Imperial Oil announces second quarter financial and operating results



    CALGARY, Aug. 2 /CNW/ - Imperial Oil today announced net income for the
second quarter of 2007 of $712 million or $0.76 a share, compared with
$837 million or $0.85 a share for the same period last year. Net income for
the first six months of the year was $1,486 million or $1.57 a share, versus
$1,428 million or $1.44 a share for the first half of 2006.
    Earnings in the second quarter were lower than the same period of 2006
due mainly to the absence of the favourable effects of tax rate changes
reported in the second quarter of the prior year, higher share-based
compensation expenses and lower crude oil realizations. These factors were
partially offset by stronger industry refining and marketing margins and
favourable impacts from lower refinery maintenance and project activities.
    Capital and exploration expenditures were $200 million in the second
quarter, compared with $283 million during the same quarter of 2006. For the
first half of 2007, the amount was $416 million, versus $605 million in the
same period a year ago. During the first half of 2007, the company repurchased
about 26.6 million shares for $1,191 million. At June 30, 2007, the company's
balance of cash and marketable securities was $2,037 million, compared with
$2,158 million at the end of 2006.
    "Imperial's consistent investment approach, along with a focus on
operational excellence, continues to lead to strong results," said Tim Hearn,
Imperial's chairman, president and chief executive officer. He added, "Our
first priority is to fund all quality investment opportunities and then return
surplus cash to shareholders. Events in the second quarter demonstrate this
commitment, with our recent acquisition of additional northern acreage, an
increase in our quarterly dividend and continuation of the share repurchase
program."

    Imperial Oil is one of Canada's largest corporations and a leading member
of the country's petroleum industry. It is one of Canada's largest producers
of crude oil and natural gas, is the country's largest petroleum refiner, and
has a leading market share in petroleum products sold through a coast-to-coast
supply network that includes close to 2,000 service stations.

    Highlights/Items of Interest

    Exploration parcel acquired in Beaufort Sea

    In July, Imperial, along with co-venturer ExxonMobil Canada, successfully
acquired exploration rights for a parcel in the Beaufort Sea. The company's
50-percent share of the proposed exploration spending would be about
$293 million, with a minimum commitment of about $73 million. This parcel is a
major addition to Imperial's undeveloped acreage position. Although the Arctic
remains a high-potential, technology-intensive frontier area, this presents a
potential opportunity to add to the company's resource base in the Beaufort
Sea and is consistent with its continued interest in energy development for
Canada.

    Second quarter dividend declared; increased by over 12 percent

    In May, Imperial declared a quarterly dividend of 9 cents per share on
the outstanding common shares of the company, payable on July 1, 2007, to
shareholders of record at the close of business on June 6, 2007. This second
quarter dividend compares with the first quarter dividend of 8 cents per
share. The company has paid dividends every year for over a century and has
increased its annual dividend payment for thirteen consecutive years.

    Share repurchase program to continue

    In June, Imperial received approval from the Toronto Stock Exchange for a
new normal course issuer bid(*) to continue its existing share repurchase
program. The company will be permitted to repurchase up to five percent of the
current outstanding common shares, or about 46.5 million shares, during the
next 12 months. As in the past, Exxon Mobil Corporation will participate in
the new program to maintain its ownership percentage of Imperial at
69.6 percent.

    
    (*) Any party may obtain, without charge, a copy of the notice of
        intention to make a normal course issuer bid filed with the Toronto
        Stock Exchange on June 21, 2007 on www.sedar.com or by contacting
        Imperial Oil, attention Vice-President, General Counsel and Corporate
        Secretary, at 237 4th Avenue S.W., Calgary, Alberta, Canada T2P 3M9.



                             IMPERIAL OIL LIMITED
    -------------------------------------------------------------------------
    FINANCIAL HIGHLIGHTS (unaudited)
    -------------------------------------------------------------------------

                                                                 Six months
                                               Second quarter    to June 30
                                                2007    2006    2007    2006
                                              --------------- ---------------
    Net income (U.S. GAAP,
     millions of dollars)
      Natural resources                          460     754   1,023   1,151
      Petroleum products                         314      62     512     261
      Chemicals                                   22      31      50      70
      Corporate and other                        (84)    (10)    (99)    (54)
                                              --------------- ---------------
    Net income (U.S. GAAP)                       712     837   1,486   1,428
                                              --------------- ---------------

    Cash flow from operating activities        1,125     926   1,400     888
    Capital and exploration expenditures         200     283     416     605

    Per-share information (dollars)
      Net income - basic                        0.76    0.85    1.58    1.45
      Net income - diluted                      0.76    0.85    1.57    1.44
      Dividends                                 0.09    0.08    0.17    0.16

      Share prices - close at June 30
      Toronto Stock Exchange
       (Canadian dollars)                                      49.59   40.78
      American Stock Exchange
       (U.S. dollars)                                          46.34   36.50
    


