UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year-ended December 31, 2017
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Commission file number: 0-12014
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IMPERIAL OIL LIMITED
(Exact name of registrant as specified in its charter)
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CANADA
(State
or other jurisdiction of
incorporation or organization)
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98-0017682
(I.R.S. Employer
Identification
No.)
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505 QUARRY PARK BOULEVARD S.E., CALGARY, AB, CANADA
(Address of principal executive offices)
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T2C 5N1
(Postal Code)
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Registrants telephone number, including
area code:
1-800-567-3776
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
None
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Name of each exchange on
which registered
None
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Securities registered pursuant to Section 12(g)
of the Act:
Common Shares (without par value)
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).
Yes
✓
No......
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
Yes...... No
✓
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
✓
No......
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
✓
No......
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K
is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K
or any amendment to this Form
10-K.
Yes
✓
No......
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated
filer, accelerated filer, smaller reporting company and emerging growth company in Rule
12b-2
of the Securities Exchange Act of 1934).
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Large accelerated filer
✓
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Smaller reporting company......
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Accelerated filer......
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Emerging growth company......
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Non-accelerated
filer......
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12
b-2
of the Securities Exchange Act of 1934). Yes..... No
✓
As of the last business day of the 2017 second fiscal quarter, the aggregate market value of the voting stock held by
non-affiliates
of the registrant was Canadian $9,702,192,452 based upon the reported last sale price of such stock on the Toronto Stock Exchange on that date.
The number of common shares outstanding, as of February 7, 2018, was 831,242,307.
1
All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated.
Note that numbers may not add due to rounding.
The following table sets
forth (i) the rates of exchange for the Canadian dollar, expressed in United States (U.S.) dollars, in effect at the end of each of the periods indicated, (ii) the average of exchange rates in effect on the last day of each month during
such periods, and (iii) the high and low exchange rates during such periods, in each case based on the noon buying rate in New York City for wire transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New
York.
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dollars
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2017
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2016
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2015
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2014
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2013
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Rate at end of period
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0.7989
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0.7448
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0.7226
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0.8620
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0.9401
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Average rate during period
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0.7714
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0.7559
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0.7748
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0.9023
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0.9665
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High
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0.8243
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0.7972
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0.8529
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0.9423
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1.0164
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Low
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0.7275
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0.6853
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0.7148
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0.8588
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0.9348
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On February 7, 2018, the noon buying rate in New York City for wire transfers in Canadian dollars as certified for customs purposes
by the Federal Reserve Bank of New York was $0.7971 U.S. = $1.00 Canadian.
2
Forward-looking statements
Statements of future events or conditions in this report, including projections, targets, expectations, estimates, and business plans are forward-looking statements.
Actual future financial and operating results, including demand growth and energy source mix; production growth and mix; project plans, dates, costs and capacities; production rates; production life and resource recoveries; cost savings; product
sales; financing sources; and capital and environmental expenditures could differ materially depending on a number of factors, such as changes in the supply of and demand for crude oil, natural gas, and petroleum and petrochemical products and
resulting price and margin impacts; transportation for accessing markets; political or regulatory events, including changes in law or government policy, applicable royalty rates and tax laws; the receipt, in a timely manner, of regulatory and
third-party approvals; third party opposition to operations and projects; environmental risks inherent in oil and gas exploration and production activities; environmental regulation, including climate change and greenhouse gas restrictions; currency
exchange rates; availability and allocation of capital; availability and performance of third party service providers; unanticipated operational disruptions; management effectiveness; commercial negotiations; project management and schedules;
response to unexpected technological developments; operational hazards and risks; disaster response preparedness; the ability to develop or acquire additional reserves; and other factors discussed in Item 1A of this annual report on Form
10-K
and in the managements discussion and analysis of financial condition and results of operations contained in Item 7. Forward-looking statements are not guarantees of future performance and involve a
number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to Imperial Oil Limited. Imperial Oil Limiteds actual results may differ materially from those expressed or implied by its
forward-looking statements and readers are cautioned not to place undue reliance on them. Imperial Oil Limited undertakes no obligation to update any forward-looking statements contained herein, except as required by applicable law.
The term project as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government
payment transparency reports.
PART I
Item 1. Business
Imperial Oil Limited was incorporated under the laws of Canada in 1880 and was continued under the Canada Business Corporations Act (the CBCA) by
certificate of continuance dated April 24, 1978. The head and principal office of the company is located at 505 Quarry Park Boulevard S.E., Calgary, Alberta, Canada T2C 5N1. Exxon Mobil Corporation (ExxonMobil) owns approximately
69.6 percent of the outstanding shares of the company. In this report, unless the context otherwise indicates, reference to the company or Imperial includes Imperial Oil Limited and its subsidiaries.
The company is one of Canadas largest integrated oil companies. It is active in all phases of the petroleum industry in Canada, including the exploration for, and
production and sale of, crude oil and natural gas. In Canada, it is a major producer of crude oil, the largest petroleum refiner and a leading marketer of petroleum products. It is also a major producer of petrochemicals.
The companys operations are conducted in three main segments: Upstream, Downstream and Chemical. Upstream operations include the exploration for, and production
of, crude oil, natural gas, synthetic oil and bitumen. Downstream operations consist of the transportation and refining of crude oil, blending of refined products and the distribution and marketing of those products. Chemical operations consist of
the manufacturing and marketing of various petrochemicals.
Financial information about segments and geographic areas for the company is contained in the
Financial section of this report under note 2 to the consolidated financial statements: Business segments.
3
Upstream
Disclosure of reserves
Summary of oil and gas
reserves at
year-end
The table below summarizes the net proved reserves for the company, as at December 31, 2017,
as detailed in the Supplemental information on oil and gas exploration and production activities part of the Financial section, starting on page 32 of this report.
All of the companys reported reserves are located in Canada. The company has reported proved reserves based on the average of the
first-day-of-the-month
price for each month during the last
12-month
period ending December 31. Natural gas is converted to an
oil-equivalent
basis at six million cubic feet per one thousand barrels. No major discovery or other
favourable or adverse event has occurred since December 31, 2017 that would cause a significant change in the estimated proved reserves as of that date.
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Liquids
(a)
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Natural gas
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Synthetic oil
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Bitumen
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Total
oil-equivalent
basis
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millions of
barrels
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billions of
cubic
feet
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millions of
barrels
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millions of
barrels
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millions of
barrels
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Net proved reserves:
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Developed
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9
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282
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473
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591
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1,120
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Undeveloped
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35
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359
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-
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355
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450
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Total net proved
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44
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641
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473
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946
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1,570
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(a)
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Liquids include crude oil, condensate and natural gas liquids (NGLs). NGL proved reserves are not material and are therefore included under liquids.
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The estimation of proved reserves, which is based on the requirement of reasonable certainty, is an ongoing process based on rigorous technical evaluations, commercial
and market assessments, and detailed analysis of well information such as flow rates and reservoir pressures. Furthermore, the company only records proved reserves for projects which have received significant funding commitments by management made
toward the development of the reserves. Although the company is reasonably certain that proved reserves will be produced, the timing and amount recovered can be affected by a number of factors, including completion of development projects, reservoir
performance, regulatory approvals, government policies, consumer preferences, royalty framework and significant changes in long-term oil and gas price levels. In addition, proved reserves could be affected by an extended period of low prices which
could reduce the level of the companys capital spending and also impact its partners capacity to fund their share of joint projects. The companys operating decisions and its outlook for future production volumes are not impacted by
proved reserves as disclosed under the U.S. Securities and Exchange Commission definition.
As a result of improved prices in 2017, an additional 0.3 billion
barrels of bitumen at Kearl and Cold Lake now qualify as proved reserves at
year-end
2017. Among the factors that would result in additional amounts being recognized as proved reserves at some point in the
future are a further recovery in yearly average price levels, a further decline in costs and additional planned investment in reliability improvements. Under the terms of certain contractual arrangements or government royalty regimes, lower prices
can also increase proved reserves attributable to Imperial.
4
Technologies used in establishing proved reserves estimates
Imperials proved reserves in 2017 were based on estimates generated through the integration of available and appropriate geological, engineering and production
data, utilizing well established technologies that have been demonstrated in the field to yield repeatable and consistent results.
Data used in these integrated
assessments included information obtained directly from the subsurface via wellbores, such as well logs, reservoir core samples, fluid samples, static and dynamic pressure information, production test data, and surveillance and performance
information. The data utilized also included subsurface information obtained through indirect measurements, including seismic data, calibrated with available well control information. The tools used to interpret the data included proprietary seismic
processing software, proprietary reservoir modeling and simulation software, and commercially available data analysis packages.
In some circumstances, where
appropriate analog reservoirs were available, reservoir parameters from these analogs were used to increase the quality of and confidence in the reserves estimates.
Preparation of reserves estimates
Imperial has a dedicated reserves
management group that is separate from the base operating organization. Primary responsibilities of this group include oversight of the reserves estimation process for compliance with the U.S. Securities and Exchange Commission (SEC) rules and
regulations, review of annual changes in reserves estimates and the reporting of Imperials proved reserves. This group also maintains the official company reserves estimates for Imperials proved reserves. In addition, this group provides
training to personnel involved in the reserve estimation and reporting processes within Imperial.
The reserves management group maintains a central database
containing the official company reserves estimates. Appropriate controls, including limitations on database access and update capabilities, are in place to ensure data integrity within this central database. An annual review of the systems
controls is performed by internal audit. Key components of the reserves estimation process include technical evaluations and analysis of well and field performance, and a rigorous peer review. No changes may be made to reserves estimates in the
central database, including the addition of any new initial reserves estimates or subsequent revisions, unless those changes have been thoroughly reviewed and evaluated by duly authorized personnel within the base operating organization. In
addition, changes to reserves estimates that exceed certain thresholds require further review and endorsement by the operating organization and the reserves management group, culminating in reviews with and approval by senior management and the
companys board of directors.
The internal qualified reserves evaluator is a professional geoscientist registered in Alberta, Canada and has over 19 years of
petroleum industry experience, including 13 years of reserves related experience. The position provides leadership to the internal reserves management group and is responsible for filing a reserves report with the Canadian securities regulatory
authorities. The companys internal reserves evaluation staff consists of 39 persons with an average of 13 years of relevant technical experience in evaluating reserves, of whom 21 persons are qualified reserves evaluators for purposes of
Canadian securities regulatory requirements. The companys internal reserves evaluation management team is made up of 20 persons with an average of 14 years of relevant experience in evaluating and managing the evaluation of reserves.
5
Proved undeveloped reserves
As at December 31, 2017, approximately 29 percent of the companys proved reserves were proved undeveloped reserves reflecting volumes of 450 million
oil-equivalent
barrels. Most of the undeveloped reserves are associated with the Cold Lake field. This compared to 319 million
oil-equivalent
barrels of proved
undeveloped reserves reported at the end of 2016. The increase of 131 million
oil-equivalent
barrels of proved undeveloped reserves includes 93 million
oil-equivalent
barrels at Cold Lake. Conversion of proved undeveloped reserves into proved developed was not material in 2017.
Proved undeveloped reserves that have remained undeveloped for five years or more represent about 65 percent (291 million
oil-equivalent
barrels) of proved undeveloped reserves and are associated with Cold Lakes ongoing drilling program. These undeveloped reserves are planned to be developed in a staged approach to align
with operational capacity and efficient capital spending commitment over the life of the field. The company is reasonably certain that these proved reserves will be produced; however the timing and amount recovered can be affected by a number of
factors including completion of development projects, reservoir performance, regulatory approval, royalty framework, government policies, consumer preferences and significant changes in long-term oil and gas price levels.
One of the companys requirements to report resources as proved reserves is that management has made significant funding commitments towards the development of the
reserves. The company has a disciplined investment strategy and many major fields require a long lead-time in order to be developed. The company made investments of about $150 million during the year to progress the development of proved
undeveloped reserves in its Montney and Duvernay unconventional assets and at Cold Lake. These investments represented about 36 percent of the $416 million in total reported Upstream capital and exploration expenditures. Investments made
by the company to develop quantities which no longer meet the SEC definition of proved reserves due to 2017 average prices are included in the $416 million of Upstream capital and exploration expenditures.
Oil and gas production, production prices and production costs
Reference is made to the portion of the Financial section entitled Managements discussion and analysis of financial condition and results of
operations on page 36 of this report for a narrative discussion on the material changes.
Average daily production of oil
The companys average daily oil production by final products sold during the three years ended December 31, 2017 was as follows. All reported production
volumes were from Canada.
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thousands of barrels per day (a)
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2017
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2016
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2015
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Bitumen:
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Cold Lake:
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- gross
(b)
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162
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161
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158
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- net
(c)
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132
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138
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139
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Kearl:
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- gross
(b)
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126
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120
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108
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- net
(c)
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123
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118
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106
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Total bitumen:
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- gross
(b)
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288
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281
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266
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- net
(c)
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255
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256
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245
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Synthetic oil
(d)
:
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- gross
(b)
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62
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68
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62
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- net
(c)
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57
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67
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58
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Liquids:
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- gross
(b)
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5
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15
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16
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- net
(c)
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4
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13
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15
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Total:
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- gross
(b)
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355
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364
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344
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- net
(c)
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316
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336
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318
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(a)
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Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period.
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(b)
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Gross production is the companys share of production (excluding purchases) before deduction of the mineral owners or governments share or both.
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(c)
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Net production is gross production less the mineral owners or governments share or both.
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(d)
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The companys synthetic oil production volumes were from the companys share of production volumes in the Syncrude joint venture.
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6
Average daily production and production available for sale of natural gas
The companys average daily production and production available for sale of natural gas during the three years ended December 31, 2017 are set forth below. All
reported production volumes were from Canada. All gas volumes in this report are calculated at a pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit. Reference is made to the portion of the Financial section
entitled Managements discussion and analysis of financial condition and results of operations on page 36 of this report for a narrative discussion on the material changes.
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millions of cubic feet per day (a)
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2017
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2016
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2015
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Gross production
(b) (c)
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120
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129
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130
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Net production
(c) (d) (e)
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114
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122
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125
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Net production available for sale
(f)
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80
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87
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94
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(a)
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Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period.
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(b)
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Gross production is the companys share of production (excluding purchases) before deduction of the mineral owners or governments share or both.
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(c)
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Production of natural gas includes amounts used for internal consumption with the exception of the amounts reinjected.
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(d)
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Net production is gross production less the mineral owners or governments share or both.
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(e)
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Net production reported in the above table is consistent with production quantities in the net proved reserves disclosure.
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(f)
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Includes sales of the companys share of net production and excludes amounts used for internal consumption.
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Total average daily
oil-equivalent
basis production
The companys total average daily production expressed in an
oil-equivalent
basis is set forth below, with natural gas
converted to an
oil-equivalent
basis at six million cubic feet per one thousand barrels.
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thousands of barrels per day (a)
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2017
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2016
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2015
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Total production
oil-equivalent
basis:
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- gross
(b)
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375
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386
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366
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- net
(c)
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335
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356
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339
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(a)
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Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period.
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(b)
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Gross production is the companys share of production (excluding purchases) before deduction of the mineral owners or governments share or both.
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(c)
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Net production is gross production less the mineral owners or governments share or both.
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7
Average unit sales price
The
companys average unit sales price and average unit production costs by product type for the three years ended December 31, 2017 were as follows.
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Canadian dollars per barrel
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2017
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2016
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2015
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Bitumen
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39.13
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26.52
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32.48
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Synthetic oil
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67.58
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57.12
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61.33
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Liquids
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38.49
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28.01
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30.62
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dollars per thousand cubic feet
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Natural gas
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2.58
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2.41
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2.78
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In 2017, Imperials average Canadian dollar realizations for bitumen and synthetic crudes
increased generally in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs.
In 2016, Imperials
average Canadian dollar realizations for bitumen and synthetic crudes declined essentially in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs.
Average unit production costs
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Canadian dollars per barrel
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2017
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2016
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2015
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Bitumen
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26.81
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24.24
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25.16
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Synthetic oil
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58.96
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46.24
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54.81
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Total
oil-equivalent
basis
(a)
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32.96
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28.52
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30.60
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(a)
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Includes liquids, bitumen, synthetic oil and natural gas.
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In 2017, synthetic oil unit production costs were higher,
primarily driven by impacts of the fire at the Syncrude Mildred Lake upgrader.
In 2016, synthetic oil unit production costs were lower, primarily driven by
increased volumes and cost management.
8
Drilling and other exploratory and development activities
The company has been involved in the exploration for and development of crude oil and natural gas in Canada only.
Wells drilled
The following table sets forth the net exploratory and
development wells that were drilled or participated in by the company during the three years ended December 31, 2017.
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wells
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2017
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2016
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2015
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Net productive exploratory
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-
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-
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-
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Net dry exploratory
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-
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-
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-
|
|
Net productive development
|
|
|
5
|
|
|
|
6
|
|
|
|
46
|
|
Net dry development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Total
|
|
|
5
|
|
|
|
6
|
|
|
|
46
|
|
|
|
In 2017 and 2016, wells were drilled to add productive capacity, associated primarily with the Montney and Duvernay unconventional
assets.
In 2015, the following wells were drilled to add productive capacity: 41 development wells at Cold Lake, of which 36 development wells relate to the Cold
Lake Nabiye expansion project and five net other wells.
Wells drilling
At December 31, 2017, the company was participating in the drilling of the following exploratory and development wells, located primarily within the Montney and
Duvernay unconventional assets. All wells were located in Canada.
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
wells
|
|
Gross
|
|
|
Net
|
|
|
|
Total
|
|
|
21
|
|
|
|
9
|
|
|
|
Exploratory and development activities regarding oil and gas resources
Cold Lake
To maintain production at Cold Lake, capital expenditures for
additional production wells and associated facilities are required periodically.
The company also conducts experimental pilot operations to improve recovery of
bitumen from wells by means of new drilling, production or recovery techniques.
Aspen, Cold Lake expansion and other oil sands activities
The company filed a regulatory application for a new
in-situ
oil sands project at Aspen in December 2013, using steam-assisted
gravity drainage (SAGD) technology to develop the project in three phases producing about 45,000 barrels per day before royalties, per phase.
In 2015, the company
amended the regulatory application to develop the Aspen project using solvent-assisted, steam-assisted gravity drainage
(SA-SAGD)
technology. The technology significantly improves capital efficiency and lowers
greenhouse gas intensity versus the existing SAGD technologies. The project is proposed to be executed in two phases producing about 75,000 barrels per day before royalties, per phase. Development timing is subject to regulatory approvals and market
conditions. In April 2016, Imperial was notified by the Alberta Energy Regulator that the projects environment impact assessment was deemed complete. No final investment decision has been made.
In March 2016, Imperial filed a regulatory application for the Cold Lake Expansion project to develop the Grand Rapids interval using
SA-SAGD
technology. The project is proposed to produce 50,000 barrels per day, before royalties. Development timing is subject to regulatory approval and market conditions. In March 2017, Imperial was notified
by the Alberta Energy Regulator that the projects environmental impact assessment was deemed complete. No final investment decision has been made.
9
Work continues on technical evaluations to support potential Corner and Clyden
in-situ
development regulatory applications.
The company also has interests in other oil sands leases in the Athabasca and
Peace River areas of northern Alberta. Evaluation wells completed on these leased areas established the presence of bitumen. The company continues to evaluate these leases to determine their potential for future development.
Other activities
The company is continuing to evaluate, develop and produce
resources in its Montney and Duvernay unconventional assets in the western provinces.
A decision has been made not to proceed at this time with Horn River
development which resulted in a 2017 impairment charge of $396 million, before tax, associated with the
write-off
of the net book value of the Horn River assets.
Mackenzie Delta
In 1999, the company and three other companies entered into
an agreement to study the feasibility of developing Mackenzie Delta gas, anchored by three large onshore natural gas fields.
In 2017, a decision was made not to
proceed at this time with the Mackenzie gas project (MGP) which resulted in an impairment charge of $379 million, before tax, associated with the
write-off
of the net book value of the MGP assets. The
company retains a 100 percent interest in the largest of these fields.
Beaufort Sea
In 2007, the company acquired a 50 percent interest in an exploration licence in the Beaufort Sea. As part of the evaluation, a
3-D
seismic survey was conducted in 2008 and the company has since carried out data collection programs to support environmental studies and safe exploration drilling operations.
In 2010, the company executed an agreement to cross-convey interests with another company to acquire a 25 percent interest in an additional Beaufort Sea
exploration licence. As a result of that agreement, the company operates both licences and its interest in the original licence was reduced to 25 percent. The exploration licences are held through 2019 and 2020, respectively.
In 2013, the company and its joint venture partners filed a project description, initiating the formal regulatory review of the project.
In December 2016, the Federal Government of Canada declared Arctic waters off limits to new offshore oil and gas licences for five years subject to review at the end of
that period. Existing licences will not be impacted. The Federal Government continues to consult with existing leaseholders, including Imperial. Current activities continue to focus on data gathering and community consultation. Imperial is seeking
extended terms for the Beaufort Sea exploration licences with the Federal Government. No final investment decision has been made.
Liquefied natural gas (LNG)
activity
WCC LNG Ltd., jointly owned by the company (20 percent) and ExxonMobil Canada Ltd. (80 percent), was granted an export licence in 2013 for up to
30 million tonnes of LNG per year for a period of 25 years. In 2016, the licence period was extended to 40 years. The project is currently in the
pre-application
phase in a British Columbia environmental
assessment process. No final investment decision has been made.
Exploratory and development activities regarding oil and gas resources extracted by mining
methods
The company continues to evaluate other undeveloped, mineable oil sands acreage in the Athabasca region.
10
Present activities
Review of principal ongoing activities
Cold Lake
Cold Lake is an
in-situ
heavy oil bitumen operation. The product, a blend of bitumen and diluent, is shipped to the
companys refineries, Exxon Mobil Corporation refineries and to other third parties. Diluent is natural gas condensate or other light hydrocarbons added to the crude bitumen to facilitate transportation by pipeline and rail.
During 2017, net production at Cold Lake was about 132,000 barrels per day and gross production was about 162,000 barrels per day.
Kearl
Kearl is a joint venture established to recover shallow deposits of
oil sands using
open-pit
mining methods to extract the crude bitumen, which is processed through extraction and froth treatment trains. The company holds a 70.96 percent participating interest in the
joint venture and ExxonMobil Canada Properties holds the other 29.04 percent. The product, a blend of bitumen and diluent, is shipped to the companys refineries, Exxon Mobil Corporation refineries and to other third parties.
During 2017, the companys share of Kearls net bitumen production was about 123,000 barrels per day and gross production was about 126,000 barrels per day.
Increased 2017 production reflects improved reliability associated with the mining and ore preparation operations.
Imperial continues to progress work to increase
Kearl annual average production to 240,000 barrels of bitumen per day (Imperials share would be about 170,000 barrels of bitumen per day), through planned investment including supplemental crushing capacity and flow distribution interconnects
at Kearl to enhance reliability, increase redundancy and reduce downtime. The work is expected to be complete by
year-end
2019.
Syncrude
Syncrude is a joint venture established to recover shallow deposits
of oil sands using
open-pit
mining methods to extract crude bitumen, and then upgrade it to produce a high-quality, light (32 degrees API), sweet, synthetic crude oil. The company holds a 25 percent
participating interest in the joint venture. The produced synthetic crude oil is shipped to the companys refineries, Exxon Mobil Corporation refineries and to other third parties.
In 2017, the companys share of Syncrudes net production of synthetic crude oil was about 57,000 barrels per day and gross production was about 62,000
barrels per day.
The Province of Alberta, in its capacity as lessor of Cold Lake, Kearl and Syncrude oil sands leases, is entitled to a royalty on production.
Royalties are subject to the oil sands royalty regulations which are based upon a sliding scale determined largely by the price of crude oil.
Total Upstream
capital and exploration expenditures were $416 million in 2017. Investments were primarily related to sustaining activity in support of oil sands and unconventional assets.
Delivery commitments
The company has no material
commitments to provide a fixed and determinable quantity of oil or gas under existing contracts and agreements.
11
Oil and gas properties, wells, operations and acreage
Production wells
The companys production of liquids, bitumen and
natural gas is derived from wells located exclusively in Canada. The total number of wells capable of production, in which the company had interests at December 31, 2017 and December 31, 2016, is set forth in the following table. The
statistics in the table are determined in part from information received from other operators.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
Year ended December 31, 2016
|
|
|
|
Crude Oil
|
|
|
Natural gas
|
|
|
Crude Oil
|
|
|
Natural gas
|
|
wells
|
|
Gross
(a)
|
|
|
Net
(b)
|
|
|
Gross
(a)
|
|
|
Net
(b)
|
|
|
Gross
(a)
|
|
|
Net
(b)
|
|
|
Gross
(a)
|
|
|
Net
(b)
|
|
|
|
Total (c)
|
|
|
4,603
|
|
|
|
4,494
|
|
|
|
3,460
|
|
|
|
1,160
|
|
|
|
4,752
|
|
|
|
4,647
|
|
|
|
3,546
|
|
|
|
1,188
|
|
|
|
(a)
|
Gross wells are wells in which the company owns a working interest.
|
(b)
|
Net wells are the sum of the fractional working interest owned by the company in gross wells, rounded to the nearest whole number.
|
(c)
|
Multiple completion wells are permanently equipped to produce separately from two or more distinctly different geological formations. At
year-end
2017, the company had an interest
in 17 gross wells with multiple completions (2016 - 16 gross wells).
|
Land holdings
At December 31, 2017 and December 31, 2016, the company held the following oil and gas rights, and bitumen and synthetic oil leases, all of which are located
in Canada, specifically in the western provinces, in the Canada lands and in the Atlantic offshore.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
Undeveloped
|
|
|
Total
|
|
thousands of acres
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
Western provinces
(a)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids and gas
|
|
- gross
(b)
|
|
|
1,492
|
|
|
|
1,464
|
|
|
|
825
|
|
|
|
876
|
|
|
|
2,317
|
|
|
|
2,340
|
|
|
|
- net
(c)
|
|
|
718
|
|
|
|
703
|
|
|
|
455
|
|
|
|
482
|
|
|
|
1,173
|
|
|
|
1,185
|
|
Bitumen
|
|
- gross
(b)
|
|
|
197
|
|
|
|
197
|
|
|
|
674
|
|
|
|
674
|
|
|
|
871
|
|
|
|
871
|
|
|
|
- net
(c)
|
|
|
182
|
|
|
|
182
|
|
|
|
319
|
|
|
|
319
|
|
|
|
501
|
|
|
|
501
|
|
Synthetic oil
|
|
- gross
(b)
|
|
|
118
|
|
|
|
118
|
|
|
|
136
|
|
|
|
136
|
|
|
|
254
|
|
|
|
254
|
|
|
|
- net
(c)
|
|
|
29
|
|
|
|
29
|
|
|
|
34
|
|
|
|
34
|
|
|
|
63
|
|
|
|
63
|
|
Canada lands
(d)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids and gas
|
|
- gross
(b)
|
|
|
4
|
|
|
|
4
|
|
|
|
1,831
|
|
|
|
1,831
|
|
|
|
1,835
|
|
|
|
1,835
|
|
|
|
- net
(c)
|
|
|
2
|
|
|
|
2
|
|
|
|
498
|
|
|
|
498
|
|
|
|
500
|
|
|
|
500
|
|
Atlantic offshore:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids and gas
|
|
- gross
(b)
|
|
|
65
|
|
|
|
65
|
|
|
|
288
|
|
|
|
288
|
|
|
|
353
|
|
|
|
353
|
|
|
|
- net
(c)
|
|
|
6
|
|
|
|
6
|
|
|
|
46
|
|
|
|
46
|
|
|
|
52
|
|
|
|
52
|
|
|
|
Total
(e)
:
|
|
- gross
(b)
|
|
|
1,876
|
|
|
|
1,848
|
|
|
|
3,754
|
|
|
|
3,805
|
|
|
|
5,630
|
|
|
|
5,653
|
|
|
|
- net
(c)
|
|
|
937
|
|
|
|
922
|
|
|
|
1,352
|
|
|
|
1,379
|
|
|
|
2,289
|
|
|
|
2,301
|
|
|
|
(a)
|
Western provinces include British Columbia, Alberta and Saskatchewan.
|
(b)
|
Gross acres include the interests of others.
|
(c)
|
Net acres exclude the interests of others.
|
(d)
|
Canada lands include the Arctic Islands, Beaufort Sea / Mackenzie Delta, and other Northwest Territories, Nunavut and Yukon regions.
|
(e)
|
Certain land holdings are subject to modification under agreements whereby others may earn interests in the companys holdings by performing certain exploratory work
(farm-out)
and whereby the company may earn interests in others holdings by performing certain exploratory work
(farm-in).
|
12
Western provinces
The
companys bitumen leases include about 194,000 net acres of oil sands leases near Cold Lake and an area of about 34,000 net acres at Kearl. The company also has about 80,000 net acres of undeveloped, mineable oil sands acreage in the Athabasca
region. In addition, the company has interests in other bitumen oil sands leases in the Athabasca areas totalling about 193,000 net acres, which include about 62,000 net acres of oil sands leases in the Clyden area, about 34,000 net acres of oil
sands leases in the Aspen area and about 30,000 net acres of oil sands leases in the Corner area. These 193,000 net acres are suitable for
in-situ
recovery techniques.
The companys share of Syncrude joint venture leases covering about 63,000 net acres accounts for the entire synthetic oil acreage.
Oil sands leases have an exploration period of 15 years and are continued beyond that point by meeting the minimum level of evaluation, by payment of escalating
rentals, or by production. The majority of the acreage in Cold Lake, Kearl and Syncrude is continued by production.
The company holds interests in an additional
1,173,000 net acres of developed and undeveloped land in the western provinces related to crude oil and natural gas.
Crude oil and natural gas leases and licences
from the western provinces have exploration periods ranging from two to 15 years and are continued beyond that point by proven production capability.
Canada lands
Land holdings in Canada lands primarily include exploration
licence (EL) acreage in the Beaufort Sea of about 252,000 net acres and significant discovery licence (SDL) acreage in the Mackenzie Delta and Beaufort Sea areas of about 183,000 net acres.
Exploration licences on Canada lands and Atlantic offshore have a finite term. If a significant discovery is made, a SDL may be granted that holds the acreage under the
SDL indefinitely, subject to certain conditions.
The companys net acreage in Canada lands is either continued by production or held through ELs and SDLs.
Atlantic offshore
The Atlantic offshore acreage is continued by
production or held by SDLs.
13
Downstream
Supply
The company supplements its own production
of crude oil, condensate and petroleum products with substantial purchases from a number of other sources at negotiated market prices. Purchases are made under both spot and term contracts from domestic and foreign sources, including ExxonMobil.
Transportation
Imperial currently transports
the companys crude oil production and third party crude oil required to supply refineries by contracted pipelines, common carrier pipelines and rail. To mitigate uncertainty associated with the timing of industry pipeline projects and pipeline
capacity constraints, the company has developed rail infrastructure. The Edmonton rail terminal commenced operation in 2015 and has total capacity to ship up to 210,000 barrels per day of crude oil.
Refining
The company owns and operates three
refineries, which process predominantly Canadian crude oil. In 2017, Imperial decided to discontinue manufacturing base stocks, associated waxes and finished lubricants at its Strathcona Refinery lube complex and lube oil blend plant. Continued
operations are planned at the refinery lube complex until the end of February 2018 and at the blend plant until
mid-2018.
In addition to crude oil, the company purchases finished products to supplement its
refinery production.
In 2017, capital expenditures of about $139 million were made at the companys refineries. Capital expenditures focused mainly on
refinery projects to improve reliability, feedstock flexibility, energy efficiency and environmental performance.
The approximate average daily volumes of refinery
throughput during the three years ended December 31, 2017, and the daily rated capacities of the refineries as at December 31, 2017, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refinery throughput
(a)
Year ended December 31
|
|
|
Rated capacities
(b)
at December 31
|
|
|
|
|
|
|
thousands of barrels per day
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
|
Strathcona, Alberta
|
|
|
185
|
|
|
|
168
|
|
|
|
181
|
|
|
|
191
|
|
Sarnia, Ontario
|
|
|
103
|
|
|
|
108
|
|
|
|
103
|
|
|
|
119
|
|
Nanticoke, Ontario
|
|
|
95
|
|
|
|
86
|
|
|
|
102
|
|
|
|
113
|
|
|
|
Total
|
|
|
383
|
|
|
|
362
|
|
|
|
386
|
|
|
|
423
|
|
|
|
(a)
|
Refinery throughput is the volume of crude oil and feedstocks that is processed in the refinery atmospheric distillation units.
|
(b)
|
Rated capacities are based on definite specifications as to types of crude oil and feedstocks that are processed in the refinery atmospheric distillation units, the products to be obtained and the refinery process,
adjusted to include an estimated allowance for normal maintenance shutdowns. Accordingly, actual capacities may be higher or lower than rated capacities due to changes in refinery operation and the type of crude oil available for processing.
|
Refinery throughput averaged 383,000 barrels per day in 2017, up from 362,000 barrels per day in 2016. Capacity utilization increased to
91 percent from 86 percent in 2016, reflecting reduced turnaround maintenance activity.
Refinery throughput averaged 362,000 barrels per day in 2016,
compared to 386,000 barrels per day in 2015. Capacity utilization decreased to 86 percent from 92 percent in 2015, reflecting the more significant scope of turnaround maintenance activity in 2016.
Distribution
The company maintains a nationwide
distribution system, to handle bulk and packaged petroleum products moving from refineries to market by pipeline, tanker, rail and road transport. The company owns and operates natural gas liquids and products pipelines in Alberta, Manitoba and
Ontario and has interests in the capital stock of one crude oil and two products pipeline companies.
14
Marketing
The company markets petroleum products throughout Canada under well-known brand names, most notably Esso and Mobil, to all types of customers.
Imperial supplies petroleum products to the motoring public through Esso and Mobil-branded retail sites and independent marketers. On average during the year, there
were more than 1,800 retail sites operating under a branded wholesaler model whereby Imperial supplies fuel to independent third parties who own and operate retail sites in alignment with Esso and Mobil brand standards. The Mobil fuels brand was
launched in Canada in 2017 with the announcement of plans to convert more than 200 existing unbranded third party retail sites. Completion of this Mobil conversion is anticipated in 2018.
Imperial sells petroleum products to large industrial and transportation customers, independent marketers, resellers, as well as other refiners. The company serves
agriculture, residential heating and commercial markets through branded resellers. In 2017, as part of Imperials truck transport business transition to a branded wholesaler model, the company announced plans to convert over 70 commercial third
party sites to the Esso brand.
The approximate daily volumes of net petroleum products (excluding purchases / sales contracts with the same counterparty) sold
during the three years ended December 31, 2017, are set out in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands of barrels per day
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Gasolines
|
|
|
257
|
|
|
|
261
|
|
|
|
247
|
|
Heating, diesel and jet fuels
|
|
|
177
|
|
|
|
170
|
|
|
|
170
|
|
Heavy fuel oils
(a)
|
|
|
18
|
|
|
|
16
|
|
|
|
16
|
|
Lube oils and other products
|
|
|
40
|
|
|
|
37
|
|
|
|
45
|
|
|
|
Net petroleum product sales
(a)
|
|
|
492
|
|
|
|
484
|
|
|
|
478
|
|
|
|
(a)
|
In 2017, carbon black product sales are reported under Net petroleum product sales Heavy fuel oils; in 2016 and 2015, they were reported under Total petrochemical sales Polymers and basic chemicals.
|
Total Downstream capital expenditures were $200 million in 2017.
Chemical
The companys Chemical operations
manufacture and market benzene, aromatic and aliphatic solvents, plasticizer intermediates and polyethylene resin. Its petrochemical and polyethylene manufacturing operations are located in Sarnia, Ontario, adjacent to the companys petroleum
refinery.
The companys total sales volumes of petrochemicals during the three years ended December 31, 2017, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands of tonnes
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Total sales of petrochemicals
(a)
|
|
|
774
|
|
|
|
908
|
|
|
|
945
|
|
|
|
(a)
|
In 2017, carbon black product sales are reported under Net petroleum product sales Heavy fuel oils; in 2016 and 2015, they were reported under Total petrochemical sales Polymers and basic chemicals.
|
Lower sales volumes in 2017 were primarily due to the reclassification of carbon black product sales.
Total Chemical capital expenditures were $17 million in 2017.
15
Research
The approximate total gross research expenditures, before credits, during the three years ended December 31, 2017, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Gross research expenditures, before credits
|
|
|
154
|
|
|
|
195
|
|
|
|
195
|
|
|
|
Research expenditures are mainly spent on developing technologies to improve bitumen recovery, reduce costs and reduce the environmental
impact of upstream operations, including technologies to reduce greenhouse gas (GHG) emissions intensity, supporting environmental and process improvements in the refineries, as well as accessing ExxonMobils research worldwide.
The company has scientific research agreements with affiliates of ExxonMobil, which provide for technical and engineering work to be performed by all parties, the
exchange of technical information and the assignment and licensing of patents, and patent rights. These agreements provide mutual access to scientific and operating data related to nearly every phase of the petroleum and petrochemical operations of
the parties.
Environmental protection
The
company regards protecting the environment in connection with its various operations as a priority. The company works in cooperation with government agencies, industry associations and communities to address existing, and to anticipate potential,
environmental protection issues. In the past five years, the company has made capital and operating expenditures of about $5.7 billion on environmental protection and facilities. In 2017, the companys environmental capital and operating
expenditures totalled approximately $0.6 billion, which was spent primarily on activities to protect the air, land and water, including remediation projects. Capital and operating expenditures relating to environmental protection are expected
to be about $0.6 billion in 2018.
Human resources
|
|
|
|
|
|
|
|
|
|
|
|
|
career employees (a)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Total
|
|
|
5,400
|
|
|
|
5,600
|
|
|
|
5,700
|
|
|
|
(a)
|
Rounded. Career employees are defined as active executive, management, professional, technical, administrative and wage employees who work full time or part time for the company and are covered by the companys
benefit plans.
|
About 7 percent of the companys employees are members of unions.
Competition
The Canadian petroleum, natural gas
and chemical industries are highly competitive. Competition exists in the search for and development of new sources of supply, the construction and operation of crude oil, natural gas and refined products pipelines and facilities and the refining,
distribution and marketing of petroleum products and chemicals. The petroleum industry also competes with other industries in supplying energy, fuel and meeting other needs of consumers.
16
Government regulation
Petroleum and natural gas rights
Most of the companys petroleum and
natural gas rights were acquired from governments, either federal or provincial. These rights, in the form of leases or licences, are generally acquired for cash or work commitments. A lease or licence entitles the holder to explore for petroleum
and / or natural gas on the leased lands for a specified period.
In western provinces, the lease holder can produce the petroleum or natural gas discovered on the
leased lands and retains the rights based on continued production. Oil sands leases are retained by meeting the minimum level of evaluation, payment of rentals, or by production.
The holder of a licence relating to Canada lands and the Atlantic offshore can apply for a SDL if a discovery is made. If granted, the SDL holds the lands indefinitely
subject to certain conditions. The holder may then apply for a production licence in order to produce petroleum or natural gas from the licenced land.
Project
approval
Approvals and licences from relevant provincial or federal
governmental or regulatory bodies are required for the company to carry out, or make
modifications to, its oil and gas activities. The project approval process for major projects can involve, among other things, environmental assessments (including relevant mitigation measures), stakeholder and Indigenous consultation and input
regarding project concerns, and public hearings. Approval may be subject to various conditions and commitments arising through these processes.
Crude oil
Production
The maximum allowable gross production of crude oil from
wells in Canada is subject to limitations by various regulatory authorities on the basis of engineering and conservation principles.
Exports
Export contracts of more than one year for light crude oil and petroleum products and two years for heavy crude oil (including bitumen) require the prior approval of the
National Energy Board (NEB) and the Government of Canada.
Natural gas
Production
The maximum allowable gross production of natural gas from wells
in Canada is subject to limitations by various regulatory authorities. These limitations are to ensure oil recovery is not adversely impacted by accelerated gas production practices. These limitations do not impact gas reserves, only the timing of
production of the reserves and did not have a significant impact on Imperials 2017 gas production rates.
Exports
The Government of Canada has the authority to regulate the export price for natural gas and has a gas export pricing policy, which accommodates export prices for natural
gas negotiated between Canadian exporters and U.S. importers.
Exports of natural gas from Canada require approval by the NEB and the Government of Canada. The
Government of Canada allows the export of natural gas by NEB order without volume limitation for terms not exceeding 24 months.
17
Royalties
The Government of
Canada and the provinces in which the company produces crude oil and natural gas, impose royalties on production from lands where they own the mineral rights. Some producing provinces also receive revenue by imposing taxes on production from lands
where they do not own the mineral rights.
Different royalties are imposed by the Government of Canada and each of the producing provinces. Royalties imposed on
crude oil, natural gas and natural gas liquids vary depending on a number of parameters, including well production volumes, selling prices and recovery methods. For information with respect to royalties for Cold Lake, Syncrude and Kearl, see
Upstream section under Item 1.
Investment Canada Act
The
Investment Canada Act requires Government of Canada approval, in certain cases, of the acquisition of control of a Canadian business by an entity that is not controlled by Canadians. The acquisition of natural resource properties may, in certain
circumstances, be considered a transaction that constitutes an acquisition of control of a Canadian business requiring Government of Canada approval.
The Act also
requires notification of the establishment of new unrelated businesses in Canada by entities not controlled by Canadians, but does not require Government of Canada approval except when the new business is related to Canadas cultural heritage
or national identity. The Government of Canada is also authorized to take any measures that it considers advisable to protect national security, including the outright prohibition of a foreign investment in Canada. By virtue of the majority stock
ownership of the company by ExxonMobil, the company is considered to be an entity which is not controlled by Canadians.
Competition Act
The Competition Bureau ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Competition Bureau is responsible for the
administration and enforcement of the Competition Act (the Act). A merger transaction, whether or not notifiable, is subject to examination by the Commissioner of the Competition Bureau to determine whether the merger will have, or is likely to
have, the effect of preventing or lessening substantially competition in a definable market. The assessment of the competitive effects of a merger is made with reference to the factors identified under the Act.
An Advance Ruling Certificate (ARC) may be issued by the Commissioner to a party or parties to a proposed merger transaction who want to be assured that the transaction
will not give rise to proceedings under section 92 of the Act. Section 102 of the Act provides that an ARC may be issued when the Commissioner is satisfied that there would not be sufficient grounds on which to apply to the Competition Tribunal
for an order against a proposed merger. The issuance of an ARC is discretionary. An ARC cannot be issued for a transaction that has been completed, nor does an ARC ensure approval of the transaction by any agency other than the Competition Bureau.
The company online
The companys
website
www.imperialoil.ca
contains a variety of corporate and investor information which is available free of charge, including the companys annual report on Form
10-K,
quarterly reports on Form
10-Q
and current reports on Form
8-K
and amendments to these reports, as well as required interactive data filings. These reports are made available as soon as reasonably
practicable after they are filed or furnished to the SEC.
The public may read and copy any materials the company files with the SEC at the SECs Public
Reference Room at 100 F Street, NE., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SECs website, www.sec.gov, contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
18
Item 1A. Risk factors
Imperials financial and operating results are subject to a variety of risks inherent in oil, gas and petrochemical businesses. Many of these risk factors are not
within Imperials control and could adversely affect Imperials business, financial and operating results, or financial position. These risk factors include:
Volatility of commodity prices
The companys operations and earnings
may be significantly affected by changes in oil, natural gas and petrochemical prices, and by changes in margins on refined products and petrochemicals. Crude oil, natural gas, petrochemical and product prices and margins depend on local, regional,
and global events or conditions that affect supply and demand for the relevant commodity. Commodity prices have been volatile, and the company expects that volatility to continue. Any material decline in crude oil prices could have a material
adverse effect on Imperials Upstream operations, financial position, proved reserves and the amount spent to develop reserves.
Demand related factors which
could impact Imperials results include economic conditions, where periods of low or negative economic growth will typically have an adverse impact on results; technological improvements in energy efficiency; seasonal weather patterns, which
affect the demand for energy associated with heating and cooling; increased competitiveness of alternative energy sources; new product quality regulations; and changes in technology or consumer preferences that affect the market for petroleum
products, such as technological advances in energy storage that make wind and solar more competitive for power generation or increased consumer demand for alternative fueled or electric vehicles.
Commodity prices and margins also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil and gas supply
sources and technologies to enhance recovery from existing sources tend to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases in industry refining or petrochemical
manufacturing capacity relative to demand tend to reduce margins on affected products. World oil, gas and petrochemical supply levels can also be affected by factors that reduce available supplies, such as adherence by member countries to
Organization of the Petroleum Exporting Countries (OPEC) production quotas and the occurrence of wars, hostile actions, natural disasters, disruptions in competitors operations, or unexpected pipeline or rail constraints that may disrupt
supplies. Technological change can also alter the relative costs for competitors to find, produce, and refine oil and gas and to manufacture petrochemicals.
A
significant portion of the companys production is bitumen, which is blended with diluent to create a marketable heavy crude oil. The market price for western Canadian heavy crude oil is typically lower than light and medium grades of oil
principally due to the higher transportation and refining costs. Heavy crude oil may also be subject to limits on transportation capacity to markets to a larger extent than light crude oil. Future crude price differentials are uncertain and
increases in the heavy crude oil discounts could have a material adverse effect on the companys business. Increases to diluent prices, relative to heavy crude oil prices, could also have an adverse effect on the companys business.
Government and political factors
Imperials results can be adversely
impacted by political or regulatory developments affecting operations. Changes in government policy or regulations, third party opposition to company or infrastructure projects, and duration of regulatory reviews could impact Imperials
existing operations and planned projects. For example, increases in taxes or government royalty rates (including retroactive claims), changes in trade policies and agreements, changes in environmental regulations or other laws that increase the cost
of compliance or reduce or delay available business opportunities, increasing and expanding stakeholder consultation (including Indigenous stakeholders) and adoption of regulations mandating efficiency standards, the use of alternative fuels or
uncompetitive fuel components could affect the companys operations.
19
Environmental risks
All phases
of the Upstream, Downstream and Chemical businesses are subject to environmental regulation pursuant to a variety of Canadian federal, provincial, territorial and municipal laws and regulations, as well as international conventions (collectively,
environmental legislation).
Environmental legislation imposes, among other things, restrictions, liabilities and obligations in connection with the
generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances into the environment. As well, environmental regulations are imposed
on the qualities and compositions of the products sold and imported. Environmental legislation also requires that wells, facility sites and other properties associated with the companys operations be operated, maintained, monitored, abandoned
and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of operations, including exploration and development projects and significant changes to certain existing projects, may require the submission and
approval of environmental impact assessments. Compliance with environmental legislation can require significant expenditures and failure to comply with environmental legislation may result in the cessation of operations, imposition of fines and
penalties and liability for
clean-up
costs and damages.
The costs of complying with environmental legislation in the future
could have a material adverse effect on the companys financial condition or results of operations. The company anticipates that changes in environmental legislation may require, among other things, reductions in emissions from its operations
to the air and water and may result in increased capital expenditures. Changes in environmental legislation (including, but not limited to, application of regulations related to air, water, land and biodiversity) may increase the cost of compliance
or reduce or delay available business opportunities. Future changes in environmental legislation could occur and result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, which
could have a material adverse effect on the companys financial condition or results of operations.
There are operational risks inherent in oil and gas
exploration and production activities, as well as the potential to incur substantial financial liabilities, if those risks are not effectively managed. The ability to insure such risks is limited by the capacity of the applicable insurance markets,
which may not be sufficient to cover the likely cost of a major adverse operating event. Accordingly, the companys primary focus is on prevention, including through its rigorous operations integrity management system. The companys future
results will depend on the continued effectiveness of these efforts.
Climate change and greenhouse gas restrictions
Due to concern over the risks of climate change, a number of provinces and the Government of Canada have adopted, or are considering the adoption of, regulatory
frameworks to reduce GHG emissions. These include adoption of carbon emissions pricing, cap and trade regimes, carbon taxes, emissions limits, increased efficiency standards, low carbon fuel standards and incentives or mandates for renewable energy.
These requirements could make Imperials products more expensive, reduce or delay available business opportunities, reduce demand for hydrocarbons, and shift hydrocarbon demand toward lower GHG emission energy sources. Current and pending GHG
regulations or policies may also increase compliance and abatement costs, lengthen project evaluation and implementation times, and affect operations. Increased costs may not be recoverable in the market place and could reduce the global
competitiveness of the companys crude oil, natural gas and refined products.
Currency
Prices for commodities produced by the company are commonly benchmarked in U.S. dollars. The majority of Imperials sales and purchases are related to these
industry U.S. dollar benchmarks. As the company records and reports its financial results in Canadian dollars, to the extent that the value of the Canadian dollar strengthens, the companys reported earnings will be negatively affected. The
company does not currently make use of derivative instruments to offset exposures associated with foreign currency.
20
Other business risks
Imperial
is reliant on a number of key chemicals, catalysts and third party service providers, including input and output commodity transportation (pipelines, rail, trucking, marine) and utilities providing services, including electricity and water, to
various company operations. The lack of availability and capacity, and proximity of pipeline facilities and railcars could negatively impact Imperials ability to produce at capacity levels. Transportation disruptions could adversely affect the
companys price realizations, refining operations and sales volumes, as well as potentially limit the ability to deliver production to market. A third party utilities outage could have an adverse impact on the companys operations and
ability to produce.
Management effectiveness
In addition to external
economic and political factors, Imperials future business results also depend on the companys ability to manage successfully those factors that are at least in part within its control. The extent to which Imperial manages these factors
will impact its performance relative to competition. For projects in which the company is not the operator, Imperial depends on the management effectiveness of one or more co-venturers whom the company does not control.
Project management
The companys results are affected by its ability to
develop and operate projects and facilities as planned. The companys results will, therefore, be affected by events or conditions that affect the advancement, operation, cost or results of such projects or facilities. These risks include the
companys ability to obtain the necessary environmental and other regulatory approvals; changes in regulations; changes in resources and operating costs including the availability and cost of materials, equipment and qualified personnel; the
impact of general economic, business and market conditions; and the occurrence of unforeseen technical difficulties.
Operational efficiency
An important component of Imperials competitive performance, especially given the commodity based nature of Imperials business, is the ability to operate
efficiently, including the companys ability to manage expenses and improve production yields on an ongoing basis. This requires continuous management focus, including technology improvements, cost control, productivity enhancements and regular
reappraisal of the companys asset portfolio. The companys operations and results also depend on key personnel and subject matter expertise, the recruitment, development and retention of high caliber employees, and the availability of
skilled labour.
Research and development
Imperial relies upon the
research and development organizations of the company and ExxonMobil, with whom the company conducts shared research. To maintain the companys competitive position, especially in light of the technological nature of Imperials business
and the need for continuous efficiency improvement, research and development organizations must be successful and able to adapt to a changing market and policy environment, including developing technologies to help reduce GHG emissions.
Safety, business controls and environmental risk management
The scope and
nature of the companys operations present a variety of significant hazards and risks, including operational hazards and risks such as explosions, fires, pipeline ruptures and crude oil spills. Imperials operations are also subject to the
additional hazards of pollution, releases of toxic gas and environmental hazards and risks, such as severe weather, and geological events. The companys results depend on managements ability to minimize these inherent risks, to
effectively control business activities and to minimize the potential for human error. Imperial applies rigorous management systems, including a combined program of effective operations integrity management, ongoing upgrades, key equipment
replacements, and comprehensive inspection and surveillance. The company also maintains a disciplined framework of internal controls and applies a controls management system for monitoring compliance with this framework. Substantial liabilities and
other adverse impacts could result if the companys management systems and controls do not function as intended.
21
Cybersecurity
Imperial is
regularly subject to attempted cybersecurity disruptions from a variety of threat actors. If systems for protecting against cybersecurity disruptions prove to be insufficient, the company, customers, employees or third parties could be adversely
affected. Such cybersecurity disruptions could cause physical harm to people or the environment; damage or destroy assets; compromise business systems; result in proprietary information being altered, lost or stolen; result in employee, customer or
third party information being compromised; or otherwise disrupt business operations. Imperial could incur significant costs to remedy the effects of such a cybersecurity disruption, as well as in connection with resulting regulatory actions and
litigation.
Preparedness
The companys operations may be disrupted
by severe weather events, natural disasters, human error, and similar events. Imperials ability to mitigate the adverse impacts of these events depends in part upon the effectiveness of its rigorous disaster preparedness and response planning,
as well as business continuity planning.
Reputation
Imperials
reputation is an important corporate asset. An operating incident, significant cybersecurity disruption or other adverse events, such as those described in Item 1A, may have a negative impact on Imperials reputation, which in turn could make
it more difficult for Imperial to compete successfully for new opportunities, obtain necessary regulatory approvals, or could reduce consumer demand for the companys branded products.
Reserves
The companys future production and cash flows from bitumen,
synthetic oil, liquids and natural gas reserves are highly dependent upon the companys success in exploiting its current reserve base. To maintain production and cash flows, the company must continue to replace produced reserves as they are
depleted, which can be accomplished through exploration discovery of new resources, appraisal and investments in developing discovered resources, or acquisition of reserves. To the extent cash flows from operations are insufficient to fund capital
expenditures and external sources of capital become limited or unavailable, the companys ability to make the necessary capital investments to maintain and expand oil and natural gas reserves will be adversely impacted. In addition, the company
may be unable to find and develop or acquire additional reserves to replace oil and natural gas production at acceptable costs.
Estimates of economically
recoverable oil and natural gas reserves and future net cash flows involve many uncertainties, including factors beyond the companys control. Key factors with uncertainty include: geological and engineering estimates; the assumed effects of
regulation or changes to regulation by government agencies including royalty frameworks; future commodity prices; and operating costs. Actual production, revenues, taxes, development costs, abandonment costs, and operating expenditures with respect
to reserves will likely vary from such estimates, and such variances could be material.
Item 1B. Unresolved
staff comments
None.
Item 2. Properties
Reference is made to Item 1 above.
Item 3. Legal proceedings
None.
