IMPERIAL OIL LTD [IMO] Filings

Large accelerated file
r

Smaller reporting company

Non-accelerated filer

Emerging growth company

Accelerated filer

10-Q 1 d364768d10q.htm 10-Q 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

0-12014

IMPERIAL OIL LIMITED

(Exact name of registrant as specified in its charter)


CANADA		98-0017682
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

505 Quarry Park Boulevard S.E. Calgary, Alberta, Canada		T2C 5N1
(Address of principal executive offices)		(Postal Code)

1-800-567-3776

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
None		None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES

✓

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES

✓

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act of 1934.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act of 1934).

YES

✓

The number of common shares outstanding, as of June 30, 2022 was 636,676,182.

Table of Contents

IMPERIAL OIL LIMITED

Table of contents


			Page

PART I. FINANCIAL INFORMATION			3
Item 1. Financial statements			3
Consolidated statement of income			3
Consolidated statement of comprehensive income			4
Consolidated balance sheet			5
Consolidated statement of shareholders’ equity			6
Consolidated statement of cash flows			7
Notes to the consolidated financial statements			8
Item 2. Management’s discussion and analysis of financial condition and results of operations			20
Item 3. Quantitative and qualitative disclosures about market risk			28
Item 4. Controls and procedures			28

PART II. OTHER INFORMATION			29
Item 1. Legal proceedings			29
Item 2. Unregistered sales of equity securities and use of proceeds			29
Item 6. Exhibits			30

SIGNATURES			31

In this report all dollar amounts are expressed in Canadian dollars unless otherwise stated. This report should be read in conjunction with the company’s annual report on Form

10-K

for the year ended December 31, 2021. Note that numbers may not add due to rounding.

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.

In this report, unless the context otherwise indicates, reference to “the company” or “Imperial” includes Imperial Oil Limited and its subsidiaries.

Table of Contents

IMPERIAL OIL LIMITED

PART I. FINANCIAL INFORMATION

Item 1. Financial statements

Consolidated statement of income (U.S. GAAP, unaudited)



					Six Months
	Second Quarter				to June 30
millions of Canadian dollars	2022		2021		2022		2021
Revenues and other income
Revenues (a)		17,285		8,007		29,942		14,999
Investment and other income (note 3)		22		40		51		46
Total revenues and other income		17,307		8,047		29,993		15,045

Expenses
Exploration		1		2		3		4
Purchases of crude oil and products (b)		11,021		4,867		19,371		8,754
Production and manufacturing (c)		1,908		1,569		3,567		3,054
Selling and general (c)		191		200		416		389
Federal excise tax and fuel charge		553		465		1,032		869
Depreciation and depletion		451		450		877		944
Non-service pension and postretirement benefit		5		10		9		21
Financing (d) (note 5)		11		13		18		27
Total expenses		14,141		7,576		25,293		14,062

Income (loss) before income taxes		3,166		471		4,700		983

Income taxes		757		105		1,118		225

Net income (loss)		2,409		366		3,582		758

Per share information (Canadian dollars)
Net income (loss) per common share - basic (note 9)		3.63		0.51		5.37		1.04
Net income (loss) per common share - diluted (note 9)		3.63		0.50		5.36		1.04
(a) Amounts from related parties included in revenues.		5,175		1,405		9,134		2,913
(b) Amounts to related parties included in purchases of crude oil and products.		1,129		666		1,779		1,181
(c) Amounts to related parties included in production and manufacturing, and selling and general expenses.		116		106		234		222
(d) Amounts to related parties included in financing (note 5).		13		10		17		21

The information in the notes to consolidated financial statements is an integral part of these statements.

Table of Contents

IMPERIAL OIL LIMITED


Consolidated statement of comprehensive income (U.S. GAAP, unaudited)
				Six Months
	Second Quarter			to June 30
millions of Canadian dollars		2022	2021		2022	2021
Net income (loss)		2,409	366		3,582	758

Other comprehensive income (loss), net of income taxes
Postretirement benefits liability adjustment (excluding amortization)		-	-		24	54

Amortization of postretirement benefits liability adjustment included in net benefit costs		21	33		42	66
Total other comprehensive income (loss)		21	33		66	120

Comprehensive income (loss)		2,430	399		3,648	878

The information in the notes to consolidated financial statements is an integral part of these statements.

