Q1 2023 Imperial Oil Limited Earnings Call
Income of $53 million in the first quarter up $12 million from the fourth quarter moves.
Moving on to cash flow, we ended the first quarter with over $2 $2 billion of cash on hand.
In the quarter, we had negative cash flow from operating activities of $821 million compared to positive cash flow from operating activities of around $2 8 billion in the fourth quarter. As previously indicated we were planning to and have now made an income tax catch up payment of around $2 1 billion.
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In the first quarter, when we exclude the impact of this tax payments and other working capital impacts we had positive cash flow of $1.554 billion.
As I previously mentioned, we expect to be tax thing in 2023. Therefore in addition to the catch up tax payment. We made in the first quarter, we expect to make regular tax installment payments throughout the year and depending on our earnings our installments could be on the order of around $500 million per quarter.
Now discussing capex capital expenditures totaled $429 million in the first quarter up $133 million from the first quarter of 2022 and in line with our full year guidance of $1 7 billion.
In the upstream first quarter spending focused on smaller projects to sustain and grow production at curl Cold Lake and Syncrude as well as progressing our tailings project at Kearl and our SA Saggy Grand Rapids project at Cold Lake Grand Rapids remains on track to be completed on an accelerated.
Rated basis by the end of this year about one year ahead of schedule.
In the downstream fourth quarter spending focused on progressing our renewable diesel project that stress Kona, which is plant startup in 2025.
Shifting to shareholder distributions in the first quarter of 2023, we paid $266 million of dividends. We continue to demonstrate our long standing commitment to return cash to shareholders, a reliable and growing dividend is fundamental to our cash distribution strategy and as Brad noted.
We announced a <unk> <unk> increase in our quarterly dividend. This morning, increasing it to <unk> 50 per share payable in July .
Now I'll turn it back to Brad to discuss our operational performance.
Alright, Thanks, Dan So now let's talk about our operating results for the quarter.
Upstream production for the quarter averaged 413000 oil equivalent barrels per day, which is down 28000 barrels per day versus the fourth quarter of 2022, but up 33000 barrels per day versus the first quarter of 2022.
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Now if you adjust for the sale of <unk>.
In the absence of X steel volumes versus the first quarter of 2022 were actually up 48000 barrels per day.
The drop versus the fourth quarter of 2022 is really just a seasonal factor with the first quarter typically being a lower production quarter due to the winter weather conditions. However of note is the significant increase in production versus the first quarter of 2022.
When we experienced issues from extreme cold weather. This increase was in large part driven by improved performance at Kearl as we successfully implemented revised winter operating procedures.
In the quarter, we saw crude prices come down versus the fourth quarter of 2022, and although we also saw a slight narrowing of the WTO WCS differential overall bitumen realizations were down quarter over quarter.
I would also note that we continued to see an above mid cycle refining margin environment, which helped to offset the wider crude differentials in the upstream and I think that clearly highlights the value of our integrated model.
So now let's move on and talk about curl more specifically.
<unk> production in the first quarter averaged 259000 barrels per day, gross which was down 25000 barrels per day versus the fourth quarter of 2022, but up 73000 barrels per day.
From the first quarter of 2022.
This represents the highest first quarter production in the assets history. Another record for US our previous best first quarter was 251000 barrels per day in 2021.
This best ever performance was in large part a result of many of the steps we took it curl after the severe weather issues. We saw in the first quarter of last year, we learned from that event and developed and implemented enhanced winter operating procedures, which have certainly paid off this.
This record first quarter. It comes on the heels of our best ever second half of the year in 2022, which demonstrates the sustainability of strong performance at Kearl and reaffirms our confidence in achieving 280000 barrels per day in 2024.
I would also point out that we have our annual planned turnaround at Kearl in the second quarter. It is scheduled to start in mid May and run through mid June and have an expected annualized impact of around 11000 barrels per day gross.
Finally, turning to cash operating costs.
We saw a decrease of almost U S $2 per barrel versus the fourth quarter to just under U S $25 per barrel.
This is almost U S $10 per barrel lower than the first quarter of 2022 reflective of the improved reliability year over year as well as our continued discipline to improve our cost structure.
Given a number of structural cost reduction initiatives, we are working on.
We continue to target sustainable unit cash operating costs at or below U S $20 per barrel at Pearl.
A key part of our operating cost focus is our effort to convert our haul trucks to driverless technology at curl, where now the first fully autonomous oil sands mining operator, meaning we are fully converted our active mine area to autonomous 65 out of our 70.
