Imperial Oil has announced net income for 2007 of $3,188 million (or $3.41 per share). This was the highest net income in the company's history, surpassing the previous record of $3,044 million (or $3.11 a share) in 2006. Fourth quarter earnings were $886 million, (or $0.96 a share) in 2007, compared with $794 million (or $0.83 a share) in the fourth quarter of 2006.
For the full year 2007, earnings increased primarily due to higher crude oil commodity prices, stronger industry refining and marketing margins, favourable refinery operations and higher Syncrude volumes. Gains from asset divestments were also higher in 2007. These factors were partially offset by lower expected conventional resources volumes; the negative impact of a stronger Canadian dollar; higher exploration and share-based compensation expenses; and higher tax expense.
Total operating revenues were $6,697 million in the fourth quarter of 2007 and $25,069 million for the year, versus $5,503 million and $24,505 million in the corresponding periods of 2006. Capital and exploration expenditures were $317 million in the fourth quarter and $978 million for the year, compared with $341 million and $1,209 million respectively in 2006. In 2007, Imperial repurchased more than 50.5 million shares for $2,358 million. The company's balance of cash and marketable securities at the end of 2007 was $1,208 million, versus $2,158 million at the end of 2006.
"Overall, improving operations, a strong price environment and record production at both Cold Lake and Syncrude contributed to record earnings and shareholder returns that well exceeded the energy equity index" said Tim Hearn, the company's chairman and chief executive officer. "Furthermore, progress was made on a number of fronts during the year: the balance sheet was strengthened, and long-term investment opportunities were advanced, including regulatory approval for the proposed Kearl Oil Sands project and the addition of major acreage positions" Hearn added.
2007 HIGHLIGHTS
Record production at Cold Lake
Production at Cold Lake, the company's wholly-owned in situ oil sands project, averaged a record 154 thousand barrels a day during the year, and set new daily, weekly and monthly production records in October. Higher production was due to the cyclic nature of production at Cold Lake and increased volumes from the ongoing development drilling program.
Record production at Syncrude
Imperial's share of production at Syncrude averaged a record 76 thousand barrels a day in 2007. Higher production was achieved through higher utilization of expansion capacity. The Syncrude oil sands joint venture is 25- percent owned by Imperial.
First commercial application of LASER started up at Cold Lake
Commercial application of liquid addition to steam for enhanced recovery (LASER) commenced at Cold Lake after extensive field testing. The Imperial- patented technology increases the amount of recoverable resource for late cycle portions of the field. The application of LASER will follow a disciplined, phased development, allowing the company to continue to incorporate learnings and best technologies on a continuous basis.
Kearl oil sands project
In February, a joint review panel of the Alberta Energy and Utilities Board and the federal government granted conditional approval of the Kearl oil sands project. Imperial would hold about a 70-percent interest in the proposed project and would act as operator in a joint venture with ExxonMobil Canada.
Exploration parcel acquired in Beaufort Sea
In July, Imperial, along with co-venturer ExxonMobil Canada, successfully acquired exploration rights for a more than 500 thousand acre parcel in the Beaufort Sea. The company's 50-percent share of the proposed exploration spending would be about $293 million, with a minimum commitment of about $73 million. This parcel is a major addition to Imperial's undeveloped acreage position. Although the Arctic remains a high-potential, technology-intensive frontier area, this presents a potential opportunity to add to the company's resource base in the Beaufort Sea and is consistent with its continued interest in energy development for Canada.
OPERATING RESULTS
The company's net income for the fourth quarter of 2007 was $886 million or $0.96 a share on a diluted basis, compared with $794 million or $0.83 a share for the same period last year. Net income for the full year 2007 at $3,188 million or $3.41 a share on a diluted basis was the best on record, exceeding the previous record achieved in 2006 of $3,044 million or $3.11 a share.