Table of Contents

IMPERIAL OIL LIMITED

Consolidated balance sheet (U.S. GAAP, unaudited)



	As at		As at
	June 30		Dec 31
millions of Canadian dollars	2022		2021
Assets
Current assets
Cash	2,867		2,153
Accounts receivable - net (a)	6,839		3,869
Inventories of crude oil and products	1,394		1,102
Materials, supplies and prepaid expenses	789		689
Total current assets	11,889		7,813
Investments and long-term receivables (b)	754		757
Property, plant and equipment,	57,222		56,762
less accumulated depreciation and depletion	(26,256	)	(25,522	)
Property, plant and equipment, net (note 11)	30,966		31,240
Goodwill	166		166
Other assets, including intangibles - net	1,117		806
Total assets	44,892		40,782

Liabilities
Current liabilities
Notes and loans payable	122		122
Accounts payable and accrued liabilities (a) (note 7)	7,947		5,184
Income taxes payable	2,018		248
Total current liabilities	10,087		5,554
Long-term debt (c) (note 6)	5,044		5,054
Other long-term obligations (note 7)	3,453		3,897
Deferred income tax liabilities	4,329		4,542
Total liabilities	22,913		19,047

Shareholders’ equity
Common shares at stated value (d) (note 9)	1,177		1,252
Earnings reinvested	21,913		21,660
Accumulated other comprehensive income (loss) (note 10)	(1,111	)	(1,177	)
Total shareholders’ equity	21,979		21,735

Total liabilities and shareholders’ equity	44,892		40,782

(a)	Accounts receivable - net included net amounts receivable from related parties of $1,888 million (2021 - $1,031 million).

(b)	Investments and long-term receivables included amounts from related parties of $296 million (2021 - $298 million).

(c)	Long-term debt included amounts to related parties of $4,447 million (2021 - $4,447 million).

(d)	Number of common shares authorized and outstanding were 1,100 million and 637 million, respectively (2021 - 1,100 million and 678 million, respectively).

The information in the notes to consolidated financial statements is an integral part of these statements.

Table of Contents

IMPERIAL OIL LIMITED

Consolidated statement of shareholders’ equity (U.S. GAAP, unaudited)



					Six Months
	Second Quarter				to June 30
millions of Canadian dollars	2022		2021		2022		2021
Common shares at stated value (note 9)
At beginning of period	1,237		1,357		1,252		1,357
Share purchases at stated value	(60	)	(55	)	(75	)	(55	)
At end of period	1,177		1,302		1,177		1,302

Earnings reinvested
At beginning of period	22,171		22,281		21,660		22,050
Net income (loss) for the period	2,409		366		3,582		758
Share purchases in excess of stated value	(2,440	)	(1,116	)	(2,874	)	(1,116	)
Dividends declared	(227	)	(195	)	(455	)	(356	)
At end of period	21,913		21,336		21,913		21,336

Accumulated other comprehensive income (loss) (note 10)
At beginning of period	(1,132	)	(1,902	)	(1,177	)	(1,989	)
Other comprehensive income (loss)	21		33		66		120
At end of period	(1,111	)	(1,869	)	(1,111	)	(1,869	)

Shareholders’ equity at end of period	21,979		20,769		21,979		20,769

The information in the notes to consolidated financial statements is an integral part of these statements.

