Imperial Oil is selling the last 497 of its Esso gas stations to private operators, including Circle K owner Alimentation Couche-Tard. The deal is worth $2.8 billion and will allow the company to focus on its refineries and oil production.
IMPERIAL OIL LTD. (Toronto symbol IMO; www.imperialoil.ca) gets about 90% of its crude oil from its Alberta oil sands operations, including its 25% stake in the Syncrude project.
In addition, it has conventional oil and natural gas operations, also in Western Canada, and owns stakes in projects off the coast of Atlantic Canada. Imperial also owns three refineries as well as petrochemical plants.
Last week Imperial announced that it is selling its 497 company-owned Esso gas stations to independent operators for $2.8 billion. Following the sale, franchisees will operate all of its 1,700 Esso stations across Canada.
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The buyers include Alimentation Couche-Tard (Toronto symbol ATD.B). It is purchasing 279 stations in Ontario and Quebec. (Alimentation Couche-Tard is a recommendation of StockPickers Digest, our newsletter that focuses on aggressive investments.) In addition, 7-Eleven Canada is getting 148 stations in Alberta and British Columbia. Parkland Fuel (Toronto symbol PKI), will buy 17 stations in Saskatchewan and Manitoba.
These buyers will continue to purchase their fuel from Imperial and keep using the Esso brand.
The $2.8 billion price for these 497 stations is more than double the $1.1 billion, or $1.32 share, that Imperial earned in 2015. The company expects to complete these sales by the end of 2016.
Those deals will also let Imperial focus on its main oil sands and refining operations.
In 2015, Imperial produced an average of 366,000 barrels of oil equivalent (94% oil, 6% natural gas), up 18.1% from 310,000 in 2014. That’s because Imperial recently started up the second phase of its Kearl oil sands project in Alberta. The company owns 71% of Kearl; Exxon- Mobil (New York symbol XOM) holds the remaining 29%. Exxon also owns 69.9% of Imperial.
However, lower oil and gas prices cut Imperial’s revenue in 2015 by 27.3%, to $26.9 billion from $37.0 billion. Earnings declined 70.4%, to $1.1 billion, or $1.32 share. That’s partly due to a $320-million charge related to Alberta’s higher corporate tax rates. In 2014, it earned $3.8 billion, or $4.45, which included a $478-million gain on the sale of assets. Cash flow per share fell 45.4%, to $3.41 from $6.24.
Now that Imperial has completed the Kearl project, its capital spending will fall to $1.8 billion in 2016 from $4.0 billion in 2015. That should support its $0.56-a-share dividend, which yields 1.4%.
The stock now trades at 12.6 times Imperial’s projected 2016 cash flow of $3.25 a share. That’s still a reasonable multiple in light of the company’s profitable refining operations and large reserves.
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