IMPERIAL OIL $44.63 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $37.8 billion; TSINetwork Rating: Average; Dividend yield: 1.3%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta and conventional oil and gas operations across Western Canada. It also operates three refineries and 1,700 Esso gas stations. Imperial recently finished the second phase of its 71%-owned Kearl oil sands project in northern Alberta.
In the three months ended September 30, 2015, Imperial’s share of Kearl’s output was 192,000 barrels a day. That helped push its overall production up 25.7%, to 386,000 barrels of oil equivalent a day from 307,000 a year earlier.
However, lower oil prices cut its revenue by 25.9%, to $7.2 billion from $9.7 billion. Cash flow per share fell 32.9%, to $1.10 from $1.64. Imperial plans to keep expanding Kearl and Cold Lake, its two main oil sands properties. These projects will prosper when oil prices recover, and they should last for decades. Meanwhile, the company’s refineries cut its exposure to falling oil prices, as cheaper crude cuts the refineries’ input costs and increases their profit margins.
Meanwhile, the stock trades at 12.9 times Imperial’s projected 2015 cash flow of $3.45 a share. However, the higher output could increase that to $4.66 in 2016—even if oil stays low. The shares trade at just 9.6 times that forecast.
Imperial Oil is still a safety-conscious buy.
