IMO 10-Q Quarterly Report June 30, 2013

IMO 10-Q Quarter ended June 30, 2013

IMPERIAL OIL LTD

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10-Q 1 d563795d10q.htm FORM 10-Q Form 10-Q

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

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

OF THE SECURITIES EXCHANGE ACT OF 1934

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

Commission file number 0-12014

IMPERIAL OIL LIMITED

(Exact name of registrant as specified in its charter)


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

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

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

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

YES ü NO

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

YES ü NO

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

Large accelerated filer ü Accelerated filer

Non-accelerated filer Smaller reporting company

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

YES NO ü

The number of common shares outstanding, as of June 30, 2013, was 847,599,011.

IMPERIAL OIL LIMITED



INDEX

		PAGE
PART I - Financial Information

Item 1 - Financial Statements.

Consolidated Statement of Income - Six Months ended June 30, 2013 and 2012		3

Consolidated Statement of Comprehensive Income - Six Months ended June 30, 2013 and 2012		4

Consolidated Balance Sheet - as at June 30, 2013 and December 31, 2012		5

Consolidated Statement of Cash Flows - Six Months ended June 30, 2013 and 2012		6

Notes to the Consolidated Financial Statements		7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.		14

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

Item 4 - Controls and Procedures.		17

PART II - Other Information

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

Item 6 - Exhibits.		19

SIGNATURES		19

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, 2012.

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

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

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF INCOME

(U.S. GAAP, unaudited)


	Second Quarter			Six Months to June 30
millions of Canadian dollars		2013	2012	2013	2012

REVENUES AND OTHER INCOME
Operating revenues (a) (b)		7,894	7,452	15,893	14,946
Investment and other income (note 3)		64	63	79	102

TOTAL REVENUES AND OTHER INCOME		7,958	7,515	15,972	15,048


EXPENSES
Exploration		21	18	44	46
Purchases of crude oil and products (c)		5,001	4,645	9,976	9,031
Production and manufacturing (d)		1,468	1,247	2,649	2,224
Selling and general		252	247	506	531
Federal excise tax (a)		330	340	656	656
Depreciation and depletion		452	178	637	368
Financing costs (note 5)		2	-	2	-

TOTAL EXPENSES		7,526	6,675	14,470	12,856


INCOME BEFORE INCOME TAXES		432	840	1,502	2,192
INCOME TAXES		105	205	377	542

NET INCOME		327	635	1,125	1,650


PER SHARE INFORMATION (Canadian dollars)
Net income per common share - basic (note 8)		0.39	0.75	1.33	1.95
Net income per common share - diluted (note 8)		0.38	0.75	1.32	1.94
Dividends per common share		0.12	0.12	0.24	0.24

(a) Federal excise tax included in operating revenues		330	340	656	656
(b) Amounts from related parties included in operating revenues		364	938	1,225	1,645
(c) Amounts to related parties included in purchases of crude oil and products		1,283	1,022	2,526	1,555
(d) Amounts to related parties included in production and manufacturing expenses		84	71	170	105

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

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(U.S. GAAP, unaudited)


	Second Quarter			Six Months to June 30
millions of Canadian dollars		2013	2012	2013	2012

Net income		327	635	1,125	1,650

Other comprehensive income, net of income taxes
Post-retirement benefit liability adjustment (excluding amortization)		-	-	(102)	(117	)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit costs		51	51	102	99

Total other comprehensive income/(loss)		51	51	-	(18	)



Comprehensive income		378	686	1,125	1,632

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

IMPERIAL OIL LIMITED

CONSOLIDATED BALANCE SHEET

(U.S. GAAP, unaudited)


millions of Canadian dollars	As at June 30 2013			As at Dec 31 2012

ASSETS
Current assets
Cash		542			482
Accounts receivable, less estimated doubtful accounts		2,227			1,976
Inventories of crude oil and products		1,232			827
Materials, supplies and prepaid expenses		377			280
Deferred income tax assets		575			527