Table of Contents

IMPERIAL OIL LIMITED

Consolidated statement of cash flows (U.S. GAAP, unaudited)



					Six Months
Inflow (outflow)	Second Quarter				to June 30
millions of Canadian dollars	2022		2021		2022		2021
Operating activities
Net income (loss)	2,409		366		3,582		758
Adjustments for non-cash items:
Depreciation and depletion	451		450		877		944
(Gain) loss on asset sales (note 3)	(4	)	(24	)	(24	)	(27	)
Deferred income taxes and other	(149	)	76		(480	)	136
Changes in operating assets and liabilities:
Accounts receivable	(1,426	)	(775	)	(2,970	)	(1,244	)
Inventories, materials, supplies and prepaid expenses	(27	)	58		(391	)	(101	)
Income taxes payable	853		21		1,312		42
Accounts payable and accrued liabilities	499		655		2,643		1,239
All other items - net (c)	76		25		47		150
Cash flows from (used in) operating activities	2,682		852		4,596		1,897

Investing activities
Additions to property, plant and equipment	(333	)	(241	)	(637	)	(408	)
Proceeds from asset sales (note 3) (b)	102		35		126		42
Loans to equity companies - net	1		(1	)	2		12
Cash flows from (used in) investing activities	(230	)	(207	)	(509	)	(354	)

Financing activities
Short-term debt - net	-		-		-		(36	)
Reduction in finance lease obligations (note 6)	(6	)	(4	)	(11	)	(8	)
Dividends paid	(228	)	(161	)	(413	)	(323	)
Common shares purchased (note 9)	(2,500	)	(1,171	)	(2,949	)	(1,171	)
Cash flows from (used in) financing activities	(2,734	)	(1,336	)	(3,373	)	(1,538	)

Increase (decrease) in cash	(282	)	(691	)	714		5
Cash at beginning of period	3,149		1,467		2,153		771
Cash at end of period (a)	2,867		776		2,867		776
(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 $94 million deposit for the potential sale of XTO Energy Canada (note 11).
(c) Included contributions to registered pension plans.	(46	)	(42	)	(96	)	(70	)

Income taxes (paid) refunded.	(52	)	27		(275	)	28
Interest (paid), net of capitalization.	(10	)	(14	)	(22	)	(27	)

The information in the notes to consolidated financial statements is an integral part of these statements.

Table of Contents

IMPERIAL OIL LIMITED

Notes to consolidated financial statements (unaudited)

1.	Basis of financial statement preparation

These unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) in the company’s 2021 annual report on Form

10-K.

In the opinion of the company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature.

The company’s exploration and production activities are accounted for under the “successful efforts” method.

The results for the six months ended June 30, 2022, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

Table of Contents

IMPERIAL OIL LIMITED

2.	Business segments


Second Quarter	Upstream				Downstream				Chemical
millions of Canadian dollars	2022		2021		2022		2021		2022	2021
Revenues and other income
Revenues (a) (b)	119		2,616		16,752		5,015		414	376
Intersegment sales	5,827		1,312		2,024		788		149	79
Investment and other income (note 3)	3		6		9		28		-	1
	5,949		3,934		18,785		5,831		563	456
Expenses
Exploration	1		2		-		-		-	-
Purchases of crude oil and products	2,357		2,044		16,261		4,760		401	240
Production and manufacturing	1,423		1,166		418		357		67	46
Selling and general	-		-		153		142		22	22
Federal excise tax and fuel charge	-		-		553		465		-	-
Depreciation and depletion	395		399		45		39		4	5
Non-service pension and postretirement benefit	-		-		-		-		-	-
Financing (note 5)	1		-		-		-		-	-
Total expenses	4,177		3,611		17,430		5,763		494	313
Income (loss) before income taxes	1,772		323		1,355		68		69	143
Income tax expense (benefit)	426		76		322		8		16	34
Net income (loss)	1,346		247		1,033		60		53	109
Cash flows from (used in) operating activities	2,087		595		641		136		64	111
Capital and exploration expenditures (c)	233		130		69		120		2	2