Item 4. Mine safety disclosures
Not applicable.
22
PART II
Item 5.
|
Market for registrants common equity, related stockholder matters and issuer purchases of equity securities
|
Market information
The companys common shares trade on the Toronto
Stock Exchange and the NYSE American LLC. Reference is made to the Quarterly financial and stock trading data portion of the Financial section on page 91 of this report. The closing price for Imperial Oil Limited common
shares on the Toronto Stock Exchange was $35.50 as at February 7, 2018.
Dividends
The following table sets forth the frequency and amount of all cash dividends declared by the company on its outstanding common shares for the two most recent fiscal
years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Canadian dollars
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
|
Declared dividend per share
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.14
|
|
|
|
Information for security holders outside Canada
Cash dividends paid to shareholders resident in countries with which Canada has an income tax convention are usually subject to a Canadian
non-resident
withholding tax of 15 percent, but may vary from one tax convention to another.
The withholding tax is reduced
to 5 percent on dividends paid to a corporation resident in the U.S. that owns at least 10 percent of the voting shares of the company.
The company is a
qualified foreign corporation for purposes of the reduced U.S. capital gains tax rates, which are applicable to dividends paid by U.S. domestic corporations and qualified foreign corporations.
There is no Canadian tax on gains from selling shares or debt instruments owned by
non-residents
not carrying on business in
Canada, as long as the shareholder does not, in any given 60 month period, own 25 percent or more of the shares of the company.
As of February 7, 2018
there were 10,898 holders of record of common shares of the company.
Between October 1, 2017 and December 31, 2017, pursuant to the companys
restricted stock unit plan, there were no shares issued to employees outside the U.S. in reliance on Regulation S under the Securities Act, and 1,750 shares were issued to a seconded employee in reliance on the section 4(a)(2) exemption under the
Securities Act.
Securities authorized for issuance under equity compensation plans
Sections of the companys management proxy circular are contained in the Proxy information section, starting on page 92. The companys management
proxy circular is prepared in accordance with Canadian securities regulations.
Reference is made to the section under the Company executives and executive
compensation:
|
●
|
|
Entitled Performance graph within the Compensation discussion and analysis section on page 142 of this report; and
|
|
●
|
|
Entitled Equity compensation plan information, within the Compensation discussion and analysis, on page 147 of this report.
|
23
Issuer purchases of equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of
shares purchased
|
|
|
Average price paid
per share
(Canadian dollars)
|
|
|
Total number of
shares purchased
as part of publicly
announced plans
or programs
|
|
|
Maximum number
of shares that may
yet be purchased
under the plans or
programs
(a)
|
|
|
|
October 2017
(October 1 - October 31)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,664,257
|
|
November 2017
(November 1 - November 30)
|
|
|
3,554,591
|
|
|
|
39.87
|
|
|
|
3,554,591
|
|
|
|
15,109,666
|
|
December 2017
(December 1 - December 31)
|
|
|
2,786,181
|
|
|
|
38.91
|
|
|
|
2,786,181
|
|
|
|
12,323,485
|
(b)
|
|
|
(a)
|
On June 22, 2017, the company announced by news release that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid and will continue its existing share purchase program.
The program enables the company to purchase up to a maximum of 25,395,927 common shares during the period June 27, 2017 to June 26, 2018, which includes shares purchased under the normal course issuer bid and from Exxon Mobil Corporation
concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at approximately 69.6 percent. The program will
end should the company purchase the maximum allowable number of shares, or on June 26, 2018.
|
(b)
|
In its most recent quarterly earnings release, the company stated that first quarter 2018 share purchases are anticipated to equal approximately $250 million. Purchase plans may be modified at any time without
prior notice.
|
Item 6.
|
Selected financial data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
Operating revenues
|
|
|
29,125
|
|
|
|
25,049
|
|
|
|
26,756
|
|
|
|
36,231
|
|
|
|
32,722
|
|
Net income (loss)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
3,785
|
|
|
|
2,828
|
|
Total assets at
year-end
|
|
|
41,601
|
|
|
|
41,654
|
|
|
|
43,170
|
|
|
|
40,830
|
|
|
|
37,218
|
|
Long-term debt at
year-end
|
|
|
5,005
|
|
|
|
5,032
|
|
|
|
6,564
|
|
|
|
4,913
|
|
|
|
4,444
|
|
Total debt at
year-end
|
|
|
5,207
|
|
|
|
5,234
|
|
|
|
8,516
|
|
|
|
6,891
|
|
|
|
6,287
|
|
Other long-term obligations at
year-end
|
|
|
3,780
|
|
|
|
3,656
|
|
|
|
3,597
|
|
|
|
3,565
|
|
|
|
3,091
|
|
|
|
Canadian dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
|
|
4.47
|
|
|
|
3.34
|
|
Net income (loss) per common share - diluted
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
|
|
4.45
|
|
|
|
3.32
|
|
Dividends per share - declared
|
|
|
0.63
|
|
|
|
0.59
|
|
|
|
0.54
|
|
|
|
0.52
|
|
|
|
0.49
|
|
|
|
Reference is made to the table setting forth exchange rates for the Canadian dollar, expressed in U.S. dollars, on page 2 of this
report.
Item 7.
|
Managements discussion and analysis of financial condition and results of operations
|
Reference is made to
the section entitled Managements discussion and analysis of financial condition and results of operations in the Financial section, starting on page 36 of this report.
Item 7A.
|
Quantitative and qualitative disclosures about market risk
|
Reference is made to the section entitled
Market risks and other uncertainties in the Financial section, starting on page 49 of this report. All statements other than historical information incorporated in this Item 7A are forward-looking statements. The actual
impact of future market changes could differ materially due to, among other things, factors discussed in this report.
24
Item 8.
|
Financial statements and supplementary data
|
Reference is made to the table of contents in the Financial
section on page 32 of this report:
|
●
|
|
Consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP (PwC) dated February 28, 2018 beginning with the section entitled Report of independent registered public
accounting firm on page 57 and continuing through note 17, Other comprehensive income (loss) information on page 86;
|
|
●
|
|
Supplemental information on oil and gas exploration and production activities (unaudited) starting on page 87; and
|
|
●
|
|
Quarterly financial and stock trading data on page 91.
|
Item 9.
|
Changes in and disagreements with accountants on accounting and financial disclosure
|
None.
Item 9A.
|
Controls and procedures
|
As indicated in the certifications in Exhibit 31 of this report, the companys
principal executive officer and principal financial officer have evaluated the companys disclosure controls and procedures as of December 31, 2017. Based on that evaluation, these officers have concluded that the companys disclosure
controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a
manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.
Reference is made to page 56 of this report for Managements report on internal control over financial reporting and page 57 for the Report of
independent registered public accounting firm on the companys internal control over financial reporting as of December 31, 2017.
There has not
been any change in the companys internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting.
Item 9B.
|
Other information
|
None.
25
PART III
Item 10.
|
Directors, executive officers and corporate governance
|
Sections of the companys management proxy circular
are contained in the Proxy information section, starting on page 92. The companys management proxy circular is prepared in accordance with Canadian securities regulations.
The company currently has eight directors. The articles of the company require that the board have between five and fifteen directors. Each director is elected to
hold office until the close of the next annual meeting. Each of the seven individuals listed in the section entitled Nominees for director on pages 93 to 97 of this report have been nominated for election at the annual meeting of
shareholders to be held April 27, 2018. All of the nominees are directors and have been since the dates indicated. V.L. Young is currently a director and is not standing for
re-election
in 2018 as he will
reach the companys mandatory retirement age for directors in 2018.
Reference is made to the section under Nominees for director:
|
●
|
|
Director nominee tables, on pages 93 to 97 of this report;
|
Reference is made to the sections under
Corporate governance disclosure:
|
●
|
|
Other public company directorships of our board members, on page 103 of this report.
|
|
●
|
|
The table entitled Audit committee under Board and committee structure, on page 107 of this report;
|
|
●
|
|
Ethical business conduct, starting on page 119 of this report; and
|
|
●
|
|
Largest shareholder, on page 121 of this report.
|
Reference is made to the sections under Company
executives and executive compensation:
|
●
|
|
Named executive officers of the company and Other executive officers of the company, on pages 123 to 125 of this report.
|
Item 11.
|
Executive compensation
|
Sections of the companys management proxy circular are contained in the Proxy
information section, starting on page 92. The companys management proxy circular is prepared in accordance with Canadian securities regulations.
Reference is made to the sections under Corporate governance disclosure:
|
●
|
|
Director compensation, on pages 111 to 117 of this report; and
|
|
●
|
|
Share ownership guidelines of independent directors and chairman, president and chief executive officer, on page 118 of this report.
|
Reference is made to the following sections under Company executives and executive compensation:
|
●
|
|
Letter to shareholders from the executive resources committee on executive compensation, starting on page 126 of this report; and
|
|
●
|
|
Compensation discussion and analysis, on pages 128 to 149 of this report.
|
26
Item 12.
|
Security ownership of certain beneficial owners and management and related stockholder matters
|
Sections of the
companys management proxy circular are contained in the Proxy information section, starting on page 92. The companys management proxy circular is prepared in accordance with Canadian securities regulations.
Reference is made to the section under Company executives and executive compensation entitled Equity compensation plan information, within the
Compensation discussion and analysis section, on page 147 of this report.
Reference is made to the section under Corporate governance
disclosure entitled Largest shareholder, on page 121 of this report.
Reference is also made to the security ownership information for directors
and executive officers of the company under the preceding Items 10 and 11. With respect to named executive officers who are not directors of the company, as of February 7, 2018, B.A. Babcock was the owner of 27,139 common shares and held
111,000 restricted stock units of the company, and was the owner of 352 common shares of Exxon Mobil Corporation. J.R. Whelan held 22,000 restricted stock units of the company, and was the owner of 24,125 common shares and held 30,200 restricted
stock of Exxon Mobil Corporation. T.B. Redburn was the owner of 3,267 common shares and held 83,850 restricted stock units of the company. P.M. Dinnick held 10,400 restricted stock units of the company, and was the owner of 860 common shares and
held 13,200 restricted stock of Exxon Mobil Corporation.
The directors and the executive officers of the company, whose compensation for the year-ended
December 31, 2017 is described in the sections under Nominees for director starting on page 93, Director compensation starting on page 111 and Company executives and executive compensation starting on page
123, consist of 19 persons, who, as a group, as of February 7, 2018, beneficially own 180,181 common shares of the company, being approximately 0.02 percent of the total number of outstanding shares of the company, and 457,990 shares of
Exxon Mobil Corporation (including 390,700 restricted shares). This information not being within the knowledge of the company has been provided by the directors and the executive officers individually. As a group, the directors and
executive officers of the company held restricted stock units to acquire 719,745 common shares of the company, as of February 7, 2018.
Item 13.
|
Certain relationships and related transactions, and director independence
|
Sections of the companys
management proxy circular are contained in the Proxy information section, starting on page 92. The companys management proxy circular is prepared in accordance with Canadian securities regulations.
Reference is made to the section under Corporate governance disclosure entitled Independence of our board members, on page 101 of this report.
Reference is made to the section under Corporate governance disclosure entitled Transactions with Exxon Mobil Corporation, on page 121 of
this report.
D.G. (Jerry) Wascom is deemed a
non-independent
member of the board of directors and the executive resources
committee, environmental, health and safety committee, nominations and corporate governance committee and contributions committee under the relevant standards. As an employee of Exxon Mobil Corporation, D.G. (Jerry) Wascom is independent of the
companys management and is able to assist these committees by reflecting the perspective of the companys shareholders.
27
Item 14.
|
Principal accountant fees and services
|
Auditor information
The audit committee of the board of directors recommends that PwC be reappointed as the auditor of the company until the close of the next annual meeting. PwC has been
the auditor of the company for more than five years and are located in Calgary, Alberta. PwC is a participating audit firm with the Canadian Public Accountability Board.
Auditor fees
The aggregate fees of PwC for professional services rendered
for the audit of the companys financial statements and other services for the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
thousands of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Audit fees
|
|
|
1,756
|
|
|
|
1,500
|
|
|
|
|
Audit-related fees
|
|
|
94
|
|
|
|
104
|
|
|
|
|
Tax fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
All other fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Total fees
|
|
|
1,850
|
|
|
|
1,604
|
|
|
|
|
Audit fees included the audit of the companys annual financial statements, internal control over financial reporting, and a review
of the first three quarterly financial statements in 2017. Audit-related fees consisted of other assurance services including the audit of the companys retirement plan and royalty statement audits for oil and gas producing entities. The
company did not engage the auditor for any other services.
The audit committee formally and annually evaluates the performance of the external auditor, recommends
the external auditor to be appointed by the shareholders, recommends their remuneration and oversees their work. The audit committee also approves the proposed current year audit program of the external auditor, assesses the results of the program
after the end of the program period and approves in advance any
non-audit
services to be performed by the external auditor after considering the effect of such services on their independence.
All of the services rendered by the auditor to the company were approved by the audit committee.
Auditor independence
The audit committee continually discusses with PwC
their independence from the company and from management. PwC have confirmed that they are independent with respect to the company within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Alberta, the
Public Company Accounting Oversight Board (United States) (PCAOB) and the rules of the U.S. Securities and Exchange Commission. The company has concluded that the auditors independence has been maintained.
28
PART IV
Item 15.
|
Exhibits, financial statement schedules
|
Reference is made to the table of contents in the Financial
section on page 32 of this report.
The following exhibits, numbered in accordance with Item 601 of Regulation
S-K,
are filed as part of this report:
|
|
|
|
|
|
|
(3)
|
|
(i)
|
|
Restated certificate and articles of incorporation of the company (Incorporated herein by reference to Exhibit
(3.1) to the companys Form
8-K
filed on May 3, 2006 (File
No. 0-12014)).
|
|
|
(ii)
|
|
By-laws
of the company (Incorporated herein by reference to Exhibit (3)(ii) to the companys
Quarterly Report on Form
10-Q
for the quarter ended March 31, 2003 (File
No. 0-12014)).
|
|
|
|
|
(10)
|
|
(ii)
|
|
(1)
|
|
Syncrude Ownership and Management Agreement, dated February 4, 1975 (Incorporated herein by reference to Exhibit 13(b) of the companys Registration Statement on Form
S-1,
as filed
with the Securities and Exchange Commission on August 21, 1979 (File
No. 2-65290)).
|
|
|
|
|
(2)
|
|
Letter Agreement, dated February 8, 1982, between the Government of Canada and Esso Resources Canada Limited, amending Schedule C to the Syncrude Ownership and Management Agreement filed as Exhibit (10)(ii)(2)
(Incorporated herein by reference to Exhibit (20) of the companys Annual Report on Form
10-K
for the year ended December 31, 1981 (File
No. 2-9259)).
|
|
|
|
|
(3)
|
|
Alberta Cold Lake Crown Agreement, dated June 25, 1984, relating to the royalties payable and the assurances given in respect of the Cold Lake production project (Incorporated herein by reference to Exhibit (10)(ii)(11) of the
companys Annual Report on Form
10-K
for the year ended December 31, 1986 (File
No. 0-12014)).
|
|
|
|
|
(4)
|
|
Amendment to Syncrude Ownership and Management Agreement, dated March 10, 1982 (Incorporated herein by reference to Exhibit (10)(ii)(14) of the companys Annual Report on Form
10-K
for the year ended December 31, 1989 (File
No. 0-12014)).
|
|
|
|
|
(5)
|
|
Alberta Cold Lake Transition Agreement, effective January 1, 2000, relating to the royalties payable in respect of the Cold Lake
production project and terminating the Alberta Cold Lake Crown Agreement. (Incorporated herein by reference to Exhibit (10)(ii)(20) of the companys Annual Report on Form
10-K
for the year ended
December 31, 2001 (File
No. 0-12014)).
|
|
|
|
|
(6)
|
|
Amendment to Syncrude Ownership and Management Agreement effective January 1, 2001 (Incorporated herein by reference to Exhibit (10)(ii)(22) of the companys Quarterly Report on Form
10-Q
for the quarter ended June 30, 2002 (File
No. 0-12014)).
|
|
|
|
|
(7)
|
|
Amendment to Syncrude Ownership and Management Agreement effective September 16, 1994 (Incorporated herein by reference to Exhibit
(10)(ii)(23) of the companys Quarterly Report on Form
10-Q
for the quarter ended June 30, 2002 (File
No. 0-12014)).
|
|
|
|
|
(8)
|
|
Syncrude Bitumen Royalty Option Agreement, dated November
18, 2008, setting out the terms of the exercise by the Syncrude Joint Venture owners of the option contained in the existing Crown Agreement to convert to a royalty payable on the value of bitumen, effective January
1, 2009 (Incorporated herein by reference to Exhibit 1.01(10)(ii)(2) of the companys Form
8-K
filed on November 19, 2008 (File
No. 0-12014)).
|
|
|
|
|
(iii)
|
|
(A)
|
|
(1)
|
|
Form of Letter relating to Supplemental Retirement Income (Incorporated herein by reference to Exhibit (10)(c)(3) of the companys Annual Report on Form
10-K
for the year ended
December 31, 1980 (File
No. 2-9259)).
|
|
|
|
|
(2)
|
|
Deferred Share Unit Plan for Nonemployee Directors. (Incorporated herein by reference to Exhibit (10)(iii)(A)(6) of the companys Annual Report on Form
10-K
for the year ended
December 31, 1998 (File
No. 0-12014)).
|
|
|
|
|
(3)
|
|
Amended Restricted Stock Unit Plan with respect to Restricted Stock Units granted in 2008 and subsequent years, as amended effective November 20,
2008 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(5)] of the companys Form
8-K
filed on November 25, 2008 (File
No. 0-12014)).
|
|
|
|
|
(4)
|
|
Short Term Incentive Program for selected executives effective February
2, 2012 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the companys Form
8-K
filed on February 7, 2012 (File
No. 0-12014)).
|
29
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
Amended Restricted Stock Unit Plan with respect to Restricted Stock Units granted in 2011 and subsequent years, as amended effective November 14,
2011 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the companys Form
8-K
filed on February 23, 2012 (File
No. 0-12014)).
|
|
|
|
|
(6)
|
|
Amended Restricted Stock Unit Plan with respect to Restricted Stock Units granted in 2016 and subsequent years, as amended effective October 26,
2016 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the companys Form
8-K
filed on October 31, 2016 (File
No. 0-12014)).
|
|
|
|
|
(7)
|
|
Amended Short Term Incentive Program with respect to awards granted in 2016 and subsequent years, as amended effective October
26, 2016 (Incorporated herein by reference to Exhibit 9.01(c)[10(iii)(A)(1)] of the companys Form
8-K
filed on October 31, 2016 (File
No. 0-12014)).
|
|
|
|
|
(21)
|
|
|
|
|
|
Imperial Oil Resources Limited is incorporated in Canada, and is a wholly-owned subsidiary of the company. The names of all other subsidiaries of the company are omitted because, considered in the aggregate as a single subsidiary,
they would not constitute a significant subsidiary as of December 31, 2017.
|
|
|
|
|
(31.1)
|
|
|
|
|
|
Certification by principal executive officer of Periodic Financial Report pursuant to Rule
13a-14(a).
|
|
|
|
|
(31.2)
|
|
|
|
|
|
Certification by principal financial officer of Periodic Financial Report pursuant to Rule
13a-14(a).
|
|
|
|
(32.1)
|
|
|
|
Certification by chief executive officer of Periodic Financial Report pursuant to Rule
13a-14(b)
and 18 U.S.C. Section 1350.
|
|
|
|
(32.2)
|
|
|
|
Certification by chief financial officer of Periodic Financial Report pursuant to Rule
13a-14(b)
and 18 U.S.C. Section 1350.
|
Copies of Exhibits may be acquired upon written request of any shareholder to the investor relations manager, Imperial Oil Limited, 505
Quarry Park Boulevard S.E., Calgary, Alberta T2C 5N1, and payment of processing and mailing costs.
Item 16.
|
Form
10-K
summary
|
Not applicable.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on
February 28, 2018 by the undersigned, thereunto duly authorized.
|
Imperial Oil Limited
|
by /s/ Richard M.
Kruger
|
(Richard M. Kruger)
|
Chairman, president and chief executive officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 28, 2018 by the
following persons on behalf of the registrant and in the capacities indicated.
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
|
|
/s/ Richard M. Kruger
|
|
|
|
Chairman, president and
|
(Richard M. Kruger)
|
|
|
|
chief executive officer and director
|
|
|
|
|
(Principal executive officer)
|
|
|
|
/s/ Beverley A. Babcock
|
|
|
|
Senior vice-president,
|
(Beverley A. Babcock)
|
|
|
|
finance and administration, and controller
|
|
|
|
|
(Principal financial officer and principal
|
|
|
|
|
accounting officer)
|
|
|
|
/s/ David W. Cornhill
|
|
|
|
Director
|
(David W. Cornhill)
|
|
|
|
|
|
|
|
/s/ Krystyna T. Hoeg
|
|
|
|
Director
|
(Krystyna T. Hoeg)
|
|
|
|
|
|
|
|
/s/ Jack M. Mintz
|
|
|
|
Director
|
(Jack M. Mintz)
|
|
|
|
|
|
|
|
/s/ David S. Sutherland
|
|
|
|
Director
|
(David S. Sutherland)
|
|
|
|
|
|
|
|
/s/ D.G. (Jerry) Wascom
|
|
|
|
Director
|
(D.G. (Jerry) Wascom)
|
|
|
|
|
|
|
|
/s/ Sheelagh D. Whittaker
|
|
|
|
Director
|
(Sheelagh D. Whittaker)
|
|
|
|
|
|
|
|
/s/ Victor L. Young
|
|
|
|
Director
|
(Victor L. Young)
|
|
|
|
|
31
Financial section
32
Financial information (U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
Operating revenues
|
|
|
29,125
|
|
|
|
25,049
|
|
|
|
26,756
|
|
|
|
36,231
|
|
|
|
32,722
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream
|
|
|
(706
|
)
|
|
|
(661
|
)
|
|
|
(704
|
)
|
|
|
2,059
|
|
|
|
1,712
|
|
Downstream
|
|
|
1,040
|
|
|
|
2,754
|
|
|
|
1,586
|
|
|
|
1,594
|
|
|
|
1,052
|
|
Chemical
|
|
|
235
|
|
|
|
187
|
|
|
|
287
|
|
|
|
229
|
|
|
|
162
|
|
Corporate and other
|
|
|
(79
|
)
|
|
|
(115
|
)
|
|
|
(47
|
)
|
|
|
(97
|
)
|
|
|
(98)
|
|
|
|
Net income (loss)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
3,785
|
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
year-end
|
|
|
1,195
|
|
|
|
391
|
|
|
|
203
|
|
|
|
215
|
|
|
|
272
|
|
Total assets at
year-end
|
|
|
41,601
|
|
|
|
41,654
|
|
|
|
43,170
|
|
|
|
40,830
|
|
|
|
37,218
|
|
|
|
|
|
|
|
Long-term debt at
year-end
|
|
|
5,005
|
|
|
|
5,032
|
|
|
|
6,564
|
|
|
|
4,913
|
|
|
|
4,444
|
|
Total debt at
year-end
|
|
|
5,207
|
|
|
|
5,234
|
|
|
|
8,516
|
|
|
|
6,891
|
|
|
|
6,287
|
|
Other long-term obligations at
year-end
|
|
|
3,780
|
|
|
|
3,656
|
|
|
|
3,597
|
|
|
|
3,565
|
|
|
|
3,091
|
|
|
|
|
|
|
|
Shareholders equity at
year-end
|
|
|
24,435
|
|
|
|
25,021
|
|
|
|
23,425
|
|
|
|
22,530
|
|
|
|
19,524
|
|
Cash flow from operating activities
|
|
|
2,763
|
|
|
|
2,015
|
|
|
|
2,167
|
|
|
|
4,405
|
|
|
|
3,292
|
|
Per share information (dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
|
|
4.47
|
|
|
|
3.34
|
|
Net income (loss) per common share - diluted
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
|
|
4.45
|
|
|
|
3.32
|
|
Dividends per share - declared
|
|
|
0.63
|
|
|
|
0.59
|
|
|
|
0.54
|
|
|
|
0.52
|
|
|
|
0.49
|
|
|
|
33
Frequently used terms
Listed below are definitions of several of Imperials key business and financial performance measures. The definitions are provided to facilitate understanding of
the terms and how they are calculated.
Capital employed
Capital
employed is a measure of net investment. When viewed from the perspective of how capital is used by the business, it includes the companys property, plant and equipment, and other assets, less liabilities, excluding both short-term and
long-term debt. When viewed from the perspective of the sources of capital employed in total for the company, it includes total debt and equity. Both of these views include the companys share of amounts applicable to equity companies, which
the company believes should be included to provide a more comprehensive measurement of capital employed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Business uses: asset and liability perspective
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
41,601
|
|
|
|
41,654
|
|
|
|
43,170
|
|
Less: Total current liabilities excluding notes and loans payable
|
|
|
(3,934
|
)
|
|
|
(3,681
|
)
|
|
|
(3,441)
|
|
Total long-term liabilities excluding long-term debt
|
|
|
(8,025
|
)
|
|
|
(7,718
|
)
|
|
|
(7,788)
|
|
Add: Imperials share of equity company debt
|
|
|
19
|
|
|
|
17
|
|
|
|
18
|
|
|
|
Total capital employed
|
|
|
29,661
|
|
|
|
30,272
|
|
|
|
31,959
|
|
|
|
|
|
|
|
Total company sources: Debt and equity perspective
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and loans payable
|
|
|
202
|
|
|
|
202
|
|
|
|
1,952
|
|
Long-term debt
|
|
|
5,005
|
|
|
|
5,032
|
|
|
|
6,564
|
|
Shareholders equity
|
|
|
24,435
|
|
|
|
25,021
|
|
|
|
23,425
|
|
Add: Imperials share of equity company debt
|
|
|
19
|
|
|
|
17
|
|
|
|
18
|
|
|
|
Total capital employed
|
|
|
29,661
|
|
|
|
30,272
|
|
|
|
31,959
|
|
|
|
Return on average capital employed (ROCE)
ROCE is a financial performance ratio. From the perspective of the business segments, ROCE is annual business-segment net income divided by average business-segment
capital employed (an average of the beginning and end-of-year amounts). Segment net income includes Imperials share of segment net income of equity companies, consistent with the definition used for capital employed, and excludes the cost of
financing. The companys total ROCE is net income excluding the after-tax cost of financing divided by total average capital employed. The company has consistently applied its ROCE definition for many years and views it as the best measure of
historical capital productivity in a capital-intensive, long-term industry to both evaluate managements performance and demonstrate to shareholders that capital has been used wisely over the long term. Additional measures, which are more cash
flow based, are used to make investment decisions.
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
Financing costs (after tax), including Imperials share of equity companies
|
|
|
48
|
|
|
|
53
|
|
|
|
30
|
|
|
|
Net income excluding financing costs
|
|
|
538
|
|
|
|
2,218
|
|
|
|
1,152
|
|
|
|
|
|
|
|
Average capital employed
|
|
|
29,967
|
|
|
|
31,116
|
|
|
|
30,700
|
|
|
|
Return on average capital employed (percent) corporate total
|
|
|
1.8
|
|
|
|
7.1
|
|
|
|
3.8
|
|
|
|
34
Cash flow from operating activities and asset sales
Cash flow from operating activities and asset sales is the sum of the net cash provided by operating activities and proceeds from asset sales reported in the
consolidated statement of cash flows. This cash flow reflects the total sources of cash both from operating the companys assets and from the divesting of assets. The company employs a long-standing and regular disciplined review process to
ensure that all assets are contributing to the companys strategic objectives. Assets are divested when they no longer meet these objectives or are worth considerably more to others. Because of the regular nature of this activity, the company
believes it is useful for investors to consider sales proceeds together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Cash from operating activities
|
|
|
2,763
|
|
|
|
2,015
|
|
|
|
2,167
|
|
Proceeds from asset sales
|
|
|
232
|
|
|
|
3,021
|
|
|
|
142
|
|
|
|
Total cash flow from operating activities and asset sales
|
|
|
2,995
|
|
|
|
5,036
|
|
|
|
2,309
|
|
|
|
Operating costs
Operating costs are the
costs during the period to produce, manufacture, and otherwise prepare the companys products for sale including energy costs, staffing and maintenance costs. They exclude the cost of raw materials, taxes and interest expense and are on
a
before-tax
basis. While the company is responsible for all revenue and expense elements of net income, operating costs represent the expenses most directly under the companys control and therefore, are
useful in evaluating the companys performance.
Reconciliation of operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
From Imperials consolidated statement of income
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
28,842
|
|
|
|
24,910
|
|
|
|
24,965
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of crude oil and products
|
|
|
18,145
|
|
|
|
15,120
|
|
|
|
15,284
|
|
Federal excise tax
|
|
|
1,673
|
|
|
|
1,650
|
|
|
|
1,568
|
|
Financing costs
|
|
|
78
|
|
|
|
65
|
|
|
|
39
|
|
|
|
Subtotal
|
|
|
19,896
|
|
|
|
16,835
|
|
|
|
16,891
|
|
Imperials share of equity company expenses
|
|
|
62
|
|
|
|
63
|
|
|
|
40
|
|
|
|
Total operating costs
|
|
|
9,008
|
|
|
|
8,138
|
|
|
|
8,114
|
|
|
|
|
|
|
|
Components of operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
From Imperials consolidated statement of income
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and manufacturing
|
|
|
5,698
|
|
|
|
5,224
|
|
|
|
5,434
|
|
Selling and general
|
|
|
893
|
|
|
|
1,129
|
|
|
|
1,117
|
|
Depreciation and depletion
|
|
|
2,172
|
|
|
|
1,628
|
|
|
|
1,450
|
|
Exploration
|
|
|
183
|
|
|
|
94
|
|
|
|
73
|
|
|
|
Subtotal
|
|
|
8,946
|
|
|
|
8,075
|
|
|
|
8,074
|
|
Imperials share of equity company expenses
|
|
|
62
|
|
|
|
63
|
|
|
|
40
|
|
|
|
Total operating costs
|
|
|
9,008
|
|
|
|
8,138
|
|
|
|
8,114
|
|
|
|
35
Managements discussion and analysis of financial condition and results of operations
Overview
The following discussion and
analysis of Imperials financial results, as well as the accompanying financial statements and related notes to consolidated financial statements to which they refer, are the responsibility of the management of Imperial Oil Limited.
The companys accounting and financial reporting fairly reflect its straightforward business model involving the extracting, refining and marketing of hydrocarbons
and hydrocarbon based products. The companys business model involves the production (or purchase), manufacture and sale of physical products, and all commercial activities are directly in support of the underlying physical movement
of goods.
Imperial, with its resource base, financial strength, disciplined investment approach and technology portfolio, is well positioned to participate in
substantial investments to develop new Canadian energy supplies. The companys integrated business model, with significant investments in Upstream, Downstream and Chemical segments, reduces the companys risk from changes in commodity
prices. While commodity prices are volatile on a short-term basis, depending upon supply and demand, Imperials investment decisions are based on its long-term business outlook, using a disciplined approach in selecting and pursuing the most
attractive investment opportunities. The corporate plan is a fundamental annual management process that is the basis for setting near-term operating and capital objectives, in addition to providing the longer-term economic assumptions used for
investment evaluation purposes. Volumes are based on individual field production profiles, which are also updated annually. Price ranges for crude oil, natural gas, refined products and chemical products are based on corporate plan assumptions
developed annually and are utilized for investment evaluation purposes. Major investment opportunities are evaluated over a range of economic scenarios. Once major investments are made, a reappraisal process is completed to ensure relevant lessons
are learned and improvements are incorporated into future projects.
The term project as used in this report can refer to a variety of different
activities and does not necessarily have the same meaning as in any government payment transparency reports.
Business environment and
risk assessment
Long-term business outlook
The basis for the
Long-term business outlook is the Exxon Mobil Corporations annual
Outlook for Energy
, which is used to help form the companys long-term business strategies and investment plans. By 2040, the worlds population is
projected to grow to approximately 9.2 billion people, or about 1.7 billion more people than in 2016. Coincident with this population increase, the company expects worldwide economic growth to average close to 3 percent per year. As
economies and populations grow, and as living standards improve for billions of people, the need for energy will continue to rise. Even with significant efficiency gains, global energy demand is projected to rise by about 25 percent from 2016
to 2040. This demand increase is expected to be concentrated in developing countries (i.e., those that are not member nations of the Organization for Economic Cooperation and Development). Canada is expected to see flat to modest local energy demand
growth through to 2040 and will continue to be a large supplier of energy exports to help meet rising global energy needs.
As expanding prosperity drives global
energy demand higher, increasing use of energy efficient technologies and practices, as well as lower emission fuels will continue to help significantly reduce energy consumption and emissions per unit of economic output over time. Substantial
efficiency gains are likely in all key aspects of the world economy through 2040, affecting energy requirements for transportation, power generation, industrial applications and residential and commercial needs.
Energy for global transportation including cars, trucks, ships, trains and airplanes is expected to increase by about 30 percent from 2016 to 2040.
The growth in transportation energy demand is likely to account for approximately 60 percent of the growth in liquid fuels demand worldwide over this period, even as liquids demand for light duty vehicles is relatively flat to 2040, reflecting
the impact of better fleet fuel economy and significant growth in electric cars over the period. Nearly all the worlds transportation fleets are likely to continue to run on liquid fuels, which are abundant, widely available and easy to
transport, and provide a large quantity of energy in small volumes.
36
Demand for electricity around the world is likely to increase approximately 60 percent from 2016 to 2040, with
developing countries accounting for about 85 percent of the increase. Consistent with this projection, power generation is expected to remain the largest and fastest growing major segment of global primary energy demand. Meeting the expected
growth in power demand will require a diverse set of energy sources. The share of coal fired generation is likely to decline substantially and approach 25 percent of the worlds electricity by 2040, versus nearly 40 percent in 2016,
in part as a result of policies to improve air quality, as well as reduce greenhouse gas emissions to address the risks of climate change. From 2016 to 2040, the amount of electricity supplied using natural gas, nuclear power, and renewables is
likely to approximately double, and account for about 95 percent of the growth in electricity supplies. Renewables in total, led by wind and solar, will account for about half of the increase in electricity supplies worldwide over the period to
2040, reaching nearly 35 percent of global electricity supplies by 2040. Natural gas and nuclear will also gain share over the period to 2040, reaching about 25 percent and 12 percent respectively of global electricity supplies by
2040. Supplies of electricity by energy type will reflect significant differences across regions, reflecting a wide range of factors including the cost and availability of various energy types.
Liquid fuels provide the largest share of global energy supplies today due to their broad based availability, affordability, ease of distribution, storage and fitness
as a practical solution to meet a wide variety of needs. By 2040, global demand for liquid fuels is projected to grow to approximately 118 million barrels per day, an increase of about 20 percent from 2016. Much of this demand today is met
by crude production from traditional conventional sources; these supplies will remain important as significant development activity is expected to offset much of the natural declines from these fields. At the same time, a variety of emerging supply
sources including tight oil, deep water oil, oil sands, natural gas liquids and biofuels are expected to grow to help meet rising demand. The worlds resource base is sufficient to meet projected demand through 2040 as technology
advances continue to expand the availability of economic supply options. However, access to resources and timely investments will remain critical to meeting global needs with reliable, affordable supplies.
Natural gas is a versatile fuel, suitable for a wide variety of applications and it is expected to grow the most of any primary energy type from 2016 to 2040, meeting
more than 35 percent of global energy demand growth. Global natural gas demand is expected to rise nearly 40 percent from 2016 to 2040, with about 45 percent of that increase in the Asia Pacific region. Helping meet these needs will
lead to significant growth in supplies of unconventional gas
-
the natural gas found in shale and other rock formations that was once considered uneconomic to produce. In total, about 55 percent of the
growth in natural gas supplies is expected to be from unconventional sources. However, it is expected conventionally produced natural gas is likely to remain the cornerstone of supply, meeting about
two-thirds
of global demand in 2040. Worldwide liquefied natural gas (LNG) trade will expand significantly, meeting about
one-third
of the increase in demand growth, with much of this supply expected to help meet rising
demand in Asia Pacific.
The worlds energy mix is highly diverse and will remain so through 2040. Oil is expected to remain the largest source of energy with
its share remaining close to
one-third
in 2040. Coal is currently the second largest source of energy, but it is likely to lose that position to natural gas in the 2020 to 2025 timeframe. The share of natural
gas is expected to reach 25 percent by 2040, while the share of coal falls to about 20 percent. Nuclear power is projected to grow significantly, as many nations are likely to expand nuclear capacity to address rising electricity needs, as
well as energy security and environmental issues. Total renewable energy is likely to exceed 15 percent of total global energy by 2040, with biomass, hydro and geothermal contributing a combined share of more than 10 percent. Total energy
supplied from wind, solar and biofuels is expected to increase rapidly, growing nearly 250 percent from 2016 to 2040, when they will approach about 5 percent of the worlds energy.
The company anticipates that the worlds available oil and gas resource base will grow not only from new discoveries, but also from reserve increases in previously
discovered fields. Technology will underpin these increases. The cost to develop and supply these resources will be significant. According to the International Energy Agency
World Energy Outlook 2017
, the investment required to meet oil and
natural gas supply requirements worldwide over the period 2017 to 2040 will be about US$21 trillion (New Policies Scenario, measured in 2016 dollars) or approximately US$860 billion per year on average.
37
International accords and underlying regional and national regulations covering greenhouse gas emissions continue to evolve
with uncertain timing and outcome, making it difficult to predict their business impact. Imperials estimate of potential costs related to greenhouse gas emissions align with applicable provincial and federal regulations.
For the purposes of assessing Imperials long-term business strategies and investment evaluations, ExxonMobils
Outlook for Energy
is used as a
foundation for estimating energy related greenhouse gas emissions. The climate accord reached at the Conference of the Parties (COP 21) in Paris set many new goals, and many related policies are still emerging. The ExxonMobil
Outlook for
Energy
reflects an environment with increasingly stringent climate policies and is consistent with the aggregation of Nationally Determined Contributions which were submitted by signatories to the United Nations Framework Convention on Climate
Change (UNFCCC) 2015 Paris Agreement. The ExxonMobil
Outlook for Energy
seeks to identify potential impacts of climate related policies, which often target specific sectors, by using various assumptions and tools including application of a
proxy cost of carbon to estimate potential impacts on consumer demands. As people and nations look for ways to reduce risks of global climate change, they will continue to need practical solutions that do not jeopardize the affordability or
reliability of the energy they need. Practical solutions to the worlds energy and climate challenges will benefit from market competition, well informed, well designed and transparent policy approaches that carefully weigh costs and benefits.
Such policies are likely to help manage the risks of climate change while also enabling societies to pursue other high priority goals around the world including clean air and water, access to reliable, affordable energy, and economic progress
for all people. All practical and economically viable energy sources, both conventional and unconventional, will need to be pursued to continue meeting global energy demand, recognizing the scale and variety of worldwide energy needs, as well as the
importance of expanding access to modern energy to promote better standards of living for billions of people.
The information provided in the
Long-term
business outlook includes internal estimates and forecasts based upon ExxonMobils internal data and analyses, as well as publicly available information from external sources including the
International Energy Agency.
Upstream
Imperial produces crude oil and
natural gas for sale predominantly into North American markets. Imperials Upstream business strategies guide the companys exploration, development, production, research and gas marketing activities. These strategies include maximizing
asset reliability, accelerating development and application of high impact technologies, maximizing value by capturing new business opportunities and managing the existing portfolio, as well as pursuing sustainable improvements in organizational
efficiency and effectiveness. These strategies are underpinned by a relentless focus on operations integrity, commitment to innovative technologies, disciplined approach to investing and cost management, development of employees and investment in
the communities within which the company operates.
Imperial has a significant oil and gas resource base and a large inventory of potential projects. The company
continues to evaluate opportunities to support long-term growth. As future development projects bring new production online, Imperial expects growth from oil sands
in-situ
and mining, as well as unconventional
resources, with the largest growth potential related to
in-situ.
Actual volumes will vary from year to year due to the factors described in Item 1A. Risk factors.
The upstream industry environment continued to recover in 2017 as crude oil prices increased in response to tighter supply and higher demand. Prices for most of the
companys crude oil sold are referenced to Western Canada Select (WCS) and West Texas Intermediate (WTI) oil markets and in 2017, the average WCS and WTI crude oil prices, in U.S. dollars, were higher versus 2016. The markets for crude oil and
natural gas have a history of significant price volatility. Imperial believes prices over the long-term will continue to be driven by market supply and demand, with the demand side largely being a function of general economic activities and levels
of prosperity. On the supply side, prices may be significantly impacted by political events, the actions of OPEC and other large government resource owners, and other factors. To manage the risks associated with price, Imperial evaluates annual
plans and all major investments across a range of price scenarios.
38
Downstream
Imperials
Downstream serves predominantly Canadian markets with refining, logistics and marketing assets. Imperials Downstream business strategies competitively position the company across a range of market conditions. These strategies include targeting
industry leading performance in reliability, safety and operations integrity, as well as maximizing value from advanced technologies, capitalizing on integration across Imperials businesses, selectively investing for resilient and advantaged
returns, operating efficiently and effectively, and providing quality, valued and differentiated products and services to customers.
Imperial owns and operates
three refineries in Canada, with aggregate distillation capacity of 423,000 barrels per day. Refining margins are largely driven by differences in commodity prices and are a function of the difference between what a refinery pays for its raw
materials (primarily crude oil) and the market prices for the range of products produced (primarily gasoline, heating oil, diesel oil, jet fuel and fuel oil). Crude oil and many products are widely traded with published prices, including those
quoted on the New York Mercantile Exchange. Prices for these commodities are determined by the global and regional marketplaces and are influenced by many factors, including global and regional supply / demand balances, inventory levels, industry
refinery operations, import / export balances, currency fluctuations, seasonal demand, weather and political climate.
Demand growth remained strong in 2017 causing
lower inventory levels of both gasoline and distillate products. North American refineries continue to benefit from cost-competitive feedstock and energy supplies.
As described in more detail in Item 1A. Risk factors, proposed carbon policy and other climate related regulations, as well as continued biofuels mandates,
could have negative impacts on the downstream business. Imperials integration across the value chain, from refining to marketing, enhances overall value across the fuels business.
Imperial supplies petroleum products to the motoring public through Esso and Mobil-branded retail sites and independent marketers. On average during the year, there
were more than 1,800 retail sites operating under a branded wholesaler model whereby Imperial supplies fuel to independent third parties who own and operate retail sites in alignment with Esso and Mobil brand standards. The Mobil fuels brand was
launched in Canada in 2017 with the announcement of plans to convert more than 200 existing unbranded third party retail sites. Completion of this Mobil conversion is anticipated in 2018.
The company expects to continue to expand its branded presence across Canada with the launch of Mobil-branded retail sites and the ongoing conversion of third party
sites to the Esso brand, in both retail and commercial.
Chemical
North America continued to benefit from abundant supplies of natural gas and gas liquids, providing both low cost energy and feedstock for steam crackers, and a
favourable margin environment for integrated chemical producers. Imperial sustained a competitive advantage through continued operational excellence, investment and cost discipline. In 2017, the company continued to capture value from the
integration of its chemical plant in Sarnia with the refinery. The company also benefits from its integration within ExxonMobils North American chemical businesses, enabling Imperial to maintain a leadership position in its key market
segments.
39
Results of operations
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income (loss)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
2017
Net income in 2017 was $490 million, or
$0.58 per share on a diluted basis, reflecting impairment charges of $289 million ($0.35 per share) associated with the Horn River development and $277 million ($0.33 per share) associated with the Mackenzie gas project. This compares with
net income of $2,165 million or $2.55 per share in 2016, which included a gain of $1.7 billion ($2.01 per share) from the sale of retail sites.
2016
Net income in 2016 was $2,165 million, or $2.55 per share on a diluted basis, including a gain of $1.7 billion ($2.01 per share) from the sale of retail sites,
versus net income of $1,122 million or $1.32 per share in 2015. Downstream net income was $2,754 million, up from $1,586 million in 2015. Chemical net income was $187 million. Upstream recorded a net loss of $661 million in
2016, compared to a net loss of $704 million in 2015.
Upstream
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income (loss)
|
|
|
(706
|
)
|
|
|
(661
|
)
|
|
|
(704
|
)
|
|
|
2017
Upstream recorded a net loss of
$706 million in 2017, reflecting impairment charges of $289 million associated with the Horn River development and $277 million associated with the Mackenzie gas project. Excluding these impairment charges, the net loss of
$140 million compares to a net loss of $661 million in 2016. Results benefitted from higher Canadian crude oil realizations of about $1,190 million and higher Kearl volumes of about $60 million. Results were negatively impacted
by higher royalties of about $250 million, lower Syncrude and Norman Wells volumes of about $190 million, higher operating expenses mainly associated with Syncrude and Kearl of about $150 million, higher energy costs of about
$80 million and the impact of a stronger Canadian currency of about $60 million.
2016
Upstream recorded a net loss of $661 million in 2016, compared to a net loss of $704 million in 2015. The loss in 2016 reflected lower realizations of about
$700 million, the impact of the northern Alberta wildfires of about $155 million and higher depreciation expense of about $120 million. These factors were partially offset by higher volumes of about $320 million, the impact of a
weaker Canadian dollar of about $130 million, the favorable impact of lower royalties of about $80 million, lower field operating costs of about $80 million and lower energy cost of about $50 million. The loss in 2015 reflected
the impact associated with the Alberta corporate income tax rate increase of $327 million.
40
Average realizations
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Bitumen (per barrel)
|
|
|
39.13
|
|
|
|
26.52
|
|
|
|
32.48
|
|
Synthetic oil (per barrel)
|
|
|
67.58
|
|
|
|
57.12
|
|
|
|
61.33
|
|
Conventional crude oil (per barrel)
|
|
|
53.51
|
|
|
|
32.93
|
|
|
|
36.58
|
|
Natural gas liquids (per barrel)
|
|
|
31.46
|
|
|
|
15.58
|
|
|
|
14.70
|
|
Natural gas (per thousand cubic feet)
|
|
|
2.58
|
|
|
|
2.41
|
|
|
|
2.78
|
|
|
|
2017
West Texas Intermediate averaged US$50.85 per
barrel in 2017, up from US$43.44 per barrel in the prior year. Western Canada Select averaged US$38.95 per barrel and US$29.49 per barrel respectively for the same periods. The WTI / WCS differential narrowed to 23 percent in 2017, from
32 percent in 2016. The Canadian dollar averaged US$0.77 in 2017, an increase of about US$0.02 from 2016.
Imperials average Canadian dollar realizations
for bitumen and synthetic crudes increased generally in line with the North American benchmarks, adjusted for changes in the exchange rate and transportation costs. Bitumen realizations averaged $39.13 per barrel for 2017, an increase of $12.61 per
barrel versus 2016. Synthetic crude realizations averaged $67.58 per barrel, an increase of $10.46 per barrel from 2016.
2016
West Texas Intermediate averaged US$43.44 per barrel in 2016, down from US$48.83 per barrel in 2015. Western Canada Select averaged US$29.49 per barrel and US$35.34 per
barrel respectively for the same periods. The WTI / WCS differential widened to 32 percent in 2016, up from 28 percent in 2015. The Canadian dollar averaged US$0.75 in 2016, a decrease of US$0.03 from 2015.
Imperials average Canadian dollar realizations for bitumen and synthetic crudes declined essentially in line with the North American benchmarks, adjusted for
changes in the exchange rate and transportation costs. Bitumen realizations averaged $26.52 for 2016, a decrease of $5.96 per barrel from 2015. Synthetic crude realizations averaged $57.12 per barrel, a decrease of $4.21 per barrel from 2015.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil and NGLs - production and sales
(a)
thousands of barrels per day
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
gross
|
|
|
net
|
|
|
gross
|
|
|
net
|
|
|
gross
|
|
|
net
|
|
|
|
Bitumen
|
|
|
288
|
|
|
|
255
|
|
|
|
281
|
|
|
|
256
|
|
|
|
266
|
|
|
|
245
|
|
Synthetic oil
(b)
|
|
|
62
|
|
|
|
57
|
|
|
|
68
|
|
|
|
67
|
|
|
|
62
|
|
|
|
58
|
|
Conventional crude oil
|
|
|
4
|
|
|
|
3
|
|
|
|
14
|
|
|
|
12
|
|
|
|
15
|
|
|
|
14
|
|
|
|
Total crude oil production
|
|
|
354
|
|
|
|
315
|
|
|
|
363
|
|
|
|
335
|
|
|
|
343
|
|
|
|
317
|
|
NGLs available for sale
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
Total crude oil and NGL production
|
|
|
355
|
|
|
|
316
|
|
|
|
364
|
|
|
|
336
|
|
|
|
344
|
|
|
|
318
|
|
Bitumen sales, including diluent
(c)
|
|
|
381
|
|
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
NGL sales
|
|
|
6
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas - production and production available for sale
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of cubic feet per day
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
gross
|
|
|
net
|
|
|
gross
|
|
|
net
|
|
|
gross
|
|
|
net
|
|
|
|
Production
(d) (e)
|
|
|
120
|
|
|
|
114
|
|
|
|
129
|
|
|
|
122
|
|
|
|
130
|
|
|
|
125
|
|
Production available for sale
(f)
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
94
|
|
|
|
(a)
|
Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period. Gross production is the companys share of production (excluding purchases) before deduction
of the mineral owners or governments share or both. Net production excludes those shares.
|
(b)
|
The companys synthetic oil production volumes were from the companys share of production volumes in the Syncrude joint venture.
|
(c)
|
Diluent is natural gas condensate or other light hydrocarbons added to crude bitumen to facilitate transportation to market by pipeline and rail.
|
(d)
|
Gross production of natural gas includes amounts used for internal consumption with the exception of the amounts
re-injected.
|
(e)
|
Net production is gross production less the mineral owners or governments share or both. Net production reported in the above table is consistent with production quantities in the net proved reserves
disclosure.
|
(f)
|
Includes sales of the companys share of net production and excludes amounts used for internal consumption.
|
2017
Gross production of Cold Lake bitumen averaged 162,000 barrels per day in 2017, up from 161,000 barrels per day in 2016.
Gross production of Kearl bitumen averaged 178,000 barrels per day in 2017 (126,000 barrels Imperials share) up from 169,000 barrels per day (120,000 barrels
Imperials share) in 2016. Increased 2017 production reflects improved reliability associated with the mining and ore preparation operations.
During 2017, the
companys share of gross production from Syncrude averaged 62,000 barrels per day, compared to 68,000 barrels per day in 2016. Syncrude 2017 production was impacted by the March 2017 fire at the Syncrude Mildred Lake upgrader and planned
maintenance. In 2016, production was impacted by the Alberta wildfires and planned maintenance.
2016
Gross production of Cold Lake bitumen averaged 161,000 barrels per day in 2016, up from 158,000 barrels per day in 2015.
Gross production of Kearl bitumen averaged 169,000 barrels per day in 2016 (120,000 barrels Imperials share) compared to 152,000 barrels per day (108,000 barrels
Imperials share) in 2015. The increase was the result of
start-up
of the expansion project.
During 2016, the
companys share of gross production from Syncrude averaged 68,000 barrels per day, up from 62,000 barrels per day in 2015. Increased production reflects continued efforts to improve the reliability of operations, which more than offset the
impact of the Alberta wildfires.
42
Downstream
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income (loss)
|
|
|
1,040
|
|
|
|
2,754
|
|
|
|
1,586
|
|
|
|
2017
Downstream net income was $1,040 million,
compared to $2,754 million in 2016, which included a $1,841 million gain from the sale of company-owned retail sites and the general aviation business. Excluding the impact of the 2016 asset sales, earnings increased by $127 million
reflecting higher refining margins of about $340 million, lower marketing expenses of about $160 million, mainly associated with the retail divestment, and a gain of $151 million from the sale of a surplus property. These factors were
partially offset by lower marketing margins of about $330 million, mainly associated with the impact of the retail divestment, and higher maintenance activity of about $130 million.
2016
Downstream net income was $2,754 million, up from $1,586 million in
2015. Earnings increased mainly due to a gain of $1,841 million from the sale of retail sites and the general aviation business, the impact of a weaker Canadian dollar of about $130 million, higher marketing sales volumes of
$50 million, partially offset by lower downstream margins of about $910 million.
Refinery utilization
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands of barrels per day (a)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Total refinery throughput
(b)
|
|
|
383
|
|
|
|
362
|
|
|
|
386
|
|
Refinery capacity at December 31
|
|
|
423
|
|
|
|
423
|
|
|
|
421
|
|
Utilization of total refinery capacity (percent)
|
|
|
91
|
|
|
|
86
|
|
|
|
92
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands of barrels per day (a)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Gasolines
|
|
|
257
|
|
|
|
261
|
|
|
|
247
|
|
Heating, diesel and jet fuels
|
|
|
177
|
|
|
|
170
|
|
|
|
170
|
|
Heavy fuel oils
(c)
|
|
|
18
|
|
|
|
16
|
|
|
|
16
|
|
Lube oils and other products
|
|
|
40
|
|
|
|
37
|
|
|
|
45
|
|
|
|
Net petroleum product sales
|
|
|
492
|
|
|
|
484
|
|
|
|
478
|
|
|
|
(a)
|
Volume per day metrics are calculated by dividing the volume for the period by the number of calendar days in the period.
|
(b)
|
Crude oil and feedstocks sent directly to atmospheric distillation units.
|
(c)
|
In 2017, carbon black product sales are reported under Net petroleum product sales Heavy fuel oils; in 2016 and 2015, they were reported under Total petrochemical sales Polymers and basic chemicals.
|
2017
Refinery throughput averaged 383,000 barrels per day in
2017, up from 362,000 barrels per day in 2016. Capacity utilization increased to 91 percent from 86 percent in 2016, reflecting reduced turnaround maintenance activity. Petroleum product sales were 492,000 barrels per day in 2017, up from
484,000 barrels per day in 2016. Sales growth continues to be driven by optimization across the full downstream value chain.
