Analysts expect this Canadian oil company to hit triple-digit growth next year, and six analysts have recently increased their 2017 earnings estimates.
Imperial Oil Ltd. (IMO.TO)
From The Successful Investor
Imperial Oil Ltd. (IMO.TO) is Canada’s second-largest publicly traded oil company, after Suncor Energy. It’s also a 69.6%-owned subsidiary of U.S.-based ExxonMobil (New York symbol XOM).
About 90% of Imperial’s crude production comes from its Alberta oil sands operations. Imperial also has conventional oil and natural gas operations in Western Canada and holds stakes in projects off the coast of Atlantic Canada. Based on its current daily output, the company’s 4.2 billion barrels of proven reserves should last 29.5 years.
Due to lower prices, revenue from Imperial’s oil and gas properties supplied just 22% of its 2015 revenue. The remaining 78% of revenue, and all the company’s earnings came from its three refineries (one in Alberta and two in Ontario) as well as its petrochemical operations and gas stations.
Earlier this year, Imperial agreed to sell its 497 company-owned Esso gas stations to independent operators. As a result, franchisees will operate all 1,700 Esso stations across Canada. The company expects to realize a gain of about $1.8 billion when it completes these sales by the end of 2016.
Imperial has two main oil sands properties: Cold Lake and Kearl. In 2015, it completed a major expansion of the Cold Lake project. That increased its capacity by 40,000 barrels a day to 160,000. Kearl, which started up in 2013, can produce up to 220,000 barrels a day. (Imperial owns71% of Kearl, while Exxon Mobil owns the remaining 29%).
The company has sold some of its conventional oil and gas properties. Due to gains on those sales, Imperial’s earnings in the quarter rose to $1.0 billion, or $1.18 a share. That’s a 109.4% jump from $479 million, or $0.56, a year earlier. Revenue also rose 4.0%, to $7.4 billion from $7.2billion.
In response to weak crude prices, Imperial has focused on cutting its expenses. In the first nine months of 2016, its cash costs averaged less than $20.00 U.S. per barrel, down35% since 2014.
The company continues to invest in its oil sands operations. It has applied for approval for two new 100%-owned projects that would add 130,000 barrels to its daily production. If those projects go ahead, they could start production as early as 2020.
Imperial also continues to benefit from its joint venture with pipeline operator Kinder Morgan. In April 2015, the two companies opened a new rail terminal in Edmonton that can handle 210,000 barrels of crude a day. This facility cuts the company’s risk, particularly in light of ongoing political opposition to the construction of new pipelines.
The company’s sound balance sheet will continue to shield it from low oil prices. As of September 30, 2016, its long-term debt was $7.0 billion, or a moderate 19% of its market cap. Imperial also held cash of $248 million.
Due to the recent rise in oil prices and the company’s improved efficiency, its cash flow per share will likely rise from $2.44 in 2016 to $4.85 in 2017. The stock trades at a reasonable 9.1 times that 2017 forecast.
Imperial’s $0.60-a-share dividend seems safe. The company has paid dividends continuously for over 100 years; it has raised that rate each year for the past 21 years.
Imperial Oil is a buy.
Patrick McKeough, The Successful Investor, www.tsinetwork.ca, 888-292-0296, December 2016