What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-04 · 116 added, 41 removed, 110 unchanged (59% of the section changed)

23 unchanged sentences

Reconciliation of net income (loss) excluding identified items

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

There were no identified items in the second quarter or year-to-date

2022 and 2021.

IMPERIAL OIL LIMITED

2 unchanged sentences

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.

Across late 2021 and the first half of 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 and refining margins.

In the first half 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.

By the end of the second quarter, high prices had led to a tempering of demand for some products.

Commodity and product prices are expected to remain volatile given the current global economic and geopolitical uncertainty affecting supply and demand.

Operating results

First quarter 2022 vs.

first quarter 2021

First Quarter

Second quarter 2022 vs.

second quarter 2021

Second Quarter

millions of Canadian dollars, unless noted

5 unchanged sentences

Average bitumen realizations increased by $55.01 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $63.87 per barrel generally in line with WTI.

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

Volumes – Higher volumes primarily driven by the timing of turnaround activities at Syncrude, partially offset by downtime at Kearl.

Royalty – Higher royalties primarily driven by improved commodity prices.

Other – Includes higher operating expenses of about $180 million, primarily higher energy prices, partially offset by favourable foreign exchange impacts of about $60 million.

Marker prices and average realizations

First Quarter

Second Quarter

Canadian dollars, unless noted

West Texas Intermediate (US$)

Western Canada Select (US$)

WTI/WCS Spread (US$)

West Texas Intermediate (US$ per barrel)

Western Canada Select (US$ per barrel)

WTI/WCS Spread (US$ per barrel)

Bitumen (per barrel)

2 unchanged sentences

IMPERIAL OIL LIMITED

First Quarter

Second 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.

(a) In the second quarter of 2022, Syncrude gross production included about 2 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 downtime.

Higher production at Syncrude was primarily a result of the timing of turnaround activities.

Net income (loss) factor analysis

1 unchanged sentence

Margins – Higher margins primarily reflect improved market conditions.

Other – Includes lower turnaround impacts of about $130 million, reflecting the absence of turnaround activities at Strathcona refinery, partially offset by higher operating expenses of about $70 million, primarily higher energy costs.

Refinery utilization and petroleum product sales

First Quarter

Second Quarter

thousands of barrels per day, unless noted

2 unchanged sentences

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.

Improved refinery throughput in the second quarter of 2022 was primarily driven by reduced turnaround activity and increased demand.

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

Net income (loss) factor analysis

2 unchanged sentences

Corporate and other

First Quarter

Second Quarter

millions of Canadian dollars

1 unchanged sentence

Liquidity and capital resources

First Quarter

Second Quarter

millions of Canadian dollars

5 unchanged sentences

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 generated from operating activities primarily reflects higher Upstream realizations and improved Downstream margins.

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

Second Quarter

millions of Canadian dollars, unless noted

3 unchanged sentences

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.

(a) Share repurchases were made under the company’s substantial issuer bid that commenced on May 6, 2022 and expired on June 10, 2022.

Includes shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

On May 6, 2022, the company commenced a substantial issuer bid pursuant to which it offered to purchase for cancellation up to $2.5 billion of its common shares through a modified Dutch auction and proportionate tender offer.

The substantial issuer bid was completed on June 15, 2022, with the company taking up and paying for 32,467,532 common shares at a price of $77.00 per share, for an aggregate purchase of $2.5 billion and 4.9 percent of Imperial’s issued and outstanding shares as the close of business on May 2, 2022.

This included 22,597,379 shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

On June 27, 2022, 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 31,833,809 common shares during the period June 29, 2022 to June 28, 2023.

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, 2023.

Imperial plans to accelerate its share purchases under the normal course issuer bid program, and anticipates repurchasing all remaining allowable shares by the end of October 2022.

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

In June 2022, the company reduced its existing $500 million committed long-term line of credit to $250 million and extended the maturity date to June 30, 2023.

The company also extended one of its $250 million committed long-term lines of credit to June 30, 2024.

The company has not drawn on any of its outstanding $750 million of available credit facilities.

IMPERIAL OIL LIMITED

Six months 2022 vs.

six months 2021

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 $49.08 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $58.99 per barrel generally in line with WTI.

Volumes – Lower volumes primarily driven by downtime at Kearl, partially offset by the timing of turnaround activities at Syncrude.

Royalty – Higher royalties primarily driven by improved commodity prices.

Other – Includes higher operating expenses of about $220 million, primarily higher energy prices, partially offset by favourable foreign exchange impacts of about $60 million.

Average realizations and marker prices

Canadian dollars, unless noted

West Texas Intermediate (US$ per barrel)

Western Canada Select (US$ per barrel)

WTI/WCS Spread (US$ per barrel)

Bitumen (per barrel)

Synthetic crude oil (per barrel)

Average foreign exchange rate (US$)

IMPERIAL OIL LIMITED

thousands of barrels per day

Kearl (Imperial’s share)

Kearl total gross production (thousands of barrels per day)

(a) In 2022, Syncrude gross production included about 2 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 downtime.

Higher production at Syncrude was primarily a result of the timing of turnaround activities.

Net income (loss) factor analysis

millions of Canadian dollars

Margins – Higher margins primarily reflect improved market conditions.

Refinery utilization and petroleum product sales

thousands of barrels per day, unless noted

Refinery throughput

Refinery capacity utilization (percent)

Petroleum product sales

Improved refinery throughput in 2022 was primarily driven by reduced turnaround activity and increased demand.

Improved petroleum product sales in 2022 primarily reflects increased demand.

Net income (loss) factor analysis

millions of Canadian dollars

IMPERIAL OIL LIMITED

Corporate and other

millions of Canadian dollars

Net income (loss) (U.S.

Liquidity and capital resources

millions of Canadian dollars

Cash flow generated from (used in):

Operating activities

Investing activities

Financing activities

Increase (decrease) in cash and cash equivalents

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:

millions of Canadian dollars, unless noted

Dividends paid

Per share dividend paid (dollars)

Share repurchases (a)

Number of shares purchased (millions) (a)

(a) Share repurchases were made under the company’s normal course issuer bid program and substantial issuer bid that commenced on May 6, 2022 and expired on June 10, 2022.

Includes shares purchased from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid, and by way of a proportionate tender under the company’s substantial issuer bid.

IMPERIAL OIL LIMITED

Forward-looking statements

2 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 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.

purchases under the normal course issuer bid, including plans to accelerate completion by the end of October 2022;

the sale of XTO Energy Canada and expected closing timing, adjustments and estimated cash flow and gain;

and the expectation of commodity and product price volatility.

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

Actual future financial and operating results, including expectations and assumptions concerning demand growth and energy source, supply and mix;

commodity prices, foreign exchange rates and general market conditions;

production rates, growth and mix;

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

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;

for shareholder returns, assumptions such as cash flow forecasts, financing sources and capital structure, participation of the company’s majority shareholder and the results of periodic and ongoing evaluation of alternate uses of capital;

capital and environmental expenditures;

that regulatory approvals related to the sale of XTO Energy Canada will be received in a timely manner and the sale will close as anticipated;

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

3 unchanged sentences

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.

2 unchanged sentences

availability and allocation of capital;

unanticipated technical or operational difficulties;

operational hazards and risks;

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

project management and schedules and timely completion of projects;

unanticipated technical or operational difficulties;

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

operational hazards and risks;

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

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;

2 unchanged sentences

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.

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 six months ended June 30, 2022, does not differ materially from that discussed on page 33 of the company’s annual report on Form 10-K

for the year ended December 31, 2021 and on page 23 of the Form 10-Q for the quarter ended March 31, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis