Q2 2022 Imperial Oil Ltd Earnings Call

July 29, 2022

Yeah.

Good day, and thank you for standing by welcome to the Imperial Gold stocks got oil second quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask a question during this session you will need a press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today, David Hughes, Vice President Investor Relations. Please go ahead.

Thank you Michele good morning, everybody and welcome to our second quarter earnings Conference call I'm joined this morning by Imperial Senior management team, including Brad Corson, Chairman, President and CEO , Dan Lyons Senior Vice President Finance and administration, Simon younger senior Vice President of the upstream Shavers, Vice President commercial and corporate.

Development, and John Whitmore, Vice President of the downstream.

Todays comments include reference to non-GAAP financial measures definitions and reconciliations of these measures can be found in attachment six of our most recent press release and are available on our website with a 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 performance.

The operating results can vary 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 second quarter earnings release that we issued this morning as well as our most recent Form 10-K. All of these documents are available on SEDAR Edgar and on our website. So I would ask you to refer to those.

Brad is going to start with some opening remarks, and then hand it over to Dan is going to provide a financial update and then Brad will provide an operations update once that's done we'll follow with the Q&A session. So with that I'll turn it over to Brad for his opening remarks. Thanks, Dave.

Well good morning, everybody and welcome to our second quarter earnings call I Hope, you're all doing well after a challenging start to 2022 with some significant weather impacts I'm very pleased to say that our operations returned to normal in the second quarter, which underpins the outstanding results that we reported earlier today.

The high price environment continued through the quarter and the focus we put on reliability and strong operating performance allowed us to take advantage of this environment.

I think it's also important to note that this performance comes when Canadians need it most as global challenges have resulted in supply disruptions and subsequent price escalations.

With our strong operational performance, we are doing everything we can to increase production and ensure a stable ongoing supply of the products that fuel our day to day lives.

These economic conditions have so far continued into the third quarter and with all of our major planned downtime for our operated assets behind us for the year, we remain well positioned to continue to maximize our production and a very tight environment.

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 second quarter results and.

And we have a lot of positive highlights to talk about to start earnings for the quarter were just over $2 $4 billion and our cash from operating activities was almost $2 7 billion.

These results continue to reflect the strong commodity fundamentals. We are currently experiencing as well as strong operating performance in the quarter. They are also reflected in the increased royalty and tax contributions that we make to the government and that go to support the communities in which we operate.

We achieved total upstream production of 413000 barrels per day, which represents the highest second quarter production and over 30 years and this includes the annual planned turnaround at Kearl, which was completed on time and on budget.

With the first half of the year behind US we are updating our annual production guidance for Karl to reflect the challenging first quarter, we experienced which I will talk about in a minute.

But as mentioned our operations are back to normal after the planned turnaround work and we look forward to a strong second half of the year.

Our downstream continued to perform at a very high level with second quarter utilization of 96%, which notably is the fourth consecutive quarter of utilization above 90%.

This is particularly important in the current tight product supply environment and demonstrates we are doing all we can to bring as much product supply as possible to the market.

While we saw the last of the provincial pandemic related restrictions lifted in the second quarter, both motor gasoline and diesel demands have leveled off close to pre pandemic levels. In addition, we are also seeing jet demands continue to strengthen as the public resumes traveling which is very encouraging as jet.

Demand has been lagging in its recovery up until now.

With respect to delivering on our commitment of increasing shareholder returns, we successfully executed a substantial issuer bid only the second in our company's history, returning $2 $5 billion in cash to our shareholders.

Including our quarterly dividend dividend, we returned $2 $7 billion in the quarter.

And we recently announced the renewal of our normal course issuer bid at 5% with the expectation that we will accelerate the purchases and complete the CIB by the end of October .

And finally this morning, we declared a dividend of 34 cents per share payable October one.

All of this leaves us well positioned to return more cash to shareholders. This year than we did in our record setting 2021.

Just before I pass things over to Dan to go through our financial performance for the quarter in more detail.

I'd also like to highlight the successful marketing efforts related to our exit co assets.

Together with Exxonmobil, Canada, we announced that we have entered into an agreement with whitecap resources for the proposed sale of these assets for a total cash consideration of $1 9 billion.

Which equates to $940 million imperial share.

We are extremely pleased with this result, and expect the sale to close before the end of the third quarter. We have talked a lot recently about focusing our efforts on optimizing our existing core assets and feel we still have plenty of opportunity. There. This divestment is consistent with this strategy and continues to support our <unk>.

<unk> to maximize shareholder value.

And with that I'll pass things over to Dan Thanks, Brad.

Getting into the financial results for the second quarter. Our net income of $2.409 billion was up just over $2 billion from the second quarter of 2021, primarily driven by improved prices in the upstream and higher margins in the downstream, partially offset by higher operating expenses driven by higher <unk>.

Energy costs.

Now if we look sequentially, our second quarter net income of $2 $409 million is up about $1 $2 billion from the first quarter supported by continued strong market conditions throughout the quarter.

Looking at each business line, the upstream, which recorded net income of $1 $346 million is up about $560 million from the first quarter's net income of $782 million driven by higher realizations and higher volumes as curl recovered from the cold weather impacts in the first.

Order, partially offset by higher royalties and operating expenses, reflecting increases in energy costs.

This quarter the downstream recorded net income of $1.033 billion up about $640 million from net income of $389 million in the first quarter, reflecting continued high utilization levels and higher margins, partly offset.

Again by the impact of higher expenses from increased energy costs. Finally, our chemicals business continued to perform well this quarter with net income of $53 million essentially flat with the first quarter.

Moving on to cash flow, we ended the second quarter with just under $2 $9 billion of cash on hand in the quarter, we generated nearly $2 $7 billion in cash flows from operating activities, an improvement of almost $800 million from the first quarter.

Bringing our year to date cash flows from operating activities to almost $4 $6 billion up about $2 $7 billion from last year free.

Free cash flow for the quarter was $2 $452 million up about 800 about $800 million higher than the first quarter.

Excluding an increase of $101 million in working capital our cash flow in the second quarter was almost $2 $8 billion up around a $1 billion $5 from the first quarter.

The increase the $101 million increase in working capital was largely driven by an increase in accounts receivable of $1 $4 billion due to substantial increases in downstream product prices in the quarter.

Also in working capital there was an increase in income taxes payable of about $850 million that will only be payable in the first quarter of next year as we discussed in previous calls we expect actual cash tax payments in 2022 to total around 400 million.

Including $225 million already paid in the first quarter of this year and about $50 million paid in the second quarter.

Now looking forward there are obviously a number of factors that will impact our final income tax payment for the 2022 tax year that will occur in the first quarter of 2023.

But under current market conditions, we would anticipate that this first quarter 2023 cash tax payment would be on the order of $2 5 billion.

Moving on to Capex capital expenditures in the second quarter totaled $314 million up from $250 million $259 million in the second quarter of 2021 and in line with our full year guidance of $1 4 billion.

