Edgar Filing: IMPERIAL OIL LTD

10-Q

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from --- to ---

Commission file number 0-12014

IMPERIAL OIL LIMITED

(Exact name of registrant as specified in its charter)


CANADA		98-0017682
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

237 Fourth Avenue S.W. Calgary, Alberta, Canada		T2P 3M9
(Address of principal executive offices)		(Postal Code)

Registrant’s telephone number, including area code: 1-800-567-3776

The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 91 days.

YES ü NO

The registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ü NO

The registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934).


Large accelerated filer ü		Accelerated filer
Non-accelerated filer		Smaller reporting company

The registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES NO ü

The number of common shares outstanding, as of June 30, 2014, was 847,599,011.

IMPERIAL OIL LIMITED

INDEX


		PAGE
PART I - Financial Information

Item 1 -	Financial Statements.

	Consolidated Statement of Income - Six Months ended June 30, 2014 and 2013		3

	Consolidated Statement of Comprehensive Income - Six Months ended June 30, 2014 and 2013		4

	Consolidated Balance Sheet - as at June 30, 2014 and December 31, 2013		5

	Consolidated Statement of Cash Flows - Six Months ended June 30, 2014 and 2013		6

	Notes to the Consolidated Financial Statements		7

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		13

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk.		17

Item 4 -	Controls and Procedures.		17

PART II - Other Information

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds.		18

Item 6 -	Exhibits.		19

SIGNATURES			20

In this report all dollar amounts are expressed in Canadian dollars unless otherwise stated. This report should be read in conjunction with the company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Statements in this report regarding future events or conditions are forward-looking statements. Actual results could differ materially due to the impact of market conditions, changes in law or governmental policy, changes in operating conditions and costs, changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other technical and economic factors.

The term “project” as used in this release can refer to a variety of different activities and does not necessarily have the same meaning as under government payment transparency reports

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF INCOME

(U.S. GAAP, unaudited)


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2014		2013		2014		2013

REVENUES AND OTHER INCOME
Operating revenues (a) (b)		9,399		7,894		18,596		15,893
Investment and other income (note 3)		650		64		679		79

TOTAL REVENUES AND OTHER INCOME		10,049		7,958		19,275		15,972


EXPENSES
Exploration		17		21		38		44
Purchases of crude oil and products (c)		6,035		5,001		11,577		9,976
Production and manufacturing (d)		1,390		1,468		2,866		2,649
Selling and general		296		252		571		506
Federal excise tax (a)		383		330		753		656
Depreciation and depletion		280		452		560		637
Financing costs (note 5)		2		2		4		2

TOTAL EXPENSES		8,403		7,526		16,369		14,470


INCOME BEFORE INCOME TAXES		1,646		432		2,906		1,502
INCOME TAXES		414		105		728		377

NET INCOME		1,232		327		2,178		1,125


PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (note 8)		1.45		0.39		2.57		1.33
Net income per common share - diluted (note 8)		1.45		0.38		2.56		1.32
Dividends per common share		0.13		0.12		0.26		0.24

(a) Federal excise tax included in operating revenues		383		330		753		656
(b) Amounts from related parties included in operating revenues		742		364		1,558		1,225
(c) Amounts to related parties included in purchases of crude oil and products		1,058		1,283		1,828		2,526
(d) Amounts to related parties included in production and manufacturing expenses		89		84		175		170

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(U.S. GAAP, unaudited)


	Second Quarter				Six Months to June 30
millions of Canadian dollars	2014		2013		2014			2013

Net income		1,232		327		2,178			1,125

Other comprehensive income, net of income taxes
Post-retirement benefit liability adjustment (excluding amortization)		-		-		(38	)		(102	)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs		37		51		75			102

Total other comprehensive income/(loss)		37		51		37			-



Comprehensive income		1,269		378		2,215			1,125

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

CONSOLIDATED BALANCE SHEET

(U.S. GAAP, unaudited)


millions of Canadian dollars	As at June 30 2014			As at Dec 31 2013

ASSETS
Current assets
Cash		171			272
Accounts receivable, less estimated doubtful accounts (a)		2,405			2,084
Inventories of crude oil and products		1,123			1,030
Materials, supplies and prepaid expenses		422			342
Deferred income tax assets		676			559