Seven Caterpillar 797 haul trucks have been converted to autonomous and the remaining 12 are expected to be complete by the end of the second quarter.
Not only does this result in improvements in safety, but we also expect to see unit cash cost benefits of at least $1 per barrel with this technology and we see potential for productivity upside around 10% to 15% relative to staffed trucks.
And also at Kearl, we successfully started up the third boiler flue gas units and plan on starting up the remaining three units. This year as part of our efforts to reduce scope one emissions at Kearl. Once all six are up and running they will have the potential to reduce greenhouse gas emissions by up to 200.
20000 tons per year by recovering waste heat from the boilers exhaust.
Cold Lake continues to perform very well also.
First quarter production of 141000 barrels per day marks the sixth consecutive quarter at or above 140000 barrels per day.
141000 barrels per day was essentially flat versus both the prior quarter as well as the first quarter of 2022, and it's consistent with the guidance. We provided for the year of 135 to 140000 barrels per day to annual guidance reflects a planned turnaround at <unk>.
Lakes, Nab VA plant, which is scheduled to take place in the third quarter and have an annualized volume impact of around 2000 barrels per day.
And finally Grand Rapids Phase one continues to progress well against the accelerated timeline, we talked about last quarter.
Construction is now 65% complete and we have finished drilling a total of 21, well pairs and are working through completions of those wells now with startup of steam injection expected later this year.
Imperial share of Syncrude production for the quarter averaged 76000 barrels per day, which was roughly in line with the first quarter of 2022, but 11000 barrels per day lower than the fourth quarter of last year due to some unplanned maintenance as well as in earlier.
Our start to the planned coker turnaround, which started in late March the turnaround is expected to run through the end of May and have an annualized volume impact of 8000 barrels per day.
The interconnect pipeline continued to add value to the operation, enabling 2000 barrels per day of export sales in the quarter and an additional 4000 barrels per day of SSP production from imported bitumen, helping offset the volume impact of unplanned maintenance. This will also provide.
I'd benefits during the current plant turnaround as well.
Now, let's move on and talk about the downstream.
In the first quarter, we refined an average of 417000 barrels per day, which was down 16000 barrels per.
Per day versus the fourth quarter.
But up 18000 barrels per day versus the first quarter of 2022, reflecting a utilization of 96%.
This strong start to the year positions us well to meet our full year guidance of 92% to 94% utilization.
The full year guidance accounts for a more typical level of planned turnaround activity this year, including a large planned turnarounds at stress Kona, which.
Which started on April three and is expected to run through late May. This is expected to have an annualized impact of 6000 barrels per day.
It's also worth noting that given our high levels of utilization in 2022, especially the second half of the year. We have adjusted the stated capacity of our refining network up by 5000 barrels per day or a little over 1%.
This increase reflects the ongoing efforts at all of our refineries to continue to maximize the capabilities of these assets.
Petroleum product sales in the quarter were 455000 barrels per day, which is down 32000 barrels per day versus the fourth quarter of 2022 and up 8000 barrels per day versus the first quarter of 2022.
The decrease versus the fourth quarter is reflective of typical demand fluctuations and demand for all products remained stable with motor gasoline and diesel at around 90% to 95% of 2019 levels jet fuel demand continues to show a steady recovery and imperial's.
Jet sales have exceeded industry average demand recovery and our above 2019 levels.
While we have seen some softening of downstream margins versus the latter part of 2020 to first quarter margins remain strong with diesel margins at seasonal norms and gasoline margins above seasonal norms, providing a very favorable market for our downstream business.
A final note on the downstream in the quarter, we successfully added diesel by rail capability at our darkness terminal, which will allow us to back out diesel birch purchases and instead supply diesel from our own refineries. This is a good example of optimize logistics that will support increased refinery.
Realizations and improve margin capture for our downstream business.
And that brings us to chemicals.
Earnings in the first quarter were $53 million, which is up $12 million versus the fourth quarter of 2022 and down slightly from the $56 million in the first quarter of 2022. This advantaged business continues to deliver strong results despite being in a lower point in the.
This cycle highlighting the value of having this business fully integrated with our Sarnia refinery.
Before I wrap up I'll highlight one other item of note.
With respect to the pathways Alliance, we along with the other member companies continue to prioritize our progress on this critical project.
The projects proposed carbon capture and storage network has now moved to the design stage, which includes the the awarding of an engineering contract to develop detailed plans for the carbon trunk line to connect more than 20 oil sands facilities to the proposed storage hub.
