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Canadian
Oil and Gas Industry
Fundamental Analysis and
Recommendations:
Suncor, Imperial Oil, Talisman
Presenters
• Karen Ford– Industry Overview
• Aaron Cawker– Suncor
• Stephanie Cornell– Talisman
• Rahim Dhanji– Imperial Oil
Industry Overview• Largest industry in the world
• Oil & gas trade surplus accounts 57% of
Canada’s merchandise trade balance in 2003
• 3.5 per cent share of the world market, since
1998
• Employment near 500,000 in Canada
• Invest close to $24 billion
Overview…continued
• Payments to governments have averaged close to $8.5
billion per year over the last 10 years
• In 2003, the oil and gas industry contributed an
estimated $16 billion to government revenues in the form
of royalty payments, bonus payments and income taxes.
• We produce more than 20% of North America’s crude oil
and natural gas but account for only 10% of its
consumption
• Capital Spending 2003: Conventional $23.8 billion
Oil Sands $5.0 billion
Total $28.8 billion
Origins and History
• Most crude oil and natural gas originate from
plant and animal life millions of years ago:
swamps and oceans.
• Heat and pressure transformed the soft parts of
the plants and animals into solid, liquid or
gaseous hydrocarbons known as fossil fuels -
coal, crude oil or natural gas
• Located in sand oils and oil fields
• Found by drilling and creating wells
Sectors of the Industry
• Petroleum Exploration and Production
– Upstream
• Refining
– Midstream
• Distribution and Retail Sales
– Downstream
 
Types and Uses
• Crude Oil and Natural Gas
• Uses:
– Mobility, heat and cool our homes and provide
electricity
• Products:
– plastics, life-saving medications, clothing, cosmetics,
and many other items you may use daily
• Barrel – a unit of measure for oil and petroleum products
that is equivalent to 42 U.S. gallons
Canadian Economy
• Canada's GDP 2003 grew 1.7%., 2002 it grew 2.2%
• Slowdown of Canada’s economy:
– weak U.S. economic growth for most of the year;
– a strong appreciation of the Canadian dollar;
– the SARS outbreak in Toronto;
– restrictions on exports of softwood lumber and beef (due to mad
cow disease).
• Recovery of the U.S. economy, high oil and natural gas
prices, and continued spending from the Canadian
government are expected to boost Canada’s economy in
2004.
• The Canadian economy is forecast to grow 3.6% in 2004
Situational Analysis
• Demand is increasing
• Oil and Natural Gas together provide the largest source
of energy (64%) in Canada
• Natural gas 39% and Oil 25%
• Hydro 20%
• Coal 11%
• Nuclear 5%
• Prices have become volatile on the market
• Energy shares make up 17 percent of the value of the
S&P/TSX, the second-largest group in the index
Crude Oil in Canada
Highlights
• Ninth-largest producer of crude oil in the world
• Prior to 2002, Canada did not even rank in the top 20 of
countries with the most proven crude oil reserves. Alberta's oil
sands, which stood at 174.4 billion barrels as of January 2004
• Saudi Arabia holds most crude oil reserves in the world
      
Crude Oil…continued
• Reserves: 178.9 billion barrels (2nd
)
World Reserves
Crude Oil…continued
• Production:
– 3.1 million barrels per day (bbl/d) for 2003, an increase of
7% over 2002
– Oil sands production is expected to increase significantly
and to offset the decline in conventional crude oil
production, becoming Canada's major source of oil supply
– Western Canada Sedimentary Basin (WCSB), underlying
most Alberta and parts of British Columbia, Saskatchewan,
Manitoba and the Northwest Territories main source of oil
Crude Oil Continued…
• Wells Drilled: 4,845
• Exports
– US: 1.4 million barrels per day
– 3rd largest exporter of crude oil to
the US
– Canada makes up 15% of total US oil imports
– Canada supplies 9% of US oil consumption
• Imports
– 912,000 barrels per day
Crude Oil Prospects
Crude Oil Forecast
• Significant potential for new crude oil
production planned to come on stream
over the next ten years
• Canada’s crude oil production growth is
driven by the development of oil sands in
Alberta and to a lesser degree by offshore
projects in eastern Canada
Crude Oil Prospects
• Maturing basin being extended by technology
– Horizontal drilling
– 3D Seismic
– New drilling/recovery technology
• Emerging basins
– Oil Sands
– Northern Canada
– Offshore East Coast
• Technology is key
• Total Canadian production is projected to increase
from the current 2.6 million barrels per day to
reach 3.6 million barrels per day (b/d) by 2015.
Crude Oil Resources (Billions of Barrels)
Crude Oil Supply Forecast
Natural Gas Highlights
• Canada is the third-largest producer of natural gas
• Production:
– 16.9 billion cubic feet per day
• Reserves:
– 59.1 Tcf (Jan. 2004)
• Wells Drilled in 2003: 12,951
• Exports:
– 2nd largest exporter in world
– to US: 3.8 trillion cubic feet per year
– Largest exporter of natural gas to the US
– Canada makes up 94% of total US gas imports
– Canada supplies 17% of US gas consumption
• No imports listed
Natural Gas
Production and Consumption
Natural Gas Outlook
• Short-term outlook, natural gas production is
expected to decline 3%, from 16.3 Bcf/d at the
end of 2002, to 15.8 Bcf/d in 2005
– new fields coming onstream are small and
quickly depleted
• If prices stay high, incentive to exploit the many
small natural gas pools in the WCSB, as well as
coalbead methane, of which the region holds
considerable reserves
Natural Gas Outlook: Productive
Capacity
Prospects of Natural Gas
• Natural gas demand keeps growing
– Supply running hard to catch growing demand
– New sources of supply coming on
• Gas from tight sands is promising resource
• Arctic gas from the Mackenzie Delta to be piped to
Canadian and U.S. network of pipes
• As demand for gas grows, Canada’s resources will
combine with Liquid Natural Gas (LNG) imports as
important sources of this cleaner-burning fuel of choice
in an increasingly environmentally conscious North
America
Natural Gas Prospects…
• Significant untapped potential
remaining
• Sufficient pipeline capacity New
supplies:
– Northern gas
– East Coast offshore
– Coal-bed methane
Potential of Natural Gas (TCF)
North America
Natural Gas Demand
Strengths
• Size and number oil sands in Alberta
• Potential of Eastern and Northern Canada
• high-tech exploration
• cold-climate and offshore operations
• construction and operations of pipelines
• specialized controls and computer applications
• environmental protection technology and safety training
• innovative products and services that meet customer
needs
• refining processes that produce quality petroleum-based
products while minimizing the impact on the
environment.
Weaknesses
• Limited natural gas reserves
• Capacity for natural gas is forecasted to decrease
• Canada is one of the high-cost places in the world to find
and produce oil and gas
• Deep gas, natural gas from coal and developments
offshore, in the oil sands and the North are large,
complex and expensive and have long lead times before
they turn a profit
• Challenges in meeting North America’s energy needs
Opportunities
• Exporting to the US
• Oils Sands
• Exploration of Northern and Eastern Canada
• World population is currently around 6 billion
people, but is expected to grow to approximately
7.6 billion by 2020.-- a huge increase in the
demand for transportation fuels, electricity, and
many other consumer products made from oil
and natural gas.
Threats
• Canada/US Foreign Exchange Rate
Threats
• Price volatility
• High Development costs
• Environmental Issue
• Especially Marine Life
• Substitutes
– Alternatives to oil and gas
• Solar Power, Coal, Wind, Hydro, and Nuclear
Power
Competitive Rivalry
Top Companies in Oil and Gas Producers
(Selected by Assets)
• EnCana Corp.
