Prepared remarks
Good day, and welcome to the Imperial Oil Third Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Peter Shaw, Vice President of Investor Relations.
Good morning, everyone, and welcome to our third quarter earnings conference call. I am joined this morning by Imperial's senior management team, including John Whelan, Chairman, President and CEO; Dan Lyons, Senior Vice President, Finance and Administration; Cheryl Gomez-Smith, Senior Vice President of the Upstream; and Scott Maloney, Vice President of the Downstream. 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 along with a link to this conference call. Today's comments may contain forward-looking information 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 third quarter earnings release issued this morning as well as our most recent Form 10-K, all of which are available on SEDAR+, EDGAR, and our website. So I'd ask you to refer to those. John is going to start this morning with some opening remarks and then hand it over to Dan, who will provide a financial update, and then John will provide an operations update. Once we've done that, we'll allow time for Q&A. So with that, I will turn it over to John for his opening remarks.
Thank you, Peter. Good morning, everybody, and welcome to our third quarter earnings call. I hope everyone is doing well. As always, we appreciate you taking the time to join us this morning. I'm really pleased to report another strong quarter. We generated cash flow from operations of nearly $1.8 billion and ended the quarter with approximately $1.9 billion of cash on hand. To our shareholders, we delivered over $1.8 billion through dividends and buybacks. Our strong financial performance and ability to return significant cash to shareholders was underpinned by higher volumes, including record crude production and high refinery utilization. With planned turnaround activity now complete, we're positioned for a strong finish to the year across all of our assets. While crude prices have softened of late, our integrated business model is very resilient, and we generate substantial free cash flow over a range of oil price environments. As such, we will continue executing on our strategy and the plans we provided at our Investor Day earlier this year. During the quarter, we also announced a restructuring effort that aligns with our well-established strategy and will further strengthen our leading position and foundation for future growth. I'll come back to this in more detail shortly. Now let me share some highlights from the quarter. At Kearl, the bar has been raised again with the team delivering 316,000 barrels per day gross, the highest quarterly production in the asset's history, a great step on our path towards reaching annual production of 300,000 barrels per day. At Cold Lake, Grand Rapids continued to perform well, and the new Leming SAGD development finished steaming, and we expect first production shortly. These projects support transformation at Cold Lake, where we continue to expect more than 40% of production by 2030 to come from advantaged technologies. Downstream utilization of 98% was significantly higher quarter-over-quarter, even with planned turnaround activity at Sarnia beginning in September. That turnaround is now complete and was executed below cost and ahead of schedule. Now I'd like to share more on our restructuring plans. On September 29, we announced restructuring plans to further advance our well-established strategy of increasing cash flow and delivering unmatched industry-leading shareholder returns. We plan to improve our industry-leading performance by centralizing additional corporate and technical activities in global business and technology centers, realizing substantial efficiency and effectiveness benefits from scale, integration, and technology. This restructuring is consistent with our long-standing strategy to maximize the value of our existing assets using technology and leveraging our relationship with ExxonMobil. With data availability and processing capabilities growing at an accelerating pace, the changes are designed to fully leverage global available expertise to maximize the benefits of current technology and accelerate the cost-effective deployment of new technologies to drive value and enhance financial resilience. Our world is evolving quickly. Technology is advancing in leaps and bounds. We see it all around us. There's been huge growth in global capability centers, and we have to move with it. As a company, our legacy is defined by change and adaptation to ever-evolving business environments, technology, and customer needs. That ability to evolve is one of our greatest strengths. We have done it time and time again, and it is key to our success and leading position. These restructuring actions will further enhance our foundation for future growth and position us to continue delivering unmatched industry-leading returns and long-term value for our shareholders. At the same time, we remain fully committed to meeting or beating the medium-term growth and expense reduction plans communicated at our Investor Day in April. Additionally, as a result of the restructuring, we have recorded a one-time restructuring charge and expect to achieve a reduction in annual expenses of $150 million by 2028. Larger benefits are anticipated over the long term. More fully leveraging the global scale and expertise of ExxonMobil will enable us to further enhance cash flow growth by driving productivity improvements across our operations, including higher production, reduced downtime, lower unit operating costs, as well as project planning and execution excellence. Our relationship with ExxonMobil is an advantage that others don't have and can't replicate. We will manage this transition through a rigorous process. We will be restructuring our corporate workforce in what we call above field, which will result in a reduction in the number of employee roles by the end of 2027. In the second half of 2028, we will further consolidate activities at our operating sites, primarily the Strathcona refinery in Edmonton, to enhance collaboration, operational focus, and execution excellence. Throughout this transition, our focus remains on supporting our employees, operating with integrity, putting safety first, and executing our business strategy. Additionally, in view of the restructuring and our reduced office space requirements, we have signed an agreement to sell our Calgary campus, resulting in a non-cash impairment charge. And on that note, I'll turn it over to Dan to discuss our financial results in more detail.
