Oil prices have soared from around $18 U.S. a barrel in 1993 to close to $100 U.S. today. However, new drilling technologies have made it easier to extract oil from hard-to-reach deposits, such as oil sands and shale rock formations. Rising production from these sources could hurt oil prices in the same way the shale gas boom has depressed natural gas prices.
Even so, Canada’s leading oil producers are investing for the long term and continue to expand their oil sands operations. Today we examine those operations for one of the oil producers we cover regularly in The Successful Investor.
IMPERIAL OIL LTD. (Toronto symbol IMO; 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.
Energy stocks: Imperial projects Kearl reserves to last for 40 years
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’s $0.52 dividend yields 1.2%.
In the latest edition of The Successful Investor, we look at the outlook for oil sands production and its impact on oil prices as well as the long-term prospects for Imperial Oil’s Kearl project. We also examine the company’s earnings and cash flow outlook for next year. We conclude with our clear buy-sell-hold advice on the stock.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Warren Buffett recently expanded his holdings in Exxon Mobil, the major shareholder in Imperial Oil, after taking a big stake in Suncor Energy earlier this year. Both Imperial and Suncor have major oil sands projects. Does Mr. Buffett’s involvement give you extra confidence in the future of oil sands companies? Has the presence of an investing star like Buffett ever played a role in your decision to buy a stock?
Comments
Ernie
I worked in the oil refinery business until I retired 20 years ago. Started out with British American Oil Co. and retired from Petro-Can. I spent 14 months as a Loanee to Sycrude to assist in its start-up in 1978-79. There has been tremendous expansion in developments in the Fort Mcmurray area since that time and I would personally like to see the development of pipelines to make the oil exportable and the companies involved be able to be more profitable.
Appreciate your news letter. Would really appreciate it if you’d do one on the pros & cons of currency hedging.
Want to invest in US but not sure whether to hedge or not.
Thanks
Ian Murray
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I worked in the oil refinery business until I retired 20 years ago. Started out with British American Oil Co. and retired from Petro-Can. I spent 14 months as a Loanee to Sycrude to assist in its start-up in 1978-79. There has been tremendous expansion in developments in the Fort Mcmurray area since that time and I would personally like to see the development of pipelines to make the oil exportable and the companies involved be able to be more profitable.
Appreciate your news letter. Would really appreciate it if you’d do one on the pros & cons of currency hedging.
Want to invest in US but not sure whether to hedge or not.
Thanks
Ian Murray