Total current assets		4,797			4,287

Long-term receivables, investments and other long-term assets		1,309			1,332

Property, plant and equipment,		47,901			47,165
less accumulated depreciation and depletion		(14,886	)		(15,845	)

Property, plant and equipment, net		33,015			31,320

Goodwill		224			224
Other intangible assets, net		53			55

TOTAL ASSETS		39,398			37,218


LIABILITIES
Current liabilities
Notes and loans payable (b)		1,624			1,843
Accounts payable and accrued liabilities (a) (note 7)		4,752			4,518
Income taxes payable		710			727

Total current liabilities		7,086			7,088

Long-term debt (c) (note 6)		4,445			4,444
Other long-term obligations (note 7)		2,917			3,091
Deferred income tax liabilities		3,431			3,071

TOTAL LIABILITIES		17,879			17,694


SHAREHOLDERS’ EQUITY
Common shares at stated value (d)		1,566			1,566
Earnings reinvested		21,637			19,679
Accumulated other comprehensive income (note 9)		(1,684	)		(1,721	)

TOTAL SHAREHOLDERS’ EQUITY		21,519			19,524


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		39,398			37,218

(a)	Accounts receivable, less estimated doubtful accounts included amounts receivable from related parties of $4 million (2013 - accounts payable and accrued liabilities included amounts payable to related parties of $170 million).

(b)	Notes and loans payable included amounts to related parties of $75 million (2013 - $75 million).

(c)	Long-term debt included amounts to related parties of $4,316 million (2013 - $4,316 million).

(d)	Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2013 - 1,100 million and 848 million, respectively).

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS


(U.S. GAAP, unaudited) inflow/(outflow)	Second Quarter						Six Months to June 30
millions of Canadian dollars	2014			2013			2014			2013

OPERATING ACTIVITIES
Net income		1,232			327			2,178			1,125
Adjustments for non-cash items:
Depreciation and depletion		280			452			560			637
(Gain)/loss on asset sales (note 3)		(640	)		(51	)		(660	)		(55	)
Deferred income taxes and other		221			141			226			170
Changes in operating assets and liabilities:
Accounts receivable		333			5			(321	)		(217	)
Inventories, materials, supplies and prepaid expenses		(145	)		(177	)		(173	)		(497	)
Income taxes payable		(109	)		45			(17	)		(122	)
Accounts payable and accrued liabilities		(239	)		113			196			508
All other items - net (a)		66			(117	)		95			(214	)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		999			738			2,084			1,335


INVESTING ACTIVITIES
Additions to property, plant and equipment		(1,295	)		(1,616	)		(2,501	)		(2,961	)
Acquisition		-			-			-			(1,602	)
Proceeds associated with asset sales		732			54			807			62
Additional investments		(32	)		-			(44	)		-
Repayment of loan from equity company		-			-			-			4

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES		(595	)		(1,562	)		(1,738	)		(4,497	)


FINANCING ACTIVITIES
Short-term debt - net		(223	)		348			(223	)		1,035
Long-term debt issued		-			799			-			2,394
Reduction in capitalized lease obligations		(2	)		(2	)		(4	)		(3	)
Dividends paid		(110	)		(102	)		(220	)		(204	)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		(335	)		1,043			(447	)		3,222


INCREASE (DECREASE) IN CASH		69			219			(101	)		60
CASH AT BEGINNING OF PERIOD		102			323			272			482

CASH AT END OF PERIOD		171			542			171			542


(a) Included contribution to registered pension plans		(96	)		(178	)		(172	)		(298	)

The information in the Notes to Consolidated Financial Statements is an integral part of these statements.

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.	Basis of financial statement preparation

These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission in the company’s 2013 Annual Report on Form 10-K. In the opinion of the company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The company’s exploration and production activities are accounted for under the “successful efforts” method.

