What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-05 · 93 added, 50 removed, 44 unchanged (76% of the section changed)

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Operating results

First quarter 2021 vs.

first quarter 2020

In early 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects.

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countries which led to increases in inventory levels and sharp declines in prices for crude oil, natural gas, and petroleum products.

While demand has rebounded considerably, the lingering effects of the weak 2020 business environment has continued to have a negative impact on financial results in 2021 when compared to periods prior to the pandemic.

Signs of improvement are emerging including higher crude and gas prices through the quarter and stronger Downstream and Chemical margins.

The company recorded net income of $392 million or $0.53 per share on a diluted basis in the first quarter of 2021, compared to a net loss of $188 million or $0.25 per share in the same period of 2020.

First quarter 2020 results included non-cash

charges of $281 million relating to the revaluation of the company’s inventory.

Upstream recorded net income of $79 million in the first quarter of 2021, compared to a net loss of $608 million in the same period of 2020.

Improved results reflect higher realizations of about $700 million and the absence of the prior year non-cash

charge of $229 million, related to the revaluation of the company’s inventory.

These items were partially offset by higher royalties of about $100 million, unfavourable foreign exchange effects of about $70 million, and higher operating expenses of about $60 million.

West Texas Intermediate (WTI) averaged US$58.14 per barrel in the first quarter of 2021, up from US$45.78 per barrel in the same quarter of 2020.

Through 2021, demand for petroleum and petrochemical products has continued to improve leading to stronger prices and margins across all segments.

Some lingering effects of the weak 2020 business environment continued to have a negative impact on financial results in the first half of 2021 when compared to periods prior to the pandemic.

The company continues to closely monitor industry and global economic conditions, including recovery from the COVID-19

Second quarter 2021 vs.

second quarter 2020

The company recorded net income of $366 million or $0.50 per share on a diluted basis in the second quarter of 2021, compared to a net loss of $526 million or $0.72 per share in the same period of 2020.

Second quarter 2020 results included a reversal of the non-cash

inventory revaluation charge of $281 million recorded in the first quarter of 2020.

Upstream recorded net income of $247 million in the second quarter of 2021, compared to a net loss of $444 million in the same period of 2020.

Improved results reflect higher realizations of about $1,100 million and higher volumes of about $280 million.

These items were partially offset by the absence of the prior year reversal of the non-cash

charge of $229 million related to the revaluation of the company’s inventory, higher operating expenses of about $230 million, higher royalties of about $200 million and unfavourable foreign exchange impacts of about $50 million.

West Texas Intermediate (WTI) averaged US$66.17 per barrel in the second quarter of 2021, up from US$27.83 per barrel in the same quarter of 2020.

Western Canada Select (WCS) averaged US$54.64 per barrel and US$16.73 per barrel for the same periods.

The WTI / WCS differential averaged approximately US$13 per barrel for the first quarter of 2021, compared to around US$20 in the same period of 2020.

The Canadian dollar averaged US$0.79 in the first quarter of 2021, an increase of US$0.05 from the first quarter of 2020.

The WTI / WCS differential averaged approximately US$12 per barrel for the second quarter of 2021, up from around US$11 in the same period of 2020.

The Canadian dollar averaged US$0.81 in the second quarter of 2021, an increase of US$0.09 from the second quarter of 2020.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, primarily due to an increase in WCS.

Bitumen realizations averaged $47.19 per barrel in the first quarter of 2021, up from $18.08 per barrel in the first quarter of 2020.

Bitumen realizations averaged $57.26 per barrel in the second quarter of 2021, up from $12.82 per barrel in the second quarter of 2020.

The company’s average Canadian dollar realizations for synthetic crude increased generally in line with WTI, adjusted for changes in exchange rates and transportation costs.

Synthetic crude realizations averaged $67.41 per barrel in the first quarter of 2021, up from $58.94 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 251,000 barrels per day in the first quarter (178,000 barrels Imperial’s share), up from 226,000 barrels per day (160,000 barrels Imperial’s share) in the first quarter of 2020.

