IMPERIAL OIL LIMITED 2023 annual financial statements and management discussion and analysis
Cover photo:
Imperial employees at the Cold Lake Grand Rapids Phase 1 (GRP1) project. GRP1 will be the first deployment in industry of solvent-assisted steam- assisted gravity drainage (SA-SAGD) technology
Annual financial statements and management's discussion and analysis of financial condition and operating results
For the year ended December 31, 2023
The following annual financial statements and management's discussion and analysis should be read in conjunction with the company's annual report on Form 10-K for the year ended December 31, 2023. Reference to "Item 1A. Risk factors" and specific page numbers in this document indicate the section and page numbers found in the company's annual report on Form 10-K. The company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to these reports are available online at www.sedarplus.ca, www.sec.gov and the company's website www.imperialoil.ca.
Unless the context otherwise indicates, reference to the "company" or "Imperial" includes Imperial Oil Limited and its subsidiaries, and reference to ExxonMobil includes Exxon Mobil Corporation and its affiliates, as appropriate.
All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated. Note that numbers may not add due to rounding.
Forward-looking statements
Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Similarly, discussion of roadmaps or future plans related to carbon capture, transportation and storage, biofuel, hydrogen, and other future plans to reduce emissions and emission intensity of the company, its affiliates and third parties are dependent on future market factors, such as continued technological progress, policy support and timely rule-making and permitting, and represent 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 report include, but are not limited to, references to being well positioned to participate in substantial investments to develop Canadian energy supplies and reduce commodity price risk; the company's long-term business outlook including demand, supply and energy mix and pathways related to greenhouse gas emissions; the impact of participation in the Pathways alliance; Imperial's company-widenet-zero goal by 2050 (Scope 1 and 2) and the company's greenhouse gas emissions intensity goal for 2030 for its oil sands operations; the extent of ongoing effects of global events affecting supply and demand, including inflation, and the company's ability to mitigate cost impacts in all price environments; upstream focus on optimization within existing assets, cost reduction opportunities and productivity enhancements; the ability of the company's current investment strategy of value and select volume growth to deliver robust returns and support long term growth; continued evaluation of opportunities such as rail shipments and pace of the Aspen project; segment growth, competitive strategies and benefits from an integrated business model; the impact of Downstream strategies and competitive position; the timing, production and emissions reductions from the renewable diesel facility at Strathcona; potential impacts from environmental risks, carbon policy, climate related regulations and biofuels mandates; Chemical competitive position and the benefits from integration with the Sarnia refinery and relationship with ExxonMobil; capital structure and financial strength as a competitive advantage, for risk mitigation and meeting funding requirements; continued evaluation of the company's share purchase program; expected full year capital expenditures of about $1.7 billion for 2024; earnings sensitivities; risks associated with use of derivative instruments; the impact of any pending litigation, accounting standards and unrecognized tax benefits; the effectiveness of the company's compensation plan in long term performance and mitigating risk; standardized measures of discounted future cash flows and estimates, development, timing and recovery of reserves.
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 future energy demand, supply and mix; commodity prices and foreign exchange rates; production rates, growth and mix across various assets; production life, resource recoveries and reservoir performance; project plans, timing, costs, technical evaluations and capacities, and the company's ability to effectively execute on these plans and operate its assets, including its investment in the renewable diesel complex at Strathcona, the Leming, Grand Rapids and LASER projects at Cold Lake, and autonomous operations at Kearl; the adoption and impact of new facilities or technologies on reductions to GHG emissions intensity, including technologies using solvents to replace energy intensive steam at Cold Lake, the EBRT project, boiler flue gas technology at Kearl, Strathcona renewable diesel, carbon capture and storage including in connection with hydrogen for the renewable diesel project, recovery technologies and efficiency projects, and any changes in the scope, terms, or costs of such projects; that any required support from policymakers and other stakeholders for various new technologies such as carbon capture and storage will be provided; for renewable diesel, the availability and cost of locally-sourced and grown feedstock and the supply of renewable diesel to British Columbia in connection with its low-carbon fuel legislation; the amount and timing of emissions reductions, including the impact of lower carbon fuels; performance of third party service providers; receipt of regulatory and third party approvals in a timely manner, especially with respect to large scale emissions reduction projects; applicable laws and government policies, including with respect to climate change, GHG emissions reductions and low carbon fuels; refinery utilization and product