DBRS Confirms Imperial Oil Limited Ratings at AA (high) and R-1 (high), Stable Trends

DBRS has today confirmed the Unsecured Debentures and Commercial Paper ratings of Imperial Oil Limited (Imperial or the Company) at AA (high) and R-1 (high), respectively, both with Stable trends. The rating confirmation is based on Imperial’s strong integrated market position in both upstream and downstream businesses, superior financial and liquidity profiles, high medium-term growth prospects, and strong ownership/sponsorship by Exxon Mobil Corporation (ExxonMobil).

The Company has reaffirmed its growth plan for the next decade with an aim to raise oil sands production by 40% to 315,000 barrels of oil equivalent per day (boe/d; gross) by 2014 and to double total volumes to 600,000 boe/d (gross) by 2020 from the current level at 297,000 boe/d (gross). An approximately $5 billion capex program is planned in 2012 (versus $4 billion in 2011) and potentially at equivalent levels in 2013. Most of the spending (over 95%) is directed at upstream, primarily in Kearl initial and expansion projects, and to a lesser extent at Syncrude Canada Limited (Syncrude) projects (Imperial has a 25% interest) and Nabiye at Cold Lake. During its growth phase, Imperial’s balance sheet leverage could rise, potentially to more than 20% by mid-decade (8% at year-end 2011) (which is still consistent with the current credit ratings). DBRS believes Imperial has sufficient financial strength to support the planned expansion, while keeping credit metrics within the current rating categories. DBRS estimates planned capital spending should be largely funded by internal cash flow, supplemented by drawdowns on the $5 billion long-term facility arranged with an affiliate of ExxonMobil. As a result, capital markets requirements are unlikely as seen in previous growth periods.

Given the substantial planned investments, cost overruns and project delays are potential concerns as evidenced by the change in estimated cost of the Kearl Project. However, Imperial benefits from its experience through Syncrude, where it provides management services on a ten-year contract. Other challenges, although considered manageable, include the Company’s increasing exposure to heavy/light crude oil pricing differentials, which were negatively affected in 2011 as a result of third-party pipeline outages.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.