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    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND RESULTS OF OPERATIONS
    -------------------------------------------------------------------------

    OPERATING RESULTS
    -----------------
    The company's net income for the second quarter of 2007 was $712 million
or $0.76 a share on a diluted basis, compared with $837 million or $0.85 a
share for the same period last year. Net income for the first six months of
2007 was $1,486 million or $1.57 a share on a diluted basis, versus
$1,428 million or $1.44 a share for the first half of 2006.
    Earnings in the second quarter were lower than the same period of 2006
due mainly to the absence of the favourable effects of tax rate changes of
about $120 million reported in the second quarter of 2006 and higher
share-based compensation expenses of about $65 million. Earnings were also
lower due to lower crude oil realizations of about $120 million and higher
upstream energy costs and exploration expenses of about $50 million. These
factors were partially offset by stronger industry refining and marketing
margins of about $115 million, favourable impacts of about $100 million from
lower refinery maintenance and project activities and higher realizations for
natural gas liquids (NGL) and natural gas totaling about $30 million.
    For the first six months, earnings increased primarily due to stronger
industry refining and marketing margins of about $160 million and higher
Syncrude volumes of about $80 million. Gains from asset divestment were also
higher in 2007 by about $50 million. Higher earnings were partially offset by
lower conventional resources volumes of about $105 million and the absence of
the favourable effects of tax rate changes of about $120 million reported in
2006.

    Natural resources

    Net income from natural resources in the second quarter was $460 million,
versus $754 million in the same period of 2006. Earnings decreased primarily
due to lower crude oil realizations of about $120 million, higher energy costs
and exploration expenses totaling about $50 million and the impact of a higher
Canadian dollar of about $15 million. Earnings were also lower due to the
absence of the effects of tax rate reductions of about $160 million reported
in second quarter 2006. These factors were partially offset by higher
realizations for NGL and natural gas totaling about $30 million. The impact of
natural resources volumes on earnings was mixed with higher net Cold Lake and
Syncrude volumes totaling about $60 million partially offset by lower natural
gas volumes of about $35 million.
    Net income for the first six months was $1,023 million versus
$1,151 million during the same period last year. Earnings decreased primarily
due to lower conventional crude oil, NGL and natural gas volumes of about
$105 million. Earnings were also lower due to the absence of the effects of
tax rate reductions of about $160 million reported in 2006. These factors were
partially offset by higher Syncrude volumes of about $80 million. Higher
realizations for Cold Lake heavy oil of about $25 million were essentially
offset by lower natural gas realizations of about $30 million. Gains from
asset divestments were higher in 2007 by about $50 million.
    The company's average realizations for conventional crude oil were about
11 percent lower in the second quarter and about seven percent lower for the
first six months compared to the same periods last year reflecting lower world
crude oil prices. Average realizations for Cold Lake heavy oil in the second
quarter were over 20 percent lower than the second quarter of 2006 as the
price spread between light crude oil and Cold Lake heavy oil widened. However,
for the first six months in 2007, average realizations for Cold Lake heavy oil
were still slightly higher than the same period in 2006. Realizations for
natural gas averaged $7.61 a thousand cubic feet in the second quarter, up
from $6.52 in the same quarter last year. For the first six-month period,
realizations for natural gas averaged $7.68 a thousand cubic feet in 2007,
down from $7.99 in the same period of 2006.
    Total gross production of crude oil and NGLs in the second quarter was
263 thousand barrels a day, versus 273 thousand barrels in the second quarter
of 2006. For the first six months of the year, total gross production of crude
oil and NGLs averaged 266 thousand barrels a day, compared with 269 thousand
barrels in the same period of 2006.
    Gross production of Cold Lake heavy oil averaged 150 thousand barrels a
day during the second quarter, versus 157 thousand barrels in the same quarter
last year. For the first six months, gross production was 148 thousand barrels
a day this year, compared with 154 thousand barrels in the same period of
2006. Lower production was due to maintenance activities and the cyclic nature
of production at Cold Lake.
    The company's share of Syncrude's gross production was 66 thousand
barrels a day in the second quarter compared with 60 thousand barrels during
the same period a year ago. During the six-month period, the company's share
of gross production from Syncrude averaged 70 thousand barrels a day in 2007,
up from 56 thousand barrels in the same period of 2006. Increased volumes from
the new Stage 3 coker unit were partially offset by lower production due to
planned maintenance activities.
    In the second quarter, gross production of conventional crude oil
averaged 29 thousand barrels a day, compared with 31 thousand barrels during
the same period in 2006. For the first six months, gross production of
conventional crude oil averaged 30 thousand barrels a day, compared with
32 thousand barrels during the same period in 2006. Natural reservoir decline
in the Western Canadian Basin was the main reason for the reduced production.
    Gross production of NGLs available for sale was 18 thousand barrels a day
in the second quarter, down from 25 thousand barrels in the same quarter last
year. During the first half of 2007, gross production of NGLs available for
sale decreased to 18 thousand barrels a day, from 27 thousand barrels in the
same period of 2006, mainly due to declining NGL content of Wizard Lake gas
production.
    Gross production of natural gas during the second quarter of 2007
decreased to 492 million cubic feet a day from 557 million cubic feet in the
same period last year. In the first half of the year, gross production was
508 million cubic feet a day, down from 568 million in the first six months of
2006. The lower production volume was primarily due to decline in production
from the gas cap at Wizard Lake and natural decline in other producing
properties in the Western Canadian Basin.
    In April, the exploration well drilled with co-venturers in Orphan Basin
off the East Coast of Newfoundland was completed. Exploration costs related to
the well were reflected in the second quarter earnings. Results from the well
will be used to plan future drilling in the area.
    In July, the company, along with co-venturer ExxonMobil Canada,
successfully acquired exploration rights for a parcel in the Beaufort Sea. The
company's 50 percent share of the proposed exploration spending would be about
$293 million with a minimum commitment of about $73 million.

