DBRS Updates Its Report on Imperial Oil

DBRS has today updated its report on Imperial Oil Limited (Imperial or the Company; rated AA (high) and R-1 (high)). The credit quality of Imperial is based on its strong ownership and sponsorship from ExxonMobil Corporation (ExxonMobil), its integrated market position and superior financial profile.

Although the Company’s planned and unplanned downtime resulted in lower refinery throughput and capacity utilization in Q2 2012, integration contributed significantly to Imperial’s earnings through the first half of 2012. Imperial’s refining segment allows it to take advantage of the sizable pricing spread between Western Canadian crude oil and refined products that are linked to higher international crude oil pricing.

In Q2 2012, the Company announced its intention to sell its least profitable refinery. Located in Nova Scotia, Dartmouth is capable of refining 88,000 barrels per day (bbl/d) (17% of Imperial’s capacity) and has four associated terminals. As the refinery’s feedstock capability is primarily light sweet crude, profitability has been eroded by significant market premiums of the input fuel. Should there be no interest in the refinery, Imperial has stated that it will convert the infrastructure to a storage terminal. A decision is expected by Q1 2013.

Capex for 2012 is expected to be between $4.5 billion and $5 billion, as Imperial aims to complete the Kearl Initial Development (KID) project by year-end. Largely as a result of this project, DBRS anticipates that the Company will have a $1 billion funding shortfall, which should be supported by the long-term credit facility through ExxonMobil’s affiliate.

Future growth will be driven by heavy oil from the development of the Kearl project and the Cold Lake expansion. This growth will increase exposure of the Company’s earnings to the volatility of the light/heavy crude oil differential. Furthermore, the complexity of refining and oil sands projects, unplanned downtime (as seen in Q2 2012 at the Company’s Sarnia refinery) and cost overruns (as experienced with the KID project) could adversely affect credit metrics going forward. Despite these risks, DBRS believes Imperial has the financial strength, flexibility and operational experience to continue to support its growth targets, while maintaining its credit metrics within the current AA (high) category.

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.