Imperial Oil
Annual Report 2013

Plain-text annual report

Imperial Oil Limited 2013 Letter to Shareholders Delivering superior, long-term value Chairman’s message 2013 LETTER TO SHAREHOLDERS To our shareholders Imperial delivered another year of strong performance, continuing to add shareholder value during a period of significant change and growth. to apply global best practices across our operations. In Chemical, despite a drop in total volumes, we achieved record margins and near-record earnings led by our strong polyethylene business. We also achieved higher sales of premium fuel products through our high quality, nationwide distribution network. In our Upstream business, we hold a large high-quality, long-life asset base that will deliver value for decades to come. Of our proved reserves of 3.6 billion oil equivalent barrels, 96 percent are in our core assets of Cold Lake, Syncrude and Kearl. Cold Lake and Syncrude have long been the drivers behind the company’s Upstream performance and 2013 was no exception. Cold Lake continued to deliver pace-setting performance relative to in situ oil sands projects industry-wide. In 2013, the company’s most notable highlight was, without question, achieving first production from the $12.9 billion Kearl initial development, the largest capital investment in our history. During the fourth quarter of 2013, gross production rates of 100,000 barrels per day (71,000 Imperial’s share) were reached and activities to stabilize performance at these higher levels are progressing. Using next-generation technologies to improve both operational and environmental performance, Kearl is the Highest among our priorities is personnel safety. Despite working more than 44 million hours, our second-highest total on record, we achieved safety performance on par with 2012’s best-ever. I would like to compliment our employees and contractors for their unwavering commitment to achieve a workplace where Nobody Gets Hurt. Operationally in 2013, we took several steps to strengthen our Downstream businesses. We made the decision to discontinue operations at the 95-year- old Dartmouth refinery in Nova Scotia. Our results demonstrate the competitive advantages of our business model in a challenging environment. Disadvantaged with a feedstock of higher- priced imported crudes, the refinery could no longer profitably compete in the mature North American refined products market. We will, however, continue to serve East Coast markets by converting the refinery to a fuels terminal. Our three remaining refineries in Alberta and Ontario are now operating with 100 percent price- advantaged crude feedstocks, further strengthening our competitiveness and resiliency. During the year we improved capacity utilization and took steps to further strengthen our networking with ExxonMobil first oil sands mine to produce bitumen that can be refined without the need for an on-site upgrader. This not only avoids billions of dollars of investment, but also significantly reduces operational complexity and corresponding greenhouse gas emissions. With our cost and schedule-effective “design one, build multiple” project execution approach, synergies and lessons learned from the Kearl initial development are being proactively applied to all aspects of the $8.9 billion Kearl expansion project, which 2013 can be characterized as a year of higher global oil prices coupled with significant industry challenges in Canada. These challenges included market access limitations for western Canadian crudes and volatility in refining margins and downstream markets. Throughout these business conditions, Imperial continued to focus on managing risks and adding long-term shareholder value. In our base operations we maintained an intense focus on the fundamentals – safety, operational integrity, reliability and profitability. In our growth areas, we made new strategic investments and ensured quality execution of our large, upstream projects. In short, 2013 was a strong year for Imperial during a period of significant change and growth. Against this backdrop, we delivered earnings of $2.8 billion, or $3.32 per share. Return on capital employed remained industry leading at 12.9 percent, and annual shareholders’ return was 11.3 percent. Our results demonstrate the strength of our business model (see next page), which includes full value chain integration from upstream to refining to fuels marketing and chemicals. To position us for future growth, we invested $8 billion in capital and exploration expenditures, more than 95 percent directed to upstream opportunities. Chairman’s message 2013 LETTER TO SHAREHOLDERS Our new logo builds on our heritage with a dynamic representation of the former three-star design, symbolizing high standards as well as the forward motion and bright future ahead of us. The corporate name Imperial now stands on its own, reflecting the company’s diverse opportunities for future growth. Our widely recognized retail brands will continue to be marketed under the Esso and Mobil 1 logos, providing premium fuel and lubricant products to our customers nationwide. is on track for startup in 2015. Kearl, with its high-quality resource base and next-generation technologies, will contribute to the company’s performance for decades to come. Taken as a whole, our current Upstream activities support plans to significantly increase production this decade. Looking beyond, with contingent resources of more than 13 billion oil equivalent barrels, we have the opportunity for further growth. In 2013, we advanced our in situ growth strategy with regulatory applications at our Aspen leasehold and the addition of high-quality resources associated with the Clyden acquisition. We are also working on opportunities to commercialize unconventional gas resources, including a potential liquefied natural gas export project, supported by resources from our $1.6 billion Celtic acquisition in early 2013. With more than a century of experience responsibly developing Canada’s energy resources, Imperial’s stakeholders have come to rely on us to perform at the highest levels and consistently do the right thing. In this report, I am pleased to introduce Imperial’s new corporate identity. Our dynamic logo captures both our incredible Canadian history and our exciting future potential. One of Imperial’s greatest competitive advantages has always been the expertise, dedication and commitment to excellence of our employees. I would like to thank them for making 2013 a successful year and positioning us for the future. Lastly, I would like to thank you, our shareholders, for placing your trust and resources in our care. On behalf of the Board of Directors and all Imperial employees, you have our commitment that we will continue to strive to deliver superior, long-term shareholder value. Rich Kruger Chairman, President and CEO Imperial’s business model  Long-life, advantaged assets  Value chain integration and synergies  Disciplined investment, cost management  High-impact technologies and innovation  Operational excellence, responsible growth Operating highlights 2013 LETTER TO SHAREHOLDERS Delivering superior value – 2013 highlights Operational Excellence Continued to progress towards our vision of a workplace where Nobody Gets Hurt. Working more than 44 million hours, our second-highest total on record, we achieved workforce safety performance on par with 2012’s best-ever. Also achieved a 30 percent reduction in oil and chemical spills since 2009. Upstream Base Business Cold Lake, one of Canada’s largest in situ oil sands operations, produced 153,000 barrels per day of bitumen in 2013 and continued to deliver industry-leading performance. Imperial’s 25 percent interest in Syncrude, one of the world’s largest oil sands mining operations, delivered 67,000 barrels per day of synthetic crude. Kearl Started production from the Kearl oil sands mining initial development, which incorporates next-generation technologies to significantly enhance operational and environmental performance. During the fourth quarter of 2013, gross production rates of 100,000 barrels per day (71,000 Imperial’s share) were reached and activities to stabilize performance at these higher levels are progressing. Diluted bitumen is being successfully processed at Imperial and ExxonMobil refineries and sales to unrelated third parties commenced in the fourth quarter as planned. Kearl’s expansion project, which will add 110,000 barrels a day (78,000 Imperial’s share), is on schedule for start-up in 2015. Nabiye The Cold Lake expansion project was 65 percent complete at year-end. The in situ oil sands development is a look- alike to the Mahkeses facility and will add 40,000 barrels per day of production in 2015. In Situ Growth Filed the regulatory application for the Aspen project, which will use steam- assisted gravity drainage (SAGD) technology, and continued to work on applications for Corner and Cold Lake Grand Rapids projects. Also acquired a 27.5 percent interest in the Clyden in situ oil sands lease for $206 million. Edmonton Rail Terminal Started construction on a joint venture rail terminal that will play an important role in improving access to attractive markets for oil sands production. The facility will be capable of loading one to three unit trains per day, totalling 100,000 barrels per day initial capacity in 2015 with the potential to expand to 250,000 barrels per day. Operating highlights 2013 LETTER TO SHAREHOLDERS Calgary Campus Construction continued on our cost- effective, state-of-the-art, campus-style office complex in southeast Calgary. First relocations begin in 2014, with full occupancy in 2016. In 2013, Imperial hired more than 700 new employees, for a total workforce of more than 5,300 employees. Downstream Integration Access to price-advantaged feedstocks supported strong Downstream and Chemical earnings, highlighting the value of the company’s integrated business model. In addition, operational integrity, reliability and cost discipline are fundamental priorities to maximize value. Operational Excellence Continued to progress towards our vision of a workplace where Nobody Gets Hurt. Working more than 44 million hours, our second-highest total on record, we achieved workforce safety performance on par with 2012’s best-ever. Also achieved a 30 percent reduction in oil and chemical spills since 2009. Dartmouth Discontinued Dartmouth refinery operations and will continue to serve Canadian East Coast markets by converting the refinery into a fuels terminal. The action will improve the long-term competitiveness and resiliency of the Downstream business. Fuels Marketing Achieved record gasoline sales in 2013, consistent with our strategy to grow sales in profitable Canadian markets. Celtic Following the close of the acquisition of Celtic Exploration Ltd. by ExxonMobil Canada, Imperial acquired a 50 percent interest in Celtic’s assets and liabilities for $1.6 billion, adding liquids-rich natural gas resources to our unconventional portfolio. Community Invested $16 million in 2013 to support Canadian communities where we operate, including $6 million through the Imperial Oil Foundation. Employees, annuitants and contractors also raised more than $4.5 million for the United Way. Imperial and ExxonMobil provided $550,000 to support Alberta flood relief through the Canadian Red Cross and other community organizations. Liquefied Natural Gas The National Energy Board approved an application to export up to 30 million tonnes per year of LNG from Canada’s west coast as submitted by WCC LNG, which is jointly owned by Imperial Oil Resources and ExxonMobil Canada. An ultimate investment decision will be based on a number of factors, including satisfactory government and regulatory approvals, fiscal and economic competitiveness, future market conditions and LNG sales agreements. Financial highlights 2013 LETTER TO SHAREHOLDERS 2013 financial and operating highlights • Net earnings of $2.8 billion, • Capital and exploration expenditures or $3.32 per share. • Production increased to 295,000  gross oil-equivalent barrels per day with the startup of the Kearl initial development. • Refinery throughput of 426,000 barrels per day, with predominantly price- advantaged feedstocks. of $8 billion focused on major Upstream growth projects, including Kearl expansion and Cold Lake’s Nabiye. • Industry-leading return on capital employed of 12.9 percent, with significant investments in assets under construction. • Annual per share dividends paid of $0.48, increased for the 19th consecutive year. Financial highlights (millions of Canadian dollars) Operating revenues Net income Cash flow from operating activities and asset sales (a) Cash and cash equivalents at year-end Total debt at year-end Average capital employed (a) Capital and exploration expenditures Key financial ratios Net income per share – diluted (dollars) Return on average capital employed (percent) (a) Return on average shareholders’ equity (percent) Annual shareholders’ return (percent) (b) Debt to capital (percent) (c) Dividends declared per share (dollars) Operating highlights Gross crude oil and NGL production (thousands of barrels per day) Gross natural gas production (millions of cubic feet per day) Gross total production (thousands of oil-equivalent barrels per day) Net proved reserves (millions of oil-equivalent barrels) Refinery throughput (thousands of barrels per day) Petroleum product sales (thousands of barrels per day) Chemical sales volumes (thousands of tonnes) 2013 2012 2011 2010 2009 32 722 2 828 3 452 272 6 287 21 941 8 020 31 053 3 766 4 906 482 1 647 16 302 5 683 30 474 3 371 4 803 1 202 1 207 13 261 4 066 24 946 2 210 3 351 267 756 10 791 4 045 21 292 1 579 1 658 513 140 9 432 2 438 2013 2012 2011 2010 2009 3.32 12.9 15.8 11.3 24 0.49 4.42 23.1 25.4 (4.8) 9 0.48 3.95 25.4 27.5 12.9 9 0.44 2.59 20.5 21.4 0.9 7 0.43 2013 2012 2011 2010 261 201 295 3 622 426 454 940 250 192 282 3 574 435 445 1 044 255 254 297 3 191 430 447 1 016 247 280 294 2 549 444 442 989 1.84 16.8 17.1 0.2 2 0.40 2009 244 295 293 2 513 413 409 1 026 (a) Definitions can be found under “frequently used terms” of the Financial section of the Management Proxy Circular. (b) Includes share appreciation and dividends. (c) Definition can be found under Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Management Proxy Circular. Board of directors and corporate governance Imperial Oil Limited Board of Directors from left to right: Darren W. Woods, Victor L. Young, Sheelagh D. Whittaker, David S. Sutherland, Jack M. Mintz, Richard M. Kruger and Krystyna T. Hoeg. Board of directors Krystyna T. Hoeg Corporate director Toronto, Ontario Chair – Executive resources committee Vice-chair – Contributions committee Richard M. Kruger Chairman, president and chief executive officer Imperial Oil Limited Calgary, Alberta Jack M. Mintz Palmer Chair in Public Policy University of Calgary Calgary, Alberta Chair – Environment, health and safety committee Vice-chair – Nominations and corporate governance committee David S. Sutherland Corporate director Waterloo, Ontario Chair – Contributions committee Vice-chair – Environment, health and safety committee Sheelagh D. Whittaker Corporate director London, England Chair – Nominations and corporate governance committee Vice-chair – Audit committee Darren W. Woods Vice-president of Exxon Mobil Corporation and president of ExxonMobil Refining and Supply Company Fairfax, Virginia Victor L. Young Corporate director St. John’s, Newfoundland and Labrador Chair – Audit committee Vice-chair – Executive resources committee Directors and officers 2013 LETTER TO SHAREHOLDERS Other officers Paul J. Masschelin Senior vice-president, finance and administration, and controller T. Glenn Scott Senior vice-president, Upstream division W.J. (Bill) Hartnett, Q.C. Vice-president and general counsel Bradley G. Merkel Vice-president, fuels, lubricants and specialties marketing David G. Bailey Treasurer John W. Blowers Refining manufacturing manager Marvin E. Lamb Director, corporate tax Lara H. Pella Assistant general counsel and corporate secretary Imperial online Visit our website at imperialoil.ca to learn more information about Imperial’s operations, including videos about our projects and a report on our corporate citizenship efforts. @ImperialOil /ImperialOil Imperial-Oil For complete consolidated financial statements, including notes, please refer to the Management Proxy Circular for Imperial’s 2014 annual meeting of shareholders. The Management Proxy Circular also includes Management’s Discussion and Analysis of Financial Condition and Results of Operations. The circular is located on the investors section of our website. Head office Imperial Oil Limited P.O. Box 2480, Station ‘M’ Calgary, Alberta T2P 3M9 Investor information Online: imperialoil.ca Email: investor.relations@esso.ca Telephone: 403-237-4538 Fax: 403-237-2075 Forward-looking statements Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements. Actual future results, including demand growth and energy source mix; production growth and mix; project plans, dates, costs and capacities; production rates and resource recoveries; cost savings; product sales; financing sources; and capital and environmental expenditures could differ materially depending on a number of factors, such as changes in the price, supply of and demand for crude oil, natural gas, and petroleum and petrochemical products; political or regulatory events; project schedules; commercial negotiations; the receipt, in a timely manner, of regulatory and third-party approvals; unanticipated operational disruptions; unexpected technological developments; and other factors discussed in this report and Item 1A of Imperial’s most recent Form 10-K. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial. Imperial’s actual results may differ materially from those expressed or implied by its forward-looking statements and readers are cautioned not to place undue reliance on them. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. Reserves and contingent resource information presented in this report are an estimate of the company’s net interest after royalties at year-end 2013, as determined by Imperial’s internal qualified reserves evaluator. Contingent resources are those quantities of petroleum considered to be potentially recoverable from known accumulations using established technology or technology under development, but are currently not considered to be commercially recoverable due to one or more contingencies. Contingencies on resources may include, but are not limited to, factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. There is no certainty that it will be economically viable or technically feasible to produce any portion of the resource. This report was printed on paper made from 100% chlorine-free and acid-free pulp that is Forest Stewardship Council® certified. On the cover: A view of the Kearl oil sands operation in northern Alberta. 

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