Imperial Oil $119 – Toronto symbol IMO

IMPERIAL OIL LTD. $119 (Toronto symbol IMO; SI Rating: Average) is Canada’s biggest producer of oil and natural gas. It also operates a nationwide chain of retail gasoline stations under the “Esso” banner. U.S.-based ExxonMobil Corp. owns 69.9% of Imperial.

Production at many of Imperial’s mature properties in Western Canada is dropping, so it’s investing heavily in new sources of oil. It owns 25% of the massive Syncrude oil sands joint venture in Northern Alberta. Syncrude is now expanding and it’s hard to predict costs in complex projects like this. For instance, Syncrude’s latest upgrades will cost twice their original forecast.

Imperial is also building its own oil sands project at Kearl Lake for $6.5 billion, although ExxonMobil will share some of the cost. That’s more than three times the $2.05 billion or $5.74 a share that Imperial earned in 2004. The company aims to start work on the project in 2007, and begin production in 2010.

Another big project that Imperial is working on is the Mackenzie Delta natural gas pipeline, which would cost it $3 billion. However, the plan has run into regulatory delays. Imperial still hopes to finish the line by 2011.

Thanks to soaring energy prices after Hurricanes Katrina and Rita damaged some major refineries in the U.S. Gulf Coast region, Imperial’s stock shot up to $137 in September 2005. It has moved down lately as these refineries resumed operations.

The stock now trades at 15.7 times its forecast 2005 profit of $7.58 a share, and at 14.1 times cash flow of $8.45 a share. It will probably remain volatile for the next few months, and could drop if energy prices fall enough to hurt the profitability of Imperial’s recent investments. The $0.96 dividend yields 0.8%.

Imperial Oil is a hold.

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