The work being done in this stage will support a regulatory application expected to be filed later this year.
In addition, two test wells have been drilled to support further evaluation of the geological characteristics of the storage formation and the results have been positive. This progress is very encouraging and marks a major milestone in our efforts to progress our plans to help Canada meet its climate goals and ensure our country.
Remains a preferred global supplier of responsibly produced oil.
We've also begun engagement with indigenous communities and are committed to working together to bring economic reconciliation for long term generational prosperity to these communities.
It is certainly what they are looking for and what we're looking for as well for them.
I'll wrap up by highlighting another very strong quarter, our assets continued to perform well and at high levels of reliability supporting a very strong start to year.
As we turn to the second quarter, we have a higher level of planned turnaround activity than we did in the second quarter of 2022 and.
And we will be focused on executing this work safely and on time and on budget.
Through 2023, we will remain focused on our strategy of maximizing shareholder value by getting the most out of our existing asset base through optimization, and debottlenecking opportunities and delivering superior shareholder value.
We will continue to focus on sustainability and make progress towards our carbon reduction goals and a thoughtful and pragmatic way.
As we've talked about at our Investor day, we are approaching the energy transition and our role in it in a very thoughtful way that ensures we preserve the value of our existing business. While at the same time responding to the changing needs of our customers communities and society.
And we will continue to bring a disciplined focus to our capital investments as we execute key projects such as our stress Kona renewable diesel project and our Grand Rapids Phase one.
And as always we will look to efficiently return excess cash to our shareholders.
When I think about the quality of our assets our focus on maximizing the benefits of our integrated nature and the competitive advantage, we feel the springs as well as our plans to deliver on select high return growth opportunities.
Have a tremendous amount of confidence in our ability to continue to drive superior shareholder value.
As always I'd like to thank you once again for your continued interest.
In support.
And now we'll move to the Q&A session. So I'll pass it back to Dave. Thank you.
Okay. Thanks, Brad.
Go to the Q&A now I'd just remind everybody. Please if you can limit yourself to one question plus a follow up that ensures we can get in everybody's questions with that.
Operator, I'll turn it back to you to open up the Q&A line.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question.
Our first question comes from Dennis Fong with CIBC World markets.
Your line is hi, good morning.
Hi, good morning, and thanks for taking my question.
My first one here maybe just following along some of your last comments there Brad on.
<unk> mission focused as well as the pathways initiative.
When you think about spending on some of these projects that could capture carbon from your existing operations and given its proximity to obviously the potential cold Lake region injection facility. How do you think about we'll call it either triggers or.
Key point.
Which would allow you to feel more comfortable about starting to deploy incremental capital towards imperial specific capture projects and then how do you think about the cadence of that obviously understanding thats more of a kind of a 2027 time frame.
For those initiatives.
Yes, thanks for the question Dennis.
And Youre exactly right. There are some above if you will financial advantages to the proximity of our cold Lake operation and the planned sequestration hub also in the Cold Lake area and for that reason.
We anticipate that our cold Lake.
Cc U S project, our very first capture project.
We'll be in that Cold Lake area.
And we think it.
Could be one of the very first projects for the whole pathways alliance again because of that.
Advantaged proximity to.
To the hub, which is a result does not require the completion of the trunk line.
So we're quite encouraged to advance that project.
We're already.
Progressing some preliminary design work to prepare for that longer term, though as we think about the.
The massive investments that will be required for.
The complete pathways project building the major trunk line ultimately connecting 20 different.
Sites.
There still continues to be a lot of work to do.
Fully defined.
All of the regulatory requirements for fiscal <unk>.
Port that's needed we're making good progress on that.
But we still have a ways to go both with the federal government the provincial government.
But we're still optimistic that that trunk line can be built and operational prior to 2030 as well as many projects connected to it.
And that obviously is a key enabler to helping the country meet its climate goals carbon.
Intensity bills and so.
We're going to continue that in Denver and continue those engagements and continue to progress the project and as I mentioned, even with the trunk line.
Despite some of those uncertainties, we're already spending money on engineering.
Field studies engagements with indigenous communities because.
We're committed to seeing this project move forward and see it be a success.
Great Great really appreciate that color there Brad.
My next question.
Maybe a little bit more directed towards Simon.
It's really around Grand Rapids.
There's a lot of experience, particularly in the region as well.
The geology in the region as well can you highlight.
Either some of the learnings of the work that I think.
