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Published: 2020-11-04 13:44:17 ET
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10-Q
2020Q3false0000049938--12-31IMPERIAL OIL LTDfalseYesYesfalsefalseCAAmounts to related parties included in purchases of crude oil and products. 627 717 1,762 2,353Amounts to related parties included in production and manufacturing, and selling and general expenses. 107 157 428 479Amounts from related parties included in revenues. 1,216 2,313 3,699 6,269Long-term debt included amounts to related parties of $4,447 million (2019 - $4,447 million). Accounts receivable, less estimated doubtful accounts included net amounts receivable from related parties of $240 million (2019 - $1,007 million). Investments and long-term receivables included amounts from related parties of $313 million (2019 - $296 million). Notes and loans payable included amounts to related parties of $111 million (2019 - $111 million). Number of common shares authorized and outstanding were 1,100 million and 734 million, respectively (2019 - 1,100 million and 744 million, respectively). 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.Included export sales to the United States of $1,227 million (2019 - $1,807 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment. Included export sales to the United States of $3,339 million (2019 - $5,623 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment. Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.Amounts to related parties included in financing, (note 7). 12 23 50 75Total recorded employee retirement benefits obligations also included $58 million in current liabilities (2019 - $58 million). Total asset retirement obligations and other environmental liabilities also included $124 million in current liabilities (2019 - $124 million).Total operating lease liability also included $95 million in current liabilities (2019 - $115 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $27 million (2019 - $6 million). For Nine Months to September 30, 2020, the Net income (loss) per common share – diluted excludes the effect of 2.1 million employee share-based awards. Share-based awards have the potential to dilute basic earnings per share in the future. Note: restated 2019 0000049938 2020-01-01 2020-09-30 0000049938 2020-09-30 0000049938 2019-12-31 0000049938 2020-07-01 2020-09-30 0000049938 2019-07-01 2019-09-30 0000049938 2019-01-01 2019-09-30 0000049938 2020-06-29 0000049938 2019-09-30 0000049938 2020-01-01 0000049938 2019-01-01 2019-12-31 0000049938 2020-06-29 2020-06-29 0000049938 2020-06-30 0000049938 2020-04-01 2020-06-30 0000049938 2018-12-31 0000049938 2019-06-30 0000049938 imo:UpstreamMember 2020-01-01 2020-09-30 0000049938 imo:AccumulatedDefinedBenefitPlansAdjustmentBeforeTaxMember 2020-01-01 2020-09-30 0000049938 us-gaap:CommonStockMember 2020-01-01 2020-09-30 0000049938 imo:DownstreamMember 2020-01-01 2020-09-30 0000049938 imo:ChemicalMember 2020-01-01 2020-09-30 0000049938 srt:ConsolidationEliminationsMember 2020-01-01 2020-09-30 0000049938 country:US 2020-01-01 2020-09-30 0000049938 us-gaap:RetainedEarningsMember 2020-01-01 2020-09-30 0000049938 us-gaap:CorporateAndOtherMember 2020-01-01 2020-09-30 0000049938 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Table of Contents
FORM
10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[
✓
]
    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
[
    
]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from --- to ---
Commission file number
0-12014
IMPERIAL OIL LIMITED
(Exact name of registrant as specified in its charter)
 
 
CANADA
     
98-0017682
 
(State or other jurisdiction
of incorporation or organization)
      (I.R.S. Employer Identification No.)
 
505 Quarry Park Boulevard S.E. Calgary, Alberta, Canada
     
T2C 5N1
  (Address of principal executive offices)      (Postal Code)
Registrant’s telephone number, including area code:
1-800-567-3776
 
 
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
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  
  
✓
  
  NO  
        
The registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
  YES  
  
✓
  
  NO   
        
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.
 
Large accelerated filer  
  
✓
  
    Smaller reporting company  
        
  
Non-accelerated
filer		  
        
    Emerging growth company  
       
                   
Accelerated filer  
        
       
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.
        
The registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act of 1934).
  YES  
        
  NO  
  
✓
  
The number of common shares outstanding, as of September 30, 2020 was 734,076,755.
Table of Contents
IMPERIAL OIL LIMITED
 
 
Table of contents
Page
 
  
 
3
 
  
 
3
 
  
 
3
 
  
 
4
 
  
 
5
 
  
 
6
 
  
 
7
 
  
 
8
 
  
 
18
 
  
 
25
 
  
 
25
 
   
  
 
26
 
  
 
26
 
  
 
26
 
  
 
27
 
  
 
28
 
   
  
 
29
 
 
 
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, 2019. 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.
 
2
Table of Contents
IMPERIAL OIL LIMITED
 
 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.
Financial statements
Consolidated statement of income (U.S. GAAP, unaudited)
 
   
    
  
Third Quarter  		    
           
Nine Months
      
       
to September 30  		  
millions of Canadian dollars
   
2020
      2019     
2020
     2019  
Revenues and other income
           
Revenues
(a)
   
 
5,937
 
      8,687     
 
16,267
 
     25,880  
Investment and other income
(note 4)
   
 
18
 
      49     
 
88
 
     99  
Total revenues and other income
   
 
5,955
 
      8,736     
 
16,355
 
     25,979  
Expenses
           
Exploration
   
 
2
 
      4     
 
6
 
     42  
Purchases of crude oil and products
(b)
   
 
3,634
 
      5,399     
 
9,975
 
     15,956  
Production and manufacturing
(c)
(note 13)
   
 
1,246
 
      1,601     
 
4,098
 
      4,911  
Selling and general
(c)
   
 
150
 
      217     
 
499
 
      666  
Federal excise tax and fuel charge
   
 
470
 
      486     
 
1,290
 
      1,343  
Depreciation and depletion
(note 13)
   
 
409
 
      419     
 
1,295
 
      1,201  
Non-service
pension and postretirement benefit
   
 
31
 
      36     
 
91
 
      108  
Financing
(d) (note 7)
   
 
10
 
      20     
 
46
 
      71  
Total expenses
   
 
5,952
 
      8,182     
 
17,300
 
      24,298  
Income (loss) before income taxes
   
 
3
 
      554     
 
(945
)
 
      1,681  
Income taxes
   
 
-
 
      130     
 
(234
)
 
      (248 ) 
Net income (loss)
   
 
3
 
      424     
 
(711
)
 
      1,929  
Per share information
(Canadian dollars)
           
Net income (loss) per common share - basic
(note 11)
   
 
-
 
      0.56     
 
(0.97
)
 
      2.51  
Net income (loss) per common share - diluted
(note 11)
   
 
-
 
      0.56     
 
(0.97
)
 
      2.51  
(a)  Amounts from related parties included in revenues.
   
 
1,216
 
      2,313     
 
3,699
 
      6,269  
(b)  Amounts to related parties included in purchases of crude oil and products.
   
 
627
 
      717     
 
1,762
 
      2,353  
(c)   Amounts to related parties included in production and manufacturing, and selling and general expenses.
   
 
107
 
      157     
 
428
 
      479  
(d)  Amounts to related parties included in financing, (note 7).
   
 
12
 
      23     
 
50
 
      75  
The information in the notes to consolidated financial statements is an integral part of these statements.
 
3
Table of Contents
IMPERIAL OIL LIMITED
 
 
 
Consolidated statement of comprehensive income (U.S. GAAP, unaudited)
 
         Third Quarter        Nine Months
    to September 30 		  
millions of Canadian dollars
   
2020
      2019     
2020
     2019  
Net income (loss)
   
 
3
 
      424     
 
(711
) 
     1,929  
Other comprehensive income (loss), net of income taxes
           
Postretirement benefits liability adjustment (excluding amortization)
   
 
-
 
      -     
 
(114
) 
     18  
Amortization of postretirement benefits liability adjustment included in net periodic benefit costs
   
 
34
 
      28     
 
102
 
     83  
Total other comprehensive income (loss)
   
 
34
 
      28     
 
(12
) 
     101  
                                    
Comprehensive income (loss)
   
 
37
 
      452       
(723
)
 		     2,030  
The information in the notes to consolidated financial statements is an integral part of these statements.
 