• Canadian Natural Resources
• Nexen
• Penn West Petroleum
• Western Oil Sands Inc
• Paramount Resources
• Compton Petroleum
• Bonavista Energy Trust
• PetroKazakhstan Inc.
Price History –Crude Oil 1 Year
Crude Oil Prices since 1920
Crude Oil Price Forecast
West Texas Intermediate Crude Oil Price $/bbl Average of Month.
Oct Nov Dec Jan Feb Mar
2004 2004 2004 2005 2005 2005
Value 37.9 30 32.1 40.8 40.6 40.9
Standard Deviation 0.7 0.6 0.7 0.9 1 1
Correlation Coefficient 0.95 0.95 0.95 0.95 0.95 0.95
Updated Thursday, October 28, 2004
Natural Gas Prices- 1 year
Natural Gas Prices-Since 1930
Natural Gas Price Forecast
Current Events
• Despite high oil and gas prices, anticipated market volatility is preventing energy
companies from increasing their rate of investment
• Nov. 8 (Bloomberg)
Canadian Stocks Fall as Oil Prices Slip; Suncor, Talisman Drop
-- Canadian stocks fell, led by oil and gas producers such as Suncor Energy Inc.,
after crude oil prices declined. A rise in the Canadian dollar to 84 U.S. cents for the
first time in more than 12 years weighed on the benchmark index.
``Oil and gas stocks in Canada are very sensitive to falling oil prices because of how
high'' crude prices are
• Tuesday, November 09, 2004
Crude oil futures tumbled below $48 (U.S.) a barrel Tuesday, closing at their lowest
level in seven weeks, on rising expectations that the U.S. supply of transport and
home-heating fuels will be adequate this winter.
Company Overview
• Suncor Energy Inc. is an integrated
energy company strategically focused on
developing one of the world’s largest
petroleum resource basins – Canada’s
Athabasca oil sands.
• Strong focus on technology
• 37 years of oil sands experience
Company Overview
• Became a publicly traded company in
1992
• Total returns to shareholders have
averaged more than 25% per year.
Corporate Committee
• Richard George – President & CEO since 1991
• Kenneth Alley – Senior VP & CFO since 2003, with Suncor since
1984
• Mike Ashar – Executive VP, Refining and Marketing since 2003,
with Suncore since 1987
• David Byler – Executive VP, Natural Gas & Renewable Energy
since 2000, with Suncore since 1979
• Terrence Hopwood – Senior VP & General Council since 2002,
with Suncore since 1988
• Sue Lee – Senior VP, HR & Communications since 1996
• Kevin Nabholz – Senior VP, Major projects since 2002, with
Suncore since 1986
• Thomas Ryley – Executive VP, Energy Marketing & Refining, with
Suncore since 1983
• Steven Williams – Executive VP Oil Sands since 2003, with
Suncore since 2002. 20 years of energy industry experience.
Pipeline network
Businesses
• Oil Sands
– Located near Fort McMurray, Alberta
– The foundation of Suncor’s assets and is the center of their
growth strategy.
• Natural Gas and Renewable Energy
– Based in Calgary, Alberta
– Produce natural gas in Western Canada
– Provides a price hedge against internal consumption at oil sands
and refining operations.
• Refining, Marketing and Retail
– Canada
• Refinery feedstock and natural gas production are
marketed to commercial and industrial consumers.
• Products from the Sarnia refinery are sold to
customers in Ontario, Quebec, and the
Northeastern US, and to retail customers through
approximately 500 Suncor-owned(Sunoco) and
joint venture service stations in Ontario.
Businesses
– United States
• In August 2003, acquired a Denver, Colorado
refinery along with 43 Phillips 66 retail stations.
• Expansion into the rocky Mountain States allows
easier movement of crude oil products to US
markets.
Businesses
Business Strategy - growth
• Develop multiple sources of supply from the oil
sands resource base
• Upgrade technology to increase production
• Use increase production to feed growing North
American energy market
• How to improve current model: make it bigger.
Short term Goals
• Increase crude oil production to more than
500000 barrels per day by 2010-2012 from
current level of 216600 bpd.
• Reduce costs of production
• Provide superior shareholder returns while
providing social and economic benefits to
stakeholders.
• Reduce environmental impact of operations
Crude Oil Production
• Planned expansion is
designed to leverage
economies of scale to
keep costs per barrel
among the lowest in the
industry.
Natural gas
Main Resource – Oil Sands
Oil Sands
• Suncor’s future is built on Canada’s oil
sands
• An estimated 175 billion barrels of crude
oil reserves
• First company to develop oil sands
• Leases contain an estimated 12 billion
barrels of bitumen reserves (heavy oil)
Oil Sands
• With known resource base, Suncor
doesn’t have risk and cost associated with
conventional exploration.
• 12000 million barrels = (12000/0.5)1/365 =
65+ years of resources.
• In the process of acquiring further leases
Supply of Bitumen
• Mining – Surface mines supply majority of current
production, plans to extend current mines with new
operations planned to begin in 2010
• In-situ – Firebag development uses steam assisted
gravity drainage (SAGD) to heat the underground
reservoir, allowing the bitumen to be pumped to the
surface. Expected to be at full production in 2005.
• Third Party Agreements – plan on providing a fee-for-
service agreement to process 27000 barrels per day of
3rd
party butimen (2008).
Production of Crude Oil vs. Revenue
Total Revenue by Year
0
1000
2000
3000
4000
5000
6000
7000
1999 2000 2001 2002 2003
Millions($)
Markets
• Refining and marketing strategy builds on
connections between the Oil sands
production base and North American
refiners and consumers.
• This is the largest crude oil and refined
product market in the world.
Markets - continued
•Don’t just supply
the market, also
participate in it
through short and
long-term
marketing
contracts as well
as through retail
distribution
(Sunoco).
• Retail
– operates nearly 300 Sunoco-branded retail
stations in Ontario and supplies to over 200
other stations through joint venture
operations.
– In 2003, purchased 43 Phillips 66 retail
stations in Colorado and long-term supply
contracts with nearly 150 more retailers.
Markets - continued
Breakdown of Businesses
Investments
• Currently producing hydrocarbon fuels to
meet today’s needs
• Investing to supply new markets with
renewable energy.
• In 2003, they began the wind power
project in southern Alberta, with partner
EHN Wind Power Canada, Inc.
Stock Info.
Price as of Nov. 10, 2004: $40.46
52 week low: $27.00
52 week high: $44.49
Average Daily Volume ≈ 1,500,000
Number of Shares Outstanding: 453,421,000
1 Year weekly chart1 Year weekly chart
1 Year weekly chart vs. S&P Energy
5 Year Weekly Chart
5 Year weekly chart vs. S&P 500
Company Analysis (Excel file)
2004
(9 months) 2003 2002 2001 2000
Share Price (End of period): 40.69 32.5 24.7 26.2 19.15
Revenue($millions): 6311 6306 5032 4294 3484
Net Earnings($millions): 767 1,084 761 388 377
EBIT ($millions) 1186 1,804 1277 531 628
Total Assets($millions) 11362 10427 8683 8094 6833
Total Liabilities($millions): 6774 6002 5225 5317 4361
Total Debt($millions): 2347 2479 2686 3144 2256
Interest Expense($millions): 50 83 133 18 8
Equity($millions): 4588 4,588 3458 2777 2472
Shares Outstanding(EOP):
453,000,00
0
450,505,00
0
448,839,00
0
445,820,00
0
443,546,00
0
Beta: 0.16 0.16 0.16 0.16 0.16
Operating Cash
Flow($millions): 1562 2,081 1440 831 958
Capital Expenditures: 1174 1,316 877 1678 1998
Dividends: 0.17 0.1925 0.17 0.17 0.17
Analysis of Earnings
Performance Measures
Measures 2004 (9 months) 2003 2002 2001 2000 1999
Price to Book: 4.02 3.19 3.21 4.21 3.44 3.17
EPS 1.69 2.41 1.70 0.87 0.85 0.42
P/E 24.03 13.51 14.57 30.10 22.53 35.89
NAV 10.13 9.82 7.70 6.23 5.57 4.77
Free Cash
Flow($millions) 388 765 563 -847 -1,040 -512
ROA 10.4% 17.3% 14.7% 6.6% 9.2% 6.5%
ROE 16.7% 23.6% 22.0% 14.0% 15.3% 8.8%
Interest
Coverage 23.7 21.7 9.6 29.5 78.5 13.0
Debt to Equity 0.51 0.54 0.78 1.13 0.91 0.66
Dividend Yield 0.42% 0.59% 0.69% 0.65% 0.89% 1.13%
Market Cap.
