FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from -— to —

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 90 days.
YES þ       NO o

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 þ                      Accelerated filer o                      Non-accelerated filer o

The registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES o       NO þ

The number of common shares outstanding, as of June 30, 2007, was 926,945,853.

 

 

IMPERIAL OIL LIMITED

INDEX

		PAGE
PART I — Financial Information
Item 1 - Financial Statements.
Consolidated Statement of Income — Three months ended June 30, 2007 and 2006 Six months ended June 30, 2007 and 2006			3
Consolidated Statement of Cash Flows — Three months ended June 30, 2007 and 2006 Six months ended June 30, 2007 and 2006			4
Consolidated Balance Sheet — As at June 30, 2007 and December 31, 2006			5
Notes to the Consolidated Financial Statements			6
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.			12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk.			16
Item 4 - Controls and Procedures.			16
PART II — Other Information
Item 1 - Legal Proceedings			17
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.			17
Item 6 - Exhibits.			18
SIGNATURES			18
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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, 2006, and Form 10-Q for the quarter ended March 31, 2007.

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.

IMPERIAL OIL LIMITED

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENT OF INCOME
(U.S. GAAP, unaudited)														Six months
		Second quarter								to June 30
millions of Canadian dollars		2007				2006				2007				2006
REVENUES AND OTHER INCOME
Operating revenues (a)(b)			6,299				6,604				12,066				12,390
Investment and other income (4)			40				84				207				116
TOTAL REVENUES AND OTHER INCOME			6,339				6,688				12,273				12,506
EXPENSES
Exploration			43				3				71				13
Purchases of crude oil and products (c)			3,470				3,868				6,623				7,002
Production and manufacturing (5)(d)			888				925				1,734				1,847
Selling and general (5)			385				277				671				615
Federal excise tax (a)			324				315				629				618
Depreciation and depletion			198				214				387				430
Financing costs (6)(e)			11				2				23				7
TOTAL EXPENSES			5,319				5,604				10,138				10,532
INCOME BEFORE INCOME TAXES			1,020				1,084				2,135				1,974
INCOME TAXES			308				247				649				546
NET INCOME (3)			712				837				1,486				1,428
NET INCOME PER COMMON SHARE — BASIC (dollars) (9)			0.76				0.85				1.58				1.45
NET INCOME PER COMMON SHARE — DILUTED (dollars) (9)			0.76				0.85				1.57				1.44
DIVIDENDS PER COMMON SHARE (dollars) (9)			0.09				0.08				0.17				0.16
(a) Federal excise tax included in operating revenues			324				315				629				618
(b) Amounts from related parties included in operating revenues			407				628				846				1,121
(c) Amounts to related parties included in purchases of crude oil and products			797				858				1,547				1,983
(d) Amounts to related parties included in production and manufacturing expenses			47				36				81				69
(e) Amounts to related parties included in financing costs			8				8				17				15

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. GAAP, unaudited)										Six months
inflow/(outflow)		Second quarter								to June 30
millions of Canadian dollars		2007				2006				2007				2006
OPERATING ACTIVITIES
Net income			712				837				1,486				1,428
Adjustment for non-cash items:
Depreciation and depletion			198				214				387				430
(Gain)/loss on asset sales, after income tax (4)			(8	)			(46	)			(101	)			(54	)
Deferred income taxes and other			(20	)			(138	)			51				(43	)
Changes in operating assets and liabilities:
Accounts receivable			(116	)			(191	)			(232	)			20
Inventories and prepaids			71				243				(198	)			(209	)
Income taxes payable			16				68				(408	)			(295	)
Accounts payable			210				(91	)			480				(127	)
All other items — net (a)			62				30				(65	)			(262	)
CASH FROM (USED IN) OPERATING ACTIVTIES			1,125				926				1,400				888
INVESTING ACTIVITIES
Additions to property, plant and equipment and intangibles			(184	)			(280	)			(372	)			(592	)
Proceeds from asset sales			17				107				186				134
Loans to equity company			(1	)			(1	)			(1	)			(2	)
CASH FROM (USED IN) INVESTING ACTIVITIES			(168	)			(174	)			(187	)			(460	)
FINANCING ACTIVITIES
Short-term debt — net			405				72				405				72
Repayment of long-term debt			(654	)			(71	)			(655	)			(72	)
Long-term Debt issued			250				—				250				—
Issuance of common shares under stock option plan			7				3				9				4
Common shares purchased (9)			(622	)			(395	)			(1,191	)			(937	)
Dividends paid			(76	)			(79	)			(152	)			(159	)
CASH FROM (USED IN) FINANCING ACTIVITIES			(690	)			(470	)			(1,334	)			(1,092	)
INCREASE (DECREASE) IN CASH			267				282				(121	)			(664	)
CASH AT BEGINNING OF PERIOD			1,770				715				2,158				1,661
CASH AT END OF PERIOD			2,037				997				2,037				997
(a) Includes contribution to registered pension plans			(6	)			(3	)			(153	)			(356	)

The notes to the financial statements are an integral part of these financial statements.

IMPERIAL OIL LIMITED

CONSOLIDATED BALANCE SHEET		As at				As at
(U.S. GAAP, unaudited)		June 30				Dec.31
millions of Canadian dollars		2007				2006
ASSETS
Current assets
Cash			2,037				2,158
Accounts receivable, less estimated doubtful accounts			2,104				1,871
Inventories of crude oil and products			740				556
Materials, supplies and prepaid expenses			165				151
Deferred income tax assets			611				573
Total current assets			5,657				5,309
Investments and other long-term assets			649				104
Property, plant and equipment,			22,540				22,478
less accumulated depreciation and depletion			(12,164	)			12,021
Property, plant and equipment (net)			10,376				10,457
Goodwill			204				204
Other intangible assets, net			65				67
TOTAL ASSETS			16,951				16,141
LIABILITIES
Current liabilities
Short-term debt			575				171
Accounts payable and accrued liabilities (8)(a)			3,567				3,080
Income taxes payable			1,161				1,190
Current portion of long-term debt (7)(b)			572				907
Total current liabilities			5,875				5,348
Long-term debt (7)(c)			289				359
Other long-term obligations (8)			1,769				1,683
Deferred income tax liabilities			1,446				1,345
TOTAL LIABILITIES			9,379				8,735
SHAREHOLDERS’ EQUITY
Common shares at stated value (9)(d)			1,639				1,677
Earnings reinvested (10)			6,659				6,462
Accumulated other comprehensive income (11)			(726	)			(733	)
TOTAL SHAREHOLDERS’ EQUITY			7,572				7,406
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			16,951				16,141

The notes to the financial statements are an integral part of these financial statements.

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.

Basis of financial statement presentation

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. In the opinion of the management, the information furnished herein reflects all known accruals and adjustments necessary for a fair presentation of the financial position of the company as at June 30, 2007, and December 31, 2006, and the results of operations and changes in cash flows for the six months ending June 30, 2007 and 2006. All such adjustments are of a normal recurring nature. The company’s exploration and production activities are accounted for under the “successful efforts” method. Certain reclassifications to the prior year have been made to conform to the 2007 presentation.

The results for the six months ending June 30, 2007, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

2.

Accounting change for uncertainty in income taxes

Effective January 1, 2007, the company adopted the Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” and prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its income tax returns. Upon the adoption of FIN 48, the company recognized a transition gain of $14 million in shareholders’ equity. The gain reflected the recognition of several refund claims with associated interest, partly offset by increased income tax reserves.

The total amount of unrecognized income tax benefits at January 1, 2007, was $142 million. The company’s effective tax rate will be reduced if any of these tax benefits are subsequently recognized. The unrecognized tax benefits described above will not be included in the company’s annual Form 10-K contractual obligations table because the company does not expect that there will be any cash impact from the final settlements as sufficient general funds have been deposited with the Canada Revenue Agency (CRA).

The company’s tax filings from 2002 to 2006 are subject to examination by the tax authorities. The CRA has proposed certain adjustments to the company’s filings for several years in the period 1987 to 2001. Management is currently evaluating those proposed adjustments. Management believes that a number of outstanding matters before 2002 are expected to be resolved in 2007. The impact on unrecognized tax benefits and associated earnings effects, if any, from these matters are not expected to be material.

The company classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense.

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

3.

Business segments

		Natural								Petroleum
Second quarter		Resources								Products								Chemicals
millions of dollars		2007				2006				2007				2006				2007				2006
REVENUES AND OTHER INCOME
External sales (a)			1,210				1,260				4,764				5,003				325				341
Intersegment sales			832				1,024				551				605				91				80
Investment and other income			5				55				14				15				—				—
			2,047				2,339				5,329				5,623				416				421
EXPENSES
Exploration (b)			43				3				—				—				—				—
Purchases of crude oil and products			706				803				3,921				4,469				317				305
Production and manufacturing			527				486				313				394				48				45
Selling and general			2				4				244				244				17				19
Federal excise tax			—				—				324				315				—				—
Depreciation and depletion			134				156				60				55				2				3
Financing costs			1				—				1				—				—				—
TOTAL EXPENSES			1,413				1,452				4,863				5,477				384				372
INCOME BEFORE INCOME TAXES			634				887				466				146				32				49
INCOME TAXES			174				133				152				84				10				18
NET INCOME			460				754				314				62				22				31
Export sales to the United States			547				530				280				226				185				199
Cash flows from (used in) operating activities			675				631				491				232				(7	)			88
CAPEX (b)			140				144				48				120				3				4

		Corporate
Second quarter		and Other								Eliminations								Consolidated
millions of dollars		2007				2006				2007				2006				2007				2006
REVENUES AND OTHER INCOME
External sales (a)			—				—				—				—				6,299				6,604
Intersegment sales			—				—				(1,474	)			(1,709	)			—				—
Investment and other income			21				14				—				—				40				84
			21				14				(1,474	)			(1,709	)			6,339				6,688
EXPENSES
Exploration (b)			—				—				—				—				43				3
Purchases of crude oil and products			—				—				(1,474	)			(1,709	)			3,470				3,868
Production and manufacturing			—				—				—				—				888				925
Selling and general			122				10				—				—				385				277
Federal excise tax			—				—				—				—				324				315
Depreciation and depletion			2				—				—				—				198				214
Financing costs			9				2				—				—				11				2
TOTAL EXPENSES			133				12				(1,474	)			(1,709	)			5,319				5,604
INCOME BEFORE INCOME TAXES			(112	)			2				—				—				1,020				1,084
INCOME TAXES			(28	)			12				—				—				308				247
NET INCOME			(84	)			(10	)			—				—				712				837
Export sales to the United States			—				—				—				—				1,012				955
Cash flows from (used in) operating activities			(34	)			(25	)			—				—				1,125				926
CAPEX (b)			9				15				—				—				200				283

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

3.

Business segments (continued)

		Natural								Petroleum
Six months to June 30		Resources								Products								Chemicals
millions of dollars		2007				2006				2007				2006				2007				2006
REVENUES AND OTHER INCOME
External sales (a)			2,349				2,406				9,082				9,281				635				703
Intersegment sales			1,750				1,852				1,057				1,206				173				168
Investment and other income			140				65				24				23				—				—
			4,239				4,323				10,163				10,510				808				871
EXPENSES
Exploration (b)			71				13				—				—				—				—
Purchases of crude oil and products			1,424				1,465				7,578				8,143				601				619
Production and manufacturing			1,036				1,045				604				705				94				98
Selling and general			4				7				477				485				35				39
Federal excise tax			—				—				629				618				—				—
Depreciation and depletion			258				312				121				111				5				6
Financing costs			3				—				1				—				—				—
TOTAL EXPENSES			2,796				2,842				9,410				10,062				735				762
INCOME BEFORE INCOME TAXES			1,443				1,481				753				448				73				109
INCOME TAXES			420				330				241				187				23				39
NET INCOME			1,023				1,151				512				261				50				70
Export sales to the United States			1,022				955				502				492				364				415
Cash flows from (used in) operating activities			942				816				472				69				(59	)			67
CAPEX (b)			311				361				83				215				6				4
Total assets as at June 30			7,880				7,278				6,795				6,696				515				490