Higher production was primarily driven by the supplemental crushing facilities.

Gross production of Cold Lake bitumen averaged 140,000 barrels per day in the first quarter, in line with 140,000 barrels per day in the same period of 2020.

The company’s share of gross production from Syncrude averaged 79,000 barrels per day, up from 73,000 barrels per day in the first quarter of 2020.

Downstream recorded net income of $292 million in the first quarter of 2021, compared to net income of $402 million in the same period of 2020.

Results were negatively impacted by lower margins of about $150 million and lower sales volumes of about $60 million.

These items were partially offset by the absence of the prior year non-cash

charge of $52 million, related to the revaluation of the company’s inventory and lower operating expenses of about $50 million.

Synthetic crude realizations averaged $80.80 per barrel in the second quarter of 2021, up from $32.20 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 255,000 barrels per day in the second quarter (181,000 barrels Imperial’s share), up from 190,000 barrels per day (135,000 barrels Imperial’s share) in the second quarter of 2020.

Higher production was mainly due to the absence of prior year production balancing with market demands, partially offset by impacts associated with planned turnaround activities.

Gross production of Cold Lake bitumen averaged 142,000 barrels per day in the second quarter, up from 123,000 barrels per day in the same period of 2020.

Higher production was primarily due to improved reliability and lower scheduled downtime.

IMPERIAL OIL LIMITED

Refinery throughput averaged 364,000 barrels per day, compared to 383,000 barrels per day in the first quarter of 2020.

Capacity utilization was 85 percent, compared to 91 percent in the first quarter of 2020.

Lower refinery throughput was primarily driven by lower market demand due to the COVID-19

Petroleum product sales were 414,000 barrels per day, compared to 462,000 barrels per day in the first quarter of 2020.

Lower petroleum product sales were primarily driven by reduced demand due to the COVID-19

Chemical net income was $67 million in the first quarter, up from net income of $21 million in the same quarter of 2020.

Corporate and other expenses were $46 million in the first quarter, up from $3 million in the same period of 2020, mainly due to higher share-based compensation costs.

The company’s share of gross production from Syncrude averaged 47,000 barrels per day, compared to 50,000 barrels per day in the second quarter of 2020.

Lower production was primarily associated with planned turnaround activities, partially offset by the absence of prior year production balancing with market demands.

Downstream recorded net income of $60 million in the second quarter of 2021, compared to a net loss of $32 million in the same period of 2020.

Improved results reflect higher margins of about $200 million, partially offset by unfavourable foreign exchange impacts of about $70 million and the absence of the prior year reversal of the non-cash

charge of $52 million related to the revaluation of the company’s inventory.

Refinery throughput averaged 332,000 barrels per day, up from 278,000 barrels per day in the second quarter of 2020.

Capacity utilization was 78 percent, up from 66 percent in the second quarter of 2020.

Higher throughput was driven by reduced impacts associated with the COVID-19

pandemic, partially offset by a planned turnaround at Strathcona.

Petroleum product sales were 429,000 barrels per day, up from 357,000 barrels per day in the second quarter of 2020.

Improved petroleum product sales were mainly due to reduced impacts associated with the COVID-19

Chemical net income was $109 million in the second quarter, up from net income of $7 million in the same quarter of 2020, primarily due to higher polyethylene margins.

Corporate and other expenses were $50 million in the second quarter, compared to $57 million in the same period of 2020.

IMPERIAL OIL LIMITED

Six months 2021 vs.

six months 2020

Net income in the first six months of 2021 was $758 million, or $1.04 per share on a diluted basis, compared to a net loss of $714 million or $0.97 per share in the first six months of 2020.

Upstream recorded net income of $326 million for the first six months of the year, compared to a net loss of $1,052 million in 2020.

Improved results reflect higher realizations of about $1,810 million and higher volumes of about $280 million.

These items were partially offset by higher royalties of about $300 million, higher operating expenses of about $290 million, and unfavourable foreign exchange impacts of about $120 million.