($millions) 18432 14641 11086 11680 8493 6674
Performance Measures
0
2000
4000
6000
8000
10000
12000
2004
YTD
2003 2002 2001 2000 1999
Year
Millions($)
Revenue
Net Earnings
Total Assets
Equity
Operating
Cash Flow
Recent News
• Oct 18:
• Suncor CEO Richard George told the downtown Toronto business
audience:
– American consumption of oil and gas is expected to increase almost 50
per cent by 2025,
– Domestic production is projected to remain flat.
– The United States is looking north to close the gap, and this represents
a big opportunity for Canada's energy industry.
• "The bottom line for Canada is that energy is not an obstacle to
economic growth. It's a key driver of economic growth," said
George.
• "This is not just an opportunity for Western Canada. Our energy
industry is about Canada's opportunity, Canada's prosperity, and
our role globally."
More news
Suncor profit climbs, but oil hedges limit
gain
– Suncor, known for its huge oil sands mining
and synthetic crude operations, would have
earned 25 percent more if over a third of its
output not been sold forward at $22.50 a
barrel. Oil averaged nearly $44 a barrel in the
quarter.
What the Brokers say
Strong Buy 5
Buy 8
Hold 6
Sell 2
Strong Sell 0
Value Drivers
• Production of crude oil
• Since they are essentially price takers, the more
they produce, the more revenues increase
• The price of oil
– This is the price of their product, and if price
increases, earnings increase.
• To a lesser extent the success of downstream
operations
Recommendation
• BUY
– Pros:
• Sound business plan
• Product is in constant demand
• Near unlimited resources, just a matter of extracting them
• Continuous growth in revenue and earnings
– Cons:
• Stock price has surged over last year, and stock is expensive
compared to 1 year ago
Talisman’s Background
• Large independent oil and gas producer with
global operations
– focused mainly on exploration and development
• Created in 1992 – Formally British Petroleum
Canada
• Started out with operations solely in Canada
– Market Capitalization approximately $500million
– Produced 51,00 boe/d
Talisman’s Background
• Through corporate and asset acquisitions , operations
were quickly established in the North Sea, North Africa,
and Southeast Asia
• Today – 11 billion dollar company with global operations
– 2003 – production was 437,000 boe/d
• 60% of reserves are natural gas, 40% crude oil and
natural gas liquids
Management Team
James W. Buckee, President & CEO
o 1977-1991 British Petroleum Canada, 1991 appointed Chief operating officer of
Talisman, 1993 became CEO of Talisman
Ron J. Eckhardt, Executive Vice President, North America
o 1986 – Joined Talisman (then British Petroleum Canada)
T.N.D. Hares, Executive Vice-President, Frontier & International Op.
o 1972-1994 – Worked for British Petroleum, 1994 joined Talisman
Joseph Horler, Executive VP, Marketing
o 1987 – Joined Talisman (BP Canada)
Michael D. McDonald, E.V.P. Finance and CFO
o 1982 – Joined BP Canada
Robert M. Redgate, E.V.P., Corporate Services
o 1978 – Joined Talisman (BP Canada)
Jacqueline Sheppard, E.V.P., Corporate and Legal
o 1993 – Joined Talisman, prior to this she was a partner in a law firm
John ‘t Hart, E.V.P., Exploration
o 1978 – Joined Talisman (BP Canada)
Competitors
• EnCana
• Penn West Petroleum
• Compton Petroleum
• Canadian Natural Resources
• Western Oil Sands Inc
• Bonavista Energy Trust
• Nexen
• Paramount Resources
• PetroKazakhstan Inc
Areas of Operation
• North America – 50% of company’s production
(2003)
• International – 50% of company’s production (2003)
North America (Canada and US)
• Mainly Natural Gas, but also oil and
liquids
• Focuses mainly on natural gas in Rocky
mountain foothills in Alberta
• New core gas area in upstate New York
North Sea (United Kingdom and Norway)
• Represented 2/3 of international production in 2003
• Mainly oil and liquids
• In UK central North Sea - Established a number of commercial
hubs
• Norwegian sector of North Sea– building a new core area
• Large drilling program underway designed to increase liquid and
oil production by 5-10% in 2005
Caribbean and Latin America (Columbia,
Trinidad and Tobago)
• Working in a number of high exploration
areas.
• Trinidad – development of the Greater
Angostura oil and gas project is underway
• Columbia and Trinidad – exploration
drilling programs
Africa and Middle East (Algeria, and
Qatar)
• March 2003 – completed sale of its
indirectly held interest in the Greater Nile
Oil project in Sudan
– $1.1 billion, gain of $296 million
• Production and development interests in
Algeria and exploration acreage in Qatar
Stock Information
• Share Price – $30.85 CAD (November 8, 2004)
• Listed – Toronto and New York Stock exchanges
• Ticker Symbol – TLM
• Shares Outstanding – 384,105,983 (November 8, 2004)
• Market Capitalization – $11,849,669,575.55 (384,105,983*
$30.85)
• 52 Week low and High – $21.25 - $35.10
• Dividends - June 30, 2004 - $.15 and Dec 31, 2004 - $.15
Talisman - 1 Year Prices
Talisman - 5 Year Prices
Talisman vs. S&P 500 – 1 Year
Talisman vs. Energy – 1 year
Performance Measures
Measures 2004 (YTD) 2003 2002 2001
Price to Book: 2.43 1.9 1.65 1.92
EPS 1.41 2.62 1.33 1.82
P/E 22.81 9.35 14.21 11.06
NAV 16.99 16.09 13.97 13.3
Free Cash Flow($millions) 280 -263 321 271
ROA 8.30% 10.10% 5.90% 8.10%
ROE 10.70% 20.30% 11.60% 17.30%
Interest Coverage 8.5 8.4 4.2 6.3
Debt to Equity 0.45 0.44 0.67 0.66
Dividend Yield 0.47% 0.95% 1.05% 0.99%
Breaking News – Nov. 9/04
• Supply cushion – only about 1% of the 82.4
million barrels consumed daily
• Two key exporters might be vulnerable to
disruptions in the near future
– Iraq – US military have vowed to disrupt the country’s
oil exports, and a northern pipeline has been knocked
out by saboteurs lowering supply
– Nigeria – Oil workers are planning a general strike
aimed at halting the country’s exports –
• Nigeria is America’s fifth largest source of crude oil
Value Drivers
o Production
o Oil and Gas Prices
Recommendations
• Sound business plan
• Product is always in demand
• Price of stock is down right now and is likely to
increase
• Company has increased production by 11% year
to date
• BUY!