4
Table of Contents
IMPERIAL OIL LIMITED
 
 
 
Consolidated balance sheet (U.S. GAAP, unaudited)
 
     As at
Sept 30		     As at
Dec 31		  
millions of Canadian dollars
   
2020
     2019  
Assets
      
Current assets
      
Cash
   
 
817
 
      1,718  
Accounts receivable, less estimated doubtful accounts
(a) (note 5)
   
 
1,732
 
      2,699  
Inventories of crude oil and products
   
 
1,088
 
      1,296  
Materials, supplies and prepaid expenses
   
 
764
 
      616  
Total current assets
   
 
4,401
 
      6,329  
Investments and long-term receivables
(b) (note 5)
   
 
771
 
      891  
Property, plant and equipment,
   
 
55,463
 
      54,868  
less accumulated depreciation and depletion
   
 
(21,881
)
 
      (20,665 ) 
Property, plant and equipment, net
   
 
33,582
 
      34,203  
Goodwill
(note 13)
   
 
166
 
      186  
Other assets, including intangibles, net
   
 
462
 
      578  
Total assets
   
 
39,382
 
      42,187  
Liabilities
      
Current liabilities
      
Notes and loans payable
(c)
   
 
227
 
      229  
Accounts payable and accrued liabilities
(a) (note 9)
   
 
3,229
 
      4,260  
Income taxes payable
   
 
-
 
      106  
Total current liabilities
   
 
3,456
 
      4,595  
Long-term debt
(d) (note 8)
   
 
4,962
 
      4,961  
Other long-term obligations
(note 9)
   
 
3,713
 
      3,637  
Deferred income tax liabilities
   
 
4,459
 
      4,718  
Total liabilities
   
 
16,590
 
      17,911  
Shareholders’ equity
      
Common shares at stated value
(e) (note 11)
   
 
1,357
 
      1,375  
Earnings reinvested
   
 
23,358
 
      24,812  
Accumulated other comprehensive income (loss)
(note 12)
   
 
(1,923
)
 
      (1,911 ) 
Total shareholders’ equity
   
 
22,792
 
      24,276  
Total liabilities and shareholders’ equity
   
 
39,382
 
      42,187  
(a)
Accounts receivable, less estimated doubtful accounts included net amounts receivable from related parties of $240 million (2019 - $1,007 million).
(b)
Investments and long-term receivables included amounts from related parties of $313 million (2019 - $296 million).
(c)
Notes and loans payable included amounts to related parties of $111 million (2019 - $111 million).
(d)
Long-term debt included amounts to related parties of $4,447 million (2019 - $4,447 million).
(e)
Number of common shares authorized and outstanding were 1,100 million and 734 million, respectively (2019 - 1,100 million and 744 million, respectively).
The information in the notes to consolidated financial statements is an integral part of these statements.
 
5
Table of Contents
IMPERIAL OIL LIMITED
 
 
 
Consolidated statement of shareholders’ equity (U.S. GAAP, unaudited)
 
    
    
  
Third Quarter  		    
    
  
Nine Months
    
    
to September 30
 
 		  
millions of Canadian dollars
   
2020
     2019    
2020
     2019  
Common shares at stated value
(note 11)
           
At beginning of period
   
 
1,357
 
      1,410    
 
1,375
 
      1,446  
Share purchases at stated value
   
 
-
 
      (19 )   
 
(18
)
 
      (55 ) 
At end of period
   
 
1,357
 
      1,391    
 
1,357
 
      1,391  
Earnings reinvested
           
At beginning of period
   
 
23,516
 
      25,056    
 
24,812
 
      24,560  
Net income (loss) for the period
   
 
3
 
      424    
 
(711
)
 
      1,929  
Share purchases in excess of stated value
   
 
-
 
      (324 )   
 
(256
)
 
      (1,017 ) 
Dividends declared
   
 
(161
)
 
      (166 )   
 
(485
)
 
      (482 ) 
Cumulative effect of accounting change
(note 5)
   
 
-
 
      -    
 
(2
)
 
      -  
At end of period
   
 
23,358
 
      24,990    
 
23,358
 
      24,990  
Accumulated other comprehensive income (loss)
(note 12)
           
At beginning of period
   
 
(1,957
)
 
      (1,444 )   
 
(1,911
)
 
      (1,517 ) 
Other comprehensive income (loss)
   
 
34
 
      28    
 
(12
)
 
      101  
At end of period
   
 
(1,923
)
 
      (1,416 )   
 
(1,923
)
 
      (1,416 ) 
Shareholders’ equity at end of period
   
 
22,792
 
      24,965    
 
22,792
 
      24,965  
The information in the notes to consolidated financial statements is an integral part of these statements.
 
6
Table of Contents
IMPERIAL OIL LIMITED
 
 
 
Consolidated statement of cash flows (U.S. GAAP, unaudited)
 
Inflow (outflow)
        Third Quarter  
 
    
    
  
Nine Months
    
    
to September 30
  
  
millions of Canadian dollars
   
2020
     2019    
2020
     2019  
Operating activities
           
Net income (loss)
   
 
3
 
      424    
 
(711
)
 
      1,929  
Adjustments for
non-cash
items:
           
Depreciation and depletion
   
 
409
 
      419    
 
1,275
 
      1,201  
Impairment of intangible assets
(note 13)
   
 
-
 
      -    
 
20
 
      -  
(Gain) loss on asset sales
(note 4)
   
 
(11
)
 
      (28 )   
 
(28
)
 
      (34 ) 
Deferred income taxes and other
   
 
(11
)
 
      116    
 
(210
)
 
      (359 ) 
Changes in operating assets and liabilities:
           
Accounts receivable
   
 
134
 
      250    
 
967
 
      (355 ) 
Inventories, materials, supplies and prepaid expenses
   
 
142
 
      264    
 
60
 
      243  
Income taxes payable
   
 
-
 
      8    
 
(106
)
 
      (29 ) 
Accounts payable and accrued liabilities
   
 
66
 
      (82 )   
 
(1,008
)
 
      646  
All other items - net
(b)
   
 
143
 
      5    
 
223
 
      163  
Cash flows from (used in) operating activities
   
 
875
 
      1,376    
 
482
 
      3,405  
Investing activities
           
Additions to property, plant and equipment
   
 
(142
)
 
      (417 )   
 
(657
)
 
      (1,242 ) 
Proceeds from asset sales
(note 4)
   
 
19
 
      30    
 
68
 
      66  
Loans to equity companies - net
   
 
(2
)
 
      (26 )   
 
(16
)
 
      (129 ) 
Cash flows from (used in) investing activities
   
 
(125
)
 
      (413 )   
 
(605
)
 
      (1,305 ) 
Financing activities
           
Reduction in finance lease obligations
(note 8)
   
 
(4
)
 
      (7 )   
 
(16
)
 
      (20 ) 
Dividends paid
   
 
(162
)
 
      (169 )   
 
(488
)
 
      (465 ) 
Common shares purchased
(note 11)
   
 
-
 
      (343 )   
 
(274
)
 
      (1,072 ) 
Cash flows from (used in) financing activities
   
 
(166
)
 
      (519 )   
 
(778
)
 
      (1,557 ) 
Increase (decrease) in cash
   
 
584
 
      444    
 
(901
)
 
      543  
Cash at beginning of period
   
 
233
 
      1,087    
 
1,718
 
      988  
Cash at end of period
(a)
   
 
817
 
      1,531    
 
817
 
      1,531  
(a)
 
 
Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased.
   
(b)
 
 
Included contributions to registered pension plans.
   
 
(59
)
 
      (57 )   
 
(159
)
 
      (155 ) 
Income taxes (paid) refunded.
   
 
107
 
  
 
35
 
 
 
(45
)
 
  
 
84
Interest (paid), net of capitalization.*   
 
(10
)
 
      (20 )   
 
(46
)
 
      (71 )
 
*Note: restated 2019
The information in the notes to consolidated financial statements is an integral part of these statements.
 
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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 2019 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 nine months ended September 30, 2020, are not necessarily indicative of the operations to be expected for the full year.
All amounts are in Canadian dollars unless otherwise indicated.
2.  Accounting changes
Effective January 1, 2020, Imperial adopted the Financial Accounting Standards Board’s update,
Financial Instruments - Credit Losses (Topic 326)
, as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote and considers past events, current conditions and expectations of the future. The standard did not have a material impact on the company’s financial statements.
 
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IMPERIAL OIL LIMITED
 
 
 
3.  Business segments
 
Third Quarter   
Upstream        
  
Downstream       
  
Chemical          
millions of Canadian dollars
   
2020
 
    2019
 
   
2020
    2019   
2020
    2019
Revenues and other income
                  
Revenues
(a)
   
1,651
    2,185   
4,061
    6,266   
225
    236
Intersegment sales
  
658
    913   
321
    314   
43
    61
Investment and other income
(note 4)
   
(6)
  
 7   
24
    32   
-
    1
 
   
2,303
  
 3,105   
4,406
    6,612   
268
    298
Expenses
   
  
            
Exploration
   
2
  
 4   
-
    -   
-
    -
Purchases of crude oil and products
   
1,176
  
 1,376   
3,322
    5,142   
157
    167
Production and manufacturing
(note 13)
   
863
  
 1,087   
335
    460   
48
    54
Selling and general
   
-
  
 -   
140
    191   
23
    23
Federal excise tax and fuel charge
   
-
  
 -   
470
    486   
-
    -
Depreciation and depletion
(note 13)
   
361
  
 364   
37
    45   
5
    4
Non-service pension and postretirement benefit
   
-
  
 -   
-
    -   
-
    -
Financing
(note 7)
   
-
  
 -   
-
    -   
-
    -
Total expenses
   
2,402
  
 2,831   
4,304
    6,324   
233
    248
Income (loss) before income taxes
   
(99)
  
 274   
102
    288   
35
    50
Income taxes
   
(25)
  
 65   
25
    67   
8
    12
Net income (loss)
   
(74)
  
 209   
77
    221   
27
    38
Cash flows from (used in) operating activities
   
526
    392   
333
    900   
32
    75
Capital and exploration expenditures
(b)
   
78
    302   
50
    124   
4
    4
Third Quarter   
Corporate and other 
  
Eliminations       
  
Consolidated       
millions of Canadian dollars
   
2020
 
    2019   
2020
    2019   
2020
    2019 
Revenues and other income
                  
Revenues
(a)
   
-
    -   
-
    -   
5,937
    8,687 
Intersegment sales
   
-
    -   
(1,022)
  
 (1,288)   
-
    - 
Investment and other income
(note 4)
   
-
    9   
-
  
 -   
18
    49 
 
   
-
    9   
(1,022)
  
 (1,288)   
5,955
    8,736 
Expenses
         
  
      
Exploration
   
-
    -   
-
  
 -   
2
    4 
Purchases of crude oil and products
   
-
    -   
(1,021) 
  
 (1,286)   
3,634
    5,399 
Production and manufacturing
(note 13)
   
-
    -   
-
  
 -   
1,246
    1,601 
Selling and general
   
(12)
  
 5   
(1)
  
 (2)   
150
    217 
Federal excise tax and fuel charge
   
-
  
 -   
-
  
 -   
470
    486 
Depreciation and depletion
(note 13)
   
6
  
 6   
-
  
 -   
409
    419 
Non-service pension and postretirement benefit
   
31
  
 36   
-
  
 -   
31
    36 
Financing
(note 7)
   
10
  
 20   
-
  
 -   
10
    20 
Total expenses
   
35
  
 67   
(1,022)
  
 (1,288)   
5,952
    8,182 
Income (loss) before income taxes
   
(35)
  
 (58)  
-
    -   
3
    554 
Income taxes
   
(8)
 
 (14)   
-
    -   
-
    130 
Net income (loss)
   
(27)
  
 (44)   
-
    -   
3
    424 
Cash flows from (used in) operating activities
   
(16)
  
 9   
-
    -   
875
    1,376 
Capital and exploration expenditures
(b)
   
9
    12   
-
    -   
141
    442 
 
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IMPERIAL OIL LIMITED
 
 
 
(a)
Included export sales to the United States of $1,227 million (2019 - $1,807 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
(b)
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.
 
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IMPERIAL OIL LIMITED
 
 
 
Nine Months to September 30    Upstream            Downstream           Chemical          
millions of Canadian dollars
   
2020
    2019   
2020
    2019   
2020
    2019
Revenues and other income
                  
Revenues
(a)
   
4,211 
    7,012    
11,444 
    18,115    
612 
    753 
Intersegment sales
   
1,642 
    2,977    
1,013 
    1,249    
114 
    181 
Investment and other income
(note 4)
   
4 
    11    
66 
    61    
1 
    1 
 
   
5,857 
    10,000    
12,523 
    19,425    
727 
    935 
Expenses
                  
Exploration
   
6 
    42    
- 
    -    
- 
    - 
Purchases of crude oil and products
   
3,338 
    4,764    
8,987 
    15,062    
416 
    531 
Production and manufacturing
(note 13)
   
2,855 
    3,414    
1,086 
    1,315    
157 
    182 
Selling and general
   
- 
    -    
456 
    571    
69 
    67 
Federal excise tax and fuel charge
   
- 
    -    
1,290 
    1,343    
- 
    - 
Depreciation and depletion
(note 13)
   
1,141 
    1,036    
123 
    137    
13 
    11 
Non-service
pension and postretirement benefit
   
- 
    -    
- 
    -    
- 
    - 
Financing
(note 7)
   
- 
    -    
- 
    -    
- 
    - 
Total expenses
   
7,340 
    9,256    
11,942 
    18,428    
655 
    791 
Income (loss) before income taxes
   
(1,483)
    744    
581 
    997    
72 
    144 
Income tax expense (benefit)
   
(357)
    (508)   
134 
    261    
17 
    34 
Net income (loss)
   
(1,126)
    1,252    
447 
    736    
55 
    110 
Cash flows from (used in) operating activities
   
22 
    1,257    
443 
    2,055    
75 
    175 
Capital and exploration expenditures
(b)
   
454 
    975    
177 
    364    
15 
    27 
Total assets as at September
 30
(note 13)
   
32,941 
    35,066    
4,590 
    4,433    
417 
    423 
Nine Months to September 30     Corporate and other     Eliminations           Consolidated       
millions of Canadian dollars
   
2020
    2019    
2020
    2019   
2020
    2019
Revenues and other income
                  
Revenues
(a)
   
- 
    -    
- 
    -    
16,267 
    25,880 
Intersegment sales
   
- 
    -    
(2,769)
    (4,407)   
- 
    - 
Investment and other income
(note 4)
   