2016
Refinery throughput averaged 362,000 barrels per day in 2016, compared to 386,000 barrels per day in 2015. Capacity utilization decreased to 86 percent from
92 percent in 2015, reflecting the more significant scope of turnaround maintenance activity in the current year. Petroleum product sales were 484,000 barrels per day in 2016, up from 478,000 barrels per day in 2015. Sales growth was
driven by the companys focus on establishing long-term supply agreements.
43
Chemical
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income (loss)
|
|
|
235
|
|
|
|
187
|
|
|
|
287
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands of tonnes
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Polymers and basic chemicals
(a)
|
|
|
564
|
|
|
|
697
|
|
|
|
735
|
|
Intermediate and others
|
|
|
210
|
|
|
|
211
|
|
|
|
210
|
|
|
|
Total petrochemical sales
|
|
|
774
|
|
|
|
908
|
|
|
|
945
|
|
|
|
(a)
|
In 2017, carbon black product sales are reported under Net petroleum product sales Heavy fuel oils; in 2016 and 2015, they were reported under Total petrochemical sales Polymers and basic chemicals.
|
2017
Chemical net income was $235 million, up from
$187 million in 2016, mainly due to stronger margins.
2016
Chemical net
income was $187 million, compared to $287 million in the same period of 2015, mainly due to weaker margins across all major product lines and lower volumes.
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income (loss)
|
|
|
(79
|
)
|
|
|
(115
|
)
|
|
|
(47
|
)
|
|
|
2017
For 2017, Corporate and other costs were
$79 million, versus $115 million in 2016, mainly due to lower share-based compensation charges.
2016
In 2016, net income effects from Corporate and other were negative $115 million, versus negative $47 million in 2015, primarily due to higher share-based
compensation charges, the absence of the impact from the Alberta tax rate increase in 2015 and lower capitalized interest.
44
Liquidity and capital resources
Sources and uses of cash
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
2,763
|
|
|
|
2,015
|
|
|
|
2,167
|
|
Investing activities
|
|
|
(781
|
)
|
|
|
1,947
|
|
|
|
(2,884)
|
|
Financing activities
|
|
|
(1,178
|
)
|
|
|
(3,774
|
)
|
|
|
705
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
804
|
|
|
|
188
|
|
|
|
(12)
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
1,195
|
|
|
|
391
|
|
|
|
203
|
|
|
|
The company issues long-term debt from time to time and maintains a commercial paper program. However, internally generated funds cover
the majority of its financial requirements. Cash that may be temporarily surplus to the companys immediate needs is carefully managed through counterparty quality and investment guidelines to ensure that it is secure and readily available to
meet the companys cash requirements and to optimize returns.
Cash flows from operating activities are highly dependent on crude oil and natural gas prices,
as well as petroleum and chemical product margins. In addition, to provide for cash flow in future periods, the company needs to continually find and develop new resources, and continue to develop and apply new technologies to existing fields in
order to maintain or increase production.
The companys financial strength enables it to make large, long-term capital expenditures. Imperials portfolio
of development opportunities and the complementary nature of its business segments help mitigate the overall risks for the company and its cash flows. Further, due to its financial strength, debt capacity and portfolio of opportunities, the risk
associated with delay of any single project would not have a significant impact on the companys liquidity or ability to generate sufficient cash flows for its operations and fixed commitments.
Funding of registered retirement plans complies with federal and provincial pension regulations, and the company makes contributions to the plans based on an
independent actuarial valuation completed at least once every three years, or more, depending on funding status. The most recent valuation of the companys registered retirement plans was completed as at December 31, 2016. The
company contributed $212 million to the registered retirement plans in 2017. Future funding requirements are not expected to affect the companys existing capital investment plans or its ability to pursue new investment opportunities.
Cash flow from operating activities
2017
Cash flow generated from operating activities was $2,763 million in 2017, compared with $2,015 million in 2016, reflecting higher earnings, excluding the
impact of asset sales and impairment charges, partially offset by the absence of favourable working capital effects.
2016
Cash flow generated from operating activities was $2,015 million in 2016, compared with $2,167 million in 2015, reflecting lower earnings, excluding the gain
on retail sites and the general aviation business.
Cash flow from investing activities
2017
Investing activities used net cash of $781 million in 2017, compared with
cash generated from investing activities of $1,947 million in 2016, reflecting lower proceeds from asset sales.
2016
Investing activities generated net cash of $1,947 million in 2016, compared with cash used in investing activities of $2,884 million in 2015, reflecting
proceeds from asset sales and the completion of major upstream growth projects.
45
Cash flow from financing activities
2017
Cash used in financing activities was $1,178 million in 2017, compared
with $3,774 million in 2016, mainly reflecting the absence of debt repayments, partially offset by share purchases under the companys share purchase program.
At the end of 2017, total debt outstanding was $5,207
million, compared with $5,234 million at the end of 2016.
In November 2017, the company extended the maturity date of its existing $250 million committed long-term line of credit to November 2019. The company has not
drawn on the facility.
In December 2017, the company extended the maturity date of its existing $250 million committed short-term line of credit to December
2018. The company has not drawn on the facility.
During 2017 the company purchased about 16.4 million shares for $627 million, including shares purchased
from Exxon Mobil Corporation.
Dividends paid in 2017 were $524 million. The per share dividend paid in 2017 was $0.62, up from $0.58 in 2016.
2016
Cash used in financing activities was $3,774 million in 2016, compared
with cash provided by financing activities of $705 million in 2015. Cash from operating activities and proceeds from the asset sales were used to reduce outstanding debt.
At the end of 2016, total debt outstanding was $5,234
million, compared with $8,516 million at the end of 2015.
The company repaid debt of $1,505 million from existing long-term loan facilities and $1,749 million from short-term loan facilities.
In October 2016, the company decreased the amount of its unused committed long-term line of credit from $500 million to $250 million and extended the maturity
date to November 2018.
In December 2016, the company decreased the amount of its unused committed short-term line of credit from $500 million to
$250 million and extended the maturity date to December 2017.
During 2016, the company did not make any share purchases except those to offset the dilutive
effects from the exercise of share-based awards.
Dividends paid in 2016 were $492 million. The per share dividend paid was $0.58, up from $0.53 in 2015.
46
Financial percentages and ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Total debt as a percentage of capital
(a)
|
|
|
18
|
|
|
|
17
|
|
|
|
27
|
|
Interest coverage ratio earnings basis
(b)
|
|
|
7
|
|
|
|
21
|
|
|
|
20
|
|
|
|
(a)
|
Current and long-term debt (page 61) and the companys share of equity company debt, divided by debt and shareholders equity (page 61).
|
(b)
|
Net income (page 59), debt-related interest before capitalization, including the companys share of equity company interest, and income taxes (page 59), divided by debt-related interest before
capitalization, including the companys share of equity company interest.
|
Debt represented 18 percent of the companys capital
structure at the end of 2017.
Debt-related interest incurred in 2017, before capitalization of interest, was $103 million, compared with $121 million in
2016. The average effective interest rate on the companys debt was 2.0 percent in 2017, compared with 1.5 percent in 2016.
The companys
financial strength represents a competitive advantage of strategic importance providing it the opportunity to readily access capital markets under the full range of market conditions and enabling the company to take on large, long-term capital
commitments in the pursuit of maximizing shareholder value.
Commitments
The following table shows the companys commitments outstanding at December 31, 2017. It combines data from the consolidated balance sheet and from individual
notes to the consolidated financial statements, where appropriate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period
|
|
millions of Canadian dollars
|
|
Note
reference
|
|
|
2018
|
|
|
2019
to 2020
|
|
|
2021
to 2022
|
|
|
2023 and
beyond
|
|
|
Total
|
|
|
|
Long-term debt
(a)
|
|
|
14
|
|
|
|
-
|
|
|
|
4,492
|
|
|
|
26
|
|
|
|
487
|
|
|
|
5,005
|
|
- Due in one year
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Operating leases
(b)
|
|
|
13
|
|
|
|
120
|
|
|
|
75
|
|
|
|
3
|
|
|
|
1
|
|
|
|
199
|
|
Firm capital commitments
(c)
|
|
|
|
|
|
|
245
|
|
|
|
154
|
|
|
|
-
|
|
|
|
-
|
|
|
|
399
|
|
Pension and other post retirement obligations
(d)
|
|
|
4
|
|
|
|
297
|
|
|
|
116
|
|
|
|
119
|
|
|
|
1,053
|
|
|
|
1,585
|
|
Asset retirement obligations
(e)
|
|
|
5
|
|
|
|
64
|
|
|
|
174
|
|
|
|
95
|
|
|
|
1,064
|
|
|
|
1,397
|
|
Other long-term purchase agreements
(f)
|
|
|
|
|
|
|
746
|
|
|
|
1,553
|
|
|
|
1,461
|
|
|
|
7,712
|
|
|
|
11,472
|
|
|
|
(a)
|
Long-term debt includes a loan from an affiliated company of ExxonMobil of $4,447 million and capital lease obligations of $585 million, $27 million of which is due in one year. The payment by period for
the related party long-term loan is estimated based on the right of the related party to cancel the loan on at least 370 days advance written notice.
|
(b)
|
Minimum commitments for operating leases, shown on an undiscounted basis, covers primarily storage tanks, rail cars and marine vessels.
|
(c)
|
Firm capital commitments represent legally-binding payment obligations to third parties where agreements specifying all significant terms have been executed for the construction and purchase of fixed assets and other
permanent investments. In certain cases where the company executes contracts requiring commitments to a work scope, those commitments have been included to the extent that the amounts and timing of payments can be reliably estimated. Firm capital
commitments related to capital projects, shown on an undiscounted basis.
|
(d)
|
The amount by which the benefit obligations exceeded the fair value of fund assets for pension and other post retirement plans at
year-end.
The payments by period include expected
contributions to funded pension plans in 2018 and estimated benefit payments for unfunded plans in all years.
|
(e)
|
Asset retirement obligations represent the fair value of legal obligations associated with site restoration on the retirement of assets with determinable useful lives.
|
(f)
|
Other long-term purchase agreements are
non-cancelable,
or cancelable only under certain conditions and long-term commitments other than unconditional purchase obligations. They
include primarily raw material supply and transportation services agreements. The higher 2017 balance includes a $4.5 billion increase in commitments associated with additional long-term transportation service agreements to ship crude oil and
products.
|
Unrecognized tax benefits totaling $78 million have not been included in the companys commitments table because the company does
not expect there will be any cash impact from the final settlements as sufficient funds have been deposited with the Canada Revenue Agency. Further details on the unrecognized tax benefits can be found in note 3 to the financial statements on page
72.
47
Litigation and other contingencies
As discussed in note 9 to the consolidated financial statements on page 81, a variety of claims have been made against Imperial and its subsidiaries. Based on a
consideration of all relevant facts and circumstances, the company does not believe the ultimate outcome of any currently pending lawsuits against the company will have a material adverse effect on the companys operations, financial condition,
or financial statements taken as a whole.
Additionally, as discussed in note 9, Imperial was contingently liable at December 31, 2017, for guarantees relating
to performance under contracts of other third-party obligations. These guarantees do not have a material effect on the companys operations, financial condition, or financial statements taken as a whole.
There are no events or uncertainties beyond those already included in reported financial information that would indicate a material change in future operating results
or financial condition.
Capital and exploration expenditures
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
|
Upstream
(a)
|
|
|
416
|
|
|
|
896
|
|
Downstream
|
|
|
200
|
|
|
|
190
|
|
Chemical
|
|
|
17
|
|
|
|
26
|
|
Other
|
|
|
38
|
|
|
|
49
|
|
|
|
Total
|
|
|
671
|
|
|
|
1,161
|
|
|
|
(a)
|
Exploration expenses included.
|
Total capital and exploration expenditures were
$671 million in 2017, a decrease of $490 million from 2016.
For the Upstream segment, capital and exploration expenditures were $416 million in
2017, compared with $896 million in 2016. Investments were primarily related to sustaining activity in support of oil sands and unconventional assets.
For the
Downstream segment, capital expenditures were $200 million in 2017, compared with $190 million in 2016. In 2017, investments were primarily in support of refinery projects to improve reliability, feedstock flexibility, energy efficiency
and environmental performance.
Total capital and exploration expenditures are expected to range between $1.5 billion to $1.7 billion in 2018. Planned
increases in spending versus 2017 are largely driven by the Cold Lake drilling program, projects at Kearl and the Strathcona refinery, as well as the timing of other potential upstream growth investments. Actual spending could vary depending on the
progress of individual projects.
48
Market risks and other uncertainties
Crude oil, natural gas, petroleum product and chemical prices have fluctuated in response to changing market forces. The impacts of these price fluctuations on earnings
from Upstream, Downstream and Chemical operations have varied. A significant portion of the companys production is bitumen. Imperials earnings are largely influenced by heavy oil prices. At this time, Imperial is a net consumer of
natural gas, used in Imperials Upstream operation and refineries. A decrease in the value of natural gas reduces Imperials operating expenses, thereby increasing Imperials earnings.
In the competitive downstream and chemical environments, earnings are primarily determined by margin capture rather than absolute price levels on products sold.
Refining margins are a function of the difference between what a refiner pays for its raw materials (primarily crude oil) and the market prices for the range of products produced. These prices in turn depend on global and regional supply / demand
balances, inventory levels, refinery operations, import / export balances and weather.
Industry crude oil and natural gas commodity prices and petroleum and
chemical product prices are commonly benchmarked in U.S. dollars. The majority of Imperials sales and purchases are related to these industry U.S. dollar benchmarks. As the company records and reports its financial results in Canadian dollars,
to the extent that the Canadian / U.S. dollar exchange rate fluctuates, the companys earnings will be affected.
Imperial is exposed to changes in interest
rates, primarily on its debt which carries floating interest rates. The impact of a quarter percent change in interest rates affecting Imperials debt would not be material to earnings, cash flow or fair value. Imperial has access to
significant sources of long-term and short-term liquidity. Internally generated funds are expected to cover the majority of financial requirements, supplemented by long-term and short-term debt as needed.
The companys potential exposure to commodity price and margin, and Canadian / U.S. dollar exchange rate fluctuations is summarized in the earnings sensitivities
table below, which shows the estimated annual effect, under current conditions, on the companys
after-tax
net income.
Earnings sensitivities
(a)
|
|
|
|
|
|
|
millions of Canadian dollars, after tax
|
|
|
|
|
|
|
|
One dollar (U.S.) per barrel change in heavy crude oil prices
|
|
+ (-)
|
|
|
85
|
|
Ten cents per thousand cubic feet decrease (increase) in natural gas prices
|
|
+ (-)
|
|
|
5
|
|
One dollar (U.S.) per barrel change in refining
2-1-1
margins
(b)
|
|
+ (-)
|
|
|
140
|
|
One cent (U.S.) per pound change in sales margins for polyethylene
|
|
+ (-)
|
|
|
7
|
|
One cent decrease (increase) in the value of the Canadian dollar versus the U.S. dollar
|
|
+ (-)
|
|
|
90
|
|
|
|
(a)
|
Each sensitivity calculation shows the impact on net income resulting from a change in one factor, after tax and royalties and holding all other factors constant. These sensitivities have been updated to reflect current
conditions. They may not apply proportionately to larger fluctuations.
|
(b)
|
The
2-1-1
crack spread is an indicator of the refining margin generated by converting two barrels of crude oil into one barrel of gasoline
and one barrel of diesel.
|
The global energy markets can give rise to extended periods in which market conditions are adverse to one or more of the
companys businesses. Such conditions, along with the capital-intensive nature of the industry and very long lead times associated with many of the companys projects, underscore the importance of maintaining a strong financial position.
Management views the companys financial strength as a competitive advantage.
49
In general, segment results are not dependent on the ability to sell and / or purchase products to / from other segments.
However, Imperials integrated business model reduces the companys risk from changes in commodity prices. Where such intersegment sales take place, they are the result of efficiencies and competitive advantages from integrated business
segments and refinery / chemical complexes. For instance, heavy crude oil may be subject to limits on transportation capacity to a larger extent than light crude oil resulting in an increased heavy oil price discount. Imperial is able to partially
mitigate the heavy oil discount through secured market outlets achieved through integration with Downstream investments in refineries, pipeline commitments and the Edmonton rail terminal. About 62 percent of the companys intersegment
sales are crude oil produced by the Upstream and sold to the Downstream. Other intersegment sales include those between refineries and the chemical plant related to raw materials, feedstocks and finished products. All intersegment sales are at
market based prices.
The company has an active asset management program in which underperforming assets are either improved to acceptable levels or considered for
divestment. The asset management program includes a disciplined, regular review to ensure that all assets are contributing to the companys strategic objectives.
The demand for crude oil, natural gas, petroleum products and petrochemical products are generally linked closely with general economic growth activity. The occurrence
of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on the companys financial results. In challenging economic times, the company follows the proven approach to continue to focus on the
business elements within its control and take a long-term view.
Risk management
The companys size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the companys
enterprise-wide risk from changes in currency exchange rates and commodity prices. Imperial has the ability to use derivative instruments to offset exposures associated with hydrocarbon prices that arise from existing assets, liabilities and
forecasted transactions. Credit risk associated with the companys derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative
counterparties. The company believes there are no material market or credit risks to the companys financial position, results of operations or liquidity as a result of the derivatives described in note 6 on page 79. The company maintains a
system of controls that includes the authorization, reporting and monitoring of derivative activity.
50
Critical accounting estimates
The companys financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP). GAAP requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The companys accounting and financial reporting fairly reflect its
straightforward business model. Imperial does not use financing structures for the purpose of altering accounting outcomes or removing debt from the balance sheet. The companys significant accounting policies are summarized in note 1 to the
consolidated financial statements on page 64.
Oil and gas reserves
Evaluations of oil and natural gas reserves are important to the effective management of upstream assets. They are an integral part of investment decisions about oil and
gas properties such as whether development should proceed.
The estimation of proved reserves, which is based on the requirement of reasonable certainty, is an
ongoing process based on rigorous technical evaluations, commercial and market assessments and detailed analysis of well information such as flow rates and reservoir pressure declines. The estimation of proved reserves is controlled by the company
through long-standing approval guidelines. Reserve changes are made within a well-established, disciplined process driven by senior level geoscience and engineering professionals, assisted by the reserves management group which has significant
technical experience, culminating in reviews with and approval by senior management and the companys board of directors. Notably, the company does not use specific quantitative reserve targets to determine compensation. Key features of the
reserve estimation process are covered in Disclosure of reserves in Item 1.
Oil and natural gas reserves include both proved and unproved reserves.
|
●
|
|
Proved oil and natural gas reserves are determined in accordance with Securities and Exchange Commission requirements. Proved reserves are those quantities of oil and natural gas which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be economically producible under existing economic and operating conditions and government regulations. Proved reserves are determined using the average of
first-of-month
oil and natural gas prices during the reporting year.
|
Proved reserves can be further subdivided into developed and undeveloped reserves. Proved developed reserves include amounts which are expected to be
recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves include amounts expected to be recovered from new wells on undrilled proved acreage or from existing wells where a relatively major
expenditure is required for completion. Proved undeveloped reserves are recognized only if a development plan has been adopted indicating that the reserves are scheduled to be drilled within five years, unless specific circumstances support a longer
period of time.
The percentage of proved developed reserves was 71 percent of total proved reserves at
year-end
2017, a reduction from 77 percent in 2016. Although the company is reasonably certain that proved reserves will be produced, the timing and amount recovered can be affected by a number of factors
including completion of development projects, reservoir performance, regulatory approvals and significant changes in long-term oil and natural gas prices.
|
●
|
|
Unproved reserves are quantities of oil and natural gas with less than reasonable certainty of recoverability and include probable reserves. Probable reserves are reserves that, together with proved reserves, are as
likely as not to be recovered.
|
Revisions can include upward or downward changes in previously estimated volumes of proved reserves for existing
fields due to the evaluation or
re-evaluation
of already available geologic, reservoir or production data; new geologic, reservoir or production data; or changes in the average of
first-of-the-month
prices and
year-end
costs that are used in the estimation of reserves.
Revisions can also result from significant changes in either development strategy or production equipment / facility capacity.
51
At
year-end
2016, downward revisions of proved developed and undeveloped bitumen
reserves were a result of low prices. The entire 2.5 billion barrels of bitumen at Kearl and approximately 0.2 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the U.S. Securities and Exchange Commission
definition of proved reserves.
As a result of improved prices in 2017, an additional 0.3 billion barrels of bitumen at Kearl and Cold Lake now qualify as
proved reserves at
year-end
2017. Among the factors that would result in additional amounts being recognized as proved reserves at some point in the future are a further recovery in yearly average price
levels, a further decline in costs and additional planned investment in reliability improvements. Under the terms of certain contractual arrangements or government royalty regimes, lower prices can also increase proved reserves attributable to
Imperial. The companys operating decisions and its outlook for future production volumes are not impacted by proved reserves as disclosed under the U.S. Securities and Exchange Commission definition.
Unit-of-production
depreciation
The calculation of
unit-of-production
depreciation is a critical accounting estimate that
measures the depreciation of upstream assets. Oil and natural gas reserve quantities are used as the basis to calculate
unit-of-production
depreciation rates for most
upstream assets. Depreciation is calculated by taking the ratio of asset cost to total proved reserves or proved developed reserves applied to the actual cost of production. The volumes produced and asset cost are known, while proved reserves are
based on estimates that are subject to some variability.
In the event that the
unit-of-production
method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The
straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life
than the reserves, and as such, the company uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life.
To the extent
that proved reserves for a property are substantially
de-booked
and that property continues to produce such that the resulting depreciation charge does not result in an equitable allocation of cost over the
expected life, assets will be depreciated using a
unit-of-production
method based on reserves determined at the most recent SEC price which results in a more meaningful
quantity of proved reserves, appropriately adjusted for production and technical changes. This approach was applied in 2017 and the effect on depreciation expense was immaterial versus 2016. Continued application for 2018 is anticipated to be
immaterial.
Impact of oil and gas reserves and prices and margins on testing for impairment
The company tests assets or groups of assets for recoverability on an ongoing basis whenever events or circumstances indicate the carrying amounts may not be
recoverable. Among the events or changes in circumstances which could indicate that the carrying value of an asset or asset group may not be recoverable are the following:
|
●
|
|
A significant decrease in the market price of a long-lived asset;
|
|
●
|
|
A significant adverse change in the extent or manner in which an asset is being used or in its physical condition including a significant decrease in the companys current and projected reserve volumes;
|
|
●
|
|
A significant adverse change in legal factors or in the business climate that could affect the value, including a significant adverse action or assessment by a regulator;
|
|
●
|
|
An accumulation of project costs significantly in excess of the amount originally expected;
|
|
●
|
|
A current-period operating loss combined with a history and forecast of operating or cash flow losses; and
|
|
●
|
|
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
|
Asset valuation analyses performed as part of the companys asset management program and other profitability reviews assist Imperial in assessing whether events or
circumstances indicate the carrying amounts of any of its assets may not be recoverable.
In general, Imperial does not view temporarily low prices or margins as an
indication of impairment. Management believes prices over the long-term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term
52
will continue to be driven by market supply and demand fundamentals. On the supply side, industry production from mature fields is declining. This is being offset by investments to generate
production from new discoveries, field developments and technology and efficiency advancements. OPEC investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic
activities and levels of prosperity. Because the lifespans of the companys major assets are measured in decades, the value of these assets is predominantly based on long-term views of future commodity prices and production costs. During the
lifespan of these major assets, the company expects that oil and gas prices will experience significant volatility, and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing
whether the events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the company considers recent periods of operating losses in the context of its longer-term view of prices. While near-term prices are
subject to wide fluctuations, longer term price views are more stable and meaningful for purposes of assessing future cash flows.
When the industry experiences a
prolonged and deep reduction in commodity prices, the market supply and demand conditions may result in changes to the companys long-term price or margin assumptions it uses for its capital investment decisions. To the extent those changes
result in a significant reduction to its long-term oil prices or natural gas prices or margin ranges, the company may consider that situation, in conjunction with other events and changes in circumstances such as a history of operating losses, as an
indicator of potential impairment for certain assets.
In the upstream, the standardized measure of discounted cash flows included in the Supplemental
information on oil and gas exploration and production activities is required to use prices based on the yearly average of
first-of-month
prices. These prices
represent discrete points in time and could be higher or lower than the companys long-term price assumptions which are used for impairment assessments. The company believes the standardized measure does not provide a reliable estimate of the
expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its oil and gas reserves and therefore does not consider it relevant in determining whether events or changes in
circumstances indicate the need for an impairment assessment.
If events or circumstances indicate that the carrying value of an asset may not be recoverable, the
company estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on the companys assumptions which are developed in the annual planning and budgeting process, and are consistent with
the criteria management uses to evaluate investment opportunities. These evaluations make use of the companys assumptions of future capital allocations, crude oil and natural gas commodity prices, refining and chemical margins, volumes, costs,
foreign currency exchange rates and inflation rates. Volumes are based on projected field and facility production profiles, throughput, or sales. Where unproved reserves exist, an appropriately risk-adjusted amount of these reserves may be included
in the evaluation. Cash flow estimates for impairment testing exclude the effects of derivative instruments.
An asset group is impaired if its estimated future
undiscounted cash flows are less than the asset groups carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. Fair value is based on market prices if an active market exists for the asset group
or discounted cash flows using a discount rate commensurate with the risk. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs would be recorded based on the estimated
economic chance of success and the length of time that the company expects to hold the properties. Properties that are not individually significant are aggregated by groups and amortized based on development risk and average holding period.
The decisions not to proceed, at this time, with the Horn River development and Mackenzie gas project resulted in Upstream
non-cash
impairment charges of $566 million, after tax, in the fourth quarter 2017.
Supplemental information regarding
oil and gas results of operations, capitalized costs and reserves is provided following the notes to consolidated financial statements.
53
Inventories
Crude oil, products
and merchandise inventories are carried at the lower of current market value or cost (generally determined under the
last-in,
first-out
method LIFO).
Pension benefits
The companys pension plan is managed in compliance
with the requirements of governmental authorities and meets funding levels as determined by independent third-party actuaries. Pension accounting requires explicit assumptions regarding, among others, the discount rate for the benefit obligations,
the expected rate of return on plan assets and the long-term rate of future compensation increases. All pension assumptions are reviewed annually by senior management. These assumptions are adjusted only as appropriate to reflect long-term changes
in market rates and outlook. The long-term expected rate of return on plan assets of 5.5 percent used in 2017, compares to actual returns of 6.3 percent and 7.3 percent achieved over the last
10-
and
20-year
periods respectively, ending December 31, 2017. If different assumptions are used, the expense and obligations could increase or decrease as a
result. The companys potential exposure to changes in assumptions is summarized in note 4 to the consolidated financial statements on page 73. At Imperial, differences between actual returns on plan assets and the long-term expected returns
are not recorded in pension expense in the year the differences occur. Such differences are deferred, along with other actuarial gains and losses, and are amortized into pension expense over the expected average remaining service life of employees.
Employee benefit expense represented about 2 percent of total expenses in 2017.
Asset retirement obligations and other environmental liabilities
Legal obligations associated with site restoration on the retirement of assets with determinable useful lives are recognized when they are incurred, which is typically
at the time the assets are installed. The obligations are initially measured at fair value and discounted to present value. Over time, the discounted asset retirement obligation amount will be accreted for the change in its present value, with this
effect included in production and manufacturing expenses. As payments to settle the obligations occur on an ongoing basis and will continue over the lives of the operating assets, which can exceed 25 years, the discount rate will be adjusted
only as appropriate to reflect long-term changes in market rates and outlook. For 2017, the obligations were discounted at 6 percent and the accretion expense was $92 million, before tax, which was significantly less than 1 percent of
total expenses in the year. There would be no material impact on the companys reported financial results if a different discount rate had been used.
Asset
retirement obligations are not recognized for assets with an indeterminate useful life. Asset retirement obligations for these facilities generally become firm at the time the facilities are permanently shut down and dismantled. These obligations
may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations, and as such, the fair value of the conditional legal obligations cannot be measured,
since it is impossible to estimate the future settlement dates of such obligations. For these and
non-operating
assets, the company accrues provisions for environmental liabilities when it is probable that
obligations have been incurred and the amount can be reasonably estimated.
Asset retirement obligations and other environmental liabilities are based on
engineering estimated costs, taking into account the anticipated method and extent of remediation consistent with legal requirements, current technology and the possible use of the location. Since these estimates are specific to the locations
involved, there are many individual assumptions underlying the companys total asset retirement obligations and provision for other environmental liabilities. While these individual assumptions can be subject to change, none of them is
individually significant to the companys reported financial results.
54
Suspended exploratory well costs
The company continues capitalization of exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well
and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. The facts and circumstances that support
continued capitalization of suspended wells at
year-end
are disclosed in note 15 to the consolidated financial statements on page 84.
Tax contingencies
The operations of the company are complex, and related tax
interpretations, regulations and legislation are continually changing. Significant management judgment is required in the accounting for income tax contingencies and tax disputes because the outcomes are often difficult to predict.
The benefits of uncertain tax positions that the company has taken or expects to take in its income tax returns are recognized in the financial statements if management
concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is
greater than 50 percent likely of being realized. A reserve is established for the difference between a position taken or expected to be taken in an income tax return and the amount recognized in the financial statements. The companys
unrecognized tax benefits and a description of open tax years are summarized in note 3 to the consolidated financial statements on page 72.
Recently issued accounting standards
Effective January 1, 2018, Imperial adopted the Financial Accounting Standards Board (FASB) standard,
Revenue
from Contracts with Customers
, as amended.
The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry and transaction specific requirements, and expands disclosure requirements. The
standard was adopted using the modified retrospective method, under which prior years results are not restated, but supplemental information on the impact of the new standard will be included in the 2018 results if material. The standard is
not expected to have a material impact on the companys financial statements. The cumulative effect of adoption of the new standard is de minimis.
Effective
January 1, 2018, Imperial adopted the FASB standard update, Compensation Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The update requires
the service cost component of net benefit costs to be reported in the same line in the income statement as other compensation costs and the other components of net benefit costs
(non-service
costs) be
presented separately from the service cost component. Additionally, only the service cost component of net benefit costs is eligible for capitalization. The company expects to add a new line
Non-service
pension and other postretirement benefit expense to its consolidated statement of income, and expects to include all of these costs in the Corporate and other expenses. This line would reflect the
non-service
costs that were previously included in Production and manufacturing expenses, and Selling and general expenses. The update is not expected to have a material impact on
Imperials financial statements.
Effective January 1, 2019, Imperial will adopt the FASB standard,
Leases.
The standard requires that all leases
with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. Imperial is gathering and evaluating data, and recently acquired a system to facilitate implementation. The company continues to progress
an assessment of the magnitude of the effect on the companys financial statements.
55
Managements report on internal control over financial reporting
Management, including the companys chief executive officer and principal accounting officer and principal financial officer, is responsible for establishing and
maintaining adequate internal control over the companys financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in
Internal Control
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Imperial Oil Limiteds internal control over financial reporting was
effective as of December 31, 2017.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the
companys internal control over financial reporting as of December 31, 2017, as stated in their report which is included herein.
/s/ Richard M. Kruger
R.M. Kruger
Chairman, president and
chief executive officer
/s/ Beverley A. Babcock
B.A. Babcock
Senior vice-president,
finance and administration, and controller
(Principal accounting officer and
principal financial officer)
February 28, 2018
56
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of
Imperial Oil Limited
Opinions on the financial statements and internal
control over financial reporting
We have audited the accompanying consolidated balance sheets of Imperial Oil Limited and its subsidiaries
as of
December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, shareholders equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes
(collectively referred to as the consolidated financial statements). We also have audited the Companys internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control
Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the
consolidated
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016
,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control Integrated Framework
(2013) issued by the COSO.
Basis for opinions
The Companys management is responsible for these
consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements report
on internal control over financial reporting. Our responsibility is to express opinions on the Companys consolidated
financial statements and on the Companys internal control over financial reporting based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the consolidated
financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures, as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
57
Definition and limitations of internal control over financial reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta, Canada
February 28, 2018
We have served as the Companys auditor since 1934.
58
Consolidated statement of income (U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
(a)
|
|
|
29,125
|
|
|
|
25,049
|
|
|
|
26,756
|
|
|
|
|
|
Investment and other income
(note 8)
|
|
|
299
|
|
|
|
2,305
|
|
|
|
132
|
|
|
|
Total revenues and other income
|
|
|
29,424
|
|
|
|
27,354
|
|
|
|
26,888
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
(note 15)
|
|
|
183
|
|
|
|
94
|
|
|
|
73
|
|
Purchases of crude oil and products
(b)
|
|
|
18,145
|
|
|
|
15,120
|
|
|
|
15,284
|
|
Production and manufacturing
(c)
|
|
|
5,698
|
|
|
|
5,224
|
|
|
|
5,434
|
|
Selling and general
(c)
|
|
|
893
|
|
|
|
1,129
|
|
|
|
1,117
|
|
Federal excise tax
|
|
|
1,673
|
|
|
|
1,650
|
|
|
|
1,568
|
|
Depreciation and depletion
|
|
|
2,172
|
|
|
|
1,628
|
|
|
|
1,450
|
|
Financing costs
(note 12)
|
|
|
78
|
|
|
|
65
|
|
|
|
39
|
|
|
|
Total expenses
|
|
|
28,842
|
|
|
|
24,910
|
|
|
|
24,965
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
582
|
|
|
|
2,444
|
|
|
|
1,923
|
|
|
|
|
|
Income taxes
(note 3)
|
|
|
92
|
|
|
|
279
|
|
|
|
801
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
|
|
|
|
Per share information
(Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
(note 10)
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
Net income (loss) per common share - diluted
(note 10)
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
Dividends per common share
|
|
|
0.63
|
|
|
|
0.59
|
|
|
|
0.54
|
|
|
|
(a) Amounts from related parties included in operating revenues (note 16).
|
|
|
4,110
|
|
|
|
2,342
|
|
|
|
3,058
|
|
(b) Amounts to related parties included in purchases of crude oil and products (note
16).
|
|
|
2,687
|
|
|
|
2,224
|
|
|
|
2,684
|
|
(c) Amounts to related parties included in production and manufacturing, and selling
and general expenses (note 16).
|
|
|
544
|
|
|
|
533
|
|
|
|
442
|
|
The information in the notes to consolidated financial statements is an integral part of these statements.
59
Consolidated statement of comprehensive income (U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Net income (loss)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
|
|
Other comprehensive income (loss), net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Post retirement benefits liability adjustment
(excluding amortization)
|
|
|
(54
|
)
|
|
|
(210
|
)
|
|
|
64
|
|
|
|
|
|
Amortization of post retirement benefits liability adjustment
included in net periodic benefit
costs
|
|
|
136
|
|
|
|
141
|
|
|
|
167
|
|
|
|
Total other comprehensive income (loss)
|
|
|
82
|
|
|
|
(69
|
)
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
572
|
|
|
|
2,096
|
|
|
|
1,353
|
|
|
|
The information in the notes to consolidated financial statements is an integral part of these statements.
60
Consolidated balance sheet (U.S. GAAP)
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
At December 31
|
|
2017
|
|
|
2016
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,195
|
|
|
|
391
|
|
Accounts receivable, less estimated doubtful accounts
(a)
|
|
|
2,712
|
|
|
|
2,023
|
|
Inventories of crude oil and products
(note 11)
|
|
|
1,075
|
|
|
|
949
|
|
Materials, supplies and prepaid expenses
|
|
|
425
|
|
|
|
468
|
|
|
|
Total current assets
|
|
|
5,407
|
|
|
|
3,831
|
|
Investments and long-term receivables
(b)
|
|
|
865
|
|
|
|
1,030
|
|
Property, plant and equipment, less accumulated depreciation and depletion
|
|
|
34,473
|
|
|
|
36,333
|
|
Goodwill
|
|
|
186
|
|
|
|
186
|
|
Other assets, including intangibles, net
(note 5)
|
|
|
670
|
|
|
|
274
|
|
|
|
Total assets
|
|
|
41,601
|
|
|
|
41,654
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Notes and loans payable
(c) (note 12)
|
|
|
202
|
|
|
|
202
|
|
Accounts payable and accrued liabilities
(a) (note 11)
|
|
|
3,877
|
|
|
|
3,193
|
|
Income taxes payable
|
|
|
57
|
|
|
|
488
|
|
|
|
Total current liabilities
|
|
|
4,136
|
|
|
|
3,883
|
|
Long-term debt
(d) (note 14)
|
|
|
5,005
|
|
|
|
5,032
|
|
Other long-term obligations
(e) (note 5)
|
|
|
3,780
|
|
|
|
3,656
|
|
Deferred income tax liabilities
(note 3)
|
|
|
4,245
|
|
|
|
4,062
|
|
|
|
Total liabilities
|
|
|
17,166
|
|
|
|
16,633
|
|
|
|
|
|
|
Commitments and contingent liabilities
(note 9)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common shares at stated value
(f) (note 10)
|
|
|
1,536
|
|
|
|
1,566
|
|
Earnings reinvested
|
|
|
24,714
|
|
|
|
25,352
|
|
Accumulated other comprehensive income (loss)
(note 17)
|
|
|
(1,815
|
)
|
|
|
(1,897)
|
|
|
|
Total shareholders equity
|
|
|
24,435
|
|
|
|
25,021
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
41,601
|
|
|
|
41,654
|
|
|
|
(a)
|
Accounts receivable, less estimated doubtful accounts included net amounts receivable from related parties of $509 million (2016 - $172 million), (note 16).
|
(b)
|
Investments and long-term receivables included amounts from related parties of $19 million (2016 $0 million), (note 16).
|
(c)
|
Notes and loans payable included amounts to related parties of $75 million (2016 $75 million), (note 16).
|
(d)
|
Long-term debt included amounts to related parties of $4,447 million (2016 $4,447 million), (note 16).
|
(e)
|
Other long-term obligations included amounts to related parties of $60 million (2016 $104 million), (note 16).
|
(f)
|
Number of common shares authorized and outstanding were 1,100 million and 831 million, respectively (2016 1,100 million and 848 million, respectively), (note 10).
|
The information in the notes to consolidated financial statements is an integral part of these statements.
|
|
|
Approved by the directors.
|
|
|
/s/ Richard M. Kruger
R.M. Kruger
Chairman, president and
chief executive officer
|
|
/s/ Beverley A. Babcock
B.A. Babcock
Senior vice-president,
finance and administration, and controller
|
61
Consolidated statement of shareholders equity (U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
|
|
|
At December 31
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Common shares at stated value
(note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
1,566
|
|
|
|
1,566
|
|
|
|
1,566
|
|
Issued under the stock option plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Share purchases at stated value
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
At end of year
|
|
|
1,536
|
|
|
|
1,566
|
|
|
|
1,566
|
|
|
|
|
|
|
|
Earnings reinvested
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
25,352
|
|
|
|
23,687
|
|
|
|
23,023
|
|
Net income (loss) for the year
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
Share purchases in excess of stated value
|
|
|
(597)
|
|
|
|
-
|
|
|
|
-
|
|
Dividends declared
|
|
|
(531)
|
|
|
|
(500)
|
|
|
|
(458)
|
|
|
|
At end of year
|
|
|
24,714
|
|
|
|
25,352
|
|
|
|
23,687
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
(note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
(1,897)
|
|
|
|
(1,828)
|
|
|
|
(2,059)
|
|
Other comprehensive income (loss)
|
|
|
82
|
|
|
|
(69)
|
|
|
|
231
|
|
|
|
At end of year
|
|
|
(1,815)
|
|
|
|
(1,897)
|
|
|
|
(1,828)
|
|
|
|
|
|
|
|
Shareholders equity at end of year
|
|
|
24,435
|
|
|
|
25,021
|
|
|
|
23,425
|
|
|
|
The information in the notes to consolidated financial statements is an integral part of
these statements.
62
Consolidated statement of cash flows (U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
|
|
Inflow (outflow)
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
490
|
|
|
|
2,165
|
|
|
1,122
|
Adjustments for
non-cash
items:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and depletion
|
|
|
2,172
|
|
|
|
1,628
|
|
|
1,450
|
(Gain) loss on asset sales
(note 8)
|
|
|
(220
|
)
|
|
|
(2,244
|
)
|
|
(97)
|
Inventory write-down to current market value
|
|
|
-
|
|
|
|
-
|
|
|
59
|
Deferred income taxes and other
|
|
|
321
|
|
|
|
114
|
|
|
367
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(689
|
)
|
|
|
(442
|
)
|
|
(42)
|
Inventories, materials, supplies and prepaid expenses
|
|
|
(83
|
)
|
|
|
197
|
|
|
(172)
|
Income taxes payable
|
|
|
(431
|
)
|
|
|
36
|
|
|
418
|
Accounts payable and accrued liabilities
|
|
|
678
|
|
|
|
237
|
|
|
(1,030)
|
All other items - net
(a) (b)
|
|
|
525
|
|
|
|
324
|
|
|
92
|
|
Cash flows from (used in) operating activities
|
|
|
2,763
|
|
|
|
2,015
|
|
|
2,167
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
(b)
|
|
|
(993
|
)
|
|
|
(1,073
|
)
|
|
(2,994)
|
Proceeds from asset sales
(note 8)
|
|
|
232
|
|
|
|
3,021
|
|
|
142
|
Additional investments
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
(32)
|
Loans to equity company
|
|
|
(19
|
)
|
|
|
-
|
|
|
-
|
|
Cash flows from (used in) investing activities
|
|
|
(781
|
)
|
|
|
1,947
|
|
|
(2,884)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Short-term debt - net
|
|
|
-
|
|
|
|
(1,749
|
)
|
|
(32)
|
Long-term debt - additions
(note 14)
|
|
|
-
|
|
|
|
495
|
|
|
1,206
|
Long-term debt - reductions
(note 14)
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
-
|
Reduction in capitalized lease obligations
(note 14)
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
(20)
|
Dividends paid
|
|
|
(524
|
)
|
|
|
(492
|
)
|
|
(449)
|
Common shares purchased
(note 10)
|
|
|
(627
|
)
|
|
|
-
|
|
|
-
|
|
Cash flows from (used in) financing activities
|
|
|
(1,178
|
)
|
|
|
(3,774
|
)
|
|
705
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
804
|
|
|
|
188
|
|
|
(12)
|
Cash at beginning of year
|
|
|
391
|
|
|
|
203
|
|
|
215
|
|
Cash at end of year
(c)
|
|
|
1,195
|
|
|
|
391
|
|
|
203
|
|
(a) Included contribution to registered pension plans.
|
|
|
212
|
|
|
|
163
|
|
|
225
|
(b)
|
The impact of carbon emission programs are included in additions to property, plant and equipment, and all other items - net.
|
(c)
|
Cash is composed of cash in bank and cash equivalents at cost. Cash equivalents are all highly liquid securities with maturity of three months or less when purchased.
|
Non-cash
transactions
In 2015, a
capital lease of approximately $480 million was not included in Additions to property, plant and equipment or Long-term debt - additions lines on the Consolidated statement of cash flows.
The information in the notes to consolidated financial statements is an integral part of these statements.
63
Notes to consolidated financial statements
The accompanying consolidated financial statements and the supporting and supplemental material are the responsibility of the management of Imperial Oil Limited.
The companys principal business is energy, involving the exploration, production, transportation and sale of crude oil and natural gas, and the manufacture,
transportation and sale of petroleum products. The company is also a major manufacturer and marketer of petrochemicals.
The consolidated financial statements have
been prepared in accordance with United States Generally Accepted Accounting Principles, which requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities. Actual results could differ from these estimates. Prior years data has been reclassified in certain cases to conform to the 2017 presentation basis. All amounts are in Canadian dollars unless otherwise
indicated.
1. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include
the accounts of subsidiaries the company controls. Intercompany accounts and transactions are eliminated. Subsidiaries include those companies in which Imperial has both an equity interest and the continuing ability to unilaterally determine
strategic, operating, investing and financing policies. Imperial Oil Resources Limited is the only significant subsidiary included in the consolidated financial statements and is wholly owned by Imperial Oil Limited. The consolidated financial
statements also include the companys share of the undivided interest in certain upstream assets, liabilities, revenues and expenses, including its 25 percent interest in the Syncrude joint venture and its 70.96 percent interest in
the Kearl joint venture.
Revenues
Revenues associated with sales of
crude oil, natural gas, petroleum and chemical products and other items are recorded when the products are delivered. Delivery occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or
determinable and collectability is reasonably assured. The company does not enter into ongoing arrangements whereby it is required to repurchase its products, nor does the company provide the customer with a right of return.
Revenues include amounts billed to customers for shipping and handling. Shipping and handling costs incurred up to the point of final storage prior to delivery to a
customer are included in Purchases of crude oil and products in the consolidated statement of income. Delivery costs from final storage to customer are recorded as a marketing expense in Selling and general expenses.
Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another are combined and recorded as exchanges measured at the
book value of the item sold.
Consumer taxes
Taxes levied on the
consumer and collected by the company are excluded from the consolidated statement of income. These are primarily provincial taxes on motor fuels, the federal goods and services tax and the federal/provincial harmonized sales tax.
Derivative instruments
Imperial has the ability to use derivative
instruments to offset exposures associated with hydrocarbon prices that arise from existing assets, liabilities and forecasted transactions. The gains and losses resulting from changes in the fair value of derivatives are recorded under
Purchases of crude oil and products on the consolidated statement of income. The company does not currently make use of derivative instruments to offset exposures associated with foreign currency and interest rates.
64
Fair value
Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 and 3 are terms for the priority of inputs to valuation techniques used to measure fair value.
Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the
asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market.
Inventories
Inventories are recorded at the lower of current market value or cost. The cost of crude oil and products is determined primarily using the
last-in,
first-out
(LIFO) method. LIFO was selected over the alternative
first-in,
first-out
and average cost methods because it provides a better matching of current costs with the revenues generated in the period.
Inventory costs include expenditures and
other charges (including depreciation), directly or indirectly incurred in bringing the inventory to its existing condition and location. Selling and general expenses are reported as period costs and excluded from inventory costs.
Investments
The companys interests in the underlying net assets of
affiliates it does not control, but over which it exercises significant influence, are accounted for using the equity method. They are recorded at the original cost of the investment plus Imperials share of earnings since the investment was
made, less dividends received. Imperials share of the
after-tax
earnings of these investments is included in Investment and other income in the consolidated statement of income. Other
investments are recorded at cost. Dividends from these other investments are included in Investment and other income.
These investments represent
interests in
non-publicly
traded pipeline companies and a rail loading joint venture that facilitate the sale and purchase of liquids in the conduct of company operations. Other parties who also have an equity
interest in these investments share in the risks and rewards according to their percentage of ownership. Imperial does not invest in these investments in order to remove liabilities from its balance sheet.
Property, plant and equipment
Cost basis
Imperial uses the successful efforts method to account for its exploration and production activities. Under this method, costs are accumulated on a
field-by-field
basis. Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved) are capitalized when incurred. Exploratory well costs are
carried as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the company is making sufficient progress assessing the reserves and the economic and operating viability of the
project. Exploratory well costs not meeting these criteria are charged to expense. Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred. Development costs, including costs of productive wells
and development dryholes, are capitalized.
Maintenance and repair costs, including planned major maintenance, are expensed as incurred. Improvements that increase
or prolong the service life or capacity of an asset are capitalized.
65
Depreciation, depletion and amortization
Depreciation, depletion and amortization are primarily determined under either the
unit-of-production
method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Depreciation and depletion
for assets associated with producing properties begin at the time when production commences on a regular basis. Depreciation for other assets begins when the asset is in place and ready for its intended use. Assets under construction are not
depreciated or depleted.
Acquisition costs of proved properties are amortized using a
unit-of-production
method, computed on the basis of total proved oil and gas reserves. Capitalized exploratory drilling and development costs associated with productive
depletable extractive properties are amortized using the
unit-of-production
rates based on the amount of proved developed reserves of oil and gas that are estimated to
be recoverable from existing facilities using current operating methods. Under the
unit-of-production
method, oil and gas volumes are considered produced once they have
been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank. In the event that the
unit-of-production
method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The
straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life
than the reserves, and as such, the company uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life. Investments in mining heavy equipment and certain ore processing plant assets at oil sands mining
properties are depreciated on a straight-line basis over a maximum of 15 years and 50 years respectively. Depreciation of other plant and equipment is calculated using the straight-line method, based on the estimated service life of the asset.
To the extent that proved reserves for a property are substantially
de-booked
and that property continues to produce such
that the resulting depreciation charge does not result in an equitable allocation of cost over the expected life, assets will be depreciated using a
unit-of-production
method based on reserves determined at the most recent SEC price which results in a more meaningful quantity of proved reserves, appropriately adjusted for production and technical changes. The effect of this approach on the companys 2018
depreciation expense compared to 2017 is anticipated to be immaterial.
Investments in refinery, chemical process, and lubes basestock manufacturing equipment are
generally depreciated on a straight-line basis over a
25-year
life. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and
the assets replaced are retired.
Impairment assessment
The company
tests assets or groups of assets for recoverability on an ongoing basis whenever events or circumstances indicate the carrying amounts may not be recoverable. Among the events or changes in circumstances which could indicate that the carrying value
of an asset or asset group may not be recoverable are the following:
|
●
|
|
A significant decrease in the market price of a long-lived asset;
|
|
●
|
|
A significant adverse change in the extent or manner in which an asset is being used or in its physical condition including a significant decrease in the companys current and projected reserve volumes;
|
|
●
|
|
A significant adverse change in legal factors or in the business climate that could affect the value, including a significant adverse action or assessment by a regulator;
|
|
●
|
|
An accumulation of project costs significantly in excess of the amount originally expected;
|
|
●
|
|
A current-period operating loss combined with a history and forecast of operating or cash flow losses; and
|
|
●
|
|
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
|
Asset valuation analyses performed as part of the companys asset management program and other profitability reviews assist Imperial in assessing whether events or
circumstances indicate the carrying amounts of any of its assets may not be recoverable.
In general, Imperial does not view temporarily low prices or margins as an
indication of impairment. Management believes prices over the long-term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term will
continue to be driven by market supply and demand fundamentals. On the supply side, industry
66
production from mature fields is declining. This is being offset by investments to generate production from new discoveries, field developments and technology and efficiency advancements. OPEC
investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic activities and levels of prosperity. Because the lifespans of the companys major assets are
measured in decades, the value of these assets is predominantly based on long-term views of future commodity prices and production costs. During the lifespan of these major assets, the company expects that oil and gas prices will experience
significant volatility, and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing whether the events or changes in circumstances indicate the carrying value of an asset may
not be recoverable, the company considers recent periods of operating losses in the context of its longer-term view of prices. While near-term prices are subject to wide fluctuations, longer term price views are more stable and meaningful for
purposes of assessing future cash flows.
When the industry experiences a prolonged and deep reduction in commodity prices, the market supply and demand conditions
may result in changes to the companys long-term price or margin assumptions it uses for its capital investment decisions. To the extent those changes result in a significant reduction to its long-term oil prices or natural gas prices or margin
ranges, the company may consider that situation, in conjunction with other events and changes in circumstances such as a history of operating losses, as an indicator of potential impairment for certain assets.
In the upstream, the standardized measure of discounted cash flows included in the Supplemental information on oil and gas exploration and production
activities is required to use prices based on the yearly average of
first-of-month
prices. These prices represent discrete points in time and could be higher or
lower than the companys long-term price assumptions which are used for impairment assessments. The company believes the standardized measure does not provide a reliable estimate of the expected future cash flows to be obtained from the
development and production of its oil and gas properties or of the value of its oil and gas reserves and therefore does not consider it relevant in determining whether events or changes in circumstances indicate the need for an impairment
assessment.
If events or circumstances indicate that the carrying value of an asset may not be recoverable, the company estimates the future undiscounted cash
flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of
other groups of assets. Cash flows used in recoverability assessments are based on the companys assumptions which are developed in the annual planning and budgeting process, and are consistent with the criteria management uses to evaluate
investment opportunities. These evaluations make use of the companys assumptions of future capital allocations, crude oil and natural gas commodity prices, refining and chemical margins, volumes, costs, foreign currency exchange rates and
inflation rates. Volumes are based on projected field and facility production profiles, throughput, or sales. Where unproved reserves exist, an appropriately risk-adjusted amount of these reserves may be included in the evaluation. Cash flow
estimates for impairment testing exclude the effects of derivative instruments.
An asset group is impaired if its estimated future undiscounted cash flows are less
than the asset groups carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. Fair value is based on market prices if an active market exists for the asset group or discounted cash flows using a
discount rate commensurate with the risk. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs would be recorded based on the estimated economic chance of success and the
length of time that the company expects to hold the properties. Properties that are not individually significant are aggregated by groups and amortized based on development risk and average holding period.
Gains on sales of proved and unproved properties are only recognized when there is neither uncertainty about the recovery of costs applicable to any interest retained
nor any substantial obligation for future performance by the company. Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.
Gains or losses on assets sold are included in Investment and other income in the consolidated statement of income.
67
Interest capitalization
Interest costs incurred to finance expenditures during the construction phase of projects are capitalized as part of property, plant and equipment and are depreciated
over the service life of the related assets. The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use.
Goodwill and other intangible assets
Goodwill is not subject to
amortization. Goodwill is tested for impairment annually or more frequently if events or circumstances indicate it might be impaired. Impairment losses are recognized in current period earnings. The evaluation for impairment of goodwill is based on
a comparison of the carrying values of goodwill and associated operating assets with the estimated present value of net cash flows from those operating assets.
Intangible assets with determinable useful lives are amortized over the estimated service lives of the assets. Computer software development costs are amortized over a
maximum of 15 years and customer lists are amortized over a maximum of 10 years. The amortization is included in Depreciation and depletion in the consolidated statement of income.
