CALGARY, Alberta--(BUSINESS WIRE)--Imperial Oil Limited (TSX, NYSEAM:IMO):

• Net earnings of $3 million in the quarter, up significantly from the second quarter
• Exceeding previously announced capital and expense reduction targets
• Year-to-date production and manufacturing expenses $813 million below the same period of 2019
• Full-year 2020 capital expenditures now expected to be about $900 million
• Cash flow generated from operating activities of $875 million
• Cash balance of $817 million at the end of the quarter, up $584 million from the second quarter
• Maintained quarterly dividend at 22 cents per share

Imperial recorded estimated earnings of $3 million in the third quarter of 2020, an increase of $529 million from the prior quarter. Second quarter 2020 results included a favourable impact of $281 million from the reversal of a non-cash inventory revaluation charge. Despite being impacted by substantial turnaround activities in the quarter and a two-week outage of a third-party pipeline supplying diluent to Kearl, improving market conditions and the company’s continuing focus on reducing costs and enhancing efficiency across its operations allowed it to achieve positive earnings in the ongoing challenging environment.

“Third quarter results continue to demonstrate the positive impact of Imperial’s ongoing expense and capital discipline and the resiliency of our company,” said Brad Corson, chairman, president and chief executive officer. “The company generated $875 million of cash from operations in the third quarter, further strengthening Imperial’s balance sheet while covering quarterly capital expenditures and dividend payments.”

Production and manufacturing expenses totalled $1,246 million in the third quarter, a reduction of $355 million compared to the third quarter of 2019. Year-to-date production and manufacturing expenses of $4,098 million are $813 million lower than the prior year, enabling Imperial to already surpass the full-year expense reduction target of $500 million. Capital expenditures of $679 million for the first nine months of the year are down more than 50 percent from 2019 levels for the same period and significantly below prior guidance announced in March. “These expense and capital reductions across virtually all aspects of Imperial’s operations demonstrate our ability to rapidly respond to market conditions and capture structural cost improvements without compromising long-term value and production targets,” said Corson.

Upstream production for the third quarter averaged 365,000 gross oil-equivalent barrels per day, compared to 347,000 barrels per day in the second quarter of 2020. During the quarter, the company advanced and extended a planned turnaround at Kearl and experienced a two-week outage of a third-party pipeline that supplies diluent to the site. During the pipeline outage, site maintenance activities were advanced to reduce planned maintenance impacts during the remainder of the year. Despite impacts from the outage, of approximately 41,000 total gross barrels per day in the third quarter, total gross production at Kearl was 189,000 barrels per day, essentially flat compared to the second quarter of 2020. Site production was quickly restored and achieved a new 15-day production record, reaching average gross production rates of approximately 310,000 barrels per day for the remainder of the quarter. As a result of this strong performance, Imperial maintains its Kearl full-year 2020 gross production outlook of 220,000 barrels per day.

Downstream throughput averaged 341,000 barrels per day in the third quarter, with utilization at 81 percent, up from 278,000 barrels per day and 66 percent utilization in the second quarter of 2020. Petroleum product sales for the third quarter increased to 449,000 barrels per day, up from 357,000 barrels per day in the second quarter of 2020 due to improved product demand.

“With the completion of key turnaround activities, recent strong asset performance, and expenses running at a significantly reduced rate, Imperial has substantial momentum as we approach the end of the year - we are well-positioned for strong performance in the fourth quarter.” said Corson.

Third quarter highlights

• Net income of $3 million or $0.00 per share on a diluted basis, compared to $424 million or $0.56 per share in the third quarter of 2019, driven by lower Upstream realizations and lower margins in the Downstream, partially offset by lower production and manufacturing expenses.
• Cash flow generated from operating activities was $875 million, compared with $1,376 million in the corresponding period of 2019.
• Capital and exploration expenditures totalled $141 million, compared with $442 million in the third quarter of 2019, due to the company’s ongoing capital reduction efforts. Capital expenditures for 2020 are now expected to be about $900 million, below the company’s earlier guidance of $1.1 billion to $1.2 billion.
• Dividends paid totalled $162 million or $0.22 per share, compared to $169 million or $0.22 per share in the third quarter of 2019.
• Production averaged 365,000 gross oil-equivalent barrels per day, compared to 407,000 barrels per day in the same period of 2019. Production was primarily impacted by a third-party pipeline outage and the planned turnaround at Kearl. Production was up from 347,000 gross oil-equivalent barrels per day in the second quarter of 2020.
• Total gross bitumen production at Kearl averaged 189,000 barrels per day (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 due to the advancement and extension of a planned turnaround at the site and a third-party pipeline outage. Production remained relatively flat compared to gross bitumen production of 190,000 barrels per day (135,000 Imperial’s share) in the second quarter of 2020.
• Gross bitumen production at Cold Lake averaged 131,000 barrels per day, compared to 142,000 barrels per day in the same period of 2019, due mainly to ongoing steam management. Production was up from 123,000 barrels per day in the second quarter of 2020, mainly due to reduced planned maintenance activities.
• The company’s share of gross production from Syncrude averaged 67,000 barrels per day, essentially in line with 69,000 barrels per day in the same period of 2019. Production was up from 50,000 barrels per day in the second quarter of 2020, driven mainly by improved demand, partly offset by the revised turnaround schedule.
• 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. Throughput increased significantly from 278,000 barrels per day in the second quarter of 2020, driven by stronger product demand.
• Strathcona refinery cogeneration started operation on October 1, subsequent to the end of the quarter. The newly constructed unit provides approximately 41 megawatts of power, which is approximately 75 to 80 percent of the refinery’s needs. It is anticipated to increase energy efficiency for the facility and help reduce provincial greenhouse gas emissions by approximately 112,000 tonnes per year - the equivalent of taking nearly 24,000 vehicles off the road.
• Petroleum product sales were 449,000 barrels per day, compared to 488,000 barrels per day in the third quarter of 2019, resulting from reduced demand from the COVID-19 pandemic. Petroleum product sales were up from 357,000 barrels per day in the second quarter of 2020 due to improving demand levels.
• Chemical earnings were $27 million in the quarter, compared to $38 million in the third quarter of 2019, due to lower margins.

• Imperial celebrates 140 years applying technology and innovation to responsibly develop and deliver Canada’s energy resources. On September 8, 1880, sixteen Ontario oil refiners created the Imperial Oil Company. In the years since, the company has been responsible for Canada’s first service station, the industry’s first petroleum research centre, and gave rise to the NHL’s “three stars” of the game. Today, Imperial is one of Canada’s largest integrated oil companies with extensive production, refining and marketing operations, including a market-leading retail presence with over 2,000 Esso and Mobil branded stations across the country.

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.

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.

Nine months highlights

• Net loss of $711 million, compared to net income of $1,929 million in 2019.
• Net loss per share on a diluted basis was $0.97, compared to net income per share of $2.51 in 2019.
• Cash flow generated from operating activities was $482 million, compared to cash flow generated from operating activities of $3,405 million in 2019.
• Capital and exploration expenditures totalled $679 million, compared to $1,400 million in 2019.
• Gross oil-equivalent production averaged 377,000 barrels per day, compared to 398,000 barrels per day in 2019.
• Refinery throughput averaged 334,000 barrels per day, compared to 363,000 barrels per day in 2019.
• Petroleum product sales were 423,000 barrels per day, compared to 481,000 barrels per day in 2019.
• Per share dividends declared during the year totalled $0.66, up from $0.63 per share in 2019.
• Returned $762 million to shareholders through dividends and share purchases.

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.

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.

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.

Key financial and operating data follow.

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.

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