ab 18 July 2025 Global Oil and Gas Global Oil & Gas Valuation 18 July 2025 UBS Investment Research Global Oil & Gas Valuation Sheets This material has been prepared by UBS Europe SE Henri Patricot CFA, Analyst, +33-1-4888 3033, henri.patricot@ubs.com 18 July 2025 India Bharat Petroleum Hindustan Petroleum Indian Oil ONGC Reliance Industries Europe BP BW LPG Ceres Power ENI Fuchs Petrolub Galp Industrie De Nora ITM Power MOL Motor Oil North America Aemetis Antero Resources APA Corp Arc Resources Archer-Danie ...

Core Insights - Imperial Oil Ltd. has identified a small diesel leak from its dock in Ontario, which has leaked into the Saint Clair River, and the company has taken measures to contain the spillage [1][8] Containment and Cleanup Efforts - Containment booms were deployed in the river to limit the damage caused by the leakage, and the source of the leak was promptly identified and stopped [2][8] - Cleanup efforts are currently underway, and precautionary water quality checks downstream indicate no significant levels of hydrocarbons have been detected [3]

Core Viewpoint - Imperial Oil Limited (IMO) has shown a 3.3% increase in share price over the past year, outperforming the broader oil and energy sector, which declined by 7.2% [1]. Company Overview - Imperial Oil is a major Canadian oil company with a diverse portfolio that includes oil and gas production, refining, marketing, and chemical manufacturing [4]. - The company is Canada's largest supplier of jet fuel and a top asphalt producer, benefiting from a 69.6% ownership stake by ExxonMobil, which provides access to global expertise and resources [4]. Key Factors Boosting Market Position - **Integrated Business Model**: Imperial's vertical integration combines upstream oil production with downstream refining and marketing, leading to a surge in downstream earnings to C$584 million in Q1 2025, up C$228 million from Q4 2024 [6]. - **Shareholder-Friendly Capital Allocation**: The company returned C$307 million in dividends in Q1 2025 and plans to renew its Normal Course Issuer Bid, indicating confidence in future cash flows [7][8]. - **Strategic Projects with Renewable Edge**: Key projects include the Leming SAGD development, expected to add 9,000 barrels per day, and the Strathcona renewable diesel facility, aligning with low-carbon fuel trends [9]. - **Efficiency-Driven Cost Reductions**: Imperial has reduced cash costs at Cold Lake by over C$3 per barrel year over year and aims for further reductions to C$13 per barrel at Cold Lake and C$18 at Kearl [10][11]. - **Strategic Infrastructure Positioning**: The company owns key pipelines and storage facilities, providing reliable market access and mitigating midstream bottlenecks [12]. Challenges and Risks - **Oil Price and Margin Volatility**: Imperial is sensitive to crude oil price fluctuations, with WTI prices averaging C$71.42 per barrel in Q1 2025, down from C$76.86 in Q1 2024 [13]. - **Operational Risks and Weather-Related Disruptions**: Production was impacted by extreme cold weather, with Kearl's output down by 21,000 barrels year over year [14]. - **Lower Bitumen Prices Pressure Upstream Realizations**: Weaker realizations in oil sands operations due to falling bitumen prices have impacted upstream margins [15]. - **Limited Exposure to LNG Growth**: Unlike peers investing in LNG projects, Imperial focuses on oil and refined products, potentially missing out on the growing demand for natural gas [17]. Final Assessment - Imperial Oil's integrated business model and strong shareholder returns position it well for long-term profitability, despite vulnerabilities to commodity price swings and operational risks [18][19].

Financial Performance - Net income for Q1 2025 was CAD 1,288 million, an increase from CAD 1,195 million in Q1 2024, representing a 7.8% year-over-year growth[44] - Cash flows from operating activities increased to CAD 1,527 million in Q1 2025, up from CAD 1,076 million in Q1 2024, reflecting higher upstream realizations[53] - Dividends paid increased to CAD 307 million in Q1 2025 from CAD 278 million in Q1 2024, with per share dividends rising to CAD 0.60 from CAD 0.50[55] Production and Operations - Kearl's production decreased to 181,000 barrels per day in Q1 2025 from 196,000 barrels per day in Q1 2024, primarily due to extreme cold weather and unplanned downtime[47] - Production at Cold Lake increased to 154,000 barrels per day in Q1 2025 from 142,000 barrels per day in Q1 2024, driven by Grand Rapids solvent-assisted SAGD[48] - Refinery throughput decreased to 397,000 barrels per day in Q1 2025 from 407,000 barrels per day in Q1 2024, with refinery capacity utilization dropping to 91% from 94%[50] Market Conditions - Average bitumen realizations increased by CAD 8.75 per barrel, driven by a narrowing WTI/WCS spread, while synthetic crude oil realizations rose by CAD 5.28 per barrel[45] - The average foreign exchange rate was CAD 0.70 per USD in Q1 2025, compared to CAD 0.74 per USD in Q1 2024[46] - The company continues to monitor the volatile global trade environment, with uncertainty regarding the impact of tariffs and trade sanctions on operations[43] Strategic Focus - The company is focused on executing its project plans, including the Strathcona renewable diesel project and autonomous operations at Kearl, amidst various market risks[58]

