Morningstar | More Buybacks for Imperial Oil
Imperial Oil completed its initial share-buyback program during the second quarter. It repurchased 41 million shares, totaling CAD 1.6 billion. The company announced a renewal of the program, which allows it to repurchase an additional 40 million shares over a 12-month period that ends in June 2019. At today’s prices, the buybacks would cost approximately CAD 1.7 billion.Imperial reported second-quarter production of 336 thousand barrels of oil equivalent a day, slightly above the year-ago quarter and well below our expectations. Lower production was driven by significant maintenance activities coupled with a power outage at Syncrude. Turnaround activities were performed on Cold Lake, the first major maintenance in three years. As a result, production was 27 mboe/d lower than in the year-ago quarter. Production at Kearl was in line with our expectations, and management continues to increase reliability at the project as it aims for gross production of 240 mb/d compared with second-quarter levels of 180 mb/d. Management expects 2018 production at the project to average 200 mb/d, an increase of 14% from the fourth quarter of 2017.
Imperial also performed maintenance activities on its Strathcona refinery. Despite the 72-day turnaround, downstream profits were up nearly 25% from the year-ago quarter to CAD 201 million, driven by stronger margins.
Imperial expects to release its full second-quarter financial report in early August, after which we will update our model. At this time, our $36 (CAD 46) fair value estimate and no-moat rating are unchanged.
Since Imperial’s first-quarter earnings report, the stock is up 10% and trending toward our fair value estimate. With the shares trading near $33 (CAD 43), the recent rally has eaten into Imperial’s upside. Accordingly, the stock remains in 3-star territory.
For a detailed look into Canadian crude and pipeline trends, please refer to our September Energy Observer, "Don't Overlook Oil Sands: Falling Costs and More Infrastructure Will Make Canadian Production Globally Competitive."
Imperial Oil is an integrated oil company. Co. is active in all phases of the petroleum industry in Canada, including the exploration for, and production and sale of, crude oil and natural gas. In Canada, Co. is a producer of crude oil, natural gas and petroleum refiner and a marketer of petroleum products. Co. is also a producer of petrochemicals. As of Dec 31 2017, Co. had 1.57 billion barrels of oil-equivalent basis of net proved reserves, which consisted of 44.0 million barrels of liquids, 641.00 billion cubic feet of natural gas, 473.0 million barrels of synthetic oil, and 946.0 million barrels of bitumen.
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