Imperial Oil Ltd. $43 - Toronto Symbol IMO

IMPERIAL OIL LTD. $43 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 939.6 million; Market cap: $40.4 billion; SI Rating: Average) is Canada’s largest integrated oil company, with major producing properties in Western Canada. It also operates nearly 2,000 retail gas stations under the “Esso” banner. ExxonMobil Corp. owns 69.6% of the stock. In the first three months of 2007, Imperial’s profits grew 37.3%, to $0.81 a share (total $774 million) from $0.59 a share ($591 million) a year earlier. If you exclude a gain on the sale of an asset, income in the latest quarter rose 25.4%, to $0.74 a share, mostly due to higher oil production and prices. Cash flow per share rose 8.9%, to $0.98 from $0.90, while revenue crept up to $5.9 billion from $5.8 billion. A fire at Imperial’s refinery in Nanticoke, Ontario cut its output in the first quarter. But the shortage pushed up retail gas prices in Ontario, which helped offset the lost production. Imperial now gets most of its crude oil from its oil sands projects. It owns 25% of the huge Syncrude joint venture, and runs it. Imperial also owns its own oil sands facility at Alberta’s Cold Lake. The company is now looking at building a new oil sands operation at Kearl Lake, Alberta. Imperial will own 70% of Kearl, while parent ExxonMobil will hold the other 30%. Kearl will cost $8 billion, but should last 40 years. The project recently won approval from Alberta’s energy regulators, and could begin production in late 2010. However, the company’s plan to build a pipeline that would transport natural gas from the Mackenzie Delta to Alberta has run into trouble. Imperial now estimates that the line will cost $16.2 billion, more than double its original estimate of $7.5 billion, due to rising costs for material and labour. The company is still studying the feasibility of this project, which would probably not begin operations before 2014. After several years of increases, Imperial’s capital spending will probably fall in 2007, to around $2.80 a share from $3.10 in 2006. That should let it raise its $0.32 dividend, which yields 0.7%. The company is still an aggressive buyer of its own shares. It spent $569 million on share buybacks in the first quarter of 2007. The company will probably earn $2.86 a share in 2007, and the stock trades at 15.0 times that figure. It’s also attractive at 11.0 times its forecast cash flow per share of $3.91. Imperial Oil is a buy.