ECONOMIC ROLLER-COASTER
Can it get any worse?
Outstanding performance at its $9 billion Kearl oilsands mine expansion allowed Imperial Oil Ltd. to blow through analyst expectations in the second quarter while low oil prices gutted its headline net profit.
The Calgary-based integrated company, 70 per cent owned by American giant ExxonMobil Corp., recorded a profit of $120 million in the three months ended June 30, a 10th of the $1.2 billion it earned a year earlier.
But analysts focused on its production, crediting the early startup and faster-than-expected ramp-up of its 110,000 barrel per day Kearl expansion in June for boosting upstream output to 344,000 boe/d, up 20 per cent from 287,000 boe/d in the same period last year and about five per cent ahead of consensus estimates. It was the highest production level since 2007.
Investors, meanwhile, seemed impressed with a one-cent increase in the quarterly dividend to 14 cents as Imperial’s share price rose as much as 59 cents Friday afternoon to $ 49.12. The stock closed down 14 cents at $48.39 as West Texas Intermediate oil fell to $47.12 US per barrel. Earlier this week, fellow integrated oilsands producer Suncor Energy Inc. also raised its quarterly dividend by a penny.
“Highlights for the quarter include the early startup of the Kearl expansion project, continued ramp-up of Cold Lake Nabiye production, startup of the Edmonton Rail Terminal, successful execution of major turnarounds at the Sarnia refinery and Syncrude, and best-ever quarterly earnings in the chemical business,” said Rich Kruger, chairman, president and chief executive, in a news release.
Net earnings were affected by a provision of $320 million due to the Alberta corporate income tax rate increase and earnings in the second quarter of 2014 included a gain of $478 million due to the sale of upstream assets.
Imperial doesn’t use forward production sales or hedging to lock in future prices so it is fully exposed to fluctuations in price — its average bitumen price realization was $49.16 Cdn per barrel in the second quarter, down from $75.92 a year earlier.
CIBC World Markets analyst Arthur Grayfer said Imperial’s share of Kearl production (ExxonMobil takes 29 per cent) was about 129,600 bpd, compared to his expectation of about 104,500 bpd, as issues Imperial had with startup of its original 110,000 bpd Kearl project appear to have been solved in the second.
“The driver was the Kearl expansion, which ran at over 100,000 bpd for its first month ( 91 per cent uptime),” he wrote in a report to investors.
“While this is only one month, it is encouraging as we didn’t expect the project to consistently achieve that level until mid-2016.”
Imperial said it also experienced improved reliability at the original project.
AltaCorp Capital analyst Nick Nupick pointed out that Imperial’s earnings missed his estimate of $556 million mainly because of lower-than-expected refinery utilization.
But they were above consensus of about $376 million.
Startup of the Nabiye thermal oilsands project in early 2015 and completion of the Kearl expansion meant Imperial spent only $819 million in capital in the quarter, down $579 million from the same period of 2014. Cold Lake bitumen production averaged 161,000 bpd, up from 138,000 bpd in the same quarter of 2014.
Imperial announced Friday it has filed with regulators a preliminary description of its Cold Lake Midzaghe project, a proposed solvent-assisted, steam-assisted gravity drainage facility to access more than 500 million barrels of recoverable reserves.
A net loss of $174 million in upstream operations was balanced by downstream net income of $215 million in the second quarter.
The latter number was $151 million lower than the second quarter of 2014 due to lower mar- gins and higher refinery planned maintenance expense.
Refinery throughput averaged 373,000 bpd, compared to 418,000 bpd in the same period of 2014, as a maintenance turnaround was performed at the Sarnia refinery.
Imperial reported total revenue of $7.3 billion, down from $10 billion in the same three months of 2014.
Parent company Exxon Mobil, meanwhile, missed expectations with a net income for the second quarter of $4.19 billion US. That number is down 52 per cent from $8.78 billion in the second quarter of last year, while Exxon’s revenue fell 33 per cent to $74 billion.