The results for the six months ended June 30, 2014, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

IMPERIAL OIL LIMITED

2.	Business segments


Second Quarter	Upstream						Downstream						Chemical
millions of dollars	2014			2013			2014			2013			2014			2013
REVENUES AND OTHER INCOME
Operating revenues (a)		2,109			1,383			6,901			6,197			389			314
Intersegment sales		1,043			1,018			370			412			115			86
Investment and other income		643			45			7			18			(1	)		-

		3,795			2,446			7,278			6,627			503			400

EXPENSES
Exploration		17			21			-			-			-			-
Purchases of crude oil and products		1,430			866			5,781			5,379			351			271
Production and manufacturing (c)		987			881			350			534			53			54
Selling and general		1			2			214			216			19			15
Federal excise tax		-			-			383			330			-			-
Depreciation and depletion (c)		216			147			58			299			3			3
Financing costs		2			-			-			2			-			-

TOTAL EXPENSES		2,653			1,917			6,786			6,760			426			343

INCOME BEFORE INCOME TAXES		1,142			529			492			(133	)		77			57
INCOME TAXES		285			132			126			(36	)		20			15

NET INCOME		857			397			366			(97	)		57			42

Cash flows from (used in) operating activities		633			588			248			99			74			52
CAPEX (b)		1,237			1,569			135			50			6			2

Second Quarter	Corporate and Other						Eliminations						Consolidated
millions of dollars	2014			2013			2014			2013			2014			2013
REVENUES AND OTHER INCOME
Operating revenues (a)		-			-			-			-			9,399			7,894
Intersegment sales		-			-			(1,528	)		(1,516	)		-			-
Investment and other income		1			1			-			-			650			64

		1			1			(1,528	)		(1,516	)		10,049			7,958

EXPENSES
Exploration		-			-			-			-			17			21
Purchases of crude oil and products		-			-			(1,527	)		(1,515	)		6,035			5,001
Production and manufacturing (c)		-			-			-			(1	)		1,390			1,468
Selling and general		63			19			(1	)		-			296			252
Federal excise tax		-			-			-			-			383			330
Depreciation and depletion (c)		3			3			-			-			280			452
Financing costs		-			-			-			-			2			2

TOTAL EXPENSES		66			22			(1,528	)		(1,516	)		8,403			7,526

INCOME BEFORE INCOME TAXES		(65	)		(21	)		-			-			1,646			432
INCOME TAXES		(17	)		(6	)		-			-			414			105

NET INCOME		(48	)		(15	)		-			-			1,232			327

Cash flows from (used in) operating activities		44			(1	)		-			-			999			738
CAPEX (b)		20			16			-			-			1,398			1,637

(a)	Included export sales to the United States of $1,370 million (2013 - $1,306 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.

(b)	Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles, additions to capital leases, additional investments and acquisition.

(c)

A second quarter 2013 charge in the Downstream segment of $355 million ($264 million, after-tax) associated with the company’s decision to convert the Dartmouth refinery to a terminal included the write-down of refinery plant and equipment not included in the terminal conversion of $245 million, reported as part of depreciation and depletion expenses, and decommissioning, environmental and employee-related costs of $110 million, reported as part of production and manufacturing expenses. Amounts incurred related to the project at the end of the second quarter 2014 associated with decommissioning, environmental and employee-related costs were $70 million.

IMPERIAL OIL LIMITED


Six Months to June 30	Upstream						Downstream						Chemical
millions of dollars	2014			2013			2014			2013			2014		2013
REVENUES AND OTHER INCOME
Operating revenues (a)		4,306			2,606			13,546			12,651			744		636
Intersegment sales		2,111			1,947			800			1,188			217		144
Investment and other income		656			47			20			30			-		-

		7,073			4,600			14,366			13,869			961		780

EXPENSES
Exploration		38			44			-			-			-		-
Purchases of crude oil and products		2,835			1,723			11,197			10,999			670		531
Production and manufacturing (c)		2,016			1,628			736			916			114		107
Selling and general		3			3			424			434			36		32
Federal excise tax		-			-			753			656			-		-
Depreciation and depletion (c)		438			275			110			351			6		6
Financing costs		4			-			-			2			-		-

TOTAL EXPENSES		5,334			3,673			13,220			13,358			826		676

INCOME BEFORE INCOME TAXES		1,739			927			1,146			511			135		104
INCOME TAXES		430			230			292			130			35		27

NET INCOME		1,309			697			854			381			100		77

Cash flows from (used in) operating activities		990			464			960			735			77		115
CAPEX (b)		2,400			4,507			183			77			8		3
Total assets as at June 30		32,940			27,870			6,121			6,391			377		379

