Transcript Canadian Oil and Gas Industry - SFU Home Page

Canadian
Oil and Gas Industry
Fundamental Analysis and
Recommendations:
Suncor, Imperial Oil, Talisman
Presenters
Karen Ford– Industry Overview
 Aaron Cawker– Suncor
 Stephanie Cornell– Talisman
 Rahim Dhanji– Imperial Oil

Industry Overview



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
Largest industry in the world
Oil & gas trade surplus accounts 57% of
Canada’s merchandise trade balance in 2003
3.5 per cent share of the world market, since
1998
Employment near 500,000 in Canada
Invest close to $24 billion
Overview…continued

Payments to governments have averaged close to $8.5
billion per year over the last 10 years

In 2003, the oil and gas industry contributed an
estimated $16 billion to government revenues in the form
of royalty payments, bonus payments and income taxes.

We produce more than 20% of North America’s crude oil
and natural gas but account for only 10% of its
consumption
Capital Spending 2003: Conventional $23.8 billion
Oil Sands $5.0 billion
Total $28.8 billion

Origins and History

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

Most crude oil and natural gas originate from
plant and animal life millions of years ago:
swamps and oceans.
Heat and pressure transformed the soft parts of
the plants and animals into solid, liquid or
gaseous hydrocarbons known as fossil fuels coal, crude oil or natural gas
Located in sand oils and oil fields
Found by drilling and creating wells
Sectors of the Industry

Petroleum Exploration and Production
 Upstream

Refining
 Midstream

Distribution and Retail Sales
 Downstream
Types and Uses

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Crude Oil and Natural Gas
Uses:
 Mobility, heat and cool our homes and provide
electricity
Products:
 plastics, life-saving medications, clothing, cosmetics,
and many other items you may use daily
Barrel – a unit of measure for oil and petroleum products
that is equivalent to 42 U.S. gallons
Canadian Economy


Canada's GDP 2003 grew 1.7%., 2002 it grew 2.2%
Slowdown of Canada’s economy:

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weak U.S. economic growth for most of the year;
a strong appreciation of the Canadian dollar;
the SARS outbreak in Toronto;
restrictions on exports of softwood lumber and beef (due to mad
cow disease).
Recovery of the U.S. economy, high oil and natural gas
prices, and continued spending from the Canadian
government are expected to boost Canada’s economy in
2004.
The Canadian economy is forecast to grow 3.6% in 2004
Situational Analysis

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Demand is increasing
Oil and Natural Gas together provide the largest source
of energy (64%) in Canada
 Natural gas 39% and Oil 25%
 Hydro 20%
 Coal 11%
 Nuclear 5%
Prices have become volatile on the market
Energy shares make up 17 percent of the value of the
S&P/TSX, the second-largest group in the index
Crude Oil in Canada
Highlights

Ninth-largest producer of crude oil in the world

Prior to 2002, Canada did not even rank in the top 20 of
countries with the most proven crude oil reserves. Alberta's oil
sands, which stood at 174.4 billion barrels as of January 2004

Saudi Arabia holds most crude oil reserves in the world
Crude Oil…continued

Reserves: 178.9 billion barrels (2nd)
World Reserves
Crude Oil…continued

Production:

3.1 million barrels per day (bbl/d) for 2003, an increase of
7% over 2002

Oil sands production is expected to increase significantly
and to offset the decline in conventional crude oil
production, becoming Canada's major source of oil supply

Western Canada Sedimentary Basin (WCSB), underlying
most Alberta and parts of British Columbia, Saskatchewan,
Manitoba and the Northwest Territories main source of oil
Crude Oil Continued…
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
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Wells Drilled: 4,845
Exports
 US: 1.4 million barrels per day
 3rd largest exporter of crude oil to
the US
 Canada makes up 15% of total US oil imports
 Canada supplies 9% of US oil consumption
Imports
 912,000 barrels per day
Crude Oil Prospects
Crude Oil Forecast
Significant potential for new crude oil
production planned to come on stream
over the next ten years
 Canada’s crude oil production growth is
driven by the development of oil sands in
Alberta and to a lesser degree by offshore
projects in eastern Canada

