Q1 2022 Imperial Oil Ltd Earnings Call

April 29, 2022

Okay.

Ladies and gentlemen, thank you for standing by and walked through the Imperial Q1 2022 earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session.

The question during the session need to press Star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the call over to your host Dave Hughes, Vice President Investor Relations you may begin.

Thank you good morning, everybody. Thanks for joining us today on our first quarter earnings call I'll start by introducing the management team Who's here with me.

Brad Corson, Chairman, President and CEO , Dan Lyons, Senior Vice President Finance and administration, Simon younger senior Vice President of the upstream Sherry <unk>, Vice President of commercial and corporate development and John Whitmore, Vice President of the downstream. So first of all I'll read the cautionary statement.

Todays comments include reference to non-GAAP financial measures the definitions and reconciliations of these measures can be found in the attachment six of our most recent press release and are available on our website with the link to this conference call. Today's comments May also contain forward looking information any forward looking information is not a guarantee of future performance and actual future financial.

<unk> operating results can differ materially depending on a number of factors and assumptions.

Forward looking information and the risk factors and assumptions are described in further detail on our first quarter earnings press release that we issued this morning as well as our most recent Form 10-K and all of these documents are available on SEDAR Edgar and on our website. So please refer to those.

We will follow our typical format, Brad will start with some opening remarks, and then Dan will provide a financial update and then back to Brad for an operating update and then we'll follow it up with a Q&A session. So with that I'll turn it over to Brad.

Okay. Thank you, Dave and good morning, everybody and welcome to our first quarter earnings call I Hope you are all doing well.

In February when I spoke to you about our fourth quarter results, we talked about how we wrapped up the year strong with another quarter of solid operating performance and strong financial results.

Our focus on ensuring our company was in the best position possible to take advantage of the market recovery was certainly paying off.

And I am pleased to say the positive momentum has continued into 2022.

While it was a quarter that started with some pretty challenging weather conditions, which had an impact on production, particularly apparel or other upstream assets such as <unk>, such as cold Lake and our downstream and chemicals operations performed quite well.

As a result of this performance when paired with a high price environment, we were able to deliver very strong financial results in the quarter.

And now with the challenges that curl behind us and with the Sarnia turnaround wrapping up in April which is the extent of our downstream turnaround activity for the year, we are well positioned to deliver more value in the coming quarters.

Over the next few minutes, Dan and I will detail the results of what was a very strong quarter.

So now let's review the first quarter results to start earnings for the quarter were almost $1 2 billion, which.

<unk>, our highest first quarter net income and over 30 years and our cash from operating activities was just over $1 9 billion.

Also the highest first quarter in over 30 years.

These results reflect our strong operating performance and the strong commodity fundamentals in the quarter.

Crude prices continued to strengthen through the quarter, while both downstream and chemical margins remains strong.

Total upstream production of 380000 barrels per day reflects the impacts that kernel of the severe cold weather that started in the late fourth quarter of last year and continued into the first quarter of this year as well as some unplanned downtime at hurdle that I will discuss later.

Our downstream continued to perform at a very high level with first quarter utilization of 93% demands remained quite strong as many of the remaining pandemic restrictions were lifted late in the quarter.

During the quarter construction of the Sarnia products pipeline was completed ahead of schedule with startup and commissioning completed in April . This is a key project for us as it helps ensure reliable access into the Toronto market, which is our largest market and also drives a reduction in transportation costs of around.

$40 million per year.

Our overall strong performance once again supported our ability to deliver on our priority of returning cash to shareholders.

As you are aware, we completed our existing normal course issuer bid at the end of January .

And declared the largest dividend increase in our history on February one.

Completion of the CIB amounted to $449 million returned to our shareholders in the quarter on top of dividends paid of $185 million.

This morning, we declared a dividend of <unk> 34 per share payable July one and also announced our intention to initiate a substantial issuer bid to return an additional two $5 billion to our shareholders.

Now I'll turn it over to Dan to go through our financial performance for the quarter in more detail.

Thanks, Brad.

Getting into the financial results for the first quarter, our net income of $1 billion $173 million was up $781 million from the first quarter of 2021, primarily driven by improved prices in the upstream and higher margins in the downstream now if we look sequentially.

First quarter net income of $1 billion $173 million is up $360 million from the fourth quarter of 2021 supported by the improved market conditions, we've seen throughout the first quarter of this year looking at each business line.