Earnings in the fourth quarter were higher than the same period in 2006 primarily due to higher crude oil commodity prices. Earnings were also higher due to the combined impacts of stronger industry refining and marketing margins and favourable refinery operations and inventory effects. Partially offsetting these positive factors were the negative impacts of a stronger Canadian dollar, lower natural gas, conventional crude oil and natural gas liquids (NGL) volumes, higher tax expense, higher upstream operating expenses and lower gains from asset divestments.
For the full year 2007, earnings increased primarily due to higher crude oil commodity prices, stronger industry refining and marketing margins, favourable refinery operations and higher Syncrude volumes. Gains from asset divestments were also higher in 2007. These factors were partially offset by lower expected conventional resources volumes, the negative impact of a stronger Canadian dollar, higher exploration and share-based compensation expenses and higher tax expense.
Natural resources
Net income from natural resources in the fourth quarter was $739 million, $131 million higher than the same period in 2006. Increased earnings were primarily due to higher crude oil commodity prices totaling about $335 million. Improved realizations were partially offset by the negative impacts of a stronger Canadian dollar of about $110 million and lower natural gas, conventional crude oil and NGL volumes of about $100 million. The positive impact of lower tax rates on earnings of about $70 million was mostly offset by higher production expenses of about $30 million and lower gains from asset divestment of about $30 million.
Net income for the year was $2,369 million versus $2,376 million in 2006. Earnings benefited from higher crude oil commodity prices totaling about $325 million and higher Syncrude volumes of about $125 million. Higher gains from asset divestment of about $65 million also contributed to higher earnings. Offsetting these positive factors were lower natural gas, conventional crude oil, and NGL volumes totaling about $285 million, the negative impact of a stronger Canadian dollar of about $175 million and higher exploration and other operating expenses of about $75 million.
In U.S. dollars, both Brent crude oil prices and average Cold Lake heavy oil realizations were higher in the fourth quarter and for the year compared with the same periods last year. However, the effect of a stronger Canadian dollar limited improvements in the company's average realizations for conventional crude oil to 34 percent in the fourth quarter and five percent in 2007. Also mainly because of a stronger Canadian dollar, the company's average realizations for Cold Lake heavy oil were limited to about five percent higher in the fourth quarter and were lower by about two percent for the year.
The company's average realizations for natural gas averaged $6.33 a thousand cubic feet in the fourth quarter, down from $6.68 in the same quarter last year. For the full year, realizations for natural gas averaged $6.95 a thousand cubic feet in 2007, down from $7.24 in 2006.
Total gross production of crude oil and NGLs in the fourth quarter was 279 thousand barrels a day, versus 267 thousand barrels in the fourth quarter of 2006. For the year, total gross production of crude oil and NGLs averaged 275 thousand barrels a day, compared with 272 thousand barrels in 2006.
Gross production of Cold Lake heavy oil averaged 158 thousand barrels a day during the fourth quarter, versus 142 thousand barrels in the same quarter last year. For the year, gross production was 154 thousand barrels a day, compared with 152 thousand barrels in 2006. Higher production in 2007 was due to the cyclic nature of production at Cold Lake and increased volumes from the ongoing development drilling program.
The company's share of Syncrude's gross production was 78 thousand barrels a day in the fourth quarter compared with 76 thousand barrels during the same period a year ago. During 2007, the company's share of gross production from Syncrude averaged 76 thousand barrels a day, up from 65 thousand barrels in 2006 with increased volumes from the Stage 3 upgrader expansion.
In the fourth quarter, gross production of conventional crude oil averaged 29 thousand barrels a day, unchanged from the same period in 2006. For the full year, gross production of conventional crude oil averaged 29 thousand barrels a day, compared with 31 thousand barrels in 2006. Natural reservoir decline in the Western Canadian Basin and the impact of divested producing properties were the main reasons for the reduced production.
Gross production of NGLs available for sale was 14 thousand barrels a day in the fourth quarter, down from 20 thousand barrels in the same quarter last year. During 2007, gross production of NGLs available for sale decreased to 16 thousand barrels a day, from 24 thousand barrels in 2006, mainly due to the declining NGL content of Wizard Lake gas production.