Asset retirement obligations and other environmental liabilities
Legal
obligations associated with site restoration on the retirement of assets with determinable useful lives are recognized when they are incurred, which is typically at the time the assets are installed. These obligations primarily relate to soil
reclamation and remediation, and costs of abandonment and demolition of oil and gas wells and related facilities. The company uses estimates, assumptions and judgments regarding such factors as the existence of a legal obligation for an asset
retirement obligation, technical assessments of the assets, estimated amounts and timing of settlements, the credit-adjusted risk-free rate to be used, and inflation rates. The obligations are initially measured at fair value and discounted to
present value. A corresponding amount equal to that of the initial obligation is added to the capitalized costs of the related asset. Over time, the discounted asset retirement obligation amount will be accreted for the change in its present value,
and the initial capitalized costs will be depreciated over the useful lives of the related assets.
No asset retirement obligations are set up for those
manufacturing, distribution, marketing and office facilities with an indeterminate useful life. Asset retirement obligations for these facilities generally become firm at the time the facilities are permanently shut down and dismantled. These
obligations may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations, and as such, the fair value of the conditional legal obligations cannot be
measured, since it is impossible to estimate the future settlement dates of such obligations. Provision for environmental liabilities of these assets is made when it is probable that obligations have been incurred and the amount can be reasonably
estimated. Provisions for environmental liabilities are determined based on engineering estimated costs, taking into account the anticipated method and extent of remediation consistent with legal requirements, current technology and the possible use
of the location. These provisions are not reduced by possible recoveries from third parties and projected cash expenditures are not discounted.
Foreign-currency
translation
Monetary assets and liabilities in foreign currencies have been translated at the rates of exchange prevailing on December 31. Any exchange gains or
losses are recognized in income.
Share-based compensation
The company
awards share-based compensation to certain employees in the form of restricted stock units. Compensation expense is measured each reporting period based on the companys current stock price and is recorded as Selling and general
expenses in the consolidated statement of income over the requisite service period of each award. See note 7 to the consolidated financial statements on page 80 for further details.
68
Recently issued accounting standards
Effective January 1, 2018, Imperial adopted the Financial Accounting Standards Board (FASB) standard,
Revenue from Contracts with Customers
, as amended.
The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry and transaction specific requirements, and expands disclosure requirements. The standard was adopted using the modified
retrospective method, under which prior years results are not restated, but supplemental information on the impact of the new standard will be included in the 2018 results if material. The standard is not expected to have a material impact on
the companys financial statements. The cumulative effect of adoption of the new standard is de minimis.
Effective January 1, 2018, Imperial adopted the
FASB standard update, Compensation Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The update requires the service cost component of net benefit
costs to be reported in the same line in the income statement as other compensation costs and the other components of net benefit costs
(non-service
costs) be presented separately from the service cost
component. Additionally, only the service cost component of net benefit costs is eligible for capitalization. The company expects to add a new line
Non-service
pension and other postretirement
benefit expense to its consolidated statement of income, and expects to include all of these costs in the Corporate and other expenses. This line would reflect the
non-service
costs that
were previously included in Production and manufacturing expenses, and Selling and general expenses. The update is not expected to have a material impact on Imperials financial statements.
Effective January 1, 2019, Imperial will adopt the FASB standard,
Leases.
The standard requires that all leases with an initial term greater than one year
be recorded on the balance sheet as an asset and a lease liability. Imperial is gathering and evaluating data, and recently acquired a system to facilitate implementation. The company continues to progress an assessment of the magnitude of the
effect on the companys financial statements.
69
2. Business segments
The company operates its business in Canada. The Upstream, Downstream and Chemical functions best define the operating segments of the business that are reported
separately. The factors used to identify these reportable segments are based on the nature of the operations that are undertaken by each segment and the structure of the companys internal organization. The Upstream segment is organized and
operates to explore for and ultimately produce crude oil and its equivalent, and natural gas. The Downstream segment is organized and operates to refine crude oil into petroleum products and to distribute and market these products. The Chemical
segment is organized and operates to manufacture and market hydrocarbon-based chemicals and chemical products. The above segmentation has been the long-standing practice of the company and is broadly understood across the petroleum and petrochemical
industries.
These functions have been defined as the operating segments of the company because they are the segments (a) that engage in business activities
from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the companys chief operating decision maker to make decisions about resources to be allocated to each segment and assess its
performance; and (c) for which discrete financial information is available.
Corporate and other includes assets and liabilities that do not specifically
relate to business segments primarily cash, capitalized interest costs, short-term borrowings, long-term debt and liabilities associated with incentive compensation and post retirement benefits liability adjustment. Net earnings effects under
Corporate and other activities primarily include debt-related financing, corporate governance costs, share-based incentive compensation expenses and interest income.
Segment accounting policies are the same as those described in the summary of significant accounting policies. Upstream, Downstream and Chemical expenses include
amounts allocated from Corporate and other activities. The allocation is based on proportional segment expenses. Transfers of assets between segments are recorded at book amounts. Intersegment sales are made essentially at prevailing market prices.
Assets and liabilities that are not identifiable by segment are allocated.
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream
|
|
|
Downstream
|
|
|
Chemical
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
(a)
|
|
|
7,302
|
|
|
|
5,492
|
|
|
|
5,776
|
|
|
|
20,714
|
|
|
|
18,511
|
|
|
|
19,796
|
|
|
|
1,109
|
|
|
|
1,046
|
|
|
|
1,184
|
|
Intersegment sales
|
|
|
2,264
|
|
|
|
2,215
|
|
|
|
2,486
|
|
|
|
1,155
|
|
|
|
1,007
|
|
|
|
1,019
|
|
|
|
262
|
|
|
|
212
|
|
|
|
234
|
|
Investment and other income
(note
8)
|
|
|
16
|
|
|
|
13
|
|
|
|
22
|
|
|
|
269
|
|
|
|
2,278
|
|
|
|
104
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
9,582
|
|
|
|
7,720
|
|
|
|
8,284
|
|
|
|
22,138
|
|
|
|
21,796
|
|
|
|
20,919
|
|
|
|
1,371
|
|
|
|
1,258
|
|
|
|
1,418
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
(b) (note 15)
|
|
|
183
|
|
|
|
94
|
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases of crude oil and products
|
|
|
4,526
|
|
|
|
3,666
|
|
|
|
3,768
|
|
|
|
16,543
|
|
|
|
14,178
|
|
|
|
14,526
|
|
|
|
751
|
|
|
|
705
|
|
|
|
725
|
|
Production and manufacturing
|
|
|
3,913
|
|
|
|
3,591
|
|
|
|
3,766
|
|
|
|
1,576
|
|
|
|
1,428
|
|
|
|
1,461
|
|
|
|
209
|
|
|
|
205
|
|
|
|
207
|
|
Selling and general
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
772
|
|
|
|
972
|
|
|
|
986
|
|
|
|
78
|
|
|
|
83
|
|
|
|
87
|
|
Federal excise tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,673
|
|
|
|
1,650
|
|
|
|
1,568
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation and depletion
(b)
|
|
|
1,939
|
|
|
|
1,396
|
|
|
|
1,193
|
|
|
|
202
|
|
|
|
206
|
|
|
|
233
|
|
|
|
12
|
|
|
|
10
|
|
|
|
11
|
|
Financing costs
(note
12)
|
|
|
13
|
|
|
|
(7
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total expenses
|
|
|
10,574
|
|
|
|
8,735
|
|
|
|
8,803
|
|
|
|
20,766
|
|
|
|
18,434
|
|
|
|
18,774
|
|
|
|
1,050
|
|
|
|
1,003
|
|
|
|
1,030
|
|
Income (loss) before income taxes
|
|
|
(992
|
)
|
|
|
(1,015
|
)
|
|
|
(519
|
)
|
|
|
1,372
|
|
|
|
3,362
|
|
|
|
2,145
|
|
|
|
321
|
|
|
|
255
|
|
|
|
388
|
|
Income taxes
(note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
484
|
|
|
|
(491
|
)
|
|
|
(77
|
)
|
|
|
(504
|
)
|
|
|
674
|
|
|
|
476
|
|
|
|
(32
|
)
|
|
|
68
|
|
|
|
97
|
|
Deferred
|
|
|
(770
|
)
|
|
|
137
|
|
|
|
262
|
|
|
|
836
|
|
|
|
(66
|
)
|
|
|
83
|
|
|
|
118
|
|
|
|
-
|
|
|
|
4
|
|
Total income tax expense (benefit)
|
|
|
(286
|
)
|
|
|
(354
|
)
|
|
|
185
|
|
|
|
332
|
|
|
|
608
|
|
|
|
559
|
|
|
|
86
|
|
|
|
68
|
|
|
|
101
|
|
Net income (loss)
|
|
|
(706
|
)
|
|
|
(661
|
)
|
|
|
(704
|
)
|
|
|
1,040
|
|
|
|
2,754
|
|
|
|
1,586
|
|
|
|
235
|
|
|
|
187
|
|
|
|
287
|
|
Cash flows from (used in) operating activities
|
|
|
1,257
|
|
|
|
402
|
|
|
|
224
|
|
|
|
1,396
|
|
|
|
1,574
|
|
|
|
1,686
|
|
|
|
235
|
|
|
|
203
|
|
|
|
383
|
|
Capital and exploration expenditures
(c)
|
|
|
416
|
|
|
|
896
|
|
|
|
3,135
|
|
|
|
200
|
|
|
|
190
|
|
|
|
340
|
|
|
|
17
|
|
|
|
26
|
|
|
|
52
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
45,542
|
|
|
|
45,850
|
|
|
|
45,171
|
|
|
|
5,683
|
|
|
|
6,166
|
|
|
|
7,596
|
|
|
|
888
|
|
|
|
872
|
|
|
|
857
|
|
Accumulated depreciation and depletion
|
|
|
(13,844
|
)
|
|
|
(12,312
|
)
|
|
|
(11,016
|
)
|
|
|
(3,594
|
)
|
|
|
(4,037
|
)
|
|
|
(4,584
|
)
|
|
|
(644
|
)
|
|
|
(629
|
)
|
|
|
(616
|
)
|
Net property, plant and equipment
(b) (d)
|
|
|
31,698
|
|
|
|
33,538
|
|
|
|
34,155
|
|
|
|
2,089
|
|
|
|
2,129
|
|
|
|
3,012
|
|
|
|
244
|
|
|
|
243
|
|
|
|
241
|
|
Total assets
|
|
|
35,044
|
|
|
|
36,840
|
|
|
|
36,971
|
|
|
|
4,890
|
|
|
|
3,958
|
|
|
|
5,574
|
|
|
|
399
|
|
|
|
346
|
|
|
|
394
|
|
|
|
|
|
|
|
Corporate and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
(a)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,125
|
|
|
|
25,049
|
|
|
|
26,756
|
|
Intersegment sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,681
|
)
|
|
|
(3,434
|
)
|
|
|
(3,739
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Investment and other income
(note
8)
|
|
|
14
|
|
|
|
14
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
299
|
|
|
|
2,305
|
|
|
|
132
|
|
|
|
|
14
|
|
|
|
14
|
|
|
|
6
|
|
|
|
(3,681
|
)
|
|
|
(3,434
|
)
|
|
|
(3,739
|
)
|
|
|
29,424
|
|
|
|
27,354
|
|
|
|
26,888
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
(b) (note 15)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
183
|
|
|
|
94
|
|
|
|
73
|
|
Purchases of crude oil and products
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,675
|
)
|
|
|
(3,429
|
)
|
|
|
(3,735
|
)
|
|
|
18,145
|
|
|
|
15,120
|
|
|
|
15,284
|
|
Production and manufacturing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,698
|
|
|
|
5,224
|
|
|
|
5,434
|
|
Selling and general
|
|
|
49
|
|
|
|
84
|
|
|
|
50
|
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
893
|
|
|
|
1,129
|
|
|
|
1,117
|
|
Federal excise tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,673
|
|
|
|
1,650
|
|
|
|
1,568
|
|
Depreciation and depletion
(b)
|
|
|
19
|
|
|
|
16
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,172
|
|
|
|
1,628
|
|
|
|
1,450
|
|
Financing costs
(note
12)
|
|
|
65
|
|
|
|
72
|
|
|
|
34
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
|
|
65
|
|
|
|
39
|
|
Total expenses
|
|
|
133
|
|
|
|
172
|
|
|
|
97
|
|
|
|
(3,681
|
)
|
|
|
(3,434
|
)
|
|
|
(3,739
|
)
|
|
|
28,842
|
|
|
|
24,910
|
|
|
|
24,965
|
|
Income (loss) before income taxes
|
|
|
(119
|
)
|
|
|
(158
|
)
|
|
|
(91
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582
|
|
|
|
2,444
|
|
|
|
1,923
|
|
Income taxes
(note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(6
|
)
|
|
|
(51
|
)
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58
|
)
|
|
|
200
|
|
|
|
451
|
|
Deferred
|
|
|
(34
|
)
|
|
|
8
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150
|
|
|
|
79
|
|
|
|
350
|
|
Total income tax expense (benefit)
|
|
|
(40
|
)
|
|
|
(43
|
)
|
|
|
(44
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92
|
|
|
|
279
|
|
|
|
801
|
|
Net income (loss)
|
|
|
(79
|
)
|
|
|
(115
|
)
|
|
|
(47
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
Cash flows from (used in) operating activities
|
|
|
(125
|
)
|
|
|
(143
|
)
|
|
|
(124
|
)
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(2
|
)
|
|
|
2,763
|
|
|
|
2,015
|
|
|
|
2,167
|
|
Capital and exploration expenditures
(c)
|
|
|
38
|
|
|
|
49
|
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
671
|
|
|
|
1,161
|
|
|
|
3,595
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
665
|
|
|
|
627
|
|
|
|
579
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,778
|
|
|
|
53,515
|
|
|
|
54,203
|
|
Accumulated depreciation and depletion
|
|
|
(223
|
)
|
|
|
(204
|
)
|
|
|
(188
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,305
|
)
|
|
|
(17,182
|
)
|
|
|
(16,404
|
)
|
Net property, plant and equipment
(b) (d)
|
|
|
442
|
|
|
|
423
|
|
|
|
391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,473
|
|
|
|
36,333
|
|
|
|
37,799
|
|
Total assets
|
|
|
1,703
|
|
|
|
894
|
|
|
|
579
|
|
|
|
(435
|
)
|
|
|
(384
|
)
|
|
|
(348
|
)
|
|
|
41,601
|
|
|
|
41,654
|
|
|
|
43,170
|
|
71
(a)
|
Includes export sales to the United States of $4,392 million (2016 - $3,612 million, 2015 - $4,157 million). Export sales to the United States were recorded in all operating segments, with the largest effects
in the Upstream segment.
|
(b)
|
The Upstream segment in 2017 includes
non-cash
impairment charges of $396 million, before tax, associated with the Horn River development and $379 million, before tax,
associated with the Mackenzie gas project. The impairment charges are recognized in the lines exploration, and depreciation and depletion on the consolidated statement of income, and the accumulated depreciation and depletion line of the
consolidated balance sheet.
|
(c)
|
Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to capital leases, additional investments and acquisitions. CAPEX excludes the purchase of
carbon emission credits.
|
(d)
|
Includes property, plant and equipment under construction of $1,047 million (2016 - $2,705 million, 2015 - $3,719 million).
|
3. Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current income tax expense
(a)
|
|
|
(58
|
)
|
|
|
200
|
|
|
|
451
|
|
Deferred income tax expense
(a)
(b)
|
|
|
150
|
|
|
|
79
|
|
|
|
350
|
|
Total income tax expense
(a)
(c)
|
|
|
92
|
|
|
|
279
|
|
|
|
801
|
|
Statutory corporate tax rate
(percent)
|
|
|
26.9
|
|
|
|
26.8
|
|
|
|
27.2
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
(d)
|
|
|
(5.3
|
)
|
|
|
(11.6
|
)
|
|
|
(0.4
|
)
|
Enacted tax rate change
(a)
|
|
|
0.9
|
|
|
|
-
|
|
|
|
16.1
|
|
Other
|
|
|
(6.6
|
)
|
|
|
(3.8
|
)
|
|
|
(1.2
|
)
|
Effective income tax rate
|
|
|
15.9
|
|
|
|
11.4
|
|
|
|
41.7
|
|
(a)
|
On November 2, 2017 the British Columbia government enacted a 1 percent increase in the provincial tax rate from 11 percent to 12 percent. On June 30, 2015 the Alberta government enacted a
2 percent increase in the provincial tax rate, from 10 percent to 12 percent.
|
(b)
|
There were no material net (charges) credits for the effect of changes in tax laws and rates included in the provisions for deferred income taxes in 2016.
|
(c)
|
Cash outflow from income taxes, plus investment credits earned, was $322 million (2016 - $172 million, 2015 - $202 million).
|
(d)
|
2017 disposals are primarily associated with the sale of surplus property in Ontario. 2016 disposals are primarily associated with the sales of company-owned Esso retail sites and the general aviation business. Capital
gains tax treatment was applied on the majority of disposals.
|
In 2017 and 2016, the decrease in the statutory tax rate in the other category mainly
represents prior year adjustments and
re-assessments.
Deferred income taxes are based on differences between the accounting
and tax values of assets and liabilities. These differences in value are
re-measured
at each
year-end
using the tax rates and tax laws expected to apply when those
differences are realized or settled in the future. Components of deferred income tax liabilities and assets as at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Depreciation and amortization
|
|
|
5,564
|
|
|
|
5,361
|
|
|
|
4,677
|
|
Successful drilling and land acquisitions
|
|
|
762
|
|
|
|
891
|
|
|
|
922
|
|
Pension and benefits
|
|
|
(422
|
)
|
|
|
(457
|
)
|
|
|
(396
|
)
|
Asset retirement obligation
|
|
|
(376
|
)
|
|
|
(396
|
)
|
|
|
(406
|
)
|
Capitalized interest
|
|
|
118
|
|
|
|
114
|
|
|
|
104
|
|
LIFO inventory valuation
(a)
|
|
|
(318
|
)
|
|
|
(240
|
)
|
|
|
-
|
|
Tax loss carryforwards
|
|
|
(936
|
)
|
|
|
(1,056
|
)
|
|
|
(610
|
)
|
Other
(a)
|
|
|
(196
|
)
|
|
|
(212
|
)
|
|
|
(100
|
)
|
Net long-term deferred income tax liabilities
|
|
|
4,196
|
|
|
|
4,005
|
|
|
|
4,191
|
|
|
|
|
|
LIFO inventory valuation
(a)
|
|
|
-
|
|
|
|
-
|
|
|
|
(112
|
)
|
Other
(a)
|
|
|
-
|
|
|
|
-
|
|
|
|
(160
|
)
|
Net current deferred income tax assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(272
|
)
|
|
|
|
|
Net current deferred income tax liabilities
(a)
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities
|
|
|
4,196
|
|
|
|
4,005
|
|
|
|
3,960
|
|
(a)
|
Effective 2016, under ASU
2015-17,
deferred tax assets and liabilities have been classified as
non-current.
2015 was not restated.
|
72
Unrecognized tax benefits
Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial
statements.
The following table summarizes the movement in unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Balance as of January 1
|
|
|
106
|
|
|
|
132
|
|
|
|
151
|
|
Additions for prior years tax position
|
|
|
2
|
|
|
|
2
|
|
|
|
10
|
|
Reductions for prior years tax positions
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
(4
|
)
|
Reductions due to lapse of the statute of limitations
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
Settlements with tax authorities
|
|
|
(30
|
)
|
|
|
(5
|
)
|
|
|
(25
|
)
|
Balance as of December 31
|
|
|
78
|
|
|
|
106
|
|
|
|
132
|
|
The unrecognized tax benefit balances shown above are predominately related to tax positions that would reduce the companys
effective tax rate if the positions are favourably resolved. Unfavourable resolution of these tax positions generally would not increase the effective tax rate. The 2017, 2016 and 2015 changes in unrecognized tax benefits did not have a material
effect on the companys net income or cash flow. The companys tax filings from 2010 to 2017 are subject to examination by the tax authorities. Tax filings from 1998, 2000 and 2003 to 2009 have open objections and therefore are also
subject to examination by the tax authorities. The Canada Revenue Agency has proposed certain adjustments to the companys filings. Management is currently evaluating those proposed adjustments and believes that a number of outstanding matters
are expected to be resolved in 2018. The impact on unrecognized tax benefits and the companys effective income tax rate from these matters is not expected to be material.
Resolution of the related tax positions could take many years to complete. It is difficult to predict the timing of resolution for tax positions since such timing is
not entirely within the control of the company.
The company classifies interest on income tax related balances as interest expense or interest income and
classifies tax related penalties as operating expense.
4. Employee retirement benefits
Retirement benefits, which cover almost all retired employees and their surviving spouses, include pension income and certain health care and life insurance benefits.
They are met through funded registered retirement plans and through unfunded supplementary benefits that are paid directly to recipients.
Pension income benefits
consist mainly of company-paid defined benefit plans that are based on years of service and final average earnings. The company shares in the cost of health care and life insurance benefits. The companys benefit obligations are based on the
projected benefit method of valuation that includes employee service to date and present compensation levels, as well as a projection of salaries to retirement.
The expense and obligations for both funded and unfunded benefits are determined in accordance with accepted actuarial practices and U.S. GAAP. The process for
determining retirement-income expense and related obligations includes making certain long-term assumptions regarding the discount rate, rate of return on plan assets and rate of compensation increases. The obligation and pension expense can vary
significantly with changes in the assumptions used to estimate the obligation and the expected return on plan assets.
73
The benefit obligations and plan assets associated with the companys defined benefit plans are measured on
December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other post retirement
benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Assumptions used to determine benefit obligations
at December 31 (percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.40
|
|
|
|
3.75
|
|
|
|
|
|
|
|
3.40
|
|
|
|
3.75
|
|
Long-term rate of compensation increase
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
|
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1
|
|
|
8,356
|
|
|
|
8,147
|
|
|
|
|
|
|
|
706
|
|
|
|
642
|
|
Current service cost
|
|
|
217
|
|
|
|
203
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
Interest cost
|
|
|
313
|
|
|
|
319
|
|
|
|
|
|
|
|
23
|
|
|
|
27
|
|
Actuarial loss (gain)
|
|
|
415
|
|
|
|
157
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
46
|
|
Benefits paid
(a)
|
|
|
(516
|
)
|
|
|
(470
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
(25
|
)
|
Projected benefit obligation at December 31
|
|
|
8,785
|
|
|
|
8,356
|
|
|
|
|
|
|
|
670
|
|
|
|
706
|
|
|
|
|
|
|
|
Accumulated benefit obligation at December 31
|
|
|
8,043
|
|
|
|
7,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The discount rate for the purpose of calculating
year-end
post retirement benefits plan
liabilities is determined by using the Canadian Institute of Actuaries recommended spot curve for high-quality, long-term Canadian corporate bonds with an average maturity (or duration) approximating that of the liabilities. The measurement of the
accumulated post retirement benefit obligation assumes a health care cost trend rate of 4.50 percent in 2018 and subsequent years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other post retirement
benefits
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at January 1
|
|
|
7,359
|
|
|
|
7,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return (loss) on plan assets
|
|
|
700
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
212
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
(b)
|
|
|
(401
|
)
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31
|
|
|
7,870
|
|
|
|
7,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets in excess of (less than) projected
benefit obligation at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded plans
|
|
|
(408
|
)
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded plans
|
|
|
(507
|
)
|
|
|
(553
|
)
|
|
|
|
|
|
|
(670
|
)
|
|
|
(706
|
)
|
Total
(c)
|
|
|
(915
|
)
|
|
|
(997
|
)
|
|
|
|
|
|
|
(670
|
)
|
|
|
(706
|
)
|
(a)
|
Benefit payments for funded and unfunded plans.
|
(b)
|
Benefit payments for funded plans only.
|
(c)
|
Fair value of assets less projected benefit obligation shown above.
|
Funding of registered retirement plans complies
with federal and provincial pension regulations, and the company makes contributions to the plans based on an independent actuarial valuation. In accordance with authoritative guidance relating to the accounting for defined pension and other post
retirement benefits plans, the underfunded status of the companys defined benefit post retirement plans was recorded as a liability in the balance sheet, and the changes in that funded status in the year in which the changes occurred was
recognized through other comprehensive income.
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other post retirement
benefits
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Amounts recorded in the consolidated balance sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(28
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(28
|
)
|
|
|
(29
|
)
|
Other long-term obligations
|
|
|
(887
|
)
|
|
|
(968
|
)
|
|
|
|
|
|
|
(642
|
)
|
|
|
(677
|
)
|
Total recorded
|
|
|
(915
|
)
|
|
|
(997
|
)
|
|
|
|
|
|
|
(670
|
)
|
|
|
(706
|
)
|
|
|
|
|
|
|
Amounts recorded in accumulated other
comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
2,408
|
|
|
|
2,461
|
|
|
|
|
|
|
|
140
|
|
|
|
197
|
|
Prior service cost
|
|
|
4
|
|
|
|
14
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total recorded in accumulated other
comprehensive income,
before tax
|
|
|
2,412
|
|
|
|
2,475
|
|
|
|
|
|
|
|
140
|
|
|
|
197
|
|
The company establishes the long-term expected rate of return on plan assets by developing a forward-looking long-term return assumption
for each asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages
and the long-term return assumption for each asset class. The 2017 long-term expected return of 5.5
percent used in the calculations of pension expense compares to an actual rate of return of 6.3 percent and 7.3 percent over
the last
10-
and
20-year
periods respectively, ending December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other post retirement
benefits
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Assumptions used to determine net periodic
benefit cost for years ended December 31 (percent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.75
|
|
|
|
4.00
|
|
|
|
3.75
|
|
|
|
|
|
|
|
3.75
|
|
|
|
4.00
|
|
|
|
3.75
|
|
Long-term rate of return on funded assets
|
|
|
5.50
|
|
|
|
5.50
|
|
|
|
5.75
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-term rate of compensation increase
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
|
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost
|
|
|
217
|
|
|
|
203
|
|
|
|
211
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
15
|
|
Interest cost
|
|
|
313
|
|
|
|
319
|
|
|
|
307
|
|
|
|
|
|
|
|
23
|
|
|
|
27
|
|
|
|
25
|
|
Expected return on plan assets
|
|
|
(408
|
)
|
|
|
(400
|
)
|
|
|
(392
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of prior service cost
|
|
|
10
|
|
|
|
9
|
|
|
|
16
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of actuarial loss (gain)
|
|
|
176
|
|
|
|
162
|
|
|
|
198
|
|
|
|
|
|
|
|
8
|
|
|
|
13
|
|
|
|
14
|
|
Net periodic benefit cost
|
|
|
308
|
|
|
|
293
|
|
|
|
340
|
|
|
|
|
|
|
|
47
|
|
|
|
56
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
Changes in amounts recorded in accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
123
|
|
|
|
241
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
(49
|
)
|
|
|
46
|
|
|
|
(2
|
)
|
Amortization of net actuarial (loss) gain included in
net periodic benefit cost
|
|
|
(176
|
)
|
|
|
(162
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
(13
|
)
|
|
|
(14
|
)
|
Amortization of prior service cost included in net
periodic
benefit cost
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total recorded in other comprehensive income
|
|
|
(63
|
)
|
|
|
70
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
(57
|
)
|
|
|
33
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
Total recorded in net periodic benefit cost and
other
comprehensive income, before tax
|
|
|
245
|
|
|
|
363
|
|
|
|
40
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
89
|
|
|
|
38
|
|
Costs for defined contribution plans, primarily the employee savings plan, were $40 million in 2017 (2016 - $44 million, 2015
- $43 million).
75
A summary of the change in accumulated other comprehensive income is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension and other
post retirement benefits
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
(Charge) credit to other comprehensive income, before tax
|
|
|
120
|
|
|
|
(103
|
)
|
|
|
316
|
|
Deferred income tax (charge) credit
(note
17)
|
|
|
(38
|
)
|
|
|
34
|
|
|
|
(85
|
)
|
(Charge) credit to other comprehensive income, after tax
|
|
|
82
|
|
|
|
(69
|
)
|
|
|
231
|
|
The companys investment strategy for pension plan assets reflects a long-term view, a careful assessment of the risks inherent in
various asset classes and broad diversification to reduce the risk of the portfolio. Consistent with the long-term nature of the liability, the plan assets are primarily invested in global,
market-cap-weighted
indexed equity and domestic indexed bond funds to diversify risk while minimizing costs. The equity funds hold Imperial Oil Limited stock only to the extent necessary to replicate the
relevant equity index. The balance of the plan assets is largely invested in high-quality corporate and government debt securities. Studies are periodically conducted to establish the preferred target asset allocation. The target asset allocation
for equity securities is 28 percent. The target allocation for debt securities is 67 percent. Plan assets for the remaining 5 percent are invested in venture capital partnerships that pursue a strategy of investment in U.S. and
international early stage ventures.
The 2017 fair value of the pension plan assets, including the level within the fair value hierarchy, is shown in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2017, using:
|
millions of Canadian dollars
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Net Asset
Value
|
Asset class
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
182
|
|
|
|
|
|
|
|
182
|
Non-Canadian
|
|
2,138
|
|
|
|
|
|
|
|
2,138
|
Debt securities - Canadian
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
1,248
|
|
|
|
|
|
|
|
1,248
|
Government
|
|
4,016
|
|
|
|
|
|
|
|
4,016
|
Asset backed
|
|
-
|
|
|
|
|
|
|
|
-
|
Equities Venture capital
|
|
215
|
|
|
|
|
|
|
|
215
|
Cash
|
|
71
|
|
34
|
|
|
|
|
|
37
|
Total plan assets at fair value
|
|
7,870
|
|
34
|
|
-
|
|
-
|
|
7,836
|
76
The 2016 fair value of the pension plan assets, including the level within the fair value hierarchy, is shown in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2016, using:
|
millions of Canadian dollars
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Net Asset
Value
(a)
|
Asset class
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
433
|
|
|
|
|
|
|
|
433
|
Non-Canadian
|
|
2,448
|
|
|
|
|
|
|
|
2,448
|
Debt securities - Canadian
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
988
|
|
|
|
|
|
|
|
988
|
Government
|
|
3,218
|
|
|
|
|
|
|
|
3,218
|
Asset backed
|
|
-
|
|
|
|
|
|
|
|
-
|
Equities Venture capital
|
|
241
|
|
|
|
|
|
|
|
241
|
Cash
|
|
31
|
|
6
|
|
|
|
|
|
25
|
Total plan assets at fair value
|
|
7,359
|
|
6
|
|
-
|
|
-
|
|
7,353
|
(a)
|
Per ASU
2015-07,
certain investments that are measured at fair value using the Net Asset Value (NAV) per share practical expedient have been
re-categorized
from the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.
|
A summary of pension plans with accumulated benefit obligations in excess of plan assets is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
For funded pension plans with accumulated benefit
obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
-
|
|
|
|
-
|
|
Accumulated benefit obligation
|
|
|
-
|
|
|
|
-
|
|
Fair value of plan assets
|
|
|
-
|
|
|
|
-
|
|
Accumulated benefit obligation less fair value of plan assets
|
|
|
-
|
|
|
|
-
|
|
|
|
|
For unfunded plans covered by book reserves:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
507
|
|
|
|
553
|
|
Accumulated benefit obligation
|
|
|
480
|
|
|
|
525
|
|
Estimated 2018 amortization from accumulated other comprehensive income
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
Pension benefits
|
|
|
Other post retirement
benefits
|
Net actuarial loss (gain)
(a)
|
|
|
170
|
|
|
9
|
Prior service cost
(b)
|
|
|
4
|
|
|
-
|
(a)
|
The company amortizes the net balance of actuarial loss (gain) as a component of net periodic benefit cost over the average remaining service period of active plan participants.
|
(b)
|
The company amortizes prior service cost on a straight-line basis.
|
77
Cash flows
Benefit payments
expected in:
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
Pension benefits
|
|
|
Other post retirement
benefits
|
|
|
|
2018
|
|
|
425
|
|
|
|
29
|
|
2019
|
|
|
430
|
|
|
|
29
|
|
2020
|
|
|
435
|
|
|
|
29
|
|
2021
|
|
|
435
|
|
|
|
30
|
|
2022
|
|
|
435
|
|
|
|
30
|
|
2023 - 2027
|
|
|
2,165
|
|
|
|
155
|
|
|
|
In 2018, the company expects to make cash contributions of about $240 million to its pension plans.
Sensitivities
A one percent change in the assumptions at which retirement
liabilities could be effectively settled is as follows:
|
|
|
|
|
|
|
|
|
Increase (decrease)
millions of Canadian
dollars
|
|
One percent
increase
|
|
|
One percent
decrease
|
|
|
|
Rate of return on plan assets:
|
|
|
|
|
|
|
|
|
Effect on net benefit cost, before tax
|
|
|
(75)
|
|
|
|
75
|
|
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
Effect on net benefit cost, before tax
|
|
|
(90)
|
|
|
|
120
|
|
Effect on benefit obligation
|
|
|
(1,215)
|
|
|
|
1,570
|
|
|
|
|
Rate of pay increases:
|
|
|
|
|
|
|
|
|
Effect on net benefit cost, before tax
|
|
|
55
|
|
|
|
(45)
|
|
Effect on benefit obligation
|
|
|
265
|
|
|
|
(225)
|
|
|
|
A one percent change in the assumed health-care cost trend rate would have the following effects:
|
|
|
|
|
|
|
|
|
Increase (decrease)
millions of Canadian
dollars
|
|
One percent
increase
|
|
|
One percent
decrease
|
|
|
|
Effect on service and interest cost components
|
|
|
6
|
|
|
|
(5)
|
|
Effect on benefit obligation
|
|
|
80
|
|
|
|
(60)
|
|
|
|
78
5. Other long-term obligations
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
Employee retirement benefits
(a) (note 4)
|
|
|
1,529
|
|
|
|
1,645
|
|
Asset retirement obligations and other environmental liabilities
(b)
(d)
|
|
|
1,460
|
|
|
|
1,544
|
|
Share-based incentive compensation liabilities
(note 7)
|
|
|
99
|
|
|
|
139
|
|
Other obligations
(c)
|
|
|
692
|
|
|
|
328
|
|
Total other long-term obligations
|
|
|
3,780
|
|
|
|
3,656
|
|
(a)
|
Total recorded employee retirement benefits obligations also included $56 million in current liabilities (2016 $58 million).
|
(b)
|
Total asset retirement obligations and other environmental liabilities also included $101 million in current liabilities (2016 $108 million).
|
(c)
|
Included carbon emission program obligations. Carbon emission program credits are recorded under other assets, including intangibles, net.
|
(d)
|
For 2017, the asset retirement obligations were discounted at 6 percent (2016 - 6 percent).
|
Asset
retirement obligations incurred in the current period were Level 3 fair value measurements. The following table summarizes the activity in the liability for asset retirement obligations:
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
Balance as at January 1
|
|
|
1,472
|
|
|
|
1,571
|
|
Additions (deductions)
|
|
|
(124
|
)
|
|
|
(160
|
)
|
Accretion
|
|
|
92
|
|
|
|
97
|
|
Settlement
|
|
|
(43
|
)
|
|
|
(36
|
)
|
Balance as at December 31
|
|
|
1,397
|
|
|
|
1,472
|
|
6. Derivatives and financial instruments
The companys size, strong capital structure and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the companys
enterprise-wide risk from changes in currency exchange rates and commodity prices. The company makes use of derivatives instruments to offset exposures associated with hydrocarbon prices that arise from existing assets, liabilities and forecasted
transactions. Credit risk associated with the companys derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The
company believes there are no material market or credit risks to the companys financial position, results of operations or liquidity as a result of the derivatives. The company maintains a system of controls that includes the authorization,
reporting and monitoring of derivative activity.
The estimated fair value of derivative instruments outstanding and recorded on the balance sheet was a net
liability of $4 million at
year-end
2017 (2016 - $0 million). Assets and liabilities associated with derivatives are usually recorded either in Materials, supplies and prepaid expenses or
Accounts payable and accrued liabilities.
The companys fair value measurement of its derivative instruments use either Level 1 or
Level 2 inputs.
The company recognized a
before-tax
loss related to settled and unsettled derivative instruments of
$5 million during 2017 (2016 - $0 million). Income statement effects associated with derivatives are recorded in Purchases of crude oil and products.
The fair value of the companys financial instruments is determined by reference to various market data and other appropriate valuation techniques. There are no
material differences between the fair values of the companys financial instruments and the recorded book value. The fair value hierarchy for long-term debt is primarily Level 2.
79
7. Share-based incentive compensation programs
Share-based incentive compensation programs are designed to retain selected employees, reward them for high performance and promote individual contribution to sustained
improvement in the companys future business performance and shareholder value over the long-term. The nonemployee directors also participate in share-based incentive compensation programs.
Restricted stock units and deferred share units
Under the restricted stock
unit plan, each unit entitles the recipient to the conditional right to receive from the company, upon vesting, an amount equal to the value of one common share of the company, based on the
five-day
average of
the closing price of the companys common shares on the Toronto Stock Exchange on and immediately prior to the vesting dates. Fifty percent of the units vest on the third anniversary of the grant date, and the remainder vest on the seventh
anniversary of the grant date. The company may also issue units where either 50 percent of the units vest on the fifth anniversary of the grant date and the remainder vest on the tenth anniversary of the grant date, or where 50 percent of
the units vest on the fifth anniversary of the grant date and the remainder vest on the tenth anniversary of the grant date, or date of retirement of the recipient, whichever is later.
The deferred share unit plan is made available to nonemployee directors. The nonemployee directors can elect to receive all or part of their eligible directors
fees in units. The number of units granted is determined at the end of each calendar quarter by dividing the dollar amount of the nonemployee directors fees for that calendar quarter elected to be received as deferred share units by the
average closing price of the companys shares for the five consecutive trading days (average closing price) immediately prior to the last day of the calendar quarter. Additional units are granted based on the cash dividend payable
on the companys shares divided by the average closing price immediately prior to the payment date for that dividend and multiplying the resulting number by the number of deferred share units held by the recipient, as adjusted for any share
splits. Deferred share units cannot be exercised until after termination of service as a director, including termination due to death, and must be exercised in their entirety in one election no later than December 31 of the year following the
year of termination of service. On the exercise date, the cash value to be received for the units is determined based on the companys average closing price immediately prior to the date of exercise, as adjusted for any share splits.
All units require settlement by cash payments with the following exceptions. The restricted stock unit program provides that, for units granted to Canadian residents,
the recipient may receive one common share of the company per unit or elect to receive the cash payment for the units that vest on the seventh year anniversary of the grant date. For units where 50 percent vest on the fifth anniversary of the
grant date and the remainder vest on either the tenth anniversary of grant, or the later of ten years following the grant date or the retirement date of the recipient, the recipient may receive one common share of the company per unit or elect to
receive cash payment for all that vest.
The company accounts for all units by using the fair-value-based method. The fair value of awards in the form of restricted
stock and deferred share units is the market price of the companys stock. Under this method, compensation expense related to the units of these programs is measured each reporting period based on the companys current stock price and is
recorded in the consolidated statement of income over the requisite service period of each award.
The following table summarizes information about these units for
the year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock units
|
|
|
Deferred
share units
|
|
Outstanding at January 1, 2017
|
|
|
6,662,126
|
|
|
|
136,177
|
|
Granted
|
|
|
758,990
|
|
|
|
13,231
|
|
Vested / Exercised
|
|
|
(1,545,921
|
)
|
|
|
-
|
|
Forfeited and cancelled
|
|
|
(16,145
|
)
|
|
|
-
|
|
Outstanding at December 31, 2017
|
|
|
5,859,050
|
|
|
|
149,408
|
|
In 2017, the
before-tax
compensation expense charged against income for these programs was
$14 million
(2016 - $83 million,
2015 - $48 million). Income tax benefit recognized in income related to compensation expense for the year was $4 million (2016 - $24 million, 2015
- $13 million). Cash payments of $71 million were made for these programs in 2017 (2016 - $79 million, 2015 - $78 million).
80
As of December 31, 2017, there was $94 million of total
before-tax
unrecognized compensation expense related to
non-vested
restricted stock units based on the companys share price at the end of the current reporting period. The weighted average vesting period of
non-vested
restricted stock units is 3.8 years. All units under the deferred share programs have vested as of December 31, 2017.
8. Investment and other income
Investment and
other income includes gains and losses on asset sales as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Proceeds from asset sales
|
|
|
232
|
|
|
|
3,021
|
|
|
|
142
|
|
Book value of asset sales
|
|
|
12
|
|
|
|
777
|
|
|
|
45
|
|
Gain (loss) on asset sales, before tax
(a) (b)
|
|
|
220
|
|
|
|
2,244
|
|
|
|
97
|
|
Gain (loss) on asset sales, after tax
(a) (b)
|
|
|
192
|
|
|
|
1,908
|
|
|
|
79
|
|
(a)
|
2017 included a gain of $174 million ($151 million after tax) from the sale of surplus property in Ontario.
|
(b)
|
2016 included a gain of $2.0 billion ($1.7 billion, after tax) from the sale of company-owned Esso-branded retail sites; and a gain of $161 million ($134 million, after tax) from the sale of
Imperials general aviation business.
|
9. Litigation and other contingencies
A variety of claims have been made against Imperial and its subsidiaries in a number of lawsuits. Management has regular litigation reviews, including updates from
corporate and outside counsel, to assess the need for accounting recognition or disclosure of these contingencies. The company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be
reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The company does not record liabilities when the likelihood
that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavourable outcome is reasonably possible and
which are significant, the company discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of the companys contingency disclosures, significant includes material matters, as well
as other matters which management believes should be disclosed. Based on a consideration of all relevant facts and circumstances, the company does not believe the ultimate outcome of any currently pending lawsuits against the company will have a
material adverse effect on the companys operations, financial condition, or financial statements taken as a whole.
Additionally, the company has other
commitments arising in the normal course of business for operating and capital needs, all of which are expected to be fulfilled with no adverse consequences material to the companys operations or financial condition. Unconditional purchase
obligations, as defined by accounting standards, are those long-term commitments that are
non-cancelable
or cancelable only under certain conditions and that third parties have used to secure financing for the
facilities that will provide the contracted goods and services. No unconditional purchase obligations existed in 2017 and 2016 (2015 - $125 million).
As a result
of the completed sale of Imperials remaining company-owned Esso retail sites, the company was contingently liable at December 31, 2017, for guarantees relating to performance under contracts of other third-party obligations totaling
$42 million (2016 - $49 million).
81
10. Common shares
|
|
|
|
|
|
|
|
|
thousands of shares
|
|
As at
Dec 31
2017
|
|
|
As at
Dec 31
2016
|
|
Authorized
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
Common shares outstanding
|
|
|
831,242
|
|
|
|
847,599
|
|
The current
12-month
normal course issuer bid program was announced on June 22, 2017, under
which Imperial continued its share purchase program. The program enables the company to purchase up to a maximum of 25,395,927 common shares (3 percent of the total shares on June 13, 2017), which includes shares purchased under the normal
course issuer bid and from Exxon Mobil Corporation concurrent with, but outside of the normal course issuer bid. As in the past, Exxon Mobil Corporation has advised the company that it intends to participate to maintain its ownership percentage at
approximately 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 companys common share activities are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of
shares
|
|
|
Millions of
dollars
|
|
Balance as at January 1, 2015
|
|
|
|
|
|
|
847,599
|
|
|
|
1,566
|
|
Issued under employee share-based awards
|
|
|
|
|
|
|
1
|
|
|
|
-
|
|
Purchases at stated value
|
|
|
|
|
|
|
(1
|
)
|
|
|
-
|
|
Balance as at December 31, 2015
|
|
|
|
|
|
|
847,599
|
|
|
|
1,566
|
|
Issued under employee share-based awards
|
|
|
|
|
|
|
1
|
|
|
|
-
|
|
Purchases at stated value
|
|
|
|
|
|
|
(1
|
)
|
|
|
-
|
|
Balance as at December 31, 2016
|
|
|
|
|
|
|
847,599
|
|
|
|
1,566
|
|
Issued under employee share-based awards
|
|
|
|
|
|
|
2
|
|
|
|
-
|
|
Purchases at stated value
|
|
|
|
|
|
|
(16,359
|
)
|
|
|
(30
|
)
|
Balance as at December 31, 2017
|
|
|
|
|
|
|
831,242
|
|
|
|
1,536
|
|
The following table provides the calculation of basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net income (loss) per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (millions of Canadian dollars)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
|
|
Weighted average number of common shares outstanding (millions of shares)
|
|
|
842.9
|
|
|
|
847.6
|
|
|
|
847.6
|
|
|
|
|
|
Net income (loss) per common share (dollars)
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
|
|
|
|
Net income (loss) per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (millions of Canadian dollars)
|
|
|
490
|
|
|
|
2,165
|
|
|
|
1,122
|
|
|
|
|
|
Weighted average number of common shares outstanding
(millions of shares)
|
|
|
842.9
|
|
|
|
847.6
|
|
|
|
847.6
|
|
Effect of employee share-based awards (millions of
shares)
|
|
|
2.8
|
|
|
|
2.9
|
|
|
|
3.0
|
|
Weighted average number of common shares outstanding, assuming dilution
(millions of
shares)
|
|
|
845.7
|
|
|
|
850.5
|
|
|
|
850.6
|
|
|
|
|
|
Net income (loss) per common share (dollars)
|
|
|
0.58
|
|
|
|
2.55
|
|
|
|
1.32
|
|
82
11. Miscellaneous financial information
In 2017, net income included an
after-tax
gain of $5 million (2016 $5 million gain, 2015
$39 million loss) attributable to the effect of changes in
last-in,
first-out
(LIFO) inventories. The replacement cost of inventories was estimated to exceed their
LIFO carrying values at December 31, 2017 by about $1.4 billion (2016 $1 billion). Inventories of crude oil and products at
year-end
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
|
|
|
2017
|
|
|
2016
|
|
Crude oil
|
|
|
|
|
|
|
690
|
|
|
|
558
|
|
Petroleum products
|
|
|
|
|
|
|
307
|
|
|
|
300
|
|
Chemical products
|
|
|
|
|
|
|
42
|
|
|
|
51
|
|
Natural gas and other
|
|
|
|
|
|
|
36
|
|
|
|
40
|
|
Total inventories of crude oil and products
|
|
|
|
|
|
|
1,075
|
|
|
|
949
|
|
Net research and development costs charged to expenses in 2017 were $111 million (2016 $152 million, 2015 $149
million). These costs are included in expenses due to the uncertainty of future benefits.
Accounts payable and accrued liabilities included accrued taxes other
than income taxes of $437 million at December 31, 2017 (2016 $396 million).
12. Financing costs and additional
notes and loans payable information
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Debt-related interest
|
|
|
103
|
|
|
|
121
|
|
|
|
102
|
|
Capitalized interest
|
|
|
(38
|
)
|
|
|
(49
|
)
|
|
|
(68
|
)
|
Net interest expense
|
|
|
65
|
|
|
|
72
|
|
|
|
34
|
|
Other interest
|
|
|
13
|
|
|
|
(7
|
)
|
|
|
5
|
|
Total financing costs
(a)
|
|
|
78
|
|
|
|
65
|
|
|
|
39
|
|
(a)
|
Cash interest payments in 2017 were $58 million (2016 $73 million, 2015 $74 million). The weighted average interest rate on short-term borrowings in 2017 was 0.9 percent (2016
0.8 percent, 2015 0.8 percent). Average effective rate on the long-term borrowings with ExxonMobil in 2017 was 1.3 percent (2016 - 1.0 percent, 2015 - 1.0 percent).
|
As at December 31, 2017, the company had borrowed $75 million under an arrangement with an affiliated company of ExxonMobil that provides for a
non-interest
bearing, revolving demand loan from ExxonMobil to the company of up to $75 million. The loan represents ExxonMobils share of a working capital facility required to support purchasing,
marketing and transportation arrangements for crude oil and diluent products undertaken by Imperial on behalf of ExxonMobil.
In November 2017, the company extended
the maturity date of its existing $250 million committed long-term line of credit to November 2019. The company has not drawn on the facility.
In December
2017, the company extended the maturity date of its existing $250 million committed short-term line of credit to December 2018. The company has not drawn on the facility.
13. Leased facilities
At December 31, 2017,
the company held
non-cancelable
operating leases covering primarily storage tanks, rail cars and marine vessels, with minimum undiscounted lease commitments totaling $199 million as indicated in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
millions of Canadian dollars
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
After
2022
|
|
|
Total
|
|
|
|
Lease payments under
minimum commitments
(a)
|
|
|
120
|
|
|
|
56
|
|
|
|
19
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
199
|
|
|
|
(a)
|
Net rental cost under cancelable and
non-cancelable
operating leases incurred in 2017 was $206 million (2016 - $253 million, 2015 - $311 million). Related rental income
was not material.
|
83
1
4. Long-term debt
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
As at
Dec 31
2017
|
|
|
As at
Dec 31
2016
|
|
Long-term debt
(a)
|
|
|
4,447
|
|
|
|
4,447
|
|
Capital leases
(b)
|
|
|
558
|
|
|
|
585
|
|
Total long-term debt
|
|
|
5,005
|
|
|
|
5,032
|
|
(a)
|
Borrowed under an existing agreement with an affiliated company of ExxonMobil that provides for a long-term, variable-rate, Canadian dollar loan from ExxonMobil to the company of up to $7.75 billion at interest
equivalent to Canadian market rates. The agreement is effective until July 31, 2020, cancelable if ExxonMobil provides at least 370 days advance written notice.
|
(b)
|
Capital leases are primarily associated with transportation facilities and services agreements. The average imputed rate was 7.0 percent in 2017 (2016 6.9 percent). Total capitalized lease obligations also
include $27 million in current liabilities (2016 - $27 million). Principal payments on capital leases of approximately $21 million on average per year are due in each of the next four years after December 31, 2018.
|
15. Accounting for suspended exploratory well costs
The company continues capitalization of exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well
and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. The term project as used in this report can refer to a variety of different activities and does not necessarily
have the same meaning as in any government payment transparency reports.
Exploratory well costs at
year-end
2016 that were
capitalized as part of the Horn River project for a period greater than 12 months were expensed in 2017.
The following two tables provide details of the
changes in the balance of suspended exploratory well costs, as well as an aging summary of those costs.
Change in capitalized suspended exploratory well costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Balance as at January 1
|
|
|
143
|
|
|
|
167
|
|
|
|
167
|
|
Additions pending the determination of proved reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Charged to expense
|
|
|
(143
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
Reclassification to wells, facilities and equipment
based on
the determination of proved reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as at December 31
|
|
|
-
|
|
|
|
143
|
|
|
|
167
|
|
Period end capitalized suspended exploratory well costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Capitalized for a period of one year or less
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Capitalized for a period of between one and ten years
|
|
|
-
|
|
|
|
143
|
|
|
|
167
|
|
Capitalized for a period of greater than one year
|
|
|
-
|
|
|
|
143
|
|
|
|
167
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
|
143
|
|
|
|
167
|
|
Exploration activity often involves drilling multiple wells, over a number of years, to fully evaluate a project. The table below
provides a breakdown of the number of projects with exploratory well costs capitalized in the preceding 12 months and those that have had exploratory well costs capitalized for a period greater than 12 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Number of projects with first capitalized well
drilled in the preceding 12 months
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Number of projects that have exploratory well
costs
capitalized for a period of greater than 12 months
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
Total
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
84
16. Transactions with related parties
Revenues and expenses of the company also include the results of transactions with affiliated companies of ExxonMobil in the normal course of operations. These were
conducted on terms comparable to those which would have been conducted with unrelated parties and primarily consisted of the purchase and sale of crude oil, natural gas, petroleum and chemical products, as well as technical, engineering and
research, and development costs. Transactions with ExxonMobil also included amounts paid and received in connection with the companys participation in a number of upstream activities conducted jointly in Canada.
In addition, the company has existing agreements with ExxonMobil:
a)
|
To provide computer and customer support services to the company and to share common business and operational support services that allow the companies to consolidate duplicate work and systems;
|
b)
|
To operate certain western Canada production properties owned by ExxonMobil, as well as provide for the delivery of management, business and technical services to ExxonMobil in Canada. These agreements are designed to
provide organizational efficiencies and to reduce costs. No separate legal entities were created from these arrangements. Separate books of account continue to be maintained for the company and ExxonMobil. The company and ExxonMobil retain ownership
of their respective assets, and there is no impact on operations or reserves;
|
c)
|
To provide for the delivery of management, business and technical services to Syncrude Canada Ltd. by ExxonMobil;
|
d)
|
To provide for the option of equal participation in new upstream opportunities; and
|
e)
|
Whereby ExxonMobil enters into derivative agreements on the companys behalf.
|
Certain charges from ExxonMobil have
been capitalized; they are not material in the aggregate.
The amounts of purchases and sales by Imperial in 2017, with ExxonMobil, were $2,648 million and
$4,080 million respectively (2016 - $2,187 million and $2,315 million respectively).
As at December 31, 2017, the company had outstanding
long-term loans of $4,447 million (2016 $4,447 million) and short-term loans of $75 million (2016 $75 million) from ExxonMobil (see note 14 Long-term debt, on page 84 and note 12, Financing costs and
additional notes and loans payable information, on page 83 for further details).
Imperial has other related party transactions not detailed above in note 16,
as they are not significant.