Crude Oil Prospects
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Maturing basin being extended by technology
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Emerging basins
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Horizontal drilling
3D Seismic
New drilling/recovery technology
Oil Sands
Northern Canada
Offshore East Coast
Technology is key
Total Canadian production is projected to increase
from the current 2.6 million barrels per day to
reach 3.6 million barrels per day (b/d) by 2015.
Crude Oil Resources (Billions of Barrels)
Crude Oil Supply Forecast
Natural Gas Highlights
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Canada is the third-largest producer of natural gas
Production:
 16.9 billion cubic feet per day
Reserves:
 59.1 Tcf (Jan. 2004)
Wells Drilled in 2003: 12,951
Exports:
 2nd largest exporter in world
 to US: 3.8 trillion cubic feet per year
 Largest exporter of natural gas to the US
 Canada makes up 94% of total US gas imports
 Canada supplies 17% of US gas consumption
No imports listed
Natural Gas
Production and Consumption
Natural Gas Outlook
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Short-term outlook, natural gas production is
expected to decline 3%, from 16.3 Bcf/d at the
end of 2002, to 15.8 Bcf/d in 2005
 new fields coming onstream are small and
quickly depleted
If prices stay high, incentive to exploit the many
small natural gas pools in the WCSB, as well as
coalbead methane, of which the region holds
considerable reserves
Natural Gas Outlook: Productive
Capacity
Prospects of Natural Gas
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Natural gas demand keeps growing
– Supply running hard to catch growing demand
– New sources of supply coming on
Gas from tight sands is promising resource
Arctic gas from the Mackenzie Delta to be piped to
Canadian and U.S. network of pipes
As demand for gas grows, Canada’s resources will
combine with Liquid Natural Gas (LNG) imports as
important sources of this cleaner-burning fuel of choice
in an increasingly environmentally conscious North
America
Natural Gas Prospects…
Significant untapped potential
remaining
 Sufficient pipeline capacity New
supplies:

 Northern
gas
 East Coast offshore
 Coal-bed methane
Potential of Natural Gas (TCF)
North America
Natural Gas Demand
Strengths
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Size and number oil sands in Alberta
Potential of Eastern and Northern Canada
high-tech exploration
cold-climate and offshore operations
construction and operations of pipelines
specialized controls and computer applications
environmental protection technology and safety training
innovative products and services that meet customer
needs
refining processes that produce quality petroleum-based
products while minimizing the impact on the
environment.
Weaknesses
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Limited natural gas reserves
Capacity for natural gas is forecasted to decrease
Canada is one of the high-cost places in the world to find
and produce oil and gas
Deep gas, natural gas from coal and developments
offshore, in the oil sands and the North are large,
complex and expensive and have long lead times before
they turn a profit
Challenges in meeting North America’s energy needs
Opportunities
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Exporting to the US
Oils Sands
Exploration of Northern and Eastern Canada
World population is currently around 6 billion
people, but is expected to grow to approximately
7.6 billion by 2020.-- a huge increase in the
demand for transportation fuels, electricity, and
many other consumer products made from oil
and natural gas.
Threats

Canada/US Foreign Exchange Rate
Threats
Price volatility
 High Development costs
 Environmental Issue
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Especially Marine Life
Substitutes
 Alternatives

to oil and gas
Solar Power, Coal, Wind, Hydro, and Nuclear
Power
Competitive Rivalry
Top Companies in Oil and Gas Producers
(Selected by Assets)
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EnCana Corp.
Canadian Natural Resources
Nexen
Penn West Petroleum
Western Oil Sands Inc
Paramount Resources
Compton Petroleum
Bonavista Energy Trust
PetroKazakhstan Inc.
Price History –Crude Oil 1 Year
Crude Oil Prices since 1920
Crude Oil Price Forecast
West Texas Intermediate Crude Oil Price $/bbl Average of Month.
Oct Nov Dec Jan Feb Mar
2004 2004 2004 2005 2005 2005
Value
37.9
30 32.1 40.8 40.6 40.9
Standard Deviation
0.7 0.6 0.7 0.9
1
1
Correlation Coefficient
0.95 0.95 0.95 0.95 0.95 0.95
Updated Thursday, October 28, 2004
Natural Gas Prices- 1 year
Natural Gas Prices-Since 1930
Natural Gas Price Forecast
Current Events
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Despite high oil and gas prices, anticipated market volatility is preventing energy
companies from increasing their rate of investment
Nov. 8 (Bloomberg)
Canadian Stocks Fall as Oil Prices Slip; Suncor, Talisman Drop
-- Canadian stocks fell, led by oil and gas producers such as Suncor Energy Inc.,
after crude oil prices declined. A rise in the Canadian dollar to 84 U.S. cents for the
first time in more than 12 years weighed on the benchmark index.
``Oil and gas stocks in Canada are very sensitive to falling oil prices because of how
high'' crude prices are
Tuesday, November 09, 2004
Crude oil futures tumbled below $48 (U.S.) a barrel Tuesday, closing at their lowest
level in seven weeks, on rising expectations that the U.S. supply of transport and
home-heating fuels will be adequate this winter.
Company Overview
Suncor Energy Inc. is an integrated energy
company strategically focused on
developing one of the world’s largest
petroleum resource basins – Canada’s
Athabasca oil sands.
 Strong focus on technology
 37 years of oil sands experience

