857,786 15,000 Yes B.W. Corson (b) September 17, 2019 78,200 156,400 4,155,548 Five times base salary No (b) K.T. Hoeg May 1, 2008 9,967 62,913 1,671,598 15,000 Yes M.C. Hubbs July 26, 2018 9,306 19,913 529,088 15,000 Yes J.M. Mintz April 21, 2005 9,757 59,405 1,578,391 15,000 Yes D.S. Sutherland April 29, 2010 9,627 110,588 2,938,323 15,000 Yes Total accumulated holdings (#) and value of directors’ holdings ($) 441,503 $11,730,734 (a) The amount shown in the column “Market value of total holdings” is equal to the “Total holdings” multiplied by the closing price of the company’s shares on the proxy circular record date February 16, 2021 ($26.57). (b) B.W. Corson was appointed to the board and as president of the company on September 17, 2019, and assumed the additional roles of chairman and chief executive officer on January 1, 2020. Mr. Corson is expected to meet the share ownership guidelines of five times base salary within three years of appointment as chairman and chief executive officer. For information relating to compensation of the company’s named executive officers, see the Compensation discussion and analysis section starting on page 156. 143 Table of Contents Ethical business conduct The company is committed to high ethical standards through its policies and practices . The company’s directors, officers and employees are responsible for developing, approving and implementing plans and actions designed to achieve corporate objectives. In doing so, they are expected to observe the highest standards of integrity in the conduct of the company’s business, with the methods employed to attain results being as important as the results themselves. The board has adopted a written code of ethics and business conduct (the “Code”) which can be found on the company’s website at www.imperialoil.ca/en-CA/Investors/Investor-relations , including any applicable amendments. The Code applies to each of the company’s directors, officers and employees, and consists of the ethics policy, the conflicts of interest policy, the corporate assets policy, the directorships policy and the procedures and open door communication. No person in the company has the authority to make exceptions or grant waivers with respect to its foundational policies. There have been no material change reports filed in the past 12 months pertaining to conduct of a director or executive officer that constitute a departure from the Code. In addition, the directors of the company must comply with the conflict of interest provisions of the Canada Business Corporations Act , as well as the relevant securities regulatory instruments, in order to ensure that the directors exercise independent judgment in considering transactions and agreements in respect of which such director has a material interest. Under the company’s procedures and open door communication, employees are encouraged and expected to refer suspected violations of the law, company policy or internal controls and procedures by various means, including to their supervisors or the company’s ethics advisor, controller or general auditor. Imperial also has an ethics “hotline” that is operated by a third-party service provider and offers confidential, anonymous reporting 24 hours a day, seven days a week. Suspected violations involving a director or executive officer, as well as any concern regarding questionable accounting or auditing matters are to be referred directly to the internal auditor. The audit committee initially reviews all issues involving directors or executive officers, and then refers all issues to the board of directors. In the alternative, employees may also address concerns to individual nonemployee directors or to nonemployee directors as a group. No action may be taken or threatened against employees for asking questions, voicing concerns, or making complaints or suggestions in good faith. Management provides the board of directors with a review of corporate ethics and conflicts of interest on an annual basis. The company’s internal auditors audit each business line’s compliance with the program and report to the audit committee. Directors, officers and employees review the company’s standards of business conduct (which includes the Code) on an annual basis, with independent directors and all employees being required to sign a declaration card confirming that they have read and are familiar with the standards of business conduct. In addition, every four years a business practices review is conducted in which managers review the standards of business conduct with all employees in their respective work units. The board, through its audit committee, examines the effectiveness of the company’s internal control processes and management information systems. The board consults with the external auditor, the internal auditor and the management of the company to ensure the integrity of the systems. There are a number of structures and processes in place to facilitate the functioning of the board independently of management. The board has a majority of independent directors. Each committee is chaired by a different independent director and all of the independent directors are members of each committee. The audit committee is composed entirely of independent directors. Each other committee (except the community collaboration and engagement committee) is composed entirely of the independent directors and D.C. Brownell, who is an employee of Exxon Mobil Corporation and although deemed non-independent under the relevant standards by virtue of his employment, is viewed as independent of the company’s management. The agendas of each of the board and its committees are not set by management alone, but by the board as a whole and by each committee. A significant number of agenda items are mandatory and recurring. Board meetings are scheduled at least one full year in advance. Any director may call a meeting of the board or a meeting of a committee of which the director is a member. There is a board-prescribed flow of financial, operating and other corporate information to all directors. 