17
    26    
- 
    -    
88 
    99 
 
   
17
    26    
(2,769)
    (4,407)   
16,355
    25,979 
Expenses
                  
Exploration
   
- 
    -    
- 
    -    
6 
    42 
Purchases of crude oil and products
   
- 
    -    
(2,766)
    (4,401)   
9,975 
    15,956 
Production and manufacturing
(note 13)
   
- 
    -    
- 
    -    
4,098 
    4,911 
Selling and general
   
(23)
    34    
(3)
    (6)   
499 
    666 
Federal excise tax and fuel charge
   
- 
    -    
- 
    -    
1,290 
    1,343 
Depreciation and depletion
(note 13)
   
18 
    17    
- 
    -    
1,295 
    1,201 
Non-service
pension and postretirement benefit
   
91
    108    
- 
    -    
91 
    108 
Financing
(note 7)
   
46 
    71    
- 
    -    
46 
    71 
Total expenses
   
132 
    230    
(2,769)
    (4,407)   
17,300 
    24,298 
Income (loss) before income taxes
   
(115)
    (204)   
- 
    -    
(945)
    1,681 
Income tax expense (benefit)
   
(28)
    (35)   
- 
    -    
(234)
    (248)
 
Net income (loss)
   
(87)
    (169)   
- 
    -    
(711)
    1,929 
Cash flows from (used in) operating activities
   
(58)
    (82
)
   
- 
    -    
482 
    3,405 
Capital and exploration expenditures
(b)
   
33 
    34    
- 
    -    
679 
    1,400 
Total assets as at September
 30
(note 13)
   
1,679 
    2,298    
(245)
    (313)   
39,382 
    41,907 
 
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IMPERIAL OIL LIMITED
 
 
 
(a)
Included export sales to the United States of $3,339 million (2019 - $5,623 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
(b)
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to finance leases, additional investments and acquisitions. CAPEX excludes the purchase of carbon emission credits.
 
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IMPERIAL OIL LIMITED
 
 
 
4.  Investment and other income
Investment and other income included gains and losses on asset sales as follows:
 
                                       
    
    Third Quarter
     
    Nine Months
    to September 30 
  
millions of Canadian dollars
   
2020
     
2019
     
2020
     
2019
  
Proceeds from asset sales
   
 
19
 
   
 
30
 
   
 
68
 
   
 
66
 
Book value of asset sales
   
 
8
 
   
 
2
 
   
 
40
 
   
 
32
 
Gain (loss) on asset sales, before tax
   
 
11
 
   
 
28
 
   
 
28
 
   
 
34
 
Gain (loss) on asset sales, after tax
   
 
10
 
   
 
25
 
   
 
25
 
   
 
31
 
5.  Allowance for current expected credit loss (CECL)
Effective January 1, 2020, the company adopted the Financial Accounting Standards Board’s update,
Financial Instruments – Credit Losses (Topic 326),
as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and supportable forecasts. The standard requires this expected loss methodology for trade receivables, certain other financial assets and
off-balance-sheet
credit exposures. The cumulative effect adjustment related to the adoption of this standard reduced “Earnings reinvested” in Shareholders’ equity by $2 million.
The company is exposed to credit losses primarily through sales of petroleum products, crude oil, natural gas liquids and natural gas, as well as loans to equity companies and joint venture receivables. A counterparty’s ability to pay is assessed through a credit review process that considers payment terms, the counterparty’s established credit rating or the company’s assessment of the counterparty’s credit worthiness, contract terms, and other risks. The company can require prepayment or collateral to mitigate certain credit risks.
The company groups financial assets into portfolios that share similar risk characteristics for purposes of determining the allowance for credit losses. Each reporting period, the company assesses whether a significant change in credit loss or risk has occurred. Among the quantitative and qualitative factors considered are historical financial data, current conditions, industry and country risk, current credit ratings and the quality of third-party guarantees secured from the counterparty. Financial assets are written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recognized in earnings. The company manages receivable portfolios using past due balances as a key credit quality indicator.
The company recognizes a credit allowance for
off-balance-sheet
credit exposures as a liability on the balance sheet, separate from the allowance for credit losses related to recognized financial assets. These exposures could include unfunded loans to equity companies and financial guarantees that cannot be cancelled unilaterally by the company.
In 2020, the
COVID-19
pandemic spread rapidly through most areas of the world resulting in economic uncertainty, global financial market volatility, and negative effects in the credit markets. The company has considered these effects, along with the significantly lower balances of trade receivables at the end of the quarter, in its estimate of credit losses and concluded no material adjustment to credit allowances in the quarter was required. At September 30, 2020, the company’s evaluation of financial assets under
Financial Instruments – Credit Losses (Topic 326)
, as amended included $1,400 million of accounts receivable, net of allowances of $4 million, and investments and long-term receivables of $327 million. The company has determined that, at this time, no credit allowance is required for investments and long-term receivables, and for
off-balance-sheet
credit exposures.
 
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IMPERIAL OIL LIMITED
 
 
 
6.  Employee retirement benefits
The components of net benefit cost were as follows:
 
                                       
    
    Third Quarter
 
    
    Nine Months
     to September 30
 
  
millions of Canadian dollars
   
2020
     
2019
    
2020
     
2019
  
Pension benefits:
           
Current service cost
   
 
76
 
   
 
57
 
  
 
229
 
   
 
171
 
Interest cost
   
 
77
 
   
 
81
 
  
 
231
 
   
 
243
 
Expected return on plan assets
   
 
(97
)
 
   
 
(87
) 
  
 
(293
)
 
   
 
(262
) 
Amortization of prior service cost
   
 
4
 
   
 
-
 
  
 
11
 
   
 
-
 
Amortization of actuarial loss (gain)
   
 
38
 
   
 
37
 
  
 
115
 
   
 
112
 
Net periodic benefit cost
   
 
98
 
   
 
88
 
  
 
293
 
   
 
264
 
Other postretirement benefits:
           
Current service cost
   
 
6
 
   
 
4
 
  
 
18
 
   
 
12
 
Interest cost
   
 
6
 
   
 
5
 
  
 
18
 
   
 
16
 
Amortization of actuarial loss (gain)
   
 
3
 
   
 
-
 
  
 
9
 
   
 
(1
) 
Net periodic benefit cost
   
 
15
 
   
 
9
 
  
 
45
 
   
 
27
 
7.  Financing costs
 
         Third Quarter
 
         Nine Months
     to September 30
 
 		  
millions of Canadian dollars
   
2020
      2019    
2020
      2019  
Debt-related interest
   
 
19
 
      32    
 
79
 
      105  
Capitalized interest
   
 
(9
)
 
      (12 )   
 
(33
)
 
      (34 ) 
Net interest expense
   
 
10
 
      20    
 
46
 
      71  
Other interest
   
 
-
 
      -    
 
-
 
      -  
Total financing
   
 
10
 
      20    
 
46
 
      71  
During the second quarter of 2020, in addition to existing credit facilities of $500 million, the company entered into a $500 million committed short-term line of credit to May 2021, and a $300 million committed short-term line of credit to June 2021. The company has not drawn on any of its credit facilities.
8.  Long-term debt
 
     As at
Sept 30		      As at
Dec 31		  
millions of Canadian dollars
   
2020
      2019  
Long-term debt
   
 
4,447
 
      4,447  
Finance leases
   
 
515
 
      514  
Total long-term debt
   
 
4,962
 
      4,961  
 
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IMPERIAL OIL LIMITED
 
 
 
9.  Other long-term obligation
s
 
     As at      As at  
     Sept 30      Dec 31  
millions of Canadian dollars
   
2020
      2019  
Employee retirement benefits
(a)
   
 
1,965
 
      1,822  
Asset retirement obligations and other environmental liabilities
(b)
   
