Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations.
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OPERATING RESULTS
First quarter 2016 vs. first
quarter 2015
The companys net loss for the first quarter of 2016 was $101 million or $0.12 per share on a diluted basis, compared to net income
of $421 million or $0.50 per share for the same period last year.
Upstream recorded a net loss in the first quarter of $448 million, compared to a net
loss of $189 million in the same period of 2015. Results in the first quarter of 2016 reflected lower realizations of about $355 million, partially offset by the impact of a weaker Canadian dollar of about $70 million.
West Texas Intermediate (WTI) averaged US$33.63 per barrel in the first quarter of 2016, down from US$48.57 per barrel in the same quarter of 2015. Western
Canada Select (WCS) averaged US$19.30 per barrel and US$33.88 per barrel respectively for the same periods. The WTI/WCS differential widened to 43 percent in the first quarter of 2016 as global surplus crude barrels cleared in the U.S. Gulf
Coast.
During the first quarter of 2016, the Canadian dollar weakened relative to the U.S. dollar largely reflecting lower crude oil prices. The Canadian
dollar averaged US$0.73 in the first quarter of 2016, a decrease of US$0.08 from the first quarter of 2015.
The companys average Canadian dollar
realizations for bitumen and synthetic crudes declined essentially in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs. Bitumen realizations averaged $11.92 per barrel for the first quarter
of 2016, a decrease of $15.48 per barrel versus the first quarter of 2015. Synthetic crude realizations averaged $46.32 per barrel, a decrease of $9.49 per barrel for the same period of 2015.
Gross production of Kearl bitumen averaged 194,000 barrels per day in the first quarter (138,000 barrels Imperials share) up from 95,000 barrels per day
(67,000 barrels Imperials share) during the first quarter of 2015, reflecting the start-up of the Kearl expansion project and continued improvement in reliability of the initial development.
Gross production of Cold Lake bitumen averaged 165,000 barrels per day in the first quarter, up from 152,000 barrels in the same period last year. Incremental
volumes from Nabiye offset cycle timing in the base operation.
The companys share of gross production from Syncrude averaged 80,000 barrels per
day, up from 73,000 barrels in the first quarter of 2015, reflecting improved reliability of the operations.
Downstream net income was $320 million in
the first quarter, compared to $565 million in the same period of 2015. Earnings decreased mainly due to lower refinery margins of about $395 million, partially offset by the favourable impact of a weaker Canadian dollar of about $120 million.
Refinery throughput averaged 398,000 barrels per day, up from 393,000 barrels in the first quarter of 2015, due to a continued focus on reliability. Capacity
utilization increased to 94 percent.
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Petroleum product sales were 469,000 barrels per day, compared to 474,000 barrels per day in the first quarter of
2015.
Chemical net income was $49 million in the first quarter, compared to $66 million in the same quarter of 2015. The decrease was due to lower
margins.
Net income effects from Corporate and Other were negative $22 million in the first quarter, compared to negative $21 million in the same period
of 2015.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operating activities was $49 million in the first quarter, compared with $281 million in the corresponding period in 2015, reflecting
lower earnings as a result of a decrease in global crude prices.
Investing activities used net cash of $358 million in the first quarter, compared with
$1,002 million in the same period of 2015, reflecting the decline in additions to property, plant and equipment.
Cash from financing activities was $261
million in the first quarter, compared with cash from financing activities of $566 million in the first quarter of 2015. Dividends paid in the first quarter of 2016 were $119 million. The per-share dividend paid in the first quarter was $0.14, up
from $0.13 in the same period of 2015.
The companys cash balance was $155 million at March 31, 2016, versus $60 million at the end of the
first quarter of 2015.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard,
Revenue from Contracts with Customers
. The standard establishes a
single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard will be adopted beginning January 1, 2018.
Operating Revenue on the Consolidated statement of income includes sales and excise taxes on sales transactions. When the company adopts the
standard, revenue will exclude sales-based taxes collected on behalf of third parties. This change in reporting will not impact earnings. Imperial continues to evaluate other areas of the standard and its effect on the companys financial
statements.
In February 2016, the FASB issued a new standard,
Leases
. The standard requires all leases with an initial term greater than one year
be recorded on the balance sheet as an asset and lease liability. The standard is required to be adopted beginning January 1, 2019. Imperial is evaluating the standard and its effect on the companys financial statements.
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FORWARD-LOOKING STATEMENTS
Statements in this report regarding future events or conditions are forward-looking statements. Actual future financial and operating results could differ
materially due to the impact of market conditions, changes in law or governmental policy, changes in operating conditions and costs, changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other
technical and economic factors.