Imperial cranks up capital plans
As others scale back, oil company announces a 60-per-cent spending increase
NATHAN VANDERKLIPPE
January 30, 2009
theglobeandmail.com
CALGARY -- Imperial Oil Ltd. delivered an upbeat surprise to a province reeling from the dramatic downturn in the energy industry yesterday, announcing plans to step up its spending this year.
The company boosted its capital plan for 2009 to $2.2-billion, a 60-per-cent increase over what it spent in 2008, making it one of the few companies in Alberta that is pushing ahead with its oil sands spending.
In recent months, energy companies have announced the cancellation or delay of as much as $200-billion in planned oil sands mines and bitumen upgraders.
But Imperial said yesterday it is continuing the work to design and engineer its Kearl oil sands project, a task that employs 1,200 workers.
Print Edition - Section Front
Section B Front Enlarge Image
The Globe and Mail
"We take a long-term view of the business. We have a very, very strong financial position in that we have nearly no debt, we have a very strong balance sheet and a triple-A credit rating," Imperial spokesman Gordon Wong said.
In 2004, the company estimated that a first-phase development of Kearl would produce 100,000 barrels of oil a day and cost $5-billion to $8-billion to build.
Imperial is 70-per-cent owned by Exxon Mobil Corp., whose balance sheet is flush with $37-billion (U.S.) in cash, a fact that puts the company in a unique position to build during a period of deflating costs, analysts said.
"They're the only one that has absolutely got their oil sands machine rolling forward in the most aggressive way that we've seen in years," said Martin Molyneaux, an analyst with FirstEnergy Capital Corp. "It's driven by the absolutely pristine balance sheet."
Royal Dutch Shell PLC also announced a slight increase in 2009 exploration spending yesterday, to $3-billion, although it is unclear how much of that will be spent in the oil sands.
Whether the contrarian spending is a wise move will be determined by the price of crude, Mr. Molyneaux said.
"It really depends on how long you think we're going to be at sub-$50 oil prices. If you think it's going to be a couple of years, then they're probably wasting some of their ammunition now, when you could do more activity with potentially less dollars as the froth comes out of all the services," he said.
"But if you're looking like they are, and see the supply-demand balance going back in favour of higher prices two or three years out, then marching your way through this short-term economic storm makes all the sense in the world."
For the broader Alberta economy, Imperial's roughly $800-million (Canadian) in extra spending does little to compensate for the massive pullback in industry plans. Suncor Energy Inc. alone slashed $3-billion from its 2009 plans last week as it cancelled work on two major projects. However, the new spending is a rare bright spot amid the gloom surrounding low commodity prices, decreased spending and a fast-growing list of layoffs.
"It's certainly positive to see some new investment being announced in the province," said Alberta Energy spokesman Jason Chance. "With some other projects that have been put on hold, the work force is here, the expertise is here and the opportunities are here."
Imperial earned $660-million in the fourth quarter of 2008, the company reported yesterday, down from $886-million in the year-earlier quarter. The company increased its stash of cash and marketable securities to nearly $2-billion in 2008 from $1.2-billion on the strength of last summer's triple-digit oil prices.
"Our long-term approach has created a strong financial position that will continue to serve our shareholders well during times of economic uncertainty," Imperial chief executive officer Bruce March said.
IMPERIAL OIL (IMO)
Close: $39.16, down 63¢
Imperial Oil
Q4 2008 2007
Profit $660-million $886-million
EPS 76¢ 96¢
Revenue $5.9-billion $6.7-billion
Source: Company reports |