		Corporate
Six months to June 30		and Other								Eliminations								Consolidated
millions of dollars		2007				2006				2007				2006				2007				2006
REVENUES AND OTHER INCOME
External sales (a)			—				—				—				—				12,066				12,390
Intersegment sales			—				—				(2,980	)			(3,226	)			—				—
Investment and other income			43				28				—				—				207				116
			43				28				(2,980	)			(3,226	)			12,273				12,506
EXPENSES
Exploration (b)			—				—				—				—				71				13
Purchases of crude oil and products			—				—				(2,980	)			(3,225	)			6,623				7,002
Production and manufacturing			—				—				—				(1	)			1,734				1,847
Selling and general			155				84				—				—				671				615
Federal excise tax			—				—				—				—				629				618
Depreciation and depletion			3				1				—				—				387				430
Financing costs			19				7				—				—				23				7
TOTAL EXPENSES			177				92				(2,980	)			(3,226	)			10,138				10,532
INCOME BEFORE INCOME TAXES			(134	)			(64	)			—				—				2,135				1,974
INCOME TAXES			(35	)			(10	)			—				—				649				546
NET INCOME			(99	)			(54	)			—				—				1,486				1,428
Export sales to the United States			—				—				—				—				1,888				1,862
Cash flows from (used in) operating activities			45				(64	)			—				—				1,400				888
CAPEX (b)			16				25				—				—				416				605
Total assets as at June 30			2,069				1,283				(308	)			(501	)			16,951				15,246

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

4.

Investment and other income

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

										Six months
		Second quarter								to June 30
millions of dollars		2007				2006				2007				2006
Proceeds from asset sales			17				107				186				134
Book value of assets sold			9				40				47				56
Gain/(loss) on asset sales, before tax (a)			8				67				139				78
Gain/(loss) on asset sales, after tax (a)			8				46				101				54

5.

Employee retirement benefits

The components of net benefit cost included in production and manufacturing and selling and general expenses in the consolidated statement of income are as follows:

										Six months
		Second quarter								to June 30
millions of dollars		2007				2006				2007				2006
Pension benefits:
Current service cost			25				25				50				50
Interest cost			62				59				123				119
Expected return on plan assets			(82	)			(75	)			(164	)			(150	)
Amortization of prior service cost			5				5				10				10
Recognized actuarial loss			19				28				38				57
Net benefit cost			29				42				57				86
Other post-retirement benefits:
Current service cost			2				2				3				4
Interest cost			6				6				12				12
Recognized actuarial loss			1				2				3				4
Net benefit cost			9				10				18				20

6.

Financing costs

										Six months
		Second quarter								to June 30
millions of dollars		2007				2006				2007				2006
Debt related interest			17				15				33				29
Capitalized interest			(9	)			(14	)			(16	)			(24	)
Net interest expense			8				1				17				5
Other interest			3				1				6				2
Total financing costs			11				2				23				7

7.

Long-term debt

						As at				As at
						June 30				Dec. 31
						2007				2006
Issued		Maturity date		Interest rate		millions of dollars
2003		$250 million due May 26, 2007 (a) and
		$250 million due August 26, 2007		Variable			—				—
2003		January 19, 2008		Variable			—				318
2007		May 26, 2009 (a)		Variable			250				—
Long-term debt							250				318
Capital leases							39				41
Total long-term debt (b)							289				359

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

8.