Spending in the second quarter was primarily in the upstream spend at our tailings project at kernel and volume Sustainment spending at Cold Lake. We also progressed spending on our Grand Rapids project at Cold Lake and on a renewable diesel project X scrap Kona.

Shifting to shareholder distributions.

Given our robust cash flow and our outlook for continued strong cash flow going forward, we returned over $2 $7 billion to shareholders in the second quarter with the completion of our $2 5 billion.

<unk>.

And payment of $228 million in dividends. This brings our year to date distributions to over $3 $3 billion already exceeding our total share holder distributions in 2021 of around $3 billion now looking forward. Our next step is to complete the 5% and CIB.

We announced on June 27th as Brad noted, we plan to execute share repurchases under the CIB on an accelerated basis and finish the program by the end of October .

We remain committed to returning surplus cash to shareholders and will consider further actions following completion of our CIB Lastly, as Brad noted. This morning, we announced a third quarter dividend of <unk> 34 per share consistent with our second quarter dividend 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 up.

Upstream production for the quarter as I mentioned earlier was 413000 oil equivalent barrels per day, which is up 33000 barrels per day versus the first quarter and up 12000 barrels per day versus the second quarter of 2021.

This increase reflects a return to normal operating conditions at <unk>. After the severe weather challenges of the first quarter and as I mentioned earlier represents the highest second quarter upstream production and over 30 years.

Ongoing strength in commodity prices continues to be a key part of the story Wty prices continued to increase in the quarter as the WCS prices.

The <unk> WCS differential remained fairly steady in the quarter, although we have seen some widening in the third quarter so far.

But even with the wider wider differential WCS prices remained very strong.

Syncrude synthetic product continues to command a strong premium in the current environment as well given its quality and desirability in the tight refining market.

From a capital allocation point of view, we are continuing the development of Grand Rapids Phase, one and our lending redevelopment as we talked about at our Investor day earlier this year.

Both of these projects are not only key to sustaining and even growing our production at cold Lake.

But also further improved profitability and lower greenhouse gas intensity at these core assets.

So now let's move on and talk about Carl.

After a challenging start to 2022 related to extreme cold weather conditions and unplanned downtime in the first quarter production at <unk> in the second quarter fully recovered to normal levels at 224000 barrels per day, gross which was up 38000 barrels per day versus the first.

<unk> and down 31000 barrels per day versus the second quarter of 2021, and just as a reminder, the second quarter also reflects the impacts of the annual curl turnaround, which was completed in June on time and on budget.

Subsequent to the completion of the turnaround I am pleased to say that our operations have been strong and stable with July gross production estimated at 280000 barrels per day.

And now that we're through our major planned maintenance for the year, we have reflected on what we see is the overall impact of the first quarter challenges on our full year guidance for Carl.

As such we are updating annual guidance for Carol to around 245000 barrels per day gross.

As mentioned curl performance is back to normal heading into the third quarter and we expect production levels to exceed 280000 barrels per day for the remainder of the year.

And finally, turning to operating costs, we did see a reduction in unit operating cost at Kearl in the quarter of around U S $3 50 per barrel versus the first quarter to just over U S $31 per barrel.

The first quarter saw higher unit operating costs due to lower volumes, but we saw this come down in the second quarter as operations returned to more normal levels, Although second quarter results do reflect the cost of our planned turnaround as well as higher energy costs.

We are still working towards and committed to achieving sustainable unit operating costs at or below U S $20 per barrel at Kearl.

So now let's talk about Cold Lake Cold Lake started the year strong and that performance has continued through the second quarter production for the second quarter averaged 144000 barrels per day, which was up 4000 barrels per day from the first quarter and up 2000 barrels per day from the second quarter.

Of 2021.

These results also reflects some light planned turnaround activity at our lemming plant, which started in late May and finished in late June .

The production impact of this activity for the year is around 1000 barrels per day.

Our ongoing focus on production optimization and reliability continues to deliver benefits as you can see from the fact that year to date production is above our full year guidance and is providing a highly cost efficient offset to natural base decline.

And the strong performance at Cold Lake has continued into the third quarter so far.

July production is estimated at 142000 barrels per day.

Imperial share of Syncrude production for the quarter averaged 81000 barrels per day, which was up 4000 barrels per day from the first quarter and up 34000 barrels per day from the second quarter of 2021.

The large increase from 2021 reflects the absence of a second quarter turnaround. This year the major coker turnaround at Syncrude is instead happening in the third quarter this year.

Also of note Syncrude continued to build on a strong first quarter and has now delivered best ever first half of the year bitumen production supported by strong mining and extraction performance and good utilization of the interconnecting pipeline.

So now let's move on to talk about the downstream.

In the second quarter, we refined an average of 412000 barrels per day, which was up 13000 barrels a day versus the first quarter and up 80000 barrels per day versus the second quarter of 2021, reflecting continued strong operating performance and minimal planned turnaround activity.

Refinery utilization was 96% the fourth straight quarter above 90%.

While up a little versus the first quarter of this year. It represents an increase of 18% in utilization over the second quarter of 2021, reflecting the absence of the large turnaround we had at stress Kona last year and very strong operating performance this year.

As I mentioned last year and again back on the first quarter call. We have a relatively light planned maintenance schedule for 2022, and our downstream and in fact, we completed our turnaround at Sarnia in April .

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

That also completes our planned turnaround activity in the downstream for this year and leaves us well positioned to take advantage of the market environment and the ongoing pandemic recovery.

The strong utilization we have delivered is playing a key role in providing the energy products that Canadians need and at a time when supply issues are driving overall market shortages.

Our intention is to continue to produce at these high utilization in order to do our part in addressing these current supply challenges.

I would also note that.

We continue to advance our stress Kona renewable.

Renewable diesel project.

And expect a final investment decision by the end of this year.

In the second quarter, our petroleum product sales were 480000 barrels per day, which is up 33000 barrels per day versus the first quarter and up 51000 barrels per day versus the second quarter of 2021.

The increase in sales in both cases was driven by increased mobility. Following the lifting of most of the remaining provincial pandemic related restrictions.

Now with respect to product demands in the quarter, we saw demand for motor gasoline and diesel essentially returned to pre pandemic levels. In addition, with the lifting of many travel related restrictions jet demand showed rapid improvement and is averaging around 90% of historical levels.

We continue to see a positive downstream margin environment continue in the second quarter due to several factors, including low product inventories and global export constraints and while we are seeing signs of margins softening a bit.

I remain volatile and continue to track well above the five year band.

And that brings us to chemicals, the business delivered 53 million.

Million in earnings in the second quarter, which was down from $109 million in the second quarter of 2021, but essentially flat with the first quarter of this year as expected we have seen the all time high margins of 2021 begin to ease however margins still remain quite strong and we're looking.

Looking forward to another year of solid results from our chemical business.