Gross production of natural gas during the fourth quarter of 2007 decreased to 386 million cubic feet a day from 529 million cubic feet in the same period last year. In the year, gross production was 458 million cubic feet a day, down from 556 million in 2006. The lower production volume was primarily due to decline, as expected, in production from the gas cap at Wizard Lake.
Petroleum products
Net income from petroleum products was $218 million in the fourth quarter of 2007, compared with $214 million in the same period a year ago. Earnings benefited from stronger industry refining and marketing margins totaling about $60 million and favourable refinery operations and inventory effects of about $45 million. These positive factors were mostly offset by the absence of favourable tax effects of about $70 million and the negative impact of a stronger Canadian dollar of about $40 million.
Full year net income was a record $921 million, $297 million higher than 2006. Increased earnings were primarily due to improved refinery operations including lower refinery maintenance and project activities which contributed about $205 million, and stronger industry refining and marketing margins totaling about $190 million. These positive factors were partially offset by the negative impact of a stronger Canadian dollar of about $60 million and the absence of favourable tax effects of about $40 million.
Chemicals
Net income from chemicals was $23 million in the fourth quarter, compared with $35 million in the same period last year. Lower earnings were primarily due to lower industry margins for polyethylene, intermediate and other chemical products partially offset by the positive impact of lower tax rates. Full year net income was $97 million, compared with $143 million in 2006. Lower earnings were primarily due to lower industry margins for polyethylene products partially offset by the positive impact of lower tax rates. A stronger Canadian dollar also negatively impacted earnings in the fourth quarter and the full year of 2007.
Corporate and other
Net income from corporate and other was negative $94 million in the fourth quarter, compared with negative $63 million in the same period of 2006. Unfavourable earnings effects were primarily due to the impact of tax rate changes. Full year net income was negative $199 million, versus negative $99 million last year. Unfavourable earnings effects were primarily due to higher share-based compensation charges and the impact of tax rate changes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $1,212 million during the fourth quarter of 2007, an increase of $153 million from the same period last year. Higher cash flow in the quarter was primarily driven by higher net income, the favourable impact of the timing of income tax payments and the net effects of higher commodity prices on working capital balances. Cash flow from operating activities was $3,626 million in 2007, compared with $3,587 in 2006. Higher cash flow in 2007 was primarily due to higher net income. Unfavourable impact of the timing of income tax payments was largely offset by the net effects of higher commodity prices on working capital balances.
Capital and exploration expenditures were $317 million in the fourth quarter, compared with $341 million during the same quarter of 2006, and $978 million in 2007, versus $1,209 million a year ago. Lower expenditures were primarily due to the completion of the Stage 3 upgrader expansion project at Syncrude and also the completion of the project to produce ultra-low sulphur diesel. In 2007, for the natural resources segment, capital and exploration expenditures included ongoing development drilling at Cold Lake to maintain and expand production capacity, drilling at conventional fields in Western Canada and advancing the Mackenzie gas and Kearl oil sands projects. The petroleum products segment's capital expenditures were mainly on projects to improve operating efficiency and upgrade the network of Esso retail outlets.
In the fourth quarter of 2007, the company retired the entire $818 million of long-term loans from an affiliated company of Exxon Mobil Corporation.
During the fourth quarter of 2007, the company repurchased about 11.1 million shares for $567 million. Under the current share repurchase program, which began on June 25, 2007, the company has purchased about 25 million shares, and can purchase about another 21 million shares before June 24, 2008 when the current program expires.
Cash dividends of $319 million were paid in 2007. This compared with dividends of $315 million in 2006. Per-share dividends declared in 2007 totaled $0.35, up from $0.32 in 2006.
The above factors led to a decrease in the company's balance of cash and marketable securities to $1,208 million at December 31, 2007, from $2,158 million at the end of 2006.