Thanks, John. We had two identified items in the third quarter in our corporate segment. First, restructuring plans that John mentioned resulted in a charge of $330 million before tax in the quarter with an unfavorable earnings impact of $249 million after tax. This charge largely consists of employee severance costs, which will be paid out over the next two years as we migrate activities to business and technology centers and achieve efficiencies. Second, following an extensive marketing effort and after careful consideration of the current status and anticipated outlook for large properties in the Calgary real estate market, we signed a sales and purchase agreement to sell our Calgary campus, which is expected to close in the coming months. Consistent with this, we recorded a non-cash impairment charge of $406 million before tax with an unfavorable earnings impact of $306 million after tax in the quarter. The sales and purchase agreement includes a leaseback arrangement to support Imperial's needs over the next several years. Turning to our underlying third quarter results, we recorded net income of $539 million. However, excluding identified items, the ones I just described, net income from the quarter is $1.094 billion, down $143 million from the third quarter of 2024, driven by lower upstream realizations, partially offset by higher refining margins. When comparing sequentially, third quarter net income is down $410 million from the second quarter of 2025. But again, excluding identified items, net income is up $145 million, primarily due to strong operational performance. Now shifting our attention to each business line and looking sequentially. Upstream earnings of $728 million are up $64 million from the second quarter, primarily due to higher volumes and realizations. Downstream earnings of $444 million are up $122 million from the second quarter, mainly reflecting higher margins and volumes. Our Chemical business generated earnings of $21 million, consistent with the second quarter. Moving on to cash flow, in the third quarter, we generated $1.798 billion in cash flows from operating activities. Excluding working capital effects, cash flows from operating activities for the third quarter were $1.600 billion, which includes a $149 million unfavorable impact from the previously mentioned restructuring charge. Taking this into account, normalized cash flow was about $1.750 billion in the quarter. As John mentioned, we ended the quarter in a strong position with about $1.9 billion of cash on hand. Now shifting to CapEx. Capital expenditures in the third quarter totaled $505 million, $19 million higher than the third quarter of 2024. In the Upstream, third quarter spending of $353 million focused on sustaining capital at Kearl, Cold Lake, and Syncrude. In the Downstream, third quarter CapEx was primarily spent on sustaining capital projects across our refining network. Our full year outlook remains consistent with our previously issued guidance. Shifting to shareholder distributions, in the third quarter, we continued to demonstrate our long-standing commitment to return surplus cash to our shareholders, paying $366 million in dividends and returning almost $1.5 billion through our accelerated share repurchase program under our normal course issuer bid. We anticipate completing our NCIB program before year-end. Finally, this morning, we announced the fourth quarter dividend of $0.72 per share, in line with our third quarter dividend. Imperial remains committed to a reliable and growing dividend, as demonstrated by 31 consecutive years of annual dividend growth.
