Morningstar | Pipelines Needed for Imperial to Unlock Its Potential
Imperial Oil is a 69.6%-owned subsidiary of ExxonMobil and one of Canada’s largest integrated oil companies, focusing on oil and gas production, refining operations, and the marketing of petroleum products. Imperial's upstream operations include developing and producing unconventional crude oil through its interest in Syncrude and the Cold Lake and Kearl oil sands projects. The company remains the largest refiner of petroleum products in Canada.Like peers, Imperial faces an uphill struggle coping with lower oil prices. Depressed realizations have forced capital spending cuts, stalling the growth potential of Imperial's oil sands assets. As a result, Imperial’s efforts have been focused on solvent-based technology, which we expect to significantly improve the economics associated with the company’s Aspen and Grand Rapids oil sands projects. Although commercial implementation of the technology isn’t expected within the next five years, we expect the technology to be a vital component of the company's conversations.Imperial's diversified operations partially offset the impact of oil price volatility and, coupled with reduced capital spending, provide ample cash flow to maintain the company’s financial position and explore growth opportunities, luxuries that pure-play peers do not have. Imperial also benefits from its relationship with ExxonMobil, leveraging research and operational improvements to reduce its cost structure, as evidenced by its solvents-based pilot.Imperial maintains a strong balance sheet driven by cash flows from its downstream operations. We expect its future solvent-assisted growth projects to drive significant growth and add value. However, the market is underestimating the company's continued technological developments, and we continue to see modest upside in the stock at current levels.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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