Total current assets		4,953			4,092

Long-term receivables, investments and other long-term assets		1,292			1,090

Property, plant and equipment,		43,874			38,765
less accumulated depreciation and depletion		(15,422	)		(14,843	)

Property, plant and equipment, net		28,452			23,922

Goodwill		224			204
Other intangible assets, net		53			56

TOTAL ASSETS		34,974			29,364


LIABILITIES
Current liabilities
Notes and loans payable		1,506			472
Accounts payable and accrued liabilities (a) (note 7)		4,819			4,249
Income taxes payable		1,062			1,184

Total current liabilities		7,387			5,905

Long-term debt (b) (note 6)		3,566			1,175
Other long-term obligations (note 7)		4,196			3,983
Deferred income tax liabilities		2,527			1,924

TOTAL LIABILITIES		17,676			12,987


SHAREHOLDERS’ EQUITY
Common shares at stated value (c)		1,566			1,566
Earnings reinvested		18,187			17,266
Accumulated other comprehensive income (note 9)		(2,455	)		(2,455	)

TOTAL SHAREHOLDERS’ EQUITY		17,298			16,377


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		34,974			29,364

(a)	Accounts payable and accrued liabilities included amounts receivable from related parties of $128 million (2012 - amounts receivable of $9 million).

(b)	Long-term debt included amounts to related parties of $3,434 million (2012 - $1,040 million).

(c)	Number of common shares authorized and outstanding were 1,100 million and 848 million, respectively (2012 - 1,100 million and 848 million, respectively).

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

IMPERIAL OIL LIMITED


CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP, unaudited) inflow/(outflow) millions of Canadian dollars		Second Quarter						Six Months to June 30
	2013			2012			2013			2012

OPERATING ACTIVITIES
Net income		327			635			1,125			1,650
Adjustment for non-cash items:
Depreciation and depletion		452			178			637			368
(Gain)/loss on asset sales (note 3)		(51	)		(55	)		(55	)		(84	)
Deferred income taxes and other		141			169			170			217
Changes in operating assets and liabilities:
Accounts receivable		5			(1	)		(217	)		139
Inventories, materials, supplies and prepaid expenses		(177	)		237			(497	)		(194	)
Income taxes payable		45			29			(122	)		88
Accounts payable and accrued liabilities		113			155			508			226
All other items - net (a)		(117	)		(30	)		(214	)		(46	)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		738			1,317			1,335			2,364


INVESTING ACTIVITIES
Additions to property, plant and equipment and intangibles		(1,616	)		(1,290	)		(2,961	)		(2,435	)
Acquisition (note 10)		-			-			(1,602	)		-
Proceeds from asset sales		54			61			62			139
Repayment of loan from equity company		-			5			4			8

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES		(1,562	)		(1,224	)		(4,497	)		(2,288	)


FINANCING ACTIVITIES
Short-term debt - net		348			-			1,035			-
Long-term debt issued		799			-			2,394			-
Reduction in capitalized lease obligations		(2	)		(1	)		(3	)		(2	)
Issuance of common shares under stock option plan		-			21			-			43
Common shares purchased		-			(60	)		-			(128	)
Dividends paid		(102	)		(102	)		(204	)		(195	)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		1,043			(142	)		3,222			(282	)


INCREASE (DECREASE) IN CASH		219			(49	)		60			(206	)
CASH AT BEGINNING OF PERIOD		323			1,045			482			1,202


CASH AT END OF PERIOD		542			996			542			996


(a) Included contribution to registered pension plans		(178	)		(147	)		(298	)		(244	)

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

IMPERIAL OIL LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.	Basis of financial statement preparation

These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual consolidated financial statements filed with the U.S. Securities and Exchange Commission in the company’s 2012 Annual Report on Form 10-K. In the opinion of the company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The company’s exploration and production activities are accounted for under the “successful efforts” method.

The results for the six months ended June 30, 2013, are not necessarily indicative of the operations to be expected for the full year.