Thanks, Dan. I want to take the next few minutes to share the key highlights from our operating results. Upstream production for the quarter averaged 462,000 oil equivalent barrels per day, up 35,000 barrels per day versus the second quarter and up 15,000 barrels per day versus the third quarter of 2024. This quarter marks a new crude production record for the company. Now I'll cover highlights for each of the assets, starting with Kearl. Kearl set a quarterly production record averaging 316,000 barrels per day, up 41,000 barrels per day versus the second quarter and up 21,000 barrels per day versus the third quarter of 2024. This marks the highest quarterly production ever for Kearl, surpassing our previous best set in the fourth quarter of 2023. The strong volumes were driven by a combination of high ore quality and our optimization efforts associated with ore selectivity, and we are also realizing reliability gains from upsizing and design improvements of the hydrotransport lines. Kearl continued to progress on unit cash costs, and that is quickly becoming one of my favorite parts of our story. Unit cash costs at Kearl were USD 15.13 per barrel this quarter, a decrease of nearly USD 4 per barrel compared to the second quarter, helped by the absence of our planned turnaround but also improved reliability, recovery, and selectivity. When compared to the third quarter of last year, we achieved a decrease of over USD 2 per barrel. The third quarter's strong performance contributed to our year-to-date unit cash cost of USD 17.89 per barrel. With year-to-date unit cash costs down over USD 2 per barrel, we are realizing the benefit of our strategy that is focused on growing volumes with lower unit cash costs. Moving next to Cold Lake. Cold Lake's production averaged 150,000 barrels per day, up 5,000 barrels per day versus the second quarter of 2025 and up 3,000 barrels per day versus the third quarter of 2024. I would like to take a moment to draw your attention to unit cash costs at Cold Lake. The current cost in the third quarter was USD 13.38 per barrel. This is supporting year-to-date costs of USD 14, which is down USD 1 per barrel versus the same period last year. Consistent with that, our Leming SAGD project remains on track, having recently completed steam circulation. We expect to see first oil in the coming weeks, with production ramping up over the next year. Looking to the future, we have an abundance of high-quality in-situ opportunities in our portfolio. At Aspen, we continue to progress the EBRT pilot with start-up remaining on track for early 2027. Additionally, our Clarke Creek and Corner assets provide us with further long-term growth opportunities. These three assets have the potential to support up to 150,000 barrels per day each of advantaged production during their estimated 25- to 50-year operating life. To round out the upstream, I'll cover Syncrude. Imperial's share of Syncrude production for the quarter averaged 78,000 barrels per day, which was up 1,000 barrels per day versus the second quarter and down 3,000 barrels per day versus the third quarter of 2024. In early September, Syncrude began its planned 50-day corporate turnaround and was able to complete it ahead of schedule and under budget, with work wrapping up at the beginning of last week. Syncrude also continued to utilize the interconnect pipeline to import bitumen and gas oil to ensure high upgrader utilization, enabling an additional 6,000 barrels per day of our share of Syncrude suite premium production. Now moving to the Downstream. We delivered strong operational results while progressing our planned turnaround at Sarnia. Refinery throughput averaged 425,000 barrels per day, equating to a refinery utilization of 98%. This exceeded last year's third quarter throughput by 36,000 barrels per day and exceeded the second quarter 2025 throughput by 49,000 barrels per day, primarily driven by lower turnaround impacts and strong reliability at all sites. As we mentioned in the second quarter earnings call, we started up the Strathcona renewable diesel facility and are already realizing benefits of backing out more expensive imported products and replacing them with our own low cost of supply. We continue to optimize production based on hydrogen availability. Earlier this week, we successfully completed our turnaround at Sarnia, ahead of schedule and below budget. With our turnaround activity complete for the year, we're expecting a strong fourth quarter. Petroleum product sales in the quarter were 464,000 barrels per day, which is down 16,000 barrels per day versus the second quarter of 2025, driven by lower export volumes, partially offset by higher jet and asphalt sales. Overall, we continue to see robust demand in Canada with gasoline and diesel comparable to the third quarter of 2024 levels and jet showing stronger events. Turning now to Chemicals. Earnings in the third quarter were $21 million, consistent with the second quarter. Compared to the third quarter of 2024, earnings were down $7 million, driven by weaker polyethylene margins. While challenging market conditions persist, our integration with the Sarnia refinery continues to add value and provides resilience in low-price environments. To wrap up, I'm very pleased with the strong operational and financial performance in the quarter, highlighted by the record quarterly liquids production in our Upstream, best-ever quarterly production at Kearl, and strong refinery utilization of 98% in our Downstream. With our planned turnaround activity complete, we're focused on a strong finish and remain confident in our guidance. We continue to return surplus cash to