| Notes for remarks by G.E. Bezaire, Director, Corporate Planning & Communications, Imperial Oil Limited, to The Oil and Gas Conference
| | Denver, Colorado | August 2, 2004
| CHART #1 -- Title Page
Good morning. It's a pleasure to be in Denver and I'd like to thank the organizers for the opportunity to meet with you today.
CHART #2 -- Disclaimer
I need to start by reminding you that this presentation contains forward-looking information. Actual results could differ materially due to changes in project schedules, operating performance, demand for oil and gas, commercial negotiations or other technical and economic factors.
Let me now broadly outline the scope of Imperial Oil.
CHART #3 -- Imperial Oil Limited
Imperial was founded in 1880 and is Canada’s largest integrated oil company - with interests in oil and gas production, refining, marketing and petrochemicals.
The company's market cap is about 17 billion US dollars (22 billion Canadian dollars) -- and while I've done the US dollar conversion here, all other numbers in the presentation are in Canadian dollars.
Imperial is an affiliate of Exxon Mobil Corporation, which owns 69.6 percent of the outstanding shares.
The company is one of the largest producers of crude oil in Canada and a major producer of natural gas.
Imperial is the largest refiner and marketer of petroleum products in Canada, supplying about 25 percent of total demand.
And the company's chemical sales totaled over 1.2 million tonnes a year in 2003.
In my presentation today you will see that Imperial has the resource base, the expertise and financial strength to sustain growth in shareholder value.
CHART #4 -- Disciplined Management Approach to Grow Shareholder Value
Imperial's business model is designed to look beyond short-term fluctuations and to focus on the long-term fundamentals.
This disciplined investment approach coupled with a focus on operational excellence and quality returns on capital employed has led to superior results which result in sustained growth in shareholder value.
CHART #5 -- Leveraging the ExxonMobil Relationship
We are aided in the execution of our business strategies by our relationship with ExxonMobil. This provides us with advantages unavailable to most of our competitors.
Imperial has about 200 employees, including 25 percent of our executives, working outside of Canada. This international experience adds significantly to our human resource strength. And when activities are undertaken which are outside of our day to day expertise, we have access to ExxonMobil's world-class skills.
Imperial has access to global centres of excellence in locations such as Bangkok, Thailand and Curitiba, Brazil, thereby reducing the cost of services such as information systems and procurement.
Imperial has undertaken research in Canada for decades. But in addition, we also have access to all of ExxonMobil's research and technology.
ExxonMobil's procurement clout enables the purchase of goods and services at preferred rates.
Our management and operating systems are honed by worldwide best practices.
All in all ... tremendous leverage.
CHART #6 -- Increasing Investment Opportunities
Because we take a long-term view, we are selective about the investments we advance. Our financial strength enables us to invest in quality opportunities in good times and bad.
Capital and exploration spending increased from $1.1 billion in 2001 to $1.6 billion in 2002 and $1.5 billion last year. This represents a level of investing more than double that of the 1990's. It also represents more than twice the current rate of depreciation and depletion.
These investments maintained and expanded crude oil and natural gas production, upgraded refineries to meet low sulphur fuel requirements and improved the company's service station and rural distribution networks.
Capital and exploration expenditures for this year are expected to total about $1.6 billion and will be financed from internally generated funds.
CHART #7 -- Effective Use of Cash Flow
Our industry leading returns have delivered consistently strong cash flow. Through both the peaks and valleys - we have not lacked cash for quality opportunities.
A large portion of our cash has been reinvested back into the business. These investments are expected to generate double digit returns.
When surplus cash is generated, we don't water down our investment criteria in the belief that we must find ways to spend it.
Rather we return it to shareholders through dividend payments or share repurchases.
CHART #8 -- Double-Digit Returns
In our drive to enhance shareholder value, we strive for continuous improvement in business results - and in doing so improve the bottom line.