    Petroleum products

    Net income from petroleum products was a record of $314 million in the
second quarter of 2007, an increase of $252 million from the same period a
year ago. Stronger industry refining and marketing margins totaling about
$115 million and favourable margin and expense effects of about $100 million
associated with lower refinery maintenance and project activities were the
main contributors to higher earnings. Earnings were also higher with the
absence of the unfavourable effects of tax rate changes of about $40 million
reported in second quarter 2006.
    Six-month net income was $512 million, $251 million higher than the same
period of 2006. Increased earnings were primarily due to stronger industry
refining and marketing margins totaling about $160 million and favourable
impacts of about $50 million from lower refinery maintenance and project
activities. Earnings were also higher with the absence of the unfavourable
effects of tax rate changes of about $40 million reported in 2006.

    Chemicals

    Net income from chemicals was $22 million in the second quarter, compared
with $31 million in the same period last year. Six-month net income was
$50 million, compared with $70 million for the same period in 2006. Lower
earnings were due primarily to lower industry margin for polyethylene
products.

    Corporate and other

    Net income from corporate and other was negative $84 million in the
second quarter, compared with negative $10 million in the same period of 2006.
Six-month net income was negative $99 million, versus negative $54 million
last year. Unfavourable earnings effects were due mainly to higher share-based
compensation charges.