144 Table of Contents The independent directors conduct executive sessions in the absence of members of management. These meetings are chaired by K.T. Hoeg, the independent director designated by the independent directors to chair and lead these discussions. Eight executive sessions were held in 2020. The company’s delegation of authority guide provides that certain matters of the company are reviewed by functional contacts within ExxonMobil. The company’s employees are regularly reminded that they are expected to act in the best interests of the company, and are reminded of their obligation to identify any instances where the company’s general interest may not be consistent with ExxonMobil’s priorities. If such situations ever occurred, employees are expected to escalate such issues with successive levels of the company’s management. Final resolution of any such issues is made by the company’s chairman, president and chief executive officer. Restrictions on insider trading Commitment to stringent safeguards with trading restrictions and reporting for company insiders. Structures and processes are in place to caution, track and monitor reporting insiders, nonemployee directors and key employees with access to sensitive information with respect to personal trading in the company’s shares. The company has guidelines regarding insider trading prohibitions and trading bans that are applicable to all directors, officers and employees. Nonemployee directors are required to pre-clear any trades in the company’s shares. Reporting insiders are required to give advance notice to the company of any sale of the company’s shares and advise the company within five days of any purchase of the company’s shares. Reporting insiders are required, under securities regulations, to publically disclose all transactions in the company’s shares on the System for Electronic Disclosure by Insiders (SEDI). From time to time, the company advises its directors and officers, and those of Exxon Mobil Corporation, and employees in certain positions not to trade in the company’s shares. Trading bans occur in connection with the directors’ pending consideration of the financial statements of the company, including the unaudited financial statements for each quarter, and in connection with undisclosed pending events that constitute material information about the business affairs of the company. Diversity The company has a long history of valuing diversity on the board and in its executive management. Board diversity The company has a longstanding commitment to diversity amongst its directors, and has had at least one woman on its board continuously since 1977. The company does not have a formal written policy relating to the identification and nomination of directors who are women, Aboriginal peoples, persons with disabilities or members of visible minorities (the “designated groups”, as defined under the Canada Business Corporations Regulations, 2001 ), and has not adopted a target regarding members of the designated groups on its board. With the objective of fostering a diversity of expertise, viewpoint and competencies, the board charter provides that the nominations and corporate governance committee may consider a number of factors, including membership in a designated group, in assessing potential nominees. The nominations and corporate governance committee assesses the work experience, other expertise, individual competencies and diversity of age, regional association and the designated groups that each existing director possesses and whether each nominee is able to fill any gaps amongst the existing directors. Additionally, the committee may consider any other factors that it believes to be relevant. The company does not believe that any one of these dimensions should be considered in isolation and without due regard to all of the other factors, in determining the ability of potential directors to contribute to the work of the board of directors. 145 Table of Contents As of the date of this proxy circular, the number and percentage of directors and nominees who are members of the designated groups are: Designated group (a) Number Percent (%) Women 2 of 7 (board) 2 of 7 (nominees) 2 of 5 (independent directors) 29 29 40 Aboriginal peoples 0 of 7 0 Persons with disabilities 0 of 7 0 Members of visible minorities 0 of 7 0 (a) Defined under the Employment Equity Act (Canada) The above diversity disclosure relies on voluntary self-identification by directors and nominees, and therefore only represents the information of individuals who have chosen to self-identify. The information has not been independently verified by the company. The board nominee composition charts on page 120 show the diversity of our board nominees with respect to gender, experience and regional association, but do not reflect membership in other designated groups. Executive officer diversity The company believes inclusion and diversity are key competitive strengths that are critical to maintaining the company’s position as an industry leader. To ensure commitment at all levels of the company, inclusion and diversity, anti-harassment and equal employment opportunity performance is stewarded annually to the company’s senior management. There is an in-depth succession planning process, which includes the consideration of various aspects of diversity as well as plans to address gaps, if any, for key positions. The company’s internal training programs emphasize the value of collaboration, appreciating differences and sustaining an inclusive work environment, keeping inclusion and diversity top-of-mind with all employees. Imperial also values external perspective and expertise, and collaborates with leading diversity organizations to help shape our future inclusion and diversity plans. The company supports educational development and recruiting practices that facilitate the employment of Indigenous peoples, and was recognized in 2020 by the Canadian Centre for Diversity and Inclusion as western Canada’s “employer initiative of the year” with respect to work done in the Indigenous community space. Imperial maintains a supportive work environment though a range of development and networking programs, including employee-led diversity networks that are focused on common interests. These programs continued in a virtual format in 2020 as a result of the COVID-19 pandemic. In considering potential nominees for executive officer appointments, the executive resources committee considers diversity of gender and the other designated groups, work experience, other expertise, individual competencies and other dimensions of diversity in addition to the other factors described on page 160. The company has not adopted a target regarding members of the designated groups in executive officer positions. The company does not believe that any one of these dimensions should be considered, without due regard to all of these other factors, in determining the ability of potential nominees to fill executive officers positions. 