Corporate Profile
• Imperial Oil Limited has been a leading member
of the Canadian energy industry for more than
120 years
• One of the largest producers of crude oil and
natural gas liquids in Canada and a major
producer of natural gas
• Canada’s largest refiner and marketer of
petroleum products – sold primarily under the
Esso brand name
• Major producer of petrochemicals
Management
Team
Imperial's 2003 Board of Directors (left to right)
P. Des Marais II, B.J. Fischer, T.J. Hearn, R. Phillips, J.F. Shepard,
P.A. Smith, S.D. Whittaker, K.C. Williams, V.L. Young
•Majority of management team are from within Imperial Oil
or Exxon/Mobil
•(Exxon has a 69.59% interest in Imperial)
Management Team
• T.J. (Tim) Hearn has been a director of Imperial Oil since January
1, 2002.
– With the company since 1967
– He is currently Imperial's chairman, president and CEO
• P.A. (Paul) Smith
Mr. Smith has been a director of Imperial Oil since February 1,
2002.
– He is currently controller and senior vice-president, finance and
administration.
– Joined Imperial Oil in 1980
Management cont…
• B.J. (Brian) Fischer
Mr. Fischer has been a director of Imperial since Sept. 1, 1992.
– He is currently senior vice-president of Imperial's products and
chemicals division
– Joined Imperial Oil in 1968
• J. M. (Mike) Yeager
Mr. Yeager has been a director of Imperial Oil since August 1, 2004.
– He is currently senior vice-president, resources division, and president
and chief executive officer of Imperial Oil Resources
– He joined the company from Mobil
Natural Resources Segment
CRUDE OIL
• Wholly owned Cold Lake operation in Northern
Alberta
• 25 percent ownership position in Syncrude.
NATURAL GAS
• Wizard Lake
• Sable Offshore Energy Project
• Gwillim Field
Crude Oil – Cold Lake
• This is a long-life asset
• Net proved reserves were 760 MB at year-
end 2003
• Additional untapped resource
- Received regulatory
approval for further
development in March
2004
Crude Oil - Syncrude
• World's largest mineable oil sands
operation.
• Syncrude is the single largest crude oil
producer in Canada with net reserves of
about 3 billion barrels and production of
over 200 kbd in 2003.
• Imperial was a founding member of
Syncrude and has a 25 percent interest
Natural Gas
• Full production from the natural gas cap at Imperial’s Wizard Lake
oil field in Alberta began in July 2003.
– Production rates of about 180 million cubic feet a day will be achieved in
2004 once gas plant capacity is available and are expected to continue
through 2006.
• In November, the first natural gas was produced from the Gwillim
field in northeastern BC. Additional development of this field is
planned.
• Natural gas production from 9% interest in the Sable offshore
energy project averaged 40 million cubic feet a day before royalties.
– production began from a fourth Sable field, Alma, and construction was
started on facilities for a fifth field, South Venture.
• Funding was also approved for a natural gas compression facility
that will service production from all Sable fields by late 2006.
Natural Resources - Potential
• Kearl Oil Sands (200k barrels/day)
• Mackenzie Gas Project
– regulatory review process to take about 2 years
– design and construction should take 3-4 years
– potential for Mackenzie gas production by the end of
the decade
• Cree exploration well abandoned in the third
quarter
• Acquired 25% interest in Orphan Basin (Natural
Gas)
Net Proved Reserves
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1999 2000 2001 2002 2003
Conventional
Cold Lake
Syncrude
Total
Natural Gas
Petroleum Products Segment
• 787 company-owned sites
• Average productivity per site for 2003 was 5.2 million litres a year, up six
percent from 2002.
• 650 Esso convenience stores across Canada, including On the Run and
Tiger Express, was the second largest in Canada.
• Convenience-store sales rose by about nine percent in 2003, well above the
industry average.
• 400 sites with car-wash facilities is the largest in the industry.
• Esso retail sites providing Tim Hortons food and refreshments had
increased to more than 300 from 270 in 2002
Petroleum Products cont…
• Points-Exchange alliances
• Market leader in finished lubricants
• Exclusive Canadian marketer of Mobil
products
• Quadrupled average productivity per site
Petroleum Products cont…
• Focus on reducing working capital
• Decreased days inventory by 4% vs. 2002
• Freed up more than $35 million in cash
• Over the last 10 years, this has been
reduced by about 25 percent.
Petroleum Products cont…
• Capital Expenditures of $478 million in
2003
– Allowed them to meet specifications of 2004
model-year automobile technology
• Refineries have improved energy
efficiency by more than 40 percent over
last 30 years
Chemicals Segment
• Earnings of $37 million
• Cash flow from earnings of $66 million
• Sales of petrochemical products were
3,300 tonnes a day, down slightly from
2002.
• N.A. demand was low in 2003, with high
feedstock costs and soft sales volumes.
Chemicals cont…
• One of Canada’s leading producers of
chemical products
• Largest market share in North America for
polyethylene
• Largest share of the Canadian market for
solvents
• Annual capacity of 450,000 tonnes
Chemicals cont…
• $41 million in Capital Expenditures aimed
at reducing net costs of ethylene
production by 10 percent.
Financial Summary of Segments
Net Earnings by Segment
Petrolem Products
24%
Chemicals
2%
Corporate
6%
Natural Resources
68%
Valuation Ratios
Measures Industry 2003 2002 2001 2000 1999
P/E 21.9 12.73 13.92 13.88 11.69 21.30
Price to Book: 3.70 3.71 3.27 4.03 3.92 3.09
Price to Sales 0.9 1.11 1.00 1.01 0.91 1.04
Price to CF 11.3 9.76 13.01 11.29 11.50 16.89
EPS $4.3 $4.52 $3.23 $3.19 $3.38 $1.46
Dividend Yield 1.90% 1.51% 1.87% 1.87% 1.98% 2.42%
Ratios cont…
Financial Strength Company Industry
Quick Ratio 0.775 0.87
Debt to Equity 0.24 0.86
Interest Coverage 57.2 7.39
Profitability
Gross Margin 60.28 56.90
Net Profit Margin 8.76 14.94
Management
ROA 19.4 6.47
ROE 29.1 16.51
Inventory Turnover 28.45 18.43
*Due to repayment of LT Debt
Growth Measures
• Revenue growth of 49.44% from 1999
• S/H Equity growth of 33.53% from 1999:
– Increased due to increasing net earnings
– Partly offset by Share Repurchase Program
Statement of Cash Flows
Cash Flows cont…
2003 2002 2001 2000 1999
Operating Cash
Flow($millions): 2194 1676 2004 2089 1470
Capital
Expenditures
($millions): 1393 1491 1024 312 566
Free Cash
Flow($millions): 801 185 980 1777 904
Use of Cash Flow
Value Drivers and Earnings
Sensitivities
Stock Information
• Ticker Symbols:
– (IMO-T) on TSX
– (IMO-A) on Amex
• Market Capitalization
– (IMO-T) 24.79 Billion
– (IMO-A) 20.69 Billion
Stock Information
Ticker Close Open Change Volume 52-Week
High
52-Week
Low
IMO-T $70.15 $68.90 $1.25 340,600 $73.17 $51.12
IMO-A $58.56* $57.40 $1.10 35,000 $59.75 $38.84
* Prices in U.S. Dollars
As of 10/11/04
2003 2002 2001 2000 1999
Dividend 0.87 0.84 0.83 0.78 0.75
IMO vs Oil & Gas Index (1 year)
IMO vs. Oil & Gas Index (5 year)
Wall St. Recommendations
Recommendation:
• Strong sales and EPS growth
• High profitability compared to industry and S&P
500
• High return ratios (ROE, ROA, ROI)
• Steady return potential for capital investments
• Strong dividend record and repurchase record
• BUY

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canadian oil and gas industry

  • 1. Canadian Oil and Gas Industry Fundamental Analysis and Recommendations: Suncor, Imperial Oil, Talisman
  • 2. Presenters • Karen Ford– Industry Overview • Aaron Cawker– Suncor • Stephanie Cornell– Talisman • Rahim Dhanji– Imperial Oil
  • 3. Industry Overview• Largest industry in the world • Oil & gas trade surplus accounts 57% of Canada’s merchandise trade balance in 2003 • 3.5 per cent share of the world market, since 1998 • Employment near 500,000 in Canada • Invest close to $24 billion
  • 4. Overview…continued • Payments to governments have averaged close to $8.5 billion per year over the last 10 years • In 2003, the oil and gas industry contributed an estimated $16 billion to government revenues in the form of royalty payments, bonus payments and income taxes. • We produce more than 20% of North America’s crude oil and natural gas but account for only 10% of its consumption • Capital Spending 2003: Conventional $23.8 billion Oil Sands $5.0 billion Total $28.8 billion
  • 5. Origins and History • Most crude oil and natural gas originate from plant and animal life millions of years ago: swamps and oceans. • Heat and pressure transformed the soft parts of the plants and animals into solid, liquid or gaseous hydrocarbons known as fossil fuels - coal, crude oil or natural gas • Located in sand oils and oil fields • Found by drilling and creating wells
  • 6.
