Topic: Energy Stocks

Rail shipments set to boost sales, prices for Imperial Oil Ltd.

Overall earnings at this large oil company fell 43.2% year over year on reduced oil shipments to U.S. markets. Still, the company plans to boost production on higher prices and the addition of rail shipment to the U.S.

Revenue in the last quarter, in fact, gained 0.6% thanks to the higher production and improving crude prices. Adding to the stock’s appeal, its shares trade at just 8.4 times the company’s 2019 earnings-per-share forecast.


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IMPERIAL OIL LTD., (Toronto symbol IMO), is Canada’s third-largest publicly traded oil company, after Suncor (No. 1) and Canadian Natural Resources. U.S.-based ExxonMobil (New York symbol XOM) owns 69.6% of Imperial.

Late last year, the Alberta government ordered oil producers in the province to cut their total daily output. That’s because a lack of new pipeline capacity has led to a glut of stored crude oil in the province and has helped to push down the price for Western Canadian crude.

The Alberta plan made it less economical for Imperial to ship its crude by rail to U.S. markets. As a result, it cut rail shipments from about 170,000 barrels a day in December 2018 to almost zero in February 2019. To put that in context, Imperial produced 383,000 barrels a day in 2018.

However, now that crude prices have recovered, and it is once again economical to do so, Imperial has resumed limited oil shipments by rail.

Energy Stocks: Yield is up and so is oil production

Meanwhile, starting with the July 2019 payment, the company will increase its quarterly dividend by 15.8%, to $0.22 a share from $0.19. The new annual rate of $0.88 yields 2.3%.

In the three months ended March 31, 2019, Imperial produced an average 353,000 barrels a day. That’s up 4.7% from 337,000 a year earlier. Higher output from the Syncrude project (25% owned by Imperial) offset declines at its Cold Lake and Kearl oil sands projects as colder-than-normal weather hindered those facilities.

Thanks to the higher production and improving crude prices, revenue in the quarter gained 0.6%, to $7.98 billion from $7.93 billion. That missed the consensus forecast of $8.2 billion.

However, overall earnings fell 43.2%, to $293 million from $516 million a year earlier. Imperial spent $361 million on share buybacks in the quarter. As a result of fewer shares outstanding, earnings per share fell at a slower rate of 38.7%, to $0.38 from $0.62. That also fell short of the consensus estimate of $0.46.

The lower earnings are mainly due to a 50.7% drop in earnings from its refining operations, as higher crude prices hurt their profitability. Unplanned shutdowns for maintenance also added to their costs.

Cash flow per share declined 31.5%, to $0.88 from $1.28.

Imperial now plans to spend between $1.8 billion and $1.9 billion on exploration and upgrades to existing facilities. That’s down from its previous estimate of $2.3 billion to $2.4 billion due to Alberta’s production caps and lower profit margins at its refineries.

The stock trades a reasonable 8.4 times the 2019 forecast cash flow of $4.59 a share.

Including the latest increase, the company has increased its dividend by an average of 11.1% annually over the past 5 years.

Recommendation in Dividend Advisor: Imperial Oil is a buy.

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