Six Months to June 30	Corporate and Other						Eliminations						Consolidated
millions of dollars	2014			2013			2014			2013			2014		2013
REVENUES AND OTHER INCOME
Operating revenues (a)		-			-			-			-			18,596		15,893
Intersegment sales		-			-			(3,128	)		(3,279	)		-		-
Investment and other income		3			2			-			-			679		79

		3			2			(3,128	)		(3,279	)		19,275		15,972

EXPENSES
Exploration		-			-			-			-			38		44
Purchases of crude oil and products		-			-			(3,125	)		(3,277	)		11,577		9,976
Production and manufacturing (c)		-			-			-			(2	)		2,866		2,649
Selling and general		111			37			(3	)		-			571		506
Federal excise tax		-			-			-			-			753		656
Depreciation and depletion (c)		6			5			-			-			560		637
Financing costs		-			-			-			-			4		2

TOTAL EXPENSES		117			42			(3,128	)		(3,279	)		16,369		14,470

INCOME BEFORE INCOME TAXES		(114	)		(40	)		-			-			2,906		1,502
INCOME TAXES		(29	)		(10	)		-			-			728		377

NET INCOME		(85	)		(30	)		-			-			2,178		1,125

Cash flows from (used in) operating activities		57			21			-			-			2,084		1,335
CAPEX (b)		41			26			-			-			2,632		4,613
Total assets as at June 30		535			798			(575	)		(464	)		39,398		34,974

(a)	Included export sales to the United States of $2,796 million (2013 - $2,691 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.

(b)	Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles, additions to capital leases, additional investments and acquisition.

(c)

IMPERIAL OIL LIMITED

3. Investment and other income

Investment and other income included gains and losses on asset sales as follows:

Second Quarter

Six Months

to June 30

millions of dollars

2014

2013

2014

2013

Proceeds from asset sales (a)

782

807

Book value of assets sold

142

147

Gain/(loss) on asset sales, before tax (a)

640

660

Gain/(loss) on asset sales, after tax (a)

480

496

(a)

The second quarter and six months ended June 30, 2014 included gains of $638 million ($478 million, after tax) from the sale of the company’s interest in producing conventional assets located in Boundary Lake, Cynthia/West Pembina and Rocky Mountain House. $50 million of the cash proceeds associated with this sale were received in the first quarter of 2014.

4. Employee retirement benefits

The components of net benefit cost were as follows:


	Second Quarter						Six Months to June 30
millions of dollars	2014			2013			2014			2013
Pension benefits:
Current service cost		39			45			77			90
Interest cost		80			70			159			140
Expected return on plan assets		(91	)		(81	)		(182	)		(163	)
Amortization of prior service cost		5			5			11			11
Amortization of actuarial loss		43			61			86			121

Net benefit cost		76			100			151			199


Other post-retirement benefits:
Current service cost		2			2			5			5
Interest cost		6			6			12			11
Amortization of actuarial loss		2			2			4			5

Net benefit cost		10			10			21			21

IMPERIAL OIL LIMITED

5.	Financing costs and additional notes and loans payable information


	Second Quarter						Six Months to June 30
millions of dollars	2014			2013			2014			2013
Debt-related interest		20			16			41			26
Capitalized interest		(20	)		(16	)		(41	)		(26	)

Net interest expense		-			-			-			-
Other interest		2			2			4			2

Total financing costs		2			2			4			2

In the first quarter of 2014, the company extended the maturity date of its existing $500 million 364-day short-term unsecured committed bank credit facility to March 2015. All other terms and conditions of the facility remained unchanged. The company has not drawn on the facility.

6.	Long-term debt


millions of dollars	As at June 30 2014		As at Dec 31 2013
Long-term debt		4,316		4,316
Capital leases		129		128

Total long-term debt		4,445		4,444

In January 2014, the company increased the capacity of its existing floating rate loan facility with an affiliated company of ExxonMobil from $5 billion to $6.25 billion. All other terms and conditions of the agreement remained unchanged.

