No big projects on horizon: Imperial

Huge loss on decision to leave gas asset undeveloped

CALGARY • Imperial Oil Ltd. said Tuesday it is not planning any major new projects in the coming years as the impact of a tough 2020 will continue to reverberate for some time.

“No one is sad to see 2020 behind us. The year presented us with some extreme challenges and as a result, we unfortunately experienced an earnings loss for the year,” president and CEO Brad Corson said on an investor call, in which the company announced a $1.1-billion loss for the fourth quarter compared with net earnings of $271 million a year earlier.

All of that loss came from a $1.1-bilion non-cash charge stemming from the company's decision not to develop a large swath of unconventional natural gas assets in Canada. That decision was first disclosed in November when parent company Exxon Mobil Corp. announced a broader US$20-billion write down across its portfolio.

Exxon, which controls nearly 70 per cent of Imperial, also reported Tuesday a net annual loss of US$22.4 billion for 2020, on the writedown and losses in oil production and refining, compared with a full-year profit of US$14.34 billion in 2019.

Corson said Imperial would focus on “only the most attractive portions of its unconventional portfolio.” He also noted that in the coming years, the company would not build large, new projects and instead focus on “smaller, select growth opportunities.”

“For the next few years, we want to continue to focus on our existing assets.” Corson said. “We're being very conscious about not progressing major new greenfield projects. We think that's prudent in this environment.”

Imperial stopped work on its $2.6-billion Aspen oilsands project in late 2019 amid a dispute about oil production quotas in Alberta. That project now appears to be stalled for a long time.

“Market conditions continued to reflect considerable uncertainty throughout 2020 as consumer and business activity has exhibited some degree of recovery, but remained lower when compared with prior periods as a result of the pandemic,” the company said in a statement.

Despite the actions taken by key oil-producing countries to reduce oversupply, “unfavourable economic impact appears increasingly likely to persist to some extent well into 2021,” Imperial added.

Despite the muted outlook, the Calgary-based company ramped up its highest production level in 30 years in the latest quarter.

Imperial has been working to de-bottleneck that led to its massive Kearl facility pumping out 284,000 bpd in the fourth quarter, compared to an outage-hit third quarter that saw output from the mine at 189,000 bpd. Imperial's overall production in the fourth quarter rose to 460,000 barrels of oil per day, up roughly 16 per cent from the same period a year earlier.

“We expect the Street to be encouraged by the continued improvement in performance at Kearl, providing added comfort in the 2021 outlook and the longer-term goal of reaching sustained rates of 280,000 bpd,” Raymond James analyst Chris Cox wrote in a Tuesday research note, adding that Imperial's results were better than analysts expected.

Shares in Imperial fell nearly four per cent to $24.21 at close on Tuesday. By comparison, parent company Exxon Mobil, which lost a quarter of its value in the past 12 months, closed up roughly 1.6 per cent, to US$45.63 on the New York Stock Exchange.

“The (Exxon) turnaround story will take some time,” said Biraj Borkhataria, analyst with RBC Capital Markets, noting that the company is not yet covering its dividend and capital spending with cash from operations.

But with oil prices recovering, Exxon can start to cover its dividend and begin paying down the US$68 billion in debt on its balance sheet, analysts said.

U.S. oil crude prices rose 2.3 per cent on Tuesday to US$54.76, after hitting a session high of US$55.26, the highest in a year.

Shares in Exxon have also traded up this week following a Wall Street Journal report that the international oil giant previously held talks with rival super major Chevron Corp. over a potential merger.

A combination of the two companies would result in an oil giant with a US$350-billion market capitalization and analysts say it could potentially lead to more mergers in an industry that's dealing with depressed share prices and looking to reduce costs.

Analysts say a potential merger between Exxon and Chevron might also affect Imperial Oil.

“When we had the last round of super major mergers in the late `90s, we also saw mergers here in Canada so companies were chasing the same thing — they were chasing those efficiencies,” said Randy Ollenberger, an analyst with BMO Capital Markets.

At the time, Ollenberger said BP PLC's US$48.2-billion acquisition of Amoco in 1998 led the combined company to divest Amoco Canada, which was in turn purchased by Imperial Oil.

But a merger today between Exxon and Chevron might lead to Imperial Oil being divested from the combined company.

“In the large-cap space, there's just not a lot of companies left to merge up,” Ollenberger said. “For example, if the Exxon/Chevron merger proceeded, would Imperial Oil be a disposition candidate as part of that?”