Other long-term obligations

		As at				As at
		June 30				Dec. 31
millions of dollars		2007				2006
Employee retirement benefits (a)			897				1,017
Asset retirement obligations and other environmental liabilities (b)			438				438
Other obligations			434				228
Total other long-term obligations			1,769				1,683

9.

Common shares

		As at				As at
		June 30				Dec. 31
thousands of shares		2007				2006
Authorized			1,100,000				1,100,000
Common shares outstanding			926,946				952,988

From 1995 through 2006, the company purchased shares under twelve 12-month normal course issuer bid share repurchase programs, as well as an auction tender. On June 25, 2007, another 12-month normal course issuer bid program was implemented with an allowable purchase of about 46.5 million shares (five percent of the total on June 22, 2007), less any shares purchased by the employee savings plan and company pension fund. The results of these activities are as shown below:

		millions of
Year		shares				dollars
1995 - 2005			750.1				8,635
2006 - Second quarter			10.0				395
- Full year			45.5				1,818
2007 - Second quarter			13.0				622
- Year-to-date			26.6				1,191
Cumulative purchases to date			822.2				11,644

Exxon Mobil Corporation’s participation in the above share repurchase maintained its ownership interest in Imperial at 69.6 percent.

The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested.

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table provides the calculation of net income per common share:

										Six months
		Second quarter								to June 30
		2007				2006				2007				2006
Net income per common share — basic
Net income (millions of dollars)			712				837				1,486				1,428
Weighted average number of common shares outstanding (millions of shares)			934.1				979.6				941.4				986.3
Net income per common share (dollars)			0.76				0.85				1.58				1.45
Net income per common share — diluted
Net income (millions of dollars)			712				837				1,486				1,428
Weighted average number of common shares outstanding (millions of shares)			934.1				979.6				941.4				986.3
Effect of employee stock-based awards (millions of shares)			5.8				4.4				5.7				4.4
Weighted average number of common shares outstanding, assuming dilution (millions of shares)			939.9				984.0				947.1				990.7
Net income per common share (dollars)			0.76				0.85				1.57				1.44

10.

Earnings reinvested

										Six months
		Second quarter								to June 30
millions of dollars		2007				2006				2007				2006
Earnings reinvested at beginning of period			6,630				5,460				6,462				5,466
Cumulative effect of accounting change (2)			—				—				14				—
Net income for the period			712				837				1,486				1,428
Share purchases in excess of stated value			(599	)			(377	)			(1,144	)			(895	)
Dividends			(84	)			(79	)			(159	)			(158	)
Earnings reinvested at end of period			6,659				5,841				6,659				5,841

11.

Comprehensive income

										Six months
		Second quarter								to June 30
millions of dollars		2007				2006				2007				2006
Net income			712				837				1,486				1,428
Post-retirement benefit liability adjustment (excluding amortization)			—				—				(28	)			—
Amortization of post retirement benefit liability adjustment included in net periodic benefit costs			18				—				35				—
Other comprehensive income (net of income taxes)			18				—				7				—
Total comprehensive income			730				837				1,493				1,428

12.

Additional SFAS 158 Adoption Disclosure

In its 2006 Form 10-K financial statements, the company reported the adjustment related to the adoption of Statement of Financial Accounting Standards No. 158 (SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment to FASB Statements No. 87, 88, 106 and 132(R)” as a component of 2006 comprehensive income. Based on further regulatory guidance, this adjustment should have been reported as an adjustment to ending 2006 accumulated other comprehensive income. The amount reported by the company as 2006 comprehensive income (nonowner changes in equity) was $2,891 million. Excluding the negative $487 million SFAS 158 adoption adjustment (which was separately disclosed in the 2006 Form 10-K footnote 6, Employee retirement benefits), the amount would have been $3,378 million. The company will accordingly revise the presentation of 2006 comprehensive income (nonowner changes in equity) in its 2007 Form 10-K financial statements.

