Imperial Oil Ltd Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Manav Gupta - UBS Investment Bank - Analyst : I wanted to start by congratulating the management on another 20% dividend hike. Brad, if my memory is right, when you took over, the quarterly dividend was close to $0.22, and now you have raised it to $0.72 during your tenure. So it does take a very strong track record of execution to achieve that. So I just wanted to congratulate you on that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, IMO.TO - Q4 2024 Imperial Oil Ltd Earnings Call My first question is on refining. Your earnings are up materially quarter-over-quarter. When we look across to US refiners, the earnings are down 50% to 70% quarter-over-quarter. Help us understand what's driving the resilience of refining here? I understand you operated at a higher rate, but still, this is in stark contrast to what we are seeing for US refiners. So if you can help us understand the resilience of refining here?

Question: Manav Gupta - UBS Investment Bank - Analyst : Perfect. My second is on Grand Rapids. It's clearly helping you drive production records at Cold Lake. Can you talk more about why the results of Phase 1 actually exceeded your expectations? Any future phases, as well as Leming, which can allow you to continue to grow the volumes at Cold Lake?

Question: Dennis Fong - CIBC Capital Markets - Analyst : Hi, good morning and thanks for taking my questions. I guess the first one here is, I guess, congratulations on another strong quarter at Kearl. I was actually hoping you could kind of dive in a little bit more into initiatives that you're currently undergoing that are helping kind of maintain, again, these high levels of performance? Namely kind of focusing on maybe a little bit around the autonomous fleet as well as on the technological advancements that you're applying to production?

Question: Dennis Fong - CIBC Capital Markets - Analyst : Appreciate that underlying context in just kind of the holistic approach that you're taking to development. My second question -- and if you'll help me take it in a slightly different direction. You've obviously done a great job executing on projects that grow and develop existing assets within REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, IMO.TO - Q4 2024 Imperial Oil Ltd Earnings Call your portfolio. Can you remind me a little bit on the priorities the company has or focuses on when you're allocating capital, whether it be growth, M&A, A&D or shareholder return? And specifically to you, Brad, obviously, you have the prior position to this one. Historical experience with evaluating assets both within your portfolio and outside of the company, how you kind of rank in order and even look or evaluate how you examine your existing portfolio versus or how you can make it better?

Question: Dennis Fong - CIBC Capital Markets - Analyst : Great, really appreciate the context from both of you. I'll turn it back. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, IMO.TO - Q4 2024 Imperial Oil Ltd Earnings Call

Question: Greg Pardy - RBC Capital Markets - Analyst : Thanks for the rundown, Brad. And maybe just first off, just all the very best to Sherri going to XOM. I wanted to ask you really on 2 fronts. One is technical, a little bit more around Cold Lake. But probably the bigger one is, how are you thinking about the tariff threat that you've got going on? I'm sure you've had time to analyze that and then there's a relationship with Exxon. How well equipped are you to withstand something like that? And then secondly is as it relates to shareholder returns, is it really just essentially driven by cash balances? So in other words, if we did see tariffs and cash balances still ticked up to levels where you could repurchase stock, how would you sort of think about those? I know very hypothetical, but obviously, just a huge issue, obviously, overhanging Canada right now.

Question: Greg Pardy - RBC Capital Markets - Analyst : Okay. So yes, very, very logical. And Brad, I want to come back to your thinking just around acquisitions versus organic. And I've mentioned before, every company seems to have significant growth initiatives underway right now. So when you kind of weigh acquisitions where there may already be an egress solution in place versus your organic growth initiatives, whether potentially could see some limitations on pipe capacity and so forth. Is that kind of dialed into your thinking when you go through that LT model?

Question: Greg Pardy - RBC Capital Markets - Analyst : Perfect. Thanks very much.

Question: Menno Hulshof - TD Securities - Analyst : Thanks and good morning, everyone. I'll start with a question on TMX. Can we just get an update on the status of toll negotiations? Last I heard, and it's been a while, but I believe the guide was from some of your peers was that it could be a midyear event. But with all the uncertainties, including tariffs, is it fair to assume that midyear is too optimistic at this stage? Thank you.

