IMPERIAL OIL LTD. $45 (Toronto symbol IMO; Conservative Growth Portfolio; Resources sector; Shares outstanding: 847.6 million; Market cap: $38.1 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.2%; TSINetwork Rating: Average; www.imperialoil.ca) produces oil and natural gas, mainly from its oil sands projects in Alberta. It also owns three refineries and operates 1,800 Esso gas stations.
Imperial began operating its new Kearl oil sands project in April 2013. It owns 71% of Kearl. ExxonMobil (New York symbol XOM) holds the other 29%. Exxon also owns 69.9% of Imperial.
In the three months ended September 30, 2013, Imperial produced an average of 288,000 barrels of oil equivalent a day (88% oil and 12% natural gas). That’s up 1.1% from 285,000 barrels a year earlier.
Kearl contributed 23,000 barrels a day to Imperial’s third-quarter output. That offset planned maintenance at the Syncrude oil sands project, which cut the company’s daily production by 21,000 barrels; Imperial owns 25% of Syncrude.
The company expects Kearl’s output to reach 110,000 barrels a day (78,100 barrels to Imperial) by the end of 2013. The project’s second phase will add a further 78,100 barrels to Imperial’s production by late 2015. Kearl’s reserves should last 40 years.
Meanwhile, Imperial recently closed its aging Dartmouth, Nova Scotia, refinery and is converting it to an oil-storage terminal.
The Dartmouth conversion and extra startup costs at Kearl pushed down Imperial’s earnings by 37.8% in the third quarter, to $647 million, or $0.76 a share. A year earlier, it earned $1.0 billion, or $1.22 a share. Imperial’s refineries also had to pay more for crude oil, which hurt their profit margins.
The lower earnings caused Imperial’s cash flow per share to fall 25.0%, to $1.14 from $1.52. However, revenue gained 3.1%, to $8.6 billion from $8.3 billion, on higher oil prices.
Imperial trades at a reasonable 13.5 times its projected 2013 earnings of $3.34 a share, and at 9.0 times its forecast cash flow of $5.00 a share. The $0.52 dividend yields 1.2%.
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