Before wrapping up I'd like to take a minute to talk about a few other items that highlight our ongoing commitment to improving sustainability and reducing our overall environmental footprint first during the first quarter, we released our advancing climate solutions report, which provides.

Disclosures around our continued progress and commitments to lowering greenhouse gas emissions.

Second we announced a strategic collaboration with <unk> lithium to develop a lithium extraction pilot in Alberta at our historic law, Duke oilfield.

Combining <unk> proprietary lithium extraction technology with our water and reservoir management capabilities makes this is an exciting opportunity to support the potential development of battery grade products.

And finally, we also signed an agreement with <unk>.

<unk> power to study the potential for hydrogen production.

At our Nanticoke refinery in Ontario, where we operate.

Our refinery.

We will be focusing on the potential to develop a regional hydrogen facility.

That would support greenhouse gas emissions reductions.

In closing now I would sum up the second quarter as outstanding we saw our operations fully recover from some challenges in the first quarter and we successfully completed the majority of our planned maintenance for the year and these strong operations allowed us to benefit fully from the continued strong business <unk>.

<unk> and to deliver very strong financial results.

With all of our major planned downtime for our operated assets behind us for the year, we look forward to a strong second half of 2022 <unk>.

Benefiting further from the very strong commodity price environment, we are experiencing.

The successful execution of our substantial issuer bid underscored our ongoing commitment to drive shareholder value and our continued commitment to shareholder returns.

And the sale of our <unk> assets delivers an imperial strategy to maximize shareholder value by focusing upstream resources on our core long life low decline oil sands assets.

For the remainder of 2022, we will continue to focus on further optimizing our existing asset base and delivering superior shareholder value through enhanced reliability and maximizing performance in a period of strong commodity prices, allowing us to leverage our fully integrated asset.

And take utmost advantage of the current market conditions.

We will also continue to work towards a final investment decision related to our stress Kona renewable diesel project.

Continue our development of Grand Rapids Phase, one and our lending redevelopment at Cold Lake All key parts of our emission reduction focus, but also key opportunities that provide profitable volume growth for our business.

And finally I'd like to thank you once again for your continued interest and support.

Michelle we're ready to go to the Q&A line. Thank you to ask a question you will need to press star one on your telephone.

Ask that you please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.

And our first question comes from the line of Dennis Fong with CIBC. Your line is open. Please go ahead.

Hi, Good morning, and thank you for taking my questions. The first one is just around <unk> as well as the application of digital technology I know kind of at this investor day.

This previous Investor day in 2012, you discussed items like the surveillance failure analysis.

And in our previous Investor Day, you talked about digital when I was just curious and I know obviously, it's very early in terms of talking about.

I mean time between turnarounds because you've already just think we've done that but I was curious in terms of some of your peers have extended it to an every other year turnaround.

Some of the work that Youre doing on the digital side or even predicting in terms of timing of failure or time between turnarounds potentially affecting decisions or even analysis around even further extending time between turnarounds at the credit facility.

Yes, Thanks for your question Dennis.

And Youre exactly right we have a.

Long standing commitment to technology, and we're bringing that technology to bear at curl to continue to improve our operating performance, which is underpinned by strong maintenance and reliability and as as to turnaround timing you may recall that.

At <unk>, we have to.

Two main trains of operation and prior to last year, we would conduct a turnaround every year on each of those trains.

But through our ongoing application of technology and other initiatives.

To provide redundancy we were able to then conclude that we could extend the interval for turnarounds on each train.

The year to once every two years and so the turnaround. We've just completed this year was just on one train and that train had not undertaken a turnaround for two years.

Undertaken a turnaround for two years.

So it was a very.

A very key opportunity for us to not only demonstrate that our ability to extend that duration for two years.

But once we got into the turnaround it was a great opportunity for us to validate the decision we have taken and confirm that this is.

Extended duration was viable.

And did not compromise the maintenance or reliability of our equipment. So I'm quite pleased to say that we have confirmed that it does validate and so.

<unk> forward, we continue to plan on.

Two year interval for each of our major trains.

And we will continue to explore further opportunities for optimization and so some of the the digital technology that you referenced.

We will also allow us.

We believe.

To not only extend these turnaround intervals to a two year cycle, but at the same time allow us to reduce the duration of the shutdown. Once we undertake that work. So several of these technologies.

Around us.

Inspection techniques and in an ongoing surveillance will contribute to that.

The other thing I would say about digital technology, it's not directly related to the turnaround.

But as you know we've had this ongoing project to convert our our major truck fleet at curl to autonomous haul so driverless trucks, and we have been aggressively pursuing the conversion of that fleet.

And we've now completed 55 trucks.

So we have about 20 more to go and we'll be progressing those.

But those also play a significant role in improving.

The reliability the cost structure, but also the safety of our operation.

Great Great I appreciate that and my second question here is just around Cold Lake.

Just given the relative performance that we've seen in terms of base level optimization.

I know that.

Progress at Grand Rapids is still progressing but can you maybe provide a little bit of a further update in terms of how youre thinking about the existing optimization of the base at.

<unk> excuse me and then how youre thinking about.

The pace of development or the pace of <unk>.

Eventual construction or build out of the Grand Rapids project in that region.

Yes. Thanks for that question I mean, we're quite excited about.

The performance at Cold Lake.

It does continue to outperform the guidance that we provided at the end of last year end.

And we have every reason to believe thats going to continue and it comes as a result of significant focus by the operating and technical teams around how to optimize our steam floods and water production in those assets continuing to.

Ensure we've got.

Sure.

Optimize maintenance plans that are bringing enhanced reliability to the asset continuing to do.

Kind of Workover optimization on the existing wells in the field. So all of that is contributing to this higher production that that youre seeing.

Now with respect to Grand Rapids, we are in.

We are in the construction mode right now.

So we're already drilling wells for that project I had the great opportunity to visit the site just a couple of weeks ago and spent some time on the rig and that work is well underway.

We have a targeted start up for Grand Rapids at in 2024 at this point and we're doing everything we can to optimize around that.

Once it's online we're expecting incremental production of around 19000 barrels a day.

So a significant contributor to kind of the long.

Kind of long life and productive capability of Cold Lake and then as mentioned.

In my earlier remarks, we're also progressing now our redevelopment project at our lending.

Asset at Cold Lake, which was kind of our original.

Producing asset at Cold Lake and we see opportunities.

To further redo.

Redevelop that asset and capture additional oil resource and we're going to do that with <unk> technology, which of course is lower greenhouse gas intensity.

And when that's online it will also contribute several thousand barrels a day incremental production as well so a lot of exciting things going on it.

At Cold Lake that not only will increase production, but also lower our greenhouse gas intensity.

Great I appreciate the color. Thanks.

Thank you.

Thank you and our next question comes from the line of Manav Gupta with Credit Suisse. Your line is open. Please go ahead.

Hey, guys. So.

Quick question on coal.