All amounts are in Canadian dollars unless otherwise indicated.

IMPERIAL OIL LIMITED

2.	Business Segments


Second Quarter	Upstream				Downstream				Chemical
millions of dollars		2013		2012		2013		2012		2013	2012
REVENUES AND OTHER INCOME
Operating revenues (a)		1,383		1,073		6,197		6,032		314	347
Intersegment sales		1,018		948		412		594		86	69
Investment and other income		45		38		18		22		-	-

		2,446		2,059		6,627		6,648		400	416

EXPENSES
Exploration		21		18		-		-		-	-
Purchases of crude oil and products		866		740		5,379		5,234		271	282
Production and manufacturing (c)		881		701		534		499		54	47
Selling and general		2		-		216		222		15	16
Federal excise tax		-		-		330		340		-	-
Depreciation and depletion (c)		147		119		299		52		3	4
Financing costs		-		-		2		-		-	-

TOTAL EXPENSES		1,917		1,578		6,760		6,347		343	349

INCOME BEFORE INCOME TAXES		529		481		(133)		301		57	67
INCOME TAXES		132		121		(36)		69		15	18

NET INCOME		397		360		(97)		232		42	49

Cash flows from (used in) operating activities		588		599		99		591		52	99
CAPEX (b)		1,569		1,272		50		30		2	1

Second Quarter	Corporate and Other				Eliminations				Consolidated
millions of dollars	2013		2012		2013		2012		2013		2012
REVENUES AND OTHER INCOME
Operating revenues (a)		-		-		-		-		7,894	7,452
Intersegment sales		-		-		(1,516)		(1,611)		-	-
Investment and other income		1		3		-		-		64	63

		1		3		(1,516)		(1,611)		7,958	7,515

EXPENSES
Exploration		-		-		-		-		21	18
Purchases of crude oil and products		-		-		(1,515)		(1,611)		5,001	4,645
Production and manufacturing (c)		-		-		(1)		-		1,468	1,247
Selling and general		19		9		-		-		252	247
Federal excise tax		-		-		-		-		330	340
Depreciation and depletion (c)		3		3		-		-		452	178
Financing costs		-		-		-		-		2	-

TOTAL EXPENSES		22		12		(1,516)		(1,611)		7,526	6,675

INCOME BEFORE INCOME TAXES		(21)		(9)		-		-		432	840
INCOME TAXES		(6)		(3)		-		-		105	205

NET INCOME		(15)		(6)		-		-		327	635

Cash flows from (used in) operating activities		(1)		28		-		-		738	1,317
CAPEX (b)		16		5		-		-		1,637	1,308

(a)	Includes export sales to the United States of $1,306 million (2012- $1,133 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.

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

(c)

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

IMPERIAL OIL LIMITED



Six Months to June 30	Upstream				Downstream				Chemical
millions of dollars	2013		2012		2013		2012		2013		2012
REVENUES AND OTHER INCOME
Operating revenues (a)		2,606		2,468		12,651		11,787		636	691
Intersegment sales		1,947		2,042		1,188		1,388		144	151
Investment and other income		47		41		30		55		-	-

		4,600		4,551		13,869		13,230		780	842

EXPENSES
Exploration		44		46		-		-		-	-
Purchases of crude oil and products		1,723		1,761		10,999		10,255		531	596
Production and manufacturing		1,628		1,292		916		840		107	92
Selling and general		3		2		434		463		32	33
Federal excise tax		-		-		656		656		-	-
Depreciation and depletion		275		248		351		108		6	7
Financing costs		-		-		2		-		-	-

TOTAL EXPENSES		3,673		3,349		13,358		12,322		676	728

INCOME BEFORE INCOME TAXES		927		1,202		511		908		104	114
INCOME TAXES		230		300		130		221		27	30

NET INCOME		697		902		381		687		77	84

Cash flows from (used in) operating activities		464		1,486		735		778		115	46
CAPEX (b)		4,507		2,417		77		53		3	2
Total assets as at June 30		27,870		19,146		6,391		6,633		379	368