    LIQUIDITY AND CAPITAL RE

SOURCES ------------------------------- Cash flow from operating activities was $1,125 million during the second quarter of 2007, $199 million higher than the same period last year. The increase in cash flow was driven primarily by lower working capital requirements. Year-to-date cash flow from operating activities was $1,400 million, an increase of $512 million from the first half of 2006. Lower working capital requirements and lower funding to employee pension plans were the main reasons for the increase. Capital and exploration expenditures were $200 million in the second quarter, compared with $283 million during the same quarter of 2006, and $416 million in the first half of 2007, versus $605 million in the same period a year ago. Lower expenditures were primarily due to the completion of the Stage 3 upgrader expansion project at Syncrude and also the completion of the project to produce ultra-low sulphur diesel. In 2007, for the natural resources segment, capital and exploration expenditures included ongoing development drilling and programs at Cold Lake to maintain and expand production capacity, drilling at conventional fields in Western Canada and advancing the Mackenzie gas and Kearl oil sands projects. The petroleum products segment's capital expenditures were mainly on projects to improve operating efficiency and upgrade the network of Esso retail outlets. In the second quarter of 2007, the company retired the remaining $404 million of its medium-term notes on maturity, replacing them with short-term Canadian commercial paper. Also in the second quarter, the company retired its $250-million variable-rate loan on maturity and replaced it with a $250 million long-term variable-rate loan from an affiliated company of Exxon Mobil Corporation at interest equivalent to Canadian market rates. In June, the company received approval from the Toronto Stock Exchange for a new normal course issuer bid to continue its existing share-purchase program that expired on June 22, 2007. The new share-purchase program enables the company to repurchase up to about 46.5 million shares during the period from June 25, 2007, to June 24, 2008. During the first half of 2007, the company repurchased about 26.6 million shares for $1,191 million. Cash dividends of $152 million were paid in the first six months of 2007. This compared with dividends of $159 million in the comparable period of 2006. Increased repurchase of shares reduced the number of shares outstanding and total dividend payments. On May 22, 2007, the company declared a quarterly dividend of nine cents a share, an increase of one cent a share from the previous quarter, payable on July 1, 2007. The above factors led to a decrease in the company's balance of cash and marketable securities to $2,037 million at June 30, 2007, from $2,158 million at the end of 2006. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ----------------------------------------------------------- Information about market risks for the six months ended June 30, 2007 does not differ materially from that discussed on page 31 in the company's annual report to shareholders for the year ended December 31, 2006 and interim report to shareholders for the quarter ended March 31, 2007. ------------------------------------------------------------------------- This report may contain forward-looking information. Actual results could differ materially due to market conditions, changes in law or government 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. ------------------------------------------------------------------------- IMPERIAL OIL LIMITED ------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP, unaudited) Six months Second quarter to June 30 millions of Canadian dollars 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUES AND OTHER INCOME Operating revenues(a)(b) 6,299 6,604 12,066 12,390 Investment and other income(4) 40 84 207 116 --------------- --------------- TOTAL REVENUES AND OTHER INCOME 6,339 6,688 12,273 12,506 --------------- --------------- EXPENSES Exploration 43 3 71 13 Purchases of crude oil and products(c) 3,470 3,868 6,623 7,002 Production and manufacturing(5)(d) 888 925 1,734 1,847 Selling and general(5) 385 277 671 615 Federal excise tax(a) 324 315 629 618 Depreciation and depletion 198 214 387 430 Financing costs(6)(e) 11 2 23 7 --------------- --------------- TOTAL EXPENSES 5,319 5,604 10,138 10,532 --------------- --------------- INCOME BEFORE INCOME TAXES 1,020 1,084 2,135 1,974 INCOME TAXES 308 247 649 546 --------------- --------------- NET INCOME(3) 712 837 1,486 1,428 --------------- --------------- NET INCOME PER COMMON SHARE - BASIC (dollars)(9) 0.76 0.85 1.58 1.45 NET INCOME PER COMMON SHARE - DILUTED (dollars)(9) 0.76 0.85 1.57 1.44 DIVIDENDS PER COMMON SHARE (dollars)(9) 0.09 0.08 0.17 0.16 (a) Federal excise tax included in operating revenues 324 315 629 618 (b) Amounts from related parties included in operating revenues 407 628 846 1,121 (c) Amounts to related parties included in purchases of crude oil and products 797 858 1,547 1,983 (d) Amounts to related parties included in production and manufacturing expenses 47 36 81 69 (e) Amounts to related parties included in financing costs 8 8 17 15 The notes to the financial statements are an integral part of these financial statements. IMPERIAL OIL LIMITED ------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP, unaudited) Six months inflow/(outflow) Second quarter to June 30 millions of Canadian dollars 2007 2006 2007 2006 ------------------------------------------------------------------------- OPERATING ACTIVITIES Net income 712 837 1,486 1,428 Adjustment for non-cash items: Depreciation and depletion 198 214 387 430 (Gain)/loss on asset sales, after income tax(4) (8) (46) (101) (54) Deferred income