7.	Other long-term obligations


millions of dollars	As at June 30 2014		As at Dec 31 2013
Employee retirement benefits (a)		1,331		1,448
Asset retirement obligations and other environmental liabilities (b)		1,135		1,258
Share-based incentive compensation liabilities		223		140
Other obligations		228		245

Total other long-term obligations		2,917		3,091

(a)	Total recorded employee retirement benefits obligations also included $53 million in current liabilities (2013 - $53 million).

(b)	Total asset retirement obligations and other environmental liabilities also included $155 million in current liabilities (2013 - $154 million).

IMPERIAL OIL LIMITED

8.	Net income per share

Second
Quarter

Six Months

to June 30

2014

2013

2014

2013

Net income per common share - basic

Net income (millions of dollars)

1,232

327

2,178

1,125

Weighted average number of common shares outstanding (millions of shares)

847.6

847.6

847.6

847.6

Net income per common share (dollars)

1.45

0.39

2.57

1.33

Net income per common share - diluted

Net income (millions of dollars)

1,232

327

2,178

1,125

Weighted average number of common shares outstanding (millions of shares)

847.6

847.6

847.6

847.6

Effect of share-based awards (millions of shares)

3.1

3.2

3.0

3.1

Weighted average number of common shares outstanding, assuming dilution (millions of shares)

850.7

850.8

850.6

850.7

Net income per common share (dollars)

1.45

0.38

2.56

1.32

9.	Other comprehensive income information

Changes in accumulated other comprehensive income:


millions of dollars	2014			2013
Balance at January 1		(1,721	)		(2,455	)
Post-retirement benefits liability adjustment:
Current period change excluding amounts reclassified from accumulated other comprehensive income		(38	)		(102	)
Amounts reclassified from accumulated other comprehensive income		75			102

Balance at June 30		(1,684	)		(2,455	)

Amounts reclassified out of accumulated other comprehensive income -

before-tax income/(expense):


	Second Quarter						Six Months to June 30
millions of dollars	2014			2013			2014			2013
Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost (a)		(50	)		(68	)		(101	)		(137	)

(a)	This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 4).

Income tax expense/(credit) for components of other comprehensive income:


	Second Quarter				Six Months to June 30
millions of dollars	2014		2013		2014			2013
Post-retirement benefits liability adjustments:
Post-retirement benefits liability adjustment (excluding amortization)		-		-		(13	)		(35	)
Amortization of post-retirement benefits liability adjustment included in net periodic benefit cost		13		17		26			35

		13		17		13			-

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OPERATING RESULTS

Second quarter 2014 vs. second quarter 2013

The company’s net income for the second quarter of 2014 was $1,232 million or $1.45 per share on a diluted basis, compared with $327 million or $0.38 per share for the same period last year.

Upstream net income in the second quarter was $857 million, $460 million higher than the same period of 2013. Earnings in the second quarter of 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. Earnings were also higher by about $70 million due to the impact of a weaker Canadian dollar and higher bitumen realizations of about $55 million. These factors were partially offset by higher royalty costs of about $70 million. The incremental contribution of Kearl production in the second quarter was essentially offset by lower Syncrude and Cold Lake volumes.

The company’s average realizations from the sales of synthetic crude oil increased about 11 percent in the second quarter of 2014 to $111.95 per barrel versus $100.97 per barrel in the second quarter of 2013. The increased realizations reflected increases in West Texas Intermediate (WTI) crude oil benchmark price, which was up about nine percent, and the impact of a weaker Canadian dollar. The company’s average bitumen realizations in Canadian dollars in the second quarter were $75.92 per barrel versus $65.66 per barrel in the second quarter of 2013 as the price spread between light crude oil and bitumen narrowed. The company’s average realizations on natural gas sales of $4.08 per thousand cubic feet in the second quarter of 2014 were higher by $0.58 per thousand cubic feet versus the same period in 2013.

Gross production of Cold Lake bitumen averaged 138,000 barrels per day in the second quarter, down from 144,000 barrels in the same period last year. Lower volumes were primarily due to planned maintenance activities at the Mahihkan facilities. The planned maintenance activities were completed and the plant returned to normal operations at the beginning of the third quarter.

