Imperial Oil says bitumen price gap main cause of 21 per cent drop in Q1 profit

CALGARY – A wider oilsands crude discount took its toll on Imperial Oil Ltd. during the first quarter, when the oil producer and refiner saw its profit drop by 21 per cent from a year earlier.

The Calgary-based company also said Wednesday that start up of its over-budget and delayed Kearl oilsands mine is “imminent,” which should add another 110,000 barrels of heavy oil per day to the North American market later this year.

Imperial (TSX:IMO), majority-owned by U.S. energy giant ExxonMobil Corp., earned $798 million or 94 cents per share during the first three months of the year, down from about $1 billion, or $1.19 during the same 2012 period.

The results beat the average analyst estimate of 93 cents, according to Thomson Reuters.

Imperial said the company realized an average of $43.63 a barrel for the bitumen it produced, down 34 per cent from a year earlier.

Late last year and early this year, the price gap between Canadian heavy oil and U.S. light oil widened to an abnormal level, cutting into producers’ profits and Alberta’s tax and royalty revenues.

The differential has since narrowed, but the CEO of another oilsands firm, Cenovus Energy Inc., said Wednesday that he expects it to widen again later this year once Kearl starts up and routine oilsands plant maintenance work is complete.

The crux of the problem, industry players and the Alberta government say, is a dearth of pipeline infrastructure to get oilsands crude to the markets that can pay the best price. Pipelines such as TransCanada Corp.’s Keystone XL project have faced fierce environmental opposition.

But the price gap benefits companies, such as Imperial, that also refine crude into products such as gasoline, as it means a cheaper raw product.

Net income from Imperial’s downstream, or refining and marketing, segment was $478 million, $23 million higher than a year earlier.

By contrast, net income from its upstream, or production, side of the business was $300 million, versus $542 million a year earlier.

Imperial changed CEOs earlier this year as part of a broader corporate reshuffle at its U.S. parent company, ExxonMobil Corp.

Bruce March left Imperial run ExxonMobil’s global chemical operations after nearly five years in the role.

Taking his place is Rich Kruger, who was president of ExxonMobil Production Co. He moved up through the ranks in postings throughout the United States, as well as in the former Soviet Union, Africa and Southeast Asia.

The company says the transition was not related to news that the first phase of the massive Kearl oilsands mine will cost $12.9 billion, up from a previous estimate of $10.9 million. The project was initially expected to cost $7.9 billion.

Imperial faced legal and regulatory delays in bringing enormous pieces of South Korean-made equipment to the mine site, which were shipped across the Pacific and then through the United States and Canada by river barge and truck.

The 200 modules had to be broken up into smaller pieces so that they could be transported along highways in Idaho and Montana and then put together again near Edmonton.

That work added to the cost, as well as harsh winter weather around Fort McMurray while final construction work was being completed.