The Stock Picker’s Guide to Imperial Oil in 2014

This consistent performer should continue to deliver in 2014.

| More on:
The Motley Fool

Canadian integrated oil heavy weight Imperial Oil (TSX:IMO)(NYSE:IMO) – which is controlled by Exxon Mobil (NYSE:XOM) – is consistently one of the standout performers in Canada’s oil patch. Based on its better than expected fourth quarter 2013 financial results, coupled with the development of a range of upstream projects, I expect it to continue performing strongly in 2014.

Beats fourth-quarter analyst estimates

Imperial Oil’s fourth quarter 2013 earnings per share fell by almost 2% year-over-year to $1.24, but still beat the consensus analyst estimate by almost 35%. This strong financial performance can be attributed primarily to a significant increase in production, which saw Imperial Oil report record fourth quarter 2013 downstream earnings of $625 million.

For this period production jumped 15% year over year to an average of 329,000 barrels of oil per day. With this significant increase primarily driven by the Kearl oil sands project start-up and the Celtic acquisition.

Solid portfolio of projects under development

With Imperial Oil currently engaged in developing a range of projects, I would expect to see production continue to increase. These projects span both its upstream and downstream operations, with the most significant being the continued development of the Kearl expansion. It is expected that when completed in 2015, it will add additional production of 78,000 barrels of oil daily.

The other major upstream project is the Cold Lake Nabiye project. It is expected to commence operations at the end of 2014, adding an additional 40,000 barrels of oil daily.

Imperial Oil has also embarked on a joint venture to construct a rail loading terminal in Edmonton. The terminal is expected to be completed in 2015 with a capacity to ship up to 100,000 barrels of oil daily. This will ease some of the transport infrastructure constraints — which are impacting the majority of players in Canada’s oil patch — allowing Imperial Oil to increase its capacity to ship its oil to crucial markets.

There is also good news emerging on the logistics front. Many of the transportation constraints impacting the patch and driving a higher price differential between Canadian crude and West Texas Intermediate appear set to be alleviated.

Enbridge’s Northern Gateway pipeline continues to move closer to approval and the outlook for the prospects of the northern section of TransCanada’s Keystone pipeline being approved are increasingly positive. When completed they will alleviate many of the transportation constraints impacting the industry.

I expect to see production continue increasing throughout 2014. When considered in conjunction with higher than expected crude prices and a closing price differential between Canadian crude and West Texas Intermediate earnings should continue to grow.

Finally, Imperial Oil continues to reward patient investors with a steadily growing dividend yielding 1.1%. Over the last five years, this dividend has had a compound annual growth rate of just over 5%.

Foolish bottom line

After delivering a solid fourth-quarter 2013 results, Imperial Oil remains well positioned to continue growing production between now and 2015. This, coupled with a falling price differential between Canadian crude and West Texas Intermediate, should allow it to continue delivering solid financial results. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no positions in any of the stocks mentioned in this article.

More on Investing

Canadian stocks are rising
Dividend Stocks

1 Dividend-Growth Stock You Won’t Want to Miss in the Real Estate Sector

A growth-oriented REIT is a strong buy today after raising its dividend by more than 5% in each of the…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

Retirement Investors: 3 TSX Stocks That Could Rally With the Economy 

Always buy stocks you are bullish on when they trade below their 52-week highs. A recovery rally can enhance your…

Read more »

some canadian stocks rose

3 Stocks I’ll Load Up on in 2023

Toronto-Dominion Bank (TSX:TD) is one stock I'll load up on in 2023. There are others, too.

Read more »

Dividend Stocks

Better Buy: Emera Stock vs. Hydro One

Higher-risk utility Emera should provide higher returns over the next five years, given the dip and its higher yield.

Read more »

Growing plant shoots on coins
Tech Stocks

3 Growth Stocks That Look Ready to Double in 1 Year

These three growth stocks are "sleeping giants" ready to blast off in 2023 and beyond for investors who pick them…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive-Income Hat Trick: 3 TSX Stocks to Buy for Monthly Cash

Investors seeking passive income can invest in these Canadian dividend stocks and earn attractive monthly passive income.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Get Passive Income of $435/Month With This TSX Stock

Here’s how dividend investing in Canada could help you get reliable monthly passive income.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

2 Undervalued Growth Stocks to Buy Right Now

Once a growth stock becomes too heavily discounted or undervalued, investors begin to wonder about its ability to bounce back,…

Read more »