85
17. Other comprehensive income (loss) information
Changes in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Balance at January 1
|
|
|
(1,897
|
)
|
|
|
(1,828
|
)
|
|
|
(2,059
|
)
|
Post retirement benefits liability adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period change excluding amounts reclassified
from accumulated other comprehensive income
|
|
|
(54
|
)
|
|
|
(210
|
)
|
|
|
64
|
|
Amounts reclassified from accumulated other comprehensive
income
|
|
|
136
|
|
|
|
141
|
|
|
|
167
|
|
Balance at December 31
|
|
|
(1,815
|
)
|
|
|
(1,897
|
)
|
|
|
(1,828
|
)
|
Amounts reclassified out of accumulated other comprehensive income (loss) -
before-tax
income
(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Amortization of post retirement benefits liability
adjustment
included in net periodic benefit cost
(a)
|
|
|
(194
|
)
|
|
|
(184
|
)
|
|
|
(228
|
)
|
(a)
|
This accumulated other comprehensive income component is included in the computation of net periodic benefit cost (note 4).
|
Income tax expense (credit) for components of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Post retirement benefits liability adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Post retirement benefits liability adjustment (excluding amortization)
|
|
|
(20
|
)
|
|
|
(77
|
)
|
|
|
24
|
|
Amortization of post retirement benefits liability
adjustment
included in net periodic benefit cost
|
|
|
58
|
|
|
|
43
|
|
|
|
61
|
|
Total
|
|
|
38
|
|
|
|
(34
|
)
|
|
|
85
|
|
86
Supplemental information on oil and gas exploration and production activities
(unaudited)
The information on pages 87 to 88 excludes items not related to oil and natural gas extraction, such as administrative and general expenses,
pipeline operations, gas plant processing fees and gains or losses on asset sales. The companys 25 percent interest in proved synthetic oil reserves in the Syncrude joint-venture is included as part of the companys total proved oil
and gas reserves and in the calculation of the standardized measure of discounted future cash flows, in accordance with U.S. Securities and Exchange Commission and U.S. Financial Accounting Standards Board rules. Results of operations, costs
incurred in property acquisitions, exploration and development activities, and capitalized costs include the companys share of Syncrude, Kearl and other unproved mineable acreages in the following tables.
Results of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Sales to customers
(a)
|
|
|
3,283
|
|
|
|
2,210
|
|
|
|
2,483
|
|
Intersegment sales
(a)
(b)
|
|
|
1,750
|
|
|
|
1,791
|
|
|
|
1,855
|
|
|
|
|
5,033
|
|
|
|
4,001
|
|
|
|
4,338
|
|
Production expenses
|
|
|
3,959
|
|
|
|
3,657
|
|
|
|
3,727
|
|
Exploration expenses
|
|
|
183
|
|
|
|
94
|
|
|
|
73
|
|
Depreciation and depletion
|
|
|
1,623
|
|
|
|
1,275
|
|
|
|
1,102
|
|
Income taxes
|
|
|
(217
|
)
|
|
|
(366
|
)
|
|
|
174
|
|
Results of operations
|
|
|
(515
|
)
|
|
|
(659
|
)
|
|
|
(738
|
)
|
The amounts reported as costs incurred in property acquisitions, exploration and development activities include both capitalized costs
and costs charged to expense during the year. Costs incurred also include new asset retirement obligations established in the current year, as well as increases or decreases to the asset retirement obligation resulting from changes in cost estimates
or abandonment date.
Costs incurred in property acquisitions, exploration and development activities
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Property costs
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Unproved
|
|
|
32
|
|
|
|
-
|
|
|
|
-
|
|
Exploration costs
|
|
|
40
|
|
|
|
70
|
|
|
|
76
|
|
Development costs
|
|
|
214
|
|
|
|
543
|
|
|
|
3,035
|
|
Total costs incurred in property acquisitions, exploration
and
development activities
|
|
|
286
|
|
|
|
614
|
|
|
|
3,111
|
|
(a)
|
Sales to customers or intersegment sales do not include the sale of natural gas and natural gas liquids purchased for resale, as well as royalty payments. These items are reported gross in note 2 in Operating
revenues, Intersegment sales and in Purchases of crude oil and products.
|
(b)
|
Sales of crude oil to consolidated affiliates are at market value, using posted field prices. Sales of natural gas liquids to consolidated affiliates are at prices estimated to be obtainable in a competitive,
arms-length
transaction.
|
(c)
|
Property costs are payments for rights to explore for petroleum and natural gas and for purchased reserves (acquired tangible and intangible assets such as gas plants, production facilities and
producing-well costs are included under producing assets). Proved represents areas where successful drilling has delineated a field capable of production. Unproved represents all other areas.
|
87
Capitalized costs
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
Property costs
(a)
|
|
|
|
|
|
|
|
|
Proved
|
|
|
2,214
|
|
|
|
2,194
|
|
Unproved
|
|
|
2,465
|
|
|
|
2,466
|
|
Producing assets
|
|
|
38,332
|
|
|
|
36,827
|
|
Incomplete construction
|
|
|
673
|
|
|
|
2,287
|
|
Total capitalized cost
|
|
|
43,684
|
|
|
|
43,774
|
|
Accumulated depreciation and depletion
|
|
|
(13,733
|
)
|
|
|
(12,243
|
)
|
Net capitalized costs
|
|
|
29,951
|
|
|
|
31,531
|
|
(a)
|
Property costs are payments for rights to explore for petroleum and natural gas and for purchased reserves (acquired tangible and intangible assets such as gas plants, production facilities and
producing-well costs are included under producing assets). Proved represents areas where successful drilling has delineated a field capable of production. Unproved represents all other areas.
|
Standardized measure of discounted future cash flows
As required by the U.S.
Financial Accounting Standards Board, the standardized measure of discounted future net cash flows is computed by applying
first-day-of-the-month
average prices,
year-end
costs and legislated tax rates and a discount factor of 10 percent to net proved reserves. The
standardized measure includes costs for future dismantlement, abandonment and remediation obligations. The company believes the standardized measure does not provide a reliable estimate of the companys expected future cash flows to be obtained
from the development and production of its oil and gas properties or of the value of its proved oil and gas reserves. The standardized measure is prepared on the basis of certain prescribed assumptions, including
first-day-of-the-month
average prices, which represent discrete points in time and therefore may cause significant variability
in cash flows from year to year as prices change.
Standardized measure of discounted future net cash flows related to proved
oil and gas reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
millions of Canadian dollars
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Future cash flows
|
|
|
72,325
|
|
|
|
53,743
|
|
|
|
168,482
|
|
Future production costs
|
|
|
(44,822
|
)
|
|
|
(36,100
|
)
|
|
|
(122,188
|
)
|
Future development costs
|
|
|
(14,640
|
)
|
|
|
(11,917
|
)
|
|
|
(36,048
|
)
|
Future income taxes
|
|
|
(3,916
|
)
|
|
|
(1,263
|
)
|
|
|
(3,333
|
)
|
Future net cash flows
|
|
|
8,947
|
|
|
|
4,463
|
|
|
|
6,913
|
|
Annual discount of 10 percent for estimated timing of
cash flows
|
|
|
(3,811
|
)
|
|
|
(1,717
|
)
|
|
|
(3,683
|
)
|
Discounted future cash flows
|
|
|
5,136
|
|
|
|
2,746
|
|
|
|
3,230
|
|
Changes in standardized
measure of discounted future net cash flows related to proved oil and gas reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
2,746
|
|
|
|
3,230
|
|
|
|
31,057
|
|
Changes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and transfers of oil and gas produced, net of production costs
|
|
|
(1,516
|
)
|
|
|
(718
|
)
|
|
|
(1,134
|
)
|
Net changes in prices, development costs and production costs
(a)
|
|
|
4,231
|
|
|
|
(1,468
|
)
|
|
|
(37,945
|
)
|
Extensions, discoveries, additions and improved recovery, less related costs
|
|
|
81
|
|
|
|
14
|
|
|
|
29
|
|
Development costs incurred during the year
|
|
|
376
|
|
|
|
651
|
|
|
|
2,250
|
|
Revisions of previous quantity estimates
|
|
|
110
|
|
|
|
56
|
|
|
|
972
|
|
Accretion of discount
|
|
|
290
|
|
|
|
417
|
|
|
|
1,683
|
|
Net change in income taxes
|
|
|
(1,182
|
)
|
|
|
564
|
|
|
|
6,318
|
|
Net change
|
|
|
2,390
|
|
|
|
(484
|
)
|
|
|
(27,827
|
)
|
Balance at end of year
|
|
|
5,136
|
|
|
|
2,746
|
|
|
|
3,230
|
|
(a) SEC rules require the companys reserves to be calculated on the basis of average
first-of-month
oil and natural gas prices during the reporting year. Future net cash flows are determined based on the net proved reserves as outlined in the Net Proved Reserves table.
88
Net proved reserves
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids
(b)
|
|
|
Natural gas
|
|
|
Synthetic oil
|
|
|
Bitumen
|
|
|
Total
oil-equivalent
basis
(c)
|
|
|
|
millions of
barrels
|
|
|
billions of
cubic feet
|
|
|
millions of
barrels
|
|
|
millions of
barrels
|
|
|
millions of
barrels
|
|
|
|
|
|
|
|
Beginning of year 2015
|
|
|
46
|
|
|
|
627
|
|
|
|
534
|
|
|
|
3,274
|
|
|
|
3,959
|
|
Revisions
|
|
|
(10
|
)
|
|
|
(28
|
)
|
|
|
68
|
|
|
|
331
|
|
|
|
384
|
|
Improved recovery
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Sale) purchase of reserves in place
|
|
|
1
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Discoveries and extensions
|
|
|
2
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
Production
|
|
|
(5
|
)
|
|
|
(45
|
)
|
|
|
(21
|
)
|
|
|
(90
|
)
|
|
|
(124
|
)
|
End of year 2015
|
|
|
34
|
|
|
|
583
|
|
|
|
581
|
|
|
|
3,515
|
|
|
|
4,227
|
|
|
|
|
|
|
|
Revisions
|
|
|
3
|
|
|
|
(58
|
)
|
|
|
8
|
|
|
|
(2,720
|
)
|
|
|
(2,719
|
)
|
Improved recovery
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Sale) purchase of reserves in place
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Discoveries and extensions
|
|
|
2
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Production
|
|
|
(4
|
)
|
|
|
(45
|
)
|
|
|
(25
|
)
|
|
|
(94
|
)
|
|
|
(130
|
)
|
End of year 2016
|
|
|
35
|
|
|
|
495
|
|
|
|
564
|
|
|
|
701
|
|
|
|
1,382
|
|
|
|
|
|
|
|
Revisions
|
|
|
4
|
|
|
|
115
|
|
|
|
(70
|
)
|
|
|
332
|
|
|
|
286
|
|
Improved recovery
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
(Sale) purchase of reserves in place
|
|
|
4
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
Discoveries and extensions
|
|
|
2
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
Production
|
|
|
(1
|
)
|
|
|
(41
|
)
|
|
|
(21
|
)
|
|
|
(93
|
)
|
|
|
(122
|
)
|
End of year 2017
|
|
|
44
|
|
|
|
641
|
|
|
|
473
|
|
|
|
946
|
|
|
|
1,570
|
|
|
Net proved developed reserves included above, as of
|
|
January 1, 2015
|
|
|
36
|
|
|
|
300
|
|
|
|
534
|
|
|
|
1,635
|
|
|
|
2,255
|
|
December 31, 2015
|
|
|
23
|
|
|
|
283
|
|
|
|
581
|
|
|
|
3,063
|
|
|
|
3,714
|
|
December 31, 2016
|
|
|
19
|
|
|
|
263
|
|
|
|
564
|
|
|
|
436
|
|
|
|
1,063
|
|
December 31, 2017
|
|
|
9
|
|
|
|
282
|
|
|
|
473
|
|
|
|
591
|
|
|
|
1,120
|
|
|
Net proved undeveloped reserves included above, as of
|
|
January 1, 2015
|
|
|
10
|
|
|
|
327
|
|
|
|
-
|
|
|
|
1,639
|
|
|
|
1,704
|
|
December 31, 2015
|
|
|
11
|
|
|
|
300
|
|
|
|
-
|
|
|
|
452
|
|
|
|
513
|
|
December 31, 2016
|
|
|
16
|
|
|
|
232
|
|
|
|
-
|
|
|
|
265
|
|
|
|
319
|
|
December 31, 2017
|
|
|
35
|
|
|
|
359
|
|
|
|
-
|
|
|
|
355
|
|
|
|
450
|
|
(a)
|
Net reserves are the companys share of reserves after deducting the shares of mineral owners or governments or both. All reported reserves are located in Canada. Reserves of natural gas are calculated at a
pressure of 14.73 pounds per square inch at 60°F.
|
(b)
|
Liquids include crude, condensate and natural gas liquids (NGLs). NGL proved reserves are not material and are therefore included under liquids.
|
(c)
|
Gas converted to
oil-equivalent
at six million cubic feet per one thousand barrels.
|
The information above describes changes during the years and balances of proved oil and gas reserves at
year-end
2015, 2016 and
2017. The definitions used are in accordance with the U.S. Securities and Exchange Commissions Rule
4-10
(a) of Regulation
S-X.
Proved oil and natural gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations prior to the time at which contracts providing the right to
operate expire. In some cases, substantial new investments in additional wells and other facilities will be required to recover these proved reserves.
89
In accordance with SEC rules, the
year-end
reserves volumes, as well as the
reserves change categories shown in the proved reserves tables are required to be calculated on the basis of average prices during the
12-month
period prior to the ending date of the period covered by the
report, determined as an unweighted arithmetic average of the
first-day-of-the-month
price for each month within such period. These reserves quantities were also used in calculating
unit-of-production
depreciation rates and in calculating the
standardized measure of discounted net cash flow.
Revisions can include upward or downward changes in previously estimated volumes of proved reserves for existing
fields due to the evaluation or
re-evaluation
of already available geologic, reservoir or production data; new geologic, reservoir or production data; or changes in the average of
first-of-month
oil and natural gas prices and / or costs that are used in the estimation of reserves. Revisions can result from significant changes in either development
strategy or production equipment / facility capacity.
At
year-end
2015, upward revisions of proved developed bitumen
reserves were associated with migration of the Kearl expansion project from proved undeveloped, and improved performance demonstrated at Kearl. As well, upward revision to bitumen and synthetic oil were associated with lower royalty obligations
driven by lower pricing.
At
year-end
2016, downward revisions of proved developed and undeveloped bitumen reserves were a
result of low prices. The entire 2.5 billion barrels of bitumen at Kearl and approximately 0.2 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the U.S. Securities and Exchange Commission definition of
proved reserves.
As a result of improved prices in 2017, an additional 0.3 billion barrels of bitumen at Kearl and Cold Lake now qualify as proved reserves at
year-end
2017. Among the factors that would result in additional amounts being recognized as proved reserves at some point in the future are a further recovery in yearly average price levels, a further decline
in costs and additional planned investment in reliability improvements. Under the terms of certain contractual arrangements or government royalty regimes, lower prices can also increase proved reserves attributable to Imperial. The companys
operating decisions and its outlook for future production volumes are not impacted by proved reserves as disclosed under the U.S. Securities and Exchange Commission definition.
At
year-end
2017, downward revisions of proved developed synthetic oil reserves were a result of higher royalty obligations
driven by higher pricing and mine plan updates.
Net proved reserves are determined by deducting the estimated future share of mineral owners or governments or
both. For liquids and natural gas, net proved reserves are based on estimated future royalty rates as of the date the estimate is made incorporating the applicable governments oil and gas royalty regimes. For bitumen, net proved reserves are
based on the companys best estimate of average royalty rates over the remaining life of each of the Cold Lake and Kearl fields, and they incorporate the Alberta governments oil sands royalty regime. For synthetic oil, net proved reserves
are based on the companys best estimate of average royalty rates over the remaining life of the project, and they incorporate the Alberta governments oil sands royalty regime. In all cases, actual future royalty rates may vary with
production, price and costs.
Net proved developed reserves are those volumes that are expected to be recovered through existing wells and facilities with existing
equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well or facility. Net proved undeveloped reserves are those volumes that are expected to be recovered as a result of
future investments to drill new wells, to recomplete existing wells and/or to install facilities to collect and deliver the production from existing and future wells and facilities.
90
Quarterly financial and stock trading data
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
three months ended
|
|
|
three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31
|
|
|
Sept. 30
|
|
|
June 30
|
|
|
Mar. 31
|
|
|
Dec. 31
|
|
|
Sept. 30
|
|
|
June 30
|
|
|
Mar. 31
|
|
Financial data
(millions of Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other income
|
|
|
8,077
|
|
|
|
7,158
|
|
|
|
7,033
|
|
|
|
7,156
|
|
|
|
8,442
|
|
|
|
7,442
|
|
|
|
6,248
|
|
|
|
5,222
|
|
Total expenses
|
|
|
8,286
|
|
|
|
6,662
|
|
|
|
7,158
|
|
|
|
6,736
|
|
|
|
6,779
|
|
|
|
6,260
|
|
|
|
6,500
|
|
|
|
5,371
|
|
Income (loss) before income taxes
|
|
|
(209
|
)
|
|
|
496
|
|
|
|
(125
|
)
|
|
|
420
|
|
|
|
1,663
|
|
|
|
1,182
|
|
|
|
(252
|
)
|
|
|
(149
|
)
|
Income taxes
|
|
|
(72
|
)
|
|
|
125
|
|
|
|
(48
|
)
|
|
|
87
|
|
|
|
219
|
|
|
|
179
|
|
|
|
(71
|
)
|
|
|
(48
|
)
|
Net income (loss)
|
|
|
(137
|
)
|
|
|
371
|
|
|
|
(77
|
)
|
|
|
333
|
|
|
|
1,444
|
|
|
|
1,003
|
|
|
|
(181
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
Net income (loss)
(millions of Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream
|
|
|
(481
|
)
|
|
|
62
|
|
|
|
(201
|
)
|
|
|
(86
|
)
|
|
|
103
|
|
|
|
(26
|
)
|
|
|
(290
|
)
|
|
|
(448
|
)
|
Downstream
|
|
|
290
|
|
|
|
292
|
|
|
|
78
|
|
|
|
380
|
|
|
|
1,361
|
|
|
|
1,002
|
|
|
|
71
|
|
|
|
320
|
|
Chemical
|
|
|
74
|
|
|
|
52
|
|
|
|
64
|
|
|
|
45
|
|
|
|
27
|
|
|
|
56
|
|
|
|
55
|
|
|
|
49
|
|
Corporate and other
|
|
|
(20
|
)
|
|
|
(35
|
)
|
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
(47
|
)
|
|
|
(29
|
)
|
|
|
(17
|
)
|
|
|
(22
|
)
|
Net income (loss)
|
|
|
(137
|
)
|
|
|
371
|
|
|
|
(77
|
)
|
|
|
333
|
|
|
|
1,444
|
|
|
|
1,003
|
|
|
|
(181
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
Per share information
(Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
|
|
|
(0.16
|
)
|
|
|
0.44
|
|
|
|
(0.09
|
)
|
|
|
0.39
|
|
|
|
1.70
|
|
|
|
1.18
|
|
|
|
(0.21
|
)
|
|
|
(0.12
|
)
|
Net income (loss) per common share - diluted
|
|
|
(0.16
|
)
|
|
|
0.44
|
|
|
|
(0.09
|
)
|
|
|
0.39
|
|
|
|
1.70
|
|
|
|
1.18
|
|
|
|
(0.21
|
)
|
|
|
(0.12
|
)
|
Dividends per share - declared
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Share prices
(Canadian dollars)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Toronto Stock Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
42.26
|
|
|
|
40.11
|
|
|
|
41.77
|
|
|
|
47.60
|
|
|
|
48.72
|
|
|
|
42.10
|
|
|
|
43.21
|
|
|
|
46.25
|
|
Low
|
|
|
37.88
|
|
|
|
35.15
|
|
|
|
37.27
|
|
|
|
40.51
|
|
|
|
40.76
|
|
|
|
38.41
|
|
|
|
38.71
|
|
|
|
37.25
|
|
Close
|
|
|
39.23
|
|
|
|
39.86
|
|
|
|
37.80
|
|
|
|
40.52
|
|
|
|
46.71
|
|
|
|
41.04
|
|
|
|
40.88
|
|
|
|
43.39
|
|
|
|
|
|
|
|
|
|
|
NYSE American LLC (U.S. dollars)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
32.75
|
|
|
|
32.15
|
|
|
|
31.14
|
|
|
|
35.43
|
|
|
|
36.85
|
|
|
|
32.42
|
|
|
|
34.11
|
|
|
|
35.48
|
|
Low
|
|
|
29.41
|
|
|
|
27.81
|
|
|
|
27.59
|
|
|
|
30.04
|
|
|
|
31.07
|
|
|
|
29.26
|
|
|
|
29.54
|
|
|
|
25.55
|
|
Close
|
|
|
31.19
|
|
|
|
31.94
|
|
|
|
29.18
|
|
|
|
30.50
|
|
|
|
34.76
|
|
|
|
31.32
|
|
|
|
31.56
|
|
|
|
33.40
|
|
|
|
|
|
|
|
|
|
|
Shares traded
(thousands)
(c)
|
|
|
88,735
|
|
|
|
88,089
|
|
|
|
92,636
|
|
|
|
84,436
|
|
|
|
70,560
|
|
|
|
67,098
|
|
|
|
101,121
|
|
|
|
112,059
|
|
(a)
|
Quarterly data has not been audited by the companys independent auditors.
|
(b)
|
Imperials shares are listed on the Toronto Stock Exchange. The companys shares also trade in the United States of America on the NYSE American LLC. Imperial has unlisted privileges on the NYSE American LLC.
The symbol on these exchanges for Imperials common shares is IMO. Share prices were obtained from stock exchange records. U.S. dollar share price presented is based on consolidated U.S. market data.
|
(c)
|
The number of shares traded is based on transactions on the above stock exchanges and through other designated exchanges and published markets in Canada.
|
91
Proxy information section
92
Nominees for director
The director nominee tables on the following pages provide information on the seven
nominees proposed for election to the board of directors of the company. All of the nominees are now directors and have been since the dates indicated. V.L. Young is currently a director and is not standing for
re-election
in 2018 as he will reach the companys mandatory retirement age for directors in 2018.
Included in these
tables is information relating to the director nominees biographies, independence status, expertise, committee memberships, attendance, public board memberships and shareholdings in the company. The information is as of February 7, 2018,
the effective date of this circular, unless otherwise indicated.
For more information on our director nominees, please see the Statement of corporate governance
practice starting on page 99.
Director nominee tables
|
|
|
|
|
|
|
|
David W. Cornhill
Calgary, Alberta, Canada
Nonemployee director (independent)
Age:
64
Director since:
November 29, 2017
Skills and experience:
Leadership of large organizations, Operations/Technical, Project management, Strategy development,
Audit committee financial expert, Financial expertise, Executive compensation
David
Cornhill is chairman of the board of directors of AltaGas Ltd., a position he has held since AltaGas Services Inc.s (AltaGas
|
predecessor) inception in 1994. Mr. Cornhill is a founding shareholder of AltaGas Services Inc., and was chief executive officer from 1994 to 2016. Prior to forming AltaGas Services
Inc., Mr. Cornhill served in the capacities of vice-president, finance and administration and treasurer at Alberta and Southern Gas Co. Ltd, from 1991 to 1993 and as president and chief executive officer until 1994. Mr. Cornhill is an
experienced leader in the business community and is a strong supporter of communities and community collaboration, investment and enhancement. He serves on the board of governors at Western University and is a member of the Ivey Advisory Board at
Western. Mr. Cornhill holds a Bachelor of Science (Hons.) degree and a Master of Business Administration degree, both from Western, and was awarded an honorary Doctor of Laws degree by the University in 2015.
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
12,500
(<0.01%)
|
|
354
|
|
12,854
|
|
2,600
|
|
15,454
|
Total market value as at February 7, 2018 ($)
|
|
443,750
|
|
12,567
|
|
456,317
|
|
92,300
|
|
548,617
|
Year over year change (#)
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
|
n/a
|
*Meets the necessary share ownership
requirements
|
|
|
|
|
Board and Committee Membership*
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
Audit committee
Executive resources committee
Environment, health and safety committee
Nominations and corporate governance committee Contributions committee
|
|
1 of 1
(100%)
0 of 0
(n/a)
1 of 1
(100%)
1 of 1
(100%)
1 of 1
(100%)
1 of 1
(100%)
|
|
- AltaGas Ltd. (2010 present)
- Alterra Power Corp. (2008
2018)
- Painted Pony Energy Ltd. (2015 2017)
- Northern Power Systems
Corp. (2014 2015)
*no public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
n/a
|
|
n/a
|
|
|
|
- AltaGas Ltd., Chairman of the Board (1994 present)
- AltaGas
Ltd., Chief Executive Officer (1994 2016)
|
93
|
|
|
|
|
|
|
|
Krystyna T. Hoeg
Toronto, Ontario, Canada
Nonemployee director (independent)
Age:
68
Director since:
May 1, 2008
Skills and experience:
Leadership of large organizations, Project management, Global experience, Strategy development, Audit
committee financial expert, Financial expertise, Executive compensation
Ms. Hoeg was
the president and chief executive officer of Corby Distilleries Limited from 1996 until her retirement in February 2007.
|
She previously held several positions in the finance and controllers functions of Allied Domecq PLC and Hiram Walker & Sons Limited. Prior to that, she spent five years in public
practice as a chartered accountant with the accounting firm of Touche Ross. She is currently a director of New Flyer Industries Inc. and is also a director of Samuel, Son & Co. Limited and Revera Inc., privately owned corporations.
Ms. Hoeg is the past chair of the board of the Michael Garron Hospital (formerly known as the Toronto East General Hospital).
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
0
|
|
31,141
|
|
31,141
|
|
11,200
|
|
42,341
|
Total market value as at February 7, 2018 ($)
|
|
0
|
|
1,105,506
|
|
1,105,506
|
|
397,600
|
|
1,503,106
|
Year over year change (#)
|
|
0
|
|
3,498
|
|
3,498
|
|
600
|
|
4,098
|
*Meets the necessary share ownership
requirements
|
|
|
|
|
Board and Committee Membership
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
Audit committee
Executive resources committee
(Chair)
Environment, health and safety
committee
Nominations and corporate governance committee Contributions committee
|
|
7 of 7
(100%)
5 of 5
(100%)
7 of 7
(100%)
3 of 3
(100%)
7 of 7
(100%)
2 of 2
(100%)
|
|
- New Flyer Industries (2015 Present)
- Sun Life Financial
Inc. (2002 2016)
- Canadian Pacific Railway Limited (2007 2015)
-
Canadian Pacific Railway Company (2007 2015)
- Shoppers Drug Mart Corporation (2006 2014)
*no public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
Votes in Favour:
754,930,036 (99.88%)
|
|
Votes Withheld:
882,189 (0.12%)
|
|
|
|
No other position held in the last five years
|
|
|
|
|
|
|
|
|
Richard M. Kruger
Calgary, Alberta, Canada
Non-independent director
Age:
58
Director since:
March 1, 2013
Skills and experience:
Leadership of large organizations, Operations/technical, Project management, Global experience,
Strategy development, Financial expertise, Government relations, Executive compensation
Mr. Kruger was appointed chairman, president and chief executive officer of Imperial Oil Limited effective March 1, 2013. Mr. Kruger has
|
worked for Exxon Mobil Corporation and its predecessor companies since 1981 in various upstream and downstream assignments with responsibilities in the United States, the former Soviet Union,
the Middle East, Africa and Southeast Asia. In his previous position, Mr. Kruger was vice-president of Exxon Mobil Corporation and president of ExxonMobil Production Company, a division of Exxon Mobil Corporation, with responsibility for
ExxonMobils global oil and gas producing operations.
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
0
|
|
0
|
|
0
|
|
492,500
|
|
492,500
|
Total market value as at February 7, 2018 ($)
|
|
0
|
|
0
|
|
0
|
|
17,483,750
|
|
17,483,750
|
Year over year change (#)
|
|
0
|
|
0
|
|
0
|
|
99,000
|
|
99,000
|
*Meets the necessary share ownership
requirements
|
|
|
|
|
Board and Committee Membership
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
(Chair)
Contributions
committee
|
|
7 of 7
(100%)
2 of 2
(100%)
|
|
No other public company directorships in the past five years
*no public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
Votes in Favour:
750,338,099 (99.28%)
|
|
Votes Withheld:
5,474,126 (0.72%)
|
|
|
|
- Vice-president, Exxon Mobil Corporation and
President,
ExxonMobil Production Company
(2008 2013) (Affiliate)
|
94
|
|
|
|
|
|
|
|
Jack M. Mintz
Calgary, Alberta, Canada
Nonemployee director (independent)
Age:
66
Director since:
April 21, 2005
Skills and experience:
Global experience, Strategy development, Financial expertise, Government
relations,
Academic/research, Executive compensation
Dr. Mintz is currently the Presidents
Fellow at the University of Calgarys School of Public Policy focusing on tax, urban and financial
|
market regulatory policy programs and also serves as the national policy advisor for EY (formerly Ernst & Young). From 2006 to 2015, Dr. Mintz was the founding Director and
Palmer Chair in Public Policy for the University of Calgary, and from 1999 to 2006, he was the president and chief executive officer of The C.D. Howe Institute. He has been a member of the board of Morneau Shepell since 2010. He has also been a
professor at Queens University Economics Department from 1978 to 1989 and the Joseph L. Rotman School of Management at the University of Toronto from 1989 to 2007. Dr. Mintz also has published widely in the fields of public economics
and fiscal federalism, has been an advisor to governments throughout the world on fiscal matters, and has frequently published articles in national newspapers and magazines. Dr. Mintz received the Order of Canada in 2015.
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
1,000
(<0.01%)
|
|
27,023
|
|
28,023
|
|
11,200
|
|
39,223
|
Total market value as at February 7, 2018 ($)
|
|
35,500
|
|
959,317
|
|
994,817
|
|
397,600
|
|
1,392,417
|
Year over year change (#)
|
|
0
|
|
3,433
|
|
3,433
|
|
600
|
|
4,033
|
*Meets the necessary share ownership
requirements
|
|
|
|
|
Board and Committee Membership
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
Audit committee
Executive resources committee
Environment, health and safety committee
(Chair)
Nominations and corporate governance committee
Contributions
committee
|
|
7 of 7
(100%)
5 of 5
(100%)
7 of 7
(100%)
3 of 3
(100%)
7 of 7
(100%)
2 of 2
(100%)
|
|
- Morneau Shepell Inc. (2010 Present)
*no
public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
Votes in Favour:
754,860,462
(99.87%)
|
|
Votes Withheld:
951,763 (0.13%)
|
|
|
|
No other position held in the last five years
|
|
|
|
|
|
|
|
|
David S. Sutherland
Waterloo, Ontario, Canada
Nonemployee director (independent)
Age:
68
Director since:
April 29, 2010
Skills and experience:
Leadership of large organizations, Operations/technical, Global experience, Strategy development, Audit
committee financial expert, Financial expertise, Government relations, Executive compensation
In July 2007, Mr. Sutherland retired as president and chief executive officer of the former IPSCO, Inc. after spending 30 years with the
|
company and more than five years as president and chief executive officer. Mr. Sutherland is the chairman of the board of United States Steel Corporation and director of GATX Corporation.
Mr. Sutherland is also chairman of Graham Group Ltd., an employee owned corporation and is a director of Steelcraft Inc., a privately owned corporation. Mr. Sutherland is a former chairman of the American Iron and Steel Institute and
served as a member of the board of directors of the Steel Manufacturers Association, the International Iron and Steel Institute, the Canadian Steel Producers Association and the National Association of Manufacturers.
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
55,000
(<0.01%)
|
|
24,449
|
|
79,449
|
|
11,200
|
|
90,649
|
Total market value as at February 7, 2018 ($)
|
|
1,952,500
|
|
867,940
|
|
2,820,440
|
|
397,600
|
|
3,218,040
|
Year over year change (#)
|
|
10,000
|
|
3,393
|
|
13,393
|
|
600
|
|
13,993
|
*Meets the necessary share ownership
requirements
|
|
|
|
|
Board and Committee Membership
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
Audit committee
Executive resources committee
Environment, health and safety committee
Nominations and corporate governance committee
Contributions committee
(Chair)
|
|
6 of 7
(86%)
4 of 5
(80%)
6 of 7
(86%)
2 of 3
(67%)
6 of 7
(86%)
2 of 2
(100%)
|
|
- GATX Corporation (2007 Present)
- United States Steel
Corporation, (2008 Present)
*no public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
Votes in Favour:
754,853,875 (99.87%)
|
|
Votes Withheld:
958,350 (0.13%)
|
|
|
|
No other position held in the last five years
|
95
|
|
|
|
|
|
|
|
Jerry Wascom
Spring, Texas, United States of America
Non-independent director
Age:
61
Director since:
July 30, 2014
Skills and experience:
Leadership of large organizations, Operations/technical, Project management,
Global experience,
Strategy development, Financial expertise, Executive compensation
Mr. Wascom is
vice-president, operational excellence, safety, security, health and environment for Exxon Mobil Corporation. He is
|
located in Dallas, Texas. Mr. Wascom has worked for ExxonMobil in a range of refining operations and management assignments, overseeing refining operations in North and Central/South
America, the USA and Canada, as well as international assignments in Asia Pacific.
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
Total market value as at February 7, 2018 ($)
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Year over year change (#)
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
*No share ownership guidelines apply
|
|
|
|
|
Board and Committee Membership
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
Executive resources committee
Environment, health and safety committee
Nominations and corporate governance
committee
Contributions committee
|
|
6 of 7
(86%)
6 of 7
(86%)
2 of 3
(67%)
6 of 7
(86%)
1 of 2
(50%)
|
|
No other public company directorships in the past five years
*no public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
Votes in Favour:
674,075,378 (89.19%)
|
|
Votes Withheld:
81,736,847 (10.81%)
|
|
|
|
- President, Exxon Mobil Refining & Supply Company
(2014 2017) (Affiliate)
- Director, Refining North America,
ExxonMobil Refining & Supply
Company (2013 2014) (Affiliate)
- Director, Refining Americas, ExxonMobil Refining & Supply
Company (2009 2013) (Affiliate)
|
|
|
|
|
|
|
|
|
Sheelagh D. Whittaker
London, England
Nonemployee director (independent)
Age:
70
Director since:
April 19, 1996
Skills and experience:
Leadership of large organizations, Global experience, Strategy
development, Audit committee
financial expert, Financial expertise, Government relations,
Information technology, Executive compensation
Ms. Whittaker spent much of her early business career as director and partner with The Canada Consulting Group, now Boston
|
Consulting Group. From 1989 she was president and chief executive officer of Canadian Satellite Communications (Cancom). In 1993, Ms. Whittaker joined Electronic Data Systems of Plano,
Texas, then one of the worlds foremost providers of information technology services. Initially spending several years as president and chief executive officer of EDS Canada, Ms. Whittaker then undertook other key leadership roles
globally, ultimately serving the company as managing director, United Kingdom, Middle East and Africa, until her retirement from EDS in November 2005.
|
|
|
|
|
|
|
|
|
|
|
|
Imperial Oil Limited Ownership and Value of Equity (a) (b) (c) (d)
|
|
|
IMO Common
Shares
(% of class)
|
|
IMO Deferred
Share Units
(DSU)
|
|
Total
Vested
Equity Holdings
(Common + DSU)
|
|
Restricted
Stock Units
(RSU)
|
|
Total
Holdings*
(Common + DSU
+ RSU)
|
Holdings as at February 7, 2018 (#)
|
|
9,350
(<0.01%)
|
|
53,248
|
|
62,598
|
|
11,200
|
|
73,798
|
Total market value as at February 7, 2018 ($)
|
|
331,925
|
|
1,890,304
|
|
2,222,229
|
|
397,600
|
|
2,619,829
|
Year over year change (#)
|
|
0
|
|
2,344
|
|
2,344
|
|
600
|
|
2,944
|
*Meets the necessary share ownership
requirements
|
|
|
|
|
Board and Committee Membership
|
|
Meeting
Attendance 2017
|
|
Public Company Directorships in the Past Five Years*
|
Imperial Oil Limited board
Audit committee
Executive resources committee
Environment, health and safety committee
Nominations and corporate governance committee
(Chair)
Contributions
committee
|
|
7 of 7
(100%)
5 of 5
(100%)
7 of 7
(100%)
3 of 3
(100%)
7 of 7
(100%)
2 of 2
(100%)
|
|
- Standard Life Canada (2013 2015)
- Standard Life plc (2009
2013)
*no public board interlocks
|
|
|
|
|
|
|
|
Voting Results of 2017 Annual General Meeting:
|
|
Other Positions in the Past Five Years:
(position, date office held, and status of employer)
|
Votes in Favour:
750,579,322 (99.31%)
|
|
Votes Withheld:
5,232,903 (0.69%)
|
|
|
|
No other position held in the last five years
|
96
Footnotes to Director nominee tables on pages 93 through 96:
(a)
|
The information includes the beneficial ownership of common shares of Imperial Oil Limited, which information not being within the knowledge of the company has been provided by the nominees individually.
|
(b)
|
The companys plan for restricted stock units for nonemployee directors is described on page 114. The companys plan for deferred share units for nonemployee directors is described on page 113. The
companys plan for restricted stock units for selected employees is described on page 134.
|
(c)
|
The numbers for the companys restricted stock units represent the total of the outstanding restricted stock units received in 2011 through 2017 and deferred share units received since directors
appointment.
|
(d)
|
The value for Imperial Oil Limited common shares, deferred share units and restricted stock units is based on the closing price for Imperial Oil Limited common shares on the Toronto Stock Exchange of $35.50 on
February 7, 2018.
|
Director holdings in Exxon Mobil Corporation (a)
|
|
|
|
|
|
|
|
|
Director
|
|
XOM Common Shares
(#)
|
|
XOM Restricted Stock
(#)(b)
|
|
Total Common Shares
and Restricted Stock
(#)
|
|
Total Market Value of Common
Shares and Restricted
Stock
($)(c)
|
|
|
|
|
|
R.M. Kruger
|
|
1,418
|
|
118,500
|
|
119,918
|
|
11,575,556
|
|
|
|
|
|
D.S. Sutherland
|
|
5,730
|
|
-
|
|
5,730
|
|
553,111
|
|
|
|
|
|
D.G. Wascom
|
|
18,080
|
|
207,600
|
|
225,680
|
|
21,784,648
|
(a)
|
Holdings as at February 7, 2018. The information includes the beneficial ownership of common shares of Exxon Mobil Corporation, which information not being within the knowledge of the company has been provided
by the nominees individually. D.W. Cornhill, K.T. Hoeg, J.M. Mintz, S.D. Whittaker and V.L. Young do not own common shares or hold restricted stock of Exxon Mobil Corporation.
|
(b)
|
The numbers for Exxon Mobil Corporation restricted stock include outstanding restricted stock and restricted stock units granted under its restricted stock plan which is similar to the companys restricted stock
unit plan.
|
(c)
|
The value for Exxon Mobil Corporation common shares and restricted stock is based on the closing price for Exxon Mobil Corporation common shares on the New York Stock Exchange of $76.94 U.S., which is converted to
Canadian dollars at the daily rate of exchange of $1.2546 provided by the Bank of Canada for February
7, 2018.
|
Majority voting policy
In order to better align with the Canadian Coalition for Good Governances policy, Governance Differences of Equity Controlled Corporations
October, 2011, in 2012, the board of directors of the company passed a resolution adopting a majority voting policy. As of the date of this circular, Exxon Mobil Corporation holds 69.6 percent of the companys shares. If Exxon Mobil
Corporations shareholdings were ever to fall below 50 percent, the companys policy provides that for any
non-contested
election of directors, any director nominee who receives a greater number
of votes withheld from his or her election than votes for in such election shall tender his or her resignation. Within 90 days after certification of the election results, the board of directors will decide, through a process
managed by the nominations and corporate governance committee and excluding the nominee in question, whether to accept the resignation. Absent a compelling reason for the director to remain on the board, the board shall accept the resignation. The
board will promptly disclose its decision and, if applicable, the reasons for rejecting the tendered resignation.
97
Corporate governance disclosure
|
|
|
Corporate
governance at a glance
|
Controlled company
|
|
Yes
|
Size of current board
|
|
8
|
Current number of independent
directors
|
|
6
|
Women on board
|
|
2
|
Average attendance of director at board
and committee meetings
|
|
94%
|
Independent chair of the executive
sessions
|
|
Yes
|
In camera sessions of independent
directors at every board meeting
|
|
Yes
|
Independent status of audit
committee
|
|
100%
|
Audit committee members financially
literate
|
|
All
|
Independent status of executive
resources committee
|
|
85%
|
Independent status of nominations and
corporate governance committee
|
|
85%
|
Majority of independent directors on all
committees
|
|
Yes
|
Individual director elections
|
|
Yes
|
Average tenure of director nominees
|
|
9 years
|
Average age of director nominees
|
|
65 years
|
Mandatory retirement age
|
|
72 years
|
Majority voting policy
|
|
Yes
|
Separate board chair and CEO
|
|
No
|
Number of board interlocks
|
|
None
|
No director serves on more than two
boards of another reporting issuer
|
|
Yes
|
Share ownership requirements for
independent directors
|
|
Yes
|
Share ownership requirements for
chairman and chief executive officer
|
|
Yes
|
Board orientation and education
program
|
|
Yes
|
Code of business conduct and ethics
|
|
Yes
|
Board and committee charters
|
|
Yes
|
Position descriptions for the chairman
and chief executive officer and the chair of each committee
|
|
Yes
|
Skills matrix for directors
|
|
Yes
|
Annual board evaluation process
|
|
Yes
|
Annual advisory vote on executive
compensation
|
|
No
|
Dual-class shares
|
|
No
|
Change of control agreements
|
|
No
|
98
Statement of corporate governance practice
This section provides information pertaining to our board, the
committees of the board, ethics, diversity and shareholder engagement. The company is committed to high corporate governance standards and best practices. The companys corporate governance policies and practices comply with and in most cases
exceed the requirements of
National Instrument
52-110
Audit Committees
(NI
52-110),
National Policy
58-201
Corporate
Governance Guidelines
(NP
58-201)
and
National Instrument
58-101
Disclosure of Corporate Governance Practices
(NI
58-101).
The companys common shares trade on the Toronto Stock Exchange and the NYSE American LLC and our corporate governance practices reflect the corporate governance standards of these exchanges.
The company
continually reviews its governance practices and monitors regulatory changes.
Composition of our board nominees
Tenure of our board nominees
The board charter provides that incumbent directors will not be renominated if they have attained the age of 72, except under exceptional circumstances and at the
request of the chairman. The company does not have term limits for independent directors because it values the comprehensive knowledge of the company that long serving directors possess and independent directors are expected to remain qualified to
serve for a minimum of five years. The following chart shows the current years of service of the nominees for the board of directors and the year they would normally be expected to retire from the board.
|
|
|
|
|
Name of director nominee
|
|
Years of service on the board
|
|
Year of expected
retirement from the
board for independent directors
|
D.W. Cornhill
|
|
2 months
|
|
2025
|
K.T. Hoeg
|
|
10 years
|
|
2022
|
R.M. Kruger
|
|
5 years
|
|
-
|
J.M. Mintz
|
|
13 years
|
|
2023
|
D.S. Sutherland
|
|
8 years
|
|
2022
|
D.G. Wascom
|
|
4 years
|
|
-
|
S.D. Whittaker
|
|
22 years
|
|
2019
|
Years of combined experience on the board: 62 years
Average tenure on the board: 9 years
Average age of directors: 65 years
|
99
Skills and experience of our board members
Our directors provide a wide range of skills, diversity and experience.
The current directors collectively have experience and expertise required to ensure effective stewardship and governance of the company. The key areas of experience and
skills for each of the nominees for election as directors can also be found in each of the nominees tables on pages 93 through 97 of this circular.
The table below
sets out the diverse skill set required of the board and identifies the particular experience, qualifications, attributes, and skills of each director that led the board to conclude that such person should serve as a director of the company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.W.
Cornhill
(a)
|
|
K.T.
Hoeg
|
|
R.M.
Kruger
|
|
J.M.
Mintz
|
|
D.S.
Sutherland
|
|
D.G.
Wascom
|
|
S.D.
Whittaker
|
|
Y.L.
Young
(b)
|
Leadership of large organizations
|
|
∎
|
|
∎
|
|
∎
|
|
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
Operations / Technical
|
|
∎
|
|
|
|
∎
|
|
|
|
∎
|
|
∎
|
|
|
|
|
Project management
|
|
∎
|
|
∎
|
|
∎
|
|
|
|
|
|
∎
|
|
|
|
|
Global experience
|
|
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
|
Strategy development
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
Audit committee financial expert
|
|
∎
|
|
∎
|
|
|
|
|
|
∎
|
|
|
|
∎
|
|
∎
|
Financial expertise
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
Government relations
|
|
|
|
|
|
∎
|
|
∎
|
|
∎
|
|
|
|
∎
|
|
∎
|
Academic / Research
|
|
|
|
|
|
|
|
∎
|
|
|
|
|
|
|
|
|
Information technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
∎
|
|
|
Executive compensation
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
(a)
|
D.W. Cornhill was appointed to the board and its committees on November 29, 2017.
|
(b)
|
V.L. Young is currently a director, but is not standing for
re-election
at the annual meeting of shareholders.
|
100
Independence of our board members
Five out of seven of the director nominees are independent.
The board is currently composed of eight directors, seven of whom will be standing for
re-election
at the annual meeting of
shareholders on April 27, 2018. V.L. Young will not stand for
re-election
as he will reach the companys mandatory retirement age for directors in 2018. The majority of the board (six out of eight)
and nominees (five out of seven) are independent. The independent directors are not employees of the company.
The board determines independence on the basis of the
standards specified by
National Instrument
52-110
Audit Committees
(NI
52-110)
,
the U.S. Securities and Exchange Commission rules and the listing standards of the NYSE American LLC. The board has reviewed relevant relationships between the company and each nonemployee
director and director nominee to determine compliance with these standards.
Based on the directors responses to an annual questionnaire, the board determined
that none of the independent directors has any interest, business or other relationship that could or could reasonably be perceived to constitute a material relationship with the company. R.M. Kruger is a director and chairman, president and chief
executive officer of the company and not considered to be independent. The board believes that Mr. Krugers extensive knowledge of the business of the company and Exxon Mobil Corporation is beneficial to the other directors and his
participation enhances the effectiveness of the board.
D.G. Wascom is also a
non-independent
director as he is an officer
of Exxon Mobil Corporation. The company believes that Mr. Wascom, although deemed
non-independent
under the relevant standards by virtue of his employment, can be viewed as independent of the
companys management and that his ability to reflect the perspective of the companys shareholders enhances the effectiveness of the board.
|
|
|
|
|
|
|
|
|
Name of director
|
|
Management
|
|
Independent
|
|
Not
independent
|
|
Reason for non-independent status
|
D.W. Cornhill
(a)
|
|
|
|
∎
|
|
|
|
|
K.T. Hoeg
|
|
|
|
∎
|
|
|
|
|
R.M. Kruger
|
|
∎
|
|
|
|
∎
|
|
R.M. Kruger is a director and chairman, president and chief executive officer of Imperial Oil Limited.
|
J.M. Mintz
|
|
|
|
∎
|
|
|
|
|
D.S. Sutherland
|
|
|
|
∎
|
|
|
|
|
D.G. Wascom
|
|
|
|
|
|
∎
|
|
D.G. Wascom is an officer of Exxon Mobil Corporation.
|
S.D. Whittaker
|
|
|
|
∎
|
|
|
|
|
V.L. Young
(b)
|
|
|
|
∎
|
|
|
|
|
|
(a)
|
D.W. Cornhill was appointed to the board and its committees on November 29, 2017.
|
|
(b)
|
V.L. Young is currently a director, but is not standing for
re-election
at the annual meeting of shareholders.
|
101
Committee membership of our board
Each committee is chaired by a different independent director and
all of the independent directors are members of each committee.
The chart below shows the companys committee memberships and the chair of each committee.
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Nominations
and corporate
governance
committee
|
|
Audit
committee
(b)
|
|
Environment
health and
safety
committee
|
|
Executive
resources
committee
|
|
Contributions
committee
|
D.W. Cornhill
(c)
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
K.T. Hoeg
(c)
|
|
∎
|
|
∎
|
|
∎
|
|
∎
Chair
|
|
∎
|
R.M. Kruger
(a)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
∎
|
J.M. Mintz
|
|
∎
|
|
∎
|
|
∎
Chair
|
|
∎
|
|
∎
|
D.S. Sutherland
(c)
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
|
∎
Chair
|
D.G. Wascom
(a)
|
|
∎
|
|
-
|
|
∎
|
|
∎
|
|
∎
|
S.D. Whittaker
(c)
|
|
∎
Chair
|
|
∎
|
|
∎
|
|
∎
|
|
∎
|
V.L. Young
(c)
|
|
∎
|
|
∎
Chair
|
|
∎
|
|
∎
|
|
∎
|
|
(a)
|
Not independent directors.
|
|
(b)
|
All members of the audit committee are independent and financially literate within the meaning of National Instrument
52-110
Audit Committees and the listing standards of the
NYSE American LLC. V.L. Young is currently the chair of the audit committee, but is not standing for
re-election
at the annual meeting of shareholders.
|
|
(c)
|
Audit committee financial experts under U.S. regulatory requirements.
|
Number of meetings
The chart below shows the number of board, committee and annual meetings held in 2017.
|
|
|
Board or committee
|
|
Number of
meetings held in 2017
|
Imperial Oil Limited board
|
|
7
|
Audit committee
|
|
5
|
Executive resources committee
|
|
7
|
Environment, health and safety committee
|
|
3
|
Nominations and corporate governance committee
|
|
7
|
Contributions committee
|
|
2
|
Annual meeting of shareholders
|
|
1
|
102
Attendance of our board members in 2017
94% board and committee meeting attendance from all members.
The following chart provides a summary of the attendance record of each of the directors in 2017. The attendance record of each director nominee is also set out in his
or her biographical information on pages 93 through 96. The attendance chart also provides an overall view of the attendance per committee. Senior management directors and other members of management periodically attend committee meetings at the
request of the committee chair.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Board
|
|
Audit
committee
|
|
Executive
resources
committee
|
|
Environment
health and
safety
committee
|
|
Nominations
and
corporate
governance
committee
|
|
Contributions
committee
|
|
Annual
meeting
|
|
Total
|
|
Percentage
by director
|
D.W. Cornhill
(a)
|
|
1 of 1
|
|
n/a
|
|
1 of 1
|
|
1 of 1
|
|
1 of 1
|
|
1 of 1
|
|
n/a
|
|
5 of 5
|
|
100%
|
K.T. Hoeg
|
|
7 of 7
|
|
5 of 5
|
|
7 of 7 (chair)
|
|
3 of 3
|
|
7 of 7
|
|
2 of 2
|
|
1 of 1
|
|
32 of 32
|
|
100%
|
R.M. Kruger
|
|
7 of 7
(chair)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2 of 2
|
|
1 of 1
|
|
10 of 10
|
|
100%
|
J.M. Mintz
|
|
7 of 7
|
|
5 of 5
|
|
7 of 7
|
|
3 of 3
(chair)
|
|
7 of 7
|
|
2 of 2
|
|
1 of 1
|
|
32 of 32
|
|
100%
|
D.S. Sutherland
|
|
6 of 7
|
|
4 of 5
|
|
6 of 7
|
|
2 of 3
|
|
6 of 7
|
|
2 of 2
(chair)
|
|
1 of 1
|
|
27 of 32
|
|
84%
|
D.G. Wascom
|
|
6 of 7
|
|
-
|
|
6 of 7
|
|
2 of 3
|
|
6 of 7
|
|
1 of 2
|
|
1 of 1
|
|
22 of 27
|
|
81%
|
S.D. Whittaker
|
|
7 of 7
|
|
5 of 5
|
|
7 of 7
|
|
3 of 3
|
|
7 of 7
(chair)
|
|
2 of 2
|
|
1 of 1
|
|
32 of 32
|
|
100%
|
V.L. Young
|
|
6 of 7
|
|
5 of 5
(chair)
|
|
6 of 7
|
|
3 of 3
|
|
6 of 7
|
|
2 of 2
|
|
1 of 1
|
|
29 of 32
|
|
90%
|
Percentage by committee
|
|
94%
|
|
96%
|
|
93%
|
|
89%
|
|
93%
|
|
93%
|
|
100%
|
|
189/202
|
|
Overall attendance 94%
|
(a)
D.W. Cornhill was appointed to the board and its committees on November
29, 2017.
Other public company directorships of our board members
No director serves on more than two boards of another reporting issuer.
The following table shows which directors serve on the boards of other reporting issuers and the committee memberships in those companies.
|
|
|
|
|
|
|
|
|
Name of
director
|
|
Other reporting issuers of
which director is also a
director
|
|
Type of company
|
|
Stock
symbol:
Exchange
|
|
Committee appointments
|
D.W. Cornhill
|
|
AltaGas Ltd.
|
|
Diversified energy company
|
|
ALA:TSX
|
|
Chairman of the board
|
K.T. Hoeg
|
|
New Flyer Industries Inc.
|
|
Manufacturer of heavy duty transit buses
|
|
NFI:TSX
|
|
Human resources, compensation, and corporate governance committee and audit committee
|
R.M. Kruger
|
|
-
|
|
-
|
|
-
|
|
-
|
J.M. Mintz
|
|
Morneau Shepell Inc.
|
|
Human resources consulting
|
|
MSI:TSX
|
|
Audit committee (chair) and governance committee
|
D.S.
Sutherland
|
|
GATX Corporation
|
|
Commercial rail vehicles and aircraft engines shipping
|
|
GMT:NYSE
|
|
Compensation committee (chair) and governance committee
|
|
United States Steel Corporation
|
|
Iron and steel
|
|
X:NYSE
|
|
Chairman of the board
|
|
|
|
|
|
D.G. Wascom
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
S.D. Whittaker
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
V.L. Young
|
|
-
|
|
-
|
|
-
|
|
-
|
103
Interlocking directorships of our board members
As of the date of this proxy circular, there are no interlocking public company directorships among the directors listed in this circular.