taxes and other (20) (138) 51 (43) Changes in operating assets and liabilities: Accounts receivable (116) (191) (232) 20 Inventories and prepaids 71 243 (198) (209) Income taxes payable 16 68 (408) (295) Accounts payable 210 (91) 480 (127) All other items - net(a) 62 30 (65) (262) --------------- --------------- CASH FROM (USED IN) OPERATING ACTIVITIES 1,125 926 1,400 888 --------------- --------------- INVESTING ACTIVITIES Additions to property, plant and equipment and intangibles (184) (280) (372) (592) Proceeds from asset sales 17 107 186 134 Loans to equity company (1) (1) (1) (2) --------------- --------------- CASH FROM (USED IN) INVESTING ACTIVITIES (168) (174) (187) (460) --------------- --------------- FINANCING ACTIVITIES Short-term debt - net 405 72 405 72 Repayment of long-term debt (654) (71) (655) (72) Long-term Debt issued 250 - 250 - Issuance of common shares under stock option plan 7 3 9 4 Common shares purchased(9) (622) (395) (1,191) (937) Dividends paid (76) (79) (152) (159) --------------- --------------- CASH FROM (USED IN) FINANCING ACTIVITIES (690) (470) (1,334) (1,092) --------------- --------------- INCREASE (DECREASE) IN CASH 267 282 (121) (664) CASH AT BEGINNING OF PERIOD 1,770 715 2,158 1,661 --------------- --------------- CASH AT END OF PERIOD 2,037 997 2,037 997 --------------- --------------- (a) Includes contribution to registered pension plans (6) (3) (153) (356) The notes to the financial statements are an integral part of these financial statements. IMPERIAL OIL LIMITED ------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (U.S. GAAP, unaudited) As at As at June 30 Dec.31 millions of Canadian dollars 2007 2006 ------------------------------------------------------------------------- ASSETS Current assets Cash 2,037 2,158 Accounts receivable, less estimated doubtful accounts 2,104 1,871 Inventories of crude oil and products 740 556 Materials, supplies and prepaid expenses 165 151 Deferred income tax assets 611 573 --------------- Total current assets 5,657 5,309 Investments and other long-term assets 649 104 Property, plant and equipment, less accumulated depreciation and depletion 22,540 22,478 Property, plant and equipment (net) 12,164 12,021 --------------- 10,376 10,457 Goodwill 204 204 Other intangible assets, net 65 67 --------------- TOTAL ASSETS 16,951 16,141 --------------- LIABILITIES Current liabilities Short-term debt 575 171 Accounts payable and accrued liabilities(8)(a) 3,567 3,080 Income taxes payable 1,161 1,190 Current portion of long-term debt(7)(b) 572 907 --------------- Total current liabilities 5,875 5,348 Long-term debt(7)(c) 289 359 Other long-term obligations(8) 1,769 1,683 Deferred income tax liabilities 1,446 1,345 --------------- TOTAL LIABILITIES 9,379 8,735 SHAREHOLDERS' EQUITY Common shares at stated value(9)(d) 1,639 1,677 Earnings reinvested(10) 6,659 6,462 Accumulated other comprehensive income(11) (726) (733) --------------- TOTAL SHAREHOLDERS' EQUITY 7,572 7,406 --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 16,951 16,141 --------------- (a) Accounts payable and accrued liabilities include amounts to related parties of $213 million (2006 - $151 million). (b) Current portion of long-term debt includes amounts to related parties of $568 million (2006 - $500 million). (c) Long-term debt includes amounts to related parties of $250 million (2006 - $318 million). (d) Number of common shares outstanding was 927 million (2006 - 953 million). The notes to the financial statements are an integral part of these financial statements. ------------------------------------------------------------------------- Approved by the directors August 2, 2007 Controller and Chairman, president and senior vice-president, chief executive officer finance and administration ------------------------------------------------------------------------- IMPERIAL OIL LIMITED ------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ------------------------------------------------------------------------- 1. Basis of financial statement presentation 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. In the opinion of the management, the information furnished herein reflects all known accruals and adjustments necessary for a fair presentation of the financial position of the company as at June 30, 2007, and December 31, 2006, and the results of operations and changes in cash flows for the six months ending June 30, 2007 and 2006. All such adjustments are of a normal recurring nature. The company's exploration and production activities are accounted for under the "successful efforts" method. Certain reclassifications to the prior year have been made to conform to the 2007 presentation. The results for the six months ending June 30, 2007, are not necessarily indicative of the operations to be expected for the full year. All amounts are in Canadian dollars unless otherwise indicated. 2. Accounting change for uncertainty in income taxes Effective January 1, 2007, the company adopted the Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes". FIN 48 is an interpretation of FASB Statement No. 109, "Accounting for Income Taxes" and prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its income tax returns. Upon the adoption of FIN 48, the company recognized a transition gain of $14 million in shareholders' equity. The gain reflected the recognition of several refund claims with associated interest, partly offset by increased income tax reserves. The total amount of unrecognized income tax benefits at January 1, 2007, was $142 million. The company's effective tax rate will be reduced if any of these tax benefits are subsequently recognized. The unrecognized tax benefits described above will not be included in the company's annual Form 10-K contractual obligations table because the company does not