Gross production from the Kearl initial development in the second quarter was 73,000 barrels per day (52,000 barrels Imperial’s share) up from 6,000 barrels per day (4,000 barrels Imperial’s share) during the second quarter of 2013 when the Kearl initial development started up. April 2014 production was significantly lower than the quarterly average due to planned maintenance and reliability improvement repairs. Production growth resumed throughout the rest of the quarter, averaging 85,000 barrels per day (60,000 barrels Imperial’s share) in June.

The company’s share of Syncrude’s gross production in the second quarter was 51,000 barrels per day, down from 68,000 barrels in the second quarter of 2013. Higher planned and unplanned maintenance activities were the main contributor to the lower production. The maintenance activities were completed and one of the impacted coker units returned to normal operations during the quarter while the second impacted coker unit returned to normal operations at the beginning of the third quarter.

Gross production of conventional crude oil averaged 18,000 barrels per day in the second quarter, versus 22,000 barrels in the corresponding period in 2013. On May 1, 2014, the company completed the sale of its interests in conventional oil and gas assets located in Boundary Lake, Cynthia/West Pembina and Rocky Mountain House in western Canada. The lower production volume was primarily the impact of divested properties.

Gross production of natural gas during the second quarter of 2014 was 158 million cubic feet per day, down from 204 million cubic feet in the same period last year, reflecting the impact of divested properties.

Downstream net income was $366 million in the second quarter, $463 million higher than the second quarter of 2013. Earnings in the second quarter of 2013 included a charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings also increased due to the impacts of improved refinery reliability of about $120 million while higher marketing margins and sales volumes contributed some $70 million.

Chemical net income was $57 million in the second quarter, up from $42 million in the same quarter in 2013. The second quarter 2014 earnings were the best quarterly earnings on record. Higher polyethylene sales volumes and margins were the main contributors to the increase.

Net income effects from Corporate and Other were negative $48 million in the second quarter, versus negative $15 million in the same period of 2013, primarily due to changes in share-based compensation charges.

Six months 2014 vs. six months 2013

Net income in the first six months of 2014 was $2,178 million, of $2.56 per share on a diluted basis, versus $1,125 million of $1.32 per share for the first half of 2013.

Upstream net income for the first six months of 2014 was $1,309 million, $612 million higher than the same period of 2013. Earnings in 2014 included a gain of $478 million from the divestment of conventional upstream producing assets. Earnings also increased due to higher liquids realization of about $250 million and the impact of a weaker Canadian dollar of about $155 million. These factors were partially offset by higher royalty costs of about $165 million and higher energy costs of about $55 million. The incremental contribution of Kearl production was essentially offset by lower Syncrude and Cold Lake volumes.

The company’s average realizations from the sale of synthetic crude oil increased about 11 percent in the first six months of 2014 to $108.76 per barrel versus $98.39 per barrel in the corresponding period last year. The increased realizations reflected the increase in the WTI crude oil benchmark price, which was up about seven percent, and the impact of a weaker Canadian dollar. The company’s average bitumen realizations in Canadian dollars for the six months year-to-date in 2014 were $70.79 per barrel versus $54.03 per barrel in the same period in 2013 as the price spread between light crude oil and bitumen narrowed. The company’s average realizations on natural gas sales of $5.49 per thousand cubic feet in the first six months of 2014 were higher by $1.99 per thousand cubic feet versus the same period in 2013.

Gross production of Cold Lake bitumen averaged 142,000 barrels per day in the first six months, down from 154,000 barrels from the same period last year. Lower volumes were primarily due to the cyclic nature of steaming and associated production and the impacts of several unplanned third-party power outages in the first quarter and planned maintenance activities in the second quarter.

Gross production from the Kearl initial development in the first six months of 2014 was 72,000 barrels per day (51,000 barrels Imperial’s share).

During the first six months of 2014, the company’s share of gross production from Syncrude averaged 62,000 barrels per day, down from 67,000 barrels from the same period of 2013. Higher maintenance activities were the main contributor to the lower volumes.

Gross production of conventional crude oil averaged 20,000 barrels per day in the first half of 2014, unchanged from the same period in 2013.

Gross production of natural gas during the first six months of 2014 was 181 million cubic feet per day, down from 195 million cubic feet in the same period last year. The lower production volume was primarily the impact of divested properties.

