What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-03 · 124 added, 128 removed, 27 unchanged (90% of the section changed)

Management’s discussion and analysis of financial condition and results of operations

Operating results

In early 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 through most areas of the world resulting in substantial reductions in consumer and business activity and significantly reduced 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.

Through 2021, demand for petroleum and petrochemical products has continued to recover, with each of the company’s sequential quarterly financial results benefiting from stronger prices when compared to the prior quarter.

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

Looking beyond the volatility marking recent economic conditions, the company’s annual planning process provides an opportunity to re-affirm

the fundamentals of supply and demand that underpin our businesses.

Consideration is given to a diverse set of risks and other factors that may influence future energy supply and demand trends, including technological advancements, regulation and government policies, climate change, greenhouse gas restrictions, and other general economic conditions.

The company views climate change risks as a global issue that requires collaboration among governments, private companies, consumers and other stakeholders to create meaningful solutions.

These should meet the world’s increasing demand for affordable and reliable energy while creating opportunities to transition to a lower carbon future.

The variety of potential transition pathways for society to a lower-carbon future, influenced by assumptions regarding economic growth, technology and governmental policy, indicates a wide range of uncertainty for the types and demand levels of energy.

The board of directors evaluates climate change risk in the context of overall enterprise risk, including other operational, strategic, and financial risks.

The company considers the interactions among these factors as it pursues a strategy that is resilient to a wide range of potential pathways for society’s energy transition while continuing to grow shareholder value.

It takes into account emerging industry and economic conditions and market and government policy uncertainties in developing its strategic plans and longer-term price views as part of its annual business planning process.

The company continues to make progress on its greenhouse gas emission reduction plans and efforts to position the company for success in a lower-carbon energy future.

It expects to play an important role in providing energy and products that are critical to economic growth while minimizing environmental impacts and supporting society’s ambition to achieve a lower-carbon energy future.

The company continues to analyze internal and external scenarios of future energy markets to create a deeper understanding of what resiliency requires and which opportunities could emerge, but the assumptions and outcome of any given scenario or set of scenarios come with a high degree of uncertainty.

To the extent the planning process results in any significant changes to the company’s current development plans for its portfolio, certain assets could be at risk for impairment.

The company will complete any required asset recoverability assessments in connection with the preparation and review of the company’s year-end

financial statements for inclusion in its 2021 Form 10-K.

Until these activities are complete, it is not practicable to reasonably estimate the existence or range of potential future impairments.

Third quarter 2021 vs.

third quarter 2020

The company recorded net income of $908 million or $1.29 per share on a diluted basis in the third quarter of 2021, up from net income of $3 million or $0.00 per share in the same period of 2020.

financial measures and other specified financial measures

Certain measures included in this document are not prescribed by U.S.

Generally Accepted Accounting Principles (GAAP).

These measures constitute “non-GAAP

financial measures” under Securities and Exchange Commission Regulation G, and “specified financial measures” under National Instrument 52-112

and Other Financial Measures Disclosure

of the Canadian Securities Administrators.

Reconciliation of these non-GAAP

financial measures to the most comparable GAAP measure, and other information required by these regulations have been provided.

financial measures and specified financial measures are not standardized financial measures under GAAP and do not have a standardized definition.

As such, these measures may not be directly comparable to measures presented by other companies, and should not be considered a substitute for GAAP financial measures.

Net income (loss) excluding identified items

Net income (loss) excluding identified items is a non-GAAP

financial measure that is total net income (loss) excluding individually significant non-operational

events with an absolute corporate total earnings impact of at least $100 million in a given quarter.

The net income (loss) impact of an identified item for an individual segment in a given quarter may be less than $100 million when the item impacts several segments or several periods.

The most directly comparable financial measure that is disclosed in the financial statements is net income (loss) within the company’s Consolidated statement of income.

Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant non-operational

events from business results.

The company believes this view provides investors increased transparency into business results and trends, and provides investors with a view of the business as seen through the eyes of management.

Net income (loss) excluding identified items is not meant to be viewed in isolation or as a substitute for net income (loss) as prepared in accordance with U.S.

All identified items are presented on an after-tax

Reconciliation of net income (loss) excluding identified items

There were no identified items in the first quarter of 2022 and 2021.

IMPERIAL OIL LIMITED

Upstream recorded net income of $524 million in the third quarter of 2021, compared to a net loss of $74 million in the same period of 2020.

Improved results reflect higher realizations of about $730 million and higher volumes of about $350 million.

These items were partially offset by higher operating expenses of about $210 million, higher royalties of about $190 million and unfavourable foreign exchange impacts of about $60 million.

