Q4 2022 Earnings Conference Call
January 31, 2023 11:00 A.M. ET
Company Participants
Dave Hughes - Vice President, Investor Relations
Brad Corson - Chairman, President, and CEO
Dan Lyons - Senior Vice President, Finance and Administration
Jon Wetmore - Vice President, Downstream
Conference Call Participants
Greg Pardy - RBC Capital Markets
Doug Leggate - Bank of America
Dennis Fong - CIBC World Markets
Menno Hulshof - TD Securities
Neil Mehta - Goldman Sachs
Presentation
Operator
Good day, and welcome to the Imperial Oil 4Q Earnings Call. At this time, I would like to turn the conference over to Dave Hughes, VP, Investor Relations. Please go ahead.
Dave Hughes
Thank you very much, and good morning everybody. Welcome to our fourth quarter earnings call. Here today are Brad Corson, Chairman, President, and CEO; Dan Lyons, Senior Vice President, Finance and Administration; Simon Younger, Senior Vice President of the Upstream; Jon Wetmore, Vice President of the Downstream; and Sherri Evers, Vice President of Commercial and Corporate Development.
Let me just start with the cautionary statement. Today's comments include reference to non-GAAP financial measures. The definitions and reconciliations of these measures can be found in Attachment 6 of our most recent press release and are available on our website with a link to this conference call.
Today's comments may also contain forward-looking information. Any forward-looking information is not a guarantee of future performance, and actual future performance, and operating results can vary materially depending on a number of factors and assumptions.
Forward-looking information and the risk factors and assumptions are described in further detail in our fourth quarter earnings release that we issued this morning, as well as our most recent Form 10-K. All of these documents are available on SEDAR, EDGAR, and on our website. So, please refer to those.
After Brad’s opening remarks, as usual Dan will give a financial update and then we’ll go back to Brad for an operating update and we’ll followed it all with a Q&A session. So, with that, I’m happy to turn over to Brad for his opening remarks.
Brad Corson
Thanks, Dave. Good morning, everybody, and Happy New Year. Welcome to our fourth quarter earnings call. I hope you're all doing well and your New Year is off to a good start. As we close out 2022 reporting, I'm pleased to share another very strong quarter for Imperial in what has been a standout year for us, both financially and operationally.
Our Downstream continued to deliver exceptional operating and financial performance in the fourth quarter, while Kearl tied a quarterly production record, and Cold Lake and Syncrude continued to deliver strong production results as well. It's especially satisfying to see this level of operating performance in a year where commodity prices were so supportive, which in-turn allowed us to maximize value for our shareholders.
Looking back on the full-year, we are closing the books on what was the best year in the company's history. A stark contrast to the challenges we faced just two years ago at the depths of COVID. In 2022, we set numerous records both operating and financial. We delivered record earnings and cash flow, as well as record shareholder returns underpinned by a 63% increase to our dividend and over $6 billion in share buybacks.
Operationally, we continue to see Kearl deliver new daily and quarterly best ever, further supporting our confidence in achieving 280,000 barrels per day gross by 2024. Cold Lake delivered production at the high-end of the upwardly revised guidance range, and Syncrude had a best ever production year supported by the interconnecting bidirectional pipelines. And in the Downstream, our refining assets achieved best ever utilization allowing us to maximize products available to the market.
And in addition to these performance achievements, we continued to reinvest in the business and we successfully advanced multiple accretive capital projects such as completion of the Sarnia products pipeline, which improves our ability to supply refined products to markets in Ontario. We also made significant progress on our commitments to sustainability and decarbonization, including a decision to invest in Canada's largest renewable diesel manufacturing facility at Strathcona.
Material progress on the Pathways initiative, and establishing a corporate wide net zero goal. We'll talk more about many of these achievements over the next several minutes. And the overall macro environment remained positive through the year. And while commodity prices did soften somewhat in the fourth quarter, they remain quite strong due to global effects of ongoing supply challenges, growing demand, and ongoing geopolitical events.
Our unrelenting focus on safety and reliability enables our strong operating performance in this environment and continues to underpin our strong financial results. Over the next few minutes, Dan and I will detail the results of what was a very strong quarter.
So, now let's review the fourth quarter results. Earnings for the quarter were just over $1.7 billion and our cash from operating activities was almost $2.8 billion. Another strong operating quarter, including Kearl matching its best ever production quarter and the Downstream setting a utilization record coupled with continued strong commodity fundamentals, most notably, robust diesel crack spreads supported these strong results.
Full-year 2022 saw record operating performance across our assets, which played a large part in generating full-year earnings of over $7.3 billion and operating cash flow of almost $10.5 billion, the strongest financial results in Imperial's history. These strong financial results come with increased royalty and tax contributions to the provincial and federal governments providing economic benefits for all Canadians.
