IMPERIAL OIL LTD. $41

IMPERIAL OIL LTD. $41 (Toronto symbol IMO; Conservative Growth and Income Portfolios, Shares outstanding: 847.6 million; Market cap: $34.8 billion; Price-to-sales ratio: 1.4; Dividend yield: 1.5%; TSINetwork Rating: Average; www.imperialoil.ca) is Canada’s second-largest integrated oil producer after Suncor. The company’s Alberta oil sands operations, including its 25% stake in the Syncrude project, supply 90% of its crude. Imperial also has conventional oil and gas operations in Western Canada, and invests in offshore projects in Atlantic Canada. In addition, it owns three refineries and makes petrochemicals. In March 2016, Imperial agreed to sell its 497 company-owned Esso gas stations to independent operators for $2.8 billion. Imperial expects to complete these sales by the end of 2016. At that time, franchisees will operate all 1,700 Esso stations across Canada. In the quarter ended March 31, 2016, the company produced an average of 421,000 barrels of oil equivalent (95% oil, 5% natural gas), up 26.4% from 333,000 a year earlier. The increase came from the start-up of the second phase of Imperial’s Kearl oil sands project in Alberta. The company owns 71% of the operation; ExxonMobil (New York symbol XOM) holds the remaining 29%. Exxon also owns 69.9% of Imperial. Imperial’s share of Kearl’s production jumped 106.0% in the latest quarter, to 138,000 barrels a day from 67,000 a year ago. However, over that period, prices for oil sands bitumen fell 56.5%. As a result, Imperial lost $0.12 a share (or a total of $101 million) in the quarter. A year earlier, it earned $0.50 a share (or $421 million). Revenue fell 15.8%, to $5.2 billion from $6.2 billion. Cash flow per share declined 70.9%, to $0.25 from $0.86. In response to weak oil prices, the company has cut its production costs per barrel by 25% from a year earlier. With the Kearl project completed, its capital spending fell 61.1% in the quarter, to $408 million from $1.05 billion. As of March 31, 2016, Imperial held cash of $155 million. Its total debt of $8.9 billion is a moderate 26% of its market cap. The stock now trades at a reasonable 14.4 times its 2016 projected cash flow of $2.84 a share. Imperial also just raised its dividend by 7.1%; the new annual rate of $0.60 a share yields 1.5%. Imperial Oil is a buy.

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