Company Overview
Became a publicly traded company in
1992
 Total returns to shareholders have
averaged more than 25% per year.

Corporate Committee
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Richard George – President & CEO since 1991
Kenneth Alley – Senior VP & CFO since 2003, with Suncor since
1984
Mike Ashar – Executive VP, Refining and Marketing since 2003,
with Suncore since 1987
David Byler – Executive VP, Natural Gas & Renewable Energy
since 2000, with Suncore since 1979
Terrence Hopwood – Senior VP & General Council since 2002,
with Suncore since 1988
Sue Lee – Senior VP, HR & Communications since 1996
Kevin Nabholz – Senior VP, Major projects since 2002, with
Suncore since 1986
Thomas Ryley – Executive VP, Energy Marketing & Refining, with
Suncore since 1983
Steven Williams – Executive VP Oil Sands since 2003, with
Suncore since 2002. 20 years of energy industry experience.
Pipeline network
Businesses

Oil Sands
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Located near Fort McMurray, Alberta
The foundation of Suncor’s assets and is the center of their
growth strategy.
Natural Gas and Renewable Energy
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Based in Calgary, Alberta
Produce natural gas in Western Canada
Provides a price hedge against internal consumption at oil sands
and refining operations.
Businesses
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Refining, Marketing and Retail
 Canada
Refinery feedstock and natural gas production are
marketed to commercial and industrial consumers.
 Products from the Sarnia refinery are sold to
customers in Ontario, Quebec, and the
Northeastern US, and to retail customers through
approximately 500 Suncor-owned(Sunoco) and
joint venture service stations in Ontario.

Businesses
 United
States
In August 2003, acquired a Denver, Colorado
refinery along with 43 Phillips 66 retail stations.
 Expansion into the rocky Mountain States allows
easier movement of crude oil products to US
markets.
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Business Strategy - growth
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Develop multiple sources of supply from the oil
sands resource base
Upgrade technology to increase production
Use increase production to feed growing North
American energy market
How to improve current model: make it bigger.
Short term Goals
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Increase crude oil production to more than
500000 barrels per day by 2010-2012 from
current level of 216600 bpd.
Reduce costs of production
Provide superior shareholder returns while
providing social and economic benefits to
stakeholders.
Reduce environmental impact of operations
Crude Oil Production

Planned expansion is
designed to leverage
economies of scale to
keep costs per barrel
among the lowest in the
industry.
Natural gas
Main Resource – Oil Sands
Oil Sands
Suncor’s future is built on Canada’s oil
sands
 An estimated 175 billion barrels of crude
oil reserves
 First company to develop oil sands
 Leases contain an estimated 12 billion
barrels of bitumen reserves (heavy oil)

Oil Sands
With known resource base, Suncor
doesn’t have risk and cost associated with
conventional exploration.
 12000 million barrels = (12000/0.5)1/365 =
65+ years of resources.
 In the process of acquiring further leases
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Supply of Bitumen
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Mining – Surface mines supply majority of current
production, plans to extend current mines with new
operations planned to begin in 2010
In-situ – Firebag development uses steam assisted
gravity drainage (SAGD) to heat the underground
reservoir, allowing the bitumen to be pumped to the
surface. Expected to be at full production in 2005.
Third Party Agreements – plan on providing a fee-forservice agreement to process 27000 barrels per day of
3rd party butimen (2008).
Production of Crude Oil vs. Revenue
Total Revenue by Year
7000
Millions($)
6000
5000
4000
3000
2000
1000
0
1999
2000
2001
2002
2003
Markets
Refining and marketing strategy builds on
connections between the Oil sands
production base and North American
refiners and consumers.
 This is the largest crude oil and refined
product market in the world.

