Imperial Oil is an integrated energy company, engaging in the exploration, production, refining, and marketing of energy products. It is Canada’s largest refiner of petroleum products and a leading marketer of fuels, lubricants, asphalts, and specialty products. By revenues, downstream constitutes nearly 70% of total revenues, followed by the upstream segment (25%) and the chemicals segment (~5%).
Imperial has a presence in both upstream and downstream parts of the value chain. In the upstream part, Imperial owns and operates some of the best oil sands in Canada. Its Cold Lake operation is one of the largest in situ operations in the world, whereas Kearl is considered as one of Canada’s highest-quality oil sands deposits.
In the downstream part, the company operates 400 kbd of refining capacity in strategically located refineries. Imperial’s Sarnia and Strathcona are amongst the largest integrated refining capacities in Canada. In addition, the company also operates a profitable polyethylene business.
Imperial Oil enjoys nationwide leadership across the entire value chain. Its Esso and Mobil are popular brands across Canada. The popularity of Imperial products can be measured by the fact that the company manufactures and sells about one-fourth of the petroleum products used by Canadians every day.
Key Investment Data
- Opportunity Score: 54
- Ticker: TSE:IMO
- Sector: Energy
- Industry: Oil & Gas Integrated
- Market Cap: 24.37B
- P/E: 0.00
- Dividend Yield: 3.12%
- Payout Ratio (TTM): 0.00%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 5/10
- Dividend Income Fit: 8/10
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Revenue Growth & Market Exposure
Imperial has a presence in both upstream and downstream parts of the value chain and is less vulnerable to volatility in the energy sector. It is in a position to better capture the synergies arising through integrated manufacturing and marketing activities.
With more than 140 years of existence, Imperial Oil has a deep experience of operating in diverse geological and geographical environments and has witnessed several ups and downs cycles in the oil industry. This long-standing experience enhances the company’s resilience in combating volatile and tough times in the energy industry.
Imperial operates through a well-diversified asset base of upstream, downstream, and chemical assets, consisting of high-quality oil sand deposits, large refining capacities, and an extensive pipeline network. The company is an industry leader in research and technology, having invested more than billions in R&D over decades.
It is further enhancing its portfolio by focusing on the highest value assets and core competencies. The company also stands a good chance to benefit from the rising oil and gas investment which is estimated to grow to USD $12-$17 trillion by 2040.
Imperial is working towards increasing the annual production of its Kearl mines, Aspen in-situ project, and Cold Lake expansion projects, which should drive top-line growth. In the latest quarter, the company reported the highest quarterly upstream production in three decades, driven by record production at Kearl. Total upstream production totaled 460,000 gross oil-equivalent barrels per day and Kearl total gross production averaged 284,000 barrels per day, for the quarter.
Imperial’s upstream assets have a proven reserve life of more than three decades, generating over $16 billion in cash over the last ten years. These assets having a long-life and low-decline base are expected to grow at 12% through 2020-25. Kearl’s 2020 performance exceeded expectations and Cold Lake also maintained strong cash generation throughout the year.
In the downstream business, Imperial’s industry-leading refineries continued to drive cash generation. Its downstream and chemical business is strategically positioned for the future with efficient pipeline access to Canadian crude and coast-to-coast logistics.
Imperial Oil is a Canadian Dividend Aristocrat with a century-old history of making consecutive dividend payments to stockholders. The company has been increasing its dividends for the last 25 years in a row barring the last year. The last annual dividend raise was 3.5% in 2019.
Despite a challenging 2020, it maintained dividends throughout the year, returning over $900 million to shareholders through dividends and share purchases. The company has compounded dividends at a rate of 7%+ in the last decade. Its EPS has also registered a growth of 4%+ CAGR during the same time period. Imperial currently has an annual average dividend yield of 3.3% but a very high payout ratio.
Imperial is a subsidiary of Exxon Mobil which holds a 70% stake in the company. A strong parent adds to Imperial’s financial strength and improves access to cheap capital sources. Imperial generated $316 million in cash from operations in the fourth quarter which included unfavorable working capital effects of $218 million. The company maintained its focus on operational excellence and cost discipline and reported a decline of 15% YoY in production and manufacturing expenses. Imperial will continue to focus on its upstream resources and key oil sand assets for future growth.
Imperial’s integrated businesses and balance across the upstream, refining, and petroleum product sales continues to support the strength and resiliency of its cash-generating capability across a range of market conditions. Given the company’s sound balance sheet and strong future production projection, Imperial Oil should continue its dividend growth streak going forward.
Imperial Oil competes with the likes of Suncor and Cenovus Energy. Suncor which is the largest oil producer in Canada and derives a majority of its revenues from its oil sand business is Imperial’s largest competitor.
Cenovus Energy is a large integrated oil and gas company based in Canada. Imperial maintains a competitive advantage through continued operational excellence, investment and cost discipline from integrated business segments and refinery and chemical complexes.
Imperial’s 2020 results were negatively impacted by the pandemic and the disruption of the supply and demand patterns during the year. However, the company’s integrated business model and strong financial position continued to provide resilience to face periods of market volatility.
It also saw some improvement in product demands in the second half of the year. Imperial Oil’s high-quality assets underpinned by an integrated and resilient business model offer significant long-term potential.