sales; the ability to offset any ongoing inflationary pressures; cash generation, financing sources and capital structure, such as dividends and shareholder returns, including the timing and amounts of share repurchases; progression of COVID-19 and its impacts on Imperial's ability to operate its assets; capital and environmental expenditures; the capture of efficiencies within and between business lines and the ability to maintain near-term cost reductions as ongoing efficiencies; and general market conditions 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, petroleum and petrochemical products, feedstocks and other market factors, economic conditions and seasonal fluctuations and resulting demand, price, differential and margin impacts; political or regulatory events, including changes in law or government policy, applicable royalty rates, and tax laws including taxes on share repurchases;
environmental regulation, including climate change and greenhouse gas regulation and changes to such regulation; environmental risks inherent in oil and gas activities; government policies supporting lower carbon investment opportunities; failure, delay or uncertainty regarding supportive policy and market development for the adoption of emerging lower-emission energy technologies and other technologies that support emissions reductions; the receipt, in a timely manner, of regulatory and third-party approvals, including for new technologies that will help the company meet its lower emissions goals; third-party opposition to company and service provider operations, projects and infrastructure; availability and allocation of capital; availability and performance of third-party service providers; unanticipated technical or operational difficulties; management effectiveness and disaster response preparedness; project management and schedules and timely completion of projects; transportation for accessing markets; commercial negotiations; unexpected technological developments; the results of research programs and new technologies, the ability to bring new technologies to commercial scale on a cost-competitive basis, and the competitiveness of alternative energy and other emission reduction technologies; reservoir analysis and performance; the ability to develop or acquire additional reserves; operational hazards and risks; cybersecurity incidents; currency exchange rates; the occurrence, pace, rate of recovery and effects of public health crises, including the responses from governments; general economic conditions, including inflation and the occurrence and duration of economic recessions or downturns; and other factors discussed in Item 1A Risk factors and Item 7 Management's discussion and analysis of financial condition and results of operations in the company's most recent annual report on Form 10-K.
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 Oil Limited. 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.
Forward-looking and other statements regarding Imperial's environmental, social and other sustainability efforts and aspirations are not an indication that these statements are material to investors or require disclosure in the company's filings with securities regulators. In addition, historical, current and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future, including future rule-making.
Energy demand models are forward-looking by nature and aim to replicate system dynamics of the global energy system, requiring simplifications. The reference to any scenario in this report, including any potential net- zero scenarios, does not imply Imperial views any particular scenario as likely to occur. In addition, energy demand scenarios require assumptions on a variety of parameters. As such, the outcome of any given scenario using an energy demand model comes with a high degree of uncertainty. Third-party scenarios discussed in this report reflect the modeling assumptions and outputs of their respective authors, not Imperial, and their use by Imperial is not an endorsement by the company of their underlying assumptions, likelihood or probability. Investment decisions are made on the basis of Imperial's separate planning process. Any use of the modeling of a third-party organization within this report does not constitute or imply an endorsement by Imperial of any or all of the positions or activities of such organization.
Actions needed to advance the company's 2030 greenhouse gas emission-reductions plans are incorporated into its medium-term business plans, which are updated annually. The reference case for planning beyond 2030 is based on the ExxonMobil's Global Outlook (the Outlook) research and publication. The Outlook is reflective of the existing global policy environment and an assumption of increasing policy stringency and technology improvement to 2050. However, the Outlook does not attempt to project the degree of required future policy and technology advancement and deployment for the world or the company, to meet net zero by 2050. As future policies and technology advancements emerge, they will be incorporated into the Outlook, and the Company's business plans will be updated accordingly. References to projects or opportunities may not reflect investment decisions made by the company. Individual projects or opportunities may advance based on a number of factors, including availability of supportive policy, permitting, technological advancement for cost-effective abatement, insights from the company planning process, and alignment with partners and other stakeholders. Capital investment guidance in lower-emission investments is based on our corporate plan; however, actual investment levels will be subject to the availability of the opportunity set, public policy support, and focused on returns.
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.