The blue bars on this graph show Imperial's total earnings for each of the past ten years.
The red line shows return on average capital employed over the same period. You will note the significant improvement in both earnings and return on capital. You will also see that earnings exceed $1.2 billion for four straight years.
The yellow squares show the average return on capital employed of the other Canadian integrated oil companies over the same period. Imperial has consistently outperformed its peers since the mid-1990’s.
The last bar on the chart shows our earnings for the first half of the year -- over $960 million.
CHART #9-- Delivering Shareholder Value - TSX
Good value continues to be delivered to shareholders, certainly in 2003 but over the long term as well.
The bar chart compares Imperial's returns to shareholders with the Toronto Stock Exchange composite index. Imperial’s total return to shareholders, including dividends and share price appreciation, was 30 percent last year.
More importantly, our total return has averaged 21 percent over the past 5 years and 18 percent over the past 10 years.
Dividend payments increased in 2003, the ninth consecutive year of dividend growth. Imperial has paid dividends every year for more than a century.
In addition, an ongoing share buyback program has been maintained.
CHART #10-- Delivering Shareholder Value - AMEX
Aided by the run-up in the Canadian dollar, returns for our shareholders on the Amex have been even more impressive at over 50 percent in the twelve months to the end of December.
Returns over 5 years and 10-year periods have also been strong. Imperial is a quality investment on both sides of the border.
As an introduction to our segment discussions, let's turn to a chart on Canada.
CHART #11 -- Canada's Distinct and Advantaged Role
Canada - and its petroleum industry - are uniquely positioned to take advantage of the market opportunities in both the downstream and upstream.
We are the only G-7 country with significant potential for growth in hydrocarbon production.
An efficient, reliable pipeline infrastructure provides Canadian producers access to the US markets. These delivery systems are safe, reliable and secure.
And, perhaps most important in a world of continuing geopolitical uncertainty and instability, Canada represents a uniquely secure source of future energy supply.
I'd now like to highlight Imperial's strong position in the downstream and chemicals segments of the business.
CHART #12 -- Market Leader in the Downstream and Chemicals
Imperial is the leader in the business.
We have the leading market share in the retail service station business in Canada.
We are the largest refiner in Canada with over five hundred thousand barrels per day of capacity.
Backed by product innovation from our Sarnia research facility, we supply nearly one-third of the finished lubricants market.
We have the largest share of the domestic solvents market at close to 50 percent.
And we have the #1 and #2 market shares for the two polyethylene segments we participate in -- rotational molding and injection molding.
Imperial continually makes targeted investments to improve the productivity of these segments and the results are encouraging. Year-to-date earnings were a record $243 million in the first half of 2004.
Looking longer term, despite dismal results in 1999, the return on capital employed over the past four years averaged 13 percent.
But the ability to grow volumes in this business are modest which is why I'll spend the balance of this presentation talking about the upstream.
CHART #13 -- Positioned to Continue as Upstream Leader
Imperial is a leader in three areas that represent the future of Canada's upstream petroleum industry -- the Alberta oil sands, the Mackenzie Delta/Arctic area where we have extensive untapped resources, and the East Coast where we hope to discover more hydrocarbons.
We are positioned for growth in each area.
CHART #14 -- A Leader in Development of Canada's Oil Sands
I'll begin with the oil sands of Northern Alberta where Imperial has long been a dominant force by virtue of the wholly owned Cold Lake operation and a 25 percent ownership position in Syncrude.
We have a premier land position in the oil sands, an industry leading R&D program and a wealth of operating experience.
Let's start in Cold Lake ...
CHART #15 -- Cold Lake Overview
In oil sands, recovery techniques range from surface mining to steam stimulation, depending on the depth of the deposit.
At Cold Lake, the bitumen sands are 1400 feet below surface enabling in-situ recovery. First, steam is injected into a well to heat up and thin the bitumen. Then, the well is put on production. This is a cyclic process that is repeated for years. The heavy produced oil is diluted and shipped by pipeline to markets mostly in the mid-continent.
