DBRS Confirms Ratings for Imperial Oil Limited at AA (high) and R-1 (high), Stable Trends

DBRS has today confirmed Issuer Rating and Unsecured Debentures rating of Imperial Oil Limited (Imperial or the Company), at AA (high), and the Company’s Commercial Paper rating at R-1 (high). All trends are Stable. Imperial’s ratings reflect its strong ties with its 69.6% shareholder, Exxon Mobil Corporation (XOM), one of the strongest global oil and gas producers in terms of credit quality. The ratings of Imperial are closely aligned with the credit profile of XOM. DBRS notes that there are strong operating and strategic links between Imperial and XOM as evidenced by (1) financial support by XOM through its affiliate through the long term floating rate loan facility, (2) a regular joint venture partner in Imperial’s major undertakings, including the Kearl project and the recently acquired Celtic Exploration (Celtic); and (3) access to XOM’s operational expertise, and a potential downstream solution for Kearl and the Company’s growing heavy oil volumes from Cold Lake.

DBRS considers Imperial’s assets, predominately located in Alberta and British Columbia, to be strategically important for XOM because of Imperial’s significant reserves, which could provide long-term, steady production growth, virtually no exposure to geopolitical risk and support from provincial and federal governments in growing production. The Company has one of the highest reserve life indices in the industry (38 years) and a relatively low cost production advantage compared with its oil sands peers. On a stand-alone basis, DBRS considers Imperial’s business risk profile to be in the A range because of the aforementioned reserve and production profile and low cost production advantage, as well as integrated operations, which provide natural hedges against commodity price volatility. DBRS considers the business risk profile for Imperial to benefit from a strong and continued operational support from XOM.

On a standalone basis, Imperial’s financial risk had been reflective of a AA-rating with exceptionally strong credit metrics. Following the debt-financed acquisition of its 50% share of Celtic in February 2013, the Company’s leverage has become more in line with an A-rated entity, with (1) adjusted debt-to-capital of 27.3% (< 25% required for a AA and < 35% for a A); and (2) debt-to-cash flow of 1.47 times (x) (< 1.0x required for a AA and < 1.5x for a A). Despite weakening in 2013, its EBIT interest coverage ratio of 43.96x has continued to be in the AA rating category (> 20.0x required). While peak capital spending ($5.5 billion budgeted for 2014), potential for cost overruns, delays in project start-ups and subsequent production ramp-ups may continue to keep leverage metrics elevated in the near term, DBRS expects Imperial to fund any cash flow deficits from its existing related party loan facility and CP program. DBRS expects Imperial’s liquidity to continue to be bolstered by support from XOM and credit metrics to return to within the rating category range as production ramps up from its current projects.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.