Six Months to June 30	Corporate and Other				Eliminations				Consolidated
millions of dollars	2013		2012		2013		2012		2013		2012
REVENUES AND OTHER INCOME
Operating revenues (a)		-		-		-		-		15,893	14,946
Intersegment sales		-		-		(3,279)		(3,581)		-	-
Investment and other income		2		6		-		-		79	102

		2		6		(3,279)		(3,581)		15,972	15,048

EXPENSES
Exploration		-		-		-		-		44	46
Purchases of crude oil and products		-		-		(3,277)		(3,581)		9,976	9,031
Production and manufacturing		-		-		(2)		-		2,649	2,224
Selling and general		37		33		-		-		506	531
Federal excise tax		-		-		-		-		656	656
Depreciation and depletion		5		5		-		-		637	368
Financing costs		-		-		-		-		2	-

TOTAL EXPENSES		42		38		(3,279)		(3,581)		14,470	12,856

INCOME BEFORE INCOME TAXES		(40)		(32)		-		-		1,502	2,192
INCOME TAXES		(10)		(9)		-		-		377	542

NET INCOME		(30)		(23)		-		-		1,125	1,650

Cash flows from (used in) operating activities		21		54		-		-		1,335	2,364
CAPEX (b)		26		9		-		-		4,613	2,481
Total assets as at June 30		798		1,221		(464)		(127)		34,974	27,241

(a)	Includes export sales to the United States of $2,691 million (2012- $2,038 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.

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

IMPERIAL OIL LIMITED

3.	Investment and other income


Investment and other income included gains and losses on asset sales as follows:
	Second Quarter				Six Months to June 30
millions of dollars	2013		2012		2013		2012
Proceeds from asset sales		54		61		62	139
Book value of assets sold		3		6		7	55

Gain/(loss) on asset sales, before tax		51		55		55	84

Gain/(loss) on asset sales, after tax		38		46		41	70

4.	Employee retirement benefits


The components of net benefit cost were as follows:
	Second Quarter						Six Months to June 30
millions of dollars	2013			2012			2013			2012
Pension benefits:
Current service cost		45			41			90		80
Interest cost		70			72			140		144
Expected return on plan assets		(81	)		(72	)		(163	)	(144)
Amortization of prior service cost		5			6			11		11
Amortization of actuarial loss		61			61			121		118

Net benefit cost		100			108			199		209


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

Net benefit cost		10			10			21		19

IMPERIAL OIL LIMITED

5.	Financing costs


							Six Months
	Second Quarter						to June 30
millions of dollars	2013			2012			2013			2012
Debt related interest		16			5			26			9
Capitalized interest		(16	)		(5	)		(26	)		(9	)

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

Total financing costs		2			-			2			-

6.	Long-term debt


	As at		As at
	June 30		Dec 31
millions of dollars	2013		2012
Long-term debt		3,434		1,040
Capital leases		132		135

Total long-term debt		3,566		1,175

In the second quarter of 2013, the company increased its long-term debt by $799 million by drawing on its existing facility with an affiliated company of Exxon Mobil Corporation and increased short-term debt by $348 million by issuing additional commercial paper.

Subsequent to the second quarter of 2013, the company increased its total debt outstanding by $494 million by drawing on existing facilities. The increased debt was used to finance normal operations and major projects.

Also in the second quarter of 2013, the company increased the amount of its existing $250 million unsecured committed bank credit facility to $500 million with the maturity date unchanged in March 2014. The company has not drawn on the facility.

7.	Other long-term obligations


	As at		As at
	June 30		Dec 31
millions of dollars	2013		2012
Employee retirement benefits (a)		2,593		2,717
Asset retirement obligations and other environmental liabilities (b)		1,248		957
Share-based incentive compensation liabilities		144		117
Other obligations		211		192

Total other long-term obligations		4,196		3,983

(a)	Total recorded employee retirement benefits obligations also included $52 million in current liabilities (December 31, 2012 - $52 million).

