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Imperial Oil (IMO) Slashes 2020 Capex Amid Depressed Prices

Zacks Equity Research

Imperial Oil Ltd. IMO recently trimmed capital spending for the current year owing to the outbreak of novel coronavirus and sudden oil price slump. The ongoing global pandemic has dented global energy demand amid the price war between Russia and Saudi Arabia. Oil prices have plunged more than 65% since January 2020 to $20s a barrel. Moreover, prospects for the prices to recover appear dim.

Further, the Canadian oil market is in complete disarray, which adds to the woes. Heavy Canadian crude, which usually trades at a discount to U.S. West Texas Intermediate oil, seems to be sinking after the country’s oil-sands producers were required to suspend maintenance activity, thereby choking the market with a possible supply glut. The price of Heavy Canadian crude collapsed to a record low of less than $10 a barrel recently.

Following in the footsteps of other oil Canadian energy giants, namely Suncor Energy SU, Cenovus Energy CVE and Canadian Natural Resources CNQ, Imperial Oil has trimmed its capital expenditure guidance for the current year by C$500 million to C$1.1-C$1.2 billion from the prior projection of C$1.6-C$1.7 billion. It has further identified opportunities to cut operating costs by C$500 from 2019 levels. The company has also suspended the share buyback program to weather the current oil price woes. 

In view of the weak oil demand scenario, it aims at reducing the planned second-quarter turnaround work at its Sarnia site. It has deferred a planned coker turnaround at the Syncrude facility in Western Canada until the third quarter, while continuing to assess other planned shutdowns across the business.

Imperial Oil expects the current business environment to negatively impact upstream production, downstream refinery utilization and product sales. The company is re-modelling strategies to maintain the balance sheet, so that it can sustain payout and offer attractive returns to its shareholders.

About the Company                                                       

Founded in 1880, Calgary-based Imperial Oil is one of the largest integrated oil companies of Canada, mainly engaged in oil and gas production, petroleum products refining and marketing and chemical business. It is Canada’s largest jet fuel supplier and a major producer of asphalt. The company currently carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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