  • 7. Sectors of the Industry • Petroleum Exploration and Production – Upstream • Refining – Midstream • Distribution and Retail Sales – Downstream  
  • 8. Types and Uses • Crude Oil and Natural Gas • Uses: – Mobility, heat and cool our homes and provide electricity • Products: – plastics, life-saving medications, clothing, cosmetics, and many other items you may use daily • Barrel – a unit of measure for oil and petroleum products that is equivalent to 42 U.S. gallons
  • 9. Canadian Economy • Canada's GDP 2003 grew 1.7%., 2002 it grew 2.2% • Slowdown of Canada’s economy: – weak U.S. economic growth for most of the year; – a strong appreciation of the Canadian dollar; – the SARS outbreak in Toronto; – restrictions on exports of softwood lumber and beef (due to mad cow disease). • Recovery of the U.S. economy, high oil and natural gas prices, and continued spending from the Canadian government are expected to boost Canada’s economy in 2004. • The Canadian economy is forecast to grow 3.6% in 2004
  • 10. Situational Analysis • Demand is increasing • Oil and Natural Gas together provide the largest source of energy (64%) in Canada • Natural gas 39% and Oil 25% • Hydro 20% • Coal 11% • Nuclear 5% • Prices have become volatile on the market • Energy shares make up 17 percent of the value of the S&P/TSX, the second-largest group in the index
  • 11. Crude Oil in Canada Highlights • Ninth-largest producer of crude oil in the world • Prior to 2002, Canada did not even rank in the top 20 of countries with the most proven crude oil reserves. Alberta's oil sands, which stood at 174.4 billion barrels as of January 2004 • Saudi Arabia holds most crude oil reserves in the world       
  • 12. Crude Oil…continued • Reserves: 178.9 billion barrels (2nd ) World Reserves
  • 13. Crude Oil…continued • Production: – 3.1 million barrels per day (bbl/d) for 2003, an increase of 7% over 2002 – Oil sands production is expected to increase significantly and to offset the decline in conventional crude oil production, becoming Canada's major source of oil supply – Western Canada Sedimentary Basin (WCSB), underlying most Alberta and parts of British Columbia, Saskatchewan, Manitoba and the Northwest Territories main source of oil
  • 14.
  • 15. Crude Oil Continued… • Wells Drilled: 4,845 • Exports – US: 1.4 million barrels per day – 3rd largest exporter of crude oil to the US – Canada makes up 15% of total US oil imports – Canada supplies 9% of US oil consumption • Imports – 912,000 barrels per day
  • 17. Crude Oil Forecast • Significant potential for new crude oil production planned to come on stream over the next ten years • Canada’s crude oil production growth is driven by the development of oil sands in Alberta and to a lesser degree by offshore projects in eastern Canada
  • 18. Crude Oil Prospects • Maturing basin being extended by technology – Horizontal drilling – 3D Seismic – New drilling/recovery technology • Emerging basins – Oil Sands – Northern Canada – Offshore East Coast • Technology is key • Total Canadian production is projected to increase from the current 2.6 million barrels per day to reach 3.6 million barrels per day (b/d) by 2015.
  • 19. Crude Oil Resources (Billions of Barrels)
  • 20. Crude Oil Supply Forecast
  • 21. Natural Gas Highlights • Canada is the third-largest producer of natural gas • Production: – 16.9 billion cubic feet per day • Reserves: – 59.1 Tcf (Jan. 2004) • Wells Drilled in 2003: 12,951 • Exports: – 2nd largest exporter in world – to US: 3.8 trillion cubic feet per year – Largest exporter of natural gas to the US – Canada makes up 94% of total US gas imports – Canada supplies 17% of US gas consumption • No imports listed
  • 23. Natural Gas Outlook • Short-term outlook, natural gas production is expected to decline 3%, from 16.3 Bcf/d at the end of 2002, to 15.8 Bcf/d in 2005 – new fields coming onstream are small and quickly depleted • If prices stay high, incentive to exploit the many small natural gas pools in the WCSB, as well as coalbead methane, of which the region holds considerable reserves
  • 24. Natural Gas Outlook: Productive Capacity
  • 25. Prospects of Natural Gas • Natural gas demand keeps growing – Supply running hard to catch growing demand – New sources of supply coming on • Gas from tight sands is promising resource • Arctic gas from the Mackenzie Delta to be piped to Canadian and U.S. network of pipes • As demand for gas grows, Canada’s resources will combine with Liquid Natural Gas (LNG) imports as important sources of this cleaner-burning fuel of choice in an increasingly environmentally conscious North America
  • 26. Natural Gas Prospects… • Significant untapped potential remaining • Sufficient pipeline capacity New supplies: – Northern gas – East Coast offshore – Coal-bed methane
  • 27. Potential of Natural Gas (TCF)
  • 29. Strengths • Size and number oil sands in Alberta • Potential of Eastern and Northern Canada • high-tech exploration • cold-climate and offshore operations • construction and operations of pipelines • specialized controls and computer applications • environmental protection technology and safety training • innovative products and services that meet customer needs • refining processes that produce quality petroleum-based products while minimizing the impact on the environment.
  • 30. Weaknesses • Limited natural gas reserves • Capacity for natural gas is forecasted to decrease • Canada is one of the high-cost places in the world to find and produce oil and gas • Deep gas, natural gas from coal and developments offshore, in the oil sands and the North are large, complex and expensive and have long lead times before they turn a profit • Challenges in meeting North America’s energy needs
  • 31. Opportunities • Exporting to the US • Oils Sands • Exploration of Northern and Eastern Canada • World population is currently around 6 billion people, but is expected to grow to approximately 7.6 billion by 2020.-- a huge increase in the demand for transportation fuels, electricity, and many other consumer products made from oil and natural gas.
  • 33. Threats • Price volatility • High Development costs • Environmental Issue • Especially Marine Life • Substitutes – Alternatives to oil and gas • Solar Power, Coal, Wind, Hydro, and Nuclear Power
  • 34. Competitive Rivalry Top Companies in Oil and Gas Producers (Selected by Assets) • EnCana Corp. • Canadian Natural Resources • Nexen • Penn West Petroleum • Western Oil Sands Inc • Paramount Resources • Compton Petroleum • Bonavista Energy Trust • PetroKazakhstan Inc.