(b)	Total asset retirement obligations and other environmental liabilities also included $168 million in current liabilities (December 31, 2012 - $168 million).

IMPERIAL OIL LIMITED

8.	Net income per share

Second Quarter

Six Months
to June 30

2013

2012

2013

2012

Net income per common share - basic

Net income (millions of dollars)

327

635

1,125

1,650

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

847.6

848.0

847.6

847.9

Net income per common share (dollars)

0.39

0.75

1.33

1.95

Net income per common share - diluted

Net income (millions of dollars)

327

635

1,125

1,650

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

847.6

848.0

847.6

847.9

Effect of share-based awards (millions of shares)

3.2

3.6

3.1

3.5

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

850.8

851.6

850.7

851.4

Net income per common share (dollars)

0.38

0.75

1.32

1.94

9.	Other comprehensive income information

Changes in accumulated other comprehensive income:


millions of dollars	2013			2012
Balance at January 1		(2,455	)		(2,238	)
Post-retirement benefits liability adjustment:
Current period change excluding amounts reclassified from accumulated other comprehensive income		(102	)		(117	)
Amounts reclassified from accumulated other comprehensive income		102			99

Balance at June 30		(2,455	)		(2,256	)

Amounts reclassified out of accumulated other comprehensive income -

before-tax income/(expense):


							Six Months
	Second Quarter						to June 30
millions of dollars	2013			2012			2013			2012
Amortization of post-retirement benefit liability adjustment included in net periodic benefit cost (a)		(68	)		(69	)		(137	)		(133	)

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

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


					Six Months
	Second Quarter				to June 30
millions of dollars	2013		2012		2013			2012
Post-retirement benefits liability adjustments:
Post-retirement benefits liability adjustment (excluding amortization)		-		-		(35	)		(40	)
Amortization of post-retirement benefit liability adjustment included in net periodic benefit cost		17		18		35			34

		17		18		-			(6	)

IMPERIAL OIL LIMITED

10.

Acquisition

Description of the Transaction: On February 26, 2013, ExxonMobil Canada acquired Celtic Exploration Ltd. (“Celtic”). Immediately following the acquisition, Imperial acquired a 50-percent interest in Celtic’s assets and liabilities from ExxonMobil Canada for $1,608 million, financed by a combination of related party and third party debt (see note 6 for further details). Concurrently, a general partnership was formed to hold and operate the assets of Celtic. The name of the general partnership was changed to XTO Energy Canada (“XTO Canada”). XTO Canada is involved in the exploration for, production of, and transportation and sale of natural gas and crude oil, condensate and natural gas liquids.

Recording of Assets Acquired and Liabilities Assumed: Imperial used the acquisition method of accounting to record its pro-rata share of the assets acquired and liabilities assumed. This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the assets acquired and liabilities assumed:


millions of dollars
Cash			6
Accounts receivable			38
Materials, supplies and prepaid expenses			5
Property, plant and equipment (a)			2,045
Goodwill (b)			20

Total assets acquired			2,114


Accounts payable and accrued liabilities			62
Deferred income tax liabilities (c)			377
Other long-term obligations			67

Total liabilities assumed			506

Net assets acquired			1,608

(a)

Property, plant and equipment were measured primarily using an income approach. The fair value measurements of the oil and gas assets were based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs included Celtic resources, assumed future production profiles, commodity prices (mainly based on observable market inputs), risk adjusted discount rate of 10 percent, inflation of 2 percent and assumptions on the timing and amount of future development and operating costs. The property, plant and equipment additions were segmented to the Upstream business, with all of the assets in Canada.

(b)

Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized in the Upstream reporting unit. Goodwill is not amortized and is not deductible for tax purposes.