Core Insights - Imperial Oil reported revenue of $8.72 billion for Q1 2025, a year-over-year decline of 4.3%, and an EPS of $1.75, up from $1.65 a year ago [1] - The revenue fell short of the Zacks Consensus Estimate of $11.11 billion, resulting in a surprise of -21.51%, while the EPS exceeded the consensus estimate of $1.52 by 15.13% [1] Financial Performance - Gross Oil-Equivalent Production was 418 KBBL, below the average estimate of 436.72 KBBL [4] - Gross Natural Gas Production reached 30 Mcf, slightly above the average estimate of 29.86 Mcf [4] - Total crude oil production was 413 KBBL, compared to the estimated 427.13 KBBL [4] - Total Refinery throughput was 397 KBBL, below the average estimate of 417.56 KBBL [4] - Net Petroleum Products Sales were 455 KBBL, compared to the average estimate of 469.33 KBBL [4] Stock Performance - Shares of Imperial Oil returned -0.8% over the past month, compared to a -0.5% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market [3]

Core Viewpoint - Imperial Oil reported quarterly earnings of $1.75 per share, exceeding the Zacks Consensus Estimate of $1.52 per share, and showing an increase from $1.65 per share a year ago, representing an earnings surprise of 15.13% [1][2] Financial Performance - The company posted revenues of $8.72 billion for the quarter ended March 2025, which was 21.51% below the Zacks Consensus Estimate and a decrease from $9.11 billion year-over-year [2] - Over the last four quarters, Imperial Oil has surpassed consensus EPS estimates four times but has not beaten consensus revenue estimates [2] Stock Performance - Imperial Oil shares have increased approximately 10.5% since the beginning of the year, contrasting with a decline of 4.7% in the S&P 500 [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $1.19 on revenues of $10.98 billion, and for the current fiscal year, it is $5.64 on revenues of $40.1 billion [7] - The outlook for the industry, specifically the Oil and Gas - Integrated - Canadian sector, is favorable, ranking in the top 21% of over 250 Zacks industries [8]

Financial Performance - Net income for Q1 2025 was $1,288 million, an increase of $93 million from Q1 2024, with diluted earnings per share rising to $2.52 from $2.23[3] - Total revenues for Q1 2025 were CAD 12,517 million, an increase from CAD 12,283 million in Q1 2024, representing a growth of 1.9%[39] - Net income for Q1 2025 was CAD 1,288 million, compared to CAD 1,195 million in Q1 2024, reflecting an increase of 7.8%[39] - Earnings per share (diluted) for Q1 2025 were CAD 2.52, up from CAD 2.23 in Q1 2024, indicating a growth of 13.0%[39] - Total expenses for Q1 2025 were CAD 10,829 million, slightly up from CAD 10,711 million in Q1 2024, indicating a 1.1% increase[62] Cash Flow and Dividends - Cash flows from operating activities were $1,527 million, up from $1,076 million in Q1 2024, while cash flows excluding working capital increased to $1,760 million from $1,521 million[11] - The company returned $307 million to shareholders through dividends in Q1 2025, with a declared second quarter dividend of $0.72 per share[7] - Dividends declared on common stock increased to CAD 367 million in Q1 2025 from CAD 321 million in Q1 2024, representing a growth of 14.3%[39] - Free cash flow for Q1 2025 was CAD 1,150 million, significantly higher than CAD 595 million in Q1 2024, representing a 93% increase[58] Production and Operations - Upstream production averaged 418,000 gross oil-equivalent barrels per day, with Kearl production at 256,000 barrels per day, down from 277,000 barrels per day in Q1 2024 due to extreme cold weather[11] - Downstream throughput averaged 397,000 barrels per day, with refinery capacity utilization at 91%, down from 94% in Q1 2024 due to additional maintenance[22] - Gross crude oil production for Q1 2025 was 413,000 barrels per day, slightly down from 416,000 barrels per day in Q1 2024[46] Capital Expenditures and Projects - Capital and exploration expenditures totaled $398 million, a decrease from $496 million in Q1 2024[11] - Capital and exploration expenditures for Q1 2025 totaled CAD 398 million, down from CAD 496 million in Q1 2024, a decrease of 19.8%[44] - Construction of Canada's largest renewable diesel facility at the Strathcona refinery is on track for startup in mid-2025[4] - The Leming SAGD project is expected to start up in late 2025, with anticipated peak production of around 9,000 barrels per day[11] Asset and Debt Management - Total assets as of March 31, 2025, were CAD 43,889 million, an increase from CAD 42,513 million in the previous year[39] - Total debt decreased to CAD 4,006 million from CAD 4,127 million year-over-year, showing a reduction of 2.9%[39] Cost Management - Cash operating costs for Q1 2025 were CAD 1,947 million, compared to CAD 1,911 million in Q1 2024, reflecting a 1.9% increase[64] - Unit cash operating cost for the Upstream segment in Q1 2025 was CAD 31.31 per oil-equivalent barrel, up from CAD 31.04 in Q1 2024[66] - The Upstream segment's cash operating costs were CAD 1,178 million in Q1 2025, down from CAD 1,189 million in Q1 2024, showing a decrease of 0.9%[64] - The Downstream segment's cash operating costs increased to CAD 631 million in Q1 2025 from CAD 583 million in Q1 2024, a rise of 8.2%[64] Miscellaneous - Chemical net income for the quarter was $31 million, down from $57 million in Q1 2024[11] - There were no identified items impacting net income in Q1 2025 and Q1 2024, providing a clearer view of operational performance[60] - The company reported proceeds from asset sales of CAD 11 million in Q1 2025, up from CAD 4 million in Q1 2024[58] - The company plans to renew its normal course issuer bid in June 2025[6]