Markets - continued
•Don’t just supply
the market, also
participate in it
through short and
long-term
marketing contracts
as well as through
retail distribution
(Sunoco).
Markets - continued

Retail
 operates
nearly 300 Sunoco-branded retail
stations in Ontario and supplies to over 200
other stations through joint venture
operations.
 In 2003, purchased 43 Phillips 66 retail
stations in Colorado and long-term supply
contracts with nearly 150 more retailers.
Breakdown of Businesses
Investments
Currently producing hydrocarbon fuels to
meet today’s needs
 Investing to supply new markets with
renewable energy.
 In 2003, they began the wind power
project in southern Alberta, with partner
EHN Wind Power Canada, Inc.

Stock Info.
Price as of Nov. 10, 2004: $40.46
52 week low: $27.00
52 week high: $44.49
Average Daily Volume  1,500,000
Number of Shares Outstanding: 453,421,000
1 Year weekly chart
1 Year weekly chart
1 Year weekly chart vs. S&P Energy
5 Year Weekly Chart
5 Year weekly chart vs. S&P 500
Company Analysis (Excel file)
2004
(9 months)
2003
2002
2001
2000
Share Price (End of period):
40.69
32.5
24.7
26.2
19.15
Revenue($millions):
6311
6306
5032
4294
3484
Net Earnings($millions):
767
1,084
761
388
377
EBIT ($millions)
1186
1,804
1277
531
628
Total Assets($millions)
11362
10427
8683
8094
6833
Total Liabilities($millions):
6774
6002
5225
5317
4361
Total Debt($millions):
2347
2479
2686
3144
2256
50
83
133
18
8
4588
4,588
3458
2777
2472
453,000,000
450,505,000
448,839,000
445,820,000
443,546,000
Beta:
0.16
0.16
0.16
0.16
0.16
Operating Cash
Flow($millions):
1562
2,081
1440
831
958
Capital Expenditures:
1174
1,316
877
1678
1998
Dividends:
0.17
0.1925
0.17
0.17
0.17
Interest Expense($millions):
Equity($millions):
Shares Outstanding(EOP):
Analysis of Earnings
Performance Measures
Measures
2004 (9 months)
2003
2002
2001
2000
1999
Price to Book:
4.02
3.19
3.21
4.21
3.44
3.17
EPS
1.69
2.41
1.70
0.87
0.85
0.42
P/E
24.03
13.51
14.57
30.10
22.53
35.89
NAV
10.13
9.82
7.70
6.23
5.57
4.77
388
765
563
-847
-1,040
-512
6.6%
Free Cash
Flow($millions)
ROA
10.4%
17.3% 14.7%
9.2%
6.5%
ROE
16.7%
23.6% 22.0% 14.0% 15.3%
8.8%
Interest
Coverage
23.7
21.7
9.6
29.5
78.5
13.0
Debt to Equity
0.51
0.54
0.78
1.13
0.91
0.66
Dividend Yield
0.42%
0.59% 0.69% 0.65% 0.89% 1.13%
Market
Cap.($millions)
18432
14641
11086
11680
8493
6674
Performance Measures
12000
10000
Millions($)
Revenue
8000
Net Earnings
Total Assets
6000
Equity
4000
Operating
Cash Flow
2000
0
2004
YTD
2003
2002
2001
Year
2000
1999
Recent News


Oct 18:
Suncor CEO Richard George told the downtown Toronto business
audience:

American consumption of oil and gas is expected to increase almost 50
per cent by 2025,
 Domestic production is projected to remain flat.
 The United States is looking north to close the gap, and this represents
a big opportunity for Canada's energy industry.


