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Canada’s Imperial Oil Defiant Despite Earnings Drop

Like many other oil companies, Imperial Oil Ltd. of Canada had a sharp drop in earnings during 2014’s fourth quarter and is cutting capital spending as a result, but it’s moving ahead anyway with a key oil sands project in northern Alberta.

Imperial, Canada’s second-largest oil producer and refiner, suffered a 36.5 percent drop in quarterly earnings not only because of the persistently low price of oil but also lower margins in refining and marketing. As a result it said Feb. 2 it expects to reduce spending by 29 percent this year, down to about $3.2 billion US, and will closely monitor spending throughout the year.

The net income for Imperial fell to $671 million in the quarter, or 63 cents per share. Net income for the same quarter in 2013 was $840 million or 98 cents per share. Overall revenue fell 4 percent to $6.37 billion.

Related: Why The World Needs Both Shale And Tar Sands

Overall production at Imperial, based in Calgary, declined by 4 percent to an average of 315,000 barrels of oil equivalent per day, and selling prices for synthetic crude oil fell to an average of just over $65 per barrel, a drop of 10.5 percent. It’s average price for bitumen – semi-solid crude oil known popularly as oil sands – dropped to $41.55 per barrel, a decline of about 1.8 percent.

The loss also directly affected Exxon Mobil Corp., which owns 69.6 percent of Imperial. Exxon suffered a 21 percent drop in quarterly earnings.

Nevertheless, Imperial’s standing in the industry was buoyed because its earnings were 60 cents higher than the average of analysts’ forecast.

In fact, Imperial intends to double production from its $16 billion Kearl oil-sands project in northeastern Alberta and is increasing output from the $1.59 billion Nabiye oil sands project in the province’s east-central sector near the border of Saskatchewan. Perhaps to help raise money for these projects, the company said Jan. 28 that it may sell 475 of its Esso-branded gas stations in Canada.

The nearly 60 percent drop in oil price since June has made oil sands output increasingly less profitable. Yet energy companies remain enthusiastic about Canada’s oil sands because they contain the third-largest oil reserves in the world and account for about half the country’s oil production.

Related: Alberta One Of Hardest Hit By Lower Oil Prices

Imperial says Kearl alone contains about 4.6 billion barrels of recoverable bitumen and was responsible for the production of 66,000 barrels a day in the fourth quarter of 2014. The company says its enlargement is proceeding well, with expanded production in the third-quarter of this year, rather than the original forecast of a year-end startup.

Once the expansion is complete, Imperial expects Kearl’s production to reach 220,000 barrels per day.
Production at Nabiye, meanwhile, is expected to begin in the first quarter of this year, eventually reaching levels of 40,000 barrels per day.

As a result, despite the fourth-quarter drop in earnings, Rich Kruger, the chairman, president and CEO of Imperial, expressed optimism about the company’s performance: “Imperial’s competitively advantaged assets, integrated business model and focus on the fundamentals contributed to our ability to deliver strong financial and operating results and industry-leading shareholder return in 2014.”

By Andy Tully of Oilprice.com

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