Question: Menno Hulshof - TD Securities - Analyst : Got it. And then maybe the second question would be on Strathcona. Already, in the press release, you reiterated that you're still tracking to a mid-year start-up. But can we maybe just get a bit more detail in terms of what still needs to happen to get that project across the line? And then when you think about sort of cash flow positivity, is it possible that we see that in the second half of 2025? Or is that more likely a 2026 event? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, IMO.TO - Q4 2024 Imperial Oil Ltd Earnings Call

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Yes. Thanks so much, Brad and team. I just wanted to spend some time on Upstream cash costs, where I know you guys are targeting $18 at Kearl and $13 at Cold Lake. Where are you in that journey? What's the next step? And what did this quarter tell you about your ability to ultimately get there?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : That's the follow-up. It's just the Kearl, you talked about 280, 290 this year with the goal of getting to 300-plus. I guess the question is, how plus is plus? And just your perspective on in a capital-efficient way, how big could Kearl be in the context of the budget that you laid out?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Thank you, Brad.

Question: Doug Leggate - Wolfe Research, LLC - Analyst : Good morning, everybody. Thanks for taking my question. Happy new year. So I've got two breakeven questions, if I may. They both might be Dan's bailiwick, but I'd love your perspective on it. First of all, someone -- I think it was Manav or Greg touched on the dividend earlier. 20%, another sizable bump obviously. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, IMO.TO - Q4 2024 Imperial Oil Ltd Earnings Call But what I'm curious about is where do you see your breakeven today with the capital (technical difficulty) have on the growth whether it's today or whether it's projected on where you see the growth going, how does your breakeven evolve? Because that headroom for dividend growth remains our a potent advantage for you guys relative to your peers. My follow-up is also a kind of a breakeven question related to the balance sheet. You guys have got a stellar -- one of the best, if not the best balance sheet in the industry and have done for a long time. And when we think about SIB, we tend to think about the question earlier about cash balances. We don't really think about, well, yes, but you've also got this stellar balance sheet. So I'm wondering if you could give us an idea where would you be comfortable with your balance sheet moving to over time? And I guess if I could circle back on the dividend question, where would you be comfortable with the dividend breakeven moving to over time? And I appreciate the chance to ask the question.

Question: Doug Leggate - Wolfe Research, LLC - Analyst : It does, Dan. What about the balance sheet in terms of the SIB? Because obviously, you've got a lot of headroom if you did want to take advantage of that.

Question: Doug Leggate - Wolfe Research, LLC - Analyst : Dan, I don't want everyone listening to think I'm a complete lunatic, so let me just clarify the question, and then I'll let you guys go. Sorry for this. So I guess the way I think about it is you can borrow at a very, very low cost to fund your projects, your growth at Kearl. And the tremendous free cash flow you have is available for the SIB. So I think about it more as leveraging for as a sort of project finance as opposed to -- but at the end of the day, cash is king, so I get it. But thank you so much, guys, for the answers, and I appreciate the time.

Question: Patrick O'Rourke - ATB Capital Markets - Analyst : Good morning guys. Congratulations on the dividend increase and very comprehensive rundown so far. I'll just ask a couple of quick questions here. I guess you talked about sort of the final steps with getting the renewable diesel facility on. A little bit of noise in the renewable and the LCFS market here with -- I think there's an antidumping lawsuit that's been launched. Can you maybe walk us through some of the puts and takes around that market? You've talked about sort of transportation advantage offtake for Imperial here out of the facility and how you're viewing the market and the risk right now?

Question: Patrick O'Rourke - ATB Capital Markets - Analyst : Yes. No, that's terrific and very comprehensive. And then just sort of secondly and this is sort of on the political front here, but with sort of a prorogation in parliament and potentially a bit of shift in sentiment towards carbon here, from both sides of the political spectrum. I'm wondering if you can provide an update on the Pathways project here? I know that there were some of the sort of critical long-lead time items that need to be ordered in very short order. And sort of what the plan is with respect to that as we head towards the end of the year?

Question: Patrick O'Rourke - ATB Capital Markets - Analyst : Thank you.