"The bottom line for Canada is that energy is not an obstacle to
economic growth. It's a key driver of economic growth," said
George.
"This is not just an opportunity for Western Canada. Our energy
industry is about Canada's opportunity, Canada's prosperity, and our
role globally."
More news
Suncor profit climbs, but oil hedges limit gain
 Suncor,
known for its huge oil sands mining
and synthetic crude operations, would have
earned 25 percent more if over a third of its
output not been sold forward at $22.50 a
barrel. Oil averaged nearly $44 a barrel in the
quarter.
What the Brokers say
Strong Buy
5
Buy
8
Hold
6
Sell
2
Strong Sell
0
Value Drivers



Production of crude oil
Since they are essentially price takers, the more
they produce, the more revenues increase
The price of oil
 This
is the price of their product, and if price
increases, earnings increase.

To a lesser extent the success of downstream
operations
Recommendation

BUY
 Pros:




Sound business plan
Product is in constant demand
Near unlimited resources, just a matter of extracting them
Continuous growth in revenue and earnings
 Cons:

Stock price has surged over last year, and stock is expensive
compared to 1 year ago
Talisman’s Background

Large independent oil and gas producer with
global operations
 focused
mainly on exploration and development

Created in 1992 – Formally British Petroleum
Canada

Started out with operations solely in Canada
 Market
Capitalization approximately $500million
 Produced 51,00 boe/d
Talisman’s Background

Through corporate and asset acquisitions , operations
were quickly established in the North Sea, North Africa,
and Southeast Asia

Today – 11 billion dollar company with global operations


2003 – production was 437,000 boe/d
60% of reserves are natural gas, 40% crude oil and
natural gas liquids
Mission Statement
“To create value for its shareholders in the
upstream oil and gas business”
Goal

Committed to continuing production per share
growth of at least 5-10% per annum for the next
three years (2004, 2005, 2006)
 Most

transparent measure of value creation
Continue to grow its large North American
natural gas reserves while pursuing world scale
international opportunities
Management Team
James W. Buckee, President & CEO
o
1977-1991 British Petroleum Canada, 1991 appointed Chief operating officer of
Talisman, 1993 became CEO of Talisman
Ron J. Eckhardt, Executive Vice President, North America
o
1986 – Joined Talisman (then British Petroleum Canada)
T.N.D. Hares, Executive Vice-President, Frontier & International Op.
o
1972-1994 – Worked for British Petroleum, 1994 joined Talisman
Joseph Horler, Executive VP, Marketing
o
1987 – Joined Talisman (BP Canada)
Michael D. McDonald, E.V.P. Finance and CFO
o
1982 – Joined BP Canada
Robert M. Redgate, E.V.P., Corporate Services
o
1978 – Joined Talisman (BP Canada)
Jacqueline Sheppard, E.V.P., Corporate and Legal
o
1993 – Joined Talisman, prior to this she was a partner in a law firm
John ‘t Hart, E.V.P., Exploration
o
1978 – Joined Talisman (BP Canada)
Competitors

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


EnCana
Penn West Petroleum
Compton Petroleum
Canadian Natural Resources
Western Oil Sands Inc
Bonavista Energy Trust
Nexen
Paramount Resources
PetroKazakhstan Inc
Areas of Operation


North America – 50% of company’s production (2003)
International – 50% of company’s production (2003)
North America (Canada and US)
Mainly Natural Gas, but also oil and
liquids
 Focuses mainly on natural gas in Rocky
mountain foothills in Alberta
 New core gas area in upstate New York

North Sea (United Kingdom and Norway)





Represented 2/3 of international production in 2003
Mainly oil and liquids
In UK central North Sea - Established a number of commercial
hubs
Norwegian sector of North Sea– building a new core area
Large drilling program underway designed to increase liquid and
oil production by 5-10% in 2005
Malaysia/Vietnam (Malaysia, Vietnam, Indonesia)

2003 - Talisman completed a $1billion oil
and gas development project on time and
on budget
Southeast Asia
Large gas reserves in Indonesia
 Negotiating new gas sales and
transportation agreements

Caribbean and Latin America (Columbia,
Trinidad and Tobago)
Working in a number of high exploration
areas.
 Trinidad – development of the Greater
Angostura oil and gas project is underway
 Columbia and Trinidad – exploration
drilling programs

Africa and Middle East (Algeria, and
Qatar)

March 2003 – completed sale of its
indirectly held interest in the Greater Nile
Oil project in Sudan


$1.1 billion, gain of $296 million
Production and development interests in
Algeria and exploration acreage in Qatar
Stock Information