Director qualification and selection process
The nominations and corporate governance committee is responsible for identifying and recommending new candidates for board nomination. The committee identifies
candidates from a number of sources, including executive search firms and referrals from existing directors. The process for selection is described in paragraph 10 (a) of the Board of Directors Charter attached as Appendix A. The committee will
consider potential future candidates as required. In considering the qualifications of potential nominees for election as directors, the nominations and corporate governance committee considers the work experience and other areas of expertise of the
potential nominees with the objective of providing for diversity among the nonemployee directors. The following key criteria are considered to be relevant to the work of the board of directors and its committees:
Work experience
|
●
|
|
Experience in leadership of businesses or other large organizations (Leadership of large organizations)
|
|
●
|
|
Operations/technical experience (Operations/technical)
|
|
●
|
|
Project management experience (Project management)
|
|
●
|
|
Experience in working in a global work environment (Global experience)
|
|
●
|
|
Experience in development of business strategy (Strategy development)
|
Other expertise
|
●
|
|
Audit committee financial expert (also see the financial expert section in the audit committee table starting on page 107)
|
|
●
|
|
Expertise in financial matters (Financial expertise)
|
|
●
|
|
Expertise in managing relations with government (Government relations)
|
|
●
|
|
Experience in academia or in research (Academic/research)
|
|
●
|
|
Expertise in information technology (Information technology)
|
|
●
|
|
Expertise in executive compensation policies and practices (Executive compensation)
|
The nominations and corporate
governance committee may consider the following additional factors in assessing potential nominees:
|
●
|
|
possessing expertise in any of the following areas: law, science, marketing, administration, social/political environment or community and civic affairs;
|
|
●
|
|
individual competencies in business and other areas of endeavour in contributing to the collective experience of the directors; and
|
|
●
|
|
providing diversity of age, gender and regional association.
|
The nominations and corporate governance committee
assesses the work experience and other expertise each existing director possesses and whether the candidate is able to fill any gaps in such experience, expertise and diversity of age, gender and regional association. Consideration is also given to
whether candidates possess the ability to contribute to the broad range of issues with which the board and its committees must deal, are able to devote the necessary amount of time to prepare for and attend board and committee meetings and are free
of any potential legal impediment or conflict of interest. Candidates are expected to remain qualified to serve for a minimum of five years and independent directors are expected to achieve ownership of no less than 15,000 common shares, deferred
share units and restricted share units within five years of becoming an independent director.
When the committee is recommending candidates for
re-nomination,
it assesses such candidates against the criteria for
re-nomination
as set out in paragraph 10 (b) of the Board of Directors Charter found in Appendix A of this
circular. Candidates for
re-nomination
are expected not to change their principal position, the thrust of their involvement or their regional association in a way that would significantly detract from their
value as a director of the corporation. They are also expected to continue to be compatible with the criteria that led to their selection as nominees.
104
Director orientation, education and development
The company regularly provides
in-depth
presentations to the directors on relevant
and emerging issues and encourages continuing education opportunities.
The corporate secretary organizes an orientation program for all new directors. In a series of meetings over several days, new directors are briefed by staff and
functional managers on all significant areas of the companys operations, industry specific topics, risk oversight and regulatory issues. New directors are also briefed on significant company policies, organizational structure, security,
information technology management and on critical planning and reserves processes. They also receive key governance and disclosure documents and a comprehensive board manual which contains a record of historical information about the company,
by-laws,
company policies, the charters of the board and its committees, other relevant company business information, information on directors duties and additional board related activities and calendars.
Continuing education is provided to board and committee members through regular presentations by management which focus on providing more
in-depth
information about key aspects of the business. Each year the board has an extended meeting that focuses on a particular area of the companys operations and includes a visit to one or more of the
companys operating sites or a site of relevance to the companys operations. In September 2017, the board visited the Calgary research centre for a tour of the facility and presentations specific to the work being performed at the centre.
The board and the committees also received a number of presentations in 2017 that focused on performance, strategy and opportunities for the business. Some of these continuing education events included an asset impairment review, an investor
relations review, a tax review, a review of environmental performance, a review of upstream and downstream performance and improvement plans, a competition and anti-corruption review, and an information technology and cybersecurity update.
Members of Exxon Mobil Corporations management also provide reviews of various aspects of ExxonMobils global business. In 2017, the directors received
presentations on ExxonMobils information technology and cybersecurity processes, an overview of ExxonMobils production program, an overview of ExxonMobils global business, and a presentation on ExxonMobils audit program and
processes.
Members of the board also receive an extensive package of materials prior to each board meeting that provides a comprehensive summary on each agenda
item to be discussed. Similarly, the committee members also receive a comprehensive summary on each agenda item to be discussed by that particular committee. Informational communications and other written publications or reports of interest to the
directors are also forwarded routinely.
The board members are canvassed as to whether there are any additional topics relevant to the board or to a specific
committee that they would like to see addressed and management schedules presentations covering these areas. In addition, at every meeting the board receives an extensive update from the chairman, president and chief executive officer on
business environment trends, relevant geopolitical activities, federal government priorities, key provincial issues and competitor activities, as appropriate.
Directors are encouraged to participate in continuing education programs and events to ensure their skills and knowledge remain current.
Board performance assessment
The board and its committees, as well as the performance of the directors, are assessed on an annual basis. In 2017, the directors engaged in a performance assessment
with the chairman, president and chief executive officer during which the directors evaluated the board and each committees effectiveness in various areas. The chairman, president and chief executive officer also meets regularly with directors
individually to discuss any outstanding issues. The nominations and corporate governance committee discussed a summary of these assessment outcomes at its January 2018 meeting.
105
Board and committee structure
Leadership structure
The company has
chosen to combine the positions of chairman, president and chief executive officer. The board believes the interests of all shareholders are best served at the present time through a leadership model with a combined chairman and chief executive
officer position. The company does not have a lead director. While the chairman of the board is not an independent director, S.D. Whittaker, chair of the executive sessions, provides leadership for the independent directors. The duties of the chair
of the executive sessions include presiding at executive sessions of the board, and reviewing and modifying, if necessary, the agenda of the meetings of the board in advance to ensure that the board may successfully carry out its duties. The
position description of the chair of the executive sessions is described in paragraph 9 (c) of the Board of Directors Charter attached as Appendix A.
Independent director executive sessions
The executive sessions of the board are in camera meetings of the independent
directors and are held in conjunction with every board meeting. These meetings are held in the absence of management. The independent directors held seven executive sessions in 2017. The purposes of the executive sessions of the board include the
following:
|
●
|
|
raising substantive issues that are more appropriately discussed in the absence of management;
|
|
●
|
|
discussing the need to communicate to the chairman of the board any matter of concern raised by any committee or director;
|
|
●
|
|
addressing issues raised but not resolved at meetings of the board and assessing any
follow-up
needs with the chairman of the board;
|
|
●
|
|
discussing the quality, quantity, and timeliness of the flow of information from management that is necessary for the independent directors to effectively and responsibly perform their duties, and advising the chairman
of the board of any changes required; and
|
|
●
|
|
seeking feedback about board processes.
|
In camera sessions of the board committees
Various committees also regularly hold in camera sessions without management present. The audit committee regularly holds private sessions of the
committee members as well as private meetings of the committee with each of the external auditor, the internal auditor and senior management as part of every regularly scheduled committee meeting.
Committee structure
The board has
created five committees to help carry out its duties. Each committee is chaired by a different independent director and all of the independent directors are members of each committee. D.G. Wascom is also a member of each committee, with the
exception of the audit committee, which is composed entirely of independent directors. R.M. Kruger is also a member of the contributions committee. Board committees work on key issues in greater detail than would be possible at full board meetings,
allowing directors to more effectively discharge their stewardship responsibilities. The independent chairs of the five committees are able to take a leadership role in executing the boards responsibility with respect to a specific area of the
companys operations falling within the responsibility of the committee he or she chairs. The board and each committee have a written charter that can be found in Appendix A of this circular. The charters are reviewed and approved by the board
annually, and were revised in 2017. The charters set out the purpose, structure, position description for the chair, and the responsibility and authority of that committee.
106
The following table provides additional information about the board and its five committees:
Board of Directors
The board of directors is
responsible for the stewardship of the corporation. The stewardship process is carried out by the board directly or through one or more of the committees of the board. The formal mandate of the board can be found within the Board of Directors
Charter in Appendix A of this circular.
|
|
|
|
|
Directors
|
|
●
R.M. Kruger (chair)
●
D.W. Cornhill
●
K.T. Hoeg
●
J.M. Mintz
|
|
●
D.S. Sutherland
●
D.G. Wascom
●
S.D. Whittaker
●
V.L. Young
|
Number of meetings
|
|
Seven meetings of the board
of directors were held in 2017. There were no special meetings held this year. The independent directors hold executive sessions of the board in conjunction with every board meeting. These meetings are held in the absence of management. The
independent directors held seven executive sessions in 2017.
|
|
|
Board highlights in 2017
|
|
●
Provided oversight in support of safety and
environmental performance.
●
Regularly discussed
industry activity and provided operational updates.
●
Regularly discussed risk management and business
controls environment.
●
Reviewed cyber security
and information technology strategies.
●
Extensively discussed business trends and market
factors relevant to the company.
●
Regularly
assessed performance of the Kearl oil sands operations and approved funding for reliability improvements.
●
Discussed priorities and plans associated with market access strategy.
●
Reinstituted significant share buyback program to
return capital to shareholders.
●
Conducted a
site visit of the Calgary research centre.
●
Appointed new independent director.
●
Discussed comprehensive company strategy for all
business lines.
|
Role in risk oversight
|
|
The chairman, president and
chief executive officer is charged with identifying, for review with the board of directors, the principal risks of the corporations business, and ensuring appropriate systems are in place to manage such risks. The companys financial,
execution and operational risk rests with management and the company is governed by well-established risk management systems. The board of directors carefully considers these risks in evaluating the companys strategic plans and specific
proposals for capital expenditures and budget additions.
|
Disclosure policy
|
|
The company is committed to
full, true and plain public disclosure of all material information in a timely manner, in order to keep security holders and the investing public informed about the companys operations. The full details of the corporate disclosure policy can
be found on the companys internet site at
www.imperialoil.ca
.
|
Independence
|
|
The current board of
directors is composed of eight directors, the majority of whom (six out of eight) are independent. The six independent directors are not employees of the company.
|
Audit Committee
The role of the audit committee includes selecting and overseeing the independent auditor, reviewing the scope and results of the audit conducted by the independent
auditor, assisting the board in overseeing the integrity of the companys financial statements, the companys compliance with legal and regulatory requirements and the quality and effectiveness of internal controls, approving any changes
in accounting principles and practices, and reviewing the results of monitoring activity under the companys business ethics compliance program. The formal mandate of the audit committee can be found within the Audit Committee Charter in
Appendix A of this circular.
107
|
|
|
|
|
Committee members
|
|
●
V.L. Young (chair)
●
S.D. Whittaker (vice-chair)
●
D.W. Cornhill
|
|
●
K.T. Hoeg
●
J.M. Mintz
●
D.S. Sutherland
|
Number of meetings
|
|
Five meetings of the audit
committee were held in 2017. The committee members met in camera without management present at every regularly scheduled meeting and also separately with the internal auditor and the external auditor at all regularly scheduled meetings. A
pre-audit
meeting also occurs prior to every regularly scheduled audit committee meeting with the chair of the audit committee and the chief financial officer and both the internal and external auditors.
|
Committee highlights in 2017
|
|
●
Reviewed the interim and full year financial and
operating results.
●
Reviewed and assessed the
results of the internal auditors audit program.
●
Reviewed and assessed the external auditor plan,
performance and fees.
●
Reviewed the
committees mandate and completed the committee self-assessment.
●
Reviewed evolving regulations and reporting
obligations.
●
Reviewed asset impairment.
●
Reviewed finance plan.
●
Reviewed overall tax process management and tax
litigation update.
●
Performed external auditor
performance evaluation.
|
Financial expertise
|
|
The companys board of
directors has determined that D.W. Cornhill, K.T. Hoeg, D.S. Sutherland, S.D. Whittaker and V.L. Young meet the definition of audit committee financial expert. The U.S. Securities and Exchange Commission has indicated that the
designation of an audit committee financial expert does not make that person an expert for any purpose, or impose any duties, obligations or liability on that person that are greater than those imposed on members of the audit committee and board of
directors in the absence of such designation or identification. All members of the audit committee are financially literate within the meaning of
Multilateral Instrument
52-110
Audit Committees
and the
listing standards of the NYSE American LLC.
|
Role in risk oversight
|
|
The audit committee also has
an important role in risk oversight. It regularly receives updates from management on the companys risk management systems. The audit committee reviewed the scope of PricewaterhouseCoopers audit in light of risks associated with the
energy industry, the regulatory environment and company-specific financial audit risks. The committee reviews financial statements and internal and external audit results. It oversees risks associated with financial and accounting matters, including
compliance with legal and regulatory requirements, and the companys financial reporting and internal controls systems.
|
Independence
|
|
The audit committee is
composed entirely of independent directors. All members met board approved independence standards, as that term is defined in
Multilateral Instrument
52-110
Audit Committees
, the U.S. Securities and
Exchange Commission rules and the listing standards of the NYSE American LLC.
|
|
Executive Resources Committee
The executive resources committee is responsible for corporate policy on compensation and for specific decisions on the compensation of the chief executive officer and
key senior executives and officers reporting directly to that position. In addition to compensation matters, the committee is also responsible for succession plans and appointments to senior executive and officer positions, including the chief
executive officer. The formal mandate of the executive resources committee can be found within the Executive Resources Committee Charter in Appendix A of this circular.
|
Committee members
|
|
●
K.T. Hoeg (chair)
●
V.L. Young (vice-chair)
●
D.W. Cornhill
●
J.M. Mintz
|
|
●
D.S. Sutherland
●
D.G. Wascom
●
S.D. Whittaker
|
|
|
None of the members of the executive resources committee currently serves as a chief executive officer of another company.
|
Number of meetings
|
|
Seven meetings of the
executive resources committee were held in 2017.
|
108
|
|
|
|
|
Committee highlights in 2017
|
|
●
Reviewed executive compensation program and principles.
●
Reviewed current and planned activities to address
recent and upcoming legislative changes impacting the workforce.
●
Continued focus on succession planning for senior
management positions.
●
Appointment of general
auditor.
●
Appointment of vice president and
general counsel.
●
Appointment of senior vice
president, commercial and corporate development.
●
Appointment of senior vice president, upstream.
●
Appointment of three officer
positions.
|
Committee members relevant skills and experience
|
|
D.W. Cornhill, K.T. Hoeg,
D.S. Sutherland, D.G. Wascom, S.D. Whittaker and V.L. Young had extensive and lengthy experience in managing and implementing their respective companies compensation policies and practices in their past role as chief executive officers or
members of senior management. Mr. Cornhill, Ms. Hoeg, Dr. Mintz, Mr. Sutherland and Ms. Whittaker sit or have sat on compensation committees of one or more public companies. Accordingly, committee members are able to use
this experience and knowledge derived from their roles with other companies in judging the suitability of the companys compensation policies and practices.
|
Role in risk oversight
|
|
The executive resources
committee oversees the compensation programs and practices that are designed to encourage appropriate risk assessment and risk management.
|
Independence
|
|
The members of the
executive resources committee are independent, with the exception of D.G. Wascom, who is not considered to be independent under the rules of the U.S. Securities and Exchange Commission, Canadian securities rules and the rules of the NYSE American
LLC due to his employment with Exxon Mobil Corporation. However, the Canadian Coalition for Good Governances policy, Governance Differences of Equity Controlled Corporations October, 2011, would view Mr. Wascom as a
related director and independent of management and who may participate as a member of the companys executive resources committee. Mr. Wascoms participation helps to ensure an objective process for determining compensation of the
companys officers and directors and assists the deliberations of this committee by bringing the views and perspectives of the majority shareholder.
|
|
Environment, Health and Safety Committee
The role of the environment, health and safety committee is to review and monitor the companys policies and practices in matters of the environment, health and
safety and to monitor the companys compliance with legislative, regulatory and corporate standards in these areas. The committee monitors trends and reviews current and emerging public policy. The formal mandate of the environment, health and
safety committee can be found within the Environment, Health and Safety Committee Charter in Appendix A of this circular.
|
Committee members
|
|
●
J.M. Mintz (chair)
●
D.S. Sutherland (vice-chair)
●
D.W. Cornhill
●
K.T. Hoeg
|
|
●
D.G. Wascom
●
S.D. Whittaker
●
V.L. Young
|
Number of meetings
|
|
Three meetings of the
environment, health and safety committee were held in 2017.
|
Committee highlights in 2017
|
|
●
Personnel and process safety review.
●
Emissions and environmental incident review.
●
Operations integrity management system review.
●
Key issue reviews on climate change, biodiversity,
NAFTA, market access and Indigenous relations.
|
Role in risk oversight
|
|
The environment, health and
safety committee reviews and monitors the companys policies and practices in matters of environment, health and safety, which policies and practices are intended to mitigate and manage risk in these areas. The committee receives regular
reports from management on these matters.
|
Independence
|
|
The members of the
environment, health and safety committee are independent, with the exception of D.G. Wascom.
|
109
|
|
|
|
|
Nominations and Corporate Governance Committee
The role of the nominations and corporate governance committee is to oversee issues of corporate governance as they apply to the company, including the overall
performance of the board, review potential nominees for directorship and review the charters of the board and any of its committees. The formal mandate of the nominations and corporate governance committee can be found within the Nominations and
Corporate Governance Committee Charter in Appendix A of this circular.
|
Committee members
|
|
●
S.D. Whittaker (chair)
●
J.M. Mintz (vice-chair)
●
D.W. Cornhill
●
K.T. Hoeg
|
|
●
D.S. Sutherland
●
D.G. Wascom
●
V.L. Young
|
Number of meetings
|
|
Seven meetings of the
nominations and corporate governance committee were held in 2017.
|
Committee highlights in 2017
|
|
●
Board succession planning.
●
Board and committee charter revisions.
●
Approval of the statement of corporate governance
practices.
●
Completion of the board and
committee self-assessment.
●
Review of director
compensation principles.
|
Role in risk oversight
|
|
The nominations and
corporate governance committee oversees risk by implementing an effective program for corporate governance, including board composition and succession planning.
|
Independence
|
|
The members of the
nominations and corporate governance committee are independent, with the exception of D.G. Wascom, who is not considered to be independent under the rules of the U.S. Securities and Exchange Commission, Canadian securities rules and the rules of the
NYSE American LLC due to his employment with Exxon Mobil Corporation. However, the Canadian Coalition for Good Governances policy, Governance Differences of Equity Controlled Corporations October, 2011, would view
Mr. Wascom as a related director and independent of management and who may participate as a member of the companys nominations and corporate governance committee. Mr. Wascoms participation helps to ensure an objective
nominations process and assists the deliberations of this committee by bringing the views and perspectives of the majority shareholder.
|
Contributions Committee
The role of the contributions committee is to oversee all of the companys community investment activities, including charitable donations. The formal mandate of
the contributions committee can be found within the Contributions Committee Charter in Appendix A of this circular.
|
Committee members
|
|
●
D.S. Sutherland (chair)
●
K.T. Hoeg (vice-chair)
●
D.W. Cornhill
●
R.M. Kruger
|
|
●
J.M. Mintz
●
D.G. Wascom
●
S.D. Whittaker
●
V.L. Young
|
Number of meetings
|
|
Two meetings of the
contributions committee were held in 2017.
|
Committee highlights in 2017
|
|
●
Reviewed London Benchmarking Group (LBG) assessment
of Imperials overall value to the community at $21.2 million, which was invested and leveraged with lower than industry average program management costs.
●
Celebrated Canadas sesquicentennial through
the donation of 43 iconic Canadian artworks to 15 galleries at an estimated value of over $6M.
●
Realigned community investment focus areas to reflect current business needs in the areas of Innovation, Indigenous capacity building and our operating communities.
●
Supported wildfire recovery efforts in British
Columbia with a $50,000 donation to the BC Cattlemens Association to provide fire safety training to BC livestock producers.
●
Contributed $3.5 million in 2017 to support
Imperials United Way partners across Canada.
|
Independence
|
|
The majority of the members of the contributions committee are independent (six out of eight) with the exception of R.M. Kruger and D.G. Wascom.
|
110
Director compensation
Director compensation discussion and analysis
Directors
compensation is intended to align the long-term
financial interests of the directors with those of the
shareholders.
Nonemployee director (NED) compensation levels are reviewed by the nominations and corporate governance committee each
year, and resulting recommendations are presented to the full board for approval. The nominations and corporate governance committee decided not to use an external research firm to assemble the comparator data to determine compensation for the
July 1, 2017 - June 30, 2018 period. The committee relied instead on an
internally-led
assessment to provide competitive compensation and market data for directors compensation, which assisted the
committee in making a compensation recommendation for the companys directors. The internal assessment maintained the compensation design philosophy, objectives and principles and was consistent with previous methodology used in this analysis.
Employees of the company or Exxon Mobil Corporation receive no extra pay for serving as directors. Nonemployee directors receive compensation consisting of cash
and restricted stock units. Since 1999, the nonemployee directors have been able to receive all or part of their cash directors fees in the form of deferred share units. The purpose of the deferred share unit plan for nonemployee directors is
to provide them with additional motivation to promote sustained improvement in the companys business performance and shareholder value by allowing them to have all or part of their directors fees tied to the future growth in value of the
companys common shares. The deferred share unit plan is described in more detail on page 113.
111
Compensation decision making process and considerations
The nominations and corporate governance committee relies on market comparisons with a group of 19 major Canadian companies with national and international scope and
complexity. The company draws its nonemployee directors from a wide variety of industrial sectors and, as such, a broad sample is appropriate for this purpose. The nominations and corporate governance committee does not target any specific
percentile among comparator companies at which to align compensation for this group.
The 19 comparator companies included in the benchmark sample are as follows:
|
|
|
Energy
|
|
Non-Energy
|
Canadian Natural Resources
Limited
|
|
Air Canada
|
Cenovus Energy Inc.
|
|
Bank of Nova Scotia
|
Encana Corporation
|
|
BCE Inc.
|
Enbridge Inc.
|
|
Canadian National Railway Company
|
Husky Energy Inc.
|
|
Potash Corporation of Saskatchewan
Inc.
|
Parkland Fuel Corporation
|
|
Royal Bank of Canada
|
Suncor Energy Inc.
|
|
Sun Life Financial Inc.
|
TransCanada Corporation
|
|
Teck Resources Limited
|
|
|
TELUS Corporation
|
|
|
Thomson Reuters Corporation
|
|
|
The Toronto-Dominion Bank
|
Hedging policy
Company policy prohibits all employees, including executives, and directors, from purchasing or selling puts, calls, other options or futures contracts on the company or
Exxon Mobil Corporation stock.
For a discussion on the process by which the compensation of the companys executive officers is determined, see the
Compensation discussion and analysis section starting on page 128.
Compensation details
Board and Committee Chair Retainer
The
compensation of the nonemployee directors is assessed annually. In July 2016, the board approved a change in the compensation paid to the nonemployee directors to better align the long-term financial interests of the directors with those of the
shareholders. Effective July 1, 2016, the nonemployee directors received an annual retainer for board membership of $110,000 per year, and also received a retainer of $10,000 for each committee chaired. The committee membership retainer and the
fee for meetings that occur outside of the regularly-scheduled meeting dates were eliminated and the grant of restricted stock units was increased from 2,000 to 2,600.
Effective July 1, 2017, the nominations and corporate governance committee recommended, and the board subsequently approved, no change to the compensation paid to
the nonemployee directors.
112
The following table summarizes the compensation terms for the nonemployee directors in 2017:
|
|
|
|
Director compensation
|
Annual retainer
terms:
|
|
|
|
Cash retainer:
(a)
|
|
|
Board membership
|
|
$110,000 annually
|
|
|
Committee membership
|
|
None
|
|
|
Committee chair
|
|
$ 10,000 annually
|
|
|
Unscheduled meeting fee
|
|
None
|
Equity based
compensation:
|
Restricted stock units
|
|
2,600 units
(which vest on the 5
th
and 10
th
anniversary of date of grant)
|
|
(a)
|
The nonemployee directors may elect to take all or a portion of the cash retainer in the form of deferred share units.
|
Equity based compensation
Deferred share units
In 1999, an additional form of long-term incentive compensation (deferred share units) was
made available to nonemployee directors. Nonemployee directors may elect to receive all or a portion of their cash compensation in the form of deferred share units.
The following table shows the portion of the retainer each nonemployee director elected to receive in cash and deferred share units in 2017.
|
|
|
|
|
Director
|
|
Election for 2017 directors
fees in cash
(%)
|
|
Election for 2017 directors fees
in deferred share units
(%)
|
|
|
|
D.W. Cornhill
|
|
0
|
|
100
|
|
|
|
K.T. Hoeg
|
|
0
|
|
100
|
|
|
|
J.M. Mintz
|
|
0
|
|
100
|
|
|
|
D.S. Sutherland
|
|
0
|
|
100
|
|
|
|
S.D. Whittaker
|
|
50
|
|
50
|
|
|
|
V.L. Young
|
|
100
|
|
0
|
The number of deferred share units granted to a nonemployee director is determined at the end of each calendar quarter for that year by
dividing (i) the dollar amount of the nonemployee directors fees for that calendar quarter that the director elected to receive as deferred share units by (ii) the average of the closing price of the companys shares on the
Toronto Stock Exchange for the five consecutive trading days (average closing price) immediately prior to the last day of that calendar quarter. Those deferred share units are granted effective the last day of that calendar quarter.
A nonemployee director is granted additional deferred share units in respect of the unexercised deferred share units on the dividend payment dates for the common shares
of the company. The number of such additional deferred share units is determined for each cash dividend payment date by (i) dividing the cash dividend payable for a common share of the company by the average closing price immediately prior to
the payment date for that dividend and then (ii) multiplying that resultant number by the number of unexercised deferred share units held by the nonemployee directors on the record date for the determination of shareholders entitled to receive
payment of such cash dividend.
113
A nonemployee director may only exercise these deferred share units by the end of the calendar year following the year of
termination of service as a director of the company, including termination of service due to death. No deferred share units granted to a nonemployee director may be exercised unless all of the deferred share units are exercised on the same date.
Restricted stock units
In addition
to the cash fees described above, the company pays a significant portion of director compensation in restricted stock units to align director compensation with the long-term interests of shareholders. The restricted stock unit plan is described in
more detail beginning on page 134.
An award of 2,000 restricted stock units was awarded annually up until 2015 with 50 percent vesting in cash three years
from the date of grant and the remaining 50 percent vesting on the seventh anniversary of the grant date. Directors could elect to receive one common share for each unit or a cash payment for the units to be vested on the seventh anniversary of
the date of grant of the restricted stock units.
In 2016, in order to better align the long-term financial interests of the directors with those of the
shareholders, the vesting period of the restricted stock units was increased such that 50 percent vests on the fifth anniversary of the date of grant and the remaining 50 percent vests on the tenth anniversary of the date of grant. In
addition, the number of units awarded was changed to a grant of 2,600 restricted stock units. Directors may receive one common share or elect to receive a cash payment for all units to be vested. The vesting periods are not accelerated upon
separation or retirement from the board, except in the event of death.
In contrast to the forfeiture provisions for restricted stock units held by employees of the
company, the restricted stock units awarded to nonemployee directors are not subject to risk of forfeiture at the time a director leaves the companys board. This provision is designed to reinforce the independence of these board members.
However, while on the board and for a
24-month
period after leaving the companys board, restricted stock units may be forfeited if the nonemployee director engages in direct competition with the company
or otherwise engages in any activity detrimental to the company. The board agreed that the word detrimental shall not include any actions taken by a nonemployee director or former nonemployee director who acted in good faith and in the
best interest of the company.
Prior to vesting of the restricted stock units, the nonemployee directors receive amounts equivalent to the cash dividends paid to
holders of regular common stock. The amount is determined for each cash dividend payment date by (i) dividing the cash dividend payable for a common share of the company by the average closing price immediately prior to the payment date for
that dividend, and then (ii) multiplying that resultant number by the number of unvested restricted stock units held by the nonemployee directors on the record date of the determination of shareholders entitled to receive payment of such cash
dividend.
Other reimbursement
Nonemployee directors are also reimbursed for travel and other expenses incurred for attendance at board and committee meetings.
114
Components of director compensation
The following table sets out the details of compensation paid to the nonemployee directors in 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Annual
retainer for
board
membership
($)
(a)
|
|
Annual
retainer for
committee
chair
($)
(a)
|
|
Restricted
stock units
(RSU)
(#)
|
|
Total
fees paid
in cash
($)
(b)
|
|
Total value
of deferred
share
units
(DSU)
($)
(c)
|
|
Total value
of restricted
stock units
(RSU)
($)
(d)
|
|
All other
compen-
sation
($)
(e)
|
|
Total
compen-
sation
($)
|
|
|
|
|
|
|
|
|
D.W.
Cornhill
|
|
13,750
|
|
0
|
|
2,600
|
|
0
|
|
13,750
|
|
102,648
|
|
0
|
|
116,398
|
K.T.
Hoeg
|
|
110,000
|
|
10,000
(ERC)
|
|
2,600
|
|
0
|
|
120,000
|
|
102,648
|
|
24,721
|
|
247,369
|
J.M.
Mintz
|
|
110,000
|
|
10,000
(EH&S)
|
|
2,600
|
|
0
|
|
120,000
|
|
102,648
|
|
22,887
|
|
245,535
|
D.S.
Sutherland
|
|
110,000
|
|
10,000
(CC)
|
|
2,600
|
|
0
|
|
120,000
|
|
102,648
|
|
20,397
|
|
243,045
|
S.D.
Whittaker
|
|
110,000
|
|
10,000
(N&CG)
|
|
2,600
|
|
60,000
|
|
60,000
|
|
102,648
|
|
39,102
|
|
261,750
|
V.L.
Young
|
|
110,000
|
|
10,000
(AC)
|
|
2,600
|
|
120,000
|
|
0
|
|
102,648
|
|
14,709
|
|
237,357
|
(a)
|
D.W. Cornhill was appointed to the board on November 29, 2017, and his Annual retainer for board membership has been
pro-rated
accordingly. Mr. Cornhill
was not the chair of any committee.
|
(b)
|
Total fees paid in cash is the portion of the Annual retainer for board membership and Annual retainer for committee chair which the director elected to receive as cash. This
amount is reported as Fees earned in the Director compensation table on page 116.
|
(c)
|
Total value of deferred share units is the portion of the Annual retainer for board membership and Annual retainer for committee chair, which the director elected to receive as
deferred share units, as set out in the previous table on page 113. This amount plus the Total value of restricted stock units amount is shown as Share-based awards in the Director compensation table on page 116.
|
(d)
|
The values of the restricted stock units shown are the number of units multiplied by the closing price of the companys shares on the date of grant, which was $39.48.
|
(e)
|
Amounts under All other compensation consist of dividend equivalent payments on unvested restricted stock units, the value of additional deferred share units granted in lieu of dividends on unvested
deferred share units and security provided for certain directors. In 2017, K.T. Hoeg received $6,482 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $18,239 in lieu of dividends on deferred
share units. J.M. Mintz received $6,482 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $15,670 in lieu of dividends on deferred share units. D.S. Sutherland received $6,332 in dividend
equivalent payments on restricted stock units and additional deferred share units valued at $14,065 in lieu of dividends on deferred share units. S.D. Whittaker received $6,482 in dividend equivalent payments on restricted stock units and additional
deferred share units valued at $32,620 in lieu of dividends on deferred share units. V.L. Young received $6,482 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $8,227 in lieu of dividends on
deferred share units.
|
115
Director compensation table
The following table summarizes the compensation paid, payable, awarded or granted for 2017 to each of the nonemployee directors of the company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
(a)
|
|
Fees
earned
($)(b)
|
|
Share-
based
awards
($) (c)
|
|
Option-
based
awards
($)
|
|
Non-equity
incentive plan
compensation
($)
|
|
Pension
value
($)
|
|
All other
compensation
($) (d)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
D.W. Cornhill
|
|
0
|
|
116,398
|
|
-
|
|
-
|
|
-
|
|
0
|
|
116,398
|
|
|
|
|
|
|
|
|
K.T. Hoeg
|
|
0
|
|
222,648
|
|
-
|
|
-
|
|
-
|
|
24,721
|
|
247,369
|
|
|
|
|
|
|
|
|
J.M. Mintz
|
|
0
|
|
222,648
|
|
-
|
|
-
|
|
-
|
|
22,887
|
|
245,535
|
|
|
|
|
|
|
|
|
D.S. Sutherland
|
|
0
|
|
222,648
|
|
-
|
|
-
|
|
-
|
|
20,397
|
|
243,045
|
|
|
|
|
|
|
|
|
S.D. Whittaker
|
|
60,000
|
|
162,648
|
|
-
|
|
-
|
|
-
|
|
39,102
|
|
261,750
|
|
|
|
|
|
|
|
|
V.L. Young
|
|
120,000
|
|
102,648
|
|
-
|
|
-
|
|
-
|
|
14,709
|
|
237,357
|
(a)
|
As directors employed by the company or Exxon Mobil Corporation in 2017, R.M. Kruger and D.G. Wascom did not receive compensation for acting as directors. D.W. Cornhill was appointed to the board on November 29,
2017, and his annual retainer for board membership has been
pro-rated
accordingly.
|
(b)
|
Represents all fees awarded, earned, paid or payable in cash for services as a director, including retainer fees and committee chair fees. The nonemployee directors are able to receive all or part of their
directors fees in the form of deferred share units.
|
(c)
|
Represents the value of the restricted stock units (calculated by multiplying the number of units by the closing price of the companys shares on the date of grant), plus the value of deferred share units
(calculated by the portion of the Annual retainer for board membership and Annual retainer for committee chair which the director elected to receive as deferred share units as noted on page 113).
|
(d)
|
Amounts under All other compensation consist of dividend equivalent payments on unvested restricted stock units, the value of additional deferred share units granted in lieu of dividends on unexercised
deferred share units and security provided for certain directors. In 2017, K.T. Hoeg received $6,482 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $18,239 in lieu of dividends on deferred
share units. J.M. Mintz received $6,482 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $15,670 in lieu of dividends on deferred share units. D.S. Sutherland received $6,332 in dividend
equivalent payments on restricted stock units and additional deferred share units valued at $14,065 in lieu of dividends on deferred share units. S.D. Whittaker received $6,482 in dividend equivalent payments on restricted stock units and additional
deferred share units valued at $32,620 in lieu of dividends on deferred share units. V.L. Young received $6,482 in dividend equivalent payments on restricted stock units and additional deferred share units valued at $8,227 in lieu of dividends on
deferred share units.
|
|
|
|
Five-year look back at total compensation paid to nonemployee directors
|
Year
|
|
Amount
|
|
|
2013
|
|
$1,245,529
|
|
|
2014
|
|
$1,326,687
|
|
|
2015
|
|
$1,206,084
|
|
|
2016
|
|
$1,342,664
|
|
|
2017
|
|
$1,351,454
|
116
Outstanding share-based awards and option-based awards for directors
The following table sets forth all outstanding awards held by nonemployee directors of the company as at December 31, 2017 and does not include
common shares owned by the director.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based awards
|
|
Share-based awards
|
Name
(a)
|
|
Number of
securities
underlying
unexercised
options
(#)
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Value of
unexercised
in-the-money
options
($)
|
|
Number of
shares or units
of shares that
have not
vested
(#) (b)
|
|
Market or
payout value of
share-based
awards that
have not vested
($) (c)
|
|
|
|
|
|
|
|
D.W. Cornhill
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,954
|
|
115,885
|
|
|
|
|
|
|
|
K.T. Hoeg
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42,341
|
|
1,661,037
|
|
|
|
|
|
|
|
J.M. Mintz
|
|
-
|
|
-
|
|
-
|
|
-
|
|
38,223
|
|
1,499,488
|
|
|
|
|
|
|
|
D.S. Sutherland
|
|
-
|
|
-
|
|
-
|
|
-
|
|
35,649
|
|
1,398,510
|
|
|
|
|
|
|
|
S.D. Whittaker
|
|
-
|
|
-
|
|
-
|
|
-
|
|
64,448
|
|
2,528,295
|
|
|
|
|
|
|
|
V.L. Young
|
|
-
|
|
-
|
|
-
|
|
-
|
|
24,390
|
|
956,820
|
|
(a)
|
As directors employed by the company or Exxon Mobil Corporation in 2017, R.M. Kruger and D.G. Wascom did not receive compensation for acting as directors. D.W. Cornhill was appointed to the board on November 29,
2017.
|
|
(b)
|
Represents restricted stock units and deferred share units held as of December 31, 2017.
|
|
(c)
|
Value is based on the closing price of the companys shares on December 31, 2017, which was $39.23.
|
Incentive plan awards for directors Value vested or earned during the year
The following table sets forth the value of the
awards that vested or were earned by each nonemployee director of the company in 2017.
|
|
|
|
|
|
|
Name
(a)
|
|
Option-based awards
Value vested during
the year
($)
|
|
Share-based awards Value
vested during the year
($) (b)
|
|
Non-equity incentive plan
compensation Value
earned during the
year
($)
|
|
|
|
|
D.W. Cornhill
|
|
-
|
|
-
|
|
-
|
|
|
|
|
K.T. Hoeg
|
|
-
|
|
79,290
|
|
-
|
|
|
|
|
J.M. Mintz
|
|
-
|
|
79,290
|
|
-
|
|
|
|
|
D.S. Sutherland
|
|
-
|
|
79,290
|
|
-
|
|
|
|
|
S.D. Whittaker
|
|
-
|
|
79,290
|
|
-
|
|
|
|
|
V.L. Young
|
|
-
|
|
79,290
|
|
-
|
|
(a)
|
As directors employed by the company or Exxon Mobil Corporation in 2017, R.M. Kruger and D.G. Wascom did not receive compensation for acting as directors. D.W. Cornhill was appointed to the board on
November 29, 2017.
|
|
(b)
|
Represents restricted stock units granted in 2010 and 2014, which vested in 2017. Value is based on the average of the weighted average price (as determined by the Toronto Stock Exchange) of common shares of
the company on the vesting date and the four consecutive trading days immediately prior to the vesting date.
|
117
Share ownership guidelines of independent directors and chairman,
president and chief executive officer
Independent directors are required to hold the equivalent of at least 15,000 shares of Imperial Oil Limited,
including common shares, deferred share units and restricted stock units. Independent directors are expected to reach this level within five years from the date of appointment to the board. The chairman, president and chief executive officer has
separate share ownership requirements and must, within three years of his appointment, acquire shares of the company, including common shares and restricted stock units, of a value of no less than five times his base salary. The board of directors
believes that these share ownership guidelines will result in an alignment of the interests of board members with the interests of all other shareholders. As of the date of this circular, the independent directors currently have holdings in excess
of 308,355 shares which is more than three times the required guideline.
|
|
|
|
|
|
|
Minimum share ownership
requirement
|
|
Time to fulfill
|
Chairman, president and chief executive officer
|
|
5 x base salary
|
|
Within 3 years of appointment
|
|
|
|
Independent directors
|
|
15,000 shares
|
|
Within 5 years of initial appointment
|
The chart below shows the shareholdings of the independent directors and the chairman, president and chief executive officer of the
company as of February 7, 2018, the record date of the management proxy circular.
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Director
since
|
|
Amount
acquired
since last
report
(February 9,
2017 to
February 7,
2018) (#)
|
|
Total
holdings
(includes
common shares,
deferred share
units and
restricted stock
units) (#)
|
|
Market value
of total
holdings
(a) ($)
|
|
Minimum
shareholding
requirement
|
|
Minimum
requirement
met
|
|
|
|
|
|
|
|
D.W. Cornhill
|
|
November
29, 2017
|
|
15,454
|
|
15,454
|
|
548,617
|
|
15,000
|
|
Yes
|
|
|
|
|
|
|
|
K.T. Hoeg
|
|
May 1, 2008
|
|
4,098
|
|
42,341
|
|
1,503,106
|
|
15,000
|
|
Yes
|
|
|
|
|
|
|
|
R.M. Kruger
|
|
March 1,
2013
|
|
99,000
|
|
492,500
|
|
17,483,750
|
|
Five times
base salary
|
|
Yes
|
|
|
|
|
|
|
|
J.M. Mintz
|
|
April 21,
2005
|
|
4,033
|
|
39,223
|
|
1,392,417
|
|
15,000
|
|
Yes
|
|
|
|
|
|
|
|
D.S. Sutherland
|
|
April 29,
2010
|
|
13,993
|
|
90,649
|
|
3,218,040
|
|
15,000
|
|
Yes
|
|
|
|
|
|
|
|
S.D. Whittaker
|
|
April 19,
1996
|
|
2,944
|
|
73,798
|
|
2,619,829
|
|
15,000
|
|
Yes
|
|
|
|
|
|
|
|
V.L. Young (b)
|
|
April 23, 2002
|
|
808
|
|
46,890
|
|
1,664,595
|
|
15,000
|
|
Yes
|
|
|
|
|
|
|
Total accumulated holdings (#)
and value of
directors holdings ($)
|
|
|
|
800,855
|
|
28,430,353
|
|
|
|
|
|
(a)
|
The amount shown in the column Value of total holdings is equal to the Total holdings multiplied by the closing price of the companys shares on the proxy circular record date
February 7, 2018 ($35.50).
|
|
(b)
|
V.L. Young is currently a director, but is not standing for
re-election
at the annual meeting of shareholders. Mr. Youngs total holdings consist of 22,500 common
shares (<0.01%), 13,190 deferred share units and 11,200 restricted stock units.
|
For information relating to compensation of the companys
named executive officers, see the Compensation discussion and analysis section starting on page 128.
118
Ethical business conduct
The company is committed to high ethical standards through its policies and practices.
The board has adopted a written code of ethics and business conduct (Code) which can be found on the companys website at
www.imperialoil.ca
.
The Code is applicable to each of the companys directors, officers and employees, and consists of the ethics policy, the conflicts of interest policy, the
corporate assets policy, the directorships policy and the procedures and open door communication. There have been no material change reports filed in the past 12 months pertaining to conduct of a director or executive officer that constitute a
departure from the Code. Under the companys procedures and open door communication, employees are encouraged and expected to refer suspected violations of the law, company policy or internal controls procedures to their supervisors. Suspected
violations involving a director or executive officer, as well as any concern regarding questionable accounting or auditing matters are to be referred directly to the internal auditor. The audit committee initially reviews all issues involving
directors or executive officers, and then refers all issues to the board of directors. In the alternative, employees may also address concerns to individual nonemployee directors or to nonemployee directors as a group. In addition, the directors of
the company must comply with the conflict of interest provisions of the
Canada Business Corporations Act
, as well as the relevant securities regulatory instruments, in order to ensure that the directors exercise independent judgment in
considering transactions and agreements in respect of which such director has a material interest.
Management provides the board of directors with a review of
corporate ethics and conflicts of interest on an annual basis. Directors, officers and employees review the companys standards of business conduct (which includes the Code) on an annual basis, with independent directors and employees in
positions where there is a higher risk of exposure to ethical or conflict of interest situations being required to sign a declaration card confirming that they have read and are familiar with the standards of business conduct. In addition, every
four years a business practices review is conducted in which managers review the standards of business conduct with employees in their respective work units.
The
board, through its audit committee, examines the effectiveness of the companys internal control processes and management information systems. The board consults with the external auditor, the internal auditor and the management of the company
to ensure the integrity of the systems.
There are a number of structures and processes in place to facilitate the functioning of the board independently of
management. The board has a majority of independent directors. Each committee is chaired by a different independent director and all of the independent directors are members of each committee. The audit committee is composed entirely of independent
directors. Each other committee (except the contributions committee) is composed entirely of the independent directors and D.G. Wascom, who is an officer of Exxon Mobil Corporation, and is, therefore, independent of the companys management.
The agendas of each of the board and its committees are not set by management alone, but by the board as a whole and by each committee. A significant number of agenda items are mandatory and recurring. Board meetings are scheduled at least one full
year in advance. Any director may call a meeting of the board or a meeting of a committee of which the director is a member. There is a board-prescribed flow of financial, operating and other corporate information to all directors.
The independent directors conduct executive sessions in the absence of members of management. These meetings are chaired by S.D. Whittaker, the independent director
designated by the independent directors to chair and lead these discussions. Seven executive sessions were held in 2017.
The companys delegation of authority
guide provides that certain matters of the company are reviewed by functional contacts within ExxonMobil. The companys employees are regularly reminded that they are expected to act in the best interests of the company, and are reminded of
their obligation to identify any instances where the companys general interest may not be consistent with ExxonMobils priorities. If such situations ever occurred, employees are expected to escalate such issues with successive levels of
the companys management. Final resolution of any such issues is made by the companys chairman, president and chief executive officer.
119
Restrictions on insider trading
Commitment to stringent safeguards with trading restrictions and reporting for company insiders.
Structures and processes are in place to caution, track and monitor reporting insiders, nonemployee directors and key employees with access to sensitive information with
respect to personal trading in the companys shares. Nonemployee directors are required to
pre-clear
any trades in the companys shares. Reporting insiders are required to give advance notice to the
company of any sale of the company shares and advise the company within five days of any purchase of the companys shares. Reporting insiders are required, under securities regulations, to publically disclose all transactions in the
companys shares on the System for Electronic Disclosure by Insiders (SEDI).
From time to time, the company advises its directors and officers, and those of
Exxon Mobil Corporation, and employees in certain positions not to trade in the companys shares. Trading bans occur in connection with the directors pending consideration of the financial statements of the company, including the
unaudited financial statements for each quarter, and in connection with undisclosed pending events that constitute material information about the business affairs of the company.
Diversity
The company has a
long history of diversity on the board.
Board diversity
The company has a
longstanding commitment to diversity amongst its directors. The board nominee composition charts on page 99 show the diversity of our board nominees with respect to gender, experience and regional association. The company has had a woman on its
board continuously since 1977. Today, two of the eight directors are women, representing 25 percent of the board and 33 percent of its independent directors. Two of the seven nominees for director are women, representing 29 percent of
the nominees. The company has not adopted a target regarding women on its board. With the objective of fostering a diversity of expertise, viewpoint and competencies, the board charter provides that the nominations and corporate governance committee
may consider a number of factors, including gender, in assessing potential nominees. The nominations and corporate governance committee assesses the work experience, other expertise, individual competencies and diversity of age, gender and regional
association each existing director possesses and whether each nominee is able to fill any gaps amongst the existing directors. The company does not believe that any one of these dimensions should be considered, without due regard to all of these
other factors, in determining the ability of potential directors to contribute to the work of the board of directors.
Executive officer
diversity
In considering potential nominees for executive officer appointments, the executive resources committee considers diversity of gender, work
experience, other expertise, individual competencies and other dimensions of diversity in addition to the other factors described on page 131. The company has not adopted a target regarding women in executive officer positions. The company does not
believe that any one of these dimensions should be considered, without due regard to all of these other factors, in determining the ability of potential nominees to fill executive officers positions. Seven out of the 19 executive officers of the
company and its major subsidiary are women, representing 37 percent of the group.
120
Shareholder engagement
Shareholder engagement strategy focuses on wide-ranging dialogue between shareholders and management.
The companys senior management regularly meet with institutional investors and shareholders through industry conferences, roadshows and company hosted investor
events. Materials from these conferences and hosted events are available on our website. For shareholders that are not able to attend our annual meeting in person, the company offers a webcast of the event. The webcast is available on the company
website along with speeches and presentations from the annual general meeting and the outcome of the voting on each resolution. The company annually solicits questions and comments from registered shareholders on the proxy form. The comments
received are reviewed by senior management providing them with an indication of areas of interest to our shareholders and those requiring a response are answered individually.
Largest shareholder
Exxon Mobil
Corporation is the majority shareholder of the company, holding 69.6% of the companys shares.
To the knowledge of the directors and executive officers of
the company, the only shareholder who, as of February 7, 2018, owned beneficially, or exercised control or direction over, directly or indirectly, more than 10 percent of the outstanding common shares of the company is Exxon Mobil
Corporation, 5959 Las Colinas Boulevard, Irving, Texas 75039-2298, which owns beneficially 578,544,049 common shares, representing approximately 69.6 percent of the outstanding voting shares of the company. As a consequence, the company is a
controlled company for purposes of the listing standards of the NYSE American LLC and a majority controlled company for purposes of the TSX Company Manual.
Transactions with Exxon Mobil Corporation
The company has written procedures that provide that any transactions between the company and Exxon Mobil Corporation and its subsidiaries are subject to review by the
chairman, president, and chief executive officer. The board of directors receive an annual review of related party transactions with Exxon Mobil Corporation and its subsidiaries.
On June 27, 2016, the company implemented a
12-month
normal course share purchase program. Between
June 27, 2016 and June 26, 2017, the company purchased the maximum 1,000,000 common shares on the open market and a corresponding 2,287,062 common shares from Exxon Mobil Corporation concurrent with, but outside of the program to maintain
its shareholding at approximately 69.6 percent. On June 27, 2017, a further
12-month
normal course share purchase program was implemented. Under the current program, the company may purchase up
to 25,395,927 common shares (three percent of its outstanding common shares as of June 13, 2017) from the open market, less the amount purchased from Exxon Mobil Corporation concurrent with, but outside of the program to maintain its ownership
percentage at approximately 69.6 percent. As of February 7, 2018, under the current program, the company purchased 3,975,250 common shares on the open market and 9,097,192 common shares from Exxon Mobil Corporation.
The amounts of purchases and sales by the company and its subsidiaries for other transactions in 2017 with Exxon Mobil Corporation and affiliates of ExxonMobil were
$2,648 million and $4,080 million, respectively. These transactions were conducted on terms as favourable as they would have been with unrelated parties, and primarily consisted of the purchase and sale of crude oil, natural gas, petroleum
and chemical products, as well as technical, engineering and research and development services. Transactions with ExxonMobil also included amounts paid and received in connection with the companys participation in a number of upstream
activities conducted jointly in Canada. In addition, the company has existing agreements with affiliates of ExxonMobil to provide computer and customer support services to the company and to share common business and operational support services to
allow the companies to consolidate duplicate work and systems. The company has a contractual agreement with an affiliate of ExxonMobil in Canada to operate certain Western Canada production properties owned by ExxonMobil. There are no asset
ownership changes. The company and that
121
affiliate also have a contractual agreement to provide for equal participation in new upstream opportunities. During 2007, the company entered into agreements with ExxonMobil and one of its
affiliated companies that provide for the delivery of management, business and technical services to Syncrude Canada Ltd. by ExxonMobil. In 2017, the company entered into an agreement whereby ExxonMobil enters into derivate agreements on the
companys behalf.
As at December 31, 2017, the company had an outstanding loan of $4,447 million under an existing agreement with an affiliated
company of ExxonMobil that provides for a long term, variable rate loan from ExxonMobil to the company of up to $7.75 billion (Canadian) at market interest rates. The agreement is effective until July 31, 2020, cancellable if ExxonMobil
provides at least 370 days advance written notice. Additionally, the company had outstanding short-term loans of $75 million from an affiliated company of ExxonMobil. This loan is borrowed under an arrangement with ExxonMobil that provides for
a
non-interest
bearing, revolving demand loan from ExxonMobil to the company of up to $75 million and represents ExxonMobils share of a working capital facility required to support purchasing,
marketing and transportation arrangements for crude oil and diluent products undertaken by the company on behalf of ExxonMobil.
122
Company executives and executive compensation
Named
executive officers of the company
The named executive officers of the company at year end 2017 were:
|
|
|
Richard M. Kruger, 58
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Chairman, president and chief executive officer
(2013 - Present)
Other positions in the past five years (position, date office held and status of employer):
Vice-president, Exxon Mobil Corporation
(2008 -
2013) (Affiliate)
President, ExxonMobil Production Company
(2008 - 2013) (Affiliate)
|
Beverley A. Babcock, 56
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Senior vice-president, finance and administration, and controller
(2015 Present)
Other positions in the past five years (position, date office held and status of employer):
Vice-president, corporate financial services, Exxon Mobil Corporation
(2013 - 2015) (Affiliate)
Assistant controller, corporate accounting services, Exxon Mobil Corporation
(2011 - 2013) (Affiliate)
|
John R. Whelan, 52
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Senior vice-president, upstream
(2017 Present)
Other positions in the past five years (position, date office held and status of employer):
Vice-president production, upstream
(2016
2017)
Production manager, mining, upstream
(2013 2015)
|
Theresa B. Redburn, 56
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Senior vice-president, commercial and corporate development
(2017 Present)
Other positions in the past five years (position, date office held and status of employer):
Vice-president, upstream commercial
(2014
2016)
Commercial manager, upstream ventures, Exxon Mobil
Corporation
(2011-2014), (Affiliate)
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Peter M. Dinnick, 53
Calgary, Alberta, Canada
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Position held at the end of 2017 (date
office held):
Vice-president and general counsel
(2017 Present)
Other positions in the past five years (position, date office held and status of employer):
Assistant general counsel, upstream
(2012 -
2016)
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123
Other executive officers of the company
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Jonathan R. Wetmore, 45
Calgary, Alberta, Canada
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Current position (date office
held):
Vice-president, Imperial Oil Downstream and Manager, western Canada fuels
(2018 - Present)
Position held at the end of 2017 (date office held):
Manager, supply and manufacturing
(June 2017
December 2017)
Other positions in the past five years (position, date office held and
status of employer):
Refinery manager, Fawley UK, UK Esso Petroleum Company Ltd
(2013 - 2017) (Affiliate)
Refinery manager, Port Jerome, France, France Esso Raffinage S.A.S.
(2012 - 2013) (Affiliate)
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Glenn R. Peterson, 57
Calgary, Alberta, Canada
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Position held at the end of 2017 (date
office held):
Treasurer
(2017
Present)
Other positions in the past five years (position, date office held and status of
employer):
Senior business advisor, Treasurers
(2000 - 2017)
|
Jim E. Burgess, 43
Calgary, Alberta, Canada
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|
Position held at the end of 2017 (date
office held):
Assistant controller
(2016 Present)
Other positions in the past five years (position, date office held and status of employer):
Lead controller and financial accounting process manager, Thailand business support centre, ExxonMobil Limited
(2014 2016), (Affiliate)
Senior financial advisor, Exxon Mobil Corporation
(2012 - 2014), (Affiliate)
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Barry J. Murphy, 49
Calgary, Alberta, Canada
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Current position (date office
held):
Director, fuel sales
(2018 -
Present)
Position held at the end of 2017 (date office held):
Manager, Americas industrial & commercial sales
(2016 2017)
Other positions in the past five years (position, date office held and status of employer):
Manager, fuels national account sales
(2015
2016)
Manager, project office, retail support
(February 2015 August 2015)
Manager, customer service Americas
(2013
2015)
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124
Other executive officers of the company
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Denise H. Hughes, 50
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Vice-president, human resources
(2013 - Present)
Other positions in the past five years (position, date office held and status of employer):
Manager, executive development, education compensation and benefits
(2010 - 2013)
|
Marvin E. Lamb, 62
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Director, corporate tax
(2001 2018)
Other positions in the past five years (position, date office held and status of employer):
No other positions held in the last five years
|
Lara H. Pella, 48
Calgary, Alberta, Canada
|
|
Position held at the end of 2017 (date
office held):
Assistant general counsel, downstream and corporate departments, and Corporate secretary
(2013 Present)
Other positions in the past five years (position, date office held and status of employer):
Assistant general counsel, corporate departments, and Corporate secretary
(2013 2016)
Assistant general counsel, upstream
(2010 -
2013)
|
125
Letter to shareholders from the executive resources committee on executive compensation
Dear fellow
shareholders:
The executive resources committee (committee) would like to outline for you the role of the committee in ensuring good governance in the
management of executive compensation within the company.
