DBRS Comments on Downgrade of Imperial Oil Limited’s Ratings

DBRS Limited (DBRS) has today downgraded the Issuer Rating and Unsecured Debentures rating of Imperial Oil Limited (Imperial or the Company) to AA from AA (high), as well as downgraded the Company’s Commercial Paper rating to R-1 (middle) from R-1 (high) (see DBRS press release titled, “DBRS Takes Rating Actions on Investment-Grade Oil & Gas Portfolio”). All trends have been changed to Stable from Negative.

DBRS considers the operational and strategic links between Imperial and its 69.6% shareholder, ExxonMobil Corporation (XOM or Exxon), the largest publicly traded integrated oil company in the world, as the key factor in supporting the Company’s rating. DBRS notes that XOM’s key credit metrics have eroded considerably primarily due to a weaker pricing environment for oil and natural gas. Furthermore, DBRS does not envision a material recovery in Exxon’s key credit metrics within two years. As a consequence, DBRS has downgraded Imperial Oil’s ratings by one notch.

The trend has been changed to Stable to account for DBRS’s view that XOM’s and Imperial’s financial profiles have stabilized with a modestly improving price outlook. Imperial’s capital spending plans have been pared back with no new major capital commitments on the horizon. DBRS notes that the Company’s internally generated cash flow should fund dividends and a capital expenditure program of approximately $1.5 billion at a West Texas Intermediate oil price of USD 45 per barrel. Furthermore, anticipated gross proceeds of close to $3 billion expected before year end from the sale of the Company-owned retail stations plus the Canadian aviation fuels business will strengthen the balance sheet and provide additional financial flexibility for Imperial. Additionally, Imperial’s rating continues to be supported by (1) the Company’s long-life, high-quality reserve base; (2) considerable downstream exposure, which provides a source of relatively more stable cash flow and earnings; and (3) a favourable liquidity profile.

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

The applicable methodologies are Rating Companies in the Oil and Gas Industry (September 2016), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2016) and DBRS Criteria: Rating Holding Companies and Their Subsidiaries (January 2016), which can be found on our website under Methodologies.

For more information on this credit or this industry, visit www.dbrs.com or contact us at info@dbrs.com.