10-Q

Large accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

Accelerated filer

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

0-12014

IMPERIAL OIL LIMITED

(Exact name of registrant as specified in its charter)


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

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

1-800-567-3776

(Registrant’s telephone number, including area code)

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


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

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

YES

✓

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

S-T

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

YES

✓

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

non-accelerated

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

12b-2

of the Exchange Act of 1934.

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

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

12b-2

of the Exchange Act of 1934).

YES

✓

The number of common shares outstanding, as of March 31, 2022 was 669,143,714.

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IMPERIAL OIL LIMITED

Table of contents


			Page

PART I. FINANCIAL INFORMATION			3
Item 1. Financial statements			3
Consolidated statement of income			3
Consolidated statement of comprehensive income			4
Consolidated balance sheet			5
Consolidated statement of shareholders’ equity			6
Consolidated statement of cash flows			7
Notes to the consolidated financial statements			8
Item 2. Management’s discussion and analysis of financial condition and results of operations			18
Item 3. Quantitative and qualitative disclosures about market risk			23
Item 4. Controls and procedures			23

PART II. OTHER INFORMATION			24
Item 1. Legal proceedings			24
Item 2. Unregistered sales of equity securities and use of proceeds			24
Item 6. Exhibits			25

SIGNATURES			26

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

10-K

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

The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.

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

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IMPERIAL OIL LIMITED

PART I. FINANCIAL INFORMATION

Item 1. Financial statements


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

	Three Months
	to March 31
millions of Canadian dollars	2022		2021
Revenues and other income
Revenues (a)		12,657		6,992
Investment and other income (note 3)		29		6
Total revenues and other income		12,686		6,998

Expenses
Exploration		2		2
Purchases of crude oil and products (b)		8,350		3,887
Production and manufacturing (c)		1,659		1,485
Selling and general (c)		225		189
Federal excise tax and fuel charge		479		404
Depreciation and depletion		426		494
Non-service pension and postretirement benefit		4		11
Financing (d) (note 5)		7		14
Total expenses		11,152		6,486

Income (loss) before income taxes		1,534		512

Income taxes		361		120

Net income (loss)		1,173		392

Per share information (Canadian dollars)
Net income (loss) per common share - basic (note 9)		1.75		0.53
Net income (loss) per common share - diluted (note 9)		1.75		0.53
(a) Amounts from related parties included in revenues.		3,959		1,508
(b) Amounts to related parties included in purchases of crude oil and products.		650		515
(c) Amounts to related parties included in production and manufacturing, and selling and general expenses.		118		116
(d) Amounts to related parties included in financing (note 5).		4		11

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

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Consolidated statement of comprehensive income (U.S. GAAP, unaudited)
	Three Months
	to March 31
millions of Canadian dollars		2022	2021
Net income (loss)		1,173	392

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

Amortization of postretirement benefits liability adjustment included in net benefit costs		21	33
Total other comprehensive income (loss)		45	87

Comprehensive income (loss)		1,218	479

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

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IMPERIAL OIL LIMITED


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

	As at		As at
	Mar 31		Dec 31
millions of Canadian dollars	2022		2021
Assets
Current assets
Cash	3,149		2,153
Accounts receivable - net (a)	5,413		3,869
Inventories of crude oil and products	1,374		1,102
Materials, supplies and prepaid expenses	782		689
Total current assets	10,718		7,813
Investments and long-term receivables (b)	754		757
Property, plant and equipment,	56,925		56,762
less accumulated depreciation and depletion	(25,818	)	(25,522	)
Property, plant and equipment, net	31,107		31,240
Goodwill	166		166
Other assets, including intangibles - net	1,065		806
Total assets	43,810		40,782

Liabilities
Current liabilities
Notes and loans payable	122		122
Accounts payable and accrued liabilities (a) (note 7)	7,364		5,184
Income taxes payable	1,165		248
Total current liabilities	8,651		5,554
Long-term debt (c) (note 6)	5,049		5,054
Other long-term obligations (note 7)	3,426		3,897
Deferred income tax liabilities	4,408		4,542
Total liabilities	21,534		19,047

Shareholders’ equity
Common shares at stated value (d) (note 9)	1,237		1,252
Earnings reinvested	22,171		21,660
Accumulated other comprehensive income (loss) (note 10)	(1,132	)	(1,177	)
Total shareholders’ equity	22,276		21,735