The upstream recorded net income of $782 million up about $240 million from our fourth quarter net income of $545 million driven by higher realizations, partly offset by lower volumes at Kearl.

The downstream recorded net income of $389 million up about $140 million from the fourth quarter's net income of $250 million, reflecting the absence of the prior quarter's onetime charges lower operating expenses and higher margins are.

Our chemicals business recorded net income of $56 million in the first quarter.

Down $8 million from the fourth quarter net income of $64 million as margins eased from last year.

Moving on to cash flow.

In the first quarter, we generated just over $1 $9 billion in cash flows from operating activities an improvement of about $300 million from the fourth quarter of 2021, reflecting strong market conditions, along with favorable working capital impacts.

Now excluding working capital our cash flow for the first quarter was just over $1 $2 billion down around $400 million from the fourth quarter of last year.

It's important to note however that changes in working capital of $695 million for the quarter include $459 million of income taxes payable about a year from now in the first quarter of 2023.

As we've discussed in previous calls, we expect relatively low cash tax payments in 2022, we paid.

About $200 million of cash income taxes in the first quarter of this year and we expect to pay about another $200 million in cash tax installments over the remainder of this year.

While cash income tax payments are expected to be modest in 2022 as I just outlined we would expect in the current price environment that the income taxes payable line on our balance sheet would grow significantly over the remainder of the year, reflecting the expectation of significant cash tax payments in the first quarter of.

<unk> 2023.

Our free cash flow for the quarter was $1 $635 million about $400 million higher than the fourth quarter of 2021, and finally, we ended the first quarter with over $3 $1 billion of cash on hand, our highest cash balance in over 30 years.

Moving on to Capex.

Capital expenditures in the first quarter totaled $296 million up $133 million from the first quarter of 2021 in line with our plans and full year guidance of $1 4 billion.

Upstream spending in the first quarter. It was primarily associated with their in pit tailings project at Kearl, which started to ramp up in the quarter as well as volume Sustainment spending at Cold Lake and the downstream spending was driven by the Sarnia products pipeline, which was completed in March.

Now shifting to shareholder distributions, given our robust cash flow and our outlook for.

Our continued strong cash flow going forward, we had been very active in this space over the past year.

Just to recap we had record returns of cash to shareholders of nearly $3 billion in 2021.

We ended 2021 with $2 $1 billion of cash and generated.

As I just discussed at $1 $6 billion of free cash flow in the first quarter of 2022.

This left us with a balance or leaves us with a balance of over $3 $1 billion at the end of the quarter. After returning about $450 million of cash in January to our accelerated and CIB share buyback program and paying $185 million of dividends.

Additionally in February .

We announced the 26% dividend increase in our dividend to <unk> 34 per share payable on April one and as Brad mentioned this morning, we announced our second quarter dividend of <unk> 34 per share payable July one and finally in this long list and may be the of the capstone.

We announced this morning, our attention to launch a substantial issuer bid of $2 $5 billion.

Terms and pricing will be determined shortly in the bid is expected to commence within the next two weeks.

Sure.

I think it's fair to say this announcement clearly demonstrates our ongoing commitment to return surplus cash to shareholders I know that this.

Has been eagerly anticipated.

Certainly a number of you on the call have asked about our specific plans over the last few months. Some of you are more than once so we're certainly very pleased to be able to provide the clarity even looking for on our site plans today going forward, we remain committed to returning surplus cash to shareholders and as previously discussed.

We continue to plan to renew our NCI be at 5% later this year.

Now I'll turn it back to Brad to discuss our operational performance.

Thanks, Dan.

So now let's talk about our operating results for the quarter upstream production for the quarter averaged 380000 oil equivalent barrels per day, which is down 65000 barrels per day versus the fourth quarter and down 52000 barrels per day versus the first quarter of <unk>.

2021.

This decrease both year on year and versus the prior quarter was due mainly to.

The severe winter weather in Alberta that began late in the fourth quarter and continued into the first quarter as well as some unplanned downtime at Kearl.

Also of note is the ongoing strength in commodity prices, while in the fourth quarter. There were a number of factors, which drove the <unk> WCS spread wider such as the phased startup of line three and other smaller.

Industry disruptions we.

But we saw the spread narrow by about 20% or U S $3, a barrel in the first quarter, which improved.

Which was proved by egress and inventory draws in Western Canada.

The spread has narrowed a further approximately 50 cents.

U S per barrel.