our shareholders in a timely manner and still expect to complete the accelerated normal course issuer bid by the end of the year. As mentioned earlier, our restructuring plan advances our long-standing strategy of maximizing the value of our existing assets. The plan positions Imperial to continue delivering industry-leading shareholder returns over a range of market conditions. We are transforming from a position of strength, leveraging the rapidly advancing technology environment, the growth in global capability centers, and our relationship with ExxonMobil. I've described what is changing as part of our restructuring. It is equally important to highlight what is not. Our governance and leadership structure is not changing. What we are doing is fully aligned with our strategy. Our strategy is not changing, and our growth plans are not changing. We remain a proud Canadian company and industry-leading technology-focused energy company, contributing significantly to the country and our shareholders. Throughout this transition, we remain committed to supporting our employees, the communities where we operate, and responsibly producing the energy and products Canadians rely on. In closing, let me say the combination of our financial position, strong operating results, and our strategic initiatives to further strengthen our efficiency and effectiveness give me confidence in the future of Imperial and our ability to further enhance our industry-leading position. I am very pleased with the strong results our team has delivered, and I want to thank them. And as always, I'd like to thank you once again for your continued interest and support. Looking ahead, we are planning to issue our annual guidance for 2026 in mid-December. With that, we will now move to our Q&A session and pass the floor back to Pete.
Thank you, John. As always, we'd appreciate if you could limit yourself to one question plus a follow-up so that we can get to all the questions. So with that, operator, could you please open up the line for questions?
Questions and answers
And the first question will come from Manav Gupta with UBS.
Kearl keeps setting new milestones. I mean, production volume was significantly better than our expectations. I don't think I've seen a $15 operating cost out there. So help us understand what's driving these improvements? And how is this asset positioning Imperial extremely well for times to come ahead?
Thank you, Manav, and I may make a few comments and Cheryl can chime in as well. Thank you for that comment. As I said, Kearl’s unit cost performance, reliability, and the asset’s performance has certainly become one of my favorite parts of the story. It is very key to our success and our future for sure. Looking at where we are right now, I think we're really well positioned to meet the midpoint of our annual guidance. The team continues to set new records. We had a best second quarter, best ever second quarter. Now we've had the best ever quarter in the third quarter. But it is important to note there’s variability quarter-to-quarter, and we need to keep that in mind as we go forward as well. But this quarter, we had very strong volumes with our high ore quality, our optimization efforts, and reliability gains from upsizing and design improvements of the hydrotransport lines. I couldn't be prouder of this team and couldn't be more optimistic about this asset and the importance of it to our business. We're on track to deliver on our commitments and around a future of 300,000 barrels a day for this asset, and a unit cost target is up $18 a barrel in 2027. Cheryl can comment a bit more, but thank you for the comments. This is a very important part of our business for sure, and we're very pleased with the performance of this asset.
Thanks, John. So a little bit more in terms of what's made the difference. I'm going to go back to some of the messages that I shared when we had Investor Day. Kearl continues to have a relentless focus on optimizing scope and collaborating lessons learned, including implementing creative ideas. We continue to integrate lessons learned and technology to drive better decisions via data and analytics, as well as leverage our global earnings and benchmarking. In short, we're maintaining this continuous improvement mindset. The work and the success that we've had to date gives me confidence we can continue to outperform while maintaining our facility integrity as well as our strong risk management.
My quick follow-up is on the refining macro. It looks like the diesel markets are very tight and whatever channel checks you are doing indicates that the Russian refineries have taken a significant hit and it'll take a long time for those markets to normalize. I wanted to understand in the next 3 to 6 months how do you see the refining market out there? Do you think the strength in diesel cracks can continue? If that's the case, your fourth quarter numbers in the refining side have definite upside from where we are. So if you could comment on that.
Sure. I'll jump in and take that. Yes, we have certainly seen the same things right out there right now with the global supply/demand balances and the sanctions prancing out diesel margins. As long as those sanctions continue and global market disruptions occur, we think that, that's a possible outcome for us. The way we manage our business is by making the products that we see margins out the door on. With all of our maintenance work behind us this year, we see high utilization numbers for the balance of the fourth quarter. Combined with the margins we're seeing, especially in the diesel channel, we're looking forward to a positive fourth quarter.