 
1,388
 
      1,388  
Share-based incentive compensation liabilities
   
 
33
 
      65  
Operating lease liability
(c)
   
 
95
 
      143  
Other obligations
   
 
232
 
      219  
Total other long-term obligations
   
 
3,713
 
      3,637  
(a)
Total recorded employee retirement benefits obligations also included $58 million in current liabilities (2019 - $58 million).
(b)
Total asset retirement obligations and other environmental liabilities also included $124 million in current liabilities (2019 - $124 million).
(c)
Total operating lease liability also included $95 million in current liabilities (2019 - $115 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $27 million (2019 - $6 million).
10.  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 September 30, 2020 and December 31, 2019 the fair value of long-term debt ($4,447 million, excluding finance lease obligations) was primarily a level 2 measurement.
Derivative instruments
The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company uses commodity-based contracts, including derivative instruments to manage commodity price risk. The company does not designate derivative instruments as a hedge for hedge accounting purposes.
Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.
At September 30, 2020, the carrying values of derivative instruments on the Consolidated balance sheet were gross assets of $2 million, gross liabilities of $3 million and collateral receivable of $6 million, with the net effects reflected in “Accounts receivable, less estimated doubtful accounts” on the Consolidated balance sheet. At December 31, 2019 the carrying values of derivative instruments on the Consolidated balance sheet were gross assets of $0 million, gross liabilities of $2 million and collateral receivable of $6 million.
At September 30, 2020, the net notional forward long / (short) position of derivative instruments was 200,000 barrels for crude and
(
780,000
)
 barrels for products. At December 31, 2019, the net notional forward long / (short) position of derivative instruments was
(
590,000
)
 barrels for crude and 0 barrels for products.
Realized and unrealized gain or (loss) on
derivative
instruments
recognized on the Consolidated statement of income is included in the following lines on a
before-tax
basis:
 
                                       
    
    Third Quarter
     
    Nine Months
    to September 30
 
 
  
millions of Canadian dollars
   
2020
     
2019
     
2020
     
2019
  
Revenues
   
 
1
 
   
 
-
 
   
 
(7
)
 
   
 
(2
 )
 
Purchases of crude oil and products
   
 
-
 
   
 
1
 
   
 
(18
)
 
   
 
(5
 )
 
Total
   
 
1
 
   
 
1
 
   
 
(25
)
 
   
 
(7
 )
 
 
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IMPERIAL OIL LIMITED
 
 
 
11.  Common shares
 
                                                             
thousands of shares
   
As of
Sept 30
2020
     
As of
Dec 31
2019
  
Authorized
   
 
1,100,000
 
   
 
1,100,000
 
Common shares outstanding
   
 
734,077
 
   
 
743,902
 
The current
12-month
limited normal course issuer bid program came into effect on June 29, 2020 and is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan. The program enables the company to purchase up to a maximum of 50,000 common shares, which includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent.
The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.
The company’s common share activities are
summarized
below:
                                               
     
Thousands
of shares
    
Millions
of dollars
  
Balance as at December 31, 2018
   
 
782,565
 
  
 
1,446
 
Issued under employee share-based awards
   
 
1
 
  
 
-
 
Purchases at stated value
   
 
(38,664
) 
  
 
(71
) 
Balance as at December 31, 2019
   
 
743,902
 
  
 
1,375
 
Issued under employee share-based awards
   
 
-
 
  
 
-
 
Purchases at stated value
   
 
(9,825
)
 
  
 
(18
)
 
Balance as at September 30, 2020
   
 
734,077
 
  
 
1,357
 
The following table provides the calculation of basic and diluted
earnings
per common share and the dividends declared by the company on its outstanding common shares:
 
         Third Quarter          Nine Months
    to September 30
 
  
     
    2020
          2019     
    2020
          2019  
Net income (loss) per common share - basic
            
Net income (loss)
(millions of Canadian dollars)
   
 
3
 
      424     
 
(711
)
 
      1,929  
Weighted average number of common shares outstanding
(millions of shares)
   
 
734.1
 
      757.8     
 
735.7
 
      767.6  
Net income (loss) per common share
(dollars)
   
 
-
 
      0.56     
 
(0.97
)
 
      2.51  
Net income (loss) per common share - diluted
            
Net income (loss)
(millions of Canadian dollars)
   
 
3
 
      424     
 
(711
)
 
      1,929  
Weighted average number of common shares outstanding
(millions of shares)
   
 
734.1
 
      757.8     
 
735.7
 
      767.6  
Effect of employee share-based awards
(millions of shares) (a)
   
 
2.2
 
      2.5     
 
-
 
      2.4  
Weighted average number of common shares outstanding, assuming dilution
(millions of shares)
   
 
736.3
 
      760.3     
 
735.7
 
      770.0  
Net income (loss) per common share
(dollars)
   
 
-
 
      0.56     
 
(0.97
)
 
      2.51  
Dividends per common share - declared
(dollars)
   
 
0.22
 
      0.22     
 
0.66
 
      0.63  
(a)
For Nine Months to September 30, 2020, the Net income (loss) per common share – diluted excludes the effect of 2.1 million employee share-based awards. Share-based awards have the potential to dilute basic earnings per share in the future.
 
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12.  Other comprehensive income (loss) information
Changes in accumulated other comprehensive income (loss):
 
millions of Canadian dollars
   
2020
      2019  
Balance at January 1
   
 
(1,911
)
 
      (1,517 ) 
Postretirement benefits liability adjustment:
      
Current period change excluding amounts reclassified from accumulated other comprehensive income
   
 
(114
)
 
      18  
Amounts reclassified from accumulated other comprehensive income
   
 
           102
 
                 83  
Balance at September 30
   
 
(1,923
)
 
      (1,416 ) 
Amounts reclassified out of accumulated other comprehensive income (loss) -
before-tax
income (expense):
 
        Third Quarter         Nine Months
    to September 30		  
millions of Canadian dollars
  
2020
     2019    
2020
     2019  
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost
(a)
  
 
(45)
 
               (37 )   
 
(135)
 
               (111 ) 
(a)  This accumulated other comprehensive income component is included in the computation of net periodic benefit cost, (note 6).
 
Income tax expense (credit) for components of other comprehensive income (loss):
 
         Third Quarter         Nine Months
    to September 30
 
 
millions of Canadian dollars
  
2020
     2019    
2020
 
 
 
 
 
 
 
 
   2019  
Postretirement benefits liability adjustments:
      
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
Postretirement benefits liability adjustment (excluding amortization)
   
 
-
 
  
 
 -     
 
(37
)
 
 
   7
 
 
Amortization of postretirement benefits liability adjustment included in net periodic benefit cost
   
 
11
 
      9     
 
33
 
      28  
Total
   
 
11
 
      9    
 
(4
)
 
      35  
13.  Miscellaneous financial information
In the second quarter of 2020, the Government of Canada implemented the Canada Emergency Wage Subsidy (CEWS) as part of its COVID-19 Economic Response Plan. The program’s intent is to help sustain employment levels by providing expense relief to companies during the pandemic. The company qualified for these wage subsidies which are recognized throughout the year when received. The relief provided under this program, about $120 million (before tax) year-to-date, including the company’s proportionate share of a joint venture, is recognized as a reduction to expense and is included in the Consolidated statement of income, primarily as part of “Production and manufacturing”.
As disclosed in Imperial’s 2019 Form
10-K,
goodwill is tested for impairment annually or more frequently if events or circumstances indicate it might be impaired. In the first quarter of 2020, with the change in economic conditions and the reduction in the company’s market capitalization, the company assessed its goodwill balances for impairment and recognized a
non-cash
goodwill impairment charge of $20 million in the company’s Upstream segment. The goodwill impairment is reflected in “Depreciation and depletion” on the Consolidated statement of income and “Goodwill” on the Consolidated balance sheet. The remaining balance of goodwill is associated with the Downstream segment.
 