West Texas Intermediate (WTI) averaged US$70.52 per barrel in the third quarter of 2021, up from US$40.93 per barrel in the same quarter of 2020.

Western Canada Select (WCS) averaged US$57.08 per barrel and US$31.81 per barrel for the same periods.

The WTI / WCS differential averaged approximately US$13 per barrel for the third quarter of 2021, up from around US$9 in the same period of 2020.

The Canadian dollar averaged US$0.79 in the third quarter of 2021, an increase of US$0.04 from the third quarter of 2020.

Imperial’s average Canadian dollar realizations for bitumen increased in the quarter, generally in line with WCS.

Bitumen realizations averaged $60.44 per barrel in the third quarter of 2021, up from $35.95 per barrel in the third 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 $85.94 per barrel in the third quarter of 2021, up from $50.79 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 274,000 barrels per day in the third quarter (194,000 barrels Imperial’s share), up from 189,000 barrels per day (134,000 barrels Imperial’s share) in the third quarter of 2020.

Higher production was primarily driven by the absence of a prior year third-party pipeline outage, market-demand production balancing, and impacts associated with planned turnaround activities.

Gross production of Cold Lake bitumen averaged 135,000 barrels per day in the third quarter, up from 131,000 barrels per day in the same period of 2020.

The company’s share of gross production from Syncrude averaged 78,000 barrels per day, up from 67,000 barrels per day in the third quarter of 2020.

Higher production was primarily driven by the absence of the prior year turnaround.

Downstream recorded net income of $293 million in the third quarter of 2021, compared to net income of $77 million in the same period of 2020.

Improved results primarily reflect higher margins of about $280 million.

Refinery throughput averaged 404,000 barrels per day, up from 341,000 barrels per day in the third quarter of 2020.

Capacity utilization was 94 percent, up from 81 percent in the third quarter of 2020.

Higher throughput was driven by increased demand.

Petroleum product sales were 485,000 barrels per day, up from 449,000 barrels per day in the third quarter of 2020.

Improved petroleum product sales were mainly due to increased demand.

Chemical net income was $121 million in the third quarter, up from $27 million in the same quarter of 2020, primarily due to higher polyethylene margins.

Corporate and other expenses were $30 million in the third quarter, up from $27 million in the same period of 2020.

Current business environment

During the COVID-19

pandemic, industry investment to maintain and increase production capacity was restrained to preserve capital, resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered.

Across late 2021 and early 2022, this dynamic, along with supply chain constraints, and a continuation of demand recovery led to a steady increase in oil and natural gas prices.

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

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

Operating results

First quarter 2022 vs.

first quarter 2021

First Quarter

millions of Canadian dollars, unless noted

Net income (loss) (U.S.

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

Net income (loss) factor analysis

millions of Canadian dollars

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

Average bitumen realizations increased by $42.17 per barrel generally in line with WCS and synthetic crude oil realizations increased by $49.83 per barrel generally in line with WTI.

Volumes – Lower volumes primarily driven by extreme cold weather and unplanned downtime at Kearl.

Royalty – Higher royalties primarily driven by improved commodity prices.

Marker prices and average realizations

First Quarter

Canadian dollars, unless noted

West Texas Intermediate (US$)

Western Canada Select (US$)

WTI/WCS Spread (US$)

Bitumen (per barrel)

Synthetic crude oil (per barrel)

Average foreign exchange rate (US$)

IMPERIAL OIL LIMITED

Nine months 2021 vs.

nine months 2020

Net income in the first nine months of 2021 was $1,666 million, or $2.31 per share on a diluted basis, compared to a net loss of $711 million or $0.97 per share in the first nine months of 2020.

Upstream recorded net income of $850 million for the first nine months of the year, compared to a net loss of $1,126 million in 2020.

Improved results reflect higher realizations of about $2,570 million and higher volumes of about $620 million.

These items were partially offset by higher royalties of about $490 million, higher operating expenses of about $490 million, and unfavourable foreign exchange impacts of about $180 million.

West Texas Intermediate averaged US$65.04 per barrel in the first nine months of 2021, up from US$38.10 per barrel in 2020.

Western Canada Select averaged US$52.45 per barrel and US$24.72 per barrel for the same periods.

The WTI / WCS differential of approximately US$13 per barrel in the first nine months of 2021, was generally in line with the same period of 2020.

The Canadian dollar averaged US$0.80 in the first nine months of 2021, an increase of US$0.06 from 2020.

Imperial’s average Canadian dollar realizations for bitumen increased in the first nine months of 2021, generally in line with WCS.

Bitumen realizations averaged $55.30 per barrel, up from $22.24 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 $77.62 per barrel, up from $49.06 per barrel in the same period of 2020.