That helps me increased confidence in both the timing of the ramp up for Grand Rapids, as well as the ability to achieve the productive capacity of at least 15000 barrels a day.
Yes, Thanks for that question, Dennis and I will let Simon answered, but first I'll just say.
We're super proud of the results, we're delivering at Cold Lake.
And the projects that we're progressing like Grand Rapids, like the lending redevelopment.
We just talked about carbon capture all of those projects continue to position.
Our coal business as one of the most competitive assets.
And our portfolio.
But also positions those assets for a lower carbon future.
But with those kind of broader comments, let me ask Simon to talk maybe more specifically about our confidence in delivering Grand Rapids.
No worries. Thanks, Thanks, Brett maybe just quickly repeat sort of the strategic context for that investment in Cold Lake as you have heard me say and described quite a bit a plan for <unk> like us to really build and then maintain plateau production in the 140 to 150 <unk> range at Cold Lake at <unk>.
The same time.
Maximizing value and cash flow of the asset and also lowering the greenhouse gas intensity of the asset and the cult the Grand Rapids Phase one project as I outlined at the Investor day, He's a really really key part of that overall puzzle and we also talked about the fact that we've we've captured some opportunity.
From a project execution standpoint to accelerate that and bring that forward about sort of six months versus the going in view on that.
As to your specific question around our confidence.
I would answer that in two parts I think from a subsurface standpoint, we are very very hot confidence. We understand this is a new part of the reservoir new reservoir horizon that we'll be developing well.
Well, we've drilled many many hundreds if not thousands of wells through that through that Grand Rapids reservoir.
Clearwater, where we're producing from today.
So we understand I think the subsurface very very well.
But it is new technology. This will be our first Sag D operation and we've also talked about obviously, it's going to be solvent assisted Sag D and it's going to be the first Sag D operation in industry. So we're putting a lot of effort into preparing for that operationally and understanding.
What we need to do to bring on our first alpha <unk> operation in Imperial.
We've put Stockholm that have Sag D operating experience, both technical and operating stuff, we've gathered the best expertise in industry.
To help us plan for and execute the completions on those wells that they're very different then.
Then what.
We are accustomed to and what we've developed over the past many decades.
And we've got the startup procedures are quite different the way we bring those the way we bring that continuous process online is very different than the way, we bring on Ccs and laser and the other technologies, we've deployed so high confidence, but high recognition as well, but its new technology for us will be our first <unk> operation.
And I think we've employed the right expertise and got the got the Rod operations readiness and startup plan to bring that online safely.
And see early operational success.
I hope that I hope that addresses the question.
No it doesn't.
Does really appreciate the color both of you and I'll turn it back now.
Makes sense.
Once again, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Our next question comes from Menno <unk> with TD Securities. Please go ahead.
Good morning, and thanks for taking my questions I'll start with a question on your diesel by rail.
Ability at Dartmouth's I'm, assuming it's fairly immaterial since I don't know I was just going through the transcript and I don't see any.
Specific commentary from your Investor day, but maybe you could just elaborate on volumes and whether there is more work to be done there.
Yes, I might ask John to comment on it it is a key logistics project that.
But we feel quite excited about maybe John share a few more details about it sure happy to yes. This is a new capability that we've installed at the Dartmouth terminal, you'll recall that as a form of refining site that we had and we've been working over the last several years to try to fill out its capability is a terminal and it's it's always a bit challenging trying to turn on older findings.
With terminal requires a fair bit of persistence to convert the tankage over in the lines that run to and from the Marine dock. So we've been working our way through that for the last several years when stuff. We did before diesel was that we installed ethanol blending capability at the site is really important for our gasoline business in the area and for overall biofuel capability.
The diesel piece I won't comment exactly on the capacity that we have there it's pretty nominal we're getting into the early stages of how big can it be.
Moving railcars from Ontario into Nova Scotia is little bit challenging theres not a lot of rail routes. There really requires good solid rail partner and we're blessed to have a good partner there will continue to try to build out our capability over time and there is a lot to do with the seasonality of diesel including furnace fuel, which is a really big product that sells in the <unk>.
Enter time in Halifax.
Nova Scotia area. So we will continue to build it out but we're really pleased to have taken this first step.
And maybe I could just supplement Johns comments just by highlighting.
From from a geographic standpoint.
During the winter months.
The Seaway is closed we don't have direct access to that region.
Historically.
During other parts of the year, it's all marine access for us, but having this rail logistics allows us to serve that market directly.