Financial section
Table of contents | Page | |
Financial information (U.S. GAAP) | 2 | |
Frequently used terms | 3 | |
Management's discussion and analysis of financial condition and results of operations | 7 | |
Overview | 7 | |
Business environment | 8 | |
Business results | 11 | |
Liquidity and capital resources | 18 | |
Capital and exploration expenditures | 21 | |
Market risks | 22 | |
Critical accounting estimates | 24 | |
Management's report on internal control over financial reporting | 29 | |
Report of Independent Registered Public Accounting Firm | 30 | |
Consolidated statement of income (U.S. GAAP) | 33 | |
Consolidated statement of comprehensive income (U.S. GAAP) | 34 | |
Consolidated balance sheet (U.S. GAAP) | 35 | |
Consolidated statement of shareholders' equity (U.S. GAAP) | 36 | |
Consolidated statement of cash flows (U.S. GAAP) | 37 | |
Notes to consolidated financial statements | 38 | |
1. | Summary of significant accounting policies | 38 |
2. | Business segments | 44 |
3. | Income taxes | 46 |
4. | Employee retirement benefits | 47 |
5. | Other long-term obligations | 52 |
6. | Financial and derivative instruments | 53 |
7. | Share-based incentive compensation programs | 55 |
8. | Investment and other income | 56 |
9. | Litigation and other contingencies | 56 |
10. Common shares | 57 | |
11. Miscellaneous financial information | 59 | |
12. Financing and additional notes and loans payable information | 60 | |
13. Leases | 61 | |
14. Long-term debt | 63 | |
15. Accounting for suspended exploratory well costs | 63 | |
16. Transactions with related parties | 64 | |
17. Other comprehensive income (loss) information | 65 | |
18. Divestment activities | 65 | |
Supplemental information on oil and gas exploration and production activities (unaudited) | 66 |
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Financial information (U.S. GAAP)
millions of Canadian dollars | 2023 | 2022 | 2021 |
Revenues | 50,702 | 59,413 | 37,508 |
Net income (loss): | |||
Upstream | 2,512 | 3,645 | 1,395 |
Downstream | 2,301 | 3,622 | 895 |
Chemical | 164 | 204 | 361 |
Corporate and other | (88) | (131) | (172) |
Net income (loss) | 4,889 | 7,340 | 2,479 |
Cash and cash equivalents at year-end | 864 | 3,749 | 2,153 |
Total assets at year-end | 41,199 | 43,524 | 40,782 |
Long-term debt at year-end | 4,011 | 4,033 | 5,054 |
Total debt at year-end | 4,132 | 4,155 | 5,176 |
Other long-term obligations at year-end | 3,851 | 3,467 | 3,897 |
Shareholders' equity at year-end | 22,222 | 22,413 | 21,735 |
Cash flow from operating activities | 3,734 | 10,482 | 5,476 |
Per share information (Canadian dollars) | |||
Net income (loss) per common share - basic | 8.51 | 11.47 | 3.48 |
Net income (loss) per common share - diluted | 8.49 | 11.44 | 3.48 |
Dividends per common share - declared | 1.94 | 1.46 | 1.03 |
2
Frequently used terms
Listed below are definitions of several of the company's key business and financial performance measures. The definitions are provided to facilitate understanding of the terms and how they are calculated. Certain measures included in this document are not prescribed by U.S. Generally Accepted Accounting Principles (GAAP). These measures constitute "non-GAAP financial measures" under Securities and Exchange Commission Regulation G and Item 10(e) of Regulation S-K, and "specified financial measures" under National Instrument 52-112 Non- GAAP and Other Financial Measures Disclosure of the Canadian Securities Administrators.
Reconciliation of these non-GAAP financial measures to the most comparable GAAP measure, and other information required by these regulations, have been provided. Non-GAAP financial measures and specified financial measures are not standardized financial measures under GAAP and do not have a standardized definition. As such, these measures may not be directly comparable to measures presented by other companies, and should not be considered a substitute for GAAP financial measures.
Capital employed
Capital employed is a non-GAAP financial measure that is a measurement of net investment. When viewed from the perspective of how capital is used by the business, it includes the company's property, plant and equipment and other assets, less liabilities, excluding both short-term and long-term debt. When viewed from the perspective of the sources of capital employed in total for the company, it includes total debt and equity. The most directly comparable financial measure that is disclosed in the financial statements is total assets within the company's Consolidated balance sheet. Both of these views include the company's share of amounts applicable to equity companies, which the company believes should be included to provide a more comprehensive measurement of capital employed.