expect that there will be any cash impact from the final settlements as sufficient general funds have been deposited with the Canada Revenue Agency (CRA). The company's tax filings from 2002 to 2006 are subject to examination by the tax authorities. The CRA has proposed certain adjustments to the company's filings for several years in the period 1987 to 2001. Management is currently evaluating those proposed adjustments. Management believes that a number of outstanding matters before 2002 are expected to be resolved in 2007. The impact on unrecognized tax benefits and associated earnings effects, if any, from these matters are not expected to be material. The company classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense. 3. Business segments Natural Petroleum Second quarter Resources Products Chemicals millions of dollars 2007 2006 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUES AND OTHER INCOME External sales(a) 1,210 1,260 4,764 5,003 325 341 Intersegment sales 832 1,024 551 605 91 80 Investment and other income 5 55 14 15 - - ------------------------------------------------ 2,047 2,339 5,329 5,623 416 421 ------------------------------------------------ EXPENSES Exploration(b) 43 3 - - - - Purchases of crude oil and products 706 803 3,921 4,469 317 305 Production and manufacturing 527 486 313 394 48 45 Selling and general 2 4 244 244 17 19 Federal excise tax - - 324 315 - - Depreciation and depletion 134 156 60 55 2 3 Financing costs 1 - 1 - - - ------------------------------------------------ TOTAL EXPENSES 1,413 1,452 4,863 5,477 384 372 ------------------------------------------------ INCOME BEFORE INCOME TAXES 634 887 466 146 32 49 INCOME TAXES 174 133 152 84 10 18 ------------------------------------------------ NET INCOME 460 754 314 62 22 31 ------------------------------------------------ Export sales to the United States 547 530 280 226 185 199 Cash flows from (used in) operating activities 675 631 491 232 (7) 88 CAPEX(b) 140 144 48 120 3 4 Corporate Second quarter and Other Eliminations Consolidated millions of dollars 2007 2006 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUES AND OTHER INCOME External sales(a) - - - - 6,299 6,604 Intersegment sales - - (1,474) (1,709) - - Investment and other income 21 14 - - 40 84 ------------------------------------------------ 21 14 (1,474) (1,709) 6,339 6,688 ------------------------------------------------ EXPENSES Exploration(b) - - - - 43 3 Purchases of crude oil and products - - (1,474) (1,709) 3,470 3,868 Production and manufacturing - - - - 888 925 Selling and general 122 10 - - 385 277 Federal excise tax - - - - 324 315 Depreciation and depletion 2 - - - 198 214 Financing costs 9 2 - - 11 2 ------------------------------------------------ TOTAL EXPENSES 133 12 (1,474) (1,709) 5,319 5,604 ------------------------------------------------ INCOME BEFORE INCOME TAXES (112) 2 - - 1,020 1,084 INCOME TAXES (28) 12 - - 308 247 ------------------------------------------------ NET INCOME (84) (10) - - 712 837 ------------------------------------------------ Export sales to the United States - - - - 1,012 955 Cash flows from (used in) operating activities (34) (25) - - 1,125 926 CAPEX(b) 9 15 - - 200 283 (a) Includes crude oil sales made by Products in order to optimize refining operations. (b) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles and additions to capital leases. ------------------------------------------------------------------------- Natural Petroleum Six months to June 30 Resources Products Chemicals millions of dollars 2007 2006 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUES AND OTHER INCOME External sales(a) 2,349 2,406 9,082 9,281 635 703 Intersegment sales 1,750 1,852 1,057 1,206 173 168 Investment and other income 140 65 24 23 - - ------------------------------------------------ 4,239 4,323 10,163 10,510 808 871 ------------------------------------------------ EXPENSES Exploration(b) 71 13 - - - - Purchases of crude oil and products 1,424 1,465 7,578 8,143 601 619 Production and manufacturing 1,036 1,045 604 705 94 98 Selling and general 4 7 477 485 35 39 Federal excise tax - - 629 618 - - Depreciation and depletion 258 312 121 111 5 6 Financing costs 3 - 1 - - - ------------------------------------------------ TOTAL EXPENSES 2,796 2,842 9,410 10,062 735 762 ------------------------------------------------ INCOME BEFORE INCOME TAXES 1,443 1,481 753 448 73 109 INCOME TAXES 420 330 241 187 23 39 ------------------------------------------------ NET INCOME 1,023 1,151 512 261 50 70 ------------------------------------------------ Export sales to the United States 1,022 955 502 492 364 415 Cash flows from (used in) operating activities 942 816 472 69 (59) 67 CAPEX(b) 311 361 83 215 6 4 Total assets as at June 30 7,880 7,278 6,795 6,696 515 490 Capital employed as at June 30 4,220 4,580 3,424 3,387 344 286 Corporate Six months to June 30 and Other Eliminations Consolidated millions of dollars 2007 2006 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUES AND OTHER INCOME External sales(a) - - - - 12,066 12,390 Intersegment sales - - (2,980) (3,226) - - Investment and other income 43 28 - - 207 116 ------------------------------------------------ 43 28 (2,980) (3,226) 12,273 12,506 ------------------------------------------------ EXPENSES Exploration (b) - - - - 71 13 Purchases of crude oil and products - - (2,980) (3,225) 6,623 7,002 Production and manufacturing - - - (1) 1,734 1,847 Selling and general 155 84 - - 671 615 Federal excise tax - - - - 629 618 Depreciation and depletion 3 1 - - 387 430 Financing costs 19 7 - - 23 7 ------------------------------------------------ TOTAL EXPENSES 177 92 (2,980) (3,226) 10,138 10,532 ------------------------------------------------ INCOME BEFORE INCOME TAXES (134) (64) - - 2,135 1,974 INCOME TAXES (35) (10) - - 649 546 ------------------------------------------------ NET INCOME (99) (54) - - 1,486 1,428 ------------------------------------------------ Export sales to the United States - - - - 1,888 1,862 Cash flows from (used in) operating activities 45 (64) - - 1,400 888 CAPEX(b) 16 25 - - 416 605 Total assets as at June 30 2,069 1,283 (308) (501) 16,951 15,246 Capital employed as at June 30 1,075 214 - - 9,063 8,467 (a) Includes crude oil sales made by Products in order to optimize refining operations. (b) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant, equipment and intangibles and additions to capital leases. 