To start the second quarter and is now in the 12 to 13 U S dollar range indicative of pipeline economics.

As a large bitumen producer imperial stands to benefit from improved pricing for Canadian heavy barrels.

So now I'd like to talk a little bit more about Carl.

After a stellar 2021, and which Karl set new production records in nine out of 12 months, we ran up against some challenges in the first quarter of this year.

Related primarily to extreme cold weather conditions and also some unplanned downtime both of which we've talked about on our fourth quarter earnings call as well as at our Investor Day in March.

Production at <unk> in the first quarter averaged 186000 barrels per day, gross which was down 84000 barrels per day versus the fourth quarter and down 65000 barrels per day versus the first quarter of 2021.

As you are aware and we've talked about this in the past the first quarter in any year is expected to be our lowest production quarter at curl due in large part to seasonality driven by operating in the winter weather conditions.

However, this winter saw unusually severe cold weather, starting late in the fourth quarter, which carried well into January .

This resulted in some atypical operating challenges, especially in our mining operations and in addition.

Led to extended unplanned downtime at hurdle may.

In the ore preparation area as we worked to recover from the challenging start to the year.

But I am pleased to say that as of now our operations have essentially returned back to normal with April month to date gross production at 250000 barrels per day.

And while we realize the start to the year has created a challenge in meeting our full year guidance.

We feel any change to the guidance. This early in the year would be premature.

As you are aware, we are heading into our annual turnaround and once that is complete and we assess the progress of our recovery plans, we will revisit whether an update as necessary.

Hurdle has developed a track record over the last two years of beating expectations.

And the team is laser focused on recovering and delivering a strong year again.

Now looking forward to the second quarter as I mentioned production levels are back on track. In addition, we have our annual Carl turnaround in the quarter, starting in mid May and running for around five weeks with an annual gross production impact of approximately 10000 barrels per day.

And finally on Karl turning to operating costs, we did see an escalation in unit operating costs in the quarter. Clearly this was largely related to the lower than expected volumes longer term our outlook to achieve U S $20 per barrel. It curl remains <unk>.

TAC as we continue to grow production to 280000 barrels per day and potentially beyond.

Close management of unit cost continues to be core to our approach to maximizing profitability at Pearl.

So now, let's turn our attention to cold Lake and as you know Cold Lake delivered very positive operating performance in 2021, and I am pleased to say that performance has continued into 2022.

Production for the quarter averaged 140000 barrels per day, which was down slightly versus the fourth quarter and flat with the first quarter of 2021.

Our ongoing focus on production optimization and reliability continues to deliver benefits and is providing a highly cost efficient offset to natural base decline.

And the strong performance at Cold Lake has continued into the second quarter.

April month to date production is at 148000 barrels per day.

I would also mention though that we do have some very light planned turnaround activity at our lending plant starting in late may and continuing to late June .

The expected production impact for the year is around 1000 barrels per day.

Now turning to Syncrude imperial share of Syncrude production for the quarter averaged 77000 barrels per day, which was down slightly from 79000 barrels per day in both the fourth quarter as well as the first quarter of 2021.

The first quarter.

Of this year did experience some challenges presented by the extreme cold weather as well.

In addition, some planned downtime for hydro treater maintenance, which carried into the second quarter.

The total impact of this maintenance is expected to be about 1000 barrels per day.

For the year.

Of note, though syncrude delivered their best ever first quarter bitumen production in association with strong binding and extraction performance and good utilization of the interconnecting pipelines.

Guidance of $75 to 80000 barrels per day for the year reflects the impacts of the planned maintenance I just mentioned as well as a major coker turnaround in the third quarter.

And before we move on to the downstream I also wanted to just make a quick comment about the status of our marketing efforts regarding our unconventional assets.

As you will recall the bid window closed at the end of March and as I indicated a while ago. The interest level has been quite high we.

We're in the process of evaluating the bids and we will provide more information as it becomes available I would reiterate though that no decision to sell the assets has been made.

Up to this point.

Now moving to the downstream.

We refined an average of 399000 barrels per day in the first quarter, which was down 17000 barrels a day versus the fourth quarter of 2021 and up 35000 barrels per day versus the first quarter of 2021 reflecting continued strong operating performance.

<unk>.

Refinery utilization was 93%. This is the third straight quarter above 90% and represents an 8% increase over the first quarter of 2021.

This year over year increase is reflective of the ongoing post COVID-19 demand recovery.

