IMPERIAL OIL LTD. $48 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $40.7 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.0%; TSINetwork Rating: Average; www.imperialoil.ca) is Canada’s third-largest publicly traded oil company, after Suncor and Canadian Natural Resources Ltd. Imperial is a 69.6%-owned subsidiary of U.S.-based ExxonMobil Corp. (New York symbol XOM).
Higher oil prices pushed up Imperial’s earnings by 52.5% in 2011, to $3.4 billion, or $3.95 a share. In 2010, it earned $2.2 billion, or $2.59 a share. Revenue rose 22.4%, to $30.7 billion from $25.1 billion. Cash flow per share rose 33.0%, to $4.70 from $3.53.
Imperial gets most of its oil from its Cold Lake oil sands project in Alberta. In 2011, Cold Lake’s daily production rose 11.1%, to a record 160,000 barrels from 144,000 barrels in 2010. That offset lower production of conventional oil and natural gas.
In all, Imperial produced an average of 297,000 barrels of oil equivalent (including natural gas) in 2011, up 1.0% from 294,000 barrels in 2010.
The company now plans to spend $2 billion to expand Cold Lake. That will increase its daily production by 40,000 barrels by the end of 2014. At the same time, Imperial is moving ahead with its Kearl oil sands project in Alberta. Imperial owns 71% of Kearl. ExxonMobil owns the remaining 29%.
Kearl’s first phase is now 87% complete. When it begins operating in late 2012, this phase will produce 110,000 barrels a day (Imperial’s share is 78,100 barrels). Imperial is responsible for $7.7 billion of the $10.9-billion cost.
Kearl’s second phase, which will cost $8.9 billion (Imperial’s share is $6.3 billion) will add 78,100 barrels to the company’s daily production by late 2015.
Imperial’s strong balance sheet will help it fund these projects. Its total debt of $1.2 billion is a low 3% of its market cap. The company also holds cash of $1.2 billion, or $1.42 a share.
The stock trades at a reasonable 13.4 times Imperial’s likely 2012 earnings of $3.59 a share, and 10.2 times its projected cash flow of $4.70 a share. Imperial also recently raised its quarterly dividend by 9.1%, to $0.12 a share from $0.11. The new annual rate of $0.48 yields 1.0%.
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