Imperial Oil $52 – Toronto symbol IMO

IMPERIAL OIL LTD. $52 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 914.2 million; Market cap: $47.5 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial also operates 2,000 retail gas stations under the “Esso” banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock. Imperial continues to invest heavily in new oil and gas projects. For example, it recently received regulatory approval to proceed with its Kearl Lake oil sands project, which contains roughly 4.6 billion barrels. That’s equal to 34% of Imperial proved and non-proved reserves of 13.5 billion barrels. Imperial owns 70% of Kearl Lake, while ExxonMobil owns the remaining 30%. Imperial estimates that Kearl Lake will cost $8 billion to develop. However, oil sands projects are extremely complex, and this figure will probably rise. To put that in context, Imperial earned $0.88 a share (total $816 million) in the third quarter of 2007, up 4.8% from $0.84 a share ($822 million) a year earlier. Revenue fell 3.8%, to $6.4 billion from $6.65 billion, due to lower natural gas production and prices. The company and parent ExxonMobil have also teamed up to purchase new exploration rights in the Beaufort Sea. Imperial’s 50% share of the exploration budget is $292.5 million. Drilling in the Arctic is expensive, but the Beaufort Sea’s potential is huge. The stock now trades at 16.9 times its likely 2007 earnings of $3.08 a share, and 12.7 times estimated cash flow of $4.10 a share. The $0.36 dividend yields 0.7%. Imperial Oil is a buy.

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