We also commenced our turnaround at Sarnia in the quarter, which was completed in April .

This work had minimal impact on utilization and was completed on schedule and on budget.

And that also completes our planned turnaround activity in the downstream for the year as I've mentioned in the past. This is a light turnaround year for the downstream.

In the first quarter, our petroleum product sales were 447000 barrels per day, which is down 49000 barrels per day versus the fourth quarter of 2021.

But up 33000 barrels per day versus the first quarter of 2021.

Now, while the increase versus the first quarter reflects ongoing recovery from the pandemic related softness.

We did see.

Pandemic related restrictions increased somewhat early in the first quarter of this year.

Diving, the softer demands and mainly for gasoline versus the first versus the fourth quarter.

We continue to.

Industry demand trends pretty consistent with what we saw.

Through 2021, with gasoline and diesel demands hovering around 90%, 90% of historical levels and jet continuing to improve.

But averaging around 70% to 80%.

Canadian jet demand continues to trend toward more normal levels as COVID-19 restrictions continue to ease.

And also of note is that our jet sales volumes continue to track about 10% ahead of the industry predominantly related to competitive gains we were able to capture in 2021, which has increased our overall market share.

We are seeing a positive downstream margin environment continue into the second quarter due to several factors, including low product inventories and global export constraints. However.

However, the market is also proving to be highly volatile and we are seeing fairly large swings in downstream margins.

Also of note for our downstream as I mentioned earlier, the first quarter saw the completion of the Sarnia products pipeline project ahead of schedule.

Commissioning and startup was completed in April .

This line will provide secure reliable access into our largest market Toronto and it will also support a reduction in transportation costs of around $40 million per year.

And one final item worth noting is that we announced an expanded partnership with lob laws PC optimum loyalty program, which now provides the opportunity to redeem PC optimum points at more than 2000 <unk> stations across Canada. This is one of the largest loyalty programs in <unk>.

Canada, and we expect the expanded partnership to bolster our leading market share.

So that brings us to chemicals now this business delivered $56 million in earnings in the first quarter, which was down slightly from the fourth quarter of 2021 as we saw the all time high margins of 2021 begin to ease somewhat however, these margins.

Still remains quite strong and we're looking forward to another year of solid results from our chemical business.

In closing now I would summarize.

The first quarter is a very strong quarter, though not without some operational challenges that I am confident are behind us now as.

As we look forward our operational focus should allow us to benefit further from the very strong commodity price environment. We are currently experiencing.

And our $2 $5 billion substantial issuer bid announcement continues to underscore our ongoing commitment to drive shareholder value and our continued commitment to shareholder returns.

Looking forward for the rest of 2022, our priorities have not changed we remain focused on optimizing our existing asset base and delivering superior shareholder value through enhanced reliability and maximizing performance in a period of strong commodity prices.

Mrs, allowing us to take utmost advantage of the current market conditions.

And hand in hand with that comes a continued focus on sustainability as.

As we progress our plans for renewable diesel at our stress Kona refinery and a host of other greenhouse gas advantaged projects, such as Grand Rapids Phase, one and our lending redevelopment.

Not only do these projects play a key role in our emissions reduction focus, but they also provide economic volume growth for our business.

We will remain disciplined with respect to spending levels, both operating and capital and we will also continue to return cash in excess of these needs to our shareholders.

So finally I'd like to thank you once again for your continued interest and support in our company.

Okay, we're going to now go to the Q&A.

Q&A session.

Good morning.

I'd like to remind folks. Please if you could limit yourself to one question plus a follow up that will ensure we can get as many questions as possible and so with that Kevin I'll turn it over to you to queue up the first question. Please.

Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.

First question comes from Manav Gupta with credit Suisse.

Good morning, guys. My question here is you have a very unique refining system.

Literally hit across entire use spectrum.

<unk>, you'll never to Chicago cracks and Cros.

For us that even if they looked at the Pacific Northwest and all of those cracks absolutely. The thing right now and I am trying to understand how should we be modeling about think about refining earnings potential given the leverage to all of these different cracks in the United States and I'll leave it there. Thank you.

Yes. Thank you for your question Manav.

As you pointed out we do have a highly integrated refining system and logistics network, which allows us to capitalize on.

On margin and market opportunities.

Both both Canadian and U S.

That is leading to.

Some very strong earnings results in the downstream currently and of course as I just mentioned.

Fully capitalizing on that by strong reliability.

Strong utilization.

