To paraphrase its own popular 1960s slogan, Imperial Oil needs to put a tiger back in its own tank. Planned and unplanned outages resulted in a second-quarter loss. But this integrated oil and gas stock should recover and deliver earnings of $1.55 and cash flow of $3.70 a share this year.
Imperial Oil reported an unexpected second-quarter loss caused by upstream outages and planned facility turnarounds (TSX—IMO). The company reported a loss of $0.09 a share for the quarter, while analysts had expected it to earn $0.30 a share. It’s jointly-owned Syncrude operations have struggled to ramp up production following a fire at the Mildred Lake upgrader in March. Syncrude’s operations are expected to return to normal operating levels this month.
Imperial Oil, which is 69.6-per-cent owned by Exxon Mobil, is one of Canada’s largest integrated oil companies. The company explores for, produces, refines and markets oil and gas products. It owns 25 per cent of the Syncrude joint venture, whose oil sands operations produce synthetic crude oil.
Despite the planned and unplanned outages, the company has delivered generally favourable financial results this year. For the six months ended June 30, 2017, Imperial made $256 million, or $0.30 a share, compared with a loss of $282 million, or $0.33 a share, in the same period of 2016.
Upstream operations reported a loss of $287 million, which compares favourably to a loss of $738 million in the prior period. The results reflected higher Canadian crude-oil price realizations.
The downstream segment reported earnings of $458 million, up 17.1 per cent, thanks to the sale of a surplus property, and reduced planned turnaround activity.
Aside from Syncrude, Imperial has also struggled to meet targeted levels of production at its Kearl oil sands project. The company hopes that planned maintenance and mechanical enhancements will rectify this issue. The growth potential of Kearl and other upstream projects, together with its strong downstream businesses, positions Imperial to generate healthy cash flow growth over the long term.
Imperial Oil should earn $1.55 a share in 2017. The stock trades at a high 23.7 times that estimate. But it trades at a more reasonable 9.9 times the company’s estimated cash flow of $3.70 a share. Its annual dividend of $0.64 a share yields 1.7 per cent. Imperial Oil is a buy for growth and some income.
This is an edited version of an article that was originally published for subscribers in the August 2017/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
The MoneyLetter, MPL Communications Inc.
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