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Imperial Oil (IMO) Q1 Earnings and Sales Beat Estimates

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Zacks Equity Research
·6 min read
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Imperial Oil’s IMO first-quarter 2020 results delivered adjusted earnings of 5 cents a share. The Zacks Consensus Estimate was of a loss of 2 cents. This outperformance was driven by higher upstream production. However, the Canadian integrated oil and gas player’s bottom line plunged significantly from the year-ago quarter’s 29 cents due to lower price realizations.

In the first quarter, revenues of $4.99 billion came ahead of the Zacks Consensus Estimate of $4.6 billion. However, the top line fell from the year-ago quarter’s $6 billion.

Segmental Information

Upstream: Revenues of C$2,374 million decreased from the prior-year level of C$3,188 million. The segment incurred a net loss of C$608 million against net income of C$58 million in the year-ago quarter. This downside was due to lower commodity price realizations in the upstream and non-cash charges of $301 million borne.

Net production volumes during the quarter under review averaged 403,000 barrels of oil equivalent per day (Boe/d) compared with 353,000 Boe/d in the year-ago quarter on strong volumes from the Kearl oilsands project. Total oil and NGL output amounted to 374,000 barrels per day (BPD) compared with 329,000 BPD in first-quarter 2019. Net oil and NGL output from Kearl and Cold Lake totaled 154,000 bpd and 134,000 bpd, respectively. Syncrude output averaged 71,000 BPD, up 3% from the year-earlier quarter. Net natural gas production came in at 172 million cubic feet per day (Mcf/d), higher than 143 Mcf/d in the comparable quarter last year.

Bitumen (accounting for 77% of the output) price realizations totaled C$18.08 a barrel, down from C$48.85 in the year-ago quarter. The company received average realized price of C$58.94 per barrel of synthetic oil compared with the year-ago quarter’s C$69.34. For conventional crude oil, it received C$41.49 per barrel compared with the year-ago quarter’s C$52.11. Prices of NGL and gas declined year over year to C$9.26 a barrel and C$1.77 per thousand cubic feet, respectively.

Downstream: Revenues of C$5,379 million were down from $5,932 million in first-quarter 2019. However, net income of C$402 million improved from C$257 million, attributable tohigher margins of about $190 million and lower net impacts from reliability events of around $50 million.

Refinery throughput in the first quarter averaged 383,000 BPD, in line with the prior-year quarter’s level. Capacity utilization of 91% also matched the year-earlier level. This result was on account of lower refinery turnaround activities and a record first-quarter throughput at the Strathcona refinery.

Chemical: Revenues of C$260 million fell from C$323 million in first-quarter 2019. Net income was recorded at C$21 million compared with the year-ago quarter’s C$34 million.

Imperial Oil Limited Price, Consensus and EPS Surprise

Imperial Oil Limited Price, Consensus and EPS Surprise
Imperial Oil Limited Price, Consensus and EPS Surprise

Imperial Oil Limited price-consensus-eps-surprise-chart | Imperial Oil Limited Quote

Total Costs & Capex

Total expenses of C$6,945 million declined from the year-ago quarter’s C$7,584 million.

In the quarter under consideration, the company’s capital and exploration expenditures summed C$331 million, down from the year-ago quarter’s C$529 million. Of the total expenditure, 70% was allotted to the upstream segment.

Financial Performance

Imperial Oil’s cash flow from operating activities came in at C$423 million in the reported quarter. The figure deteriorated from the year-ago quarter’s C$1,003 million.

Importantly, the company paid back C$438 million to its shareholders through dividends and share buybacks in the reported quarter. It paid out 22 Canadian cents as dividend per share compared with 19 Canadian cents a year ago.

Imperial Oil repurchased 9.8 million shares worth C$274 million including those bought from Exxon Mobil Corporation XOM.

As of Mar 31, the company held C$1,388 million in cash and cash equivalents. Its total debt amounted to C$5,198 million, representing a total debt to total capital of 18.06%.

Outlook

Responding to the coronavirus-induced sudden oil price slump, Imperial Oil is taking steps to rationalize its planned activities and capital spending for the current year.

Amid the growing crisis, the company announced sizeable cuts in 2020 capital and operating spending plans. Capital and exploration expenditures for the ongoing year are projected to be in the $1.1-$1.2 billion band, indicating a fall from the previous guided range of $1.6-$1.7 billion. Also, the company classified certain prospects to reduce 2020 operating expenses by $500 million from the year-ago levels.

Further, the company intends to operate some assets at lower rates in the second quarter of 2020. Imperial Oil expedited the process of its Kearl project's planned turnaround by stopping work ahead of schedule for an extended period time. This, in turn, will lend the company a window to limit its current on-site staff strength to a bare minimum and take stock of the persisting low-demand scenario against a pandemic backdrop. This strategic action will further allow the company to manage its projected ramped-down production level in the near term. This, in turn, is likely to shrink Kearl’s total gross production to nearly 150,000 barrels per day in the second quarter of 2020.  Moreover, production from Syncrude is estimated to decline to 45,000-50,000 barrels per day in the period.

By the end of the first quarter, refinery utilization rates and petroleum product sales dropped due to moderate demand for petroleum products in Canada, and this trend is anticipated to persist in the second quarter as well.

Zacks Rank & Stocks to Consider

Imperial Oil has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are CNX Resources Corporation. CNX and KLR Energy Acquisition Corp. ROSE, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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