As well as a continued disciplined on operating costs.

Which I'm quite proud of what we've achieved there.

As you think about modeling, obviously still a lot of uncertainty and volatility as we look to.

The rest of the year, but I would say.

What we're seeing currently.

In April .

We anticipate continued strength certainly through the second quarter and I think we're optimistic about the rest of the year, but there are a lot of.

Uncertain events that are impacting margins.

Globally in translating into the U S market low inventory levels.

Limits on.

On product imports and exports and all of that is creating.

This volatility so uncertain, how that will play out over many many months, but we.

We're quite optimistic certainly as we look to the second quarter.

We think the opinion that you will most likely to report a very strong record refining earnings in 2022 and I'll leave it there. Thank you so much.

Thank you.

Our next question comes from Neil Mehta with Goldman Sachs.

Great well, thanks, guys for the color here. So first question is just around dividend strategy.

Relative to buybacks I think it's very clear that you guys are going to get aggressive here.

With the buyback starting the next couple of weeks, which is great to see but on on.

On the dividend how do you think about that prioritizing that relative to the buyback.

From here.

I'm going to take that one Dan.

Yeah sure Neal I think Jeff what we said before our reliable and growing dividend is sort of the bedrock of our cash return strategy and we're committed to that and you can see we didnt reliable we've had given him for over 100 years and it's been increased each year for over a quarter of a century, we've had some significant.

Increases more recently.

And after that we return.

The surplus cash through other means.

That's basically buybacks and CIB SIV or potentially a special dividend so that remains our philosophy, our base dividend reliable and growing additional returns.

We will make those and you kind of you saw the menu and you you can see we are pulling pretty hard on the side here as we discussed so no real change to our philosophy, we're going to return the cash.

And exactly how we do it will vary with conditions and what the market is looking for and all of that but we remain committed to that philosophy, it's really unchanged.

Okay very clear and then just can you talk about the crawl setup from here production was lower than we anticipated during the quarter at Carl.

Can you talk about how the asset has been operating more recently the path for the rest of the year.

And your confidence around meeting your production guidance.

Yes, thanks for the question Neil.

Youre exactly right.

We had some challenges in the first quarter and.

<unk> did not deliver up to expectations on volumes a lot of that.

Quite attributable to the extreme cold weather conditions that we experience of course, we were accustomed to cold weather in Alberta, there is no doubt about that.

But this winter was particularly extreme.

And it came at a time that we're continuing to.

Really challenge the asset to maximize volume performance.

Sure.

Unfortunately, with the cold weather impacted.

Our operations to.

To extract.

Ore from the mine to to handle it in the crushers.

And ultimately the process at <unk>.

Experienced some.

Some unfortunate plugging in some equipment.

Some unusual where that was attributable to the extreme cold weather in our crusher teeth.

And then.

Just some.

Some other.

Kind of maintenance.

Issues around some of our equipment again that we've had to respond to.

In a very structured way and in a way that allows us to learn.

From our experiences in this extreme cold weather and so as we look to the future.

I'm quite confident.

And our ability to achieve continued higher levels of production at hurdle.

I am confident.

And our longer term path to 280000 barrels a day.

In the month of April so far which is coming to a close we are.

We're returning to normal we've achieved 250000 barrels a day month to date.

So essentially.

Essentially back on track.

As I reflect on the situation again, some some unfortunate challenges, but we've learned extensively from that.

As you've heard over the last year, we set production records in nine of 12 months last year and so we are continuing to challenge ourselves challenged the asset continue to test where are the operational limits.

So through some of these challenges we have gain further insights and knowledge as to what will allow us to further improve our equipment designs, our maintenance procedures and ensure that they are.

<unk> robust and resilient over the full range of operating conditions that that we anticipate.

And over the course of the year.

So we're very much.

Encouraged by what we've learned and now we're applying all of those learnings as we go forward, including this upcoming turnaround.

Going to implement some changes that we think will make a material difference for the future.

And again, we're quite confidence. So thanks. Thanks for that question you can imagine we spent a lot of time on that over the over the first quarter.

Thank you Brad.

Our next question comes from Greg Pardy with RBC capital.

Yes. Thanks, good morning, Thanks for the rundown as always.

Dan can you just remind us sorry, I don't think.

<unk> got it but just in terms of.

Cash taxes out the door. This year can you just remind me what you said in your opening remarks, yes sure.

We paid about $200 million of actual cash taxes in the first quarter of this year.