Second Quarter	Corporate and other				Eliminations				Consolidated
millions of Canadian dollars	2022		2021		2022		2021		2022	2021
Revenues and other income
Revenues (a) (b)	-		-		-		-		17,285	8,007
Intersegment sales	-		-		(8,000	)	(2,179	)	-	-
Investment and other income (note 3)	10		5		-		-		22	40
	10		5		(8,000	)	(2,179	)	17,307	8,047
Expenses
Exploration	-		-		-		-		1	2
Purchases of crude oil and products	-		-		(7,998	)	(2,177	)	11,021	4,867
Production and manufacturing	-		-		-		-		1,908	1,569
Selling and general	18		38		(2	)	(2	)	191	200
Federal excise tax and fuel charge	-		-		-		-		553	465
Depreciation and depletion	7		7		-		-		451	450
Non-service pension and postretirement benefit	5		10		-		-		5	10
Financing (note 5)	10		13		-		-		11	13
Total expenses	40		68		(8,000	)	(2,179	)	14,141	7,576
Income (loss) before income taxes	(30	)	(63	)	-		-		3,166	471
Income tax expense (benefit)	(7	)	(13	)	-		-		757	105
Net income (loss)	(23	)	(50	)	-		-		2,409	366
Cash flows from (used in) operating activities	(110	)	10		-		-		2,682	852
Capital and exploration expenditures (c)	10		7		-		-		314	259

Table of Contents

IMPERIAL OIL LIMITED

(a)	Included export sales to the United States of $3,871 million (2021 - $1,544 million).

(b)

Includes approximately 13% related to revenue outside the scope of ASC 606 “Revenue from Contracts with Customers” for the three months ended June 30, 2022. Trade receivables in Accounts receivable – net reported on the Balance Sheet include both receivables within the scope of ASC 606 and those outside the scope of ASC 606. Revenue and receivables outside the scope of ASC 606 primarily relate to physically settled commodity contracts accounted for as derivatives

. Credit

quality and type of customer are generally similar

between

those revenues and receivables within the scope of ASC 606

and those outside it

(c)

Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions and the company’s share of similar costs for equity companies. CAPEX excludes the purchase of carbon emission credits.

Table of Contents

IMPERIAL OIL

LIMITED


Six Months to June 30	Upstream				Downstream				Chemical
millions of Canadian dollars	2022		2021		2022		2021		2022	2021
Revenues and other income
Revenues (a) (b)	218		4,758		28,943		9,542		781	699
Intersegment sales	10,258		2,663		3,857		1,561		253	132
Investment and other income (note 3)	7		6		30		33		-	1
	10,483		7,427		32,830		11,136		1,034	832
Expenses
Exploration	3		4		-		-		-	-
Purchases of crude oil and products	4,247		3,878		28,773		8,780		716	449
Production and manufacturing	2,672		2,275		774		683		121	96
Selling and general	-		-		300		275		45	47
Federal excise tax and fuel charge	-		-		1,032		869		-	-
Depreciation and depletion	768		844		86		78		9	9
Non-service pension and postretirement benefit	-		-		-		-		-	-
Financing (note 5)	1		1		-		-		-	-
Total expenses	7,691		7,002		30,965		10,685		891	601
Income (loss) before income taxes	2,792		425		1,865		451		143	231
Income tax expense (benefit)	664		99		443		99		34	55
Net income (loss)	2,128		326		1,422		352		109	176
Cash flows from (used in) operating activities	3,534		1,126		1,016		598		131	173
Capital and exploration expenditures (c)	455		215		137		188		3	4
Total assets as at June 30 (note 11)	28,961		31,931		11,649		5,352		505	481


Six Months to June 30	Corporate and other				Eliminations				Consolidated
millions of Canadian dollars	2022		2021		2022		2021		2022	2021
Revenues and other income
Revenues (a) (b)	-		-		-		-		29,942	14,999
Intersegment sales	-		-		(14,368	)	(4,356	)	-	-
Investment and other income (note 3)	14		6		-		-		51	46
	14		6		(14,368	)	(4,356	)	29,993	15,045
Expenses
Exploration	-		-		-		-		3	4
Purchases of crude oil and products	-		-		(14,365	)	(4,353	)	19,371	8,754
Production and manufacturing	-		-		-		-		3,567	3,054
Selling and general	74		70		(3	)	(3	)	416	389
Federal excise tax and fuel charge	-		-		-		-		1,032	869
Depreciation and depletion	14		13		-		-		877	944
Non-service pension and postretirement benefit	9		21		-		-		9	21
Financing (note 5)	17		26		-		-		18	27
Total expenses	114		130		(14,368	)	(4,356	)	25,293	14,062
Income (loss) before income taxes	(100	)	(124	)	-		-		4,700	983
Income tax expense (benefit)	(23	)	(28	)	-		-		1,118	225
Net income (loss)	(77	)	(96	)	-		-		3,582	758
Cash flows from (used in) operating activities	(85	)	-		-		-		4,596	1,897
Capital and exploration expenditures (c)	15		15		-		-		610	422
Total assets as at June 30 (note 11)	4,016		1,606		(239	)	(431	)	44,892	38,939