(c)	Deferred income taxes reflect the future tax consequences on the temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The deferred income taxes recorded as part of the acquisition were:


millions of dollars
Property, plant and equipment	414

Total deferred income tax liabilities	414


Asset retirement obligations	(17	)
Other	(20	)

Total deferred income tax assets	(37	)

Net deferred income tax liabilities	377

Actual and Pro Forma Impact of the Acquisition:

Revenues for XTO Canada from the acquisition date included in the company’s consolidated financial statement of income for the six months ended June 30, 2013 were $31 million. After-tax earnings for XTO Canada from the acquisition date through June 30, 2013 were de minimis.

Transaction costs related to the acquisition were expensed as incurred and were de minimis in the six months ended June 30, 2013.

Pro forma revenues, earnings and basic and diluted earnings per share information as if the acquisition had occurred at the beginning of 2013 or the comparable prior reporting period is not presented, since the effect on Imperial’s consolidated second quarter 2013 financial results or the comparable prior reporting period, would not have been material.

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 2013 was $327 million or $0.38 a share on a diluted basis, compared with $635 million or $0.75 a share for the second quarter of 2012, a decrease of 49 percent. Net income in the first six months of 2013 was $1,125 million or $1.32 a share on a diluted basis, versus $1,650 million or $1.94 a share for the first half of 2012. Earnings in both the second quarter and first half of 2013 included a non-cash after tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal.

Other factors contributing to lower second quarter earnings included lower industry refining margins of about $285 million, higher start-up related operating costs at Kearl of about $90 million and lower bitumen production and higher maintenance costs at Cold Lake totalling about $80 million. These factors were partially offset by favourable impacts of about $220 million associated with improved refinery operations and lower maintenance activities, higher liquids realizations of about $130 million and higher volumes at Syncrude of about $45 million.

For the six months, other factors contributing to lower earnings included lower industry refining margins of about $155 million, higher start-up related operating costs at Kearl of about $145 million, lower liquids realizations of about $140 million and lower bitumen production and higher maintenance costs at Cold Lake totalling about $85 million. These factors were partially offset by lower royalty costs of about $195 million and improved refinery operations and lower refinery maintenance activities totalling about $105 million.

Upstream

Net income in the second quarter was $397 million, $37 million higher than the same period of 2012. Earnings increased primarily due to higher liquids realizations of about $130 million, higher volumes at Syncrude of about $45 million and lower royalty costs of about $35 million due to higher cost recovery for capital investments. These factors were partially offset by higher start-up related operating costs at Kearl of about $90 million. Sales of Kearl diluted bitumen continue to be expected in the third quarter of 2013. Earnings were also negatively impacted by lower bitumen production and higher costs at Cold Lake totalling about $80 million due to planned maintenance activities.

Net income for the six months of 2013 was $697 million, $205 million lower than the same period of 2012. Earnings decreased primarily due to higher start-up related operating costs at Kearl of about $145 million, lower liquids realizations of about $140 million and lower bitumen production and higher maintenance costs at Cold Lake totalling about $85 million. These factors were partially offset by lower royalty costs of about $195 million.

The price differential between Brent crude oil, the benchmark for Atlantic basin markets, and West Texas Intermediate (WTI), a common benchmark for mid-continent North American oil markets, narrowed to $8.27 a barrel in U.S. dollars in the second quarter of 2013 and to $13.15 a barrel in U.S. dollars in the first six months of 2013, compared to $14.86 and $15.19 a barrel, respectively, in the corresponding periods last year. As discounts for WTI crude oil decreased, the company’s average realizations in Canadian dollars on sales of conventional and synthetic crude oils increased about seven and 12 percent, respectively, in the second quarter of 2013 and about one and four percent, respectively, in the first six months of 2013. The company’s average bitumen realizations in Canadian dollars in the second quarter of 2013 also increased about 15 percent to $65.66 a barrel as the price spread between light crude oil and Cold Lake bitumen narrowed. However, in the first six months of 2013, the company’s average bitumen realizations in Canadian dollars were still down about 12 percent at $54.03 a barrel. The company’s average realization on natural gas sales of $3.50 a thousand cubic feet for both second quarter and first six months of 2013 was higher by about $1.70 and $1.41 a thousand cubic feet, respectively, versus the same periods in 2012.