Imperial's wholly owned Cold Lake development is the largest thermal recovery field in Canada and one of the largest in the world.
We have purposely pursued a phased development approach. This has enabled us to bring on new volumes as market conditions allow, using the most advanced technology available -- thereby minimizing risk and maximizing value.
Pilot tests on this site began in the 1960's and the first commercial phase was launched in 1985. The production build-up since start-up is shown on the graph.
We now operate 13 phases of commercial production -- including a $650 million, three-phase expansion that started up at the end of 2002, shown in the photo on this slide.
This is a long-life asset -- net proved reserves were 760 MB at year-end 2003 and there is additional untapped resource.
A long-term proprietary research program supports the continued success and longevity of Cold Lake.
It's been 40 years since the first research was undertaken. Our scientists continue to advance concepts that improve recovery and lower costs -- some of which are being piloted today.
CHART #16 -- Cold Lake Development
This map shows current operations and areas for further development.
The pink oval represents our current operations. The black symbols show our 4 operating plants, with our most recent expansion -- phases 11-13 -- in the bottom right of the oval.
In March of this year, we received regulatory approval for two additional expansion areas -- the areas outlined in red show our current approved operating area.
Consistent with our proven strategy at Cold Lake, we are leveraging future investment off existing infrastructure.
A significant development drilling program is underway in 2004 within our current operating area with over 300 wells planned.
Bottom line -- additional low cost opportunities to grow production.
CHART #17 -- A Leader in Development of Canada's Oil Sands
I'd now like to talk about Syncrude to the north -- the world's largest mineable oil sands operation.
CHART #18 -- Syncrude Overview
The tar sands deposit near Fort McMurray where Syncrude operates is mineable since it's near the surface.
Syncrude employs a 3-stage process: mining, extracting bitumen from the oil sands and upgrading the bitumen to light sweet crude. The picture shows a typical truck and shovel operation in the mine.
Syncrude is the single largest crude oil producer in Canada with net reserves of about 3 billion barrels and production of over 200 kbd in 2003.
Imperial was a founding member of Syncrude and has a 25 percent interest.
The Syncrude operation benefits from long-life reserves and extensive long-term proprietary research -- an essential combination for sustained, economic production from this abundant but challenging resource.
CHART #19 -- Syncrude Development - Stage 3 Expansion
Syncrude is currently progressing a major expansion for the operation -- one that will increase production by 50 percent and improve the quality and the sales price of the entire sales stream.
Construction began in 2002 and is now expected to total about $7.8 billion to develop a new mine -- at about $700 million -- and complete the upgrader expansion for over $7 billion.
The new mine -- Aurora 2 -- is shown in the picture at the top. The mine was completed within budget and on-schedule and is now operating.
The upgrader expansion shown in the picture below is more than 50 percent complete.
Cost and schedule performance to date on the upgrader has been disappointing. The owners have taken intervention steps and numerous initiatives are in place to manage cost pressures and effectively execute the remaining work for a planned 2006 start-up.
CHART #20 -- Kearl Oil Sands Project
While Cold Lake and Syncrude are the cornerstones of our current oil-sands business, the company has close to 120,000 acres of undeveloped oil sands leases.
The Kearl Oil Sands project is a potential new project about 40 miles from Syncrude. The 3 leases are shown in the yellow map. Imperial and ExxonMobil collectively wholly own the rights to these three leases.
Imperial has the largest interest and is the operator.
A core-hole delineation program last winter, indicated by the red triangles and shown in the pictures, confirms the high quality resource on these leases. There is sufficient potential to support a project of over 200,000 barrels per day.
A range of sizes and project options is being evaluated. Rather than initially invest in greenfield upgrading, the intention is to leverage existing downstream infrastructure in ExxonMobil and Imperial.