Share Price – $30.85 CAD (November 8, 2004)

Listed – Toronto and New York Stock exchanges

Ticker Symbol – TLM

Shares Outstanding – 384,105,983 (November 8, 2004)

Market Capitalization – $11,849,669,575.55 (384,105,983*
$30.85)

52 Week low and High – $21.25 - $35.10

Dividends - June 30, 2004 - $.15 and Dec 31, 2004 - $.15
Talisman - 1 Year Prices
Talisman - 5 Year Prices
Talisman vs. S&P 500 – 1 Year
Talisman vs. Energy – 1 year
Performance Measures
Performance Measures
14000
Millions ($)
12000
Revenue
10000
8000
Net Earnings
6000
Total Assets
4000
Equity
2000
Operating Cash
Flow
0
2004
YTD
2003
2002
Year
2001
Performance Measures
Measures
2004 (YTD)
Price to Book:
2.43
EPS
1.41
P/E
22.81
NAV
16.99
Free Cash Flow($millions)
280
ROA
8.30%
ROE
10.70%
Interest Coverage
8.5
Debt to Equity
0.45
Dividend Yield
0.47%
2003
1.9
2.62
9.35
16.09
-263
10.10%
20.30%
8.4
0.44
0.95%
2002
1.65
1.33
14.21
13.97
321
5.90%
11.60%
4.2
0.67
1.05%
2001
1.92
1.82
11.06
13.3
271
8.10%
17.30%
6.3
0.66
0.99%
Production
Production (daily average)
Three months ended
Nine months ended
-------------------------------------September 30,
2004
2003
2004
2003
-------------------------------------------------------------------Oil and liquids (bbls/d)
North America
57,049
59,612
57,418
60,267
North Sea
111,301
112,360
119,818 107,811
Southeast Asia
36,047
22,241
35,853
22,170
Algeria
14,044
7,795
12,935
4,839
Sudan
17,433
-------------------------------------------------------------------218,441
202,008
226,024 212,520
--------------------------------------------------------------------------------------------------------------------------------------Natural gas (mmcf/d)
North America
892
853
884
863
North Sea
98
91
111
106
Southeast Asia
273
120
253
105
-------------------------------------------------------------------1,263
1,064
1,248
1,074
-------------------------------------------------------------------Total mboe/d (6mcf=1boe)
429
379
434
391
Prices
Three months ended
Nine months ended
-------------------------------------September 30,
2004
2003(1)
2004
2003(1)
-------------------------------------------------------------------Oil and liquids ($/bbl)
North America
45.47
33.94
41.46
36.89
North Sea
54.57
38.66
47.59
40.08
Southeast Asia
56.95
38.58
50.46
41.26
Algeria
63.98
39.37
53.03
38.44
Sudan
43.89
-------------------------------------------------------------------53.30
37.33
46.87
39.60
--------------------------------------------------------------------------------------------------------------------------------------Natural gas ($/mcf)
North America
6.63
6.14
6.77
7.01
North Sea
4.88
4.26
5.35
4.65
Southeast Asia
5.03
5.21
4.81
5.92
-------------------------------------------------------------------6.15
5.87
6.25
6.67
--------------------------------------------------------------------------------------------------------------------------------------Total $/boe (6mcf=1boe)
45.19
36.34
42.35
39.79
--------------------------------------------------------------------------------------------------------------------------------------Hedging loss (income)
-excluded from the above prices
Oil and liquids ($/bbl)
7.15
2.01
4.68
2.04
Natural gas ($/mcf)
0.10
0.02
0.09
0.13
Total $/boe (6mcf=1boe)
3.91
1.13
2.67
1.45
--------------------------------------------------------------------
2004 - YTD


Sept. 30/04 – Production up 11% over last year
Net Income
 Sept
30, 2004 - $542m ($1.39/share)
 Sept 30, 2003 - $904m ($2.29/share)
 Income down this year because of the sale of the
Sudan in 2003
 Talisman lost $103 million due to hedges to sell at
below below market prices
Breaking News – Nov. 9/04


Supply cushion – only about 1% of the 82.4
million barrels consumed daily
Two key exporters might be vulnerable to
disruptions in the near future
– US military have vowed to disrupt the country’s
oil exports, and a northern pipeline has been knocked
out by saboteurs lowering supply
 Nigeria – Oil workers are planning a general strike
aimed at halting the country’s exports –
 Iraq

