Date of Call: May 1, 2026

Business Commentary:

Commodity Market Volatility and Strategic Positioning:

  • Imperial Oil experienced significant volatility in commodity markets due to geopolitical events in the Middle East, impacting their financial results for Q1 2026. Net income was CAD 940 million, down CAD 348 million from Q1 2025, primarily due to unfavorable upstream realizations and higher incentive compensation charges.
  • The company's long-standing business model provides leverage during upside conditions while protecting against downside scenarios, which allows them to return additional surplus cash to shareholders at higher prices.

Upstream Production Performance:

  • Upstream production averaged 419,000 gross oil equivalent barrels per day, with crude production being the second-highest first-quarter result in company history.
  • Performance was supported by advancements in technology and reliability enhancements at key assets like Kearl and Cold Lake, despite challenges such as third-party natural gas supply outages.

Downstream Operations and Value Capture:

  • The downstream segment generated earnings of CAD 611 million, up from the previous quarter, driven by lower operating expenses and the strategic advantage of their renewable diesel facility at Strathcona.
  • The company capitalized on high-value product markets, especially in distillates and jet fuel, leveraging their extensive logistics network to maximize margin capture.

Capital Allocation and Shareholder Returns:

  • Capital expenditures in Q1 were CAD 478 million, with a focus on sustaining capital across upstream and downstream projects.
  • The company remains committed to returning surplus cash to shareholders, with plans to renew their Normal Course Issuer Bid and a declared dividend of CAD 0.87 per share, reflecting their long-standing philosophy of reliable and growing dividends.

Restructuring and Efficiency Improvements:

  • Imperial Oil is advancing its business transformation restructuring plans, expecting significant long-term efficiency and effectiveness benefits from leveraging technology and ExxonMobil's global capability centers.
  • The restructuring involves a reduction in positions, with about 130 people leaving in Q1, and aims to improve operational efficiency without altering the company's strategic focus or governance structure.

Sentiment Analysis:

Overall Tone: Positive

  • Management highlights 'exciting opportunities' and 'long-term structural benefit' from business model. They express confidence in strategies ('very confident in our strategy'), achieving milestones ('on target to hit our 1 billion barrels of production'), and being 'bullish...on our future in-situ portfolio'. They also note 'significant volatility' creating a 'materially different outlook' that favors their position.

Q&A:

  • Question from Dennis Fong (CIBC World Markets): Can you discuss progress and opportunities to accelerate the pipeline of SA-SAGD projects at Cold Lake?
    Response: Capital plans remain unchanged, focused on maximizing value over the long term. Cold Lake's advantaged technology production is on track to increase from 20% today to 45% by 2030 and 60% by 2035, with specific projects like Mahihkan coming online in 2029.

  • Question from Dennis Fong (CIBC World Markets): Can you remind us about flexibility in refining assets and opportunities to capitalize on market dislocations, especially for distillates and jet fuel?
    Response: The company is maximizing margin capture by adjusting gas-to-diesel/jet splits monthly based on value, prioritizing local Canadian sales via their logistics network, and opportunistically exporting extra production when margins in other markets are high.

  • Question from Greg Pardy (RBC Capital Markets): What is the progress on restructuring, transferring workflows to ExxonMobil centers, and incorporating technology?
    Response: Restructuring is on track, with about 130 people leaving in Q1 and expected to continue ratably. It involves 40% efficiency gains and 60% outsourcing to global centers, enabled by digital infrastructure and automation, which will allow faster deployment of AI and machine learning in the future.

  • Question from Greg Pardy (RBC Capital Markets): Does the restructuring change corporate strategy or just where it is delivered?
    Response: No change in governance, strategy, or growth plans. The focus remains on maximizing value and industry-leading performance, with the restructuring providing better support networks to build capability for future projects like Aspen.

  • Question from Menno Hulshof (TD Cowen): Can you elaborate on initiatives to drive Kearl production above 300,000 barrels per day, specifically on Enhanced Bitumen Recovery and equipment performance?
    Response: Progress is on track via three focus areas: productivity/reliability improvements (e.g., mining automation, fleet optimization), turnaround optimization (extending intervals from 2 to 4 years), and enhanced recovery projects like KFCC (online by year-end) and CST (in development).

  • Question from Menno Hulshof (TD Cowen): What are you seeing in terms of SCO demand and premium pricing for diesel and jet fuel?
    Response: The company is optimizing refineries to manage additional diesel and jet production, sees ample feedstocks, and believes synthetic premiums may persist as margins stay high, though they do not predict the future premium.

  • Question from Neil Mehta (Goldman Sachs): How do you think about returning capital, including potential for an SIB?
    Response: Philosophy unchanged: committed to reliable/growing dividend, NCIB renewal in June, and returning surplus cash via buybacks or an SIB depending on cash generation and prices, viewing buybacks as an efficient method.

  • Question from Neil Mehta (Goldman Sachs): What are the key objectives for the upcoming Strathcona and Kearl turnarounds?
    Response: Strathcona: routine maintenance and optimization for the crude unit after a 10-year run, with renewable diesel production continuing. Kearl: similar scope to last year's K2 turnaround to enable 4-year intervals, with key modifications to separation cells and surge bins.

  • Question from Doug Leggate (Wolfe Research): How should we think about royalties priced off WTI versus WCS realizations?
    Response: Royalty payments are based on bitumen realizations, not WTI rates, making the regime attractive, especially at high prices, with leverage to upside and minimal impact from current spreads.

  • Question from Doug Leggate (Wolfe Research): Where does SAGD technology sit, and is there ever a scenario where Imperial operates outside Canada?
    Response: Imperial is the center of excellence for heavy oil/SAGD technology, which is largely developed in-house. They have access to ExxonMobil's technology (e.g., for renewable diesel, metallurgy) but are not looking to expand operations outside Canada.