West Texas Intermediate averaged US$62.22 per barrel in the first six months of 2021, up from US$36.66 per barrel in 2020.

Western Canada Select averaged US$50.14 per barrel and US$21.20 per barrel for the same periods.

The WTI / WCS differential narrowed to approximately US$12 per barrel in the first six months of 2021, from around US$15 per barrel in the same period of 2020.

The Canadian dollar averaged US$0.80 in the first six months of 2021, an increase of US$0.07 from 2020.

Imperial’s average Canadian dollar realizations for bitumen increased in the first six months of 2021 primarily due to an increase in WCS.

Bitumen realizations averaged $52.45 per barrel, up from $15.54 per barrel in the same period of 2020.

The company’s average Canadian dollar realizations for synthetic crude increased generally in line with WTI, adjusted for changes in exchange rates and transportation costs.

Synthetic crude realizations averaged $72.42 per barrel, up from $48.10 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 253,000 barrels per day in the first six months of 2021 (180,000 barrels Imperial’s share), up from 208,000 barrels per day (147,000 barrels Imperial’s share) in the same period of 2020.

Higher production was mainly due to the absence of prior year production balancing with market demands, partially offset by impacts associated with planned turnaround activities.

Gross production of Cold Lake bitumen averaged 141,000 barrels per day in the first six months of 2021, up from 131,000 barrels per day in the same period of 2020.

Higher production was primarily due to improved reliability.

During the first six months of 2021, the company’s share of gross production from Syncrude averaged 63,000 barrels per day, up from 61,000 barrels per day in the same period of 2020.

Higher production was primarily associated with the absence of prior year production balancing with market demands and unplanned downtime, partially offset by planned turnaround activities.

Downstream net income was $352 million for the first six months of the year, compared to $370 million in the same period of 2020.

Results were negatively impacted by unfavourable foreign exchange impacts of about $120 million, partially offset by higher margins of about $50 million and lower operating expenses of about $50 million.

Refinery throughput averaged 348,000 barrels per day in the first six months of 2021, up from 330,000 barrels per day in the same period of 2020.

Capacity utilization was 81 percent, up from 78 percent in the same period of 2020.

Higher throughput was driven by reduced impacts associated with the COVID-19

pandemic, partially offset by a planned turnaround at Strathcona.

Petroleum product sales were 421,000 barrels per day in the first six months of 2021, up from 409,000 barrels per day in the same period of 2020.

Improved petroleum product sales were mainly due to reduced impacts associated with the COVID-19

Chemical net income was $176 million in the first six months of 2021, up from $28 million in the same period of 2020, primarily due to higher polyethylene margins.

Corporate and other expenses were $96 million in the first six months of 2021, up from $60 million in the same period of 2020, mainly due to higher share-based compensation costs.

IMPERIAL OIL LIMITED

Liquidity and capital resources

Cash flow generated from operating activities was $1,045 million in the first quarter, up from $423 million in the corresponding period in 2020, primarily reflecting higher Upstream realizations.

Investing activities used net cash of $147 million in the first quarter, compared with $308 million used in the same period of 2020, primarily reflecting lower additions to property, plant and equipment.

Cash used in financing activities was $202 million in the first quarter, compared with $445 million used in the first quarter of 2020.

Dividends paid in the first quarter of 2021 were $162 million.

The per share dividend paid in the first quarter was $0.22, consistent with the same period of 2020.

The company did not purchase shares during the first quarter.

In the first quarter of 2020, the company purchased about 9.8 million shares for $274 million, including shares purchased from Exxon Mobil Corporation.

The company’s cash balance was $1,467 million at March 31, 2021, versus $1,388 million at the end of first quarter 2020.

Cash flow generated from operating activities was $852 million in the second quarter, compared with cash flow used in operating activities of $816 million in the corresponding period in 2020, primarily reflecting higher Upstream realizations and favourable working capital impacts.