Management, you guys have achieved solid operational.

All predictions of liability.

Lower Opex project.

Work comp is a little bit.

Blip here.

Just wanted to understand your level of confidence in the project.

Over to <unk>.

You can push that cost down towards liquidity.

Are there some cost inflation and efficiencies, thereby we should model.

But hopefully Bob.

What can happen.

Could elaborate on EQM hardware can you push that cost back towards lower Quincy.

Yes, Thanks for that question Manav in and first I'd say, thanks for the recognition.

Of the.

Substantial improvements that we've made and you make reference to.

<unk> under my management and thank you for that but I just wanted to give a big shout out to our entire imperial curl team.

That are all working.

Quite aggressively in and doing great work to achieve.

Those sustained levels of improved performance and Youre right.

We had some challenges in the first quarter attributable primarily to some extreme cold weather and and.

As I.

Projected on our last earnings call a high level of confidence that we had that those challenges behind us and we would recover in the second quarter and in fact, that's what we did.

And I would just.

Say that that same level of confidence comes to our commitment around our cost structure.

We've been working on lowering our unit costs at <unk>.

For for a few years now and we continue to drive towards that $20 U S per barrel milestone.

That we've talked about you mentioned.

And in fact last year, we had several months, where we did achieve that this year of course, we have been impacted by lower volumes and so that has an effect.

On the denominator of that calculation.

But equally we are seeing higher energy costs.

And some other inflationary pressures and so that has.

Affected us as well, but.

Maybe setting aside the energy costs, which are outside our control.

For the other.

Other costs that drive that drive that cost structure. Our teams are working quite hard to bring additional efficiencies and offset as much of those inflationary pressures as possible.

<unk>.

And a key contributor longer term to getting that achieving that $20 is of course also achieving 280000 barrels per day and we are quite committed to that we're confident that we've got very specific work plans.

That will move us to that 280000 barrels a day and hopefully beyond longer term, but as we said in Investor day, We plan to achieve 280 280000 barrels a day by 2024.

So again.

Laser focused on getting the $2 80.

Equally focused on getting our cost structure to $20 a barrel.

Thanks Manav.

Thank you and our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.

Yes, thanks, guys.

First question is just on capital returns can you talk about the rationale behind the acceleration of the buybacks to complete the NCI by the.

October timeframe, and then assuming the commodity prices remain elevated.

Think about potential additional shareholder returns outside at the NCI B do you think the tender was a success.

Something that you would do again.

Yes. Thanks for that question then.

As we've said on multiple occasions, we are.

We are committed to returning surplus cash to our shareholders.

And first of all the SCB was was a key component to.

<unk> contribute to that.

We view it as as highly successful we're quite pleased with the results and I hope our shareholders that benefited.

Our participated in that $2 5 billion dollar return feel feel the same way.

And as as we completed that.

And in <unk>.

Stock of where we were with continued.

Building cash balances.

That drove us to not only renew the CIB at the 5% level.

Which is the maximum by the way.

But also then drove us to accelerate it.

Again as another key vehicle.

To now return cash to our shareholders. So that's driving us to completed by October .

And as Dan said once we complete that we will then be.

Assessing and determining what other vehicles.

For returning cash to shareholders are appropriate.

And obviously will be taken into account what's happening in the market.

For the second half of the year and what are our projections for cash balances, but we maintain that commitment to return cash to shareholders. So I would expect you'll see further actions as the year goes on alright.

Alright. Thank you and then follow up is on the refining side of the business would love Brad just your perspective on how Q3 shaping up utilization has been tracking very well.

In refining here as we wrapped up Q2, but.

How are you thinking about profitability at that business, especially with WCS have any having widened out.

How does that tie back into our downstream earnings.

Yeah. Thanks, Thanks for that question.

We remain quite bullish on the performance of our downstream.

We obviously had a very strong second quarter, we really had a strong first half of the year.

And we see that strength continuing.

As I mentioned.

We've now completed all of our turnaround activity in the downstream, which was light in the base case.

But that with that behind us.

We would anticipate.

Continued very high utilization rates for for the remainder of the year, we we have seen.

A strong recovery in demand.

And we still see an opportunity for further improvements there and so we'll be taken full advantage of that.

And while we saw some some record high crack.

Crack spreads in the second quarter that contributed to very strong profitability.

We do we do see a little softening of that now that we've come into the third quarter, but even with that softening. We still are projecting a very strong third quarter. At this point. So I'm really encouraged by that I think it's really important.

For the role we play in providing important products to our consumers here in Canada that we maintain that that high level of utilization and reliability.

And ensure that those products are available.

Thanks, Brad.

Okay.

Thank you Anna.

If you have a question at this time, please press star one one.

And our next question comes from the line of Patrick O'rourke with.

Eight TB capital. Your line is open. Please go ahead.

Yes.

Hey, guys. Thank you for taking my question, maybe just to build upon the last question in terms of the downstream units been pretty nimble in terms of the product slate here just wondering in real time, what sort of demand elasticity youre seeing.

By specific product, especially with a lot of interplay in the economy, that's going on here potential recessionary forces and how you're responding to that.

Yes, thanks for the question Patrick.

We have seen.

A fair amount of variability or over the last two years.

Through the pandemic and now as demand has recovered.

This pandemic.

There have been ups and downs in <unk>.

Some of those recovery trends.

We are seeing broadly.

Yeah.

Our strength in demand, but there are pockets.

Of weakness I would say.

Jet demand has recovered.

Quite strongly.

We're now over 90% of where we were pre pandemic and we see those trends continuing to strengthen.

Sure.

Even though globally there are still some concerns about.

Inflation and recessionary concerns as well as.

Some pockets of Covid lockdown and whats the recurrence of that but on balance jet continues to recover and.

And so we're obviously responding to that with our product.

Mix.

So has continued to be very strong.

95, plus percent of pre COVID-19 levels, and we haven't seen it.

Really any adverse effects there motor gasoline has tempered a bit.

As people are kind of mindful of.

Of course at the pump and that is affecting some behaviors.

And so some softening there, but still <unk>.

90, plus percent of pre COVID-19 levels. So.

The other advantage. We have is we can adjust our slate at the margin to optimize around.

Where we see the higher level of demand and we've got a well integrated.

Refining system and product supply system around the country and so that gives us advantages.

Advantages as well.

Okay and just a quick second question here with respect to last week, we saw the federal government came out with proposed potential cap and trade system I think that the consideration was about 42% reduction in carbon emissions from the.

The upstream oil and gas industry. Your current plan by 2030 is about 30%.

Im wondering how youre approaching that in terms of risking capital allocation, obviously high quality, but very long duration assets.

I'm wondering what the technical feasibility is up to 42% reduction is that something that's possible for material.

Sure.

Yeah. Thanks, Thanks for that question Patrick.

First I would say.

We share the government's objectives.

To tackle climate change in a very proactive manner in and we share the government's ambition to achieve net zero by 2050.

