IMPERIAL OIL LTD. $44(Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $37.3 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) is Canada’s second-largest publicly traded oil company, after Suncor. U.S.-based ExxonMobil Corp. (New York symbol XOM) owns 69.6% of Imperial.
The company is making a number of big investments to boost its oil sands production. Right now, it gets most of its oil from its Cold Lake oil sands project in Alberta. Imperial recently announced that it would spend $2 billion to add 40,000 barrels a day to Cold Lake’s current daily output of around 152,000 barrels. It expects to complete these upgrades in 2014.
Meanwhile, Imperial continues to make progress with its Kearl oil sands project. Imperial owns 71% of Kearl. ExxonMobil owns the remaining 29%.
Kearl’s first phase is now 94% complete. When it begins operating in late 2012, it will produce 110,000 barrels a day (Imperial’s share is 78,100 barrels). Imperial is responsible for $7.7 billion of the project’s $10.9-billion cost.
The second phase of Kearl, which will cost $8.9 billion (Imperial’s share is $6.3 billion), will add a further 78,100 barrels to the company’s daily production by late 2015.
Imperial holds cash of just $996 million, or $1.18 a share, so it will probably borrow some of the funds it needs for these projects. Even so, the company has lots of flexibility to take out more loans: its total debt of $1.2 billion is a low 3% of its market cap. It may also raise cash by selling assets, such as its refinery in Dartmouth, Nova Scotia.
In the three months ended June 30, 2012, Imperial’s daily output averaged 231,000 barrels of oil equivalent a day, unchanged from a year earlier.
However, due to lower oil and natural gas prices, Imperial’s earnings fell 12.5%, to $635 million, or $0.75 a share. A year earlier, it earned $726 million, or $0.85 a share. Revenue fell 3.3%, to $7.5 billion from $7.8 billion. However, cash flow per share rose 0.9%, to $1.09 from $1.08.
Imperial will probably earn $3.81 a share in 2012. The stock trades at 11.5 times that figure. It also trades at a reasonable 8.7 times the company’s likely cash flow of $5.05 a share. The $0.48 dividend yields 1.1%.
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