IMPERIAL OIL LIMITED

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

OPERATING RESULTS
The company’s net income for the second quarter of 2007 was $712 million or $0.76 a share on a diluted basis, compared with $837 million or $0.85 a share for the same period last year. Net income for the first six months of 2007 was $1,486 million or $1.57 a share on a diluted basis, versus $1,428 million or $1.44 a share for the first half of 2006.

Earnings in the second quarter were lower than the same period of 2006 due mainly to the absence of the favourable effects of tax rate changes of about $120 million reported in the second quarter of 2006 and higher share-based compensation expenses of about $65 million. Earnings were also lower due to lower crude oil realizations of about $120 million and higher upstream energy costs and exploration expenses of about $50 million. These factors were partially offset by stronger industry refining and marketing margins of about $115 million, favourable impacts of about $100 million from lower refinery maintenance and project activities and higher realizations for natural gas liquids (NGL) and natural gas totaling about $30 million.

For the first six months, earnings increased primarily due to stronger industry refining and marketing margins of about $160 million and higher Syncrude volumes of about $80 million. Gains from asset divestment were also higher in 2007 by about $50 million. Higher earnings were partially offset by lower conventional resources volumes of about $105 million and the absence of the favourable effects of tax rate changes of about $120 million reported in 2006.

Natural resources
Net income from natural resources in the second quarter was $460 million, versus $754 million in the same period of 2006. Earnings decreased primarily due to lower crude oil realizations of about $120 million, higher energy costs and exploration expenses totaling about $50 million and the impact of a higher Canadian dollar of about $15 million. Earnings were also lower due to the absence of the effects of tax rate reductions of about $160 million reported in second quarter 2006. These factors were partially offset by higher realizations for NGL and natural gas totaling about $30 million. The impact of natural resources volumes on earnings was mixed with higher net Cold Lake and Syncrude volumes totaling about $60 million partially offset by lower natural gas volumes of about $35 million.

Net income for the first six months was $1,023 million versus $1,151 million during the same period last year. Earnings decreased primarily due to lower conventional crude oil, NGL and natural gas volumes of about $105 million. Earnings were also lower due to the absence of the effects of tax rate reductions of about $160 million reported in 2006. These factors were partially offset by higher Syncrude volumes of about $80 million. Higher realizations for Cold Lake heavy oil of about $25 million were essentially offset by lower natural gas realizations of about $30 million. Gains from asset divestments were higher in 2007 by about $50 million.

The company’s average realizations for conventional crude oil were about 11 percent lower in the second quarter and about seven percent lower for the first six months compared to the same periods last year reflecting lower world crude oil prices. Average realizations for Cold Lake heavy oil in the second quarter were over 20 percent lower than the second quarter of 2006 as the price spread between light crude oil and Cold Lake heavy oil widened. However, for the first six months in 2007, average realizations for Cold Lake heavy oil were still slightly higher than the

IMPERIAL OIL LIMITED

same period in 2006. Realizations for natural gas averaged $7.61 a thousand cubic feet in the second quarter, up from $6.52 in the same quarter last year. For the first six-month period, realizations for natural gas averaged $7.68 a thousand cubic feet in 2007, down from $7.99 in the same period of 2006.

Total gross production of crude oil and NGLs in the second quarter was 263 thousand barrels a day, versus 273 thousand barrels in the second quarter of 2006. For the first six months of the year, total gross production of crude oil and NGLs averaged 266 thousand barrels a day, compared with 269 thousand barrels in the same period of 2006.

Gross production of Cold Lake heavy oil averaged 150 thousand barrels a day during the second quarter, versus 157 thousand barrels in the same quarter last year. For the first six months, gross production was 148 thousand barrels a day this year, compared with 154 thousand barrels in the same period of 2006. Lower production was due to maintenance activities and the cyclic nature of production at Cold Lake.

The company’s share of Syncrude’s gross production was 66 thousand barrels a day in the second quarter compared with 60 thousand barrels during the same period a year ago. During the six-month period, the company’s share of gross production from Syncrude averaged 70 thousand barrels a day in 2007, up from 56 thousand barrels in the same period of 2006. Increased volumes from the new Stage 3 coker unit were partially offset by lower production due to planned maintenance activities.

