Imperial Oil says oilsands giants meet weekly on deal to unlock production growth

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Photo by Darren Makowichuk/Postmedia filesCanada’s fourth largest crude producer said Friday it could double its production over time, but its top executive tied those plans to governments finalizing an oilsands investment deal in November.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountShares of Imperial Oil Ltd. climbed three per cent to $188.70 in afternoon trading on the Toronto Stock Exchange Friday, after the ExxonMobil-controlled producer posted record third-quarter results that beat analysts’ expectations.This advertisement has not loaded yet, but your article continues below.Imperial ended the quarter with $2.9 billion in cash and says its business breaks even with oil at US$35 a barrel.On a Friday conference call, chief executive John Whelan said he and his fellow Oil Sands Alliance chief executives meet weekly on the investment deal file, while staff from their companies work with both levels of government every day.Over the summer, oilsands producers and the federal and provincial governments reached a non-binding agreement that sets out the tax, royalty and regulatory conditions needed to make new oilsands investment globally competitive. All parties are aiming for a Nov. 15 deadline, Whelan said, but he cautioned there is “still a lot of work left to do.”“There’s no lack of energy or desire to get to definitive agreements,” he said.Whelan wouldn’t say when Alberta might announce royalty incentives for growth projects, saying the timing is up to the province.“Greater fiscal certainty and regulatory reform could unlock major opportunities,” he said, particularly for Imperial, which he described as “uniquely positioned with very material growth potential.”This advertisement has not loaded yet, but your article continues below.Until then, surplus cash keeps flowing back to Imperial’s shareholders.The company ended the quarter with $2.9 billion in cash after covering its capital spending, dividend and accelerated share buybacks, known technically as an accelerated normal course issuer bid.Dan Lyons, senior vice-president, finance and administration, said Imperial expects to complete its buyback program this quarter and, under stock exchange rules, can’t renew it until the end of next June.A normal course issuer bid is a regulator-approved program that lets a company buy a set number of its own shares on the open market over a 12-month period.The term accelerated refers to Imperial using the full year’s allotment in about six months. By doing so, the company has to refrain from buying more of its own shares for the rest of the term.And under the exchange’s rules, a new normal course issuer bid can’t start until the old term ends.Any buybacks before then, which in Imperial’s case is the first half of 2027, would have to come through a workaround known as a substantial issuer bid. These are a one-time offers to buy shares directly from shareholders.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.A substantial issuer bid is exactly what some analysts are expecting from Imperial in the first half of 2027.ATB Cormark Capital Markets analyst Patrick O’Rourke said in a note to investors Imperial’s cash balance at the end of the quarter sets the stage for a substantial issuer bid and further dividend increases in the first half of 2027.Lyons added on the call that with oil prices at current levels, Imperial’s cash pile could keep growing in the fourth quarter even with the accelerated buyback.He said the company expects to end the year with substantial cash and intends to return it to shareholders, in line with its long-standing approach.“Nothing has changed in our philosophy on capital allocation,” said Whelan.“We have a track record of returning surplus cash to shareholders. We are comfortable with where our debt is. We’re not trying to allocate capital to that. Our goal is to return 100 per cent of our surplus cash to shareholders.”Whelan noted that over the past five years, Imperial has returned $24 billion of the $25 billion in free cash flow it generated to shareholders.This advertisement has not loaded yet, but your article continues below.Share buybacks have become a favoured way for cash-rich oil producers to reward investors.Retiring shares increases each remaining shareholder’s slice of future earnings, and unlike a dividend increase, a buyback can be scaled back in a downturn without the same backlash.Imperial pitches its buyback program in those terms.In June when the company announced the current buyback program, Imperial called it a flexible and tax-efficient way to distribute surplus cash to shareholders who choose to sell.But even as Imperial steers surplus cash to shareholders, the company is weighing whether to accelerate its biggest growth project in years.The company’s Aspen project is an undeveloped oilsands lease where Imperial first approved a project in 2018 to use solvent-assisted steam to pump bitumen to the surface.It’s now testing a newer enhanced bitumen recovery technology there, with a pilot starting in early 2027, and is weighing whether to start building sooner with the proven solvent-assisted steam method.Imperial first approved Aspen in November 2018, committing $2.6 billion to a 75,000 barrel a day project less than an hour’s drive northeast of Fort McMurray.This advertisement has not loaded yet, but your article continues below.At the time, the company said Aspen could eventually be expanded to 150,000 barrels a day if the first phase performed well and market conditions allowed.Under its regulatory plan, which uses steam combined with solvents to extract bitumen, the project was split into two phases of roughly 75,000 barrels a day each.The first phase alone would boost Imperial’s upstream production by close to 20 per cent from the 418,000 barrels a day it averaged in the third quarter.“[The pilot] is going to start up early next year,” Whelan said. “We’ve said that’s going to take two or three years to prove out the technology, and we’d be in a position to give [final investment decision] on Aspen at the end of the decade.”This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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