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Item 2.
Management’s discussion and analysis of financial condition and results of operations
Current economic conditions
In 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the
COVID-19
pandemic spread rapidly across Canada and the world resulting in substantial reductions in consumer and business activity and significantly reduced local and global demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key
oil-producing
countries which led to increases in inventory levels and sharp declines in prices for crude oil, natural gas, and petroleum products. Throughout the second and third quarters, the effects of
COVID-19
continued to have a negative impact on the world’s major economies and demand for the company’s products, and market conditions continue to reflect considerable uncertainty. In Canada, consumer and business activity has exhibited some degree of recovery, but remains lower when compared to prior periods as a result of the pandemic. Despite actions taken by key
oil-producing
countries to reduce oversupply in the near-term, and improved credit market conditions providing sufficient liquidity to credit-worthy companies, the unfavourable economic impacts appear increasingly likely to persist to some extent well into 2021.
In late March, the company announced significant reductions in 2020 capital and operating expense spending plans. Capital and exploration expenditures in 2020 are now expected to be about $900 million, below the company’s earlier guidance of $1.1 billion to $1.2 billion. In addition,
year-to-date
production and manufacturing expenses are $813 million lower than the prior year, enabling the company to already surpass the full-year expense reduction target of $500 million.
The effect of
COVID-19
and the current business environment on supply and demand patterns has negatively impacted Imperial’s financial and operating results in the first nine months of 2020. Industry conditions seen thus far in 2020 have led to lower realized prices for the company’s products and have resulted in substantially lower earnings and operating cash flow throughout 2020 in comparison to 2019. In response to these conditions, the company operated certain assets at reduced rates in the second and third quarters of 2020. The company advanced and extended planned maintenance and turnaround activities throughout the second and third quarters in an effort to reduce
on-site
staffing levels and to better balance production with demand. The turnaround activities at Kearl and Syncrude were completed in the third quarter. Refinery utilization rates and petroleum product sales were reduced through the second quarter of 2020, but improved in the third quarter due to improved product demands. There have been signs of economic recovery, however, the length and severity of decreased demand due to
COVID-19
and the current business environment are highly uncertain, with the future supply and demand patterns inherently difficult to predict.
The company has reviewed its near-term spending reductions, near-term production impacts and expected near-term price levels to determine whether they put its long-lived assets at risk for impairment. Despite the challenging near-term environment, the company’s view of long-term supply and demand fundamentals has not changed significantly. However, the company continues to assess its strategic plans and longer-term price views, taking into account current and developing industry and economic conditions and continued market uncertainty, as part of its annual planning process, targeted for required Board of Directors review in the fourth quarter. Depending on the outcome of the planning process, including, in particular, any significant future changes in the company’s strategic plans or longer-term price views, a portion of the company’s long-lived assets could be at risk for impairment.
 
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As disclosed in Imperial’s 2019 Form
10-K,
low crude oil and natural gas prices can impact the company’s estimates of proved reserves as reported under U.S. Securities and Exchange Commission (SEC) rules. Imperial’s average
year-to-date
realizations for crude oil have been significantly affected by low prices since the end of the first quarter. Similar to downward revisions of proved bitumen reserves at
year-end
2016 that resulted from low prices, if average prices remain near current levels, under the SEC definition of proved reserves, certain quantities that qualified as proved reserves at
year-end
2019, primarily proved bitumen reserves at Kearl (totalling approximately 60 percent of the company’s 3.5 billion
oil-equivalent
barrels of net proved reserves), will not qualify as proved reserves at
year-end
2020. Proved reserves estimates can be impacted by a number of factors including completion and optimization of development projects, reservoir performance, regulatory approvals, government policies, consumer preferences, changes in the amount and timing of capital investments, royalty framework, and significant changes in long-term oil and gas price levels. The company does not expect the operation of the underlying projects or its outlook for future production volumes to be affected by a possible downward revision of reported proved reserves under the SEC definition.
In the second quarter of 2020, Canadian federal and provincial governments introduced plans and programs to support business and economic activities in response to the disruptive impacts from the
COVID-19
pandemic. The Government of Canada implemented the Canada Emergency Wage Subsidy (CEWS) as part of its
COVID-19
Economic Response Plan, and has recently announced its intent to extend the CEWS until June 2021. The company received wage subsidies under this program and, if eligible, intends to continue to apply for these wage subsidies. Additionally, the Government of Alberta announced its Recovery Plan, including a proposed acceleration of the Alberta corporate income tax rate decrease originally legislated in 2019. If enacted, the Alberta corporate income tax rate would be reduced to eight percent beginning July 1, 2020, compared with a previously legislated reduction to eight percent beginning January 1, 2022. The proposed corporate income tax rate change is not expected to have a significant impact on the company’s financial statements.
The company has taken steps, in line with federal and provincial guidelines and restrictions, to limit the spread of
COVID-19
among employees, contractors and the broader community, while also maintaining operations to ensure reliable supply of products to customers as a provider of essential services. The company maintains robust business continuity plans, which have been activated to minimize the impact of
COVID-19
on workforce productivity.
 
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Operating results
Third quarter 2020 vs. third quarter 2019
The company recorded net income of $3 million or $0.00 per share on a diluted basis in the third quarter of 2020, compared to net income of $424 million or $0.56 per share in the same period of 2019.
Upstream recorded a net loss of $74 million in the third quarter of 2020, compared to net income of $209 million in the same period of 2019. Results were negatively impacted by lower realizations of about $490 million and lower volumes of about $110 million. These items were partially offset by lower royalties of about $150 million and lower operating expenses of about $130 million.
West Texas Intermediate (WTI) averaged US$40.93 per barrel in the third quarter of 2020, down from US$56.44 per barrel in the same quarter of 2019. Western Canada Select (WCS) averaged US$31.81 per barrel and US$44.21 per barrel for the same periods. The WTI / WCS differential averaged approximately US$9 per barrel for the third quarter of 2020, compared to around US$12 in the same period of 2019.
The Canadian dollar averaged US$0.75 in the third quarter of 2020, a decrease of US$0.01 from the third quarter of 2019.
Imperial’s average Canadian dollar realizations for bitumen decreased in the quarter, primarily due to a decrease in WCS. Bitumen realizations averaged $35.95 per barrel in the third quarter of 2020, compared to $51.12 per barrel in the third quarter of 2019. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $50.79 per barrel in the third quarter of 2020, compared to $77.27 per barrel in the same period of 2019.
Total gross production of Kearl bitumen averaged 189,000 barrels per day in the third quarter (134,000 barrels Imperial’s share), compared to 224,000 barrels per day (159,000 barrels Imperial’s share) in the third quarter of 2019. Lower production was due to the advancement and extension of a planned turnaround at the site and a third-party pipeline outage.
Gross production of Cold Lake bitumen averaged 131,000 barrels per day in the third quarter, compared to 142,000 barrels per day in the same period of 2019. Lower production was mainly due to production timing associated with steam management.
The company’s share of gross production from Syncrude averaged 67,000 barrels per day, compared to 69,000 barrels per day in the third quarter of 2019.
Downstream recorded net income of $77 million in the third quarter of 2020, compared to net income of $221 million in the same period of 2019. Results were negatively impacted by lower margins of about $230 million and lower sales volumes of about $70 million. These items were offset by lower operating expenses of about $70 million, and improved reliability of about $50 million, primarily related to the absence of the Sarnia fractionation tower incident which occurred in April 2019.
Refinery throughput averaged 341,000 barrels per day, compared to 363,000 barrels per day in the third quarter of 2019. Capacity utilization was 81 percent, compared to 86 percent in the third quarter of 2019. Reduced throughput was due to lower market demand, partially offset by reduced planned maintenance.
Petroleum product sales were 449,000 barrels per day, compared to 488,000 barrels per day in the third quarter of 2019. Lower petroleum product sales were mainly due to reduced demand from the
COVID-19
pandemic.
Chemical net income was $27 million in the third quarter, compared to $38 million in the same quarter of 2019.
Corporate and other expenses were $27 million in the third quarter, compared to $44 million in the same period of 2019.
 