And as you mentioned, we have internal to imperial our own stated objectives to reduce our greenhouse gas intensity.

By 30% by 2030 similarly.

Similarly.

We're a founding member of the oil sands pathways to net zero Alliance and that alliance.

So has stated objectives to achieve net zero by 2050 and has laid out a very comprehensive.

Well thought out plan to.

Move our industry from where we are today to net zero by 2050 and it also achieves about a third reduction.

By 2030, 22 Mega tons of Cotwo reduction.

And so when when I reflect on the report issued from the federal government.

I would say.

Do take concern with it.

Because it is very aggressive and I would say.

Stretches the capability of what is technically.

And economically feasible.

We are encouraged that the government has put that out for consultation. So we will be providing our own feedback as imperial will also be providing feedback as the pathways alliance as to what we think are.

Appropriate approaches.

To achieve the overall objectives of that emissions reduction plan, what I think.

Collectively.

As industry government society, we need to be very.

Cautious about is ensuring that we bring the right balance.

Two environmental improvements with continued oil supply, which of course impacts products too.

<unk> to our customers I very much believe we can achieve both objectives.

And.

But we need to make sure we approach it with a view of how do we achieve both not one at the expense of the other and I think our pathways plan.

Yes.

It does lay out a good roadmap for that and we'll be continuing to reinforce the benefits of that approach I think it's also worth noting that.

All of these projects that will be required to continue to reduce submissions.

Not only have technical considerations.

In terms of technology Thats available.

Have have physical requirements in terms of just what's involved in executing the project, but they also all have regulatory approval requirements.

Permits that are required and that process also takes time so.

I think it's important that we get all of us around the table.

Industry Federal government provincial government and we all be working collaboratively on achieving those goals.

Thank you for that question.

Thank you very much.

And our next question comes from the line of.

Gary Pardy with RBC capital markets. Your line is open. Please go ahead.

Hey, Thanks, good morning, Thanks for the rundown.

Look a lot of inflation in the system everybody seems to be adjusting capex you guys arent.

Just wondering what maybe any color around that.

And then also how youre sort of thinking about sustaining capital next year.

Yes, thanks for the question Greg.

You are right, we are standing firm by our earlier capital guidance of $1 4 billion.

For the year and now that we're halfway through the year, we continue to feel good about that level of capex.

We are well on track to achieve all of the project objectives, we laid out that tie to that $1 $4 billion.

And while we are experiencing some inflationary pressures like like others are.

A big credit to our team their focus on capital discipline that they are able to identify efficiencies to offset them and we're also benefiting from just.

The inherent nature of some of our projects and their time lines many of the contractual commitments and the purchase of key materials.

We're already undertaken over the last year or two.

And so that also.

Shields us a bit from some of the current inflationary pressures, but but we feel quite good about.

At $1 $4 billion.

In terms of looking ahead to next year.

We're going through our annual budget and planning process right now.

So not yet ready to kind of provide updated guidance, but what we shared at Investor day last year was a projection for about one $5 billion as we look to next year in the few years after that with.

With around $1 billion of that on average being sustaining capital and another $4 $500 million of growth cap.

Capital and I think we still see it.

Pretty much in line with that but we will be updating that over the next few months.

Thanks, very much have a good weekend.

Thanks, you too.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to Dave Hughes for any further remarks.

Thanks Michelle.

On behalf of the management team I would like to thank everybody for joining us This morning and for your ongoing interest and support as always if anybody has any further questions. Please don't hesitate to reach out to anybody on the IR team here, thanks very much.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good day, and thank you for standing by welcome to the Imperial Gold oil.

<unk> second quarter 2022 earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand the conference.

Over to your speaker today, David Hughes, Vice President of Investor Relations. Please go ahead.

Thank you Michelle and good morning, everybody welcome to our second quarter earnings Conference call I'm joined this morning by Imperial Senior management team, including Brad Corson, Chairman, President and CEO , Dan Lyons Senior Vice President Finance and administration, Simon younger senior Vice President of the upstream Shavers Vice President commercial.

Corporate development, and John Whitmore, Vice President of the downstream.

Todays comments include reference to non-GAAP financial measures the definitions and reconciliations of these measures can be found in attachment six of our most recent press release and are available on our website with a 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 performance in <unk>.

Operating results can vary 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 second quarter earnings release that we issued this morning as well as our most recent Form 10-K. All of these documents are available on SEDAR Edgar and on our website. So I would ask you refer to those.

It's going to start with some opening remarks, and then hand it over to Dan is going to provide a financial update and then Brad will provide an operations update.

Once that's done we'll follow with the Q&A session. So with that I'll turn it over to Brad for his opening remarks. Thanks, Dave.

Well good morning, everybody and welcome to our second quarter earnings call. I Hope you are all doing well after a challenging start to 2022 with some significant weather impacts I'm very pleased to say that our operations returned to normal in the second quarter, which underpins the outstanding results that we reported earlier today.

The high price environment continued through the quarter and the focus we put on reliability and strong operating performance allowed us to take advantage of this environment.

I think it's also important to note that this performance comes when Canadians need it most as global challenges have resulted in supply disruptions and subsequent price escalations.

With our strong operational performance, we are doing everything we can to increase production and ensure a stable ongoing supply of the products that fuel our day to day lives.

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 second quarter results and.

And we have a lot of positive highlights to talk about to start earnings for the quarter were just over $2 4 billion.

And our cash from operating activities was almost $2 7 billion.

With the first half of the year behind US we are updating our annual production guidance for <unk> to reflect the challenging first quarter, we experienced which I will talk about in a minute.

But as mentioned our operations are back to normal after the planned turnaround work and we look forward to a strong second half of the year.

Our downstream continued to perform at a very high level with second quarter utilization of 96%, which notably is the fourth consecutive quarter of utilization above 90%.

This is particularly important in the current tight product supply environment and demonstrates we are doing all we can to bring as much product supply as possible to the market.

<unk> has been lagging in its recovery up until now.

In the quarter.

And we recently announced the renewal of our normal course issuer bid at 5% with the expectation that we will accelerate the purchases and complete the CIB by the end of October .

And finally this morning, we declared a dividend of 34 cents per share payable October one.

All of this leaves us well positioned to return more cash to shareholders. This year than we did in our record setting 2021.

Just before I pass things over to Dan to go through our financial performance for the quarter in more detail I would also like to highlight the successful marketing efforts related to our exit co assets.

Together with Exxon Mobil, Canada, we announced that we have entered into an agreement with whitecap resources for the proposed sale of these assets for a total cash consideration of $1 9 billion.

Which equates to $940 million imperial share.

We are extremely pleased with this result, and expect the sale to close before the end of the third quarter.

We have talked a lot recently about focusing our efforts on optimizing our existing core assets and feel we still have plenty of opportunity. There. This divestment is consistent with this strategy and continues to support our commitment to maximize shareholder value.