Compensation governance
The committee is responsible for corporate policy on compensation and for specific decisions on the compensation of the chief executive officer, key senior executives
and officers of the company. In exercising this responsibility, the committee views long-term orientation and the management of risk as integral elements of the compensation policies and practices of the company. These policies and practices are
designed to keep management, including named executive officers, focused on the strategic objectives of the company over the long term and to effectively assess and mitigate risk in the execution of these objectives. The committee exercises
oversight of a compensation program that supports the companys objective to attract, develop and retain key talent needed to achieve its strategic objectives.
The compensation discussion and analysis (CD&A) section that follows describes the compensation program for the companys named executive officers
and how the program supports the business goals of the company. The companys compensation program is designed to:
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align the interests of its executives with long-term shareholder interests;
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encourage executives to manage risk and take a long-term view when making investments and managing the assets of the business;
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reinforce the companys philosophy that the experience, skill and motivation of the companys executives are significant determinants of future business success; and
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promote career orientation and strong individual performance.
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The compensation program design is aligned with the core
elements of the majority shareholders compensation program, including linkage to short and
mid-term
aspects of incentive pay, long vesting periods, risk of forfeiture and alignment with the shareholder
experience.
We execute our oversight responsibilities in this regard by ensuring the companys program is built on sound principles of compensation design,
including an annual assessment of comparator companies, appropriate risk assessment and risk management practices, sound governance principles, and support of the companys business model. In exercising our oversight and decision making roles,
the committee balances many factors each year in terms of impact on compensation decisions relative to the companys performance.
2017 business performance results
The committee
considers both business results and individual performance in its decisions. In 2017, financial performance continued to be affected by low global crude prices. Notwithstanding the difficult business environment, the committee evaluated the
companys performance relative to its proven business model and strategies to deliver long-term shareholder value. Key 2017 business results include:
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Strong safety, operational integrity and risk management performance
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$490 million net income; $1,056 million excluding upstream
non-cash
impairment charges
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$2,763 million cash flow from operations, the highest since 2014
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$1,151 million returned to shareholders through share purchases and dividends
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23rd consecutive year of dividend growth
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Reinstituted share buyback program
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Strong performance across all business lines
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Record annual production at Cold Lake and Kearl
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Best-ever refining results in energy efficiency and reliability
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Highest petroleum product sales in more than 25 years
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Expanded branded fuels business with Husky conversion and introduction of Mobil brand
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Second highest annual chemical earnings
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$190 million reduction in above-field costs; nearly $400 million since 2015
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126
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Progressed opportunities to add value to high-quality asset portfolio
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Completed Kearl enhancements to improve reliability and reduce unit costs
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Approved investment to increase Kearl production beyond initial scope
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Approved Strathcona refinery cogeneration project to improve energy efficiency
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Continued commitment to industry leadership in technology and innovation
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More than $150 million invested in research
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Collectively these factors had an impact on 2017 compensation
decisions for the named executive officers. The individual committee members, through their experience in stewarding compensation programs and their participation on board committees, are able to understand the companys overall objectives,
operating risks and financial risks. This understanding of the companys objectives and range of business risks allows an appropriate calibration of the companys compensation policies and practices to the business model.
The committees assessment is that the companys compensation program is working as intended and has been effectively integrated over the long term with the
companys business model. The committee has recommended to the board that the CD&A be included in the companys management proxy circular for the 2018 annual meeting of shareholders. We encourage you to read the comprehensive
disclosure in the CD&A that follows. The committee is committed to overseeing all aspects of the executive compensation program in the best interests of the company and all shareholders.
Submitted on behalf of the executive resources committee,
Original signed by
K.T. Hoeg,
Chair, executive resources committee
V.L. Young, Vice-chair
D.W. Cornhill
J.M. Mintz
D.S. Sutherland
S.D. Whittaker
D.G. Wascom
127
Compensation discussion and analysis
Table of contents
128
Overview
The company takes a long-term view to managing its business.
Providing energy to help meet the demands of both Canada and the rest of North America is a complex business. The company meets this challenge by taking a long-term
view to managing its business rather than reacting to short-term business cycles. As such, the compensation program of the company aligns with this long-term business outlook and supports key business strategies as outlined below:
Canadian business environment
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Large, accessible upstream resources
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Mature, competitive downstream markets
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Evolving environmental and fiscal policies impacting global competitiveness
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Market access limitations, uncertainties
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Business model
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Long-life, competitively advantaged assets
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Disciplined investment and cost management
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Value-chain integration and synergies
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High-impact technologies and innovation
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Operational excellence and responsible growth
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Key business
strategies
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Personnel safety and operational excellence
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Grow profitable production and sales volumes
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Disciplined and long-term focus on improving the productivity of the companys asset mix
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Best-in-class
cost structure to support industry-leading returns on capital and superior cash flow
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These key business strategies are the primary focus and support long-term growth in shareholder value.
Key elements of the compensation program
The key elements of the companys compensation program that align with the business model and support key business strategies are:
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long-term career orientation with high individual performance standards (see page 132);
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base salary that rewards individual performance and experience (see page 133);
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annual bonus grants to eligible executives based on company performance, as well as individual performance and experience (see page 133);
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payment of a large portion of executive compensation in the form of restricted stock units with long vesting periods and risk of forfeiture (see pages 134 through 137); and
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retirement benefits (pension and savings plans) that provide for financial security after employment (see pages 137 through 138).
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Management of risk
The company operates in an industry environment in which effective risk management is critical. For this reason, the company places a high premium on managing risks,
including safety, security, health, environmental, financial, operational and reputational risks. The companys success in managing risk over time has been achieved through emphasis on execution of a disciplined management framework, which has
been in place since the early 1990s. This framework establishes common expectations for addressing risks inherent in our business and takes priority over other business and financial objectives. The company also has strong controls and
compliance programs to manage other types of risk, including fraud, regulatory compliance and litigation risks.
129
The companys long-term orientation and compensation program design encourage the highest performance standards and
discourage inappropriate risk taking. The compensation program design features described below work together to ensure executives have a clear and strong financial incentive to:
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protect the safety and security of our employees, the communities and the environment in which we operate;
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manage risk and operate the business with effective business controls;
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create value for company shareholders by increasing shareholder return, net income, return on capital employed; and
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advance the long-term strategic direction of the company.
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Compensation
components
A substantial portion of total compensation (excluding compensatory pension value) to senior executives is in the form of an
annual bonus and restricted stock units. In the judgment of the committee, the mix of short, medium and long-term incentives strikes an appropriate balance in aligning the interests of the senior executives with the business priorities of the
company and sustainable growth in long-term shareholder value. Ongoing reviews of our compensation program, including incentives, ensure continued relevance of this mix and applicability for the company.
Annual bonus
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Delayed payout Payout of 50 percent of the annual bonus is delayed. The timing of the delayed payout is determined by earnings performance. This is a unique feature of the companys program relative to
many comparator companies.
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Recoupment (claw-back) and forfeiture The entire annual bonus is subject to recoupment (claw-back) and the delayed portion of the annual bonus is subject to forfeiture in the event of
material negative restatement of the companys reported financial or operating results. This reinforces the importance of the companys financial controls and compliance programs. Claw-back and forfeiture provisions also apply if an
executive resigns or engages in detrimental activity.
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The companys annual bonus program is described in more detail on pages 133 and 136.
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Restricted stock units
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Long holding periods To further reinforce the importance of risk management and a long-term investment orientation, senior executives are required to hold a substantial portion of their equity incentive award for
periods that far exceed the typical holding periods of comparator stock programs. The lengthy holding periods are tailored to the companys business model.
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Risk of forfeiture During these long holding periods, the restricted stock units are at risk of forfeiture for resignation or detrimental activity. The long vesting periods on restricted stock units and the risk
of forfeiture together support an appropriate risk/reward profile that reinforces the long-term orientation expected of senior executives.
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The companys restricted stock unit program is described in more detail on pages 134 through 137.
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Common programs
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All executives of the company, including the named executive officers, participate in common programs (the same salary, incentive and retirement programs). Similar compensation design features and allocation of awards
within the programs discourage inappropriate risk taking. The compensation of executives is differentiated based on individual performance assessment, level of responsibility and individual experience.
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All executives on assignment from an affiliate of the company, including the named executive officers on assignment from Exxon Mobil Corporation, Esso Australia Pty Ltd. and ExxonMobil Canada Ltd., also participate in
common programs, which are administered by Exxon Mobil Corporation or such affiliates. The named executive officers on assignment receive the companys restricted stock units.
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The executive resources committee reviews and approves compensation recommendations for each named executive officer prior to implementation.
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Pension
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The companys defined benefit pension plan and supplemental pension arrangements are highly dependent on executives remaining with the company for a career and performing at the highest levels until retirement.
This dimension of total compensation encourages executives to take a long-term view when making business decisions and to focus on achieving sustainable growth for shareholders.
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130
Other supporting compensation and staffing practices
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A long established program of management development and succession planning is in place to reinforce a career orientation and ensure continuity of leadership.
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The use of perquisites at the company is very limited, and mainly composed of financial planning for senior executives and the selective use of club memberships which are largely tied to building business relationships.
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Tax assistance is provided for employees on expatriate assignment. This assistance consists primarily of a tax equalization component designed to maintain the employees overall income tax burden at approximately
the same level it would have otherwise been, had they remained in their home country. The expatriate relocation program is broad-based and applies to all executive, management, professional and technical transferred employees.
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Hedging policy
Company policy prohibits all employees, including executives, and directors, from purchasing or selling puts, calls, other options or futures contracts on the company or
Exxon Mobil Corporation stock.
Business performance and basis for compensation
The assessment of individual performance is conducted through the companys employee appraisal program. Conducted annually, the appraisal process assesses
performance against relevant business performance measures and objectives, including the means by which performance is achieved. These business performance measures may include:
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safety, health and environmental performance;
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total shareholder return;
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return on capital employed;
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cash flow from operations and asset sales;
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operating performance of the upstream, downstream and chemical segments; and
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progress on advancing government relations and long-term strategic interests.
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The appraisal process includes a
comparative assessment of employee performance using a standard approach throughout the organization and at all levels. It is integrated with the compensation program, which results in significant pay differentiation between higher and lower
performers. The appraisal process is also integrated with the executive development process. Both have been in place for many years and are the basis for planning individual development and succession for management positions. Decision-making with
respect to compensation requires judgment, taking into account business and individual performance and responsibility. Quantitative targets or formulae are not used to assess individual performance or determine the amount of compensation.
Succession planning
The succession planning process fosters the companys approach to a career orientation and promotion from within. This approach strengthens continuity of leadership
and supports ongoing alignment with our long-term business model. This process helps to assess the competence and readiness of individuals for senior executive positions. The executive resources committee is responsible for approving specific
succession plans for the position of chairman, president and chief executive officer and key senior executive positions reporting to him, including all officers of the company.
The executive resources committee regularly reviews the companys succession plans for key senior executive positions. It considers candidates for these positions
from within the company and certain candidates from Exxon Mobil Corporation and its affiliates. This is an
in-depth
review of succession plans, which includes the consideration of various aspects of diversity
as well as plans to address gaps, if any, for key executives. For example, the company has a long-standing practice to regularly review with senior management the progress of women, which includes topics such as recruitment, attrition, relocation,
training and development. The representation of female company executives is approximately one third. The chairman, president and chief executive officer also discusses the strengths, progress and development needs of key succession candidates each
year. This provides the board an opportunity to confirm a pipeline of key and diverse talent exists to enable achievement of long-term strategic objectives. The executive resources committee makes recommendations to the board of directors for
selection of all officers of the company, as well as other key senior executive positions reporting to the chairman, president and chief executive officer.
131
Compensation program
The companys
compensation program is designed to reward performance,
promote retention, and encourage long-term business
decisions.
Career orientation
The companys objective is to attract, develop and retain over a career the best talent available. It takes a long period of time and significant investment to
develop the experienced executive talent necessary to succeed in the companys business; senior executives must have experience with all phases of the business cycle to be effective leaders. The companys compensation program elements are
designed to encourage a career orientation among employees at all levels of the company. Career orientation among a dedicated and highly skilled workforce, combined with the highest performance standards, contributes to the companys leadership
in the industry and serves the interests of shareholders in the long term. The company service of the named executive officers ranges from approximately 31 to 33 years and reflects this
on-going
career
orientation strategy.
The compensation program emphasizes individual experience and sustained performance; executives holding similar positions may receive
substantially different levels of compensation. Consistent with the companys long-term career orientation, high-performing executives typically earn substantially higher levels of compensation in the later years of their careers. This pay
practice reinforces the importance of a long-term focus on making decisions that are key to business success.
The companys executive compensation program is
composed of base salaries, cash bonuses and medium and long-term incentive compensation. The company does not have written employment contracts or any other agreement with its named executive officers providing for payments on change of control or
termination of employment. The following chart provides an overview of the combined elements of the compensation program for executives, including the pay at risk horizon for the executives.
132
Base salary
Salaries provide executives with a base level of income. The level of annual salary is based on the executives responsibility, performance assessment and career
experience. Individual salary increases vary depending on each executives performance assessment and other factors such as time in position and potential for advancement. Salary decisions also directly affect the level of retirement benefits
since salary is included in the retirement benefits calculation. Thus, the level of retirement benefits is also performance-based, like other elements of compensation. The salary program in 2017 maintained the companys desired competitive
orientation in the marketplace.
Annual bonus
The bonus program is established annually by the executive resources committee based on earnings, and can be highly variable depending on these results.
In establishing the annual bonus program, the executive resources committee:
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considers input from the chairman, president and chief executive officer on performance of the company and from the companys internal compensation advisors regarding compensation trends as obtained from external
consultants;
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considers its linkage to majority shareholder bonus program given the companys working interest is included in Exxon Mobil Corporation earnings;
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considers annual net income of the company; and
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uses judgment to manage the overall size of the annual bonus program taking into consideration the cyclical nature and long-term orientation of the business.
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The annual bonus program incorporates unique elements to further reinforce retention and recognize performance. Awards under this program are generally delivered as:
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The annual bonus includes the combined value of the cash bonus and delayed earnings bonus unit portion, and is intended to be competitive with the annual bonus awards of other major comparator companies.
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The cash component is intended to be a short-term incentive, while the earnings bonus unit is intended to be a medium-term incentive. Earnings bonus units are generally equal to and granted in tandem with cash bonuses.
Individual bonus awards vary depending on each executives performance assessment.
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Earnings bonus units are cash awards that are tied to future cumulative earnings per share. Earnings bonus units pay out when a specified level of cumulative earnings per share (or trigger) is achieved or in three years
at a reduced level. The trigger is intentionally set at a level that is expected to be achieved within the three-year period and reinforces the companys principle of sustained improvement in the companys business performance and aligns
the interests of executives with those of long-term shareholders.
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If cumulative earnings per share do not reach the trigger within three years, the payment with respect to the earnings bonus units will be reduced to an amount equal to the number of units times the actual cumulative
earnings per share over the three-year period. The amount of the award, once vested, will never exceed the original grant value. The delayed portion for the earnings bonus unit portion of the annual bonus puts part of the annual bonus at risk of
forfeiture and thus reinforces the performance basis of the annual bonus grant.
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In 2017, an annual bonus was granted to approximately 50 executives
to reward their contributions to the business during the past year. The cost of the 2017 annual bonus program was $3.4 million versus $3.0 million in 2016. For earnings bonus units granted in 2017, the maximum settlement value (trigger) or
cumulative earnings per share required for payout remained at $3.50.
133
Restricted stock units
The vesting periods of the companys long-term incentive program are greater
than those in use by comparator companies.
The companys only long-term incentive compensation plan is a restricted stock unit plan, in place since December 2002. Restricted stock units are granted to
selected employees of the company, selected employees of a designated affiliate and nonemployee directors of the company. The current plans vesting periods for employees are as follows:
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for the chairman, president and chief executive
officer:
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for all other employees:
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Granting compensation in the form of restricted stock units with long vesting periods as described above is aligned with the long-term
nature of the companys business. This stock program design helps keep executives focused on the key premise that decisions made today affect the performance of the organization and company stock for many years to come. This practice supports a
risk/reward model that reinforces a long-term view, which is critical to the companys business success, and discourages inappropriate risk taking.
The basis
for the grant includes an annual assessment of individual performance including a review of business performance results as noted on page 139. The amount granted is intended to provide an incentive to promote individual contribution to the
companys performance and to remain with the company. Grant level guidelines for the restricted stock unit program award the same number of shares for the same level of individual performance and classification or level of responsibility, and
may be adjusted periodically based on an assessment of the programs competitive orientation. An individuals grant amount may be reduced at time of grant, if recent performance is deemed to have changed significantly at that time. As a
matter of principle, the company does not offset losses on prior grants with higher share awards in subsequent grants, nor does the company
re-price
restricted stock units. Restricted stock units are not
included in pension calculations.
134
The vesting periods, which are typically greater than those in use by other companies, reinforce the companys focus
on growing shareholder value over the long term by linking a large percentage of executive compensation and the shareholding net worth of executives to the value of the companys stock. The long vesting periods ensure that a substantial portion
of the compensation received by the chairman, president and chief executive officer, as well as other key senior executives, will be received after retirement. The value of this compensation is at risk in the event that their decisions prior to
retirement negatively impact share market value after retirement. The objective of these aforementioned vesting periods is to hold senior executives accountable for many years into the future, and even into retirement, for investment and operating
decisions made today. This type of compensation design removes employee discretion in the timing of exercising restricted stock units, reinforces retention objectives, and supports alignment with the long-term interests of shareholders.
In 2017, after a review of the competitive orientation of the companys restricted stock unit program, it was determined that current levels of restricted stock
units were appropriate and that the program continues to align with the design of the majority shareholders program. In 2017, 415 recipients, including 55 executives, were granted 758,990 restricted stock units.
Vesting of restricted stock units
Restricted stock units vest pursuant to the vesting provisions described in the previous section. Restricted stock units cannot be assigned. The vesting period for
restricted stock unit awards is not subject to acceleration, except in the case of death.
Upon vesting, each restricted stock unit entitles the recipient to the
right to receive an amount equal to the value of one common share of the company, based on the five day average closing price of the companys shares on the vesting date and the four preceding trading days. For units granted to senior
executives other than the chairman, president and chief executive officer, 50 percent of the units vest as a cash payment on the third and seventh anniversary of the grant date, with the following exception: for units granted to Canadian
residents, the recipient may receive one common share of the company per unit or elect to receive a cash payment for the units that vest on the seventh anniversary. For all units granted to the chairman, president and chief executive officer, upon
vesting, the recipient may receive one common share of the company per unit or elect to receive a cash payment for the units. During the restricted period, the recipient will also receive cash payments equivalent to the cash dividends paid to
holders of regular common stock.
The companys directors, officers and vice-presidents as a group hold approximately 21 percent of the unvested
restricted stock units that give the recipient the right to receive common shares that represent about 0.08 percent of the companys outstanding common shares. Currently, the maximum number of common shares that any one person may receive
from the vesting of restricted stock units is 492,500 common shares, which is about 0.06 percent of the outstanding common shares. In the case of any subdivision, consolidation, or reclassification of the shares of the company or other relevant
change in the capitalization of the company, the company, in its discretion, may make appropriate adjustments in the number of common shares to be issued and the calculation of the cash amount payable per restricted stock unit.
Exxon Mobil Corporation has a plan similar to the companys restricted stock unit plan, under which grantees may receive restricted stock or restricted stock
units, both of which are referred to herein as Exxon Mobil Corporation restricted stock. R.M. Kruger holds Exxon Mobil Corporation restricted stock granted in 2012 and previous years, as well as the companys restricted stock units granted
since 2013. J.R. Whelan and P.M. Dinnick also hold Exxon Mobil Corporation restricted stock granted in 2016 and previous years, as well as the companys restricted stock units granted in 2017.
135
Amendments to the restricted stock unit plan
In 2008, the companys restricted stock unit plan was amended to provide that the number of common shares of the company issuable under the plan to any insiders (as
defined by the Toronto Stock Exchange) cannot exceed 10 percent of the issued and outstanding common shares, whether at any time or as issued in any one year. The Toronto Stock Exchange advised that this amendment did not require shareholder
approval. Additionally, shareholders approved the following changes to the restricted stock unit plan:
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In addition to the existing three and seven year vesting provisions, include an additional vesting period option for 50 percent of restricted stock units to vest on the fifth anniversary of the date of grant, with
the remaining 50 percent of the grant to vest on the later of the tenth anniversary of the date of grant or the date of retirement of the grantee. The recipient of such restricted stock units may receive one common share of the company per unit
or elect to receive the cash payment for all units to be vested. The choice of which vesting period provision to use will be at the discretion of the company.
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Set a vesting price based on the weighted average price of the companys shares on the vesting date and the four consecutive trading days immediately prior to the vesting date.
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Set out which amendments in the future will require shareholder approval, and which amendments will only require board of directors approval. The board of directors may amend the plan without shareholder approval for
RSUs previously issued or to be issued in the future, unless the amendment is with respect to:
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increasing the shares served for issuance;
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●
|
|
increasing the vesting price;
|
|
●
|
|
extending eligibility to participate in the plan to persons not included in the plan;
|
|
●
|
|
extending the right of a grantee to transfer or assign RSUs; or
|
|
●
|
|
adjusting the vesting date for any RSUs previously granted.
|
In 2011, the restricted stock unit plan was amended to
include language confirming the long-standing practice of not forfeiting any restricted stock units in the event that grantees continued employment terminates on or after the date grantee reaches the age of 65 in circumstances where grantee
becomes entitled to an annuity under the companys retirement plan.
In 2016, the restricted stock unit plan was amended to update provisions regarding
forfeiture of restricted stock units in the event of detrimental activity and to provide a new vesting option in addition to the existing vesting options previously described, such that the second 50 percent of the restricted stock units may
vest on the tenth anniversary following the grant date.
Forfeiture and claw-back risk
The companys incentive plans include forfeiture and claw-back provisions that discourage
employees from taking inappropriate risks and engaging in detrimental activities.
The annual bonus is subject to forfeiture and claw-back if:
|
●
|
|
An executive retires or employment with the company terminates (for any reason, whether at initiative of employee, the company or otherwise).
|
|
●
|
|
The company has indicated its intention not to forfeit outstanding awards of employees who retire at age 65. In other circumstances, where a recipient retires or terminates employment, the company may determine that
awards shall not be forfeited.
|
|
●
|
|
Risk of forfeiture and claw-back continues to exist for detrimental activity.
|
|
●
|
|
An executive, without the consent of the company, engages in any activity, during employment or after retirement or the termination of employment, which is detrimental to the company, including working for a competitor.
|
|
●
|
|
In 2016, the plan was amended to extend the forfeiture period for detrimental activity from two years to the life of the award.
|
|
●
|
|
There is a material negative restatement of the companys reported financial or operating results. For executive officers of the company, some or all of any unvested earnings bonus units granted in the three years
prior to the restatement are subject to forfeiture. In addition, any cash amounts received from bonus or earnings bonus units that were paid out up to five years prior to the restatement are subject to claw-back.
|
136
Restricted stock units are subject to forfeiture and claw-back if:
|
●
|
|
A recipient retires or employment with the company terminates (for any reason, whether at initiative of employee, the company or otherwise).
|
|
●
|
|
The company has indicated its intention not to forfeit restricted stock units of employees who retire at age 65. In other circumstances, where a recipient retires or terminates employment, the company may determine that
restricted stock units shall not be forfeited.
|
|
●
|
|
Risk of forfeiture and claw-back continues to exist for detrimental activity.
|
|
●
|
|
A recipient, without the consent of the company, engages in any activity, during employment or after retirement or termination of employment, which is detrimental to the company, including working for a competitor.
|
|
●
|
|
With respect to executives, at any time prior to vesting of the outstanding awards.
|
|
●
|
|
With respect to all other employees, for a period of up to three years after retirement or the termination of employment.
|
|
●
|
|
In 2016, the plan was amended to extend the forfeiture period for detrimental activity from two years to the periods noted above.
|
Retirement benefits
Named executive officers participate in the same pension plan, including supplemental pension arrangements outside the registered plan, as other employees, except for
R.M. Kruger, J.R. Whelan and P.M. Dinnick who participate in Exxon Mobil Corporation or respective affiliates pension plans.
Pension plan benefits
The company has provided defined benefit pension plans to its employees since 1919. The current plan provides a
1.5 percent accrual formula to all employees hired on and after September 1, 2015. All plan participants employed prior to the date of the change will continue to accrue pension benefits based on accrual formulae in place prior to
September 1, 2015.
All named executive officers, except those who are a participant in the Exxon Mobil Corporation or affiliate pension plans (R.M. Kruger,
J.R. Whelan and P.M. Dinnick), are participants in a historic 1.6 percent provision of the companys plan that was closed to new participants at the end of 1997. Key features of this historic plan include:
|
●
|
|
An annual benefit equal to 1.6 percent x final average earnings x years of service, with a partial offset for applicable government pension benefits. Final average earnings consists of base salary over the highest
36 consecutive months in the 10 years of service prior to retirement.
|
|
●
|
|
An option to forego a portion of the companys matching contributions to the savings plan to receive an additional 0.4 percent of final average earnings.
|
The companys supplemental pension arrangements address any portions of the defined benefit that cannot be paid from the registered plan due to tax regulations.
Any amounts paid to an eligible employee, in this regard, are subject to the employee meeting the terms of the registered pension plan and the criteria of the supplemental pension arrangements, as applicable.
For executive officers who receive an annual bonus, the companys supplemental pension arrangements can also provide an annual benefit of 1.6 percent of final
average bonus earnings times years of service. Final average bonus earnings include the average annual bonus for the three highest grants of the last five awarded prior to retirement for eligible executives, but do not include restricted stock
units. Limiting the timeframe to the five years prior to retirement provides a strong incentive for executives to continue to perform at a high level. Annual bonus includes the cash amounts that are paid at grant and the maximum settlement value of
any earnings bonus units received, as described on page 133. The value of the earnings bonus units are expected to pay out, subject to forfeiture provisions, and are therefore included for supplemental pension arrangement purposes in the year of
grant rather than the year of payment.
The estimated benefits that would be payable upon retirement to each named executive officer under the companys
pension plan and the supplemental pension arrangements can be found in the pension plan benefits table beginning on page 148. The company does not grant additional pension service credit.
R.M. Kruger, J.R. Whelan and P.M. Dinnick are not participants in the companys pension plan, but are participants in the Exxon Mobil Corporation or respective
affiliates pension plans. R.M. Kruger participates in the Exxon Mobil Corporation defined benefit plan. Under this plan, the pension is payable in U.S. dollars and
137
is calculated based on final average base salary over the highest 36 consecutive months in the 10 years of service prior to retirement, and the average annual bonus for the three highest grants
of the last five awarded prior to retirement. J.R. Whelan participates in the ExxonMobil Canada Ltd. defined contribution plan. Under this plan, the pension is payable in Canadian dollars and the contribution to the plan is calculated based on
average base salary. P.M. Dinnick participates in the Esso Australia Pty Ltd. defined benefit plan. Under this plan, the pension is payable in Australian dollars and is calculated based on final average base salary over the highest 12 consecutive
months in the 10 years of service prior to retirement.
Savings plan benefits
The company maintains a savings plan into which career employees with more than one year of service may contribute between one and 30 percent of normal earnings.
The company provides contributions which vary depending on the amount of employee contributions and in which defined-benefit pension arrangement the employee participates. All named executive officers are eligible to receive a company matching
contribution of up to six percent, except for R.M. Kruger, J.R. Whelan and P.M. Dinnick, who participate in their respective affiliates savings plan, where applicable.
Employee and company contributions can be allocated in any combination to a
non-registered
(tax-paid)
account, or a registered
(tax-deferred)
group retirement savings plan (RRSP). Employee contributions can be redirected from the
tax-paid
account to a
tax-free
savings account (TFSA). Both the RRSP and TFSA accounts are subject to contribution limits under the
Income Tax Act
.
Available investment options include cash savings, a money market mutual fund, a suite of four index-based equity or bond mutual funds and company shares. Assets in the
RRSP account and company contributions to the
tax-paid
account may only be withdrawn upon retirement or termination of employment, reinforcing the companys long-term approach to total compensation.
Income tax regulations require RRSPs to be converted into an eligible form of retirement income by the end of the calendar year in which the individual reaches age 71.
Compensation decision making process and considerations for named executive officers
Benchmarking
In
addition to the assessment of business performance, individual performance and level of responsibility, the executive resources committee relies on market comparisons to a group of 22 major Canadian companies whose revenues (or the revenues of their
parent companies) exceed $1 billion a year.
Comparator companies
The following criteria are used to select comparator companies:
|
●
|
|
Canadian companies or Canadian affiliates;
|
|
●
|
|
large operating scope and complexity;
|
The 22 companies benchmarked are as follows:
|
|
|
Energy
|
|
Non-Energy
|
Agrium Inc.
|
|
BCE Inc.
|
BP Canada Energy Group ULC
|
|
Canadian Pacific Railway Limited
|
Cenovus Energy Inc.
|
|
Canadian Tire Corporation Limited
|
Chevron Canada Limited
|
|
General Electric Canada
|
ConocoPhillips Canada
|
|
IBM Canada Ltd.
|
Devon Canada Corporation
|
|
Proctor & Gamble Inc.
|
Enbridge Inc.
|
|
Royal Bank of Canada
|
Encana Corporation
|
|
|
Husky Energy Inc.
|
|
|
Nexen Energy ULC
|
|
|
NOVA Chemicals Corporation
|
|
|
Repsol
|
|
|
Shell Canada Limited
|
|
|
Suncor Energy Inc.
|
|
|
TransCanada Corporation
|
|
|
138
The company is a national employer drawing from a wide range of disciplines. It is important to understand its competitive
orientation relative to a variety of energy and
non-energy
employers. Compensation trends across industries, based on survey data, are prepared annually by an independent external consultant with additional
analysis and recommendation provided by the companys internal compensation advisors. Consistent with the executive resources committees practice of using well-informed judgment rather than formulae to determine executive compensation,
the committee does not target any specific percentile among comparator companies to align compensation. The focus is on a broader and more flexible orientation, generally a range around the median of the comparator energy companies
compensation. This approach applies to salaries and the annual incentive program that includes bonus and restricted stock units.
As a secondary source of data, the
executive resources committee also considers a comparison with the majority shareholder when it determines the annual bonus program. For the restricted stock unit program, the executive resources committee also reviews a summary of data of the
comparator companies provided by the same external consultant in order to assist in assessing total value of long-term compensation grants. As a result, grant level guidelines may be adjusted periodically to maintain the programs competitive
orientation. As a matter of principle, the company does not offset losses on prior grants with higher share awards in subsequent grants, nor does the company
re-price
restricted stock units.
This overall approach provides the company with the ability to:
|
●
|
|
better respond to changing business conditions;
|
|
●
|
|
manage salaries based on a career orientation;
|
|
●
|
|
minimize potential for automatic increasing of salaries, which could occur with an inflexible and narrow target among benchmarked companies; and
|
|
●
|
|
differentiate salaries based on performance and experience levels among executives.
|
Details of the compensation
assessment for the named executive officers are outlined below and on page 140.
Analytical tools
Compensation summary sheets
The compensation summary sheet is a matrix used by the executive resources committee that shows the individual elements and
total compensation for each senior executive. The summary sheet is used to understand how decisions on each individual element of compensation affect total compensation for each senior executive. The committee considers both current compensation
recommendations and prior compensation results in its final determination.
The elements of the Exxon Mobil Corporation and respective affiliates compensation
programs for R.M. Kruger, J.R. Whelan and P.M. Dinnick, including salary and annual bonus and equity (long-term) compensation considerations, are generally similar to those of the company. The data used for long-term compensation determination for
R.M. Kruger, J.R. Whelan and P.M. Dinnick is as described above, as they received company restricted stock units in 2017. The executive resources committee reviews and approves recommendations for each named executive officer prior to
implementation. R.M. Krugers compensation determination is described in more detail beginning on page 140.
2017 named executive officer compensation assessment
When determining the annual compensation for the named executive officers, the executive resources committee has reflected on the following business performance result
indicators in its determination of 2017 salary and incentive compensation.
Business performance results for consideration
The operating and financial performance results listed below and the companys continued maintenance of sound business controls and a strong
corporate governance environment formed the basis for the salary and incentive award decisions made by the executive resources committee in 2017. The executive resources committee considered the results over multiple years, relative to the
companys proven business model and strategies, to deliver long-term shareholder value.
|
●
|
|
Strong safety, operational integrity and risk management performance
|
|
●
|
|
$490 million net income; $1,056 million excluding upstream
non-cash
impairment charges
|
|
●
|
|
$2,763 million cash flow from operations, the highest since 2014
|
|
●
|
|
$1,151 million returned to shareholders through share purchases and dividends
|
|
●
|
|
23rd consecutive year of dividend growth
|
|
●
|
|
Reinstituted share buyback program
|
139
|
●
|
|
Strong performance across all business lines
|
|
●
|
|
Record annual production at Cold Lake and Kearl
|
|
●
|
|
Best-ever refining results in energy efficiency and reliability
|
|
●
|
|
Highest petroleum product sales in more than 25 years
|
|
●
|
|
Expanded branded fuels business with Husky conversion and introduction of Mobil brand
|
|
●
|
|
Second highest annual chemical earnings
|
|
●
|
|
$190 million reduction in above-field costs; nearly $400 million since 2015
|
|
●
|
|
Progressed opportunities to add value to high-quality asset portfolio
|
|
●
|
|
Completed Kearl enhancements to improve reliability and reduce unit costs
|
|
●
|
|
Approved investment to increase Kearl production beyond initial scope
|
|
●
|
|
Approved Strathcona refinery cogeneration project to improve energy efficiency
|
|
●
|
|
Continued commitment to industry leadership in technology and innovation
|
|
●
|
|
More than $150 million invested in research
|
Performance assessment
considerations
The preceding results form the context in which the committee assesses the individual performance of each senior executive, taking
into account experience and level of responsibility.
Annually, the chairman, president and chief executive officer reviews the performance of the senior executives
in achieving business results and individual development needs.
The same long-term key business strategies noted on page 129 and results noted on page 139 are key
elements in the assessment of the chairman, president and chief executive officers performance by the executive resources committee.
The performance of all
named executive officers is also assessed by the board of directors throughout the year during specific business reviews and board committee meetings that provide information on strategy development, operating and financial results, safety, health,
and environmental results, business controls, and other areas pertinent to the general performance of the company.
The executive resources committee does not use
quantitative targets or formulae to assess individual executive performance or determine compensation. The executive resources committee does not assign weights to the factors considered. Formula-based performance assessments and compensation
typically require emphasis on two or three business metrics. For the company to be an industry leader and effectively manage the technical complexity and integrated scope of its operations, most senior executives must advance multiple strategies and
objectives in parallel, versus emphasizing one or two at the expense of others that require equal attention.
Senior executives and officers are expected to perform
at the highest level or they are replaced. If it is determined that another executive is ready and would make a stronger contribution than one of the current incumbents, a replacement plan is implemented.
2017 chief executive officer compensation assessment
R.M. Kruger was appointed chairman, president and chief executive officer of the company on March 1, 2013. Mr. Kruger has worked for Exxon Mobil Corporation
and its predecessor companies since 1981. His level of salary was determined by the executive resources committee based on his individual performance and to align with that of his peers in ExxonMobil. It was also the objective of the executive
resources committee to ensure appropriate internal alignment with senior management in the company. The committee approved a salary increase of $29,000 U.S. to $899,000 U.S., effective January 1, 2018.
Mr. Krugers 2017 annual bonus was based on his performance as assessed by the executive resources committee since his appointment to the position of
chairman, president and chief executive officer. His long-term incentive award was granted in the form of company restricted stock units, not Exxon Mobil Corporation restricted stock, to reinforce alignment of his interests with that of the
companys shareholders. His company restricted stock units are subject to vesting periods longer than those applied by most companies conducting business in Canada. Fifty percent of the restricted stock units awarded vest in five years and the
other 50 percent vest on the later of 10 years from the date of grant or the date of retirement. The purpose of these long vesting periods is to reinforce the long investment lead times in the business and to link a substantial portion of
Mr. Krugers shareholding net worth to the performance of the company. As such, the payout value of the long-term incentive grants may differ from the amounts shown in the summary compensation table, depending on how the company actually
performs at time of future vesting. During these vesting periods, the awards are subject to risk of forfeiture based on detrimental activity or leaving the company before normal retirement.
140
The executive resources committee has determined that the total compensation of Mr. Kruger is appropriate based on the
companys financial and operating performance, and its assessment of his effectiveness in leading the organization relative to the business performance measures outlined on page 131. Taking all factors into consideration, the committees
decisions on compensation of the chief executive officer reflect judgment, rather than the application of formulae or targets.
Pay awarded to other named executive officers
Within the context of the compensation program structure and performance assessment processes
previously described, the value of 2017 incentive awards and salary adjustments align with:
|
●
|
|
performance of the company;
|
|
●
|
|
individual performance;
|
|
●
|
|
long-term strategic plan of the business; and
|
|
●
|
|
annual compensation of comparator companies.
|
Taking all factors into consideration, the executive resources
committees decisions on pay awarded to other named executive officers reflect judgment, rather than the application of formulae or targets. The executive resources committee approved the individual elements of compensation and the total
compensation as shown in the summary compensation table on page 143.
Independent consultant
In fulfilling its responsibilities during 2017, the executive resources committee did not retain an independent consultant or advisor in determining compensation for any
of the companys officers or any other senior executives. The companys management retained an independent consultant to provide an assessment of competitive compensation and market data for all salaried levels of employees of the company.
While providing this data, they did not provide individual compensation recommendations or advice for the compensation of the chairman, president and chief executive officer or other senior executives.
141
Performance graph
The following graph shows changes over the past 10 years in the value of $100 invested in (i) Imperial Oil Limited common shares, (ii) the S&P/TSX
Composite Index, and (iii) the S&P/TSX Composite Energy Index. The S&P/TSX Composite Energy Index is currently made up of share performance data for 50 oil and gas companies including integrated oil companies, oil and gas producers and
oil and gas service companies.
The
year-end
values in the graph represent appreciation in share price and the value of
dividends paid and reinvested. The calculations exclude trading commissions and taxes. Total shareholder returns from each investment, whether measured in dollars or percent, can be calculated from the
year-end
investment values shown beneath the graph.
During the past 10 years, the companys cumulative total
shareholder return was negative 20 percent, for an average annual return of negative 2 percent. Over the past five years, the cumulative total shareholder return was negative 2 percent. Total direct compensation for named executive
officers generally reflects the trend in total shareholder returns as the largest single component of executive compensation is awarded in the form of restricted stock units with long holding periods. This design reinforces the long-term
linkage between executive compensation and the shareholding net worth of executives to the return on the companys stock realized by shareholders. Total direct compensation includes salary, the annual bonus (cash and earnings bonus unit
awards), and the grant date fair value of the restricted stock unit award which is equal to the price for the companys stock on the date of grant.
|
(a)
|
Effective December 21, 2012, S&P discontinued the S&P/TSX Equity Energy Index. This was replaced with the S&P/TSX Composite Energy Index (STENRSR).
|
142
Executive compensation tables and narratives
Summary compensation table
The following table shows the compensation for the chairman, president and chief executive officer; the senior vice-president, finance and administration, and
controller; and the three other most highly compensated executive officers of the company who were serving as at the end of 2017. This information includes the Canadian dollar value of base salaries, cash bonus awards and earnings bonus unit
payments, long-term incentive compensation and certain other compensation. Amounts in the Summary compensation table pertain to the named executive officers respective periods of assignment with the company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and principal
position at the end
of 2017
|
|
Year
|
|
Salary
($)
(b)
|
|
Share-
based
awards
($)
(c)
|
|
Option-
based
awards
($)
(d)
|
|
Non-equity incentive
plan compensation
($)
|
|
Pension
value
($)
(g)
|
|
All other
compensation
($)
(h)
|
|
Total
compensation
($)
(i)
|
|
|
|
|
|
Annual
incentive
plans
(e)
|
|
Long-
term
incentive
plans
(f)
|
|
|
|
R.M. Kruger (a)
Chairman, president
and chief executive
officer
|
|
2017
|
|
1,129,782
|
|
3,908,520
|
|
-
|
|
488,923
|
|
620,727
|
|
(1,159,234)
|
|
1,850,506
|
|
6,839,224
|
|
2016
|
|
1,139,328
|
|
4,979,700
|
|
-
|
|
356,371
|
|
0
|
|
(379,289)
|
|
1,481,708
|
|
7,577,818
|
|
2015
|
|
1,062,600
|
|
4,224,365
|
|
-
|
|
444,348
|
|
611,219
|
|
(353,857)
|
|
3,022,231
|
|
9,010,906
|
B.A. Babcock
Senior vice-president,
finance and
administration, and
controller (since
September 1, 2015)
|
|
2017
|
|
502,250
|
|
868,560
|
|
-
|
|
89,400
|
|
166,597
|
|
204,300
|
|
116,802
|
|
1,947,909
|
|
2016
|
|
495,750
|
|
995,940
|
|
-
|
|
74,700
|
|
0
|
|
(12,700)
|
|
113,294
|
|
1,666,984
|
|
2015
|
|
163,333
|
|
922,900
|
|
-
|
|
106,900
|
|
0
|
|
(656,200)
|
|
80,770
|
|
617,703
|
J.R. Whelan (a)
Senior vice-president,
upstream
|
|
2017
|
|
476,583
|
|
868,560
|
|
-
|
|
103,758
|
|
153,810
|
|
72,751
|
|
178,832
|
|
1,854,294
|
|
2016
|
|
458,250
|
|
936,806
|
|
-
|
|
58,159
|
|
0
|
|
79,929
|
|
169,591
|
|
1,702,735
|
|
2015
|
|
438,667
|
|
848,070
|
|
-
|
|
79,535
|
|
139,434
|
|
29,849
|
|
150,055
|
|
1,685,610
|
T.B. Redburn
Senior vice-president,
commercial and
corporate
development
|
|
2017
|
|
458,000
|
|
868,560
|
|
-
|
|
99,000
|
|
128,566
|
|
549,400
|
|
55,817
|
|
2,159,343
|
|
2016
|
|
444,167
|
|
733,374
|
|
-
|
|
57,600
|
|
0
|
|
(136,000)
|
|
60,241
|
|
1,159,382
|
|
2015
|
|
427,167
|
|
679,590
|
|
-
|
|
82,500
|
|
0
|
|
(589,100)
|
|
55,689
|
|
655,846
|
P.M. Dinnick (a)
Vice-president and
general counsel
|
|
2017
|
|
437,167
|
|
410,592
|
|
-
|
|
39,997
|
|
29,163
|
|
182,213
|
|
546,595
|
|
1,645,727
|
|
2016
|
|
397,757
|
|
439,489
|
|
-
|
|
21,594
|
|
0
|
|
105,426
|
|
437,998
|
|
1,402,264
|
|
2015
|
|
367,276
|
|
355,980
|
|
-
|
|
20,459
|
|
27,292
|
|
95,361
|
|
351,073
|
|
1,217,441
|
143
Footnotes to the Summary compensation table for named executive officers
(a)
|
R.M. Kruger has been on expatriate assignment from Exxon Mobil Corporation, an affiliate in the U.S., since 2013. P.M. Dinnick has been on expatriate assignment from Esso Australia Pty Ltd., an affiliate in
Australia, since 2012. J.R. Whelan has been on domestic loan assignment from ExxonMobil Canada Ltd., an affiliate in Canada, since 2013. Their compensation is paid directly by Exxon Mobil Corporation and respective affiliates, with the exception of
the compensation related to the vesting of the companys restricted stock units and dividend equivalents on outstanding restricted stock units. They also receive employee benefits under their respective affiliates employee benefit plans,
and not under the companys employee benefit plans. The company reimburses the respective affiliates for applicable compensation paid and employee benefits provided to them. The company does not reimburse Exxon Mobil Corporation for the cost of
incentive awards granted by Exxon Mobil Corporation.
|
(b)
|
The amounts listed in the Salary column for each named executive officer on expatriate assignment (R.M. Kruger and P.M. Dinnick) are paid in their local currency, but disclosed in Canadian dollars. R.M.
Krugers salary is paid in U.S. dollars and was converted to Canadian dollars at the average 2017 exchange rate of 1.2986. In 2016 and 2015 the average exchange rate was 1.3248 and 1.2787 respectively. P.M. Dinnicks salary is paid in
Australian dollars and was converted to Canadian dollars at the average 2017 exchange rate of 0.9951. In 2016 and 2015 the average exchange rate was 0.9852 and 0.9604, respectively.
|
(c)
|
The grant date fair value equals the number of restricted stock units multiplied by the closing price of the companys shares on the date of grant. The closing price of the companys shares on the grant
date in 2017 was $39.48, which is the same as the accounting fair value for the restricted stock units on the date of grant. The closing price of the companys shares on the grant date in 2016 was $45.27 and in 2015 was $41.95, which is the
same as the accounting fair value for the restricted stock units on the date of grant. The company chose this method of valuation as it believes it results in the most accurate representation of fair value. In 2016 and 2015, J.R. Whelan and P.M.
Dinnick participated in Exxon Mobil Corporations restricted stock plan, which is similar to the companys restricted stock unit plan. The closing price of Exxon Mobil Corporation stock on the grant date in 2016 was $87.30 U.S. and in 2015
was $81.88 U.S. and is converted to Canadian dollars at the annual average exchange rate of 1.3248 and 1.2787 respectively.
|
(d)
|
The company has not granted stock options since 2002. The stock option plan expired in 2012.
|
(e)
|
The amounts listed in the Annual incentive plans column for each named executive officer represent their 2017 cash bonus. R.M. Kruger, J.R. Whelan and P.M. Dinnick participate in Exxon Mobil
Corporations annual cash bonus program, which is similar to the companys plan, and is paid in U.S. dollars, but disclosed in Canadian dollars. Amounts paid in U.S. dollars were converted to Canadian dollars at the average 2017 exchange
rate of 1.2986. In 2016 and 2015 the average exchange rate was 1.3248 and 1.2787 respectively.
|
(f)
|
The amounts listed in the Long-term incentive plans column represent earnings bonus unit payouts related to prior year grants. These are paid when the maximum settlement value (trigger) or cumulative
earnings per share is achieved or after three years if such value is not achieved. The earnings bonus unit program is described on page 133. R.M. Kruger, J.R. Whelan and P.M. Dinnick participate in Exxon Mobil Corporations earnings bonus unit
program, which is similar to the companys plan, and is paid in U.S. dollars, but disclosed in Canadian dollars. Amounts paid in U.S. dollars were converted to Canadian dollars at the average 2017 exchange rate of 1.2986. In 2016 and 2015 the
average exchange rate was 1.3248 and 1.2787 respectively. Their payouts are also subject to a maximum settlement value (trigger) or cumulative earnings per share.
|
(g)
|
Pension value is the Compensatory change in pensions as of December 31, 2017 as set out in the Pension plan benefits table on page 148.
|
(h)
|
The amounts listed in the All other compensation column include dividend equivalent payments on restricted stock units granted, savings plans contributions, expatriate assignment costs, parking and the
cost of perquisites including financial planning and business club memberships, as well as security costs and costs associated with participation in Exxon Mobil Corporations executive life insurance benefit plan, as applicable.
|
|
●
|
|
For each named executive officer, the aggregate value of perquisites received in 2017 was not greater than $50,000 or 10 percent of the named executive officers base salary.
|
|
●
|
|
It is noted that in 2017, the actual dividend equivalent payments on the company restricted stock units were $227,470 for R.M. Kruger, $69,205 for B.A. Babcock and $47,432 for T.B. Redburn. The dividend equivalent
payments on Exxon Mobil Corporation restricted stock granted in previous years were $561,685 for R.M. Kruger, $146,431 for J.R. Whelan and $64,374 for P.M. Dinnick; these amounts were converted to Canadian dollars at the average 2017 exchange rate
of 1.2986.
|
|
●
|
|
For the named executive officers on expatriate assignment (R.M. Kruger and P.M. Dinnick), All other compensation also includes expatriate assignment costs which consist of expatriate allowances and the
net effect of tax equalization costs in the year. Tax equalization costs include the net effect of taxes paid by the companies to local taxing authorities on behalf of the named executive officer offset by a withholding from their income that
approximates the amount of tax they would pay if they had not gone on expatriate assignment. Tax equalization is an integral part of the expatriate relocation program and is designed to maintain an individuals overall tax burden at
approximately the same level it would have otherwise been, had they remained in their home country. Tax equalization amounts vary from one year to the next and the net impact may be positive or negative in the year.
|
(i)
|
Total compensation consists of the total dollar value of Salary, Share-based awards, Option-based awards,
Non-equity
incentive plan compensation, Pension value and All other compensation.
|
144
Outstanding share-based awards and option-based awards for named
executive officers
The following table sets forth all share-based and option-based awards outstanding for each named executive officer of the company as
at December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based awards
|
|
Share-based awards
|
Name
|
|
Number of
securities
underlying
unexercised
options
(#)
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Value of
unexercised
in-the-
money
options
($)
|
|
Number of
shares or
units of
shares that
have not
vested
(#)
(d)
|
|
Market or
payout value
of share-
based awards
that have not
vested
($)
(d)
|
|
Market or
payout value of
vested share-
based awards
not paid out or
distributed
($)
|
|
|
|
|
|
|
|
|
R.M. Kruger
(a)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
492,500
|
|
19,320,775
|
|
-
|
|
|
|
|
|
|
|
|
B.A. Babcock
|
|
-
|
|
-
|
|
-
|
|
-
|
|
111,000
|
|
4,354,530
|
|
-
|
|
|
|
|
|
|
|
|
J.R. Whelan
(b)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
22,000
|
|
863,060
|
|
-
|
|
|
|
|
|
|
|
|
T.B. Redburn
|
|
-
|
|
-
|
|
-
|
|
-
|
|
83,850
|
|
3,289,436
|
|
-
|
|
|
|
|
|
|
|
|
P.M. Dinnick
(c)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
10,400
|
|
407,992
|
|
-
|
(a)
|
R.M. Kruger was granted restricted stock units from 2013 to 2017 under the companys plan. With respect to previous years, R.M. Kruger participated in Exxon Mobil Corporations restricted stock plan,
which is similar to the companys restricted stock unit plan. Under that plan, R.M. Kruger held 118,500 Exxon Mobil Corporation restricted stock whose value on December 31, 2017 was $12,433,776 based on a closing price for Exxon Mobil
Corporation shares on December 31, 2017 of $83.64 U.S., which was converted to Canadian dollars at the December 31, 2017 close rate of
1.2545
provided by the Bank of Canada.
|
(b)
|
J.R. Whelan was granted restricted stock units in 2017 under the companys plan. With respect to previous years, J.R. Whelan participated in Exxon Mobil Corporations restricted stock plan, which is similar
to the companys restricted stock unit plan. Under that plan, J.R. Whelan held 30,200 Exxon Mobil Corporation restricted stock whose value on December 31, 2017 was $3,168,777
b
ased on a closing price for Exxon Mobil Corporation
shares on December 31, 2017 of $83.64 U.S., which was converted to Canadian dollars at the December 31, 2017 close rate of
1.2545
provided by the Bank of Canada.
|
(c)
|
P.M. Dinnick was granted restricted stock units in 2017 under the companys plan. With respect to previous years, P.M. Dinnick participated in Exxon Mobil Corporations restricted stock plan, which is
similar to the companys restricted stock unit plan. Under that plan, P.M. Dinnick held 13,200 Exxon Mobil Corporation restricted stock whose value on December 31, 2017 was $1,385,028
b
ased on a closing price for Exxon Mobil
Corporation shares on December 31, 2017 of $83.64 U.S., which was converted to Canadian dollars at the December 31, 2017 close rate of
1.2545
provided by the Bank of Canada.
|
(d)
|
R
epresents the total of the outstanding restricted stock units received from the company plan in 2011 through 2017. The value is based on the
closing price of the companys shares on December 31,
2017 of $
39.23
.
|
145
Incentive plan awards for named executive officers Value vested
or earned during the year
The following table sets forth the value of the incentive plan awards that vested in the year for each named executive officer
of the company.
|
|
|
|
|
|
|
Name
|
|
Option-based awards
Value vested during
the year
($)
|
|
Share-based awards Value
vested during the year
($)
(d)
|
|
Non-equity incentive plan
compensation Value
earned during the year
($)
(e)
|
|
|
|
|
R.M. Kruger
(a)
|
|
-
|
|
-
|
|
-
|
|
|
|
|
B.A. Babcock
|
|
-
|
|
892,013
|
|
255,997
|
|
|
|
|
J.R. Whelan
(b)
|
|
-
|
|
-
|
|
-
|
|
|
|
|
T.B. Redburn
|
|
-
|
|
598,617
|
|
227,566
|
|
|
|
|
P.M. Dinnick
(c)
|
|
-
|
|
-
|
|
-
|
(a)
|
Although R.M. Kruger received restricted stock units under the companys plan from 2013 to 2017, these restricted stock units have not vested. In previous years, R.M. Kruger participated in Exxon Mobil
Corporations restricted stock plan, which is similar to the companys restricted stock unit plan. In 2017, restrictions were removed on 22,850 Exxon Mobil Corporation restricted stock having a value as at December 31, 2017 of $2,397,568
based on the closing price of Exxon Mobil Corporation common shares of $
83.64
U.S., which was converted to Canadian dollars at the December 31, 2017 close rate of
1.2545
provided by the Bank of Canada. R.M. Kruger
received an annual bonus from Exxon Mobil Corporation in 2017 and participates in Exxon Mobil Corporations earnings bonus unit plan, which is similar to the companys earnings bonus unit plan. R.M. Kruger $1,109,650 with respect to the
annual cash bonus received in 2017 and earnings bonus units granted in 2014 and paid out in 2017, which amount was paid in U.S. dollars and is converted to Canadian dollars at the average 2017 exchange rate of
1.2986.
|
(b)
|
Although J.R. Whelan received restricted stock units under the companys plan in 2017, these restricted stock units have not vested. In previous years, J.R. Whelan participated in Exxon Mobil Corporations
restricted stock plan, which is similar to the companys restricted stock unit plan. In 2017, restrictions were removed on 6,650 Exxon Mobil Corporation restricted stock having a value as at December 31, 2017 of $697,760 based on the closing
price of Exxon Mobil Corporation common shares of $83.64 U.S., which was converted to Canadian dollars at the December 31, 2017 close rate of 1.2545 provided by the Bank of Canada. J.R. Whelan received an annual bonus from Exxon Mobil Corporation in
2017 and participates in Exxon Mobil Corporations earnings bonus unit plan, which is similar to the companys earnings bonus unit plan. J.R. Whelan received $257,568 with respect to the annual cash bonus in 2017 and earnings bonus units
granted in 2014 and paid out in 2017, which amount was paid in U.S. dollars and is converted to Canadian dollars at the average 2017 exchange rate of 1.2986.
|
(c)
|
Although P.M. Dinnick received restricted stock units under the companys plan in 2017, these restricted stock units have not vested. In previous years, P.M. Dinnick participated in Exxon Mobil
Corporations restricted stock plan, which is similar to the companys restricted stock unit plan. In 2017, restrictions were removed on 3,000 Exxon Mobil Corporation restricted stock having a value as at December 31, 2017 of $314,779
based on the closing price of Exxon Mobil Corporation common shares of $83.64 U.S., which was converted to Canadian dollars at the December 31, 2017 close rate of 1.2545 provided by the Bank of Canada. P.M. Dinnick received an annual bonus from
Exxon Mobil Corporation in 2017 and participates in Exxon Mobil Corporations earnings bonus unit plan, which is similar to the companys earnings bonus unit plan. P.M. Dinnick received $69,160 with respect to the annual cash bonus in 2017
and earnings bonus units granted in 2014 and paid out in 2017, which amount was paid in U.S. dollars and is converted to Canadian dollars at the average 2017 exchange rate of 1.2986.
|
(d)
|
These values show restricted stock units granted by the company that vested in 2017. The value is based on the five day average closing price of the companys shares, which includes the vesting date and the four
preceding trading days. For B.A. Babcock and T.B. Redburn the value represents restricted stock units granted in 2010 and 2014, which vested in 2017.
|
(e)
|
These values include amounts paid by the company with respect to the 2017 annual cash bonus and earnings bonus unit granted in 2014 which paid out in 2017.
|
146
Equity compensation plan information
The following table provides information on the common shares of the company that may be issued as of the end of 2017 pursuant to compensation plans of the company.
|
|
|
|
|
|
|
Plan category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(#)
(c)
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
($)
|
|
Number of securities remaining
available for future
issuance
under equity compensation
plans (excluding securities
reflected in the first column)
(#)
(c)
|
|
|
|
|
Equity compensation plans approved by security holders (a)
|
|
-
|
|
-
|
|
-
|
|
|
|
|
Equity compensation plans not approved by security holders (b)
|
|
3,213,880
|
|
-
|
|
7,270,632
|
|
|
|
|
Total
|
|
3,213,880
|
|
|
|
7,270,632
|
(a)
|
The companys stock option plan expired in 2012.
|
(b)
|
This is a restricted stock unit plan, which is described starting on page 134.
|
(c)
|
The number of securities to be issued represents the total number of restricted stock units issued since 2008 and still outstanding (5,859,050) minus the outstanding restricted stock units that are only
eligible for cash (and not common shares) upon vesting (2,645,170). The number of securities remaining available for future issuance represents the restricted stock units not yet granted (4,625,462) plus the number of outstanding restricted stock
units that are only eligible for cash (and not common shares) upon vesting (2,645,170).
|
Restricted stock units as a percentage of outstanding shares
The following table provides information on the restricted stock unit plan, expressed as a number and as a percentage of the common shares of the company as of the end
of 2017.
|
|
|
|
|
|
|
|
|
Maximum number of
restricted stock
units
issuable under the plan
(#)
(b)
|
|
Total number of
restricted stock units
awarded
and
outstanding
(#)
|
|
Total number of
restricted
stock units available for grant
(#)
|
|
|
|
|
Number
|
|
10,484,512
|
|
5,859,050
|
|
4,625,462
|
|
|
|
|
Percent of outstanding common shares (a)
|
|
1.26%
|
|
0.70%
|
|
0.56%
|
(a)
|
As of December 31, 2017, the number of common shares outstanding was 831,242,307.
|
(b)
|
The maximum number of restricted stock units issuable under the company plan is the number as of December 31, 2016 (10,486,262) minus the common shares issued in 2017 pursuant to the vesting of restricted stock units
under the plan (1,750 common shares).
|
147
Annual burn rate
The following table provides the annual burn rate associated with the restricted stock unit plan for each of the companys three most recent fiscal years.
|
|
|
|
|
|
|
|
|
Number of restricted
stock units granted
under the
plan
(#)
(a)
|
|
Weighted average
number of securities
outstanding
(#)
(b)
|
|
Annual burn rate
(%)
(c)
|
|
|
|
|
2017
|
|
758,990
|
|
842,943,735
|
|
0.09%
|
|
|
|
|
2016
|
|
815,870
|
|
847,599,011
|
|
0.10%
|
|
|
|
|
2015
|
|
884,080
|
|
847,599,011
|
|
0.10%
|
(a)
|
The Number of restricted stock units granted under the plan in the applicable fiscal year.
|
(b)
|
The Weighted average number of securities outstanding during the period is the number of securities outstanding at the beginning of the period, adjusted by the number of securities bought back or issued during
the period multiplied by a time-weighting factor.
|
(c)
|
The Annual burn rate percent is the Number of restricted stock units granted under the plan divided by the Weighted average number of securities outstanding.
|
Status of prior long-term incentive compensation plans
The companys only long-term incentive compensation plan is the restricted stock unit plan described on pages 134 through 137. There are no units outstanding for
any historical plan.