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Nine months 2020 vs. nine months 2019
Net loss in the first nine months of 2020 was $711 million, or $0.97 per share on a diluted basis, compared to net income of $1,929 million or $2.51 per share in the first nine months of 2019. Current year results include a favourable impact of about $90 million
after-tax,
associated with the Canada Emergency Wage Subsidy (CEWS), which includes Imperial’s proportionate share of a joint venture.
Year-to-date
2019 results included a favourable impact of $662 million associated with the Alberta corporate income tax rate decrease.
Upstream recorded a net loss of $1,126 million for the first nine months of the year, compared to net income of $1,252 million in the same period of 2019. Results were negatively impacted by lower realizations of about $2,330 million, absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019, and lower volumes of about $300 million. These items were partially offset by lower royalties of about $460 million, lower operating expenses of about $320 million, favourable foreign exchange impacts of about $120 million and about $60 million associated with the CEWS received by the company which includes Imperial’s proportionate share of a joint venture.
West Texas Intermediate averaged US$38.10 per barrel in the first nine months of 2020, down from US$57.10 per barrel in the same period of 2019. Western Canada Select averaged US$24.72 per barrel and US$45.32 per barrel for the same periods. The WTI / WCS differential widened to average approximately US$13 per barrel in the first nine months of 2020, from around US$12 per barrel in the same period of 2019.
The Canadian dollar averaged US$0.74 in the first nine months of 2020, a decrease of US$0.01 from the same period in 2019.
Imperial’s average Canadian dollar realizations for bitumen decreased in the first nine months of 2020 primarily due to a decrease in WCS. Bitumen realizations averaged $22.24 per barrel, compared to $52.44 per barrel from the same period in 2019. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI in the first nine months of 2020, adjusted for changes in exchange rates and transportation costs. Synthetic crude realizations averaged $49.06 per barrel, compared to $74.59 per barrel from the same period in 2019.
Total gross production of Kearl bitumen averaged 202,000 barrels per day in the first nine months of 2020 (143,000 barrels Imperial’s share), down from 204,000 barrels per day (145,000 barrels Imperial’s share) in the same period of 2019. Lower production was mainly due to the balancing of near-term production with demand through the advancement and extension of planned turnaround activities and a third-party pipeline outage, partially offset by the addition of supplemental crushing facilities in 2020.
Gross production of Cold Lake bitumen averaged 131,000 barrels per day in the first nine months of 2020, compared to 141,000 barrels per day in the same period of 2019. Lower production was mainly due to production timing associated with steam management.
During the first nine months of 2020, the company’s share of gross production from Syncrude averaged 63,000 barrels per day, compared to 76,000 barrels per day in the same period of 2019. Lower production was mainly due to the balancing of near term production with demand.
Downstream net income was $447 million, compared to $736 million in the same period of 2019. Results were negatively impacted by lower margins of about $460 million, and lower sales volumes of about $220 million. These items were offset by improved reliability of $200 million, primarily due to the absence of the Sarnia fractionation tower incident which occurred in April 2019, lower operating expenses of $140 million and lower turnaround costs of $70 million primarily related to reduced turnaround activity in the current year.
Refinery throughput averaged 334,000 barrels per day in the first nine months of 2020, compared to 363,000 barrels per day in the same period of 2019. Capacity utilization was 79 percent, compared to 86 percent in the same period of 2019. Lower throughput was primarily due to reduced demand from the
COVID-19
pandemic, partially offset by the absence of impacts from the Sarnia fractionation tower incident which occurred in April 2019.
 
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Petroleum product sales were 423,000 barrels per day in the first nine months of 2020, compared to 481,000 barrels per day in the same period of 2019. Lower petroleum product sales were mainly due to reduced demand resulting from the
COVID-19
pandemic.
Chemical net income was $55 million in the first nine months of 2020, compared to $110 million in the same period of 2019. Results were negatively impacted by lower margins of about $60 million.
Corporate and other expenses were $87 million in the first nine months of 2020, compared to $169 million in the same period of 2019, mainly due to lower share-based compensation costs.
 
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Liquidity and capital resources
Cash flow generated from operating activities was $875 million in the third quarter, compared with cash flow generated from operating activities of $1,376 million in the corresponding period in 2019, primarily reflecting lower realizations in the Upstream and lower margins in the Downstream.
Investing activities used net cash of $125 million in the third quarter, compared with $413 million used in the same period of 2019, primarily reflecting lower additions to property, plant and equipment.
Cash used in financing activities was $166 million in the third quarter, compared with $519 million used in the third quarter of 2019. Dividends paid in the third quarter of 2020 were $162 million. The per share dividend paid in the third quarter was $0.22, consistent with $0.22 in the same period of 2019. The company did not purchase shares during the third quarter. In the third quarter of 2019, the company purchased about 9.8 million shares for $343 million, including shares purchased from Exxon Mobil Corporation.
The company’s cash balance was $817 million at September 30, 2020, versus $1,531 million at the end of third quarter 2019.
Cash flow generated from operating activities was $482 million in the first nine months of 2020, compared with cash flow generated from operating activities of $3,405 million in the same period of 2019, primarily reflecting lower realizations in the Upstream and unfavourable working capital impacts.
Investing activities used net cash of $605 million in the first nine months of 2020, compared with $1,305 million used in the same period of 2019, primarily reflecting lower additions to property, plant and equipment.
Cash used in financing activities was $778 million in the first nine months of 2020, compared with $1,557 million used in the same period of 2019. Dividends paid in the first nine months of 2020 were $488 million. The per share dividend paid in the first nine months of 2020 was $0.66, up from $0.60 in the same period of 2019. During the first nine months of 2020, the company, under its share purchase program, purchased about 9.8 million shares for $274 million. In the first nine months of 2019, the company purchased about 29.6 million shares for $1,072 million.
During the second quarter of 2020, in addition to existing credit facilities of $500 million, the company entered into a $500 million committed short-term line of credit to May 2021, and a $300 million committed short-term line of credit to June 2021. The company has not drawn on any of its credit facilities.
On June 23, 2020, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a limited normal course issuer bid. The program is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan, and enables the company to purchase up to a maximum of 50,000 common shares during the period June 29, 2020 to June 28, 2021. 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, 2021.
 