We achieved total upstream production of 441,000 barrels of oil equivalent per day in the quarter, reflecting continued strong and in some cases record setting performance across our upstream assets, which I'll talk more about in just a few minutes. I would also note that Northern Alberta experienced another significant cold weather event in December. And I'm pleased to say, we managed through that [Technical Difficulty] of our operating teams who continue to work safely and diligently to provide reliable energy supply to the market.
In the Downstream, we saw another outstanding quarter. Our refinery utilization in the quarter was 101%, marking the second quarter in a row with utilization at or above 100% and also the highest quarterly utilization we have seen in the company's history, surpassing the previous record set just last quarter. This also contributed to the highest annual utilization in the company's history.
Given the current commodity price environment, driven by external supply challenges we've talked about previously, this level of performance is delivering tremendous value. The fourth quarter also saw us continue to maximize shareholder returns. We completed the accelerated NCIB in October and successfully executed our second substantial issuer bid in 2022, returning $1.5 billion of cash to our shareholders in December on top of the 2.5 billion SIB completed back in June.
And this was in addition the $211 million in dividends paid in the quarter for a total of $851 million for the year. Altogether, this represents over $7 billion of cash returned to shareholders in 2022. The highest level of returns in Imperial's history.
And finally, this morning, we declared a dividend of $0.44 per share payable April 1, 2023. And I can assure you that in 2023, we are maintaining our core strategy of optimizing our existing asset base to drive maximum shareholder value, a strategy that will allow us to continue to focus on returning cash to our shareholders.
And with that, I'll pass things over to Dan.
Dan Lyons
Thanks Brad. Starting with financial results for the full-year, we reported net income of over $7.3 billion as Brad mentioned, our highest on record and an increase of around $4.9 billion from 2021, driven mainly by higher realizations in the upstream and higher margins in the Downstream underpinned by strong operational performance. Looking at the fourth quarter, our net income of $1,727 million was up $914 million, when compared to the fourth quarter of 2021, primarily driven by higher margins in the Downstream.
Looking sequentially, our fourth quarter net income of $1,727 million is down $304 million from the third quarter were down around $100 million when excluding the XTO sale that occurred in the third quarter. This reflects lower [minimum] [ph] realizations in the upstream, partly offset by improved upstream and Downstream volumes.
Now, looking at each business line, the upstream reported net income of 531 million in the fourth quarter, down 455 million from the third quarter or down 250 million when we exclude the impact of the XTO sale, driven primarily by lower realizations, partly off offset by higher volumes. The Downstream's net income was $1,188 million, up 176 million from the third quarter, mainly reflecting higher volumes from achieving record refinery utilization rates in the fourth quarter, including continued strong distillate production.
Finally, our chemicals business continued to demonstrate reliable operational performance with net income of $41 million in the fourth quarter down from our third quarter net income of $54 million.
Moving on to cash flow. In the fourth quarter, we generated nearly $2.8 billion in cash flows from operating activities, down around $300 million from the third quarter, bringing our full-year cash flows from operating activities to around $10.5 billion, up over [$5 million] [ph] from last year reflecting strong earnings and favorable working capital impacts.
Free cash flow for the quarter was $2.3 billion, bringing our full-year free cash flow to about $9.9 billion, $5.4 billion higher than last year, primarily driven by the increase in cash flows from operations that I just mentioned and by the cash received from the XTO sale in the third quarter. Total cash tax payments in 2022 were around $400 million.
As previously discussed, we will be making a 2022 income tax catch-up payment in the first quarter and we anticipate that this catch-up payment will be on the order of $2.1 billion, which is lower than our previous forecast of around $2.5 billion.
Going forward, under current market conditions, we expect to be tax paying in 2023 on a current basis and therefore expect to make regular tax installment payments throughout the year at a tax rate of about 24%.
Finally, we ended the year with over $3.7 billion of cash on hand, up $173 million from the third quarter. Discussing CapEx, capital expenditures totaled $488 million in the fourth quarter and just under $1.5 billion for the full-year. And the Downstream 2022 spending included completing the Sarnia products pipeline early in the year and progressing our renewable diesel project at Strathcona, which has been mentioned earlier, has now received FID in its plan to start-up in early 2025.
In the upstream, 2022 spending focused on smaller projects to sustain and grow production at both Kearl and Cold Lake, as well as larger projects like the in-pit tailings project at Kearl and the SA, SAGD Grand Rapids project at Cold Lake. As noted in our full-year 2023 guidance issued in December, we plan to complete the Grand Rapids project on an accelerated basis by the end of this year, about one- year ahead of schedule. This accelerated schedule increased our 2022 CapEx by about $100 million relative to our 2022 guidance of $1.4 billion.
Shifting to shareholder distributions. We continue to demonstrate our long standing commitment to return cash to shareholders, a reliable and growing dividend is fundamental to our cash distribution strategy. And as Brad noted, this morning, we declared a first quarter dividend of $0.44 per share payable in April. We have increased our annual dividend payment for 28 consecutive years and this year we increased our quarterly dividend payment by 63% year-over-year from $0.27 per share in the first quarter of 2022 to $0.44 per share paid in the first quarter of 2023....
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