Reconciliation of capital employed
millions of Canadian dollars | 2023 | 2022 | 2021 | |
From the Consolidated balance sheet | ||||
Business uses: asset and liability perspective | ||||
Total assets | 41,199 | 43,524 | 40,782 | |
Less: | Total current liabilities excluding notes and loans payable | (6,482) | (8,776) | (5,432) |
Total long-term liabilities excluding long-term debt | (8,363) | (8,180) | (8,439) | |
Add: | Imperial's share of equity company debt | 21 | 25 | 20 |
Total capital employed | 26,375 | 26,593 | 26,931 | |
Total company sources: Debt and equity perspective | ||||
Notes and loans payable | 121 | 122 | 122 | |
Long-term debt | 4,011 | 4,033 | 5,054 | |
Shareholders' equity | 22,222 | 22,413 | 21,735 | |
Add: | Imperial's share of equity company debt | 21 | 25 | 20 |
Total capital employed | 26,375 | 26,593 | 26,931 |
3
Return on average capital employed (ROCE)
ROCE is a non-GAAP ratio. From the perspective of the business segments, ROCE is annual business segment net income divided by average business segment capital employed (an average of the beginning and end-of-year amounts). Segment net income includes Imperial's share of segment net income of equity companies, consistent with the definition used for capital employed, and excludes the cost of financing. Capital employed is a non-GAAP financial measure and is disclosed and reconciled above. The company's total ROCE is net income excluding the after-tax cost of financing divided by total average capital employed. The company has consistently applied its ROCE definition for many years and views it as one of the best measures of historical capital productivity in a capital-intensive,long-term industry. Additional measures, which are more cash flow based, are used to make investment decisions.
Components of return on average capital employed
millions of Canadian dollars | 2023 | 2022 | 2021 |
From the Consolidated statement of income | |||
Net income (loss) | 4,889 | 7,340 | 2,479 |
Financing (after-tax) including Imperial's share of equity companies | 66 | 55 | 40 |
Net income (loss) excluding financing | 4,955 | 7,395 | 2,519 |
Average capital employed | 26,484 | 26,762 | 26,780 |
Return on average capital employed (percent) - corporate total | 18.7 | 27.6 | 9.4 |
Cash flows from operating activities and asset sales
Cash flows from operating activities and asset sales is a non-GAAP financial measure that is the sum of the net cash provided by operating activities and proceeds from asset sales reported in the Consolidated statement of cash flows. This cash flow reflects the total sources of cash both from operating the company's assets and from the divesting of assets. The most directly comparable financial measure that is disclosed in the financial statements is cash flows from (used in) operating activities within the company's Consolidated statement of cash flows. The company employs a long-standing and regular disciplined review process to ensure that assets are contributing to the company's strategic objectives. Assets are divested when they no longer meet these objectives or are worth considerably more to others. Because of the regular nature of this activity, the company believes it is useful for investors to consider sales proceeds together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions.
Reconciliation of cash flows from (used in) operating activities and asset sales
millions of Canadian dollars | 2023 | 2022 | 2021 |
From the Consolidated statement of cash flows | |||
Cash flows from (used in) operating activities | 3,734 | 10,482 | 5,476 |
Proceeds from asset sales | 86 | 904 | 81 |
Total cash flows from (used in) operating activities and asset sales | 3,820 | 11,386 | 5,557 |
4
Operating costs
Operating costs is a non-GAAP financial measure that are the costs during the period to produce, manufacture, and otherwise prepare the company's products for sale - including energy costs, staffing and maintenance costs. It excludes the cost of raw materials, taxes and interest expense and are on a before-tax basis. The most directly comparable financial measure that is disclosed in the financial statements is total expenses within the company's Consolidated statement of income. While the company is responsible for all revenue and expense elements of net income, operating costs represent the expenses most directly under the company's control and therefore, are useful in evaluating the company's performance.
Reconciliation of operating costs
millions of Canadian dollars | 2023 | 2022 | 2021 |
From the Consolidated statement of income | |||
Total expenses | 44,600 | 50,186 | 34,307 |
Less: | |||
Purchases of crude oil and products | 32,399 | 37,742 | 23,174 |
Federal excise tax and fuel charge | 2,402 | 2,179 | 1,928 |
Financing | 69 | 60 | 54 |
Subtotal | 34,870 | 39,981 | 25,156 |
Imperial's share of equity company expenses | 76 | 71 | 61 |
Total operating costs | 9,806 | 10,276 | 9,212 |
Components of operating costs | |||
millions of Canadian dollars | 2023 | 2022 | 2021 |
From the Consolidated statement of income | |||
Production and manufacturing | 6,879 | 7,404 | 6,316 |
Selling and general | 857 | 882 | 784 |
Depreciation and depletion | 1,907 | 1,897 | 1,977 |
Non-service pension and postretirement benefit | 82 | 17 | 42 |
Exploration | 5 | 5 | 32 |
Subtotal | 9,730 | 10,205 | 9,151 |
Imperial's share of equity company expenses | 76 | 71 | 61 |
Total operating costs | 9,806 | 10,276 | 9,212 |
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Imperial Oil Ltd. published this content on 14 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 March 2024 19:26:05 UTC.