In the second quarter, gross production of conventional crude oil averaged 29 thousand barrels a day, compared with 31 thousand barrels during the same period in 2006. For the first six months, gross production of conventional crude oil averaged 30 thousand barrels a day, compared with 32 thousand barrels during the same period in 2006. Natural reservoir decline in the Western Canadian Basin was the main reason for the reduced production.

Gross production of NGLs available for sale was 18 thousand barrels a day in the second quarter, down from 25 thousand barrels in the same quarter last year. During the first half of 2007, gross production of NGLs available for sale decreased to 18 thousand barrels a day, from 27 thousand barrels in the same period of 2006, mainly due to declining NGL content of Wizard Lake gas production.

Gross production of natural gas during the second quarter of 2007 decreased to 492 million cubic feet a day from 557 million cubic feet in the same period last year. In the first half of the year, gross production was 508 million cubic feet a day, down from 568 million in the first six months of 2006. The lower production volume was primarily due to decline in production from the gas cap at Wizard Lake and natural decline in other producing properties in the Western Canadian Basin.

In April, the exploration well drilled with co-venturers in Orphan Basin off the East Coast of Newfoundland was completed. Exploration costs related to the well were reflected in the second quarter earnings. Results from the well will be used to plan future drilling in the area.

IMPERIAL OIL LIMITED

In July, the company, along with co-venturer ExxonMobil Canada, successfully acquired exploration rights for a parcel in the Beaufort Sea. The company’s 50 percent share of the proposed exploration spending would be about $293 million with a minimum commitment of about $73 million.

Petroleum products
Net income from petroleum products was a record of $314 million in the second quarter of 2007, an increase of $252 million from the same period a year ago. Stronger industry refining and marketing margins totaling about $115 million and favourable margin and expense effects of about $100 million associated with lower refinery maintenance and project activities were the main contributors to higher earnings. Earnings were also higher with the absence of the unfavourable effects of tax rate changes of about $40 million reported in second quarter 2006.

Six-month net income was $512 million, $251 million higher than the same period of 2006. Increased earnings were primarily due to stronger industry refining and marketing margins totaling about $160 million and favourable impacts of about $50 million from lower refinery maintenance and project activities. Earnings were also higher with the absence of the unfavourable effects of tax rate changes of about $40 million reported in 2006.

Chemicals
Net income from chemicals was $22 million in the second quarter, compared with $31 million in the same period last year. Six-month net income was $50 million, compared with $70 million for the same period in 2006. Lower earnings were due primarily to lower industry margin for polyethylene products.

Corporate and other
Net income from corporate and other was negative $84 million in the second quarter, compared with negative $10 million in the same period of 2006. Six-month net income was negative $99 million, versus negative $54 million last year. Unfavourable earnings effects were due mainly to higher share-based compensation charges.

LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $1,125 million during the second quarter of 2007, $199 million higher than the same period last year. The increase in cash flow was driven primarily by lower working capital requirements. Year-to-date cash flow from operating activities was $1,400 million, an increase of $512 million from the first half of 2006. Lower working capital requirements and lower funding to employee pension plans were the main reasons for the increase.

Capital and exploration expenditures were $200 million in the second quarter, compared with $283 million during the same quarter of 2006, and $416 million in the first half of 2007, versus $605 million in the same period a year ago. Lower expenditures were primarily due to the completion of the Stage 3 upgrader expansion project at Syncrude and also the completion of the project to produce ultra-low sulphur diesel. In 2007, for the natural resources segment, capital and exploration expenditures included ongoing development drilling and programs at Cold Lake

IMPERIAL OIL LIMITED

to maintain and expand production capacity, drilling at conventional fields in Western Canada and advancing the Mackenzie gas and Kearl oil sands projects. The petroleum products segment’s capital expenditures were mainly on projects to improve operating efficiency and upgrade the network of Esso retail outlets.