And with that I'll pass things over to Dan Thanks, Brad getting into the financial results for the second quarter, our net income of $2 billion and $409 million was up just over $2 billion from the second quarter of 2021, primarily driven by improved prices in the upstream and higher margins in the downstream.

Largely offset by higher operating expenses driven by higher energy costs.

If we look sequentially, our second quarter net income of $2 $409 million is up about $1 $2 billion from the first quarter supported by continued strong market conditions throughout the quarter.

First quarter, partially offset by higher royalties and operating expenses, reflecting increases in energy costs.

Again by the impact of higher expenses from increased energy costs. Finally, our chemicals business continued to perform well this quarter with net income of $53 million.

<unk> flat with the first quarter.

Bringing our year to date cash flows from operating activities to almost $4 $6 billion up about $2 7 billion from last year.

Free cash flow for the quarter was $2 $452 million up about 800 about $800 million higher than the first quarter.

Excluding an increase of $101 million in working capital our cash flow in the second quarter was almost $2 $8 billion up around a $1 billion $5 from the first quarter.

Including $225 million already paid in the first quarter of this year and about $50 million paid in the second quarter.

Now looking forward.

There are obviously a number of factors that will impact our final income tax payment for the 2022 tax year that will occur in the first quarter of 2023.

But under current market conditions, we would anticipate that this first quarter 2023 cash tax payment would be on the order of $2 5 billion.

Spending in the second quarter was primarily in the upstream was spend at our tailings project at kernel and volume Sustainment spending at Cold Lake. We also progressed spending on our Grand Rapids project at Cold Lake and on a renewable diesel project <unk> Kona.

Shifting to shareholder distributions.

Given our robust cash flow and our outlook for continued strong cash flow going forward, we returned over $2 $7 billion to shareholders in the second quarter with the completion of our $2 $5 billion.

<unk>.

We announced on June 27, as Brad noted, we plan to execute share repurchases under the CIB on an accelerated basis and finish the program by the end of October .

We remain committed to returning surplus cash to shareholders and will consider further actions following completion of our NCI.

Lastly, as Brad noted this morning, we announced a third quarter dividend of <unk> 34 per share consistent with our second quarter dividend 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.

This increase reflects a return to normal operating conditions at curl. After the severe weather challenges of the first quarter and as I mentioned earlier represents the highest second quarter upstream production and over 30 years.

Ongoing strength in commodity prices continues to be a key part of the story.

<unk> prices continued to increase in the quarter as did WCS prices.

The <unk> WCS differential remained fairly steady in the quarter, although we have seen some widening in the third quarter so far.

But even with the wider wider differential WCS prices remain very strong.

Syncrude synthetic product continues to command a strong premium in the current environment as well given its quality and desirability in the tight refining market.

From a capital allocation point of view, we are continuing the development of Grand Rapids Phase, one and our lending redevelopment as we talked about at our Investor day earlier this year.

All of these projects are not only key to sustaining and even growing our production at cold Lake.

But also further improved profitability and lower greenhouse gas intensity at these core assets.

So now let's move on and talk about Carl.

Subsequent to the completion of the turnaround I am pleased to say that our operations have been strong and stable with July gross production estimated at 280000 barrels per day.

And now that we're through our major planned maintenance for the year, we have reflected on what we see is the overall impact of the first quarter challenges on our full year guidance for Carl.

As such we are updating annual guidance for Carol to around 245000 barrels per day gross.

As mentioned curl performance is back to normal heading into the third quarter and we expect production levels to exceed 280000 barrels per day for the remainder of the year.

And finally, turning to operating costs, we did see a reduction in unit operating cost at Kearl in the quarter of around U S $3 50 per barrel versus the first quarter to just over U S $31 per barrel.

We are still working towards and committed to achieving sustainable unit operating costs at or below U S $20 per barrel at Kearl.

Of 2021.

These results also reflects some light planned turnaround activity at our lemming plant, which started in late May and finished in late June .

The production impact of this activity for the year is around 1000 barrels per day.

And the strong performance at Cold Lake has continued into the third quarter. So far July production is estimated at 142000 barrels per day.

The large increase from 2021 reflects the absence of a second quarter turnaround. This year the major coker turnaround at Syncrude is instead happening in the third quarter of this year.

So now let's move on to talk about the downstream.

Refinery utilization was 96% the fourth straight quarter above 90%.

And while up a little versus the first quarter of this year. It represents an increase of 18% and utilization over the second quarter of 2021, reflecting the absence of the large turnaround we had at stress Kona last year and very strong operating performance this year.

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

That also completes our planned turnaround activity in the downstream for this year and leaves us well positioned to take advantage of the market environment and the ongoing pandemic recovery.

The strong utilization we have delivered is playing a key role in providing the energy products that Canadians need and at a time when supply issues are driving overall market shortages.

Our intention is to continue to produce at these high utilization in order to do our part in addressing these current supply challenges.

I would also note.

That we continue to advance our stress Kona renewable.

Renewable diesel project.

And expect a final investment decision by the end of this year.

The increase in sales in both cases was driven by increased mobility. Following the lifting of most of the remaining provincial pandemic related restrictions.

We continued to see a positive downstream margin environment continue in the second quarter due to several factors, including low product inventories and global export constraints.

And while we are seeing signs of margins softening a bit they remain volatile and continue to track well above the five year band.

And that brings us to chemicals, the business delivered 53 million.

Million in earnings in the second quarter, which was down from $109 million in the second quarter of 2021, but essentially flat with the first quarter of this year as expected we have seen the all time high margins of 2021 and begin to ease however margins still remain quite strong and we are looking.

Looking forward to another year of solid results from our chemical business.

<unk> disclosures around our continued progress and commitments to lowering greenhouse gas emissions.

Second we announced a strategic collaboration with <unk> III lithium to develop a lithium extraction pilot in Alberta at our historic law, Duke oilfield.

And finally, we also signed an agreement with a tour of power to study the potential for hydrogen production.

At our Nanticoke refinery in Ontario, where we operate.

Our refinery.

We will be focusing on the potential to develop a regional hydrogen facility.

That would support greenhouse gas emissions reductions.

Environment and to deliver very strong financial results.

With all of our major planned downtime for our operated assets behind us for the year. We look forward to a strong second half of 2022 benefiting further from the very strong commodity price environment, we are experiencing.

The successful execution of our substantial issuer bid underscored our ongoing commitment to drive shareholder value and our continued commitment to shareholder returns.

And the sale of our <unk> assets delivers on imperial's strategy to maximize shareholder value by focusing upstream resources on our core long life low decline oil sands assets.

And take utmost advantage of the current market conditions.

We will also continue to work towards a final investment decision related to our stress Kona renewable diesel project.

And finally I'd like to thank you once again for your continued interest and support.

Michelle we're ready to go to the Q&A line. Thank you to ask a question you will need to press star one on your telephone.

Ask that you please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.

