Imperial Oil Limited (TSX:IMO)(NYSE:IMO), the largest petroleum refiner and one of the largest producers of crude oil and natural gas in Canada, announced fourth-quarter earnings before the market opened on February 2 and its stock has responded by making a slight move to the upside. Let’s take a closer look at the results to determine if this could be the start of a sustained rally higher and if we should consider initiating long-term positions today.
Beating the estimates with ease
Here’s a summary of Imperial Oil’s fourth-quarter results compared to what analysts had expected and its results in the same period a year ago.
|Earnings Per Share||$0.79||$0.72||$1.24|
|Revenue||$8.03 billion||$7.98 billion||$8.36 billion|
Source: Financial Times
Imperial Oil’s earnings per share decreased 36.3% and its revenue decreased 3.9% compared to the fourth-quarter of fiscal 2013. The company’s weak earnings per share performance can be attributed to net income decreasing 36.5% to $671 million for the quarter, including upstream net income decreasing 47% to $218 million and downstream net income decreasing 36.5% to $397 million. Its weak revenue performance can be attributed to the average realizations from the sales of synthetic crude oil decreasing 10.5% to $82.04 per barrel, the average bitumen realizations decreasing 1.8% to $52.37 per barrel, and the average realizations of natural gas sales decreasing 5.8% to $3.25 per thousand cubic feet.
Here’s a quick breakdown of six other notable statistics and updates from the report compared to the year-ago period:
- Gross production of Cold Lake bitumen averaged 152,000 barrels per day, a decrease of 1.9% year-over-year.
- Imperial Oil’s share of the gross production of the Kearl initial development averaged 47,000 barrels per day, an increase of 27% year-over-year.
- Gross production of the company’s share of Syncrude averaged 73,000 barrels per day, a decrease of 5.2% year-over-year.
- Gross production of conventional crude oil averaged 14,000 barrels per day, a decrease of 36.4% year-over-year.
- Gross production of natural gas averaged 159 million cubic feet per day, a decrease of 22.1% year-over-year.
- Cash flows from operating activities decreased 34.2% to $1.09 billion.
Lastly, Imperial Oil announced that it will be maintaining its quarterly dividend of $0.13 per share, and it will be paid out on April 1 to shareholders of record at the close of business on March 5.
Should you be a long-term buyer of Imperial Oil?
Imperial Oil is Canada’s second largest integrated oil and gas company, and lower oil prices led it to a post year-over-year declines in earnings per share, revenue, and production volumes in the fourth quarter. However, the company posted stronger results than analysts had expected, showing that it was able to respond to the erratic behavior of the oil and gas market efficiently, and its stock has reacted accordingly by making a slight move to the upside.
Even after the slight post-earnings pop in Imperial Oil’s stock, I think it represents a great long-term investment opportunity, because it trades at low valuations, including just 10.6 times its trailing-12-months earnings per share of $4.45, which is very inexpensive compared to its five-year average price-to-earnings multiple of 13.6. In addition, the company pays an annual dividend of $0.52 per share, giving its stock a healthy 1.1% yield, and this will provide investors with a stream of income while they wait for the price of oil to rebound.
With all of the information above in mind, I think Imperial Oil Limited represents one of the best investment opportunities in the energy industry today, so investors should consider initiating long-term positions.