4. Investment and other income Investment and other income includes gains and losses on asset sales as follows: Six months Second quarter to June 30 millions of dollars 2007 2006 2007 2006 ------------------------------------------------------------------------- Proceeds from asset sales 17 107 186 134 Book value of assets sold 9 40 47 56 --------------- --------------- Gain/(loss) on asset sales, before tax(a) 8 67 139 78 --------------- --------------- Gain/(loss) on asset sales, after tax(a) 8 46 101 54 --------------- --------------- (a) Second quarter 2006 included a gain of $56 million ($38 million after tax) from the sale of the company's interests in the Calmette and Westlock producing properties. 5. Employee retirement benefits The components of net benefit cost included in production and manufacturing and selling and general expenses in the consolidated statement of income are as follows: Six months Second quarter to June 30 millions of dollars 2007 2006 2007 2006 ------------------------------------------------------------------------- Pension benefits: Current service cost 25 25 50 50 Interest cost 62 59 123 119 Expected return on plan assets (82) (75) (164) (150) Amortization of prior service cost 5 5 10 10 Recognized actuarial loss 19 28 38 57 --------------- --------------- Net benefit cost 29 42 57 86 --------------- --------------- Other post-retirement benefits: Current service cost 2 2 3 4 Interest cost 6 6 12 12 Recognized actuarial loss 1 2 3 4 --------------- --------------- Net benefit cost 9 10 18 20 --------------- --------------- 6. Financing costs Six months Second quarter to June 30 millions of dollars 2007 2006 2007 2006 ------------------------------------------------------------------------- Debt related interest 17 15 33 29 Capitalized interest (9) (14) (16) (24) --------------- --------------- Net interest expense 8 1 17 5 Other interest 3 1 6 2 --------------- --------------- Total financing costs 11 2 23 7 --------------- --------------- 7. Long-term debt As at As at June 30 Dec.31 2007 2006 ------------------------------------------------------------------------- Interest millions Issued Maturity date rate of dollars ------------------------------------------------------------------------- 2003 $250 million due May 26, 2007(a) and $250 million due August 26, 2007 Variable - - 2003 January 19, 2008 Variable - 318 2007 May 26, 2009(a) Variable 250 - ------------ Long-term debt 250 318 Capital leases 39 41 ------------ Total long-term debt(b) 289 359 ------------ (a) The company retired $250 million variable-rate debt on maturity and replaced it with long-term variable-rate loans of $250 million from an affiliated company of Exxon Mobil Corporation at interest equivalent to Canadian market rates. (b) These amounts exclude that portion of long-term debt totalling $572 million (December 31, 2006 - $907 million), which matures within one year and is included in current liabilities. 8. Other long-term obligations As at As at June 30 Dec.31 millions of dollars 2007 2006 ------------------------------------------------------------------------- Employee retirement benefits(a) 897 1,017 Asset retirement obligations and other environmental liabilities(b) 438 438 Other obligations 434 228 ------- ------- Total other long-term obligations 1,769 1,683 ------- ------- (a) Total recorded employee retirement benefits obligations also include $55 million in current liabilities (December 31, 2006 - $51 million). (b) Total asset retirement obligations and other environmental liabilities also include $97 million in current liabilities (December 31, 2006 - $97 million). 9. Common shares As at As at June 30 Dec.31 thousands of shares 2007 2006 ------------------------------------------------------------------------- Authorized 1,100,000 1,100,000 Common shares outstanding 926,946 952,988 From 1995 through 2006, the company purchased shares under twelve 12-month normal course issuer bid share repurchase programs, as well as an auction tender. On June 25, 2007, another 12-month normal course issuer bid program was implemented with an allowable purchase of about 46.5 million shares (five percent of the total on June 22, 2007), less any shares purchased by the employee savings plan and company pension fund. The results of these activities are as shown below: millions of Year Shares Dollars ------------------------------------------------------------------------- 1995 - 2005 750.1 8,635 2006 - Second quarter 10.0 395 - Full year 45.5 1,818 2007 - Second quarter 13.0 622 - Year-to-date 26.6 1,191 Cumulative purchases to date 822.2 11,644 Exxon Mobil Corporation's participation in the above share repurchase maintained its ownership interest in Imperial at 69.6 percent. The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of earnings reinvested. The following table provides the calculation of net income per common share: Six months Second quarter to June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Net income per common share - basic Net income (millions of dollars) 712 837 1,486 1,428 Weighted average number of common shares outstanding (millions of shares) 934.1 979.6 941.4 986.3 Net income per common share (dollars) 0.76 0.85 1.58 1.45 Net income per common share - diluted Net income (millions of dollars) 712 837 1,486 1,428 Weighted average number of common shares outstanding (millions of shares) 934.1 979.6 941.4 986.3 Effect of employee stock-based awards (millions of shares) 5.8 4.4 5.7 4.4 --------------- --------------- Weighted average number of common shares outstanding, assuming dilution (millions of shares) 939.9 984.0 947.1 990.7 Net income per common share (dollars) 0.76 0.85 1.57 1.44 10. Earnings reinvested Six months Second quarter to June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Earnings reinvested at beginning of period 6,630 5,460 6,462 5,466 Cumulative effect of accounting change(2) - - 14 - Net income for the period 712 837 1,486 1,428 Share purchases in excess of stated value (599) (377) (1,144) (895) Dividends (84) (79) (159) (158) --------------- --------------- Earnings reinvested at end of period 6,659 5,841 6,659 5,841 --------------- --------------- 11. Comprehensive income Six months Second quarter to June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Net income 712 837 1,486 1,428 Post-retirement benefit liability adjustment (excluding amortization) - - (28) - Amortization of post retirement benefit liability adjustment included in net periodic benefit costs 18 - 35 - --------------- --------------- Other comprehensive income (net of income taxes) 18 - 7 - --------------- --------------- Total comprehensive income 730 837 1,493 1,428 --------------- --------------- 12. Additional SFAS 158 Adoption Disclosure In its 2006 Form 10-K financial statements, the company reported the adjustment related to the adoption of Statement of Financial Accounting Standards No. 158 (SFAS 158), "Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment to FASB Statements No. 87, 88, 106 and 132(R)" as a component of 2006 comprehensive income. Based on further regulatory guidance, this adjustment should have been reported as an adjustment to ending 2006 accumulated other comprehensive income. The amount reported by the company as 2006 comprehensive income (nonowner changes in equity) was $2,891 million. Excluding the negative $487 million SFAS 158 adoption adjustment (which was separately disclosed in the 2006 Form 10-K footnote 6, Employee retirement benefits), the amount would have been $3,378 million. The company will accordingly revise the presentation of 2006 comprehensive income (nonowner changes in equity) in its 2007 Form 10-K financial statements. OPERATING STATISTICS (unaudited) Six months Second quarter to June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- GROSS CRUDE OIL AND NGL PRODUCTION (thousands of barrels a day) Cold Lake 150 157 148 154 Syncrude 66 60 70 56 Conventional 29 31 30 32 -------------- -------------- Total crude oil production 245 248 248 242 Natural gas liquids (NGLs) available for sale 18 25 18 27 -------------- -------------- Total crude oil and NGL production 263 273 266 269 -------------- -------------- NET CRUDE OIL AND NGL PRODUCTION (thousands of barrels a day) Cold Lake 128 119 125 129 Syncrude 57 54 60 53 Conventional 23 23 22 23 -------------- -------------- Total crude oil production 208 196 207 205 Natural gas liquids (NGLs) available for sale 13 20 14 22 -------------- -------------- Total crude oil and NGL production 221 216 221 227 -------------- -------------- COLD LAKE BLEND SALES (thousands of barrels a day) 196 207 195 203 NGL SALES (thousands of barrels a day) 15 25 22 33 NATURAL GAS (millions of cubic feet a day) Production (gross) 492 557 508 568 Production (net) 434 493 446 506 Sales 442 509 460 521 AVERAGE REALIZATIONS AND PRICES (Canadian dollars) Conventional crude oil realizations (a barrel) 67.73 75.70 64.94 69.54 NGL realizations (a barrel) 46.70 37.90 44.71 40.79 Natural gas realizations (a thousand cubic feet) 7.61 6.52 7.68 7.99 Par crude oil price at Edmonton (a barrel) 73.71 80.48 70.79 74.71 Heavy crude oil at Hardisty (Bow River, a barrel) 51.39 61.68 51.36 50.97 TOTAL REFINERY THROUGHPUT (thousands of barrels a day) 410 366 402 425 REFINERY CAPACITY UTILIZATION (percent) 82 73 80 85 PETROLEUM PRODUCTS SALES (millions of litres a day) Gasolines 33.8 32.4 32.0 31.6 Heating, diesel and jet fuels 23.9 23.9 26.1 26.5 Heavy fuel oils 4.8 4.6 4.4 5.0 Lube oils and other products 7.7 7.9 6.7 7.2 -------------- -------------- Net petroleum products sales 70.2 68.8 69.2 70.3 -------------- -------------- PETROCHEMICAL SALES (thousands of tonnes a day) 3.0 3.0 3.0 3.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SHARE OWNERSHIP, TRADING AND PERFORMANCE (unaudited) Six months Second quarter to June 30 2007 2006 2007 2006 ------------------------------------------------------------------------- RETURN ON AVERAGE CAPITAL EMPLOYED(a) (rolling 4 quarters, percent) 34.9 38.1 RETURN ON AVERAGE SHAREHOLDERS' EQUITY (rolling 4 quarters, percent) 41.7 46.7 INTEREST COVERAGE RATIO - EARNINGS BASIS (rolling 4 quarters, times covered) 64.6 85.7 SHARE OWNERSHIP Outstanding shares (thousands) Monthly weighted average 934,121 979,623 941,436 986,255 At June 30 926,946 974,076 Number of shareholders At June 30 13,286 13,822 SHARE PRICES Toronto Stock Exchange (Canadian dollars) High 54.70 43.33 54.70 43.33 Low 41.77 36.18 37.40 35.36 Close at June 30 49.59 40.78 American Stock Exchange (U.S. dollars) High 50.35 39.64 50.35 39.64 Low 36.90 32.50 31.87 30.54 Close at June 30 46.34 36.50 (a) Return on capital employed is net income excluding the after-tax cost of financing divided by the average rolling four quarters' capital employed. -------------------------------------------------------------------------

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For further information: Investor relations, Dee Brandes, (403)
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