Gross production of Cold Lake bitumen averaged 144 thousand barrels a day during the second quarter of 2013, down eight thousand barrels a day from the same period last year. Lower volumes were primarily due to the largest-ever preventive maintenance of the Mahkeses facilities. The maintenance activities have been successfully completed, and the plant has returned to normal operations. For the six months, gross production averaged 154 thousand barrels a day, compared with 155 thousand barrels in the first half of 2012.

The company’s share of Syncrude’s gross production in the second quarter was 68 thousand barrels a day, up from 60 thousand barrels in the second quarter of 2012. Increased production was due to lower maintenance activities partially offset by the negative impact of weather on mine operations in mid-June. Planned maintenance activities of one of the three cokers originally scheduled for later in the year was advanced into June and is scheduled to complete by early August. During the first six months of 2013, the company’s share of Syncrude’s gross production was 67 thousand barrels a day essentially unchanged from the same period in 2012.

Gross production of conventional crude oil averaged 22 thousand barrels a day in the second quarter, versus 20 thousand barrels in the corresponding period in 2012. Gross production averaged 20 thousand barrels a day in the first half of 2013, unchanged from the same period in 2012.

Gross production of natural gas during the second quarter of 2013 was 204 million cubic feet a day, up from 195 million cubic feet in the same period last year. Higher production volumes reflected the contributions from XTO Canada (formerly Celtic) and the Horn River pilot which more than offset normal field decline. Gross production of natural gas during the six months of 2013 was 195 million cubic feet a day, essentially unchanged from 197 million cubic feet in the same period last year.

On April 26, production from the first of three proprietary paraffinic froth treatment trains began at the Kearl initial development. The process is producing pipeline quality bitumen as planned. For the quarter, Kearl’s production volume contribution was low, at four thousand barrels a day as synchronizing facilities and working toward stable operations was the focus. Line-fill operations are advanced, and diluted bitumen sales are expected to begin in the third quarter. We expect to reach 110,000 barrels a day (78,000 barrels a day Imperial’s share) later in 2013.

Downstream

Net income was negative $97 million in the second quarter versus $232 million in the second quarter of 2012. Earnings in the second quarter of 2013 included a non-cash after tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings were also negatively impacted by lower industry refining margins of about $285 million resulting from the narrowing price differential between Brent and WTI crude oils. These factors were partially offset by favourable impacts of about $220 million associated with improved refinery operations and lower refinery maintenance activities.

Six months net income was $381 million, a decrease of $306 million over the same period in 2012. Earnings in the first half of 2013 included a non-cash after tax charge of $264 million associated with the conversion of the Dartmouth refinery to a fuels terminal. Earnings were also negatively impacted by lower industry refining margins of about $155 million resulting from the narrowing price differential between Brent and WTI crude oils. These factors were partially offset by favourable impacts of about $105 million associated with improved refinery operations and lower refinery maintenance activities.

Chemical

Net income was $42 million in the second quarter versus $49 million in the same quarter last year. Lower sales volumes for chemical products were partially offset by higher polyethylene margins. Six months net income was $77 million, down $7 million over the same period in 2012.

Corporate and Other

Net income effects from Corporate and Other were negative $15 million in the second quarter, versus negative $6 million in the same period of 2012. For the six months of 2013, net income effects from Corporate & Other were negative $30 million, versus negative $23 million last year.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow generated from operating activities was $738 million in the second quarter, versus $1,317 million in the corresponding period in 2012. Lower cash flow was primarily associated with inventory build as a result of lower pipeline apportionment and the start-up of Kearl initial development, versus an inventory draw during the same period in 2012 following planned refinery maintenance. Year-to-date cash flow generated from operating activities was $1,335 million, compared with $2,364 million in the same period last year. Lower cash flow was primarily due to lower net income and working capital effects.