Total gross production of Kearl bitumen averaged 260,000 barrels per day in the first nine months of 2021 (185,000 barrels Imperial’s share), up from 202,000 barrels per day (143,000 barrels Imperial’s share) in the same period of 2020.

Higher production was primarily driven by the absence of prior year production balancing with market demands and the outage of a third-party pipeline.

Gross production of Cold Lake bitumen averaged 139,000 barrels per day in the first nine months of 2021, up from 131,000 barrels per day in the same period of 2020.

During the first nine months of 2021, the company’s share of gross production from Syncrude averaged 68,000 barrels per day, up from 63,000 barrels per day in the same period of 2020.

Downstream net income was $645 million for the first nine months of the year, up from $447 million in the same period of 2020.

Results have improved due to higher margins of about $330 million, partially offset by unfavourable foreign exchange impacts of about $120 million.

Refinery throughput averaged 367,000 barrels per day in the first nine months of 2021, up from 334,000 barrels per day in the same period of 2020.

Capacity utilization was 86 percent, up from 79 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 442,000 barrels per day in the first nine months of 2021, up from 423,000 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 $297 million in the first nine months of 2021, up from $55 million in the same period of 2020, primarily due to higher polyethylene margins.

Corporate and other expenses were $126 million in the first nine months of 2021, up from $87 million in the same period of 2020, mainly due to higher share-based compensation costs.

First Quarter

thousands of barrels per day

Kearl (Imperial’s share)

Syncrude (Imperial’s share) (a)

Kearl total gross production (thousands of barrels per day)

(a) In the first quarter of 2022, Syncrude (Imperial’s share) gross production included about 1 thousand barrels per day of bitumen (2021 - rounded to 0 thousand barrels per day) that was exported to the operator’s facilities using an existing interconnect pipeline.

Lower production at Kearl was primarily a result of extreme cold weather and unplanned downtime.

Net income (loss) factor analysis

millions of Canadian dollars

Margins – Higher margins primarily reflect improved market conditions.

Refinery utilization and petroleum product sales

First Quarter

thousands of barrels per day, unless noted

Refinery throughput

Refinery capacity utilization (percent)

Petroleum product sales

Improved refinery throughput in the first quarter of 2022 primarily reflects increased demand.

Improved petroleum product sales in the first quarter of 2022 were mainly due to increased demand.

Net income (loss) factor analysis

millions of Canadian dollars

IMPERIAL OIL LIMITED

Corporate and other

First Quarter

millions of Canadian dollars

Net income (loss) (U.S.

Liquidity and capital resources

Cash flow generated from operating activities was $1,947 million in the third quarter, up from $875 million in the corresponding period in 2020, primarily reflecting higher Upstream realizations and Downstream margins.

Investing activities used net cash of $259 million in the third quarter, compared with $125 million used in the same period of 2020.

Full-year 2021 capital and exploration expenditures are now expected to be around $1.1 billion, down from previous guidance of $1.2 billion.

Cash used in financing activities was $589 million in the third quarter, compared with $166 million used in the third quarter of 2020.

Dividends paid in the third quarter of 2021 were $195 million.

The per share dividend paid in the third quarter was $0.27, an increase of $0.05 from the same period of 2020.

During the third quarter, the company, under its share purchase program, purchased about 9.0 million shares for $313 million, including shares purchased from Exxon Mobil Corporation.

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

The company’s cash balance was $1,875 million at September 30, 2021, versus $817 million at the end of third quarter 2020.

During the second quarter of 2021, the company extended the maturity dates of two of its short-term lines of credit, totalling $750 million, to May 2023 and extended its $300 million committed short-term line 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 $3,844 million in the first nine months of 2021, up from $482 million in the same period of 2020, primarily reflecting higher Upstream realizations and Downstream margins.

Investing activities used net cash of $613 million in the first nine months of 2021, up from $605 million used in the same period of 2020.

Full-year 2021 capital and exploration expenditures are now expected to be around $1.1 billion, down from previous guidance of $1.2 billion.

Cash used in financing activities was $2,127 million in the first nine months of 2021, up from $778 million used in the same period of 2020.

Dividends paid in the first nine months of 2021 were $518 million.

The per share dividend paid in the first nine months of 2021 was $0.71, up from $0.66 in the same period of 2020.

During the first nine months of 2021, the company, under its share purchase program, purchased about 38.5 million shares for $1,484 million, including shares purchased from Exxon Mobil Corporation.

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

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.

In connection with the same project, commitments under “Other long-term purchase agreements” as reported in Imperial’s Form 10-K

decreased by approximately $2.9 billion.