Nigeria is America’s fifth largest source of crude oil
Value Drivers
o
o
Production
Oil and Gas Prices
Recommendations





Sound business plan
Product is always in demand
Price of stock is down right now and is likely to
increase
Company has increased production by 11% year
to date
BUY!
Corporate Profile




Imperial Oil Limited has been a leading member
of the Canadian energy industry for more than
120 years
One of the largest producers of crude oil and
natural gas liquids in Canada and a major
producer of natural gas
Canada’s largest refiner and marketer of
petroleum products – sold primarily under the
Esso brand name
Major producer of petrochemicals
Management
Team
Imperial's 2003 Board of Directors (left to right)
P. Des Marais II, B.J. Fischer, T.J. Hearn, R. Phillips, J.F. Shepard,
P.A. Smith, S.D. Whittaker, K.C. Williams, V.L. Young
•Majority of management team are from within Imperial Oil
or Exxon/Mobil
•(Exxon has a 69.59% interest in Imperial)
Management Team

T.J. (Tim) Hearn has been a director of Imperial Oil since January 1,
2002.



With the company since 1967
He is currently Imperial's chairman, president and CEO
P.A. (Paul) Smith
Mr. Smith has been a director of Imperial Oil since February 1, 2002.

He is currently controller and senior vice-president, finance and
administration.

Joined Imperial Oil in 1980
Management cont…

B.J. (Brian) Fischer
Mr. Fischer has been a director of Imperial since Sept. 1, 1992.

He is currently senior vice-president of Imperial's products and
chemicals division
 Joined Imperial Oil in 1968

J. M. (Mike) Yeager
Mr. Yeager has been a director of Imperial Oil since August 1, 2004.

He is currently senior vice-president, resources division, and president
and chief executive officer of Imperial Oil Resources
 He joined the company from Mobil
Business Segments
1. Natural Resources
2. Petroleum Products
3. Chemicals
Natural Resources Segment
CRUDE OIL
 Wholly owned Cold Lake operation in Northern
Alberta
 25 percent ownership position in Syncrude.
NATURAL GAS
 Wizard Lake
 Sable Offshore Energy Project
 Gwillim Field
Crude Oil – Cold Lake
This is a long-life asset
 Net proved reserves were 760 MB at yearend 2003
 Additional untapped resource

- Received regulatory
approval for further
development in March
2004
Crude Oil - Syncrude
World's largest mineable oil sands
operation.
 Syncrude is the single largest crude oil
producer in Canada with net reserves of
about 3 billion barrels and production of
over 200 kbd in 2003.


Imperial was a founding member of
Syncrude and has a 25 percent interest
Crude Oil – Syncrude (cont…)
Syncrude is currently progressing a major
expansion for the operation -- one that will
increase production by 50 percent and
improve the quality and the sales price of
the entire sales stream.
 Total expected cost of $7.8 billion
 Disappointing cost and schedule
performance to date

Natural Gas

Full production from the natural gas cap at Imperial’s Wizard Lake
oil field in Alberta began in July 2003.

Production rates of about 180 million cubic feet a day will be achieved in
2004 once gas plant capacity is available and are expected to continue
through 2006.

In November, the first natural gas was produced from the Gwillim
field in northeastern BC. Additional development of this field is
planned.

Natural gas production from 9% interest in the Sable offshore
energy project averaged 40 million cubic feet a day before royalties.


production began from a fourth Sable field, Alma, and construction was
started on facilities for a fifth field, South Venture.
Funding was also approved for a natural gas compression facility
that will service production from all Sable fields by late 2006.
Natural Resources - Potential


Kearl Oil Sands (200k barrels/day)
Mackenzie Gas Project
 regulatory
review process to take about 2 years
 design and construction should take 3-4 years
 potential for Mackenzie gas production by the end of
the decade


Cree exploration well abandoned in the third
quarter
Acquired 25% interest in Orphan Basin (Natural
Gas)
Production
Net Proved Reserves
2000
1800
1600
1400
Conventional
1200
Cold Lake
1000
Syncrude
800
Total
600
Natural Gas
400
200
0
1999
2000
2001
2002
2003
Petroleum Products Segment

787 company-owned sites

Average productivity per site for 2003 was 5.2 million litres a year, up six
percent from 2002.