Core Viewpoint - Imperial Oil (IMO) is expected to report quarterly earnings of $1.48 per share, a decline of 10.3% year-over-year, while revenues are forecasted to increase by 21.9% to $11.11 billion [1]. Earnings Estimates - The consensus EPS estimate has been revised 7.2% lower over the last 30 days, indicating a collective reevaluation by analysts [2]. - Changes in earnings estimates are crucial for predicting investor reactions, with empirical studies showing a strong relationship between earnings estimate revisions and short-term stock performance [3]. Key Metrics Projections - Analysts project 'Gross Oil-Equivalent Production' to reach 436.72 KBBL, up from 421 KBBL a year ago [5]. - 'Gross Natural Gas Production' is estimated at 29.86 Mcf, slightly down from 30 Mcf in the same quarter last year [5]. - 'Gross Total Crude Oil Production' is forecasted to be 427.13 KBBL, compared to 416 KBBL a year ago [5]. Daily Production Estimates - 'Gross Crude Oil and NGL Production per day - Conventional' is expected to be 4.77 KBBL, down from 5 KBBL in the same quarter last year [6]. - 'Net Crude Oil and NGL Production per day - Kearl' is projected at 180.17 KBBL, down from 183 KBBL a year ago [6]. - 'Net Crude Oil and NGL Production per day - Cold Lake' is estimated at 108.58 KBBL, consistent with last year's figure of 108 KBBL [7]. Additional Production Insights - 'Gross Crude Oil and NGL Production per day - Syncrude' is expected to reach 76.01 KBBL, up from 73 KBBL a year ago [8]. - 'Gross Crude Oil and NGL Production per day - Cold Lake' is projected at 154.07 KBBL, compared to 142 KBBL last year [8]. - 'Total Refinery throughput' is expected to be 417.56 KBBL, up from 407 KBBL in the same quarter last year [9]. Sales Projections - 'Net Petroleum Products Sales' is estimated at 469.33 KBBL, compared to 450 KBBL a year ago [10].

Core Viewpoint - Wall Street anticipates a year-over-year decline in earnings for Imperial Oil despite higher revenues, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - Imperial Oil is expected to report quarterly earnings of $1.48 per share, reflecting a year-over-year decrease of 10.3%, while revenues are projected to be $11.11 billion, an increase of 21.9% from the previous year [3]. - The consensus EPS estimate has been revised down by 9.9% over the last 30 days, indicating a reassessment by analysts [4]. Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that the Most Accurate Estimate aligns with the Zacks Consensus Estimate, resulting in an Earnings ESP of 0%, making it challenging to predict an earnings beat [10][11]. - A positive Earnings ESP is a strong indicator of an earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3, which historically leads to a positive surprise nearly 70% of the time [8]. Historical Performance - In the last reported quarter, Imperial Oil exceeded the expected earnings of $1.42 per share by delivering $1.69, resulting in a surprise of +19.01% [12]. - Over the past four quarters, the company has consistently beaten consensus EPS estimates [13]. Market Reaction Considerations - An earnings beat or miss alone may not dictate stock movement, as other factors can influence investor sentiment [14]. - Although Imperial Oil does not appear to be a strong candidate for an earnings beat, investors should consider additional factors before making investment decisions [16].

Core Viewpoint - The article discusses the financial performance and outlook of Imperial Oil, highlighting the expectation of continued strong cash flow from operations due to limited expansion options and debt repayment needs [1]. Group 1: Financial Performance - Imperial Oil is anticipated to generate significant cash flow from its operations, which is a positive indicator for the company's financial health [1]. - The company has limited options for expansion, suggesting that the cash generated may be primarily used for shareholder returns or debt repayment rather than growth initiatives [1]. Group 2: Investment Perspective - The author expresses a long position in Imperial Oil shares, indicating confidence in the company's future performance and potential for returns [2]. - The article reflects a personal opinion on the investment potential of Imperial Oil, emphasizing the importance of cash flow in evaluating the company's prospects [2].