Downstream net income was $854 million, up $473 million in the same period of 2013. Earnings in the first half of 2013 included a charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings also increased due to the impacts of improved refinery reliability of about $220 million, higher marketing margins and sales volumes totaling about $85 million and a weaker Canadian dollar of about $50 million. These factors were partially offset by lower industry refining margins of about $150 million.

Chemical net income was $100 million, the best first six months earnings on record and up $23 million over the same period in 2013. Higher margins across all major product lines and higher polyethylene sales volumes were the main contributors to the increase.

For the six months of 2014, net income effects from Corporate & Other were negative $85 million, versus negative $30 million in 2013, primarily due to changes in share-based compensation charges.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $999 million in the second quarter, versus $738 million in the corresponding period in 2013. Higher cash flow was primarily due to higher earnings partially offset by working capital effects.

Investing activities used net cash of $595 million in the second quarter, compared with $1,562 million in the same period of 2013. Additions to property, plant and equipment were $1,295 million in the second quarter, compared with $1,616 million during the same quarter in 2013. Expenditures during the quarter were primarily directed towards the advancement of Kearl expansion and Cold Lake Nabiye projects.

Proceeds from asset sales were $732 million in the second quarter, primarily related to the sale of conventional upstream producing assets, compared with $54 million in the second quarter of 2013.

Cash used in financing activities was $335 million in the second quarter, compared with cash from financing activities of $1,043 million in the second quarter of 2013. In the second quarter, the company reduced the level of its short-term debt by redeeming $223 million of its outstanding commercial paper. Dividends paid in the second quarter of 2014 were $110 million, $8 million higher than the corresponding period in 2013. Per-share dividend paid in the second quarter was $0.13, up from $0.12 in the same period of 2013

The above factors led to a decrease in the company’s balance of cash to $171 million at June 30, 2014 from $272 million at the end of 2013.

RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board issued a new standard, Revenue from Contracts with Customers. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2017. Imperial Oil is evaluating the standard and its effect on the company’s financial statements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the six months ended June 30, 2014 does not differ materially from that discussed on page 23 in the company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Form 10-Q for the quarter ended March 31, 2014.

Item 4.

Controls and Procedures.

As indicated in the certifications in Exhibit 31 of this report, the company’s principal executive officer and principal financial officer have evaluated the company’s disclosure controls and procedures as of June 30, 2014. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities (1)


Period	(a) Total number of shares (or units) purchased	(b) Average price paid per share (or unit)	(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 2014 (April 1 – April 30)	0	0	0	1,000,000
May 2014 (May 1 – May 31)	0	0	0	1,000,000
June 2014 (June 1 – June 30)	0	0	0	1,000,000

(1)

On June 21, 2013, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a normal course issuer bid and will continue its share repurchase program. The new program enables the company to repurchase up to a maximum of 1,000,000 common shares during the period June 25, 2013 to June 24, 2014. Unlike prior programs, this maximum amount is not reduced by common shares purchased for the company’s employee savings plan, the company’s employee retirement plan or from Exxon Mobil Corporation. The program ended on June 24, 2014.

(2)

On June 23, 2014, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its share repurchase program. The new program enables the company to repurchase up to a maximum of 1,000,000 common shares during the period June 25, 2014 to June 24, 2015. The program will end when the company has purchased the maximum allowable number of shares, or on June 24, 2015.

The company will continue to evaluate its share purchase program in the context of its overall capital activities.

Item 6.

Exhibits.

(31.1) Certification by the principal executive officer of the company pursuant to Rule 13a-14(a).

(31.2) Certification by the principal financial officer of the company pursuant to Rule 13a-14(a).

(32.1) Certification by the chief executive officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

(32.2) Certification by the chief financial officer and of the company pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						IMPERIAL OIL LIMITED
						(Registrant)

Date: August 5, 2014						/s/ Paul J. Masschelin
						(Signature)
						Paul J. Masschelin
						Senior Vice-President, Finance and Administration and Controller
						(Principal Accounting Officer)

Date: August 5, 2014						/s/ Brent A. Latimer
						(Signature)
						Brent A. Latimer
						Assistant Secretary

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