And our first question comes from the line of Dennis Fong with CIBC. Your line is open. Please go ahead.

Hi, Good morning, and thank you for taking my questions. The first one is just around the Pearl as well as the application of digital technology.

Kind of at this Investor day, you kind of heard the strategic Investor Day in 2012, you discussed items like the surveillance failure analysis and in our previous Investor Day, you talked about coral digital twin I was just curious and I know obviously very early in terms of.

Talking about further extending the time between turnarounds because you've already just frankly done that but I was curious in terms of some of your peers have extended it to an <unk>.

Other year turnaround.

Some of the work that Youre doing from the digital side or even predicting in terms of timing of failure or time between turnarounds potentially affecting decisions or even analysis around even further extending time between turnarounds at the credit facility.

Yes, Thanks for your question Dennis.

And Youre exactly right we have a.

<unk> that occur all we have to.

Two main trains of operation and prior to last year, we would conduct a turnaround every year on each of those trains.

But through our ongoing application of technology and other initiatives.

Provide redundancy we were able to then conclude that we could extend the interval for turnarounds on each train.

From a year to once every two years and so the turnaround. We've just completed this year was just on one train and that train had not undertaken a turnaround for two years.

Undertaken a turnaround for two years.

So it was a very.

A very key opportunity for us to not only demonstrate that our ability to extend that duration for two years.

But once we got into the turnaround it was a great opportunity for us to validate the decision we have taken and confirm that this is.

Extended duration was viable.

And did not compromise the maintenance or reliability of our equipment. So I'm quite pleased to say that we have confirmed that it does validate and so.

<unk> forward, we continue to plan on.

Two year interval for each of our major trains.

<unk>.

And we will continue to explore further opportunities for optimization and so some of the the digital technology that you referenced.

We will also allow us.

We believe.

To not only extend these.

These turnaround intervals to a two year cycle, but at the same time allow us to reduce the duration of the shutdown. Once we undertake that work. So several of these technologies around us.

Inspection techniques and in an ongoing surveillance will contribute to that.

The other thing I would say about digital technology. It is not directly related to the turnaround.

And we've now completed 55 trucks.

So we have about 20 more to go and we'll be progressing those.

Those also play a significant role in improving.

The reliability the cost structure, but also the safety of our operations.

Great Great appreciate that and my second question here is just around Cold Lake.

Just given the relative performance that we've seen in terms of base level optimization.

I know that.

At Grand Rapids is still progressing we can you maybe provide a little bit of a further update in terms of how youre thinking about the existing optimization of the base at.

Cold Lake excuse me and then how youre thinking about the pace of development or the pace of.

Eventual construction or build out of the Grand Rapids project in that region.

Yes. Thanks for that question I mean, we're quite excited about the.

The performance at Cold Lake.

Does continue to.

Outperform the guidance that we provided at the end of last year end and we have every reason to believe thats going to continue and it comes as a result of significant focus by the operating and technical teams around how to optimize our steam floods and <unk>.

Water production in those assets continuing to.

Ensure we've got.

Optimize maintenance plans that are bringing enhanced reliability to the asset continuing to do.

Workover optimization on the existing wells in the field. So all of that is contributing to this higher production that that youre seeing.

Now with respect to Grand Rapids, we are in.

We are in the construction mode.

Now.

So we're already drilling wells for that project.

I had the great opportunity to visit the site just a couple of weeks ago and spent some time on the rig in.

That work is well underway.

We have a targeted start up for Grand Rapids at in 2024 at this point and we're doing everything we can to optimize around that.

And once it's online.

Expected incremental production of around 19000 barrels a day.

So a significant contributor to kind of the long.

Kind of long life and productive capability of Cold Lake and then.

As mentioned.

In my earlier remarks, we're also progressing now our redevelopment project at our lending.

Asset at Cold Lake, which was kind of our original.

Producing asset at Cold Lake and we see opportunities.

To further redo.

Redevelop that asset and capture additional oil resource and we're going to do that with <unk> technology, which of course is lower greenhouse gas intensity.

And when Thats online. It will also contribute several thousand barrels a day incremental production as well so a lot of exciting things going on it.

At Cold Lake that not only will increase production, but also lower our greenhouse gas intensity.

Great I appreciate the color. Thanks.

Thank you.

Okay.

Thank you and our next question comes from the line of Manav Gupta with Credit Suisse. Your line is open. Please go ahead.

Hey, guys. So quick question on coal under your management.

We will keep the operational.

I will preclude the liability.

Lower Opex project.

Work comp as well.

Jeff.

Just wanted to understand your level of confidence in the project.

Over to <unk>.

You can push that cost down towards liquidity.

Are there some cost inflation any patient with Nick, thereby we should model.

Wendy hopefully Bob.

What can happen.

Could elaborate on EQM harder can you push that cost back to work lower twenties.

Yes, Thanks for that question Manav in and first I would say thanks for the recognition.

Of the.

Substantial improvements that we've made and you make reference to.

<unk> under my management and thank you for that but I just wanted to give a big shout out to our entire imperial curl team.

That are all working.

Quite aggressively in and doing great work to achieve.

Those sustained levels of improved performance and Youre right.

We had some challenges in the first quarter attributable primarily to some extreme cold weather and and.

As I.

Projected on our last earnings call.

High level of confidence that we had that those challenges behind us and we would recover in the second quarter and in fact, that's what we did.

And I would just.

Say that that same level of confidence comes to our commitment around our cost structure.

We've been working on lowering our unit costs at Carl.

For for a few years now and we continue to drive towards that $20 U S per barrel milestone.

We've talked about you mentioned.

And in fact last year, we had several months, where we did achieve that this year of course, we have been impacted by lower volumes and so that has an effect.

On the denominator of that calculation, but.

But equally we are seeing higher energy costs.

Some other inflationary pressures and so that has.

Affected us as well, but.

Maybe setting aside the energy costs, which are outside our control.

For the other.

Other costs that drive that drive that cost structure. Our teams are working quite hard to bring additional efficiencies and offset as much of those inflationary pressures as possible.

Hands.

That will move us to that 280000 barrels a day in and hopefully beyond longer term, but as we said in Investor day, We plan to achieve 280 to 280000 barrels a day by 2024.

So again.

Laser focused on getting the $2 80.

Equally focused on getting our cost structure to $20 a barrel.

Thanks Manav.

Thank you and our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.

Yes, thanks, guys.

First question is just on capital returns can you talk about the rationale behind the acceleration of the buybacks.

<unk> bye.

The October timeframe, and then assuming that commodity prices remain elevated how do you think about potential additional shareholder returns outside at the MTI B do you think the tender was a success and is that something that you would do again.

Yes. Thanks for that question then.

As we've said on multiple occasions.

Sure.

We are committed to returning surplus cash to our shareholders.

And first of all the SCB was was a key component too.

To contribute to that.

We view it as as highly successful we're quite pleased with the results and and I hope our shareholders that benefited.