Investing activities used net cash of $1,562 million in the second quarter, compared with $1,224 million in the same period of 2012. Additions to property, plant and equipment were $1,616 million in the second quarter, compared with $1,290 million during the same quarter 2012. Expenditures during the quarter were primarily directed towards the advancement of Kearl expansion and Cold Lake Nabiye projects. The Kearl expansion is expected to bring on additional production of 110,000 barrels of bitumen a day, before royalties, of which the company’s share would be about 78,000 barrels a day. Start-up is expected late 2015. The Nabiye expansion at Cold Lake is expected to bring on additional production of more than 40,000 barrels of bitumen a day, before royalties. Start-up is expected to be late 2014.

Cash from financing activities was $1,043 million in the second quarter, compared with cash used in financing activities of $142 million in the second quarter of 2012. In the second quarter, the company increased its long-term debt level by $799 million by drawing on an existing facility and issued additional commercial paper which increased short-term debt by $348 million. Subsequent to the second quarter of 2013, the company increased its total debt outstanding by $494 million by drawing on existing facilities. The increased debt was used to finance normal operations and major projects.

The above factors led to an increase in the company’s balance of cash to $542 million at June 30, 2013, from $482 million at the end of 2012.

Subsequent to the second quarter, the company has entered into additional long-term pipeline transportation agreements to ship heavy crude oil blend. These agreements, which have a total commitment of about $3 billion, will support the company’s long-term growth in oil sands production. The company expects to fulfill these commitments in the normal course of business.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Information about market risks for the six months ended June 30, 2013 does not differ materially from that discussed on page 23 in the company’s Annual Report on Form 10-K for the year ended December 31, 2012 and Form 10-Q for the quarter ended March 31, 2013 except for the following:


Earnings sensitivity (a) millions of dollars after tax
Nine dollars (U.S.) a barrel change in crude oil prices	+ (-)	390
Nine cents decrease (increase) in the value of the Canadian dollar versus the U.S. dollar	+ (-)	575

(a)

The amount quoted to illustrate the impact of the sensitivity represents a change of about 10 percent in the value of the rate at the end of the second quarter 2013. The sensitivity calculation shows the impact on annual net income that results from a change in one factor, after tax and royalties and holding all other factors constant. While the sensitivity is applicable under current conditions, it may not apply proportionately to larger fluctuations.

The sensitivity of net income to changes in crude oil prices increased from the first quarter of 2013 by about $6 million (after tax) a year for each one U.S. dollar change. The sensitivity of net income to changes in the Canadian dollar versus the U.S. dollar increased from the first quarter of 2013 by about $7 million (after tax) a year for each one-cent change. The increase in both areas was primarily a result of the impact of production from the Kearl initial development which began in the second quarter of 2013.

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, 2013. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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

PART II - OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities (1) (2)



Period	(a) Total number of shares (or units) purchased	(b) Average price paid per share (or unit)	(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 2013 (Apr 1- Apr 30)	0	0	0	41,508,309
May 2013 (May 1 – May 31)	0	0	0	41,411,918
June 2013 (June 1 – June 30)	0	0	0	41,310,354

(1)

On June 21, 2012, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its share repurchase program. The new program enables the company to repurchase up to a maximum of 42,379,951 common shares, including common shares purchased for the company’s employee savings plan, the company’s employee retirement plan and from Exxon Mobil Corporation during the period June 25, 2012 to June 24, 2013. The program ended on June 24, 2013.

(2)

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

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

Item 6.

Exhibits.

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

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

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

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

SIGNATURES

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


						IMPERIAL OIL LIMITED
						(Registrant)

						/s/ Paul J. Masschelin
Date: August 6, 2013						-------------------------------------------------
						(Signature)
						Paul J. Masschelin
						Senior Vice-President, Finance and Administration and Controller
						(Principal Accounting Officer)

TABLE OF CONTENTS

Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6. Exhibits

/s/ Brent A. Latimer

Date: August 6, 2013

-------------------------------------------------

(Signature)

Brent A. Latimer

Assistant Secretary