A regulatory application is being prepared. But clearly many technical and commercial factors must be further understood prior to making a development decision.
Now I'd like to turn to Imperial's gas resources in Canada's Far North.
CHART #21 -- Mackenzie Gas Project
The Mackenzie Delta region is the area at the top left of the map, east of Alaska. Development of gas resources here has been the subject of much discussion since the on-shore discoveries of the 1970's.
The project will develop onshore gas from three anchor fields. Imperial's 100 percent owned Taglu field contains about 3 TCF or 50 percent of the resource to be developed.
The project is a co-venture between the producers -- Imperial, ConocoPhillips, Shell Canada, ExxonMobil Canada -- and the Aboriginal Pipeline Group.
Imperial is the project lead and operator. The pipeline, shown in red, will use proven technology and will tie into existing pipeline infrastructure in Alberta.
Aboriginal support is essential to any Mackenzie Valley pipeline development. From the outset, we have worked hard to get and maintain this support.
Regulatory approval for this project is complex with multiple applications to multiple agencies. We have made considerable progress here and plan to file the main regulatory applications this summer.
We expect the regulatory review process to take about 2 years. Detailed design and construction should take 3-4 years -- with the potential for Mackenzie gas production by the end of the decade.
CHART #22 -- Offshore Newfoundland - Orphan Basin
Last December, the company acquired a 25 percent interest in the exploration rights for eight deepwater blocks in the Orphan Basin, off the East Coast of Newfoundland.
Shown in red, the acquired acreage totaled over 5 million acres -- a sizable position in a large unexplored frontier basin.
This is a co-venture with Chevron Texaco and ExxonMobil.
Although this basin is high-risk, existing two-dimensional seismic data suggests the presence of very large structures on these leases. A 3-D seismic program is currently underway on 4 of these blocks.
We have a significant position in one of the world's few remaining unexplored basins. High risk -- sure -- but if successful, very high reward.
CHART #23 -- Long-term Production Outlook
This chart illustrates an oil-equivalent production outlook for Imperial. (Production volumes are net, after royalty)
The graph on the left shows production from 2000 to second quarter 2004. Conventional oil and gas is in red and oil sands is in green. These are net, after royalty volumes. Since 2000, our production is up 11 percent or about 3 percent a year.
The bar on the right is a projection of potential production in the medium-term -- shown here as 2012 to 2015. The lower red portion of this bar shows the contribution expected from conventional oil and gas fields.
Conventional oil and gas volumes are expected to decline. Our objective is to offset this decline with new volumes from Mackenzie Gas, East Coast discoveries and other opportunities.
The significant growth possible for the oil-sands, shown in green, -- could more than double the volume we produced from this segment last year. This volume includes the planned growth outlined earlier from both Cold Lake and Syncrude, as well as projected volumes from a Kearl project.
I want to point out that there is essentially no resource risk for all components of this long-term volume projection, except for the top, red cross-hatched portion, representing exploration opportunities, such as the East Coast deepwater plays, and other potential new additions.
Obviously, this timing and volume projection is dependent on a number of technical and commercial factors. But what this projection illustrates is that Imperial's resource base is such that we could potentially see our production volumes nearly doubling over the next 10 years.
CHART #24 -- Strongly Positioned for the Future
Let me close with a summary of the key points that distinguish Imperial.
We are financially very strong and possess a highly disciplined management approach focussed on growing shareholder value.
Our earnings are excellent and our returns are the highest of the Canadian integrated oil group.
We constantly pay a dividend that has increased nine years in a row and have an ongoing share repurchase program.
Our resource base represents more than 100 years of production with significant near term growth opportunities.
We have a superior base of technology and operating experience with a high commitment to research and technology development.
Imperials' strong financial position has earned and sustained a AAA rating from Standard & Poor's -- the only Canadian industrial with this rating.
And bottom line, for any investor, underpinning all our strengths is our continued focus on long-term quality earnings growth.
Thank you.
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