In the second quarter of 2007, the company retired the remaining $404 million of its medium-term notes on maturity, replacing them with short-term Canadian commercial paper. Also in the second quarter, the company retired its $250-million variable-rate loan on maturity and replaced it with a $250 million long-term variable-rate loan from an affiliated company of Exxon Mobil Corporation at interest equivalent to Canadian market rates.

In June, the company received approval from the Toronto Stock Exchange for a new normal course issuer bid to continue its existing share-purchase program that expired on June 22, 2007. The new share-purchase program enables the company to repurchase up to about 46.5 million shares during the period from June 25, 2007, to June 24, 2008. During the first half of 2007, the company repurchased about 26.6 million shares for $1,191 million.

Cash dividends of $152 million were paid in the first six months of 2007. This compared with dividends of $159 million in the comparable period of 2006. Increased repurchase of shares reduced the number of shares outstanding and total dividend payments. On May 22, 2007, the company declared a quarterly dividend of nine cents a share, an increase of one cent a share from the previous quarter, payable on July 1, 2007.

The above factors led to a decrease in the company’s balance of cash and marketable securities to $2,037 million at June 30, 2007, from $2,158 million at the end of 2006.

Item 3.		Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the six months ended June 30, 2007 does not differ materially from that discussed on page 30 in the company’s annual report on Form 10-K for the year ended December 31, 2006 and Form 10-Q for the quarter ended March 31, 2007.

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, 2007. 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 1. Legal Proceedings

On May 14, 2007 Imperial Oil Limited was charged with an alleged violation of section 186(1) of the Environmental Protection Act (Ontario), as a result of emissions of sulphur dioxide allegedly in excess of regulated limits during an operating upset at its Sarnia refinery on December 6, 2005. The matter has been remanded for the next court appearance to August 24, 2007. Under the relevant sections of the act the minimum fine is $100,000 and maximum fine is $10,000,000 with the potential for a surcharge. It is anticipated that a conviction would result in a penalty at the lower end of the range.

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

During the period April 1, 2007 to June 30, 2007, the company issued 398,712 common shares to employees or former employees outside the U.S.A. for $15.50 per share upon the exercise of stock options. These issuances were not registered under the Securities Act in reliance on Regulation S thereunder.

Issuer Purchases of Equity Securities (1)

(d) Maximum

(c) Total

number (or

number of

approximate

(b)

shares (or units)

dollar value) of

(a) Total

Average

purchased as

shares (or units)

number of

price

part of publicly

that may yet be

shares (or

paid per

announced

purchased

units)

share (or

plans or

under the plans

Period

purchased

unit)

programs

or programs

April 2007 (April 1 - April 30)

1,717,890

$

43.58

1,717,890

10,104,392

May 2007 (May 1 - May 31)

6,998,697

$

47.49

6,998,697

3,046,379

June 2007 (June 1 - June 30)

4,322,928

$

49.60

4,322,928

44,979,707

(1) On June 21, 2006, the company announced by press release that it had received final approval from the Toronto Stock Exchange for another normal course issuer bid to continue its share repurchase program. That enabled the company to repurchase up to a maximum of 48,772,466 common shares, including common shares purchased for the company’s employee savings plan and employee retirement plan during the period June 23, 2006 to June 22, 2007. That program ended on June 22, 2007.

On June 21, 2007, the company announced by press release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid to continue its share repurchase program. The new program enables the company to repurchase up to a maximum of 46,459,967 common shares, including common shares purchased for the company’s employee

savings plan and employee retirement plan during the period June 25, 2007 to June 24, 2008. If not previously terminated, the program will end on June 24, 2008.

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 2, 2007		/s/ P.A. Smith
				(Signature)
				Paul A. Smith
				Controller and Senior Vice-President,
				Finance and Administration
				(Principal Accounting Officer)
Date:		August 2, 2007		/s/ Brent.A. Latimer
				(Signature)
				Brent A. Latimer
				Assistant Secretary