  • 36. Crude Oil Prices since 1920
  • 37. Crude Oil Price Forecast West Texas Intermediate Crude Oil Price $/bbl Average of Month. Oct Nov Dec Jan Feb Mar 2004 2004 2004 2005 2005 2005 Value 37.9 30 32.1 40.8 40.6 40.9 Standard Deviation 0.7 0.6 0.7 0.9 1 1 Correlation Coefficient 0.95 0.95 0.95 0.95 0.95 0.95 Updated Thursday, October 28, 2004
  • 40. Natural Gas Price Forecast
  • 41.
  • 42. Current Events • Despite high oil and gas prices, anticipated market volatility is preventing energy companies from increasing their rate of investment • Nov. 8 (Bloomberg) Canadian Stocks Fall as Oil Prices Slip; Suncor, Talisman Drop -- Canadian stocks fell, led by oil and gas producers such as Suncor Energy Inc., after crude oil prices declined. A rise in the Canadian dollar to 84 U.S. cents for the first time in more than 12 years weighed on the benchmark index. ``Oil and gas stocks in Canada are very sensitive to falling oil prices because of how high'' crude prices are • Tuesday, November 09, 2004 Crude oil futures tumbled below $48 (U.S.) a barrel Tuesday, closing at their lowest level in seven weeks, on rising expectations that the U.S. supply of transport and home-heating fuels will be adequate this winter.
  • 43.
  • 44. Company Overview • Suncor Energy Inc. is an integrated energy company strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands. • Strong focus on technology • 37 years of oil sands experience
  • 45. Company Overview • Became a publicly traded company in 1992 • Total returns to shareholders have averaged more than 25% per year.
  • 46. Corporate Committee • Richard George – President & CEO since 1991 • Kenneth Alley – Senior VP & CFO since 2003, with Suncor since 1984 • Mike Ashar – Executive VP, Refining and Marketing since 2003, with Suncore since 1987 • David Byler – Executive VP, Natural Gas & Renewable Energy since 2000, with Suncore since 1979 • Terrence Hopwood – Senior VP & General Council since 2002, with Suncore since 1988 • Sue Lee – Senior VP, HR & Communications since 1996 • Kevin Nabholz – Senior VP, Major projects since 2002, with Suncore since 1986 • Thomas Ryley – Executive VP, Energy Marketing & Refining, with Suncore since 1983 • Steven Williams – Executive VP Oil Sands since 2003, with Suncore since 2002. 20 years of energy industry experience.
  • 48. Businesses • Oil Sands – Located near Fort McMurray, Alberta – The foundation of Suncor’s assets and is the center of their growth strategy. • Natural Gas and Renewable Energy – Based in Calgary, Alberta – Produce natural gas in Western Canada – Provides a price hedge against internal consumption at oil sands and refining operations.
  • 49. • Refining, Marketing and Retail – Canada • Refinery feedstock and natural gas production are marketed to commercial and industrial consumers. • Products from the Sarnia refinery are sold to customers in Ontario, Quebec, and the Northeastern US, and to retail customers through approximately 500 Suncor-owned(Sunoco) and joint venture service stations in Ontario. Businesses
  • 50. – United States • In August 2003, acquired a Denver, Colorado refinery along with 43 Phillips 66 retail stations. • Expansion into the rocky Mountain States allows easier movement of crude oil products to US markets. Businesses
  • 51. Business Strategy - growth • Develop multiple sources of supply from the oil sands resource base • Upgrade technology to increase production • Use increase production to feed growing North American energy market • How to improve current model: make it bigger.
  • 52.
  • 53. Short term Goals • Increase crude oil production to more than 500000 barrels per day by 2010-2012 from current level of 216600 bpd. • Reduce costs of production • Provide superior shareholder returns while providing social and economic benefits to stakeholders. • Reduce environmental impact of operations
  • 54. Crude Oil Production • Planned expansion is designed to leverage economies of scale to keep costs per barrel among the lowest in the industry.
  • 55.
  • 57. Main Resource – Oil Sands
  • 58. Oil Sands • Suncor’s future is built on Canada’s oil sands • An estimated 175 billion barrels of crude oil reserves • First company to develop oil sands • Leases contain an estimated 12 billion barrels of bitumen reserves (heavy oil)
  • 59. Oil Sands • With known resource base, Suncor doesn’t have risk and cost associated with conventional exploration. • 12000 million barrels = (12000/0.5)1/365 = 65+ years of resources. • In the process of acquiring further leases
  • 60. Supply of Bitumen • Mining – Surface mines supply majority of current production, plans to extend current mines with new operations planned to begin in 2010 • In-situ – Firebag development uses steam assisted gravity drainage (SAGD) to heat the underground reservoir, allowing the bitumen to be pumped to the surface. Expected to be at full production in 2005. • Third Party Agreements – plan on providing a fee-for- service agreement to process 27000 barrels per day of 3rd party butimen (2008).
  • 61. Production of Crude Oil vs. Revenue Total Revenue by Year 0 1000 2000 3000 4000 5000 6000 7000 1999 2000 2001 2002 2003 Millions($)
  • 62. Markets • Refining and marketing strategy builds on connections between the Oil sands production base and North American refiners and consumers. • This is the largest crude oil and refined product market in the world.
  • 63. Markets - continued •Don’t just supply the market, also participate in it through short and long-term marketing contracts as well as through retail distribution (Sunoco).
  • 64. • Retail – operates nearly 300 Sunoco-branded retail stations in Ontario and supplies to over 200 other stations through joint venture operations. – In 2003, purchased 43 Phillips 66 retail stations in Colorado and long-term supply contracts with nearly 150 more retailers. Markets - continued
  • 66. Investments • Currently producing hydrocarbon fuels to meet today’s needs • Investing to supply new markets with renewable energy. • In 2003, they began the wind power project in southern Alberta, with partner EHN Wind Power Canada, Inc.