And over the remainder of the year.

Cash cash tax installments will call them, we'll pay about another 200, that's our expectation obviously things could change, but that's our expectation so for the whole year, including the first quarter.

On the order of 400 million Bucks of real cash.

Now.

As I said.

My remarks.

And actually as we've talked about on these calls over over quite a while we're moving from this number of years pretty low cash tax payments because of tax loss carryforwards and deferrals and this year is sort of a transition year.

And at current prices you know, we're going to be fully tax paying in 2023 and as we go through the year at these sorts of prices, we're going to build up a pretty big payable, which will be due in the first quarter.

So that's sort of the lay of the land.

Okay. Thanks, Thanks for that kind of a high class problem.

And then.

We will do our best to optimize but yes.

Yes.

Okay, and then just on the SUV.

Can you maybe just speak to how did you arrive at the size I guess would be the question the $2 5 billion.

And then again, how does that relate to the in CIB. Because you can you can grow new year and CIB, presumably I guess in June and then maybe back on Neal's question like can we expect a nice nice big dividend increase post post the completion of the site and maybe would be loading on the NCIC.

Yes.

Got there, but similar to my prior answer.

The $2 5 billion, we looked at our cash balances you looked at the outlook, we felt quite comfortable with that amount.

And.

Obviously, we have other tools, it's not the end of the game right.

We had the NCI, which will renew and we can by 5% in new we can choose if we want to accelerate that as we've done in the past.

And we have all the other tools for distributing cash additional special.

Special dividend, so I think everything's on the table, but we felt given where our cash was.

In our outlook, we felt very comfortable with the $2 5 billion.

But the key is.

As we've said for a long long time, we're committed to returning surplus cash we're not about building up the cash balances. So we'll continue to do that exactly the means will depend on circumstances at the time regarding the dividend.

Certainly reliable and growing remains our philosophy.

And.

We always look at our we're a little cautious you don't want to have your dividends jerking up and down we had consistently rising dividend we want to maintain that.

And obviously each quarter, we evaluate what we'll do with our dividend will continue to do that but we certainly remain committed to reliable and growing.

Thanks, so much.

Again, ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your touched on telephone. Our next question comes from Doug Leggate with Bank of America.

Hello, This is David Fernandez input Doug.

Thank you for taking my questions. My first one is just on again on the site.

If I can ask around a little bit differently.

Clearly.

A large number it's.

Larger than maybe what we envision.

Therefore, it allows you guys a lot of Optionality going forward, how do you guys think about.

The pace on executing on that knowing full well that you also have.

The renewal of the CIB there as well.

Well, maybe I'll describe that we feel pretty good I mean, the $2 5 billion, we will put out the detailed terms here in the coming days after the kind of earnings gets seasoned into the market.

But our intention is to execute that here in the second quarter fully.

And so.

Thats really that and then going forward, we will see where cash balances go obviously, we had the NCI.

The other menu of tools as I, setting, including additional <unk> or special dividends.

Or things like that so.

I don't know if that answers your question.

No.

I'll add one more thing in terms of the quantum I mean, we have $3 1 billion of cash on the balance sheet at this very moment right at the end of the quarter. So the $2 5 billion as.

As clearly affordable.

Current prices, we would expect to continue to generate significant cash.

Got it got it.

That makes sense.

And if I can go back to accrual.

So I guess, we're going to wait until post turnaround to get an update around that.

I guess, you're implying that potentially could still meet before.

The full year target.

Like.

Like if we run some numbers here I mean, it was kind of like a second half run rate at or above 300000 barrels per day. I mean is there something that you can point to perhaps that gives you conviction that may be.

That's still achievable or are my numbers.

No.

We believe it is still <unk>.

Buyable to achieve the full year guidance.

As I mentioned, a few minutes ago.

The curl team has continued to excel.

Improve their operating performance, which allowed us last year to set.

Operating production volume records in nine of 12 months and.

We are committed to a pathway to 280000 barrels a day and potentially beyond so were.

Very proactively looking at all of the steps to elevate our performance AD.

We do have a history of performing.

Above 300000 barrels a day.

Given the days and weeks and so we're working to just string together many days of exceptional performance.

And so.

It will take a stellar year to achieve R.

Our original guidance.

But until we get a few months behind us and see what that.

Current track record is there is no reason yet to conclude its not achievable.

But I do look forward to providing an update at the next quarter's earnings call.