Total liabilities and shareholders’ equity	43,810		40,782

(a) Accounts receivable - net included net amounts receivable from related parties of $1,632 million (2021 - $1,031 million).
(b) Investments and long-term receivables included amounts from related parties of $297 million (2021 - $298 million).
(c) Long-term debt included amounts to related parties of $4,447 million (2021 - $4,447 million).
(d) Number of common shares authorized and outstanding were 1,100 million and 669 million, respectively (2021 - 1,100 million and 678 million, respectively).
The information in the notes to consolidated financial statements is an integral part of these statements.

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IMPERIAL OIL LIMITED


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

	Three Months
	to March 31
millions of Canadian dollars	2022		2021
Common shares at stated value (note 9)
At beginning of period	1,252		1,357
Share purchases at stated value	(15	)	-
At end of period	1,237		1,357

Earnings reinvested
At beginning of period	21,660		22,050
Net income (loss) for the period	1,173		392
Share purchases in excess of stated value	(434	)	-
Dividends declared	(228	)	(161	)
At end of period	22,171		22,281

Accumulated other comprehensive income (loss) (note 10)
At beginning of period	(1,177	)	(1,989	)
Other comprehensive income (loss)	45		87
At end of period	(1,132	)	(1,902	)

Shareholders’ equity at end of period	22,276		21,736

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

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IMPERIAL OIL LIMITED


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

	Three Months
Inflow (outflow)	to March 31
millions of Canadian dollars	2022		2021
Operating activities
Net income (loss)	1,173		392
Adjustments for non-cash items:
Depreciation and depletion	426		494
(Gain) loss on asset sales (note 3)	(20	)	(3	)
Deferred income taxes and other	(331	)	60
Changes in operating assets and liabilities:
Accounts receivable	(1,544	)	(469	)
Inventories, materials, supplies and prepaid expenses	(364	)	(159	)
Income taxes payable	459		21
Accounts payable and accrued liabilities	2,144		584
All other items - net (b)	(29	)	125
Cash flows from (used in) operating activities	1,914		1,045

Investing activities
Additions to property, plant and equipment	(304	)	(167	)
Proceeds from asset sales (note 3)	24		7
Loans to equity companies - net	1		13
Cash flows from (used in) investing activities	(279	)	(147	)

Financing activities
Short-term debt - net	-		(36	)
Reduction in finance lease obligations (note 6)	(5	)	(4	)
Dividends paid	(185	)	(162	)
Common shares purchased (note 9)	(449	)	-
Cash flows from (used in) financing activities	(639	)	(202	)

Increase (decrease) in cash	996		696
Cash at beginning of period	2,153		771
Cash at end of period (a)	3,149		1,467
(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.	(50	)	(28	)

Income taxes (paid) refunded.	(223	)	1
Interest (paid), net of capitalization.	(12	)	(13	)
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 2021 annual report on Form

10-K.

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

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

The results for the three months ended March 31, 2022, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

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IMPERIAL OIL LIMITED

2.	Business segments


Three Months to March 31	Upstream		Downstream		Chemical
millions of Canadian dollars	2022	2021	2022	2021	2022	2021
Revenues and other income
Revenues (a)	99	2,142	12,191	4,527	367	323
Intersegment sales	4,431	1,351	1,833	773	104	53
Investment and other income (note 3)	4	-	21	5	-	-
	4,534	3,493	14,045	5,305	471	376
Expenses
Exploration	2	2	-	-	-	-
Purchases of crude oil and products	1,890	1,834	12,512	4,020	315	209
Production and manufacturing	1,249	1,109	356	326	54	50
Selling and general	-	-	147	133	23	25
Federal excise tax and fuel charge	-	-	479	404	-	-
Depreciation and depletion	373	445	41	39	5	4
Non-service pension and postretirement benefit	-	-	-	-	-	-
Financing (note 5)	-	1	-	-	-	-
Total expenses	3,514	3,391	13,535	4,922	397	288
Income (loss) before income taxes	1,020	102	510	383	74	88
Income tax expense (benefit)	238	23	121	91	18	21
Net income (loss)	782	79	389	292	56	67
Cash flows from (used in) operating activities	1,447	531	375	462	67	62
Capital and exploration expenditures (b)	222	85	68	68	1	2
Total assets as at March 31	29,182	31,754	10,179	4,909	501	462