Pension plan benefits
The following table provides information for each named executive officer of the company participating in a defined benefit pension plan. Information for named
executive officers on assignment from affiliates of the company who participate in a plan provided by such affiliates is disclosed in the footnotes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number
of years
credited
service
(as of
December 31,
2017)
(#)
(a)
|
|
Annual benefits
payable
($)
|
|
Opening
present
value of
defined
benefit
obligation
($)
(d)
|
|
Compensatory
change
($)
(e)
|
|
Non-
compensatory
change
($)
(f)
|
|
Closing
present
value
of
defined
benefit
obligation
($)
(d)
|
|
|
At year-
end
(b)
|
|
At age
65
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
R.M. Kruger
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
B.A. Babcock
|
|
30.7
|
|
380,200
|
|
480,100
|
|
6,372,900
|
|
204,300
|
|
497,600
|
|
7,074,800
|
|
|
|
|
|
|
|
|
J.R. Whelan
(g)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
T.B. Redburn
|
|
32.6
|
|
363,400
|
|
475,600
|
|
5,921,300
|
|
549,400
|
|
401,100
|
|
6,871,800
|
|
|
|
|
|
|
|
|
P.M. Dinnick
(g)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
148
(a)
|
R.M. Kruger participates in the Exxon Mobil Corporation defined benefit pension plan including tax-qualified and non-qualified plans. Benefits under this plan are payable in U.S. dollars and have been
converted to Canadian dollars at the average 2017 exchange rate of 1.2986. Under this plan, R.M. Kruger had 36.5 years of credited service. J.R. Whelan participates in the ExxonMobil Canada Ltd. defined contribution plan. Benefits under this plan
are payable in Canadian dollars. Under this plan, J.R. Whelan had 21.4 years of credited service. P.M. Dinnick participates in the Esso Australia Pty Ltd. defined benefit and defined contribution pension plans. Benefits under these plans are payable
in Australian dollars and have been converted to Canadian dollars at the average 2017 exchange rate of 0.9951. Under these plans, P.M. Dinnick had 23.4 years of credited service.
|
(b)
|
For members of the companys pension plan, the annual benefits include the amount of the accrued annual lifetime pension from the companys registered pension plan and supplemental pension arrangement. For
members of the Exxon Mobil Corporation pension plan, the annual benefits include the accrued annual lifetime pension from the tax-qualified and the annual amount calculated under the non-qualified plans. For R.M. Kruger this value was $1,304,583.
Non-qualified plan benefits are payable only as a lump sum equivalent upon retirement. For members of the Esso Australia Pty Ltd. pension plan, benefits are payable only as a lump sum equivalent upon retirement. For P.M. Dinnick this lump-sum value
was $2,184,309.
|
(c)
|
For members of the companys pension plan, the annual benefits include the amount of the accrued annual lifetime pension from the companys registered pension plan and supplemental pension arrangement that
would be earned to age 65 assuming final average earnings as at December 31, 2017. For members of the the Exxon Mobil Corporation pension plan, the annual benefits include the annual lifetime pension from the tax-qualified and the annual amount
calculated under the non-qualified plans that would be earned to age 65 assuming final average earnings as at December 31, 2017. For R.M. Kruger this value was $1,527,785. Non-qualified plan benefits are payable only as a lump sum equivalent upon
retirement. For members of the Esso Australia Pty Ltd. pension plan, benefits are payable only as a lump sum equivalent upon retirement. For P.M. Dinnick the lump-sum value that would be earned to age 65 assuming final average earnings as of
December 31, 2017 was $3,738,396.
|
(d)
|
For members of the companys pension plan, the opening and closing defined benefit obligation is defined under U.S. generally accepted accounting principles (GAAP) and values are calculated on a basis that is
consistent with the valuation that was performed for accounting purposes for the companys plans. The value is calculated based on estimated earnings eligible for pension as described previously and Yearly Maximum Pensionable Earnings (YMPE) as
defined by the Canada Revenue Agency, projected to retirement and pro-rated on service to the date of valuation. The calculations assume that the Canada Pension Plan offset is based on the annual maximum benefit at retirement and the Old Age
Security (OAS) offset is based on the OAS benefit at the date of valuation, projected to retirement. For members of the Exxon Mobil Corporation and the Esso Australia Pty Ltd. pension plan respectively, the opening and closing defined benefit
obligation is defined under GAAP and values are consistent with the valuation performed for accounting purposes for the applicable affiliate plan. The values are calculated based on estimated earnings eligible for pension as described previously.
For R.M. Kruger the opening value was $18,534,731 and the closing value was $18,554,823. For P.M. Dinnick the opening value was $2,100,946 and the closing value was $2,331,550.
|
(e)
|
The value for Compensatory change includes service cost for 2017 and the impact of change in earnings on the projected benefit obligation. For members of the companys plan, these values are
calculated using the individuals additional pensionable service in 2017 and the actual salary and bonus received in 2017. For members of the Exxon Mobil Corporation and Esso Australia Pty Ltd. pension plans, these values are calculated using
the individuals additional pensionable service in 2017 and earnings as described previously. For R.M. Kruger this value was ($1,159,234). For P.M. Dinnick this value was $178,099.
|
(f)
|
The value for Non-compensatory change includes the impact of experience not related to earnings, benefit payments and change in measurement assumptions. With respect to the company pension plan, the
discount rate used to determine the closing present value of defined benefit obligation at the end of 2017 decreased to 3.40 percent, from 3.75 percent at the end of 2016, which had a positive impact on the non-compensatory change element. For
members of the Exxon Mobil Corporation and Esso Australia Pty Ltd. pension plans, the value for Non-compensatory change includes the impact of experience not related to earnings or service. This includes the effect of interest based on a
discount rate of 3.80 percent at the end of 2017, down from 4.25 percent at the end of 2016. For R.M. Kruger this value was $1,179,326. For P.M. Dinnick this value was $52,505.
|
(g)
|
J.R. Whelan participates in the ExxonMobil Canada Ltd. defined contribution plan. Under this plan, the affiliate contributes a percent of base pay to the fund monthly, subject to regulatory limits. The
Accumulated value at start of year was $516,811, the Compensatory value was $72,751 reflecting affiliate contribution and investment earnings, and the Accumulated value at year-end was $589,562. P.M. Dinnick is a
member of the Esso Australia Pty Ltd. defined contribution plan. Contribution limits under this plan have been reached. The Accumulated value at start of year was $51,022, the Compensatory value was $4,114 reflecting
investment earnings, and the Accumulated value at year-end was $55,136.
|
149
Appendix A Board of director and committee charters
Board of Directors Charter
The structure, process and responsibilities of the board of directors of the corporation shall include the following items and matters:
1. Responsibility
The directors shall be responsible for the stewardship of
the corporation.
2. Duty of care
The directors, in exercising their
powers and discharging their duties, shall:
|
(a)
|
act honestly and in good faith with a view to the best interests of the corporation; and
|
|
(b)
|
exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
|
3. Stewardship process
In order to carry out their responsibility for
stewardship within their duty of care, the directors shall, directly or through one or more committees of directors,
|
(a)
|
contribute to the formulation of and approve strategic plans on at least an annual basis;
|
|
(b)
|
identify the principal risks of the corporations business where identifiable and oversee the implementation of appropriate systems to manage such risks;
|
|
(c)
|
oversee succession planning for senior management, including the appointing, training and monitoring thereof;
|
|
(d)
|
approve the corporate disclosure guidelines and monitor the external communications of the corporation;
|
|
(e)
|
monitor the integrity of the corporations internal control and management information systems;
|
|
(f)
|
consider managements recommendations regarding major corporation decisions and actions, which have significant societal implications;
|
|
(g)
|
monitor compliance with major corporate policies;
|
|
(h)
|
charge the chief executive officer of the corporation with the general management and direction of the business and affairs of the corporation;
|
|
(i)
|
monitor the performance of the chief executive officer;
|
|
(j)
|
satisfy itself as to the integrity of the chief executive officer and other executive officers and ensure that the chief executive officer and the other executive officers create a culture of integrity throughout the
company;
|
|
(k)
|
annually review and approve the corporations code of ethics and business conduct;
|
|
(l)
|
monitor compliance with the code of ethics and business conduct, provided that any waivers from the code that are granted for the benefit of the issuers directors or executive officers should be granted by the
board only;
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150
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(m)
|
determine appropriate measures are in place for receiving feedback from stakeholders;
|
|
(n)
|
by appropriate charter resolutions, establish the audit, executive resources, nominations and corporate governance, environment, health and safety, and contributions committees of the board with specific duties defined
and the corporation provide each board committee with sufficient funds to discharge its responsibilities in accordance with its charter;
|
|
(o)
|
determine membership of each committee, including its chair and vice-chair, after receiving the recommendation of the nominations and corporate governance committee;
|
|
(p)
|
direct the distribution to the board by management of information that will enhance their familiarity with the corporations activities and the environment in which it operates, as set out in section 5;
|
|
(q)
|
review the corporations process in respect of employee conflicts of interest and directorships in
non-affiliated
commercial, financial and industrial organizations and the
disclosures thereof;
|
|
(r)
|
review the mandates of the board and of the committees and their effectiveness at least annually; and
|
|
(s)
|
undertake such additional activities within the scope of its responsibilities as it may deem appropriate.
|
4. Range
of items to be considered by the board
The following categories and specific items shall be referred to the board for information or decision on a regularly
scheduled basis, to the extent appropriate:
Organization/legal
|
●
|
fixing of the number of directors
|
|
●
|
director appointments to fill interim vacancies
|
|
●
|
director slate for election by the shareholders
|
|
●
|
board governance processes
|
|
●
|
by-laws
and administrative resolutions
|
|
●
|
changes in fundamental structure of the corporation
|
|
●
|
shareholder meeting notice and materials
|
|
●
|
nonemployee director compensation
|
|
●
|
policies adopted by the board
|
|
●
|
investigations and litigation of a material nature
|
Financial
|
●
|
equity or debt financing
|
|
●
|
financial statements and the related management discussion and analysis, annual and quarterly
|
|
●
|
status of the corporations retirement plan and employee savings plan
|
Strategic/investment/operating plans/performance
|
●
|
near-term and long-range outlooks
|
|
●
|
capital, lease, loan and contributions budgets annually
|
|
●
|
budget additions over $250 million individually
|
|
●
|
quarterly updates of actual and projected capital expenditures
|
|
●
|
capital expenditures or dispositions in excess of $250 million individually
|
|
●
|
entering into any venture that is outside of the corporations existing businesses
|
|
●
|
financial and operating results quarterly
|
|
●
|
Canadian and world economic outlooks
|
|
●
|
regional socio-economic reviews
|
151
In addition to the items which are specific to the categories identified above, the chief executive officer shall refer to
the board for information or decision all other items of corporate significance; and any member of the board may request a review of any such item. Items to be referred to the committees of the board are specified in their respective charters.
5. Information to be received by the board
Material shall be distributed to
directors through the office of the corporate secretary. Corporate policies, board calendars, contact information and other company processes, are updated on the board portal site and accessible to all directors.
Material under the following general headings, including the specific items listed below and only other similar items, shall be distributed to directors on a regular
basis:
Organization/legal
|
●
|
articles of incorporation,
by-laws
and administrative resolutions
|
|
●
|
board and management processes
|
|
●
|
financial and operating report
|
Social/political/economic environment
|
●
|
external communications packages
|
Major announcements
Communications to shareholders
Other significant submissions, studies and reports
6.
Meetings of the board
|
(a)
|
The board normally holds seven (7) regular meetings per year. Additional meetings may be scheduled as required to consider the range of items charged for consideration by the board.
|
|
(b)
|
An agenda for each board meeting and briefing materials will, to the extent practicable in light of the timing of matters that require board attention, be distributed to each director approximately five to seven days
prior to each meeting. The chairman, in consultation with the chair of the executive sessions will normally set the agenda for board meetings. Any director may request the inclusion of specific items.
|
|
(c)
|
It is expected that each director will make every effort to attend each board meeting and each meeting of any committee on which he or she sits. Attendance in person is preferred but attendance by teleconference is
permitted if necessary.
|
|
(d)
|
Each director should be familiar with the agenda for each meeting, have carefully reviewed all other materials distributed in advance of the meeting, and be prepared to participate meaningfully in the meeting, and to
discuss all scheduled items of business.
|
|
(e)
|
The proceedings and deliberations of the board and its committees are confidential. Each director will maintain the confidentiality of information received in connection with his or her service as a director, and the
chief executive officer, or those whom he or she has designated, will speak for the corporation.
|
152
7. Independent directors
|
(a)
|
The board shall be composed of a majority of independent directors. The board may also include one or more directors who are not independent, but who, as officers of the majority shareholder, may be viewed as
independent of the companys management.
|
|
(b)
|
In respect of each director to be appointed to fill a vacancy and each director to be nominated for election or
re-election
by the shareholders, the board shall make an express
determination as to whether he or she is an independent director and, for a director who may become a member of the audit committee, whether he or she is an audit committee financial expert or financially literate.
|
|
(c)
|
The term independent, shall have the meaning as set out in applicable law, including on the basis of the standards specified by Multilateral Instrument
52-110
Audit
Committees, the US. Securities and Exchange Commission rules and the listing standards of the NYSE MKT LLC.
|
|
(d)
|
Independent directors will have full access to senior management of the corporation and other employees on request to discuss the business and affairs of the corporation. The board expects that there will be regular
opportunities for directors to meet with the chief executive officer, and other members of management in board and committee meetings and in other formal or informal settings.
|
|
(e)
|
Compensation for independent directors will be determined by the board on the recommendation of the nominations and corporate governance committee and will be reviewed annually.
Non-employee
director compensation will be set at a level that is consistent with market practice, taking into account the size and scope of the corporations business and the responsibilities of its
directors. A substantial portion of the compensation paid to independent directors for service on the board will be paid in restricted stock units of the corporation.
|
8. Independent legal or other advice
It is normally expected that
information regarding the corporations business and affairs will be provided to the board by the corporations management and staff and by its independent auditors. However, the board and, with the approval of the board, any director, may
engage independent counsel and other advisors at the expense of the corporation. The fees and expenses of any such advisor will be paid by the corporation.
9.
Meetings of the independent directors in the absence of members of management
|
(a)
|
Meetings of the independent directors (executive sessions of the board) shall be held in conjunction with all board meetings including unscheduled telephonic board meetings. Additional executive sessions may
be convened by the chair of the executive sessions at his or her discretion and will be convened if requested by any other director. Any independent director may raise issues for discussion at an executive session.
|
|
(b)
|
The chair of the executive sessions of the board shall be chosen by the independent directors.
|
|
(c)
|
The chair of the executive sessions of the board, or in the chairs absence an independent director chosen by the independent directors, shall
|
|
(i)
|
preside at executive sessions of the board;
|
|
(ii)
|
ensure that meetings of the independent directors are held in accordance with this charter;
|
|
(iii)
|
review, and modify if necessary the agenda of the meetings of the board in advance to ensure that the board may successfully carry out its duties; and
|
|
(iv)
|
act as a liaison with the chairman, including providing feedback from the executive sessions to the chairman, provided that each director will also be afforded direct and complete access to the chairman at any time as
such director deems necessary or appropriate.
|
|
(d)
|
The purposes of the executive sessions of the board shall include the following:
|
|
(i)
|
to raise substantive issues that are more appropriately discussed in the absence of management;
|
153
|
(ii)
|
to discuss the need to communicate to the chairman of the board any matter of concern raised by any committee or any director;
|
|
(iii)
|
to address issues raised but not resolved at meetings of the board and assess any
follow-up
needs with the chairman of the board;
|
|
(iv)
|
to discuss the quality, quantity, and timeliness of the flow of information from management that is necessary for the independent directors to effectively and responsibly perform their duties, and advise the chairman of
the board of any changes required; and
|
|
(v)
|
to seek feedback about board processes.
|
10. Selection and tenure of directors
The nominations and corporate governance committee shall recommend to the board a slate of director candidates for election at each annual meeting of shareholders and
shall recommend to the board directors to fill vacancies, including vacancies created as a result of any increase of the size of the board.
The guidelines for
selection and tenure of directors shall be as follows:
(a) Selection
In considering the qualifications of potential nominees for election as directors, the nominations and corporate governance committee considers the work
experience and other areas of expertise of the potential nominees with the objective of providing for diversity among
non-employee
directors. The following key criteria are considered to be relevant to the
work of the board of directors and its committees:
Work Experience
|
●
|
Experience in leadership of businesses or other large organizations (Leadership of large organizations)
|
|
●
|
Operations/technical experience (Operations/technical)
|
|
●
|
Project management experience (Project management)
|
|
●
|
Experience in working in a global work environment (Global experience)
|
|
●
|
Experience in development of business strategy (Strategy development)
|
Other Expertise
|
●
|
Audit committee financial expert
|
|
●
|
Expertise in financial matters (Financial expertise)
|
|
●
|
Expertise in managing relations with government (Government relations)
|
|
●
|
Experience in academia or in research (Academic/research)
|
|
●
|
Expertise in information technology (Information technology)
|
|
●
|
Expertise in executive compensation policies and practices (Executive compensation)
|
In addition, the
nominations and corporate governance committee may consider the following additional factors:
|
●
|
possessing expertise in any of the following areas: law, science, marketing, administration, social/political environment or community and civic affairs;
|
|
●
|
individual competencies in business and other areas of endeavour in contributing to the collective experience of the directors; and
|
|
●
|
providing diversity in age, gender or regional association.
|
The nominations and corporate governance
committee shall then assess what work experience and other expertise each existing director possesses. The nominations and corporate governance committee shall identify individuals qualified to become new board members and recommend to the board the
new director nominees. In making its recommendations, the nominations and corporate governance committee shall consider the work experience and other expertise that the board considers each existing director to possess and which each new nominee
will bring. The nominations and corporate governance committee may also consider the additional factors noted above and any other factors which it believes to be relevant.
154
A candidate may be nominated for directorship after consideration has been given as to his or her degree of
compatibility with the following criteria, i.e., as to whether he or she:
|
●
|
will not adversely affect the requirements with respect to citizenship and residency for the directors imposed by the
Canada Business Corporations Act
;
|
|
●
|
will not adversely affect the corporations status as a foreign private issuer under U.S. securities legislation;
|
|
●
|
possesses the ability to contribute to the broad range of issues with which the directors and any one or all of the committees of directors must deal;
|
|
●
|
will serve on the boards of other public companies only to the extent that such services do not detract from the directors ability to devote the necessary time and attention as a director;
|
|
●
|
is able to devote the necessary amount of time to prepare for and attend all meetings of the directors and committees of directors, and to keep abreast of significant corporate developments;
|
|
●
|
is free of any present or apparent potential legal impediment or conflict of interest, such as:
|
|
o
|
serving as an employee or principal of any organization presently providing a significant level of service to the corporation or which might so provide to the corporation, for example, institutions engaged in commercial
banking, underwriting, law, management consulting, insurance, or trust companies; or of any substantial customer or supplier of the corporation;
|
|
o
|
serving as an employee or director of a competitor of the corporation, such as petroleum or chemical businesses, or of a significant competitor of corporations represented by a director of this corporation;
|
|
o
|
serving as the chief executive officer or a top administrator of an organization that has the chief executive officer or a top administrator of this corporation serving as director;
|
|
●
|
is expected to remain qualified to serve for a minimum of five years;
|
|
●
|
will not, at the time that he or she stands for election or appointment, have attained the age of 72;
|
|
●
|
if an independent director, is, or will become within a period of five years of becoming a director, the beneficial owner, directly or indirectly, of not less than 15,000 common shares, deferred share units or
restricted stock units of the corporation.
|
(b) Tenure
(i)
Re-nomination
An incumbent director shall be supported for
re-nomination
as long as he or she:
|
●
|
does not suffer from any disability that would prevent the effective discharge of his or her responsibilities as a director;
|
|
●
|
makes a positive contribution to the effective performance of the directors;
|
|
●
|
regularly attends directors and committee meetings;
|
|
●
|
has not made a change with respect to principal position or thrust of involvement or regional association that would significantly detract from his or her value as a director of the corporation;
|
|
●
|
is not otherwise, to a significant degree, incompatible with the criteria established for use in the selection process;
|
155
|
●
|
in a situation where it is known that a director will become incompatible with the criteria established for use in the selection process within a three-month period of election, such as retirement from principal
position at age 65, this information would be included in the management proxy circular, and where possible, information regarding the proposed replacement would also be included;
|
|
●
|
will not, at the time that he or she stands for
re-election,
have attained the age of 72; however, under exceptional circumstances, at the request of the chairman, the nominations
and corporate governance committee may continue to support the nomination.
|
(ii) Resignation
An incumbent director will resign in the event that he or she:
|
●
|
experiences a change in circumstances such as a change in his or her principal occupation, including an officer of the corporation ceasing to hold that position, but not merely a change in geographic location;
|
|
●
|
displays a change in the exercise of his or her powers and in the discharge of duties that, in the opinion of at least 75 percent of the directors, is incompatible with the duty of care of a director as defined in
the
Canada Business Corporations Act
;
|
|
●
|
has made a change in citizenship or residency that will adversely affect the requirements for directors with respect to those areas imposed by the
Canada Business Corporations Act;
|
|
●
|
has made a change in citizenship or residency that adversely affects the corporations status as a foreign private issuer under U.S. securities legislation;
|
|
●
|
develops a conflict of interest, such as
|
|
o
|
assuming a position as an employee or principal with any organization providing a significant level of service to the corporation, for example, institutions engaged in commercial banking, underwriting, law, management
consulting, insurance, or trust companies; or with any substantial customer or supplier of the corporation;
|
|
o
|
assuming a position as an employee or director of any competitor of the corporation, such as petroleum or chemical businesses, or of a competitor of corporations represented by a director of this corporation;
|
|
o
|
assuming the position of chief executive officer or a top administrator of an organization that has the chief executive officer or a top administrator of this corporation serving as a director;
|
|
o
|
becomes unable to devote the necessary amount of time to prepare for and regularly attend meetings of the directors and committees of directors, and to keep abreast of significant corporate developments,
|
and the nominations and corporate governance committee will make a recommendation to the board as to whether to accept or reject such
resignation.
11. Election of Directors
All directors will stand for
election at the annual meeting of shareholders. If the majority shareholders holdings were ever to fall below 50% for any
non-contested
elections of directors, any director nominee who receives a greater
number of votes withheld from his or her election than votes for in such election shall tender his or her resignation. Within 90 days after certification of the election results, the board will decide, through a process
managed by the nominations and corporate governance committee and excluding the nominee in question, whether to accept the resignation. Absent a compelling reason for the director to remain on the board, the board shall accept the resignation. The
board will promptly disclose and, if applicable, the reasons for rejecting the tendered resignation.
156
12. Director Orientation and Continuing Education
(a)
Orientation
New
non-employee
directors will receive a comprehensive orientation from appropriate executives regarding the corporations business and affairs.
(b)
Continuing Education
Reviews
of aspects of the corporations operations will be presented by appropriate employees from time to time as part of the agenda of regular board meetings. The board will also normally conduct an
on-site
visit to a location other than the corporations headquarters in conjunction with one or more regular board meetings every year.
13. Chairman and
chief executive officer
The board currently believes that it is appropriate and efficient for the corporations chief executive officer to also act as
chairman of the board. However, the board retains the authority to separate those functions if it deems such action appropriate in the future.
(a)
Position description
The
chairman and chief executive officer shall:
|
●
|
|
plan and organize all activities of the board of directors;
|
|
●
|
|
ensure that the board receives sufficient, timely information on all material aspects of the corporations operations and financial affairs;
|
|
●
|
|
chair annual and special meetings of the shareholders;
|
|
●
|
|
conduct the general management and direction of the business and affairs of the corporation;
|
|
●
|
|
recommend to the board of directors a strategic plan for the corporations business and, when approved by the board of directors, implement this strategic plan and report to the board of directors on the
implementation of this strategic plan;
|
|
●
|
|
develop and implement operational policies to guide the corporation within the limits prescribed by the corporations
by-laws
and the directions adopted by the board of
directors;
|
|
●
|
|
identify, for review with the board of directors, the principal risks of the corporations business, where identifiable, and develop appropriate systems to manage such risks;
|
|
●
|
|
under the oversight of the board of directors, develop plans for succession planning for senior management, including the appointing, training and monitoring thereof, and implement those plans;
|
|
●
|
|
ensure compliance with the corporations code of ethics and business conduct so as to foster a culture of integrity throughout the company; and
|
|
●
|
|
ensure effective internal controls and management information systems are in place.
|
(b)
Minimum shareholding requirements
The chairman and chief executive officer shall hold, or shall, within three years after his appointment as chairman and chief executive officer, acquire
shares of the corporation, including common shares and restricted stock units, of a value no less than five times his base salary.
157
Audit Committee Charter
1. Purpose of the Committee
The primary purpose of the audit committee (the
committee) is oversight. The committee shall assist the board of directors (the board) in fulfilling its responsibility to oversee:
|
●
|
|
managements conduct of the corporations financial reporting process,
|
|
●
|
|
the integrity of the financial statements and other financial information provided by the corporation to Canadian securities regulators, the United States Securities and Exchange Commission (the SEC) and the
public,
|
|
●
|
|
the corporations system of internal accounting and financial controls,
|
|
●
|
|
the corporations compliance with legal and regulatory requirements,
|
|
●
|
|
the performance of the corporations internal audit function,
|
|
●
|
|
the independent auditors qualifications, performance, and independence, and
|
|
●
|
|
the annual independent audit of the corporations financial statements.
|
The corporations management is
responsible for preparing the corporations financial statements. The independent auditors are responsible for auditing those financial statements. Management, including the internal audit function, and the independent auditors, have more time,
knowledge, and detailed information about the corporation than do committee members. Consequently, in carrying out its oversight responsibilities, the committee is not providing any expert or special assurance as to the corporations financial
statements, or any professional certification as to the independent auditors work, including with respect to auditor independence. Each member of the committee shall be entitled to rely on the integrity of people and organizations from whom
the committee receives information and the accuracy of such information, including representations by management and the independent auditors regarding
non-audit
services provided by the independent auditors.
2. Committee Membership
The committee shall consist of no fewer than
three members. Committee members shall be appointed by the board from among its independent members who shall serve at the pleasure of the board, but only so long as he or she continues to be a directors of the corporation and is independent. Each
member of the committee must satisfy such criteria of independence as the board may establish and such additional regulatory or listing requirements as the board may determine to be applicable or appropriate. Each member of the committee shall serve
only so long as he or she continues to be a director of the corporation and is independent. The actual number of members shall be determined from time to time by resolution of the board.
Accordingly, each member of the committee shall be financially literate within a reasonable period of time after appointment to the committee; must be
independent as defined in the board charter; and may not serve on more than two other public company audit committees unless the board determines that such simultaneous service would not impair the ability of the member to serve
effectively on the committee. In addition, at least one member of the committee shall be an audit committee financial expert as defined by applicable laws.
3. Committee Structure and Operation
The chair and vice-chair of the
committee shall be designated by the board from among the members of the committee. The committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the committee. In addition to the regular
meeting schedule established by the committee, the chair of the committee may call a special meeting at any time.
The chair, or in that persons absence, the
vice-chair or in the vice-chairs absence, an alternate designated by the committee, shall:
158
|
(a)
|
preside at committee meetings;
|
|
(b)
|
ensure that meetings of the committee are held in accordance with this charter; and
|
|
(c)
|
review, and modify if necessary the agenda of the meetings of this committee in advance to ensure that the committee may effectively carry out its duties.
|
A majority of the members of the committee shall constitute a quorum thereof. Every question shall be decided by a majority of the votes cast on the question and in the
case of an equality of votes, the chair of the meeting shall be entitled to a second or casting vote.
The committee shall designate its secretary.
Meetings of the committee may be called by any member or by the external auditors of the corporation, and notice of every meeting shall be given to the external
auditors.
The external auditors and the internal auditor of the corporation shall report directly to the audit committee.
The committee shall act only on the affirmative vote of a majority of the members at a meeting or by unanimous written consent.
The committee may establish
sub-committees
to carry out such duties as the committee may assign.
4. Committee Activities
The following shall be the common recurring
activities of the committee in carrying out its purposes. These activities are set forth as a guide with the understanding that the committee may diverge from this guide as appropriate given the circumstances.
The committee shall:
|
(a)
|
recommend the external auditors to be appointed by the shareholders, review and recommend their remuneration to the board, approve advances on such remuneration, which shall be paid by the corporation, and oversee their
work, including the resolution of disagreements between management and the external auditor regarding financial reporting.
|
|
(b)
|
approve the proposed current year audit program of the external auditors and assess the results of the program after the end of the program period.
|
|
(c)
|
approve in advance any
non-audit
services that are permitted by applicable law to be performed by the external auditors after considering the effect of such services on their
independence.
|
|
(d)
|
receive from the external auditors a formal written statement delineating all relationships between the external auditor and the corporation consistent with Independence Standards Board Standard 1, and shall actively
engage in a dialogue with the external auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the external auditor and shall recommend that the board take any appropriate action to oversee
the independence of the external auditor.
|
|
(e)
|
maintain hiring policies for employees and former employees of the independent auditors.
|
|
(f)
|
establish procedures for the receipt, retention and treatment of complaints received by the corporation regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission
by employees of the corporation of concerns regarding questionable accounting or auditing matters.
|
|
(g)
|
approve the proposed current year audit program of the internal auditors and assess the results of the program after the end of each quarter.
|
|
(h)
|
review the adequacy of the corporations system of internal controls and auditing procedures.
|
|
(i)
|
review the accounting and financial reporting processes of the corporation.
|
159
|
(j)
|
approve changes proposed by management in accounting principles and practices, and review changes proposed by the accounting profession or other regulatory bodies which impact directly on such principles and practices.
|
|
(k)
|
review the quarterly news release of financial and operating results, the annual and quarterly financial statements of the corporation, any accounting items affecting the statements and the overall format and content of
the statements, and the related management discussion and analysis, prior to approval of such news release and financial statements by the board of directors.
|
|
(l)
|
review the results of the corporations business ethics compliance program.
|
|
(m)
|
review annually a summary of senior management expense accounts.
|
|
(n)
|
evaluate, along with the other members of the board, management, the controller, and the general auditor, the qualifications, performance and independence of the independent auditors, including the performance of the
lead audit partner.
|
|
(o)
|
require attendances at its meetings by members of management, as the committee may direct.
|
|
(p)
|
undertake such additional activities within the scope of its responsibilities as it may deem appropriate.
|
5.
Committee Evaluation
The committee will annually complete a self-evaluation of the committees own performance and effectiveness and will consider whether
any changes to the committees charter are appropriate.
6. Resources and Authority of the Committee
The committee has exclusive authority with respect to the retention of the independent auditors described in section 4 of this charter. In discharging its oversight
role, the committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the corporation. The committee also has the authority to retain outside advisors, including
legal counsel, auditors, or other experts, as it deems appropriate; to approve the fees and expenses of such advisors; and to incur such other ordinary administrative expenses as are necessary or appropriate in carrying out its duties.
Environment, Health and Safety Committee Charter
1. Purpose of the Committee
The primary purpose of the safety, health and environment committee (the committee) is to review and provide advice, as the committee deems appropriate,
regarding the corporations policies, programs and practices on public issues of significance including their effects on safety, health and the environment.
2. Committee Membership
The committee shall consist of no fewer than three
members, to be appointed by the board of directors from among (a) the independent directors; and (b) the
non-independent
directors who are not members of the corporations management, who shall
serve at the pleasure of the board, but only so long as he or she continues to be a director of the corporation. The actual number of members shall be determined from time to time by resolution of the board. Members of the committee should be
suitably knowledgeable in matters pertaining to public issues.
3. Committee Structure and Operation
The chair and vice-chair of the committee shall be designated by the board from among the members of the committee. The committee shall fix its own rules of procedure
and shall meet where and as provided by such rules or by resolution of the committee.
The chair, or in that persons absence, the vice-chair or in the
vice-chairs absence, an alternate designated by the committee, shall:
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(a)
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preside at committee meetings;
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(b)
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ensure that meetings of the committee are held in accordance with this charter; and
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(c)
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review, and modify if necessary the agenda of the meetings of this committee in advance to ensure that the committee may effectively carry out its duties.
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A majority of the members of the committee shall constitute a quorum thereof. Every question shall be decided by a majority of the votes cast on the question and in the
case of an equality of votes, the chair of the meeting shall be entitled to a second or casting vote.
The committee shall designate its secretary.
Meetings of the committee may be called by any member.
The committee shall act
only on the affirmative vote of a majority of the members at a meeting or by unanimous written consent.
The committee may establish subcommittees consisting of one
or more members to carry out such duties as the committee may delegate.
4.
Committee Activities
The following shall be the common recurring activities of the committee in carrying out its purpose. These activities are set forth as a guide with the understanding
that the committee may diverge from this guide as appropriate given the circumstances.
The committee shall:
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(a)
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review and monitor the effectiveness of the corporations policies, programs and practices on safety, health and environment, and make such recommendations to the board with respect thereto as it may deem
advisable.
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(b)
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monitor the corporations compliance with legislative, regulatory and corporation standards for environmental, health and safety practices and matters, and advise the directors on the results and adequacy thereof.
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(c)
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monitor trends and review current and emerging public policy issues in matters of the environment, health and safety as they may impact the corporations operations.
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(d)
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review the impact of proposed legislation in matters of the environment, health and safety on the operations of the corporation and advise the directors and management as to the appropriate response of the corporation
thereto.
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(e)
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recommend to the directors and management desirable policies and actions arising from its review and monitoring activity.
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(f)
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require attendances at its meetings by members of management, as the committee may direct.
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(g)
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undertake such additional activities within the scope of its responsibilities as it may deem appropriate.
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5.
Committee Evaluation
The committee will annually complete a self-evaluation of the committees own performance and effectiveness and will consider whether
any changes to the committees charter are appropriate.
6. Resources and Authority of the Committee
The committee has the authority to retain such outside advisors, including legal counsel or other experts, as it deems appropriate, and to approve the fees and expenses
of such advisors.
161
Executive Resources Committee Charter
1. Purpose of the Committee
The primary purpose of the executive resources committee (the committee) is to discharge the board of directors (the board)
responsibilities relating to the evaluation and compensation of the corporations chief executive officer (the CEO) and certain other key senior executive management positions reporting directly to the CEO, including all officers of
the corporation, and to discharge the responsibilities of the committee under applicable rules and regulations. The committee also makes recommendations to the board regarding succession planning and development for senior executives and positions
as needed.
2. Committee Membership
The committee shall consist of no
fewer than three members, to be appointed by the board of directors from among (a) the independent directors; and (b) the
non-independent
directors who are not members of the corporations
management, who shall serve at the pleasure of the board, but only so long as he or she continues to be a director of the corporation. The actual number of members shall be determined from time to time by resolution of the board. Members of the
committee should be suitably knowledgeable in matters pertaining to executive compensation.
3. Committee Structure and Operation
The chair and vice-chair of the committee shall be designated by the board from among the members of the committee. The committee shall fix its own rules of procedure
and shall meet where and as provided by such rules or by resolution of the committee.
The chair, or in that persons absence, the vice-chair or in the
vice-chairs absence, an alternate designated by the committee, shall:
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(a)
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preside at committee meetings;
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(b)
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ensure that meetings of the committee are held in accordance with this charter; and
|
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(c)
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review, and modify if necessary the agenda of the meetings of this committee in advance to ensure that the committee may effectively carry out its duties.
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A majority of the members of the committee shall constitute a quorum thereof. Every question shall be decided by a majority of the votes cast on the question and in the
case of an equality of votes, the chair of the meeting shall be entitled to a second or casting vote.
The committee shall designate its secretary.
Meetings of the committee may be called by any member.
The committee shall act
only on the affirmative vote of a majority of the members at a meeting or by unanimous written consent.
The committee may establish subcommittees consisting of one
or more members to carry out such duties as the committee may delegate.
4. Committee Activities
The following shall be the common recurring activities of the committee in carrying out its purposes. These activities are set forth as a guide with the understanding
that the committee may diverge from this guide as appropriate given the circumstances.
The committee shall:
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(a)
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review and approve the corporate goals and objectives relevant to the compensation of the CEO.
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(b)
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review data on competitive compensation practices and review and evaluate policies and programs through which the corporation compensates its employees.
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(c)
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at least annually evaluate the CEOs performance as measured against the goals and objectives outlined above.
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(d)
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approve salaries and other compensation (including supplemental compensation such as cash bonuses and incentive bonus units, long-term incentive compensation such as restricted stock units, and any other payments for
service), for the CEO and other key senior executive management positions reporting directly to the CEO, including all officers of the corporation.
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(e)
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at least annually review succession planning and development strategies for the CEO and key senior executive management positions reporting directly to the CEO, including all officers of the corporation.
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(f)
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review the executive development system to ensure that it foresees the corporations senior management requirements and provides for early identification and development of key resources.
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(g)
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review and approve an annual report on compensation for inclusion in the corporations management proxy circular in accordance with applicable legal requirements.
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(h)
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make recommendations to the board with respect to incentive compensation plans and equity-based plans.
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(i)
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review proposed terms of any new incentive program and any major amendment of an existing program, and make such recommendations to the board with respect thereto as it may deem advisable.
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(j)
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review and report on risks arising from the corporations compensation policies and practices for employees as required by Canadian securities regulators and stock exchanges on which the corporations stock
trades.
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(k)
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consider factors that could affect the independence or represent a conflict of interest on the part of any compensation consultant, independent legal counsel, or other adviser the committee may retain and report thereon
as required by Canadian securities regulators and stock exchanges on which the corporations stock trades.
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(l)
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require attendances at its meetings by members of management, as the committee may direct.
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(m)
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undertake such additional activities within the scope of its responsibilities as it may deem appropriate.
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5.
Committee Evaluation
The committee will annually complete a self-evaluation of the committees own performance and effectiveness and will consider whether
any changes to the committees charter are appropriate.
6. Resources and Authority of the Committee
The committee and, with the approval of the committee, any member, may engage independent counsel, compensation consultants or other advisors at the expense of the
corporation. The committee shall be directly responsible for the appointment, compensation and oversight of the work of any independent legal counsel, compensation consultant or other advisor retained by the committee. The committee may select
outside legal counsel, a compensation consultant or other advisor (an Advisor) to the committee only after taking into consideration all factors relevant to the Advisors independence from management, including the following:
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the provision of other services to the corporation by the person that employs the Advisor;
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●
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the amount of fees received from the corporation by the person that employs the Advisor as a percentage of such that persons total revenue;
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●
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the policies and procedures of the person that employs the Advisor that are designed to prevent conflicts of interest;
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●
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any business or personal relationship of the Advisor with a member of the committee;
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●
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any stock of the corporation owned by the Advisor; and
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●
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any business or personal relationship of the Advisor or the person employing the Advisor with an executive officer of the corporation.
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163
Nominations and Corporate Governance Committee Charter
1. Purpose of the Committee
The primary purpose of the nominations and corporate governance committee (the committee) is to monitor compliance with good corporate governance standards;
to identify individuals qualified to become board members; to recommend to the board director nominees for election at the annual meeting of shareholders or for election by the board to fill open seats between annual meetings; to recommend to the
board committee appointments for directors, including appointments as chair and vice chair of such committees; to review and make recommendations to the board regarding
non-employee
director compensation; and
to develop and recommend to the board corporate governance guidelines applicable to the corporation.
2. Committee Membership
The committee shall consist of no fewer than three members, to be appointed by the board of directors from among (a) the independent directors; and (b) the
non-independent
directors who are not members of the corporations management, who shall serve at the pleasure of the board, but only so long as he or she continues to be a director of the corporation. The
actual number of members shall be determined from time to time by resolution of the board. Members of the committee should be suitably knowledgeable in matters pertaining to corporate governance.
3. Committee Structure and Operation
The chair and vice-chair of the
committee shall be designated by the board from among the members of the committee. The committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the committee.
The chair, or in that persons absence, the vice-chair or in the vice-chairs absence, an alternate designated by the committee, shall:
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(a)
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preside at committee meetings;
|
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(b)
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ensure that meetings of the committee are held in accordance with this charter; and
|
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(c)
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review, and modify if necessary the agenda of the meetings of this committee in advance to ensure that the committee may effectively carry out its duties.
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A majority of the members of the committee shall constitute a quorum thereof. Every question shall be decided by a majority of the votes cast on the question and in the
case of an equality of votes, the chair of the meeting shall be entitled to a second or casting vote.
The committee shall designate its secretary.
Meetings of the committee may be called by any member.
The committee shall act
only on the affirmative vote of a majority of the members at a meeting or by unanimous written consent.
The committee may establish subcommittees consisting of one
or more members to carry out such duties as the committee may delegate.
4. Committee Activities
The following shall be the common recurring activities of the committee in carrying out its purpose. These activities are set forth as a guide with the understanding
that the committee may diverge from this guide as appropriate given the circumstances.
The committee shall:
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(a)
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oversee issues of corporate governance as they apply to the corporation, including the effectiveness of the system of corporate governance, and the boards relationship with management, and report to the board on
such matters.
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(b)
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oversee the annual assessment of the effectiveness and contribution of the board, its committees and each individual director.
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(c)
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make recommendations to the board as to the appropriate size of the board with a view to facilitating effective decision-making.
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(d)
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review and recommend to the board of directors any modifications to the charters of the board or any of its committees.
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(e)
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review qualifications of existing directors and individuals suggested as potential candidates for director of the corporation, including candidates suggested by shareholders, and consider for nomination any of such
individuals who are deemed qualified pursuant to the provisions of the board charter.
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(f)
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recommend to the board the nominees to be proposed by the board for election as directors of the corporation at the annual meeting of shareholders.
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(g)
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recommend to the board candidates for election as directors of the corporation to fill open seats on the board between annual meetings, including vacancies created by an increase in the authorized number of directors.
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(h)
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consider resignations tendered by directors in the event of:
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(i)
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the majority shareholders holdings falling below 50%, for any
non-contested
election of directors in the event a nominee standing for election by shareholders in a
non-contested
election receives a greater number of votes withheld from his or her election than votes for such election and, in any such case, refer the matter to the board with the committees recommendation
whether such resignation should be accepted, or
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(ii)
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a change of circumstance as described in section 10(b)(ii) of the board charter.
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(i)
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review the remuneration of independent directors and make such recommendations to the board with respect thereto as it may deem advisable.
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(j)
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review present plans, programs or arrangements, and any proposed terms of any new plans, programs or arrangements, for the benefit of independent directors, and make such recommendations to the board with respect
thereto as it may deem advisable.
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(k)
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review and recommend to the board guidelines to be adopted relating to tenure of independent directors.
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(l)
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provide recommendations to the board concerning committee structure of the board, committee operations, committee member qualifications, and committee member appointment.
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(m)
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review any allegation that an executive officer or director may have violated the corporations Standards of Business Conduct and report its findings to the board and the general auditor.
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(n)
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require attendances at its meetings by members of management, as the committee may direct.
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(o)
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undertake such additional activities within the scope of its responsibilities as it may deem appropriate.
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5.
Committee Evaluation
The committee will annually complete a self-evaluation of the committees own performance and effectiveness and will consider whether
any changes to the committees charter are appropriate.
6. Resources and Authority of the Committee
The committee has the authority to retain such outside advisors, including legal counsel or other experts, as it deems appropriate, and to approve the fees and expenses
of such advisors. Without limiting the foregoing, the committee will have sole authority to retain and terminate any search firm to be used by the committee to identify director candidates and any consultant used by the committee to evaluate
non-employee
director compensation.
165
Contributions Committee Charter
1. Purpose of the Committee
The primary purpose of the contributions
committee (the committee) is to review and provide advice on the corporations overall contributions objectives, policies and programs.
2.
Committee Membership
The committee shall consist of no fewer than three members to be appointed by the board from among its members who shall serve at the
pleasure of the board, but only so long as he or she continues to be a director of the corporation. The actual number of members shall be determined from time to time by resolution of the board. Members of the committee should be suitably
knowledgeable in matters pertaining to issues relating to corporate contributions and community investment.
3. Committee Structure and Operation
The chair and vice-chair of the committee shall be designated by the board from among the members of the committee. The committee shall fix its own rules of procedure
and shall meet where and as provided by such rules or by resolution of the committee. In addition to the regular meeting schedule established by the committee, the chair of the committee may call a special meeting at any time.
The chair, or in that persons absence, the vice-chair or in the vice-chairs absence, an alternate designated by the committee, shall:
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(a)
|
preside at committee meetings;
|
|
(b)
|
ensure that meetings of the committee are held in accordance with this charter; and
|
|
(c)
|
review, and modify if necessary the agenda of the meetings of this committee in advance to ensure that the committee may effectively carry out its duties.
|
A majority of the members of the committee shall constitute a quorum thereof. Every question shall be decided by a majority of the votes cast on the question and in the
case of an equality of votes, the chair of the meeting shall be entitled to a second or casting vote.
The committee shall designate its secretary.
Meetings of the committee may be called by any member.
The committee shall act
only on the affirmative vote of a majority of the members at a meeting or by unanimous written consent.
The committee may establish subcommittees consisting of one
or more members to carry out such duties as the committee may delegate.
4.
Committee Activities
The following shall be the common recurring activities of the committee in carrying out its purpose. These activities are set forth as a guide with the understanding
that the committee may diverge from this guide as appropriate given the circumstances.
The committee shall:
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(a)
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review and monitor the corporations policies and practices in matters relating to Community Investment, which Community Investment shall consist of:
|
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(i)
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charitable contributions,
|
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(ii)
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local community contributions by business units on community-serving projects that also benefit the corporation, which are charitable in nature;
|
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(iii)
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the corporations share of community-serving projects described in section 4(a)(ii) above by joint ventures operated by other companies;
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166
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(iv)
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funding for public policy groups;
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(v)
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university research awards;
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(vi)
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sponsorships whose primary purpose is to promote brand recognition, product sales or business development; and
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(vii)
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expenditures required under socio-economic agreements to gain access to resources.
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(b)
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review each year, prior to the development of the following years budget for Community Investment, proposed overall contributions objectives, policies and programs, including, as appropriate, goals and criteria,
the level of corporate contributions, the subject areas to which contributions are to be made and the relative weighting thereof, and the need to make such contributions to gain access to resources or otherwise advance the business objectives of the
company.
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(c)
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approve the proposed budget for charitable contributions and local community contributions, as described in sections 4(a)(i) and (ii) above, of the corporation and its consolidated affiliates, and to review such
budgets for charitable contributions and local community contributions as to the consistency of such budgets with the contributions objectives, policies and programs established in respect of each year.
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(d)
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review the proposed budget for Community Investment of the corporation and its consolidated affiliates as to the consistency of such budgets with the contributions objectives, policies and programs established in
respect of each year, and possible contributions of an unusual amount.
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(e)
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approve all grants or contributions for charitable contributions and local community contributions, as described in sections 4(a)(i) and (ii) above, in excess of $300,000.
|
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(f)
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require attendances at its meetings by members of management, as the committee may direct.
|
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(g)
|
undertake such additional activities within the scope of its responsibilities as it may deem appropriate.
|
5.
Committee Evaluation
The committee will annually complete a self-evaluation of the committees own performance and effectiveness and will consider whether
any changes to the committees charter are appropriate.
6. Resources and Authority of the Committee
The committee has the authority to retain such outside advisors, including legal counsel or other experts, as it deems appropriate, and to approve the fees and expenses
of such advisors.
167
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