146 Table of Contents As of the date of this proxy circular, the number and percentage of executive officers of the company and its major subsidiaries who are members of the designated groups are: Designated group (a) Number Percent (%) Women 14 of 26 54 Aboriginal peoples 0 of 26 0 Persons with disabilities 0 of 26 0 Members of visible minorities 0 of 26 0 (a) Defined under the Employment Equity Act (Canada) The above diversity disclosure relies on voluntary self-identification by executive officers, and therefore only represents the information of individuals who have chosen to self-identify. The information has not been independently verified by the company. Shareholder engagement Shareholder engagement strategy focuses on wide-ranging dialogue between shareholders and management. The company’s senior management regularly meet with institutional investors and shareholders through industry conferences, roadshows and company hosted investor events. In response to COVID-19 and to ensure the health and safety of our employees, investors and shareholders, these meetings were held exclusively in a virtual format for the balance of 2020. Materials from these conferences and hosted events are available on the company’s website. Also in response to COVID-19 and to ensure the health and safety of its shareholders, directors, officers and stakeholders, the company took a number of steps to ensure active engagement through the annual meeting that was held in a virtual only format. Shareholders were given the opportunity to register a proxyholder to attend and ask questions in real time, and the company encouraged engagement from shareholders prior to the event. This format also allowed shareholders who may not otherwise have been able to attend in person to log in as a guest and follow the meeting. The webcast is available on the company website along with speeches and presentations from the annual general meeting and the outcome of the voting on each resolution. The company also hosts regular quarterly earnings calls in connection with earnings releases, and archives of these calls (including transcripts) are available on Imperial’s website for one year after each call. These calls allow the company to provide more insight and context regarding the company’s performance, as well as directly address questions from the investment community. The company annually solicits questions and comments from shareholders through the annual meeting of shareholders. The comments received are reviewed by senior management providing them with an indication of areas of interest to our shareholders, and those requiring a response are answered individually. In addition, the company’s Investor Relations team proactively reaches out to shareholders to obtain their views on matters identified broadly by shareholders, including with respect to environment, social and governance topics and to solicit feedback on the company’s approach to executive compensation. The Investor Relations team is available to respond to shareholder and investor queries throughout the year. 147 Table of Contents Largest shareholder Exxon Mobil Corporation is the majority shareholder of the company, holding 69.6% of the company’s shares. To the knowledge of the directors and executive officers of the company, the only shareholder who, as of February 16, 2021, owned beneficially, or exercised control or direction over, directly or indirectly, more than five percent of the outstanding common shares of the company is Exxon Mobil Corporation, 5959 Las Colinas Boulevard, Irving, Texas 75039-2298, which owns beneficially 510,916,893 common shares, representing approximately 69.6 percent of the outstanding voting shares of the company. As a consequence, the company is a “controlled company” for purposes of the listing standards of the NYSE American LLC and a “majority controlled company” for purposes of the TSX Company Manual. Transactions with Exxon Mobil Corporation The company has written procedures and controls that require any transactions between the company and ExxonMobil and its subsidiaries to be reviewed by controllers, tax, treasurers and legal to ensure that each agreement meets the company’s policies and procedures, is fair, and complies with legal and tax requirements. These agreements may also be subject to review by the chairman, president, and chief executive officer. Annual training is provided for key individuals to ensure awareness of the requirements for identifying related party transactions, and procedures are in place to ensure reporting of these transactions is complete and accurate. Related party transactions with ExxonMobil and its subsidiaries are analyzed and reviewed by management on a quarterly basis to understand any significant variances from period to period, and reviewed with the board of directors on an annual basis. On June 27, 2019, the company implemented a 12-month “normal course” share purchase program. Between June 27, 2019 and June 26, 2020, the company purchased 8,724,518 common shares on the open market and a corresponding 19,972,996 common shares from ExxonMobil concurrent with, but outside of the program to maintain its shareholding at approximately 69.6 percent. In response to market conditions, the company announced the suspension of purchases under this program on April 1, 2020.