| || Fourth quarter || || Twelve months |
| (millions of dollars, unless noted) || 2012 || || 2011 || || % || || 2012 || || 2011 || || % |
| || || || || || || || || || || || |
| Net income (U.S. GAAP) || 1,076 || || 1,005 || || 7 || || 3,766 || || 3,371 || || 12 |
| Net income per common share || || || || || || || || || || || |
| || - assuming dilution (dollars) || 1.26 || || 1.18 || || 7 || || 4.42 || || 3.95 || || 12 |
| || || || || || || || || || || || |
| Capital and exploration expenditures || 1,793 || || 1,178 || || 52 || || 5,683 || || 4,066 || || 40 |
Bruce March, chairman, president and chief executive officer of Imperial Oil, commented:
Imperial Oil made significant progress in advancing its growth strategy in 2012. Earnings in the fourth quarter were$1,076 million, an increase of seven percent compared with the corresponding 2011 period. Fourth quarter Downstream earnings were $549 million, the strongest single quarter earnings on record. Solid refining operations allowed us to capture strong mid-continent refining margins.
Earnings for the full year 2012 were $3,766 million, the second highest in our company's history and up 12 percent from 2011. Both the Downstream and Chemical businesses achieved best-ever annual earnings of $1,772 million and$165 million, respectively.
We commenced commissioning of the Kearl initial development in the latter months of 2012, and good progress toward first oil continues today. Despite U.S. permitting and regulatory issues that continued for almost two years involving transportation of facility modules, our project team achieved industry-leading safety performance, and mitigated significant challenges, including an early onset of winter and exceptionally harsh weather during current start-up operations. We continue to focus on completing start-up safely, and expect production of mined diluted bitumen from the first froth treatment train in this quarter. Production will ramp up to 110,000 barrels a day over the next several months. The final cost for the Kearl initial development is expected to be $12.9 billion.
Together, the initial development and expansion projects will develop 3.2 billion barrels at a unit development cost of approximately $6.80 per barrel. This is up 10 percent from the prior estimate of $6.20 per barrel driven by the cost to re-sequence work from the module transportation issues and the early onset of winter and harsh weather during start-up of the Kearl initial development.
The Kearl expansion project, sanctioned in 2011 for $8.9 billion, will benefit substantially from the infrastructure provided by the initial development. We are making good progress and are currently ahead of schedule. Start-up of the expansion project is planned in 2015.
Imperial Oil is one of Canada's largest corporations and a leading member of the country's petroleum industry. The company is a major producer of crude oil and natural gas, Canada's largest petroleum refiner, a key petrochemical producer and a leading marketer with coast-to-coast supply and retail service station networks.
Fourth quarter highlights
- Net income was $1,076 million, compared with $1,005 million for the fourth quarter of 2011, an increase of seven percent.
- Net income per common share on a diluted basis was $1.26, up seven percent from the fourth quarter of 2011.
- Cash generated from operating activities was $1,647 million, an increase from $1,216 million in the fourth quarter of 2011, primarily due to deferred income tax effects.
- A strong balance sheet was maintained, with total debt representing nine percent of capital at 2012 year-end.
- Gross oil-equivalent barrels of production averaged 285,000 barrels a day versus 291,000 barrels in the same period last year. Lower production was due primarily to fourth quarter 2011 conventional gas producing property divestments, along with the cyclic nature of production at Cold Lake.
- Safety performance - Imperial continues to make progress toward the safety objective of 'nobody gets hurt'. In 2012, the company achieved its best-ever total workforce safety performance and exceptional Kearl contractor safety performance.
- Kearl initial development - At the end of the fourth quarter of 2012, construction was complete and phased start-up activities were underway.
- Kearl expansion and Cold Lake expansion project updates - At the end of the fourth quarter of 2012, the Kearl expansion project was 27 percent complete. The Nabiye project, 37 percent complete at the end of the fourth quarter, continued to progress with module construction underway and drilling completed on two of seven pads.
- Imperial Oil to participate in Celtic Exploration acquisition - In December, Imperial announced it will participate as a 50 percent owner with ExxonMobil Canada in Celtic Exploration. The agreement is conditional upon approval by Celtic Exploration's shareholders, which was received in December, and approval by Canadian regulatory authorities. Imperial's acquisition of a 50 percent interest in Celtic will be for a consideration of $1.55 billion.
- Beaufort Sea preliminary information package - Imperial and its joint venture partners, ExxonMobil Canada and BP Exploration Operating Company Limited, have begun community consultation regarding potential future exploration activities on offshore licenses in the Beaufort Sea. No business investment decision has been made at this time.
- Dartmouth refinery - The marketing effort and evaluation of alternative options for the Dartmouth refinery and related terminals continues. Given that Imperial has received expressions of interest from multiple potential buyers, decision timing could extend beyond the first quarter and further into 2013.
- Capital and exploration expenditures - Capital and exploration expenditures in 2012 of $5.7 billion were primarily funded by cash generated by Imperial's businesses. The expenditures included continued investment in the Kearl and Nabiye growth projects, along with sustaining capital for Syncrude mining and tailing projects. In 2013, planned capital and exploration expenditures are expected to be about $7 billion, including $1.55 billion associated with Imperial's 50 percent participation in the acquisition of Celtic, as the company enters its fourth year of a decade-long strategy to invest about $40 billion in growth projects.
Kearl initial development project update
At the end of the fourth quarter of 2012, construction of the Kearl initial development was complete and phased start-up activities were underway. Activities completed in the fourth quarter or currently progressing towards the planned start of production include:
- All equipment modules have been set in place at the Kearl site. The issues associated with the transportation of modules, constructed in South Korea and moved through the United States, have been addressed through construction re-sequencing.
- The operating organization is fully staffed and trained.
- Mining operations have commenced and ore is being stockpiled adjacent to the ore processing plant, which is being commissioned.
- Commissioning of the utilities systems is well advanced with start of the first boiler in early November and the second boiler in mid-December.
- Ore preparation plant crusher and slurry preparation conveyors have been run-in in December.
- Bitumen processing facilities (which use a proprietary technology that eliminates the need for an upgrader) are being readied for the introduction of solvent.
- Diluent and natural gas supply systems are operational.
- A new diluted bitumen pipeline connecting to markets is being commissioned.
Start-up of an operation of this size and scope is a sequential process involving multiple, integrated systems, and good progress towards first oil continues.
Imperial's first priority is completing start-up activities safely, which includes mitigating the impacts of abnormally cold weather on both workers and equipment.
We expect production of mined diluted bitumen from the first froth treatment train in this quarter. Production will ramp up to 110,000 barrels a day over the next several months. The final cost for the Kearl initial development is expected to be $12.9 billion.
Fourth quarter 2012 vs. fourth quarter 2011
The company's net income for the fourth quarter of 2012 was $1,076 million or $1.26 a share on a diluted basis, compared with $1,005 million or $1.18 a share for the same period last year.
Higher fourth quarter earnings were primarily attributable to higher mid-continent industry refining margins of about$275 million, lower royalty costs of about $150 million due to lower Upstream realizations and higher Syncrude volumes of about $70 million partially offset by lower Upstream realizations of about $255 million and higher Kearl production readiness expenditures of about $65 million. Fourth quarter earnings in 2011 also included a gain of about$110 million from asset divestments.
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