Table of Contents

IMPERIAL OIL LIMITED

(a)	Included export sales to the United States of $6,375 million (2021 - $3,113 million).

(b)

Includes approximately 11% related to revenue outside the scope of ASC 606 “Revenue from Contracts with Customers” for the six months ended June 30, 2022. Trade receivables in Accounts receivable – net reported on the Balance Sheet include both receivables within the scope of ASC 606 and those outside the scope of ASC 606. Revenue and receivables outside the scope of ASC 606 primarily relate to physically settled commodity contracts accounted for as derivatives

. Credit

quality and type of customer are generally similar

between

those revenues and receivables within the scope of ASC 606

and those outside it

(c)

Table of Contents

IMPERIAL OIL LIMITED

3.	Investment and other income

Investment and other income included gains and losses on asset sales as follows:


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2022		2021		2022		2021
Proceeds from asset sales		8		35		32		42
Book value of asset sales		4		11		8		15
Gain (loss) on asset sales, before tax		4		24		24		27
Gain (loss) on asset sales, after tax		3		22		19		24

4.	Employee retirement benefits

The components of net benefit cost were as follows:


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2022		2021		2022		2021
Pension benefits:
Service cost		70		81		140		162
Interest cost		74		68		147		136
Expected return on plan assets		(103)		(107)		(206)		(214)
Amortization of prior service cost		4		4		8		8
Amortization of actuarial loss (gain)		21		36		43		72
Net benefit cost		66		82		132		164

Other postretirement benefits:
Service cost		5		7		11		14
Interest cost		6		5		12		11
Amortization of actuarial loss (gain)		3		4		5		8
Net benefit cost		14		16		28		33

5.	Financing costs


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2022		2021		2022		2021
Debt-related interest		20		20		32		41
Capitalized interest		(10)		(7)		(15)		(15)
Net interest expense		10		13		17		26
Other interest		1		-		1		1
Total financing		11		13		18		27

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.

Table of Contents

IMPERIAL OIL LIMITED

6.	Long-term debt


	As at June 30		As at Dec 31
millions of Canadian dollars	2022		2021
Long-term debt		4,447		4,447
Finance leases		597		607
Total long-term debt		5,044		5,054

7.	Other long-term obligations


	As at June 30		As at Dec 31
millions of Canadian dollars	2022		2021
Employee retirement benefits (a)		1,323		1,362
Asset retirement obligations and other environmental liabilities (b)		1,733		1,713
Share-based incentive compensation liabilities		119		79
Operating lease liability (c)		122		147
Other obligations		156		596
Total other long-term obligations		3,453		3,897

(a)	Total recorded employee retirement benefits obligations also included $56 million in current liabilities (2021 - $56 million).

(b)	Total asset retirement obligations and other environmental liabilities also included $102 million in current liabilities (2021 - $102 million).

(c)	Total operating lease liability also included $86 million in current liabilities (2021 - $102 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $11 million (2021 - $5 million).

Table of Contents

IMPERIAL OIL LIMITED

8.	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 June 30, 2022 and December 31, 2021, 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 and to generate returns from trading. Commodity contracts held for trading purposes are presented in the Consolidated statement of income on a net basis in the line “Revenues”. 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:


	As at June 30		As at Dec 31
thousands of barrels	2022		2021
Crude		8,680		7,390
Products		(930</