I appreciate it thank you and congrats again on the <unk>.

Sure.

Thank you very much.

Our next question comes from Travis Wood with National Bank financial.

Yes. Thanks for taking my question you alluded to some cost pressure largely volume related at Carl but I wanted to hear your thoughts around kind of broader inflation pressures we've heard it from.

A couple that have reported already this quarter, so just broader inflationary pressures on.

On Capex and Opex side, and then maybe are you seeing any of that.

And a positive tone into the chemicals business.

Yes, thanks for that question.

Youre right.

We are seeing.

Some of the same inflationary pressures that.

Others in industry and really all sectors are experiencing right now.

I would characterize it year to date has been very moderate for us.

The main place we see it.

Energy costs.

Because we do consume a fair amount of natural gas in our operations. We are also seeing it in.

Some of our chemical commodities.

And a little bit.

Kind of labor and other services.

At this point, though.

I'm quite proud of of our operating organizations.

Around the country that are being very diligent about.

Scrutinizing their costs looking for ways to offset those inflationary.

Pressures with other efficiencies.

And to a large extent we are achieving that.

At the asset level setting aside energy costs very difficult to offset the energy cost.

But again, when we see higher energy costs.

On the expense side. It also translates into higher revenues.

For us.

Our production side.

In terms of.

Overall operating costs and capital costs at this point.

We're not adjusting our capex budget, we believe we could achieve all of the plans that we laid out for the year within that $1 $4 billion guidance and so we.

We remain committed to that.

Okay I appreciate that color. Thank you.

Thank you.

And im not showing any further questions at this time turn the call back over to Dave Hughes for any closing remarks.

Thank you and just like to thank everybody again for joining US. This morning, and your interest if you have any further questions. Please reach out to the Investor relations team here and we'd be happy to address them. Thank you very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

[music].

Ladies and gentlemen, thank you for standing by and walk through the Imperial Q1, 2022 earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session. So what's the question during the special need to press Star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the call over to your host Dave Hughes Vice President Investor.

Relationship may begin.

Thank you good morning, everybody. Thanks for joining us today on our first quarter earnings call I'll start by introducing the management team who is here with me.

Brad Corson, Chairman, President and CEO , Dan Lyons, Senior Vice President Finance and administration, Simon younger senior Vice President of the upstream Sherri Devers, Vice President of commercial and corporate development and John Whitmore, Vice President of the downstream. So first of all I'll read the cautionary statement.

<unk> operating results can differ materially depending on a number of factors and assumptions.

We will follow our typical format, Brad will start with some opening remarks, and then Dan will provide a financial update then ill back to Brad for an operating update and then we'll follow it up with a Q&A session. So with that I'll turn it over to Brad.

Okay. Thank you, Dave and good morning, everybody and welcome to our first quarter earnings call I Hope you are all doing well.

Back in February when I spoke to you about our fourth quarter results, we talked about how we wrapped up the year strong with another quarter of solid operating performance and strong financial results.

Our focus on ensuring our company was in the best position possible to take advantage of the market recovery was certainly paying off.

And I am pleased to say the positive momentum has continued into 2022.

As a result of this performance when paired with a high price environment, we were able to deliver very strong financial results in the quarter.

Now with the challenges that colonel behind us and with the Sarnia turnaround wrapping up in April which is the extent of our downstream turnaround activity for the year, we are well positioned to deliver more value in the coming quarters.

Over the next few minutes, Dan and I will detail the results of what was a very strong quarter.

So now let's review the first quarter results to start earnings for the quarter were almost $1 2 billion, which.

Which represents our highest first quarter net income and over 30 years and our cash from operating activities was just over $1 9 billion also the highest first quarter in over 30 years.

These results reflect our strong operating performance and the strong commodity fundamentals in the quarter.

Crude prices continued to strengthen through the quarter, while both downstream and chemical margins remains strong.

$40 million per year.

Our overall strong performance once again supported our ability to deliver on our priority of returning cash to shareholders.

As you are aware, we completed our existing normal course issuer bid at the end of January .

And declared the largest dividend increase in our history on February one.

Completion of the CIB amounted to $449 million returned to our shareholders in the quarter on top of dividends paid of $185 million.

This morning, we declared a dividend of 34 per share payable July one and also announced our intention to initiate a substantial issuer bid to return an additional $2 $5 billion to our shareholders.

Now I'll turn it over to Dan to go through our financial performance for the quarter in more detail.