Thanks for the rundown, John and Dan. I wanted to come back to the restructuring, just to better understand how the transition is going to work. You’ve done a sale leaseback from the building, which means that the staff that will be retained presumably is going to be at Quarry Park. It sounds like you'll be at Quarry Park. And I’m just trying to understand that if the transition is going to occur over essentially '26 and '27, have the folks that no longer have a role, are they still in the building? Or has that transition kind of moved? I'm just trying to better understand how the dynamics are going to shake out.
Thanks, Greg. Let me cover that. If you step back from this, what we're doing is we've been assessing this opportunity over a couple of years, and it really builds on the transformation journey we've been on for more than a decade, frankly, of gradually outsourcing work to global capability centers and leveraging technology to improve efficiency. In the past, you've seen that over the last decade in terms of our organization size; we are doing just as much or more in terms of what we're operating and executing, but with fewer people doing it in a more efficient manner. Before, we did this opportunity by opportunity, or organization by organization. Now we've looked at it from a company-wide perspective. I share that just to highlight that there has been a tremendous amount of planning put into this, and we have a detailed plan for how we will execute this over the next two years. In terms of — you're right, this transition will occur over a two-year period in terms of the workforce transformation piece of it. The consolidation of operating sites will happen after that in 2028. So overall, a three-year period. We have detailed plans in place for the outsourcing of work to global capability centers. Another important part to consider is part of this efficiency gain is outsourcing work, but there's also about 40% of the reduction is pure efficiency gain. There will be fewer people required to do the work as we capture the scale that we can get in these global capability centers. So we have a two-year transition for how we'll capture those efficiencies and outsource the work. Our organization, we are right; the office while we are — we've entered into a sale and purchase agreement on the office that includes a leaseback for us where we will stay in Quarry Park through 2026 and 2027 and the first part of 2028 until we consolidate staff at our operating sites. So nobody will have to move. You will see a transition and a reduction in our workforce over that two-year period, '26 and '27. The end of '27, we will achieve the desired outcome we communicated, and then in '28, we will move people after we've achieved that reduction. I hope that answers your question.
Oh, my goodness. Yes. No, I mean, John, you're always well prepared. No, no, that's incredibly thorough. Maybe just to come back to what Cheryl was talking about with respect to Kearl. Given the sustained efficiency improvements you've seen and the consistent production performance, what would you say today is the production capacity trajectory for Kearl in terms of where it is now and where you think you can get to?
Thanks, Doug. Yes, let me take the Kearl one. Again, I couldn't be more proud of this team and the improvements made at Kearl over a number of years. I remain confident that we'll continue to make improvements at Kearl in terms of unit cost reductions and volume uplifts. Our story is very consistent with our Investor Day. We believe we have a strong foundation that supports potential for 300,000 plus barrels per day. We talked about a number of days where we’re seeing greater than 300,000 barrels per day. You see the quarter that we just had, which builds that confidence. Right now, our focus is how do we move it to 300,000 barrels per day. I would just say the confidence in that is growing all the time. We've talked about a clear path to get the asset to 300,000 barrels per day with bitumen recovery projects, continued focus on equipment performance, and extending turnaround intervals and reducing duration. I feel very good about that. But we're not done at 300,000. We're focused on what's the potential beyond that. We believe there is potential beyond that, and we're developing those plans, which we'll share as they mature.
To address your question, as we've said, we fully plan to complete our accelerated NCIB by year-end, consistent with what we've communicated before. Looking into next year, the soonest we can renew that is late June of '26. We plan to renew our NCIB. Your question is around the first half of '26. As I said previously, our ability to return cash in that period depends on commodity prices. It depends on crude prices and cracks. What we've said for a long time is as we generate surplus cash, we'll return it in a timely manner, which remains our principle. So it's just going to be dependent on what the commodity markets provide in the first half of next year.
Thank you. On behalf of the management team, I'd like to thank everyone for joining us this morning. If you have any further questions, please don't hesitate to reach out to the IR team, and we'll be happy to answer those. With that, I'll say thank you very much, and have a great day.
Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.