650 Esso convenience stores across Canada, including On the Run and
Tiger Express, was the second largest in Canada.

Convenience-store sales rose by about nine percent in 2003, well above the
industry average.

400 sites with car-wash facilities is the largest in the industry.

Esso retail sites providing Tim Hortons food and refreshments had
increased to more than 300 from 270 in 2002
Petroleum Products cont…
Points-Exchange alliances
 Market leader in finished lubricants
 Exclusive Canadian marketer of Mobil
products
 Quadrupled average productivity per site

Petroleum Products cont…
Focus on reducing working capital
 Decreased days inventory by 4% vs. 2002
 Freed up more than $35 million in cash
 Over the last 10 years, this has been
reduced by about 25 percent.

Petroleum Products cont…

Capital Expenditures of $478 million in
2003
 Allowed
them to meet specifications of 2004
model-year automobile technology

Refineries have improved energy
efficiency by more than 40 percent over
last 30 years
Chemicals Segment
Earnings of $37 million
 Cash flow from earnings of $66 million
 Sales of petrochemical products were
3,300 tonnes a day, down slightly from
2002.
 N.A. demand was low in 2003, with high
feedstock costs and soft sales volumes.

Chemicals cont…
One of Canada’s leading producers of
chemical products
 Largest market share in North America for
polyethylene
 Largest share of the Canadian market for
solvents
 Annual capacity of 450,000 tonnes

Chemicals cont…

$41 million in Capital Expenditures aimed
at reducing net costs of ethylene
production by 10 percent.
Financial Summary of Segments
Net Earnings by Segment
Petrolem Products
24%
Chemicals
2%
Corporate
6%
Natural Resources
68%
Valuation Ratios
Measures Industry
2003
2002
2001
2000
1999
P/E
21.9
12.73
13.92
13.88
11.69
21.30
Price to Book:
3.70
3.71
3.27
4.03
3.92
3.09
Price to Sales
0.9
1.11
1.00
1.01
0.91
1.04
Price to CF
11.3
9.76
13.01
11.29
11.50
16.89
EPS
$4.3
$4.52
$3.23
$3.19
$3.38
$1.46
1.90%
1.51%
1.87%
1.87%
1.98%
2.42%
Dividend Yield
Ratios cont…
Financial Strength
Quick Ratio
Company
Industry
0.775
0.87
Debt to Equity
0.24
0.86
Interest Coverage
57.2
7.39
60.28
56.90
8.76
14.94
ROA
19.4
6.47
ROE
29.1
16.51
28.45
18.43
Profitability
Gross Margin
Net Profit Margin
Management
Inventory Turnover
*Due to repayment of LT Debt
Growth Measures
Revenue growth of 49.44% from 1999
 S/H Equity growth of 33.53% from 1999:

 Increased
due to increasing net earnings
 Partly offset by Share Repurchase Program
Statement of Cash Flows
Cash Flows cont…
2003
2002
2001
2000
1999
Operating Cash
Flow($millions):
2194
1676
2004
2089
1470
Capital
Expenditures
($millions):
1393
1491
1024
312
566
Free Cash
Flow($millions):
801
185
980
1777
904
Use of Cash Flow
Value Drivers and Earnings
Sensitivities
Stock Information

Ticker Symbols:
 (IMO-T)
on TSX
 (IMO-A) on Amex

Market Capitalization
 (IMO-T)
24.79 Billion
 (IMO-A) 20.69 Billion
Stock Information
As of 10/11/04
Close
Open
IMO-T
$70.15
$68.90
$1.25
340,600
$73.17
$51.12
IMO-A
$58.56*
$57.40
$1.10
35,000
$59.75
$38.84
Ticker
Change
Volume
52-Week
High
52-Week
Low
* Prices in U.S. Dollars
2003
Dividend 0.87
2002
0.84
2001
0.83
2000
0.78
1999
0.75
IMO vs Oil & Gas Index (1 year)
IMO vs. Oil & Gas Index (5 year)
Wall St. Recommendations
Recommendation:





Strong sales and EPS growth
High profitability compared to industry and S&P
500
High return ratios (ROE, ROA, ROI)
Steady return potential for capital investments
Strong dividend record and repurchase record
 BUY