Thanks, Brad.

$173 million is up $360 million from the fourth quarter of 2021 supported by the improved market conditions, we've seen throughout the first quarter of this year looking at each business line.

The upstream recorded net income of $782 million up about $240 million from our fourth quarters net income of $545 million driven by higher realizations, partly offset by lower volumes at Kearl.

$56 million in the first quarter down.

Down $8 million from the fourth quarter net income of $64 million as margins eased from last year.

Moving on to cash flow.

Now excluding working capital our cash flow for the first quarter was just over $1 $2 billion down around $400 million from the fourth quarter of last year.

It is important to note however that changes in working capital of $695 million for the quarter include $459 million of income taxes payable about a year from now in the first quarter of 2023.

As we've discussed in previous calls, we expect relatively low cash tax payments in 2022, we paid.

About $200 million of cash income taxes in the first quarter of this year and we expect to pay about another $200 million in cash tax installments over the remainder of this year.

<unk> 2023.

Moving on to Capex.

Capital expenditures in the first quarter totaled $296 million up $133 million from the first quarter of 2021 in line with our plans and full year guidance of $1 4 billion.

Upstream spending in the first quarter. It was primarily associated with our in pit tailings project at Kearl, which started to ramp up in the quarter as well as volume Sustainment spending at Cold Lake and the downstream spending was driven by the Sarnia products pipeline, which was completed in March.

Now shifting to shareholder distributions, given our robust cash flow and our outlook for.

For continued strong cash flow going forward, we have been very active in this space over the past year.

Just to recap we had record returns of cash to shareholders of nearly $3 billion in 2021.

We ended 2021 with $2 1 billion of cash and generated.

As I just discussed the $1 $6 billion of free cash flow in the first quarter of 2022.

This left us with a balance or leaves us with a balance of over $3 1 billion at the end of the quarter. After returning about $450 million of cash in January through our accelerated and CIB share buyback program and paying $185 million of dividends.

Additionally in February .

We announced this morning, our attention to launch a substantial issuer bid of $2 5 billion.

The terms and pricing will be determined shortly in the bid is expected to commence within the next two weeks.

Yes.

I think it's fair to say this announcement clearly demonstrates our ongoing commitment to return surplus cash to shareholders I know that this <unk> has been eagerly anticipated.

We continue to plan to renew our NCI be at 5% later this year.

Now I'll turn it back to Brad to discuss our operational performance.

Thanks, Dan.

2021.

This decrease both year on year and versus the prior quarter was due mainly to.

To the severe winter weather in Alberta that began late in the fourth quarter and continued into the first quarter as well as some unplanned downtime at Kearl.

Also of note is the ongoing strength in commodity prices, while in the fourth quarter. There were a number of factors, which drove the <unk> WCS spread wider such as the phase startup of line three and other smaller.

Industry disruptions, but.

But we saw the spread narrowed by about 20% or U S $3, a barrel in the first quarter, which improved.

Which was proved by egress and inventory draws in Western Canada.

The spread has narrowed a further approximately 50 cents.

U S per barrel to start the second quarter and is now in the 12% to 13 U S dollar range indicative of pipeline economics.

As a large bitumen producer imperial stands to benefit from improved pricing for Canadian heavy barrels.

So now I'd like to talk a little bit more about Carl.

After a stellar 2021, and which Karl set new production records in nine out of 12 months, we ran up against some challenges in the first quarter of this year.

Related primarily to extreme cold weather conditions and also some unplanned downtime.

Of which we've talked about on our fourth quarter earnings call as well as at our Investor Day in March.

However, this winter saw unusually severe cold weather, starting late in the fourth quarter, which carried well into January .

This resulted in some atypical operating challenges, especially in our mining operations and in addition, it led to extended unplanned downtime that hurdle mainly in the ore preparation area as we worked to recover from the challenging start to the year.

But I am pleased to say that as of now our operations have essentially returned back to normal with April month to date gross production at 250000 barrels per day.

And while we realize the start to the year has created a challenge in meeting our full year guidance.

We feel any change to the guidance. This early in the year would be premature.

As you are aware, we are heading into our annual turnaround and once that is complete and we assess the progress of our recovery plans.

We will revisit whether an update as necessary.

Hurdle has developed a track record over the last two years of beating expectations.

And the team is laser focused on recovering and delivering a strong year again.

As we continue to grow production to 280000 barrels per day and potentially beyond.