Our participated in that $2 5 billion dollar return feel feel the same way.

And as as we completed that.

And in.

Stock of where we were with continued.

Building cash balances.

That drove us to not only renew the CIB at the 5% level.

Which is the maximum by the way.

But also then drove us to accelerate it.

Again as another key vehicle.

To now return cash to our shareholders. So that's driving us to completed by October .

And as Dan said once we complete that we will then be.

Assessing and determining what other vehicles.

For returning cash to shareholders are appropriate.

And obviously, we will be taken into account what's happening in the market.

Alright. Thank you and then follow up is on the refining side of the business with luck Brad just your perspective on how Q3 shaping up utilization has been tracking very well.

In refining here as we wrapped up Q2, but.

How are you thinking about profitability at that business, especially with WCS have any having widened out.

How does that tie back into our downstream earnings.

Yeah. Thanks, Thanks for that question.

We remain quite bullish on the performance of our downstream.

We obviously had a very strong second quarter, we really had a strong first half of the year.

And we see that strength continuing.

As I mentioned.

We've now completed all of our turnaround activity in the downstream, which was light in the base case.

But that with that behind us.

We would anticipate continued.

Continued very high utilization rates for for the remainder of the year.

We have seen.

Drawn recovery in demand.

And we still see an opportunity for further improvements there and so we'll be taken full advantage of that.

And while we saw some some record high.

Crack spreads in the second quarter that contributed to very strong profitability.

For the role we play in providing important products to our consumers here in Canada that we maintain that that high level of utilization and reliability.

And ensure that those products are available.

Thanks, Brad.

Okay.

Thank you and again if you have a question at this time, Please press star one one.

And our next question comes from the line of Patrick O'rourke with.

Abe TB capital. Your line is open. Please go ahead.

By specific product, especially with a lot of interplay in the economy.

Going on here potential recessionary forces and how you're responding to that.

Yes, thanks for the question Patrick.

We have seen.

A fair amount of variability or over the last two years.

Through the pandemic and now as demand has recovered.

<unk> pandemic.

There have been ups and downs in some of those recovery trends.

We are seeing broadly.

Yeah.

Our strength in demand, but there are pockets.

Of weakness I would say.

Jet demand has recovered.

Quite strongly.

We're now over 90% of where we were pre pandemic and we see those trends continuing to strengthen.

Sure.

Even though globally there are still some concerns about.

Inflation and recessionary concerns as well as.

Some pockets of Covid lockdown whats the recurrence of that but on balance jet continues to recover and.

And so we are obviously responding to that with our product mix.

So has continued to be very strong.

Ill.

95, plus percent of pre COVID-19 levels, and we haven't seen.

Really any adverse effects there motor gasoline has tempered a bit.

As people are kind of mindful of of course at the pump and that is affecting some behaviors.

And so some softening there but still.

<unk> 90, plus percent of pre COVID-19 levels. So.

The other advantage. We have is we can adjust our slate at the margin to optimize around.

Where we see the higher level of demand and we've got a well integrated.

Refining system and product supply system around the country and so that gives us advantages.

Advantages as well.

Okay and just a quick second question here with respect to last week, we saw the federal government come out with proposed potential cap and trade system I think that the consideration was about 42% reduction in carbon emissions from the.

The upstream oil and gas industry. Your current plan by 2030 is about 30%.

Im wondering how youre approaching that in terms of risking capital allocation, obviously high quality, but very long duration assets.

I'm wondering what the technical feasibility is up to 42% reduction is that something thats possible.

Yes. Thanks, Thanks for that question Patrick.

First I would say.

We share the government's objectives.

To tackle climate change in a very proactive manner in and we share the government's ambition to achieve net zero by 2050.

And as you mentioned, we have internal to imperial our own stated objectives to reduce our greenhouse gas intensity.

By 30% by 2030.

Similarly, we're a founding member of the oil sands pathways to net zero alliance in and that alliance.

Also has stated objectives to achieve net zero by 2050 and has laid out a very comprehensive.

Well thought out plan to.

Move our industry from where we are today to net zero by 2050 and it also achieves about a third reduction.

By 2030, 22 Mega tons of Cotwo reduction.

And so when when I reflect on the report issued from the federal government.

I would say.

I do take concern with it.

Because it is very aggressive and I would say.

Stretches the capability of what is technically.

And economically feasible.

<unk>.

Appropriate approaches.

To achieve the overall objectives of that emissions reduction plan, what I think.

Collectively as industry government society, we need to be very.

Cautious about is ensuring that we bring the right balance.

Two environmental improvements with continued oil supply, which of course impacts products too.

To our customers I very much believe we can achieve both objectives.

And.

But we need to make sure we approach it with a view of how do we achieve both not one at the expense of the other and I think our pathways plan.

Yes.

It does lay out a good roadmap for that and we'll be continuing to reinforce the benefits of that approach I think it's also worth noting that.

All of these projects that will be required to continue to reduce submissions.

Not only have technical considerations.

In terms of technology Thats available.

Have have physical requirements in terms of just what's involved in executing the project, but they also all have regulatory approval requirements.

Permits that are required and that process also takes time so.

I think it's important that we get all of us around the table.

Industry Federal government provincial government and we all be working collaboratively on achieving those goals.

Thank you for that question.

Thank you very much.

And our next question comes from the line of.

Gary Pardy with RBC capital markets. Your line is open. Please go ahead.

Hey, Thanks, Good morning, Thanks, Brad for the rundown.

Look a lot of inflation in the system everybody seems to be adjusting capex you guys arent.

Just wondering what maybe any color around that.

And then also how youre sort of thinking about sustaining capital next year.

Yes, thanks for the question Greg.

You are right, we are standing firm by our earlier capital guidance of $1 4 billion.

For the year and now that we're halfway through the year, we continue to feel good about that level of capex.

We are well on track to achieve all of the project objectives, we laid out that tie to that $1 $4 billion.

And while we are experiencing some inflationary pressures like like others are.

A big credit to our team their focus on capital discipline that they are able to identify efficiencies to offset them and we're also benefiting from just.

The inherent nature of some of our projects and their timelines.

Of the contractual commitments and and the purchase of key materials.

We're already undertaken over the last year or two.

And so that also.

Shields us a bit from some of the current inflationary pressures, but but we feel quite good about.

That one $4 billion and we are in terms of looking ahead to next year.

We're going through our annual budget and planning process right now.

So not yet ready to kind of provide updated guidance, but what we shared at Investor day last year was a projection for about $1 $5 billion as we look to next year in the few years after that with.

With around $1 billion of that on average being sustaining capital and another $4 $500 million of growth cap.

Capital and I think we still see it.

Pretty much in line with that but we will be updating that over the next few months.

Thanks, very much and good weekend.

Thanks, you too.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to Dave Hughes for any further remarks.

Thanks Michelle.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q2 2022 Imperial Oil Ltd Earnings Call

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