Three Months to March 31	Corporate and other				Eliminations				Consolidated
millions of Canadian dollars	2022		2021		2022		2021		2022	2021
Revenues and other income
Revenues (a)	-		-		-		-		12,657	6,992
Intersegment sales	-		-		(6,368	)	(2,177	)	-	-
Investment and other income (note 3)	4		1		-		-		29	6
	4		1		(6,368	)	(2,177	)	12,686	6,998
Expenses
Exploration	-		-		-		-		2	2
Purchases of crude oil and products	-		-		(6,367	)	(2,176	)	8,350	3,887
Production and manufacturing	-		-		-		-		1,659	1,485
Selling and general	56		32		(1	)	(1	)	225	189
Federal excise tax and fuel charge	-		-		-		-		479	404
Depreciation and depletion	7		6		-		-		426	494
Non-service pension and postretirement benefit	4		11		-		-		4	11
Financing (note 5)	7		13		-		-		7	14
Total expenses	74		62		(6,368	)	(2,177	)	11,152	6,486
Income (loss) before income taxes	(70	)	(61	)	-		-		1,534	512
Income tax expense (benefit)	(16	)	(15	)	-		-		361	120
Net income (loss)	(54	)	(46	)	-		-		1,173	392
Cash flows from (used in) operating activities	25		(10	)	-		-		1,914	1,045
Capital and exploration expenditures (b)	5		8		-		-		296	163
Total assets as at March 31	4,136		2,346		(188	)	(464	)	43,810	39,007

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IMPERIAL OIL LIMITED

(a)	Included export sales to the United States of $2,504 million (2021 - $1,569 million).

(b)

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

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IMPERIAL OIL LIMITED

3.	Investment and other income

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


	Three Months to March 31
millions of Canadian dollars	2022		2021
Proceeds from asset sales		24		7
Book value of asset sales		4		4
Gain (loss) on asset sales, before tax		20		3
Gain (loss) on asset sales, after tax		16		2

4.	Employee retirement benefits

The components of net benefit cost were as follows:


	Three Months to March 31
millions of Canadian dollars	2022			2021
Pension benefits:
Service cost		70			81
Interest cost		73			68
Expected return on plan assets		(103	)		(107	)
Amortization of prior service cost		4			4
Amortization of actuarial loss (gain)		22			36
Net benefit cost		66			82

Other postretirement benefits:
Service cost		6			7
Interest cost		6			6
Amortization of actuarial loss (gain)		2			4
Net benefit cost		14			17

5.	Financing costs


	Three Months to March 31
millions of Canadian dollars	2022			2021
Debt-related interest		12			21
Capitalized interest		(5	)		(8	)
Net interest expense		7			13
Other interest		-			1
Total financing		7			14

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IMPERIAL OIL LIMITED

6.	Long-term debt


	As at Mar 31		As at Dec 31
millions of Canadian dollars	2022		2021
Long-term debt		4,447		4,447
Finance leases		602		607
Total long-term debt		5,049		5,054

7.	Other long-term obligations


	As at Mar 31		As at Dec 31
millions of Canadian dollars	2022		2021
Employee retirement benefits (a)		1,326		1,362
Asset retirement obligations and other environmental liabilities (b)		1,713		1,713
Share-based incentive compensation liabilities		111		79
Operating lease liability (c)		138		147
Other obligations		138		596
Total other long-term obligations		3,426		3,897

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

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

(c)	Total operating lease liability also included $95 million in current liabilities (2021 - $102 million). In addition to the total operating lease liability, additional undiscounted commitments for leases not yet commenced totalled $0 million (2021 - $5 million).

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IMPERIAL OIL LIMITED

8.	Financial and derivative instruments

Financial instruments

The fair value of the company’s financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no material differences between the fair value of the company’s financial instruments and the recorded carrying value. At March 31, 2022 and December 31, 2021, the fair value of long-term debt ($4,447 million, excluding finance lease obligations) was primarily a level 2 measurement.

Derivative instruments

The company’s size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company uses commodity-based contracts, including derivative instruments to manage commodity price risk and to generate returns from trading. Commodity contracts held for trading purposes are presented in the Consolidated statement of income on a net basis in the line “Revenues”. The company does not designate derivative instruments as a hedge for hedge accounting purposes.

Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.

The net notional long/(short) position of derivative instruments was:


	As at Mar 31			As at Dec 31
thousands of barrels	2022			2021
Crude		(620	)		7,390
Products		(70	)		(560	)

Realized and unrealized gain or (loss) on derivative instruments recognized in the Consolidated statement of income is included in the following lines on a

before-tax

basis:


	Three Months to March 31
millions of Canadian dollars	2022		2021
Revenues		37		-
Purchases of crude oil and products		-		(14	)
Total		37		(14	)

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The estimated fair value of derivative instruments, and the related hierarchy level for the fair value measurement is as follows:


At March 31, 2022
millions of Canadian dollars
	Fair value								Effect of			Effect of			Net
									counterparty			collateral			carrying
	Level 1		Level 2		Level 3		Total		netting			netting			value
Assets
Derivative assets (a)		48		18		-		66		(59	)		-			7

Liabilities
Derivative liabilities (b)		53		25		-		78		(59	)		(4	)		15

(a)	Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable—net” and “Other assets, including intangibles - net”.

(b)	Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”.


At December 31, 2021
millions of Canadian dollars
	Fair value								Effect of			Effect of			Net
									counterparty			collateral			carrying
	Level 1		Level 2		Level 3		Total		netting			netting			value
Assets
Derivative assets (a)		24		17		-		41		(31	)		-			10

Liabilities
Derivative liabilities (b)		31		12		-		43		(31	)		(7	)		5

(a)	Included in the Consolidated balance sheet line: “Materials, supplies and prepaid expenses”, “Accounts receivable - net” and “Other assets, including intangibles - net”.

(b)	Included in the Consolidated balance sheet line: “Accounts payable and accrued liabilities” and “Other long-term obligations”.

At March 31, 2022 and December 31, 2021, the company had $47 million and $6 million, respectively, of collateral under a master netting arrangement not offset against the derivatives on the Consolidated balance sheet in “Accounts receivable - net”, primarily related to initial margin requirements.

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IMPERIAL OIL LIMITED

9.	Common shares


	As of		As of
	Mar 31		Dec 31
thousands of shares	2022		2021
Authorized		1,100,000		1,100,000
Common shares outstanding		669,144		678,080

The most recent

12-month

normal course issuer bid program came into effect June 29, 2021, under which Imperial continued its existing share purchase program. The program enabled the company to purchase up to a maximum of 35,583,671 common shares (5 percent of the total shares on June 15, 2021) which included 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 advised the company that it intended to participate to maintain its ownership percentage at approximately 69.6 percent. The program completed on January 31, 2022 as a result of the company purchasing the maximum allowable number of shares under the program.

On April 29, 2022 the company announced its intention to launch a substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $2,500,000,000 of its common shares. The substantial issuer bid will be made through a modified Dutch auction, with a tender price range to be determined by the company at the time of commencement of the offer. Shares may also be tendered by way of a proportionate tender, which will result in a shareholder maintaining their proportionate share ownership. ExxonMobil has advised Imperial that it intends to make a proportionate tender in connection with the offer in order to maintain its proportionate share ownership at approximately 69.6 percent following completion of the offer. Nothing in this report shall constitute an offer to purchase or a solicitation of an offer to sell any shares.

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, 2020		734,077			1,357
Issued under employee share-based awards		7			-
Purchases at stated value		(56,004	)		(105	)
Balance as at December 31, 2021		678,080			1,252
Issued under employee share-based awards		-			-
Purchases at stated value		(8,936	)		(15	)
Balance as at March 31, 2022		669,144			1,237

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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:


	Three Months
	to March 31
	2022	2021
Net income (loss) per common share - basic
Net income (loss) (millions of Canadian dollars)	1,173	392
Weighted average number of common shares outstanding (millions of shares)	670.5	734.1
Net income (loss) per common share (dollars)	1.75	0.53

Net income (loss) per common share - diluted
Net income (loss) (millions of Canadian dollars)	1,173	392
Weighted average number of common shares outstanding (millions of shares)	670.5	734.1
Effect of employee share-based awards (millions of shares)	1.4

SEC Form 10-Q filed by Imperial Oil Limited