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

First Quarter

millions of Canadian dollars

Cash flow generated from (used in):

Operating activities

Investing activities

Financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at period end

Cash flow generated from operating activities primarily reflects higher Upstream realizations, improved Downstream margins, and favourable working capital impacts.

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

Cash flow used in financing activities primarily reflects:

First Quarter

millions of Canadian dollars, unless noted

Dividends paid

Per share dividend paid (dollars)

Share repurchases (a)

Number of shares purchased (millions)

(a) Share repurchases were made under the company’s normal course issuer bid program, and include shares purchased from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid.

The company completed share repurchases under its normal course issuer bid on January 31, 2022.

The company did not purchase shares during the first quarter of 2021.

On April 29, 2022 the company announced its intention to launch a substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $2,500,000,000 of its common shares.

The substantial issuer bid will be made through a modified Dutch auction, with a tender price range to be determined by the company at the time of commencement of the offer.

Shares may also be tendered by way of a proportionate tender, which will result in a shareholder maintaining their proportionate share ownership.

ExxonMobil has advised Imperial that it intends to make a proportionate tender in connection with the offer in order to maintain its proportionate share ownership at approximately 69.6 percent following completion of the offer.

Nothing in this report shall constitute an offer to purchase or a solicitation of an offer to sell any shares.

IMPERIAL OIL LIMITED

3 unchanged sentences

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

the variety of potential transition pathways for society to a lower-carbon future indicating a wide range of uncertainty for types and demand levels of energy;

the company’s efforts with respect to climate risk, including the evaluation of climate risk in the context of overall enterprise risk and the ability to pursue a strategy resilient to a wide range of pathways for society’s energy transition while growing shareholder value;

progress on greenhouse gas emission reduction plans and efforts to position the company for success in a lower-carbon energy future;

and the company’s role in providing products critical to economic growth, minimizing environmental impacts and supporting society’s ambition to achieve a lower-carbon energy future;

plans for purchases under the amended share purchase program;

and full-year capital and exploration expenditures of $1.1 billion for 2021.

the company’s intention to initiate a substantial issuer bid, including the size, timing for determining the terms and pricing, commencement, structure and ExxonMobil’s intent to make a proportionate tender;

updated earnings sensitivities;

and the company’s continued evaluation of renewal of its normal course issuer bid program.

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

3 unchanged sentences

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

the adoption and impact of new facilities, technologies or products, including on reductions to greenhouse gases;

plans to mitigate climate risk and the resilience of company strategy to a range of pathways for society’s energy transition;

applicable laws and government policies, including restrictions in response to COVID-19

and environmental regulation;

that the necessary exemptive relief to proceed with the substantial issuer bid under applicable securities laws will be received on the timeline anticipated;

ExxonMobil making a proportionate tender in connection with the substantial issuer bid;

cash generation, financing sources and capital structure, including the timing and amount of share repurchases;

capital and environmental expenditures;

the adoption and impact of new facilities or technologies on reductions to GHG emissions intensity;

receipt of regulatory approvals;

applicable laws and government policies, including with respect to climate change and GHG emissions reductions;

progression of COVID-19

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

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

and its impacts on Imperial’s ability to operate its assets;

the company’s ability to effectively execute on its business continuity plans and pandemic response activities;

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

on demand and the occurrence of wars;

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;

environmental regulation, including climate change and greenhouse gas regulation and changes to such regulation;

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

management effectiveness and disaster response preparedness, including business continuity plans in response to COVID-19;

unanticipated technical or operational difficulties;

the receipt, in a timely manner, of regulatory and third-party approvals;

project management and schedules and timely completion of projects;

the results of research programs and new technologies, and ability to bring new technologies to commercial scale on a cost-competitive basis;

unanticipated technical or operational difficulties;

management effectiveness and disaster response preparedness, including business continuity plans in response to COVID-19;

operational hazards and risks;

the receipt, in a timely manner, of regulatory and third-party approvals;

availability and performance of third-party service providers, including in light of restrictions related to COVID-19;

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

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

the results of research programs and new technologies, and ability to bring new technologies to commercial scale on a cost-competitive basis;

cybersecurity incidents, including increased reliance on remote working arrangements;

currency exchange rates;

1 unchanged sentence

and other factors discussed in Item 1A risk factors and Item 7 management’s discussion and analysis of financial condition and results of operations of Imperial Oil Limited’s most recent annual report on Form 10-K.

and subsequent interim reports on Form 10-Q.

Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial.

3 unchanged sentences

IMPERIAL OIL LIMITED

Quantitative and qualitative disclosures about market risk

Information about market risks for the nine months ended September 30, 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 and on page 24 of the Form 10-Q

for the quarter ended June 30, 2021.

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