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Forward-looking statements
Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Forward-looking statements can be identified by words such as believe, anticipate, intend, propose, plan, goal, seek, project, predict, target, estimate, expect, strategy, outlook, schedule, future, continue, likely, may, should, will and similar references to future periods. Forward-looking statements in this release include, but are not limited to, references to the use of derivative instruments and effectiveness of risk mitigation; market uncertainty and the extent and length of ongoing effects of the
COVID-19
pandemic on economic activity; previously announced expense reduction target and the adjusted expected full year capital expenditures of about $900 million for 2020; the company’s view of long-term supply and demand fundamentals; the impacts of future reductions in long-term price outlooks, including impairment of long-lived assets; the impact of current low oil and natural gas prices on proved reserves under SEC rules, including the possible downward revision of proved bitumen reserves; the intention to continue applying for the Canada Emergency Wage Subsidy; the impact of the Government of Alberta acceleration of corporate income tax rate decrease; and the impact of measures implemented in response to
COVID-19.
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; 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
outbreaks; the company’s ability to effectively execute on its business continuity plans and pandemic response activities; the ability of the company to achieve cost savings and adjust maintenance work; the performance of third-party service providers, including diluent supply by pipeline to Kearl; the adoption and impact of new facilities or technologies, including on reductions to greenhouse gas emissions intensity; refinery utilization and product sales; applicable laws and government policies, including production curtailment and restrictions in response to
COVID-19;
financing sources and capital structure, including the ability to issue long-term debt; 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
on demand; general economic conditions; availability and allocation of capital; currency exchange rates; transportation for accessing markets; political or regulatory events, including changes in law or government policy such as tax laws, production curtailment and actions in response to
COVID-19;
availability and performance of third-party service providers, including in light of restrictions related to
COVID-19;
management effectiveness and disaster response preparedness, including business continuity plans in response to
COVID-19;
environmental risks inherent in oil and gas exploration and production activities; environmental regulation, including climate change and greenhouse gas regulation and changes to such regulation; unanticipated technical or operational difficulties; project management and schedules and timely completion of projects; the receipt, in a timely manner, of regulatory and third-party approvals; the results of research programs and new technologies, and ability to bring new technologies to commercial scale on a cost-competitive basis; operational hazards and risks; cybersecurity incidents, including increased reliance on remote working arrangements and activation of business continuity plans due to
COVID-19;
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. Imperial’s actual results may differ materially from those expressed or implied by its forward-looking statements and readers are cautioned not to place undue reliance on them. Imperial undertakes no obligation to update any forward-looking statements contained herein, except as required by applicable law.
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.
 
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Item 3.
Quantitative and qualitative disclosures about market risk
Information about market risks for the nine months ended September 30, 2020, does not differ materially from that discussed on page 27 of the company’s annual report on Form
10-K
for the year ended December 31, 2019 and on page 26 of the Form
10-Q
for the quarter ended June 30, 2020.
 
Item 4.
Controls and procedures
As indicated in the certifications in Exhibit 31 of this report, the company’s principal executive officer and principal financial officer have evaluated the company’s disclosure controls and procedures as of September 30, 2020. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
 
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PART II. OTHER INFORMATION
 
Item 1.
Legal proceedings
On October 20, 2020, Imperial was issued a Notice of Intention to Issue an Environmental Penalty Order by the Ontario Ministry of the Environment, Conservation and Parks under the Ontario Environmental Protection Act, R.S.O. 1990, c. E.19. The Notice of Intention contains 10 alleged contraventions at Imperial’s refinery in Sarnia, Ontario for discharging more than 225 kilograms of sulphur dioxide in a
24-hour
period from acid combustion equipment between July, 2019 and October, 2019, pursuant to section 5(1) of Ontario Regulation 530/18 Air Pollution – Discharge of Sulphur Dioxide from Petroleum Facilities. The Notice of Intention proposes a total administrative penalty amount of $977,145, and is subject to possible reductions upon review. Imperial is evaluating the possibility of an appeal of a final environmental penalty order.
 
Item 1A.
Risk factors
The risk factors that are discussed in Item 1A of the company’s annual report on Form
10-K
for the year ended December 31, 2019 reference risk factors related to commodity supply and demand, and public health. These risk factors encompass, among other things, production oversupply, as a result of increased production in key producing countries as well as demand reduction due to the
COVID-19
pandemic that was characterized as a global pandemic in March, 2020, and have led to volatility in commodity prices.
As a result of
COVID-19,
governments in many countries have mandated quarantines, closures,
stay-at-home
orders and travel restrictions that have had a significant impact on demand for the company’s products. While these effects are expected to be temporary, a resurgence of cases of
COVID-19
leads to a highly uncertain business environment. Although there has been some movement toward
pre-pandemic
activity levels, the duration of the business disruptions internationally and related financial impact cannot be reasonably estimated at this time and continued or new restrictions could continue to impact the demand for products.
Imperial’s future business results, including cash flows and financing needs, will be affected by the extent and duration of these conditions and the effectiveness of responsive actions that the company and others take, including our actions to reduce capital and operating expenses and government actions to address the
COVID-19
pandemic. The impact of
COVID-19
could also have an effect on the financial markets and result in an increase to the cost of capital due to risk. The company’s results will also be affected by any resulting negative impacts on national and global economies and markets from a prolonged decrease of economic activity.
The company has had positive
COVID-19
cases at its operating sites that have not had a material impact on its operations or business. However, if the company’s mitigation and response efforts prove insufficient, large outbreaks of epidemics, pandemics or other health crises such as
COVID-19
at operating sites, particularly in remote locations and where work camps are utilized, could impact the company’s personnel and its operations. The company could also be impacted by disruption to supply chains, methods of distribution and key third-party service providers, which could impact the ability to produce or sell its products, as well as increasing the costs associated with its operations and decreasing revenues and margins.
The company has initiated numerous emergency response and business continuity plans, and a substantial portion of the company’s workforce has implemented remote working arrangements. If the company is not able to effectively operate and manage through these plans and alternative arrangements, the negative impacts could include reduced productivity and increased costs.
The
COVID-19
pandemic continues to evolve, with an increase of cases in many areas and the potential for additional public health restrictions. The evolution of the pandemic remains highly uncertain, and it is difficult to predict the ultimate impact of it or the timing of any resolution of the current supply imbalances. We continue to monitor market developments and evaluate the impacts of decreased demand on our production levels, as well as impacts on project development and future production.
 
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Item 2.
Unregistered sales of equity securities and use of proceeds
Issuer purchases of equity securities
 
     Total number of
shares purchased		     
Average price paid
per share
(Canadian dollars)
      Total number of
shares purchased
as part of publicly
announced plans
or programs		      Maximum number
of shares that may
yet be purchased
under the plans or
programs
(a)
  
 
  
July 2020
            
(July 1 - July 31)
   
 
-
 
   
 
-
 
   
 
-
 
   
 
50,000
 
August 2020
            
(August 1 - August 31)
   
 
-
 
   
 
-
 
   
 
-
 
   
 
50,000
 
September 2020
            
(September 1 - September 30)
   
 
-
 
   
 
-
 
   
 
-
 
     
50,000
  
(a)
On June 23, 2020, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a limited normal course issuer bid. The program is used primarily to eliminate dilution from shares issued in conjunction with Imperial’s restricted stock unit plan, and enables the company to purchase up to a maximum of 50,000 common shares during the period June 29, 2020 to June 28, 2021. 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, 2021.
The company will continue to evaluate its share purchase program in the context of its overall capital activities.
 
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Item 6.
Exhibits
(31.1) Certification by the principal executive officer of the company pursuant to Rule
13a-14(a).
(31.2) Certification by the principal financial officer of the company pursuant to Rule
13a-14(a).
(32.1) Certification by the chief executive officer of the company pursuant to Rule
13a-14(b)
and 18 U.S.C. Section 1350.
(32.2) Certification by the chief financial officer of the company pursuant to Rule
13a-14(b)
and 18 U.S.C. Section 1350.
(101) Interactive Data Files (formatted as Inline XBRL).
(104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
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Table of Contents
IMPERIAL OIL LIMITED
 
 
 
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   
Imperial Oil Limited
(Registrant)
Date:    November 4, 2020    
/s/ Daniel E. Lyons
---------------------------------------------------
    (Signature)
    Daniel E. Lyons
   
Senior vice-president, finance and
administration, and controller
(Principal accounting officer)
 
Date:    November 4, 2020    
/s/ Cathryn Walker
---------------------------------------------------
    (Signature)
    Cathryn Walker
    Assistant corporate secretary
 
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