  • 67. Stock Info. Price as of Nov. 10, 2004: $40.46 52 week low: $27.00 52 week high: $44.49 Average Daily Volume ≈ 1,500,000 Number of Shares Outstanding: 453,421,000
  • 68. 1 Year weekly chart1 Year weekly chart
  • 69. 1 Year weekly chart vs. S&P Energy
  • 70. 5 Year Weekly Chart
  • 71. 5 Year weekly chart vs. S&P 500
  • 72. Company Analysis (Excel file) 2004 (9 months) 2003 2002 2001 2000 Share Price (End of period): 40.69 32.5 24.7 26.2 19.15 Revenue($millions): 6311 6306 5032 4294 3484 Net Earnings($millions): 767 1,084 761 388 377 EBIT ($millions) 1186 1,804 1277 531 628 Total Assets($millions) 11362 10427 8683 8094 6833 Total Liabilities($millions): 6774 6002 5225 5317 4361 Total Debt($millions): 2347 2479 2686 3144 2256 Interest Expense($millions): 50 83 133 18 8 Equity($millions): 4588 4,588 3458 2777 2472 Shares Outstanding(EOP): 453,000,00 0 450,505,00 0 448,839,00 0 445,820,00 0 443,546,00 0 Beta: 0.16 0.16 0.16 0.16 0.16 Operating Cash Flow($millions): 1562 2,081 1440 831 958 Capital Expenditures: 1174 1,316 877 1678 1998 Dividends: 0.17 0.1925 0.17 0.17 0.17
  • 74. Performance Measures Measures 2004 (9 months) 2003 2002 2001 2000 1999 Price to Book: 4.02 3.19 3.21 4.21 3.44 3.17 EPS 1.69 2.41 1.70 0.87 0.85 0.42 P/E 24.03 13.51 14.57 30.10 22.53 35.89 NAV 10.13 9.82 7.70 6.23 5.57 4.77 Free Cash Flow($millions) 388 765 563 -847 -1,040 -512 ROA 10.4% 17.3% 14.7% 6.6% 9.2% 6.5% ROE 16.7% 23.6% 22.0% 14.0% 15.3% 8.8% Interest Coverage 23.7 21.7 9.6 29.5 78.5 13.0 Debt to Equity 0.51 0.54 0.78 1.13 0.91 0.66 Dividend Yield 0.42% 0.59% 0.69% 0.65% 0.89% 1.13% Market Cap. ($millions) 18432 14641 11086 11680 8493 6674
  • 75. Performance Measures 0 2000 4000 6000 8000 10000 12000 2004 YTD 2003 2002 2001 2000 1999 Year Millions($) Revenue Net Earnings Total Assets Equity Operating Cash Flow
  • 76. Recent News • Oct 18: • Suncor CEO Richard George told the downtown Toronto business audience: – American consumption of oil and gas is expected to increase almost 50 per cent by 2025, – Domestic production is projected to remain flat. – The United States is looking north to close the gap, and this represents a big opportunity for Canada's energy industry. • "The bottom line for Canada is that energy is not an obstacle to economic growth. It's a key driver of economic growth," said George. • "This is not just an opportunity for Western Canada. Our energy industry is about Canada's opportunity, Canada's prosperity, and our role globally."
  • 77. More news Suncor profit climbs, but oil hedges limit gain – Suncor, known for its huge oil sands mining and synthetic crude operations, would have earned 25 percent more if over a third of its output not been sold forward at $22.50 a barrel. Oil averaged nearly $44 a barrel in the quarter.
  • 78. What the Brokers say Strong Buy 5 Buy 8 Hold 6 Sell 2 Strong Sell 0
  • 79. Value Drivers • Production of crude oil • Since they are essentially price takers, the more they produce, the more revenues increase • The price of oil – This is the price of their product, and if price increases, earnings increase. • To a lesser extent the success of downstream operations
  • 80. Recommendation • BUY – Pros: • Sound business plan • Product is in constant demand • Near unlimited resources, just a matter of extracting them • Continuous growth in revenue and earnings – Cons: • Stock price has surged over last year, and stock is expensive compared to 1 year ago
  • 81.
  • 82. Talisman’s Background • Large independent oil and gas producer with global operations – focused mainly on exploration and development • Created in 1992 – Formally British Petroleum Canada • Started out with operations solely in Canada – Market Capitalization approximately $500million – Produced 51,00 boe/d
  • 83. Talisman’s Background • Through corporate and asset acquisitions , operations were quickly established in the North Sea, North Africa, and Southeast Asia • Today – 11 billion dollar company with global operations – 2003 – production was 437,000 boe/d • 60% of reserves are natural gas, 40% crude oil and natural gas liquids
  • 84. Management Team James W. Buckee, President & CEO o 1977-1991 British Petroleum Canada, 1991 appointed Chief operating officer of Talisman, 1993 became CEO of Talisman Ron J. Eckhardt, Executive Vice President, North America o 1986 – Joined Talisman (then British Petroleum Canada) T.N.D. Hares, Executive Vice-President, Frontier & International Op. o 1972-1994 – Worked for British Petroleum, 1994 joined Talisman Joseph Horler, Executive VP, Marketing o 1987 – Joined Talisman (BP Canada) Michael D. McDonald, E.V.P. Finance and CFO o 1982 – Joined BP Canada Robert M. Redgate, E.V.P., Corporate Services o 1978 – Joined Talisman (BP Canada) Jacqueline Sheppard, E.V.P., Corporate and Legal o 1993 – Joined Talisman, prior to this she was a partner in a law firm John ‘t Hart, E.V.P., Exploration o 1978 – Joined Talisman (BP Canada)
  • 85. Competitors • EnCana • Penn West Petroleum • Compton Petroleum • Canadian Natural Resources • Western Oil Sands Inc • Bonavista Energy Trust • Nexen • Paramount Resources • PetroKazakhstan Inc
  • 86. Areas of Operation • North America – 50% of company’s production (2003) • International – 50% of company’s production (2003)
  • 87. North America (Canada and US) • Mainly Natural Gas, but also oil and liquids • Focuses mainly on natural gas in Rocky mountain foothills in Alberta • New core gas area in upstate New York
  • 88. North Sea (United Kingdom and Norway) • Represented 2/3 of international production in 2003 • Mainly oil and liquids • In UK central North Sea - Established a number of commercial hubs • Norwegian sector of North Sea– building a new core area • Large drilling program underway designed to increase liquid and oil production by 5-10% in 2005
  • 89. Caribbean and Latin America (Columbia, Trinidad and Tobago) • Working in a number of high exploration areas. • Trinidad – development of the Greater Angostura oil and gas project is underway • Columbia and Trinidad – exploration drilling programs
  • 90. Africa and Middle East (Algeria, and Qatar) • March 2003 – completed sale of its indirectly held interest in the Greater Nile Oil project in Sudan – $1.1 billion, gain of $296 million • Production and development interests in Algeria and exploration acreage in Qatar
  • 91. Stock Information • Share Price – $30.85 CAD (November 8, 2004) • Listed – Toronto and New York Stock exchanges • Ticker Symbol – TLM • Shares Outstanding – 384,105,983 (November 8, 2004) • Market Capitalization – $11,849,669,575.55 (384,105,983* $30.85) • 52 Week low and High – $21.25 - $35.10 • Dividends - June 30, 2004 - $.15 and Dec 31, 2004 - $.15
  • 92. Talisman - 1 Year Prices
  • 93. Talisman - 5 Year Prices
  • 94. Talisman vs. S&P 500 – 1 Year
  • 95. Talisman vs. Energy – 1 year
  • 96. Performance Measures Measures 2004 (YTD) 2003 2002 2001 Price to Book: 2.43 1.9 1.65 1.92 EPS 1.41 2.62 1.33 1.82 P/E 22.81 9.35 14.21 11.06 NAV 16.99 16.09 13.97 13.3 Free Cash Flow($millions) 280 -263 321 271 ROA 8.30% 10.10% 5.90% 8.10% ROE 10.70% 20.30% 11.60% 17.30% Interest Coverage 8.5 8.4 4.2 6.3 Debt to Equity 0.45 0.44 0.67 0.66 Dividend Yield 0.47% 0.95% 1.05% 0.99%
  • 97. Breaking News – Nov. 9/04 • Supply cushion – only about 1% of the 82.4 million barrels consumed daily • Two key exporters might be vulnerable to disruptions in the near future – Iraq – US military have vowed to disrupt the country’s oil exports, and a northern pipeline has been knocked out by saboteurs lowering supply – Nigeria – Oil workers are planning a general strike aimed at halting the country’s exports – • Nigeria is America’s fifth largest source of crude oil
  • 98. Value Drivers o Production o Oil and Gas Prices
  • 99. Recommendations • Sound business plan • Product is always in demand • Price of stock is down right now and is likely to increase • Company has increased production by 11% year to date • BUY!
  • 100. Corporate Profile • Imperial Oil Limited has been a leading member of the Canadian energy industry for more than 120 years • One of the largest producers of crude oil and natural gas liquids in Canada and a major producer of natural gas • Canada’s largest refiner and marketer of petroleum products – sold primarily under the Esso brand name • Major producer of petrochemicals
  • 101. Management Team Imperial's 2003 Board of Directors (left to right) P. Des Marais II, B.J. Fischer, T.J. Hearn, R. Phillips, J.F. Shepard, P.A. Smith, S.D. Whittaker, K.C. Williams, V.L. Young •Majority of management team are from within Imperial Oil or Exxon/Mobil •(Exxon has a 69.59% interest in Imperial)
  • 102. Management Team • T.J. (Tim) Hearn has been a director of Imperial Oil since January 1, 2002. – With the company since 1967 – He is currently Imperial's chairman, president and CEO • P.A. (Paul) Smith Mr. Smith has been a director of Imperial Oil since February 1, 2002. – He is currently controller and senior vice-president, finance and administration. – Joined Imperial Oil in 1980
  • 103. Management cont… • B.J. (Brian) Fischer Mr. Fischer has been a director of Imperial since Sept. 1, 1992. – He is currently senior vice-president of Imperial's products and chemicals division – Joined Imperial Oil in 1968 • J. M. (Mike) Yeager Mr. Yeager has been a director of Imperial Oil since August 1, 2004. – He is currently senior vice-president, resources division, and president and chief executive officer of Imperial Oil Resources – He joined the company from Mobil
  • 104. Natural Resources Segment CRUDE OIL • Wholly owned Cold Lake operation in Northern Alberta • 25 percent ownership position in Syncrude. NATURAL GAS • Wizard Lake • Sable Offshore Energy Project • Gwillim Field
  • 105. Crude Oil – Cold Lake • This is a long-life asset • Net proved reserves were 760 MB at year- end 2003 • Additional untapped resource
  • 106. - Received regulatory approval for further development in March 2004
  • 107. Crude Oil - Syncrude • World's largest mineable oil sands operation. • Syncrude is the single largest crude oil producer in Canada with net reserves of about 3 billion barrels and production of over 200 kbd in 2003. • Imperial was a founding member of Syncrude and has a 25 percent interest
  • 108. Natural Gas • Full production from the natural gas cap at Imperial’s Wizard Lake oil field in Alberta began in July 2003. – Production rates of about 180 million cubic feet a day will be achieved in 2004 once gas plant capacity is available and are expected to continue through 2006. • In November, the first natural gas was produced from the Gwillim field in northeastern BC. Additional development of this field is planned. • Natural gas production from 9% interest in the Sable offshore energy project averaged 40 million cubic feet a day before royalties. – production began from a fourth Sable field, Alma, and construction was started on facilities for a fifth field, South Venture. • Funding was also approved for a natural gas compression facility that will service production from all Sable fields by late 2006.
  • 109. Natural Resources - Potential • Kearl Oil Sands (200k barrels/day) • Mackenzie Gas Project – regulatory review process to take about 2 years – design and construction should take 3-4 years – potential for Mackenzie gas production by the end of the decade • Cree exploration well abandoned in the third quarter • Acquired 25% interest in Orphan Basin (Natural Gas)
  • 110. Net Proved Reserves 0 200 400 600 800 1000 1200 1400 1600 1800 2000 1999 2000 2001 2002 2003 Conventional Cold Lake Syncrude Total Natural Gas
  • 111.
  • 112. Petroleum Products Segment • 787 company-owned sites • Average productivity per site for 2003 was 5.2 million litres a year, up six percent from 2002. • 650 Esso convenience stores across Canada, including On the Run and Tiger Express, was the second largest in Canada. • Convenience-store sales rose by about nine percent in 2003, well above the industry average. • 400 sites with car-wash facilities is the largest in the industry. • Esso retail sites providing Tim Hortons food and refreshments had increased to more than 300 from 270 in 2002
  • 113. Petroleum Products cont… • Points-Exchange alliances • Market leader in finished lubricants • Exclusive Canadian marketer of Mobil products • Quadrupled average productivity per site
  • 114. Petroleum Products cont… • Focus on reducing working capital • Decreased days inventory by 4% vs. 2002 • Freed up more than $35 million in cash • Over the last 10 years, this has been reduced by about 25 percent.
  • 115. Petroleum Products cont… • Capital Expenditures of $478 million in 2003 – Allowed them to meet specifications of 2004 model-year automobile technology • Refineries have improved energy efficiency by more than 40 percent over last 30 years
  • 116. Chemicals Segment • Earnings of $37 million • Cash flow from earnings of $66 million • Sales of petrochemical products were 3,300 tonnes a day, down slightly from 2002. • N.A. demand was low in 2003, with high feedstock costs and soft sales volumes.
  • 117. Chemicals cont… • One of Canada’s leading producers of chemical products • Largest market share in North America for polyethylene • Largest share of the Canadian market for solvents • Annual capacity of 450,000 tonnes
  • 118. Chemicals cont… • $41 million in Capital Expenditures aimed at reducing net costs of ethylene production by 10 percent.
  • 119. Financial Summary of Segments
  • 120. Net Earnings by Segment Petrolem Products 24% Chemicals 2% Corporate 6% Natural Resources 68%
  • 121. Valuation Ratios Measures Industry 2003 2002 2001 2000 1999 P/E 21.9 12.73 13.92 13.88 11.69 21.30 Price to Book: 3.70 3.71 3.27 4.03 3.92 3.09 Price to Sales 0.9 1.11 1.00 1.01 0.91 1.04 Price to CF 11.3 9.76 13.01 11.29 11.50 16.89 EPS $4.3 $4.52 $3.23 $3.19 $3.38 $1.46 Dividend Yield 1.90% 1.51% 1.87% 1.87% 1.98% 2.42%
  • 122. Ratios cont… Financial Strength Company Industry Quick Ratio 0.775 0.87 Debt to Equity 0.24 0.86 Interest Coverage 57.2 7.39 Profitability Gross Margin 60.28 56.90 Net Profit Margin 8.76 14.94 Management ROA 19.4 6.47 ROE 29.1 16.51 Inventory Turnover 28.45 18.43 *Due to repayment of LT Debt
  • 123. Growth Measures • Revenue growth of 49.44% from 1999 • S/H Equity growth of 33.53% from 1999: – Increased due to increasing net earnings – Partly offset by Share Repurchase Program
  • 125. Cash Flows cont… 2003 2002 2001 2000 1999 Operating Cash Flow($millions): 2194 1676 2004 2089 1470 Capital Expenditures ($millions): 1393 1491 1024 312 566 Free Cash Flow($millions): 801 185 980 1777 904
  • 126. Use of Cash Flow
  • 127. Value Drivers and Earnings Sensitivities
  • 128. Stock Information • Ticker Symbols: – (IMO-T) on TSX – (IMO-A) on Amex • Market Capitalization – (IMO-T) 24.79 Billion – (IMO-A) 20.69 Billion
  • 129. Stock Information Ticker Close Open Change Volume 52-Week High 52-Week Low IMO-T $70.15 $68.90 $1.25 340,600 $73.17 $51.12 IMO-A $58.56* $57.40 $1.10 35,000 $59.75 $38.84 * Prices in U.S. Dollars As of 10/11/04 2003 2002 2001 2000 1999 Dividend 0.87 0.84 0.83 0.78 0.75
  • 130. IMO vs Oil & Gas Index (1 year)
  • 131. IMO vs. Oil & Gas Index (5 year)
  • 133. Recommendation: • Strong sales and EPS growth • High profitability compared to industry and S&P 500 • High return ratios (ROE, ROA, ROI) • Steady return potential for capital investments • Strong dividend record and repurchase record • BUY