During the winter months when the Seaway is close so again provide some really advantaged logistics for us.
Terrific. Thanks for that and maybe I've just got a quick follow up question on Dennis is like Cold Lake Ccs.
The first piece how much overlap in coordination is there on that project with pathways alliance or should it be viewed as more of a stand alone Imperial initiative and then.
With the understanding that you are probably not in a position to talk about cost to date is there a cost share there.
And.
And I suppose the final piece of that would be.
When do you think youre going to be in a position to provide more information on the bookends on cost on that specific project.
Yes, thanks for that.
I mean youre exactly right.
As a project that we.
Can advance independently of pathways.
But.
All of the carbon capture projects as well as the trunk lines are still being coordinated.
Through through pathways.
But we don't need the trunk line.
We sit right on that.
The poor space Thats designated.
For for the hub.
And so.
Consequently.
We can advance it added earlier schedule than that.
Many of the pathways project, but it's still integral to the whole objective of getting the industry to net zero by 2050 and the the interim goals, we've set out for 2030 and 2040.
It's also important to note that as we look at Decarbonising Cold Lake.
It's a multifaceted approach, where we're continuing to implement new solvent technologies like we just discussed with Grand Rapids assay Sag D significantly lower greenhouse gas intensity.
And so.
Again.
It's all of those initiatives together that allow us to continue to reduce our greenhouse gas intensity.
Sure.
In terms of the cost we're not we're not ready to share those details yet.
But it's worth noting that as we look at the economics of the project.
We would expect it to compete with other projects in our portfolio.
And that's key to our.
All of our.
Capital investment philosophy, the discipline, we're bringing.
So.
I'll, maybe just leave it there.
And just to clarify you typically talk about sort of a 15 plus percent return.
To compete.
Yes double digit.
Returns, that's certainly what we're looking for and expected.
Terrific. Thanks, Brian .
Yeah.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.
Good morning, Mike.
My first question is just around the return of capital.
Remind us again, when you get to that inflection point on the NPI and you can re up that and then also talk about ESI B and I think we've telegraphed well at the analyst day that.
There was a heavy turnaround so maybe it was likely back half and then but to the extent that it is the case.
I expect it to just be a larger accumulative.
The dollar amount thank you.
Yes, Thanks for that question Neal, both Dan and I Love talking about returning cash to our shareholders and Dan is kind of chomping at the bit.
To share his perspectives on that because it is core to our company and our strategy.
And what we've kind of revealed today with the dividend increase is just one component of that as we look to the future.
Yeah. Thanks, Brian Thanks, Neil for the question, Yeah look we have renewed for quite a number of years now our CIB at the Max 5% level that we can very late June so effectively.
Paul July one and that's clearly our plan going forward.
And our base philosophy is completely unchanged. We are committed as we always have been to return surplus cash to shareholders and we'll continue to do that so we're very optimistic about.
How this year is starting to unfold and the commodity price environment and our operational performance.
And to the extent that all comes to pass will be returning significant cash to shareholders.
Over the back part of the year, but obviously, we have to see what the market gives us, but we are absolutely fulfil esophagus committed to returning that surplus cash as we have been for some time.
We demonstrated last year was a great example.
Yes, <unk> been very consistent on that.
Follow up is on the quarter. It was obviously an earnings beat versus.
Consensus, but it was more in line from a cash flow perspective, it looks like there was other delta on the cash flow statement.
Like the cats and dogs, but maybe Dan you can walk through what some of those items.
Yes, I think thats, probably not a bad description a bunch of cats and dogs I think the line is label. They think all other items net if I'm not mistaken. So yes. There is a number of things in there and obviously that stuff that's not working capital.
And in Orange and other lines on the cash flow.
And they tend to be long term sort of.
Payable receivable type stuff or liabilities.
There is a number of things in there Neil.
So I mean, it's a longer term tax payments pension adjustments and things of this sort of kind of that line kind of bounces around I wouldn't read too much into it it was a little higher than usual this past quarter, which youre right. It did it.
It impact ultimately.
Cash flow number after working capital that we talked about.
Okay, that's really clear thanks Curt.
Yeah.
This does conclude today's question and answer session.
At this time I would like to turn the conference back to Dave Hughes for any additional or closing remarks.
Okay. Thanks.
To thank everybody for joining us this morning.
So that brings our first quarter earnings call to an end.
If anybody has any further questions as always please feel free to contact anybody here on the IR team. Thank you.
This concludes today's call. Thank you for your participation and you may now disconnect.
Yeah.