DBRS Confirms the Ratings of Imperial Oil Limited at AA and R-1 (middle), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Unsecured Debentures rating of Imperial Oil Limited (IMO or the Company) at AA and its Commercial Paper rating at R-1 (middle), all with Stable trends. IMO’s ratings are underpinned by its superior size as one of Canada’s largest integrated oil companies, above-average geographic diversification within Canada, capital and operational flexibility and highly integrated operations that include relatively more stable earnings and cash flow contributions from its downstream and chemical segments. In addition, per the “DBRS Criteria: Guarantees and Others Forms of Support” methodology, DBRS considers the operational and strategic links between IMO and its 69.6% major shareholder, Exxon Mobil Corporation (XOM), the largest publicly traded integrated oil company in the world, to be key factors that support IMO’s ratings.

Mainly as a result of the crude oil price downturn, IMO’s earnings and cash flow from operations declined significantly between 2014 and 2016, negatively affecting its key credit metrics. With a recovery in crude oil prices in 2017, and stronger downstream margins in 2018, IMO’s financial profile has improved considerably relative to 2016. IMO’s cash flow from operations increased to $4.8 billion in 2018, from $3.3 billion in 2017. With the improved cash flow and resulting strengthening financial metrics, the Company’s key ratios have moved well into the “A” rating range. As noted above, DBRS considers the operational and strategic links as key factors that provide uplift to arrive at IMO’s Issuer Rating of AA.

IMO’s liquidity profile remained adequate with $1.0 billion of cash at year-end 2018. The Company also has a $7.75 billion floating-rate loan facility in place with XOM maturing in July 2020; as of December 31, 2018, $4.447 billion was outstanding. In addition, IMO has unsecured committed credit facilities totaling $0.5 billion that remained undrawn as of December 31, 2018. With the March 2019 announcement related to a delay in its Aspen in situ oil sands project, IMO has significant capital flexibility to adjust to a volatile pricing environment. The Company spent $1.5 billion in capital expenditures (capex) in 2018 and provided 2019 capex guidance in the $2.3 billion to $2.4 billion range with sustaining capex accounting for approximately $1.0 billion. However, the delay of the Aspen capex (previously expected to peak at $0.7 billion per year from 2019 to 2021) for at least one year could result in significantly lower spending in 2019. DBRS anticipates the Company should be able to maintain sufficient liquidity. DBRS may consider a negative rating action based on any of the following: (1) commodity prices weaken substantially again and remain weak (i.e., West Texas Intermediate oil in the $40 per barrel (bbl) to $45/bbl range) for an extended period and (2) material and protracted key credit metrics deterioration at XOM, due to its significant relationship with IMO. Given DBRS’s outlook on the oil and gas industry, a positive rating action is unlikely at this time.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Oil and Gas and Oilfield Services Industries, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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