Investing activities used net cash of $207 million in the second quarter, compared with $172 million used in the same period of 2020.

Cash used in financing activities was $1,336 million in the second quarter, compared with $167 million used in the second quarter of 2020.

Dividends paid in the second quarter of 2021 were $161 million.

The per share dividend paid in the second quarter was $0.22, consistent with the same period of 2020.

During the second quarter, the company, under its share purchase program, purchased about 29.5 million shares for $1,171 million, including shares purchased from ExxonMobil Corporation.

In the second quarter of 2020, the company did not purchase any shares under its share purchase program.

The company’s cash balance was $776 million at June 30, 2021, versus $233 million at the end of second quarter 2020.

In May 2021, the company extended the maturity date of two of its existing committed short-term lines of credit to May 2023, totalling $750 million.

In June 2021, the company extended the maturity date of one of its existing $300 million committed short-term lines of credit to June 2022.

The company has not drawn on any of its $1,300 million of available credit facilities.

Cash flow generated from operating activities was $1,897 million in the first six months of 2021, compared to cash flow used in operating activities of $393 million in the same period of 2020, primarily reflecting higher Upstream realizations and favourable working capital impacts.

Investing activities used net cash of $354 million in the first six months of 2021, compared to $480 million used in the same period of 2020, primarily reflecting lower additions to property, plant and equipment.

Cash used in financing activities was $1,538 million in the first six months of 2021, up from $612 million used in the same period of 2020.

Dividends paid in the first six months of 2021 were $323 million.

The per share dividend paid in the first six months of 2021 was $0.44, consistent with in the same period of 2020.

During the first six months of 2021, the company, under its share purchase program, purchased about 29.5 million shares for $1,171 million.

In the first six months of 2020, the company purchased about 9.8 million shares for $274 million.

At March 31, 2021, due to the termination of transportation services agreements related to a third-party pipeline project, the company recognized a liability of $62 million, previously reported as a contingent liability in Note 10 of Imperial’s Form 10-K.

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The majority of these commitments related to years 2026 and beyond.

On April 30, 2021, the company announced an amendment to its normal course issuer bid to increase the number of common shares that it may purchase.

Under the amendment, the number of common shares that may be purchased will increase to a maximum of 29,363,070 common shares during the period June 29, 2020 to June 28, 2021, 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.

No other provisions of the normal course issuer bid have changed.

The company currently anticipates maximizing its share purchases under the program.

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

On April 30, 2021, the company announced an amendment to its normal course issuer bid to increase the number of common shares that were available to be purchased.

Under the amendment, the number of common shares available for purchase increased to a maximum of 29,363,070 common shares during the period June 29, 2020 to June 28, 2021.

On June 23, 2021, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its existing share purchase program.

The program enables the company to purchase up to a maximum of 35,583,671 common shares during the period June 29, 2021 to June 28, 2022.

This maximum includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid.

As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent.

The program will end should the company purchase the maximum allowable number of shares, or on June 28, 2022.

IMPERIAL OIL LIMITED

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

signs of improvement emerging in the business environment through higher crude and gas prices and stronger downstream and chemical margins;

earnings sensitivities;

and plans for purchases under the amended share purchase program.

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and its impacts on Imperial’s ability to operate its assets, including the possible shutdown of facilities due to COVID-19

cash generation, financing sources and capital structure;

and capital and environmental expenditures could differ materially depending on a number of factors.

These factors include global, regional or local changes in supply and demand for oil, natural gas, and petroleum and petrochemical products and resulting price, differential and margin impacts, including foreign government action with respect to supply levels and prices and the impact of COVID-19

availability and allocation of capital;

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

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operational hazards and risks;

availability and allocation of capital;

currency exchange rates;

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IMPERIAL OIL LIMITED

Quantitative and qualitative disclosures about market risk

Information about market risks for the three months ended March 31, 2021, does not differ materially from that discussed on page 32 of the company’s annual report on Form 10-K

for the year ended December 31, 2020.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis