Imperial Oil

125 years nl
enernv 

 

Annual report In shareholders 

 

 

The Imperial Oil advantage

The importance of energy
• Energy is essential for world economic and social development.

• The leading resource position in Canada with a diverse asset base

• Hydrocarbons will remain a dominant source of the
world's energy for a long time to come.

• A consistent management
• A record of continually

• Energy demand is rising worldwide, and new supplies
of petroleum are required to meet this demand.

approach and a disciplined

improving

• Financial strength unparalleled
• A leader in the development

• Canada is uniquely positioned to participate in this
growing market.

• High-performing,
• Industry-leading

principled

investment

strategy

base operations

in the industry

and use of technology
employees

return on capital employed

• Imperial has provided superior returns to shareholders - in 2004, the total return was more
than 25 percent and has averaged almost 20 percent a year for the past 10 years.

TheInternationalEnergyAgency(IEA)hasstated that oil andgascurrentlyaccountfor
about60 percentof all the energyconsumed
worldwideand,giventhe projectedgrowth
in demand,that is not expectedto changesignificantlyoverthe nextfew decades.

World energy demand grows 1.7 percent a year

Sustained increase in shareholder value

Resource base an enabler for growth

millions of oil- equival ent barrels a day

10-year cumulativ e tot al returns

billions of oil-equivalent barr els - 2004

12

350

Imperial Oil

Other•

600

Coal

500

300
250

2004increase

--

10

Significantresourcebase
Long-lifereserves
Non-provedresource of 11.5 billion
oil-equivalentbarrels
2004net increasein oil-sandsresource

400

200

Gas

300

S&P/TSXComposite

150

200

Oil

100

I

100

50

94
1971

2002

2010

2020

95

96

97

98

99

00

01

02

03

2030
Valueof SIOOinvestedon December31, 1993
Source: Bloomberg

"Other energy sources include solar.wind, nuclear, hydro, biomass and waste

Source: InternationalEnergy Agency

~-~ ---------------------~

2
4
6
10
13
14
16

Contents
Letterto shareholders
Yearin review
Naturalresources
Petroleumproducts
Chemicals
Principledpeopleandpractices
Caringfor our communities

ProductionProved Nonreserves•proved
resources

04

* Before year-end price/cost revisions

l.______

_____;

Financial highlights
19 Financialsection
20
32
36
37
57
60
61
62

Management's
discussionandanalysis
Frequentlyusedfinancialterms
Management
andauditors'reports
Financialstatements.accountingpoliciesand notes
Naturalresourcessegment- supplementalinformation
Shareownership,tradingand performance
Quarterlyfinancialandstock-trading
data
Informationfor investors
Directors,seniormanagement
andofficers

This reportcontainsforvvard-looking
information
on futureproduction.projectstart-upsand future
capitalspending.Actualresultscoulddiffer
materiallyas a resultof market conditionsor

1
Net income tmill1ons o! 1Juilars
Net income per shareidoliar,. iai -- ::lilutecl
Return on average shareholders'equity ir-r;rcentl il•J
Reurn on averagecap11al employed1percenti lei
Ar:riualsharnholders' 1etulll (rierr.en
t) rl)

changesin law. governmentpolicy,operating
conditions.costs,projectschedules.operating
performance.
demandfor oil andnatural gas.
commercialnegotiationsor othertechnicaland

2004

2003

2002

7001

2001)

2 052
5.74
34.6
27.7
25.3

17mi

1 214

/1,58
32.6
25:l

3.20
26.5
70 0

221
3.11
28.8
22.3

1 41)8
3.37

30.5

32

14 5

302

iaJC.iiculatPd by rnionmcea, th(, c1v
~ragenumber of shares outs1arid11:g,
weightedmon'.\111
· (paqe5UI
it,) , et 11
,wm8 <J
ividrd Dyave.r;,ye :;h rd :older~· F:qu
lly ipage'.l9/.
IC/1\ nefu1it1v·1of re,urnon avrJraqu ~:ot,1
WI enipluyetl rt111
t\P fou•itlon pagG33.
1~)ll1cluder, sh.ire ilpprec,at<-O
n and d1v1der
1d:;

economicfactors.

- · ·- ··. - ··- -·- ·--------------------------------

----1
Annual report 2004

Imperial

Oil Limited

32.7
26.5

 Overall, Imperial is well positioned
for long-term earnings growth. The
company's diverse base of oil and gas
resources in Canada, which exceeds
13 billion oil-equivalent barrels, is the
largest in this country, and we have
access to world-leading research,
technology and project expertise.
With these advantages, together
with excellent financial strength, a
consistent management approach
and a disciplined investment strategy,
I believe Imperial will remain an
industry leader in both downstream
and upstream operations for many
years to come . Moving our head
office to Calgary in 2005 will further
strengthen the company's strategic
focus, while improving organizational
effectiveness and productivity.

Letter to shareholders
lmperial's ongoing strategy
is to increase long-term
shareholder value by
continually improving base
operations while investing
in attractive growth
opportunities.

The company had another excellent
year in 2004. A new record was set
for earnings at $2,052 million or
$5.74 a share, return on average
capital employed was 28 percent and
return on shareholders' equity was
35 percent. Regular per-share dividend
payments increased for the 10th year
in a row, and almost $1.2 billion was
returned to shareholders through
dividend payments and the sharebuyback program. The total return
to shareholders including dividends
paid and share-price appreciation
was 25 percent.
Higher commodity prices and strong
refining and petrochemical margins
were major factors in lmperial's
improved earnings. The company's
operations were also solid. Safety
performance was the best on record,
operating reliability improved and
record volumes were achieved in
several areas. Looking ahead,
because of the cyclical nature of the
business, which is strongly influenced
by the changing fundamentals of
supply and demand, it would not be

prudent to expect 2004 prices
and margins to be sustained over a
long period. For this reason, lmperial's
business model remains focused
on sound financial management,
a disciplined investment strategy
and improving those things we
can control.

lmperial's resources and capabilities
will be key in producing new Canadian
supplies of oil and gas. In the coming
decades, economic and population
growth are projected to increase
significantly both global and Canadian
demand for all forms of energy.
Hydrocarbons will remain the dominant
source of energy as well as the main
feedstock for countless chemical
products that are vital to modern life.
Canada has abundant oil and gas
resources, but developing them at
acceptable costs and with minimal
impact on the environment present
challenges that must be addressed.

The company maintained its strong
financial position while making capital
and exploration expenditures of
more than $1 .4 billion. Major natural
resources opportunities were
advanced. A significant development
drilling program was undertaken at
our oil-sands operations at Cold Lake,
Alberta; work on the major upgrader
expansion at Syncrude was advanced;
the main regulatory applications for
the Mackenzie gas proJect were filed;
and delineation drilling proceeded at
the Kearl oil-sands site in northeastern
Alberta. In petroleum products, w ork
began on modifying refineries to
produce low-sulphur diesel fuel to
meet future regulatory requirements
and further reduce smog-forming
emissions.
Annual re port 200 tl

We are determined to continue to
meet the evolving energy needs of
Canadians while remaining committed
to safety, environmental responsibility
and the highest standards of ethics
and integrity. This year marks the
125th anniversary of lmperial's
founding, and those commitments
have remained constant throughout
the company's history.
Ensuring that nobody gets hurt
governs all operations. And the
company is committed to delivering
superior environmental performance to drive environmental incidents with
real impact to zero, through the
continuous raising of standards and
improvements to our operations.
Imperial is also committed to
maintaining the long-standing tradition
of ethical business behaviour,
including clear and straightforward
reporting of operating and financial
results. In particular, we remain fully
confident in the integrity of our
process for assessing and reporting
oil and gas reserves. We will continue
to make operating and investment
decisions based on internal
assessments of resources and their
potential to provide future growth in
production and earnings.
The company remains deeply
committed to Canada and Canadians,
and this is reflected in many of
our initiatives. For example, we
believe the key to the economic
and environmentally responsible
development of Canada's oil sands
is to turn the best scientific minds
to the challenge of developing new,
innovative technologies. For this

reason, in 2004 Imperial committed to
contribute $10 million over five years
to the University of Alberta to support
oil-sands research.
Another major cornerstone of the
company's success over its long
history has been the collective talents,
capability, dedication and extraordinary
performance of our employees . For
their steadfast willingness to meet
the challenges of a difficult and
competitive industry, they deserve
the gratitude of shareholders for a
job well done, every year.
I would also note that one of the
longest-standing nonemployee
members of lmperial's board of
directors will not stand for re-election
this spring. Pierre Des Marais 11joined
the board in April 1977. On behalf of
his fellow directors, shareholders and
employees, I want to express our
appreciation for his many years of
outstanding service to the company
and wish him well for the future.
For the last 125 years, Imperial has
grown and prospered by pursuing
excellence in all operations, while
meeting both the needs of Canadians
for secure energy supplies and their
expectations for good corporate
citizenship. These considerations
remain in the forefront as we move
into a future of long-term growth for
shareholders.

-t::,
February16,2005

Forthe last 125years,Imperialhasgrownand
prosperedby meetingthe evolvingenergyneeds
of Canadians.We were here yesterday,and
we will be here for the longterm.

Im pe rial 011 Lurntcd

3

 Year in review
Financial highlights

Operating highlights
The best recorded safety
performance for both employees
and contractors was achieved; the
results showed improvement over
the company's industry-leading
record performance in 2003.
Reliability in the company's
operations was excellent. By
actively managing those aspects
under its direct control, Imperial
continued to improve its base
operations.
Increased volume s were achieved
in upstream and downstream
business segments.

Production records were set at
the company 's refineries and its
polyethylene and aromatics plants
in Sarnia.
Substantial progress was made
on maJor upstream projects, which
are focused on developing oil-sands
leases in Alberta, natural gas in
the Mackenzie Delta region of the
Northwest Territories and offshore
resources on Canada's East Coast.
Relentless pursuit of lower costs
continued to be a priority. All key
Imperial business units have either
achieved industry-leading unit costs
or are within first-quartile ranking
for their cost structures.

Regular per-share dividend
payments increased for the
10th consecutive year.

The highest earnings in the
company's history we re achieved,
$2,052 million, up from the record
$1,705 million in 2003. Earnings per
share were $5.74.

The company continues to
maintain an industry-leading
research program at its two
research facilities in Sarnia and
Calgary. Total research expenditures
in Canada were $38 million in 2004;
three patents were awarded and
180 new or reformulated products
were commercialized during the
year. In addition, through its
relationship with Exxon Mobil
Corporation, Imperial had access
to more than $800 million of
leading-edge research worldwide.

In 2004, total distributions to
shareholders were almost
$1 .2 billion. including $872 million
to buy back about 14 million shares.

Return on average capital employed
continued at its pace-setting level in
the industry - 28 percent, up from
25 percent in 2003 .

An exceptionally strong balance
sheet was maintained. Debt as
a percentage of total capital was
below 20 percent; interest coverage
was 83 times earnings and more
than 100 times cash flow. The
"AAA" rating on Canadian debt
from S&P was maintained; Imperial
remains the only Canadian industrial
company with this rating. At yearend, the balance of cash was
$1,279 million.

In 2004, the total return on shares,
including capital appreciation and
dividends, was more than
25 percent (TSX). exceeding
the returns of Standard & Poor's
(S&P) TSX composite index. Over
the past 10 years, the total return
on Imperial shares has averaged
almost 20 percent a year.

In October, $10 million was
committed over the next five
years to fund the Imperial Oil
Centre for Oil Sands Innovation
at the University of Alberta. The
centre is dedicated to finding
more efficient, econom ically viable
and environmentally responsible
ways to develop Canada's
oil-sands resources .

Net earnings m,1110nso r dollars
Return on average capital
employed (ROCE) percent

2 250
2 000

Long-term use of cash
f1vo year tola l (2000 200<I), S10 9 billion

1 600

30

1 400

I 250

20

I 000

15

$5.6billion

1 000
800

600

750
10
500

400

250

200

DO 01

02

03

00

04

_

01

- -·- -- - - - - - 2004

---------Imperial

04

05 Outlook

Oil L1m1ted

lnvestments(net)
•

Dividends
Share purchases

I

~-----------

report

03

Returnon averagecapital
employed IROCE) 1%)

, • ROCEof Canadianintegrated
oil compames (%1

Annual

02

Capitalandexploratmnexpenditures

Net earnings

Fromleft to right:
Workingat the Dartmouth.
N.S. refinery;thecompany's
oil-sands
researc
h facilityin
Calgary;
delineation
drillingat the Kearloil-sandsleasein northea
sternAlberta;
performing
fieldworkfor the Mackenzie
gasproject.

$3.7billion

I 200

25

I 500

Investing in growth opportunities
m ,lhons of dollars

35%

I 750

Capital and exploration
expenditures for 2004 we re
$1,445 million. Investment s
included advancing major upstream
projects and funding significant
refinery upgrades to reduce sulphur
levels in diesel fuel, thereby further
reducing smog-forming emissions.
For the fourth consecutive year,
more than $1 billion was spent
on capital expenditures and
exploration. In 2005, the company
expects to spend about $1.6 billion ,
financed entirely from internall y
generated funds, with about
$1 billion to be spent in the upstream.

~~

 I

Crude oil and NGL gross
production by source

Natural gas
gross product ion

thousands of bllrrols a day

m,lhons of cubic feet a day

l

300

enhance the capacity of the operation,
reduce unit operating costs and allow
for additional development within
the existing infrastructure before
significant new investment is made
at the site.

600

I

500
400

200

300

200
100

00
•

I

ColdLake

Imperial has a leading resource position with
diversified holdings in Northern, Western and Eastern
Canada. The company's total resource base, which
includes reserves of oil, natural gas and natural gas
liquids, was 13 billion oil-equivalent barrels at the end of
2004. These assets will provide the source for lmperial's
future growth.

03

l_

Con\lentionaland NGls

drilling at the company's leases at
Kearl, will increase lmperial's nonproved resources by almost 2.5 billion
barrels, bringing the company's
total resource base to 13 billion
oil-equivalent barrels.
The upstream business continued its
record of superior performance in
2004. Strong operations and excellent
reliability contributed to a four-percent
increase in production volumes for a
total of 357,000 oil-equivalent barrels
a day before royalties. Earnings after
tax were a record $1,487 million, and
return on average capital employed
was 39 percent. Cash flow from
operating activities and asset sales
was $2.4 billion, of which about
$1 .1 billion was reinvested in the
business. Expenditures for 2005
are again expected to be more than
$1 billion, most of which w ill be
directed to investment in the oil sands .

02

Operations at Cold Lake contributed
production of 126,000 barrels a day
before royalties from about 3,800
wells. The production process for this
thermal operation is cyclic by nature .
At the beginning of a cycle, steam is
injected into the subterranean
reservoir to heat the bitumen until it
flows. After a "soaking" period, the
bitumen is produced. When
production decreases, the cycle is
repeated. Cycle times range from six

~I

months for new wells to 36 months
for mature wells. On average, annual
production has increased about four
percent a year since 1992, but
variations in year-to-year production
occur depending on the cycles. In
the last quarter of 2004, production
at Cold Lake averaged 144,000 barrels
a day.
A development drilling program of
more than 200 new wells from new
pads was completed in 2004 at Cold
Lake within the existing operating
areas. In March, regulatory approval
was received for operations in two
new expansion areas, and drilling will
begin in 2005 in one of these areas.
Work was also completed in 2004 to

Netincomeimillions of dollars)
Cashflow fromoperatingactivities
andassetsales (millionsof dollars)
Gross crude oil andNGL production(thousandsof barrelsa day)
Grossnaturalgasproduction(millionsof cubicfeet a day)
Capital employedat Decemb
er 31(millions of dollars)
Returnonaveragecapitalemployed(perceDt)

- An nu al repo rt 200 4

Production from lmperial's 25-percent
share in Syncrude operations was a
record 60,000 barrels of synthetic
crude oil a day before royalties in
2004, up from 53,000 barrels a day in
2003. This included production from
the Aurora 2 mine, which w as
completed in 2003. Disappointingly,
the cost estimates for the current
upgrader expansion project were
substantially increased in 2004,
and the construction schedule was
extended. A new coker, used to
convert heavy oils into lighter

Natural resourcesat a glance

Oil-sands operations
With more than 460 ,000 acres of
developed and undeveloped land
holdings, the company has a
significant lease position in the Alberta
oil sands. More than $800 million was
invested in the oil sands in 2004 to
increase production from existing
operations and advance new projects.
In addition, activities on the oil-sands
leases , most notably delineation

04

In 2004,grossnatur11I
gas
productionwas 569millioncubic
feet a day,up 11percentfrom2003

Syncrude

Natural resources

01

In 2004, following U.S. Security and
Exchange Commission guidelines,
oil and gas reserves were assessed
using year-end pricing, which resulted
in a downward adiustment in Cold
Lake reserves. This was solely
because heavy-oil prices were
considerably lower on the last day
of 2004 than they had been duri11g
most of the year. The company
believes that the method of assessing
reserves using a single price point
does not accurately reflect the longterm production potential of the
resource. Imperial does not use this
single-price -point assessment in any
of its operating or investment
decisions. Bitumen values are highly
variable due to a number of factors.
Using either 2004 year-average pricing
or average prices in early 2005, there
would have been no downward
adjustment to Cold Lake reserves.

·-

Imp e rial O il L11
111t
od

-

-

----

- - ---

---

-

2004

2003

2002

2001

2000

1 487

1 143

1 042

941

1 165

2 364
262
569
3 839
39.3

1 668
256
513
3 725
32.8

1 258
247
530
3 252
35.8

1 226
267
572
2 573
39.7

1 911
260
526
2 162
49.9

- ----

 Natural resources
components , is expected to start
operating in late 2005, with production
of higher-quality synthetic crude oil to
begin by mid-2006. Once complete,
this expansion is expected to add
an additional 27,000 barrels a day
to lmperial's volumes. A team of
experts from the project owners and
Syncrude has taken intervention steps
to ensure the remaining project work
is adequa tely managed to achieve the
updated cost targ et and schedule.
At year-end, the project was tracking
to the revised cost and construction
schedule.
The company continued to evaluate
its oil-sands opportunity at Kearl,
70 km north of Fort McMurray,
Alberta. An initial drilling program
was completed in early 2004. A
second program began in December
to further evaluate this high-quality
resource. Imperial would hold a
70-percent interest and, if
development is pursued, would
act as operator in the potential joint
project with ExxonMobil Canada. The
property would be developed using a
phased approach, with projected initial
bitumen production of 100,000 barrels
a day. Drilling results indicate that the
combined leases hold the potential
for up to 300,000 barrels a day, with
production estimated to last in excess
of 40 years. A regulatory filing is
planned for 2005. A decision to fund
and construct the project would be
made after all approvals are received
and project plans are finalized.

Mackenzie gas project

The project wo uld bring to market
natural gas from three previously
discov ered onshore anchor fields,
including lmperial' s who lly owned
Taglu field. Taglu covers an area of
32 km 2 and is estimated to have a
recoverable resource of about three
trillion cubic feet, with a projected
initial production rate of 400 million
cubic feet a day. This field represents
about one-half of the discovered
onshore gas that the Mackenzie
gas project would develop.

The Mackenzie gas project include s
the development of three anchor
natural gas fields (Taglu, Parsons Lake
and Niglintgak) in the Mackenzie Delta
region of the Northwest Territories, a
gas-gathering pipeline system, a gasprocessing plant and a 1,220-km
pipeline system to link northern
producing wells to southern markets .
The project is proposed by Imperial,
ConocoPhillips Canada, Shell Canada,
ExxonMobil Canada and the Aboriginal
Pipeline Group (APG). The APG was
formed in 2000 to represent the
ownership intere st of the Aboriginal
Peoples of the Northwest Territories
in the proposed Mackenzie Valley
natural gas pipeline.

The project would use conventional,
proven technology and construction
methods that minimize environmental
impact . The proposed pipeline would
run along the Mackenzie Valley from
lnuv1k, N W .T., and link with an
exist ing pipeline in northern Alberta.
A separate natural gas liquids line,
with a capacity of 24,000 barrels a
day, would run from lnuvik to Norman
Wells, N.W.T, where it would join
an existing liquids line . Based on
discussions with potential shippers,
the pipeline was proposed with an
initial design capacity of 1.2 billion
cubic feet a day and is expandable to
1.9 billion cubic feet a day with
additional compression facilities.

In October, Imperial, on behalf of
the project co-venturers, filed the
main regulatory applications and
environmental impact statement for
the proposed project with the National
Energy Board and other boards,
panels and agencies responsible for
assessing and regulating energy
development s in the Northwest
Territories. The regulatory review
process 1scurrently underway and is
expected to take up to 24 months. A
decision to proceed with the project
will be made by the co-venturers after
approvals are received and any
conditions attached to the approvals
are assessed. Construction would
then take three to four year s.

The initial cost for the project is
estimated to be about $7 billion,
which includes $3 .8 billion for the
main pipeline system. The gasgathering system, including a gasprocessing plant at lnuvik, would
cost about $1.6 billion, and the
development of the three anchor

fields is estimated to cost about
$1.6 billion. lmperial's share of the
cost, including development of the
Taglu field and the company's share
of the gas-gathering and processing
system, is estimated to be about
$3 billion.
The company is working to advance
the project in four key areas:
continuing the regulatory process,
with applications for required landand water -use licences to be filed
in early 2005
working on commercia l agreements
with potential shippers
completing benefits and access
agreements with landowners and
Aboriginal groups across whose
land the pipeline would run
continuing engineering work on the
technical aspects of the proJect.

Conventional Western Canada
Production from conventional
operations, centred in Western
Canada, accounted for 43 percent
of the company's total production
before royalties. The company
maintains a diligent focus on costs,
and in 2004 unit operating costs were
held flat. These assets, while mature,
are highly profitable and deliver
excellent returns.

In 2004, gross natural gas production
was 569 million cubic feet a day, up
11 percent from 2003. A significant
gas development drilling program
began in 2004 near Medicine Hat
in southeastern Alberta, resulting
in additional production to Imperial
of nine million cubic feet a day at
year-end. The program will continue
in 2005.
In addition, the company is selectively
producing accumulated natural gas
caps from oil reservoirs that have
been economically depleted . In 2004,
production of natural gas from these
"blowdowns" reached 220 million
cubic feet a day and is expected to
continue through 2006.

East Coast
lmperial's nine-percent interest in the
Sable offshore energy project, which
produces natural gas offshore of Nova
Scotia, contributed volumes of
37 million cub ic feet a day before
royalties. The proiect produces from
five fields, w ith the newest field,
called South Venture, coming
onstream in late 2004 to help
maintain production. In 2005 , drilling
on two additional production wells is
planned at the South Venture field,
and construction will begin on
compression facilities that will
increase production from all fields.
These facilities are expected to be
complete by 2006 and will bring
volumes to 44 million cubic feet a day.

The company also holds an interest in
exploration leases in the area offshore
of Nova Scotia in the vicinity of the
Sable proJect. In 2004, Imperial
participated in the drilling of an
exploration well on the Scotian Shelf,
which was non-commercial. During
2004, Imperial relinqui shed its
interests in nine of 13 licences.
Remaining opportunities on the
Scotian Shelf appear to be small and
high-risk, but industry activity in the
region will continue to be monitored .
In early 2004, a 25-percent interest
was acquired in the exploration rights
for eight deepwater parcel s in the
Orph an Basin region off the east
coast of Newfoundland. This is a
large, unexplored frontier basin with
favourable attributes for hydrocarbons.
A 3-D seismic program was conducted
from July to September on three of
the eight parcels, and assessment of
the data acquired will continue
through early 2005. Mor e 3-D seismic
is planned on three additional blocks
for the summer of 2005 .

Production

I 1947
Provedreservesof crudeoil andnatural gaslal

Conventi
onal
year e(1ded
2000

2001
2002
WD3

~ _i~L_
____ ___ _____ ___ _ ___

Crudeoil andNGLs

Natural gas

rn1,l1ons
of barre,s

bi!lrors c• r,Jb:c 1i?et

Cold Lake

Total
gross

net

1 205
1123
1 070

1 047

1 852

972

1 610

947

I 004
917

889

1 445
1 204

1 572
1 414
1 224
1 023

812

1 034

880

net

gross

net

9ross

233
197
175
151

Hl6

972

851
807
801
763

165

926

146

8S5

126
853
_________________________
134
702
110
783

rn•:11
0-:sof b~~re
is

Svncrude

net

gross

Synthetic
crudeoil

g1oss

net

679

fi10

914
H93
874

821
800
781

.;..;..;.
_ __;_757
c:..:__
835

la1Gross
reser,8s are the i:cmpanv's share of reserve, heforededuct;ngthe share, of m;neral owrecsor governmen
ts nr both Net reserve, excludett,ese sha1es
rbl Bt:fore ·vea
.r-,~nd
price,cost rev1s:ons

8

Annua l report 2004

12005
OnFebruary
13, 1947,in a
farmer'sfield about30 kmsouth
of Edmonton
, an exploratory
oil
well was broughtinto production
in the presenceof morethan500
invitedguests.lmperial'
s historic
discovery
of oil at Leducmarked
the beginningof Canada's
roleas
_ a majoroil producer.

Imperialremainsa leaderin liquids production,
mostnotablyat its whollyownedColdLake
bitumen-recovery
operation,shownhere, where
morethan200newwells werecompletedin 2004.
Thecompany
is advancing
projectson manyfronts
to developCanada's
vastnaturalresourcesand
meetenergyneeds
. A delineationdrillingprogram
at Kearl,about70 kmnorthof FortMcMurray,
Alberta,will helpevaluatethis high-qualityoilsandsresource.Workis progressing
onthe
Mackenzie
gasproject,andopportunities
on
Canada's
EastCoastare continuallyassessed.

 Essa service stations

Throughput company-owned and
leased service stations

average number

millions of litres per site

The majority of these sites provide an
expanded service offer to customers,
including a one-stop shopping
convenience store, car wash and
lim Hortons outlet. The network of
about 400 car-wash facilities remains
the largest in the industry In 2004,
total convenience-store sales were up
4.6 percent from 2003, and samestore sales were up 7.8 percent. For
convenience. customers can pay at
the pump with credit or debit cards,
or use the popular Speedpass Also in
2004, the company expanded the
number of sites with pump-mounted
television screens from five pilot
locations to more than 100 sites.
These provide news headlines,
wea ther information, stock reports
and in-store specials. Plans are in
place to introduce these in more
markets in 2005.

2 500
2000

1 500

1 000

500

DO

01

02

03

04

DO

01

02

03

0~

Company-ownedor leased

Averageproductiv
ity at company-

Dealer-ownedor leased

ownedandleasedservicesiations
was 5.6 milhonlitresa day in 2004.
up almosteightpercentfrom2003.

includi g ttie Dartmouth

In addition to a strong operating
performance and solid reliability,
earnings growth and operating
improvements in the downstream
businesses were achieved with a
relentless focus on three areas:

Petroleum products
Imperial continued to be the largest producer and
marketer of petroleum products in Canada, with the
leading market share position in every major market
segment it serves. Increased sales of petroleum
products during a period of strong industry margins,
coupled with sound cost management, were key
to delivering record earnings in 2004.

10

Downstream operations performed
very well in 2004, with improved
refinery reliability. Refinery utilization
in 2004 was at 93 percent, total
refinery throughput was up four
percent, and total petroleum product
sales were 87.6 million litres a day,
up three percent from 2003 . The
company's petroleum products
operations achieved record earnings
in 2004 of $500 million after tax,
up from a record year in 2003
($407 million), reflecting improved
refining margins and higher
volumes, as well as sound cost
management. Return on average
capital employed was 20 percent.
and cash flow from operating
activities and asset sales was
$901 million. of which $283 million
was reinvested in the business.
Generally st ronger economic
conditions in Canada and wor ldwide
created growing demand for
petroleum products and higher
refining margins.

Annual rep ort 200 4

providing customers with
their lowest total cost offer
having industry-leading
unit costs, benchmarked
against competitors
ensuring the efficient and
effective use of capital.

In the retail gasoline business, the
focus is on providing customers with
the products they want quickly and
conveniently The company continued
its program of upgrading its network
of service stations in major urban
markets, which has contributed to
increased site productivity. In 2004,
five new sites were built, 10 were
rebuilt and 14 were upgraded. The
company now operates a network
of 720 company-owned sites across
Canada with an average productivity
of 5.6 million litres a day, up almost
eight percent from 2003.

The Esso customer loyalty program
was enhanced in 2004 with the
introduction of Aeroplan. Customers
can now choose to collect Aeroplan
Miles or Essa Extra points. The
Esso loyalty offer is now the
most compre hensi ve program
available in Canada, offering a choice
of immediate rewa rds such as
car washes and convenience
products, or longer-term travel
rewards through Aeroplan.
Imperial is committed to having
the lowest unit costs in all its key
business segments. The retail
gasoline business achieved this
in 2002 and maintained this position
in 2004. The company's primary
distribution terminal operations

Petroleumproductsat a glance

Net income (millions
of dollars!
Cash flow fromoperatingactivities
and assetsales(millions
of dollars)
Refinerythrough
put (millionsof litresa day)
Petroleum
productsales(millions
of litresa dayl
Capital employedat December
31 (millions
of dollars)
Returnon average capital employed(percent)

Imperia l 011 Limned

2004

2003

2002

2001

2000

500

407

127

353

313

901
74.3
87.6
2 410

567
71.6
85.0
2 601
16.7

409
71.2
83.1
2 266

834
71.4
81.2
2 095
16.2

521
71.6
80.3
2 263
14.0

20.0

5.8

11

 Petroleum products
reached this goal in 1998 and have
sustained that position to date.
Refining, lubricants and specialties,
and other fuels marketing businesses
continued to improve during 2004 and
now rank well within the best quartile.
Solid plans are in place for each of
these units to reach industry-leading
cost performance in 2005.
A relentless focus on cost management
has reduced unit costs (excluding
inflation) over the past 10 years by
22 percent. This has resulted in
favourable earnings while unit margins
continually declined, decreasing
12 percent over the same period.

Capital investment in the company's
petroleum products operations
totalled about $283 million in 2004,
about a third of which was directed
to projects to further reduce sulphur
levels in diesel fuel, thereby reducing
smog-forming emissions. In 2005,
Imperial plans to inves t about
$550 million in its petroleum
products operations, which, in
addition to completing the lowsulphur diesel project, will be used
to improve the company's customer
offer and incrementally increase
refinery capacity at low capital cost.

As part of ongoing efforts to improve
capital productivity, a focus on the
efficient and effective use of wo rking
capital as well as on capital additions
continued. The number of days that
product is held in inventory was
reduced by a further four percent
in 2004. Since 1992, reductions in
working capital have released about
$1.5 billion of cash for more
productive use.

Chemicals

Efforts to reduce energy use in all
operations continued in 2004. The
company's Energy Intensity Index
(Ell), an internationally recognized
metric for energy efficiency for
petroleum refineries, improved by
four percent over 2003. During the
past 10 years, lmperial 's Ell value has
improved by 16 percent, as a result of
applying best operating practices and
targeted capital spending.

Refinery utilization
percent

The focus for many years has been on increasing the integration of the Sarnia
and Dartmouth chemicals plants within the refineries. This reduces costs and
maximizes value for both operations . The strategy has proven effective in making
lmperial 's chemicals business a leader in cost and productivity . The company
also benefits from its integration within ExxonMobil's North American chemicals
businesses, which has resulted in a leadership position in the key market
segments served.

95
90

85
80

75

I

I

I

oo

-

01

02

--~

03

04_J

j

Refmeryutilizationin 2004was

L

a record 93 percenl, up from
90 percent during the past

/,

three years.

r

_

____

____J

Polyethylene sales
volumes thousands of

I

In 2004, the business cycles for two
main products - polyethylene and
benzene - were quite favourable,
with increased demand for products
and strong margins. Chemicals
earnings after ta x were $100 million,
up 170 percent from 2003. Cash flow
from operating activities and asset
sales was $126 million, $15 million of
which was reinvested in the business.
Average return on capital employed
was almost 47 percent.

tonnes

600
500
400
300
200

Imperial remains one of Canada's
leading producers of chemical
products, with the largest market
share in domestic solvents in Canada,
the largest market share in North
America for polyethylene used in
rotational molding and the secondlargest market share in injection
molding. The company's Sarnia
chemicals plant is located within one
day's trucking of 70 percent of the
demand for polyethylene in North
America. Total sales of petrochemical
products were 3,300 tonnes a day,
unchanged from 2003.

100

00

01

02

03

04

Sales of purchased polyethylene

Salesfrom our own production

L .~------- -___ _J
Service stations

/ ld16

12

Record production levels of benzene
were also achieved in the aromatics
business, in a period of record-high
industry margins.

/ 2005
Customers
fill-up a Fordat this
1916servicestation.Demandfor
gasoline,oncea minorbyproduct
of the refiningprocess,increased
exponentially
with the growing
popularityof automobiles.The
first motoristsboughtgasolinein
cansor openbucketsfrom grocery
or hardwarestores.Imperial
openedCanada's
first service
stationin 1907in Vancouver.

- - ---~--

The polyethylene plant in Sarnia has
been expanded five times since it
began operations in 1983, with
innovative technology applied
to all stages of the operation to
increase output at a small fraction
of the cost of a new facility. Annual
capacity is now 450,000 tonnes, up
about 230 percent since 1983. In
2004, the business ran with excellent
reliability and achieved an all-time
production record in August. This
plant remains one of the most costcompetitive in the world.

----

- - - - -·- -----

----

- -- - -- - - - ---

Imperialoperatesa networkof 1,978Essaservice
stations acrossCanada.Themajorityof companyownedsites providea rangeof services to
customers,includinga one-stopshopping
convenience
store,car wash andTimHortons
outlet.Imperialhasthe largestnetworkof car
washesin the industry.TheEssaExtraloyalty
programwas enhancedin 2004to introduce
Aeroplan- customerscannow choosebetween
collectingAeroplanMiles or EssaExtrapoints

- -·

--

- --- --- -- --- ----

-

..

~

..

__________
Annual report 2004

Chemicals at a glance
-- --

- - -

Net incomei'l'i ll,ons of ooi!~r.)
Cashflo ..,from operating activities
andassetsales('Tliiiic,nsof dollars)

- - -

-

Imperial

-

- Oil Lrm1ted

- -

--

·-

· --

··-- -

- - --

2004

2003

2002

7.001

100

37

52

2:J

126

21

93

9

-- ---- --

zooo
59

·--13

 The company's method of reporting
reserves meets all regulatory
requirements, including those of
the U.S. and Canadian securities
commissions and of Canadian National
Instrument NI 51-101. Rigorous internal
reserves management processes
include disciplined and regular
technical assessments, which are
performed by qualified professionals
and are subject to management
review and endorsement, consistent
with all asset management decisions.
Notably, technical and other
professionals involved in the process
are not compensated based on the
levels of proved reserves bookings.
All requirements of the U.S. SarbanesOxley Act have been met since it was
introduced in 2002. The fact that the
company was able to do so with
minimal changes to its controls
procedures and processes testifies
to the high standard of lmperial's
governance systems. Chief among
them is the long-standing Controls
Integrity Management System

Principled people and practices
Imperial has a long tradition of sound co rporate
governance and high ethical standards, which ensure
the integrity of its businesses and operations. The
company's formula for maintaining this tradition is
simple: strong leadership, along with discipline and
commitment by employees at all levels of the
organization.

The majority of the company's board
are nonemployee directors. All board
committees are made up solely of
these independent directors. All
directors and committees have the
right to engage an outside adviser
at the company's expense, and
nonemployee directors meet regularly
in the absence of the company's
management. Full disclosure of all
corporate governance practices is
made in the proxy circular.

High-performing, principled
employees
The people Imperial employs provide
a competitive advantage. Highperforming, principled people from
diverse backgrounds are hired and
developed. At year-end 2004, the
company had 6,083 employees ,
183 of whom were hired during the
year. Every employee is involved in
a structured development process,
which includes rigorous training in
business ethics. The company's
association with ExxonMobil gives
it a considerable training advantage,
providing an opportunity for
employees to work with busines s
units around the world to gain
valuable global experience.
The company seeks to be the
employer of choice for the most
capable and highest-performing
graduates of Canadian universities
and community colleges. In 2004,
69 graduates were hired through
the company's campus recruitment
program.

Employees
For more than 30 years, the company
has had a comprehensive business
ethics policy, which applies to
directors and all employees and
guides how all business is conducted.

2004
Numberof full-timeemployees
at December
31
Totalpayrol
I andbenefits !millions of dollars)la) ____

__

6 083
....:
1c..:
2:.:
0..:.
0___

2003
6 256
__:.
1....:
1.::.
88
:..____

2002
6 460
.:...
1..:.
03
=4-'-- ____

2001
6 740
9
:..:
0:.:::
2___

2000
6 704
_ ....:
8:.;.
1..:.
4

la) Includesboth the company'spayrolland benefitscostsand i1sshareof the Syncrude joint-venturepayrolland benefitscosts.

Governance practices are fully
disclosed in the proxy circular and
meet the requirements of both the
Toronto Stock Exchange and the
American Stock Exchange. In addition,
governance practices meet the
corporate governance guidelines in
the proposed National Policy 58-201,
published by the Ontario Securities
Commission in October 2004.
Sound governance practices are
evident throughout the organization .
Imperial has a straightforward capital
structure and consistently reports
results using transparent accounting
practices It does not use specialpurpose entities, special adjustments
or pro forma reporting. Neither does
it use derivatives to speculate or
hedge on the future direction of
commodity prices, nor sell forward
future production.

14

(CIMS), which provides a structured
approach for assessing financial
control risks and procedures for
mitigating concerns, monitoring
conformance with standards and
reporting results to management.
CIMS is consistent with the internal
controls framework recommended
by the Committee of Sponsoring
Organizations of the Treadway
Commission, a voluntary privatesector organization dedicated to
improving the quality of financial
reporting.

-----<
Annual report 2004

Fromleft to right
Employees
performing
a leak-detection
assessment;
monitoring
a controlpanelat ColdLake;
workingsafelyat the Nanticoke
refinery.

Imperial

Oil L1m1ted

15

 Employee and contractor
safety leadership
total recordable incidents

Upstream flaring

per 200,000 work hours

millions of cubic feet of gas a day

00

01

02

03

04

Employees
Contractors

Caring for our communities
Founde~ ?~ principles of integrity and community
respons1b1l1~~·
Imperial has a long-standing record of good
corporate c1t1zenship.Throughout the past 125 years, the
company has. been fulfilling its primary responsibility to
supply Canadians and others with reliable, affordable
energy, as well as petroleum and petrochemical products .
These_products provide heat, light and mobility to
Canadians and are vital to the manufacture of a multitude
of items key to _daily life, from computer components and
health-care equipment to fertilizers and packaging.

The demand for energy will continue
to grow as populations and standards
of living increase. Imperial is committed
to meeting the growing demand
for energy in an environmentally,
economically and socially responsible
manner.
Nothing is more important than
operating our facilities safely and
protecting employees, contractors,
customers, the public and the
environment. The company works
to drive environmental incidents
with real impact to zero through a
process of continuous improvement,
and to have a workplace where
nobody gets hurt.
The Operations Integrity Management
System (OIMS) is the primary tool the
company uses to manage its
operations and assess and improve
its safety, health and environmental
performance. Lloyd's Register Quality
Assurance, a respected international

16
~------------------------------------------~--

authority, has attested that OIMS
meets the ISO 14001 Environmental
Management Systems Standard.
Lloyd's also stated: "We further
believe Imperial Oil to be among
the industry leaders in the extent to
which environmental management
considerations have been integrated
into its business processes for
ongoing operations and for the
planning and development of
new projects."
Safety performance continues to
be among the best in Canadian
industry; lmperial's 2004 performance
surpassed that of 2003, which had
been the best on record.
In 2004, seven environmental
incidents occurred with associated
costs of more than $65,000, up from
five in 2003. The most serious of
these involved the accidental release
of ketone into the St. Clair River from
the Sarnia refinery. A preventive
measures action plan was submitted
to the Ontario Ministry of the
Environment and has been
implemented. All operating incidents
are rigorously investigated, and
measures are instituted to prevent
similar incidents in the future.

Imp e ria l O il L1m1tcd

A
= nnual repo rt 2004

00

01

02

03

04

Imperialcontinuesto reduce
emissionsby recoveringnaturalgas
associatedwith crudeoil production
that wouldotherwisebe flaredor
ventedintothe air.

In 2004, $150 million was invested in
projects related to further improving
safety and environmental performance .
These included $90 million as part of
a $500-million investment that will
enable lmperial's refineries across
Canada to produce ultra low-sulphur
diesel fuel. This follows a $650-million
refinery investment, completed in
2003, that reduced sulphur levels in
gasoline by more than 90 percent a
year ahead of regulated requirements.
In conjunction with 2007 vehicle
engines, these initiatives will reduce
smog-causing nitrogen oxides and
particulate-matter emissions by
almost 90 percent.
Examples of other 2004
environmental initiatives include
a project at the Nanticoke, Ont.,
refinery to improve the quality of
water effluent. and another at the
Norman Wells operations to install an
improved liquid-waste handling facility.
Each year since 1993, Environment
Canada has collected information from
industries on releases of substances
for its National Pollutant Release
Inventory (NPRI). lmperial's releases
of NPRI substances decreased in
2003 (the most recent year for which

information is available) by more than
seven percent over 2002, reflecting
the company's focus on continuous
improvement in all areas of its
operations.
The company tracks and works to
reduce the greenhouse-gas intensity
of its operations by improving energy
efficiency, reducing flaring and
investing in cogeneration facilities.
In 2003 (the most recent year for
which information is available),
greenhouse-gas emissions from
operations were 0.5 percent lower than
in 2002, despite increased volumes of
crude oil production and petroleumproduct sales.

Engaging communities
Imperial places great value on its
relationships with Canadian
communities. From working with
Pollution Probe to help develop future
environmental managers to working
with Aboriginal groups to share ideas
about protecting the land, these
relationships take many forms. But
the goal remains the same - to work
with communities today to build a
better tomorrow.
The company meets regularly with
community leaders, governmental and
non-governmental organizations and
others interested in lmperial's
operations, including local residents,
businesses and schools. For example,
in developing the Mackenzie gas
project, the company is working
with Aboriginal communities in the
Northwest Territories to understand
and address the concerns of
residents. More than 1,000 meetings
with community members have been
held to date throughout the
Mackenzie Valley. Community input
has enabled the project team to better
understand the traditional knowledge
of the Aboriginal peoples and has also
resulted in changes to the proposed
pipeline route.

17

 Imperialand the community
Supporting the evolving needs
of Canadian communities
In 2004, more than $104 million
was contributed to help Canadian
communities meet important needs.
Focusing on areas across Canada
where it has a presence, the company
gives the majority of its contributions
through the Imperial Oil Foundation.
In 2004, the foundation contributed
more than $6 million to about 415
organizations, with the largest portion
being directed toward programs that
support youth and education. For
example, the company is providing:

$500,000 over five years to the
University of Manitoba to support
the development of the Imperial Oil
Academy for the Learning of Math,
Science and Technology

Imperial contributes significantly to
research at Canadian universities. In
2004, through its University Research
Awards program, the company
awarded 30 grants totalling $650,000
to 15 universities to fund research
into areas of interest to Imperial,
including engineering, chemical,
physical, computing, social and
environmental science. This program
has been maintained continuously for
more than 50 years
Also in 2004, the company announced
that 1t would contribute $10 million
over five years to the University of
Alberta to fund the Imperial Oil Centre
for Oil Sands Innovation. The centre
will be dedicated to finding more
efficient, economically viable and
environmentally
responsible ways to
develop Canada's vast oil-sands
resources.

Community investment

$3 779000

$472 000

$278000

•

Community
services..
Education

•

Arts andculture
Hockey

Other
*includescontributions
tocommumty
investmentprograms
at Syncrudeand Sable

20
32
36
37
57

$250,000 over five years to the
St. Joseph Health Centre in Toronto
to build a children's health centre

$125,000 over five years to
Halifax's St. Mary's University
to fund Cosmic Rays in the
Classroom, a program aimed at
piquing elementary school
students ' interest in science

$140,000 over four years to the
Nature Conservancy of Canada in
Quebec to support the educational
component of its St. Lawrence
River conservation project.

In addition,

Imperial contributed

$200,000 over five years to Petroleum
Research Atlantic Canada for research
and technology development in this
region.

60

61
62

More information on lmperial's
corporate citizenship activities can
be found in the corporate citizenship
section of the company's Web site,
www.imperialoil.ca.
lmperial's 2003
corporate citizenship report, A partner
in the Canadian community, is also
available on-line.

Management's
discussionand analysis
Frequentlyusedfinancialterms
Managementand auditors'reports
Financialstatements,accountingpoliciesa
Naturalresourcessegment- supplemental

t.

ShareownershiR
:~
g~ performance
Quarterlyf1nanc1al
and stock-trad111g
data

....

•

t

Directors,seniormanagementand officers

Fromleft to right
TheUniversityof Albertain Edmonton,to which the companyannouncedit would donate
$10 million overfive yearsto fund the ImperialOil Centrefor Oil SandsInnovation;
an Imperialemployeefrom NormanWells, NW.T.,answersquestionson the Mackenziegas
projectduringa call-in show on local radio;the NatureConservancy
of Canadawill receive
$140.000overfour yearsfrom Imperialto supporteducationon its St LawrenceRiver
conservationproject
18

A nn ual rep o rt 2004

Impe rial O il l.11Tuted

19

 f

I

Financialsummary(underu.s.GAAP)

II
2004

millionsof dollars

I

Revenue
s

I

22 460

2002
17042

2001
17253

2000
18051

1 042
127
52
(7)

941
353
23
(94)

1165
313
59
(129)

1 214

1 223

1 408

Net incomeby segment
Naturalresources
Petroleumproducts
Chemicals
Corporate
andother

1 487
500
100

Net income

2 052

1143
407
37
118
1 705

Totalassets

14027

12337

12003

10888

11266

Long-termdebt
Total debt
Otherlong-termobligations

367
1 443
1 525

859
1 432
1 314

1 466
1 538
1 822

1 029
1 489
1 303

1 037
1 412
1 110

Capitalemployed

7 821

7 029

6 498

5 784

5 662

Cashflow fromoperatingactivitiesandassetsales

3 414

2 283

1 749

2 050

2 363

5.75
5.74
0.88

4.58
4.58
0.87

3.20
3.20
0.84

3.11
3.11
0.83

3.37
3.37
0.78

I!

I

2003
19208

Per-share
information(dollars)
Net incomepershare- basic
Net incomepershare- diluted
Dividends

(35)

completedto ensurerelevantlessonsare learnedand improvements
are incorporated
into futureprojects.Imperialviewsreturnon
capitalemployedas the bestmeasureof historicalcapitalproductivity.

Businessenvironmentand outlook
Natural resources

Imperialproducescrudeoil andnaturalgasfor sale into largeNorthAmericanmarkets.Economic
andpopulationgrowthare
expectedto remainthe primarydriversof energydemand.Thecompanyexpectsthe globaleconomyto growat an averagerate of
aboutthreepercentperyearthrough2030.Worldenergydemandshouldgrow by abouttwo percentperyear,andoil andgasare
expectedto accountfor about60 percentof world energysupplyby 2030.Overthe sameperiod,the Canadianeconomyis expected
to growat an averagerateof two percentperyear,andCanadian
demandfor energyat a rateof aboutonepercentperyear.Oil and
gasareexpectedto continueto supply two-thirdsof Canadianenergydemand.It is expectedthat Canadawill alsobe a growing
supplierof energyto U.S.marketsthroughthis period.
Oil productsarethe transportation
fuel of choicefor the world'sfleet of cars,trucks,trains,shipsandairplanes.Primarilybecause
of increaseddemandin developingcountries,oil productionwill increaseby 50 percentor nearly30 millionbarrelsperdayoverthe
nextthreedecades.Canada's
oil sandsrepresentan importantadditionalsourceof supply.
Naturalgasis expectedto be the fastest-growingprimaryenergysourceglobally,capturingaboutone-thirdof all incremental
energygrowthandapproaching
one-quarterof globalenergysupplies.Naturalgasproductionfrommatureestablishedregionsin
the UnitedStatesandCanadais not expectedto meetincreasingdemand,strengthening
the marketopportunitiesfor new gas
supplyfrom Canada's
frontierareas.

I

Management'sdiscussionand analysisof financial conditionand resultsof operations

Crudeoil andnaturalgaspricesare determinedby globaland NorthAmericanmarketsandare subjectto changingsupplyand
demandconditions.Thesecanbe influencedby a wide rangeof factorsincludingeconomicconditions,internationalpolitical
developments
andweather.In the past,crudeoil andnaturalgaspriceshavebeenvolatile.andthe companyexpectsthat volatility
to continue.

II

I

Overview

111

Thefollowingdiscussionand analysis of lmperial's financialresults, as well as the accompanying financial statements and related
notesto consolidated financialstatements to whichthey refer,are the responsibility of the management
of ImperialOil Limited.
Beginningin 2004,the companyreportedits financialresultsbasedon generally acceptedaccountingprinciples(GAAP)in the
United States.ThedifferencesbetweenU.S.and CanadianGAAPare small for Imperialand an explanatio
n of them as they apply
to the company,
includinga tabularreconciliationof net incomereportedunderU.S.GAAPandunderCanadianGAAP.is included
as a note to the financial statements on page46. Supplementalfinancialinformation basedon CanadianGAAPpertaining to
management'sdiscussionandanalysis of lmperial's financialresults is also provided,on page34.

Imperialhasa largeanddiverseportfolioof oil andgasresourcesin Canada,bothdevelopedandundeveloped,
whichhelpsreduce
the risksof dependence
on potentiallylimitedsupplysourcesin the upstream.With the relativematurityof conventional
production
in the establishedproducingareasof WesternCanada,lmperial'sproductionis expectedto comeincreasingly
fromfrontierand
unconventional
sources,particularlyoil sandsandnaturalgasfromthe FarNorth,whereImperialhaslargeundeveloped
resource
opportunities.
Petroleumproducts
Thedownstreamcontinuesto experienceongoingvolatilityin industrymargins.Refiningmarginsarethe differencebetweenwhat
a refinerypaysfor its raw materials(primarilycrudeoil) andthe wholesalemarketpricesfor the rangeof productsproduced
(primarilygasoline.dieselfuel, heatingoil, jet fuel andfuel oil). Crudeoil andmanyproductsarewidelytradedwith published
internationalprices.Pricesfor thosecommodities
are determinedby the marketplace,
oftenan internationalmarketplace,
and
are affectedby manyfactors,includingglobalandregionalsupply/demand
balances,inventorylevels,refineryoperations,
import/exportbalances,seasonalityandweather.Canadian
wholesalepricesin particularare largelydeterminedby wholesale
pricesin adjacentU.S regions.Thesepricesandfactorsare continuallymonitoredandprovideinputto operatingdecisionsabout
whichraw materialsto buy,facilitiesto operateandproductsto make.However,thereare no reliableindicatorsof futuremarket
factorsthat accuratelypredictchangesin marginsfrom periodto period.

The company's
accounting and financial reporting fairly reflect its straightforwardbusinessmodelinvolvingthe extracting, refining
andmarketingof hydrocarbons
andhydrocarbon
-basedproducts.Thecompany's
business involvesthe production(or purcha
se).
manufacture
andsaleof physicalproducts,andall commercial activities are directlyin supportof the underlyingphysical
movement of goods.

r

Thisstraightforwardapproachextends to the financingof the business.In evaluatingbusinessor investmentopportunities,the
companyviewsas economically
equivalent anydebtobligation. whether includedon the faceof the consolidated balance sheet or
disclosedas otherdebt-likeobligationsin the notesto the financialstatements.Thecompanydoesnot usefinancialstructuresfor
the purposeof removing debtfromthe balancesheet.Nor doesit usederivativemarketsto speculate on the futuredirectionof
currencyor commodityprices or sell forwardanypart of productionfrom anybusines
s segment.This consistent, conservative
approachto financial management
hashelpedImperialto sustainits highcreditquality.

lmperial'sdownstreamstrategiesare to providecustomerswith qualityserviceat the lowesttotal costoffer,havethe lowestunit
costsamongour competitors,ensureefficientandeffectiveuseof capitalandcapitalizeon integrationwith the company's
other
businesses.
Imperialownsandoperatesfour refineriesin Canada,with distillationcapacityof 502,000barrelsa dayand lubricant
manufacturing
capacityof 9,000barrelsa day.lmperial'sfuelsmarketingbusinessincludesretail operationsacrossCanadaserving
customersthroughabout2,000Essa-branded
servicestations,of whichabout720are company-owned
or leased,andwholesale
and industrialoperationsthrougha networkof 30 distributionterminals.

With its extensiveresourcebasein Canada, financialstrength, disciplinedinvestment approachandtechnologyportfolio.Imperial
is well positionedto participatein substantialinvestments to developnew energysupplies.While commoditypricesremainvolatile
on a short-termbasisdependinguponsupply anddemand, lmperial's investment decisionsare basedon long-termoutlooks,usinga
disciplinedapproachin selectingandpursuingthe mostattractiveinvestmentopportunities.
Thecorporateplanis a fundamental
annualmanagement
processthat is the basisfor settingnear-termoperatingandcapitalobjectivesin additionto providingthe
longer-termeconomicassumpt
ionsusedfor investmentevaluationpurposes.
Annualplan volumesare basedon individualfield
productionprofilesthat are updatedannually.Pricesfor naturalgasandotherproductsusedfor investmentevaluation purposesare
basedon corporateplanassumptions
that are developedannually.Potentialinvestmentopportunitiesare testedovera wide range
of economicscenariosto establishthe resiliencyof eachopportunity.Onceinvestments
are made,a reappraisalprocessis

I

Chemicals
Althoughthe currentbusinessenvironment
is favourable,the NorthAmericanpetrochemical
industryis cyclical.Thecompany's
strategyfor its chemicalsbusinessis to reducecostsandmaximize
valueby continuingto increasethe integrationof its chemicals
plantsat SarniaandDartmouth
with the refineries.Thecompanyalsobenefitsfromits integrationwithin ExxonMobil's
North
Americanchemicalsbusinesses,
enablingImperialto maintaina leadershippositionin its keymarketsegments.

----·-

[~ _o
__

Annual report 2004

·---

--·--

--

1'11por1alOi l Lim ited

21

 Management'sdiscussionand analysis of financial condition and results of operations (continued)

Results of operations

U.S.-dollarworld oil priceswere considerably
higherin 2004than in the previousyear.Theannualaveragepriceof Brentcrudeoil.
the mostactivelytradedNorthSeacrudeanda commonbenchmark
of world oil markets.was $38(U.S)a barrelin 2004,a more
than30-percentincreaseoverthe averagepriceof $29 in 2003(2002- $25)

Nel incomein 2004was $2,0o2millionor $574 a share- the bestyearon record- comparedwith $1.705millionor $4.58a share
in 2003(2002- $1,214millionor $3.20a share)Higherrealizationsfor crudeoil, strongerindustryrefiningandpetrochemical
margins.andhighervolumesof Syncrude
production,naturalgasandpetroleumproductscontributedpositivelyto net income,partly
offset by lowermarketingmargins.Compared
with 2003,thesefavourableoperatingresultswere partlyoffset by the combined
negativeeffectsof a higherCanadiandollaron resourceandproductpricesof about$260million.the absenceof favourable
foreign-exchange
effectson the company's
US-dollar-denominated
debtof about$110million,and lowerbenefitsfromtax matters
of about$100million.

However,increasesin the company's
Canadian-dollar
realizationsfor conventional
crudeoil andColdLakebitumenwere dampened
by the effectsof a higherCanadiandollar.Averagerealizationsfor conventional
crudeoil duringthe yearwere $48.96(Cdn)a
barrel,an increaseof 22 percentfrom$40.10in 2003(2002- $36.81).
Averagepricesfor Canadian
heavycrudeoil were higherin 2004,but by lessthanthe relativeincreasein light crudeoil prices,as
increasedsupplyof heavycrudeoil widenedthe averagespreadbetweenlight andheavycrude.Thepriceof BowRiver.
a benchmark
Canadianheavycrudeoil, increasedby 15 percentin 2004,muchlessthanthe increasein pricesfor Canadianlight
crudeoil. ColdLakebitumenrealizationsin U.S dollarsaveraged19 percenthigherin 2004than in 2003.Averagerealizationsfor
ColdLakebitumenwereonlyabout10 percenthigherthanthe previousyear,reflectingthe effectof the higherCanadian
dollar.

Totalrevenueswere $22.5billion.up about17 percentfrom2003.
Thereturnon averagecapitalemployedwas 28 percent.comparedwith 25 percentin 2003(2002- 20 percent).

Pricesfor Canadiannaturalgasin 2004were essentiallyunchanged
fromthe previousyear.Theaverageof 30-dayspotpricesfor
naturalgasat the AECOhubin Albertawas about$6.80a thousandcubicfeet in 2004,compared
with $670 in 2003(2002- $4.10).

Natural resources
Net incomefrom naturalresourceswas a record$1.487million.up from$1,143millionin 2003(2002- $1,042million) Thepositive
earningseffectsof improvedrealizationsfor crudeoil andnaturalgas.combinedwith higherSyncrude,
naturalgasand naturalgas
liquids(NGLs)volumes,were partlyoffset by lowerColdLakebitumenproduction,lowerbenefitsfromtax mattersandthe negative
effectsof a higherCanadian
dollar.

Thecompany's
averagerealizations
on naturalgassaleswere$678 a thousandcubicfeet.compared
with $6.60in 2003(2002- $4.02)

Average realizations and prices
2004
48.96
33.78
6.78
53.26
37.98

Canadian
dollars

Resource
revenueswere$6.6billion,up from$5.6 billion in 2003(2002- $4.9billion) Themainreasonsfor the increasewere
higherpricesfor crudeoil and increasednaturalgasandSyncrudevolumes.

2003

2002

2001

2000

40.10
32.09
6.60
43.93
33.00

36.81
23.38
4.02
40.44
31.85

35.56
29.31
5.72
39.64
25.11

41.52
29.57
4.99
45.02
34.49

Returnon averagecapitalemployedwas 39 percentfor the naturalresourcessegment.comparedwith 33 percentin 2003(200236 percent).reflectinghighernet income.

Conventional
crudeoil realizationsla barrel)
Naturalgas liquidsrealizationsla barrel)
Naturalgasrealizationsla thousand
cubicfeet)
Parcrudeoil priceat Edmonton
la barroll
Heavycrudeoil priceat Hardisty!BowRiver.a barrel)

Financial statistics

Grossproductionof crudeoil andNGLsincreasedto 262,000barrelsa dayfrom256,000barrelsin 2003(2002- 247,000)

millionsof dollars

2004
1 487
6 625
2 364
3 839
39.3

Net income
Revenues
Cashflow from operatingactivitiesandassetsales
Capitalemployedat December31
Returnon averagecapitalemployed!percent)

2003

2002

2001

2000

1 143
5 648
1 668
3 725
32.8

1 042
4 894
1 258
3 252
35.8

941
5 321
1 226
2 573
39.7

1 165
5 900
1 911
2 162
49 9

Grossbitumenproductionat the company's
whollyownedfacilitiesat ColdLakedecreased
to 126,000barrelsa dayfrom 129,000
barrelsin 2003(2002- 112.000).
dueto the cyclicnatureof productionat ColdLake
Production
fromthe Syncrude
operation,in whichthe companyhasa 25-percentinterest.increasedduring2004as a result
of reducedturnaroundactivities. Grossproductionot upgradedcrudeoil increasedto a record238,000barrelsa dayfrom211,000
barrelsin 2003(2002- 229,000)lmperial'sshareof averagegrossproductionincreasedto 60,000barrelsa dayfrom 53,000barrels
in 2003(2002- 57,000)
Grossproductionof conventional
oil decreased
to 43,000barrelsa dayfrom46,000barrelsin
2003(2002- 51.000)as a resultof the natural
declinein WesternCanadianreservoirs.

Factors affecting lmpenal's 2004 net income
milltor>s
of

do llars

175

260
560

(370)

Highervo
lumes •
Higherproduct
margins

1 705
Higr.er resource
realizations

18

(

0)

-

HigherCanadian
dollar Higher
volumerelatedcosts,

(98)

Grossproductionof NGLsavailablefor sale
averaged33.000barrelsa dayin 2004,up from
28,000barrelsin 2003(2002- 27,000).

2052

Lowertax

Grossproductionof naturalgasincreasedto
569millioncubicfeet a dayfrom 513millionin
2003(2002- 530million).Highernaturalgas
and NGLvolumeswere mainlya resultof the
full-yearproductionof naturalgasfromthe
WizardLakegascapin Alberta.whichbeganin
the third quarterof 2003.

and
energy
prices benefits
other
andother
expenses

Natural gas average prices
Crude oil prices

dollars a thousand
cubic feet -

U.S. dollars a barrel- quanerlv avorago

AECO hub 30-day

12

50
45

10

40
35

•

30

25

-

.,,,.

20
15
10

5

00

01

02

03

Brent crude

-

2003

spot

04

OU

01

02

03

04

Prices for Canad1r1n
n;itur al gas 1112004wure
r.ssentmlly unchanycll trom llm JJll!vmusyear.

Ca11ad1an
heavy 01i!OowRiver)

2004

j
i

Annualreport

20~41
j

1--

l__

1~1
1n.:_r1ol 0 11l 11n1ted

23

 Management's
discussionandanalysisof financialconditionandresultsof operations(continued)
Crudeoil and NGLs- productionand salesla)
tl1ous~nd
sof barrels
a day
Conventional
crudeoil
ColdLake
Syncrude
Totalcrudeoil production
NGLsavailable
for sale
Totalcrudeoil andNGLproduction
ColdLakesales,including
diluentlb)
NGLsales

2004
gross net
43
33
126 112
60
59
229 204
33
26
262 230
167
42

2003

2002

2001

Marginswere strongerin the refiningsegmentof the industryin 2004comparedwith
thosein 2003.as internationalwholesaleproductpricesincreasedmorethan raw
materialcosts.However.the effects of higherinternationalmarginswere reduced
partiallyby a higherCanadiandollar.Retailmarginsin the fuels marketingareawere
lower in 2004,reflectingthe impactof highlycompetitivemarkets.

2000

gross

net

gross

net

gross

net

gross

net

46
129
53
228
28
256
170
39

35
116
52
203
22
225

51
112
57
220
27
247
145
40

39
106
57
202
21
223

55
128
56
239
28
267
167
43

42
121
52
215
22
237

60
119
51
230
30
260
156
42

46
102
42
190
23
213

Average refining margins
Cmrndian cants n litre

Operatingperformanceof the company'sfour refinerieswas solid.Throughputat the
refinerieshas increased,with refinerycapacityutilizationaveraginga record93 percent
in 2004,comparedwith 90 percentin 2003(2002- 90 percent).
Thecompany'stotal salesvolumes.includingthoseresultingfrom reciprocalsupply
agreementswith othercompanies,were 87.6million litres a day,comparedwith
85 mi!lion litres in 2003(2002- 83.1million) Excludingsalesresultingfrom reciprocal
agreements,saleswere 73.4million litres a day,comparedwith 70.4million litres in
2003(2002- 69.2million).

Naturalgas - productionand saleslal
millions
ofcubicfeeta day

2004
2003
2002
2001
2000
gross net gross net gross net gross net gross net
Production
le)
569 518
513 457
530 463
572 466
526 459
Sales
520
460
499
502
419
(alDailyvolumes
arecalculated
bydividing
totalvolu
mesfortheyearbythenumber
ofdaysintheyear.
Gross
prod
uctionisthecompany's
share
of production
!excluding
purchases)
before
deducting
theshares
of mineral
owners
orgovernments
orboth.Netproduction
excludes
those
shares
.
lb) Includes
natural
gascondensate
added
totheColdLakebitumen
to facilitate
transportation
to market
bypipeline.
le)Production
of natural
gasincludes
amounts
usedforinternal
consumption
withtheexception
ofamounts
reinjected
.

00

Operatingcosts increasedby abouttwo percentin 2004from the previousyear,mainly
becauseof higherenergy,environmentaland depreciationcosts.
Chemicals
Net incomefrom chemicalsoperationswas $100million in 2004,comparedwith
$37million in 2003(2002- $52million) Strongindustrypolyethyleneand benzene
marginswere the mainfactorscontributingto the improvement.

Operatingcosts increasedby sevenpercentin 2004.Themainfactor was higherdepreciationand depletionexpensesin line with
higherproductionvolumes.
Petroleumproducts
Net incomefrom petroleumproductswas a record$500million or 1.6centsa litre in 2004,up from $407million or 1.3centsa litre
in 2003(2002- $127million or 04 centsa litre). Improvedearningswere mainlydue to strongerinternationalrefiningmargins,
partly offset by lower fuels marketingmarginsand the negativeimpactof a higherCanadiandollar.Salesvolumesof petroleum
productswere higher.due in part to higherindustrydemand.

Financialstatistics
millions
ofdollars
Netincome
Revenues
Cashflowfromoperating
activitiesandassetsales
Capitalemployed
at December
31
Returnonaverage
capitalemployed
{percent)

Revenueswere $19.2billion, up from $16.1billion in 2003(2002- $14.4billion)

2004
100
1 509
126
205
46.8

01

02

03

04

New YorkHarborproductpricesminus
Brentcrude: reflectslmperial's
productmix.

l__

,

2003

2002

2001

2000

37
1 232
22
222
19.9

52
1 164
93
150
30.8

23
1 175
9
188
14.1

1 173
(6)
138
54.1

2002
2.5
1.0
3.5

2001
2.4
0.9

59

Returnonaveragecapitalemployed
was20percentforthepetroleum
products
segment.
compared
with 17percentin 2003(2002- sixpercent)
Financialstatistics
millionsofdollars
Netincome
Revenues
Cashflowfromoperating
activitiesandassetsales
Capitalemployed
at December
31
Returnonaverage
capitalemployed
!percent)
Sales of petroleumproducts
millions
of litresadayla)
Gasolines
Heating,
dieselandjet fuels
Heavyfueloils
Lubeoilsandotherproducts
Netpetroleum
products
sales
Salesunderpurchase
andsaleagreements
Totalsalesof petroleum
products
Totaldomestic
salesof petroleum
products
!percent)

I!

I
I

L--

2004
500
19 211
901
2 410
20.0

2003
407
16058
567
2 601
16.7

2002
127
14434
409
2 266
5.8

2001
353
14405
834
2 095
16.2

2000
313
15 120
521
2 263
14.0

2004
33.2
27.3
5.9
7.0
73.4
14.2
87.6
93.0

2003

2002
32.9
25.0
4.9
6.4
69.2
13.9
83.1
91.5

2001
32.3
26.5
5.4
5.4
69.6
11.6

2000
32.0
27.5
5.1
5.0
69.6
10.7

812
93.4

80.3
94.0

2002
71.2
79.4
90

2001
71.4
79.1
90

2000
71.6
78.7
91

33.0
26.2
5.4
5.8
70.4
14.6
85.0
93.3

Refineryutilization
million~
of litresadayla)
2004
2003
Totalrefinerythroughput
lb)
74.3
71.6
Refinery
capacity
at December
31
79.9
79.9
Utilization
of totalrefinerycapacity
!percent)
93
90
la)Volume
s adayarecalculated
bydividingtotalvolume
s fortheyearbythenumber
ofdaysintheyear
lb)Crude
oilandfeedstocks
sentdirectly
toatmospheric
distillation
units.
Onetl1ousanrl
,itres1sapproximmely
6.3barrels.

Annua
l report

Salesvolumes
2004
2003
thousands
oftonnes
a day!al
2.7
Polymers
andbasicchemicals
2.4
0.6
Intermediates
andother
0.9
3.3
Totalchemicals
3.3
la)Volume
s a day arecalculated
bydividing
totalvolumes
fortheyearbythenumber
ofdaysintheyear

3.3

2000
2.2
0.9
3.1

Onetonneisapproximately
1.1 short
tonsor0.98longtons
.
Totairevenuesfrom chemicaloperationswere $1,509million.comparedwith $1.232million in 2003(2002- $1.164million).Higher
pricesfor polyethylene,intermediatechemicalsand aromaticswere the contributingfactors.
Returnon averagecapitalemployedwas 47 percentfor the chemicalssegment,comparedwith 20 percentin 2003(2002- 31 percent)
The averageindustrypriceof polyethylenewas $1.584a tonnein 2004,up 12 percentfrom $1.415a tonne in 2003(2002- $1,229).
Marginswere higheras demandfor polyethyleneproductsgrew
Salesof chemicalswere 3,300tonnesa day,unchangedfrom 2003(2002- 3,500tonnes).while polyethyleneand benzenesales
were up three percentand 32 percentrespectivelyover2003.
Operatingcostsin the chemicalssegmentfor 2004were aboutthe sameas 2003.Higherenergycostswere offset by lower
depreciationexpense.A significantportionof the property,plant and equipmentcurrentlyusedin productionand manufacturing
has beenfully depreciated.

20o
j

Imp eri al Oil L,m ,ted

25

 l
Management'sdiscussionand analysis of financial condition and results of operations (continued)
Forthe naturalresourcessegment.about90 percentof the capitalandexplorationexpenditures
in 2004was focusedon growth
opportunities.
Thesinglelargestinvestmentduringthe yearwas the company's
shareof the Syncrude
expansionConstruction
on
the upgraderexpansionmadegoodprogresssincethe first quarterof 2004,whencostestimateswere substantiallyincreasedand
the constructionschedulewas extended.At year-end.the projectwas trackingto the revisedcostandconstructionschedule
. The
remainderof 2004investmentwas directedto advancingthe Mackenziegasprojectanddrillingat ColdLakeandin conventional
fields in EasternandWesternCanada.

Corporateand other
Net incomefrom corporateandotheraccountswas negative$35million in 2004,comparedwith positive$118millionin 2003
effects
(2002- negative$7 million) Lowernet incomein 2004was mainlydueto the absenceof the favourableforeign-exchange
on the company's
U S.-dollar-denominated
debt.whichwas replacedwith Canadian-dollar-denominated
debt in JuneandJuly of
2003. Net incomefor 2004also includeda non-recurring
after-taxwritedownof $42millionon a northTorontoproperty.whichwas
acquiredin 1991to be the company's
futureTorontoheadquarters
site. Theremeasurement
at fair valueof this propertyreflecteda
changein its intendeduseandmanagement's
commitmentto sell followingthe announcement
of the relocationof the company's
headquarters
to Calgary.

Forthe Mackenziegasproject.in October2004,the mainregulatoryapplicationsandenvironmental
impactstatementwerefiled
with the NationalEnergyBoardandotherboards.panelsandagenciesresponsible
for assessingandregulatingenergy
developments
in the NorthwestTerritories.Theregulatoryreviewprocessis expectedto takeup to 24 months.A decisionto
proceedwith the projectwill be madeby the co-venturers
of the projectafter approvalsare receivedandanyconditionsattached
to the approvalsare assessed.

Liquidityand capital resources
Sourcesand usesof cash
millionsof dollars
Cashprovidedby/(usedin)
Operatingactivities
Investingactivities
Financingactivities
'-le:..._
n.c..:
ts_ ________________
lncrease/(decrease)
in cashandcashequiva

Plannedcapitalandexplorationexpenditures
in naturalresourcesare expectedto be about$1 billion in 2005,with nearly
90 percentof the total focusedon growthopportunities.Muchof the expenditurewill be directedto the expansionnow underway
gils rrnject ilnrl furthP.r
at SyncrudeInvestments
arealso plannedfor the ongoingdevelopment
drillingat ColnI ilkt'l.thP.Milr.kP.miR
development
drillingin WesternCanada.Plannedexpenditures
for explorationanddevelopment
drilling,as well as capacity
additionsin conventional
oil andgasoperations,are expectedto be about$355million.

-==

_ ________

Thefollowingtable showsthe company's
capitalexpenditures
in the petroleumproductssegmentduringthe five yearsending
December
31, 2004:

Cashandcashequivalentsat endof year

Althoughthe companyissueslong-termdebtfromtime to time. internallygeneratedfundscoverthe majorityof its financial
requirements.
Themanagement
of cashthat maybe temporarilyavailableas surplusto the company's
immediateneedsis carefully
controlled,bothto ensurethat it is secureandreadilyavailableto meetthe company's
cashrequirements
as theyariseandto
optimizereturnson cashbalances.

millionsof dollars
Marketing
Refiningandsupply
Otherla)
Totalcapitalexpenditures

Cashflows from operatingactivitiesare highlydependenton crudeoil andnaturalgaspricesandproductmargins.In addition,the
companywill needto continuallyfind anddevelopnew resources.
andcontinueto developandapplynewtechnologies
and
recoveryprocesses
to existingfields.in orderto maintainor increaseproductionandresultingcashflows in futureperiods.Projects
are in placeor underwayto increaseproductioncapacity.However.thesevolumeincreasesare subjectto a varietyof risks
includingprojectexecution,operationaloutages.reservoirperformance
and regulatorychanges.

millionsof dollars

Totalcapitalandexplorationexpenditures

2001

819

39
143
804

49
109
588

1 113

1 007

986

746

--

~
!

26

Annu al report 200,t

589

339

232

2004
15

2003
41

2002

2001

2000

25

30

13

Totalcapitalandexplorationexpenditures
for the companyin 2005,whichwill focusmainlyon growthandproductivity
improvements,
are expectedto total about$1.6billionandwill be financedfrom internallygeneratedfunds.
Cashflow fromfinancingactivities
In June,the companyrenewedthe normalcourseissuerbid (share-repurchase
program)for another12 months.During2004,the
companypurchased
about14 millionsharesfor $872million(2003- 16 millionsharesfor $799million).SinceImperialinitiatedits
about40 percentof the total
first share-repurchase
programin 1995,the companyhaspurchased
233millionshares- representing
of $6.8billion.
outstandingat the start of the program- with resultingdistributionsto shareholders

2000
-56
110
268
434

478

Plannedcapitalexpenditures
for chemicalsin 2005will be about$20million.

Thefollowingtableshowsthe company's
capitalandexploration
expenditures
for naturalresources
duringthe fiveyearsending
December
31,2004:
2002

121
100
11

Of the capitalexpenditures
for chemicalsin 2004,the majorinvestmentfocusedon improvingenergyefficiency,yieldsandprocess
controltechnology.

Thefundswere usedmainlyto investin growthopportunitiesin the oil sandsandthe Mackenziegasproject.to upgraderefineries
to meetlow-sulphurdieselrequirements
andto enhancethe company's
retail network.About$150millionwas spenton proJects
relatedto reducingthe environmental
impactof its operationsand improvingsafety,includingabout$90millionon the $500-million
capitalprojectto producelow-sulphurdiesel.

57
181
769

2000

171
118
50

Thefollowingtable showsthe company's
capitalexpenditures
for its chemicalsoperationsduringthe five yearsending
December
31, 2004:

Capitaland explorationexpenditures
Totalcapitalandexploration
expenditures
were$1.445millionin 2004,downslightlyfrom$1,559millionin 2003(2002- $1,612million)

2003

2001

133
399
57

Capitalexpenditures
for the petroleumproductssegmentin 2005are expectedto be about$550million.Majoritemsinclude
additionalinvestmentin refiningfacilitiesto reducethe sulphurcontentin dieselto meetregulatoryrequirements
andcontinued
enhancements
to the company's
retail network.

Capitalexpenditures

Exploration
Production
Heavyoil

20
283

2002

91
369
18

Forthe petroleumproductssegment,capitalexpenditures
rlecreased
to $283millionin 2004.compared
with $478millionin 2003
(2002- $589million).primarilybecauseof the completionof the projectto significantlyreducesulphurcontentin gasoline,which
beganin 2001.New investmentsin 2004includedabout$90millionspenton the initial phasesof a three-yearprojectto reduce
sulphurcontentin diesel.In addition.$24millionwas spenton otherrefineryprojectsto improveenergyefficiencyandincrease
yield.Major investments
werealsomadeto upgradethe networkof Essaservicestationsduringthe year.

Cashflow from operatingactivities
Cashprovidedby operatingactivitieswas $3.312million,up from$2,227millionin 2003(2002- $1,688million) Theincreased
cashinflowwas mainlydueto highernet income,timingof scheduledincome-taxpaymentsandthe additionalfunding
contributionsto the employeepensionplanin 2003.

2004
60
234

178

2003

.
JalConsists
primarily
of realestatepurchases

Thecompany's
financialstrengthenablesit to makelarge,long-termcapitalexpenditures.
lmperial'slargeanddiverseportfolioof
development
opportunitiesandthe complementary
natureof its businesssegmentshelpmitigatethe overallrisksof the company
andassociatedcashflow. Further,dueto its financialstrength,debtcapacityanddiverseportfolioof opportunities,
the risk
associatedwith failureor delayof anysingleprojectwouldnot havea significantimpacton the company's
liquidityor abilityto
generatesufficientcashflows for operationsand its fixed commitments.

millionsof dollars

2004
85

I

I

J
I

!

l_.

!mµenal O tl L1m1tea

 ----------

---

--

-

-- ---

- -

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-

II
Management'sdiscussionand analysis of financial condition and results of operations (continued)
Thecompanydeclareddividendstotalling88 centsa sharein 2004,up from87 centsin 2003(2002- 84 cents) Regularper-share
dividendspaidhaveincreased
in eachof the past10yearsand,since1986,paymentspersharehavegrownby morethan65 percent.

Thecompanywas contingentlyliableat December
31, 2004,for a maximumof $175millionrelatingto guarantees
for purchasing
operatingequipmentandotherassetsfrom its ruralmarketingassociatesuponexpiryof the associateagreementor the deathor
resignationof the associate.Thecompanyexpectsthat the fair valueof the operatingequipmentandotherassetsso purchased
wouldcoverthe maximumpotentialamountof futurepaymentsunderthe guarantees.

Totaldebtoutstandingat the endof 2004,excludingthe company's
shareof equitycompanydebt.was $1.443million,compared
capitalstructureat
with $1.432millionat the endof 2003(2002- $1,538million).Debtrepresented19 percentof the company's
the endof 2004,comparedwith 21 percentat the endof 2003(2002- 24 percent).

Variouslawsuitsare pendingagainstImperialOil Limitedandits subsidiaries.Basedon a consideration
of all relevantfactsand
circumstances,
the companydoesnot believethe ultimateoutcomeof anycurrentlypendinglawsuitsagainstthe companywill
havea material,adverseeffect uponthe company's
operationsor financialcondition.Thereare no eventsor uncertaintiesknown
to management
beyondthosealreadyincludedin reportedfinancialinformationthat would indicatea materialchangein future
operatingresultsor financialcondition.

Debt-relatedinterestincurredin 2004,beforecapitalizationof interest.was $37million,downfrom$38millionin 2003(2002$40million).Theaverageeffectiveinterestrate on the company's
debtwas 2.8 percentin 2004,comparedwith 2.9 percentin 2003
(2002- 2.1 percent)

·1

OnMay 6, 2004,the companyfiled a final short-formshelf prospectusin Canadain connectionwith the issuanceof medium-term
notesoverthe 25-monthperiodthat the shelf prospectusremainsvalid.Theunsecured
noteswill be issuedfromtime to time at
the discretionof the companyin an aggregateamountnot to exceed$1 billion.Thecompanyhasnot issuedanynotesunderthis
shelf prospectus.

II

RecentlyissuedStatementof FinancialAccountingStandards
In December
2004,the FinancialAccountingStandardsBoard(FASB)issueda revisedStatementof FinancialAccounting
StandardsNo. 123(SFAS123R),Share-based
PaymentsSFAS123Rrequirescompensation
costsrelatedto share-based
payment
arrangements
to employees
to be recognized
in the incomestatementoverthe periodthat an employeeprovidesservicein
exchangefor the award.Theamountof the compensation
costwill be measuredbasedon the grant-datefair valueof the
instrumentsissued.In addition,liabilityawardswill be remeasured
eachreportingperiodthroughsettlement.SFAS123Ris
effectiveas of July 1, 2005,for all awardsgrantedor modifiedafter that dateandfor thoseawardsgrantedpriorto that datefor
whichthe requisiteemployeeservicehasnot yet beenrendered.SFAS123Rwiil haveno impacton the companybecausein 2003
the companyadopteda policyof expensingall share-based
paymentsthat is consistentwith the provisionsof SFAS123Randthe
requisiteemployeeservicefor all prioryearoutstandingstockoptionshasbeenrendered.

Financialpercentages,ratiosand credit rating
2003
21

2002
24

2001

19

26

2000
25

83
108

64
80

46
63

26
36

23
29

2004
Total debt as a percentage of capital (al
Interest coverage ratios
Earningsbasis (bl
Cash-flow basis (cl

!
I

Long-term unsecureddebt rating
Local currency (DBRSI S&P)(di

ANAAA

AA/AAA

AA/AAA

AA/AAA

AA/AAA

(a) Currentandlong-termportionsof debt (page39).dividedby debtandshareholders'
equity(page39).
(bl Net income(page37).debt-relatedinterestbeforecapitalization
(page56.note 15)andincometaxes(page37)dividedby debt-relatedinterestbeforecapitalization.
(cl Casl1flow from net incomeadjustedfor the cumulativeeffect of accountingchangeandothernon-cashitems(page38).currentincometax expenselpage47.
note4) anddebt-relatedinterestbeforecapitalizationlpage56, note 15)dividedby debt-relatedinterestbeforecapitalization.
(S&PIare debt-ratingagencies.
(di DominionBondRatingService(OBAS)
andStandard& Poor'sCorporation

II
II
II

Emergingaccountingandreportingissues
Accountingfor purchasesand sales of inventorywith the samecounterparty
At its November2004meeting,the EmergingIssuesTaskForce(EITF)
of FASBbegandiscussionof Issue04-13,"Accountingfor
Purchases
andSalesof Inventorywith the SameCounterparty.''
ThisIssueaddresses
the questionof whenit is appropriateto
measurepurchases
andsalesof inventoryat fair valueandrecordthem in costof salesandrevenuesandwhentheyshouldbe
recordedas an exchangemeasuredat the bookvalueof the item sold.TheEITFdid not reacha consensus
on this issue,but
requestedthe FASBstaff to furtherexplorethe alternativeviews.

Thecompany's
financialstrength,as evidencedby the abovefinancialratios,representsa competitiveadvantageof strateg:c
importance.
Thecompany's
soundfinancialpositiongivesit the opportunityto accessthe world'scapitalmarketsin the futl range
of marketconditionsandenablesthe companyto take on large,long-termcapitalcommitments
in the pursuitof maximizing
value.
shareholder

Thecompanyrecordscertainpurchases
andsalesenteredinto contemporaneously
with the samecounterparty
as costof salesand
revenues.measuredat fair valueas agreeduponby a wiiling buyeranda willing seller.Thesetransactionsoccurundercontractual
arrangements
that establishthe agreementtermseitherjointly,in a singlecontract.or separately,in individualcontracts.Should
the EITFreacha consensus
on this issuerequiringthesetransactionsto be recordedas exchanges
measuredat bookvalue,the
reportedamountsin "operatingrevenues"and"purchasesof crudeoil andproducts"on the consolidated
statementof income
wouldbe lowerby equalamountswith no impacton net income.Thecompanyhasnot yet determinedthe amountby which
"operatingrevenues"and"purchasesof crudeoii andproducts"wouldbe lowerunderthis interpretation.
A specialeffort is
neededto identifypurchase/sale
transactionsfrom othermonetarypurchases
andmonetarysales.A besteffort estimatebasedon
this undertakingis expectedto be availablein the secondquarterof 2005.Thecompanywill disclosethis information,if material,
onceit is available.

Contractualobligations
Tomorefully explainlmperial'sfinancialposition,the followingtable showsthe company's
contractualob!igationsoutstandingat
December
31, 2004. It bringstogether.for easierreference,datafromthe consolidated
balancesheetandfromindividualnotesto
the consolidated
financialstatements.

millionsof dollars
Long-term debt and capital leases
lmperial's share of equity companydebt
Operating leases
Unconditional purchase obligations (al
Firm capital commitments lb)
Pensionobligations (cl
Asset retirement obligations (di
Other long-term agreementsle)

I
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II
11

i

........

Note 3
Note 12
Note 12
Note 12
Note 7
Note 8
Note 12

Paymentdue by period

-

2005
995
56
62
102
119
371
36
241

2006to
2009
334

2010and
beyond

33

-

-

181
168
52
91
116
378

91
55
-

297
176
198

Total
amount

1 362
56
334
325
171
759
328
817

Criticalaccountingpolicies
Thecompany's
financialstatementshavebeenpreparedin accordance
with UnitedStatesgenerallyacceptedaccountingprinciples
(GAAP)and includeestimatesthat reflectmanagement's
bestjudgments.Thecompany's
accountingandfinancialreportingfairly
reflectits straightforwardbusinessmodel.Imperialdoesnot usefinancingstructuresfor the purposeof alteringaccounting
outcomesor removingdebtfromthe balancesheet.Thefollowingsummaryprovidesfurtherinformationaboutthe critical
accountingpoliciesandthe estimatesthat are madeby the companyto applythosepolicies.It shouldbe readin conjunctionwith
pages41 to 43.

la) Unconditional
purchaseobligationsmainlypertainto pipelinethroughputagreements.
$171 millionat the endof 2004.compared
(bl Firmcapitalcommitments
relatedto capitalprojects.shownon an undiscounted
basis.totalledapproximately
shareof upstreamcapitalprojects
with $189millionat year-end2003.Thelargestcommitmentoutstandingat year-end2004was associatedwith the company's
of $112millionat Syncrude
andoffshoreCanada'sEastCoast.
(cl Theamountby whichaccimulatedbenefitobligations(ABO)exceededthe fair valueof fund assetsat year-end(page48. note 7). Forfundedpensionplans,
this differencewas $446millionat December
31. 2004.Forunfundedplans,this was the ABOamountof $313 million.Thepaymentsby periodincludeexpected
contributionsto fundedpensionplansin 2005 andestimatedbenefitpaymentsfor unfundedplansin all years.
(di Assetretirementobligationsrepresentthe discountedpresentvalueof legalobligationsassociatedwith site restorationon the retirementof assetswith
determinableusefullives.
(e) Otherlong-termagreementsincludeprimarilyraw materialsupplyandtransportationservicesagreements.

i

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Financial
statement
note reference

28

'" ""'''"'°"'"'

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1- - ---1

Imperial 011 L1m1ted

29

 Management'sdiscussionand analysis of financial condition and results of operations (continued)
that are subjectto somevariabilityThisvariabilityhasgenerallyresultedin net upwardrevisionsof provedreservesin existing
fields,as moreinformationbecomesavailablethroughresearchandproduction.Revisions
haveaveraged16 millionoil-equivalent
barrelsperyearoverthe last five yearsandhaveresultedfromeffectivereservoirmanagement
andthe applicationof new
technology.
While the upwardrevisionsthe companyhasmadeoverthe last five yearsare an indicatorof variability,theyhavehad
little impactonthe unit-of-production
ratesof depreciation
becausetheyhavebeensmallcompared
to the largeprovedreservesbase.

Hydrocarbon
reserves
Provedoil, gasandsyntheticcrudeoil reservequantitiesare usedas the basisof calculatingunit-of-production
ratesfor
Provedoil anugi:lsreservesarethe estimatedquantitiesof crudeoil, naturalgasand
depreciationandevaluatingfor impain11e11t.
naturalgas liquidsthat geologicalandengineeringdatademonstrate
with reasonable
certaintyto be recoverable
in futureyears
from knownreservoirsanddepositsunderexistingeconomicandoperatingconditions.Estimatesof syntheticcrudeoil reservesare
basedon detailedgeologicalandengineeringassessments
of in-placecrudebitumenvolume,the miningplan,historicalextraction
recoveryandupgradingyieldfactors.installedplantoperatingcapacityandoperatingapprovallimits.

Impactof reservesandpriceson testingfor impairment
Provedoil andgaspropertiesheldand usedby the companyare reviewedfor impairmentwhenevereventsor circumstances
indicatethat the carryingamountsmaynot be recoverable.
Assetsare groupedat the lowestlevelfor whichthereare identifiable
cashflows that are largelyindependent
of the cashflows of othergroupsof assets.

Theestimationof provedreservesis controlledby the companythroughlong-standing
approvalguidelines.Reservechangesare
madewith a well-established.
disciplinedprocessdrivenby senior-levelgeoscience
andengineeringprofessionals
(assistedby
a centralreservesgroupwith significantindependent
technicalexperience).
culminatingin reviewswith andapprovalby senior
management
andthe company's
boardof directors.Keyfeaturesof the estimationincluderigorouspeer-reviewed
technical
evaluationsandanalysisof well andfield performance
information,anda requirement
that management
makea commitment
towardthe development
of the reservespriorto bookingNotably,technicalandotherprofessionals
involvedin the processare
not compensated
basedon the levelsof provedreservesbookings.

Thecompany
estimatesthe futureundiscounted
cashflowsof the affectedproperties
to judgethe recoverabifity
of carryingamounts.
in general,impairment
analyses
arebasedon provedreserves.
Whereprobablereserves
exist.an appropriately
risk-adjusted
amount
of thesereserves
maybe includedin the impairment
evaluation.
An assetwouldbe impairedif the undiscounted
cashflowswere
lessthanits carryingvalue.Impairments
aremeasured
bythe amountbywhichthe asset'scarryingvalueexceedsits fair value.
Theimpairment
evaluationtriggersincludea significantdecreasein currentandprojectedpricesor reservevolumes,an accumulation
of projectcostssignificantlyin excessof the amountoriginallyexpected,andhistoricalandcurrentnegativeoperatinglosses.

Althoughthe companyis reasonably
certainthat provedreserveswill be produced,the timingandultimaterecoverycanbe
affectedby a numberof factors,includingcompletionof development
projects.reservoirperformance
andsignificantchangesin
long-termoil andgaspricelevels.

In general,the companydoesnot view temporarilylow oil pricesas a triggeringeventfor conductingimpairmenttests.
Themarketsfor crudeoil andnaturalgashavea historyof significantpricevolatility. Althoughpriceswill occasionally
drop
precipitously,
the relativegrowth/declinein supplyversusdemandwill determineindustrypricesoverthe longtermandthese
cannotbe accuratelypredictedAccordingly,
anyimpairmentteststhat the companyperformsmakeuseof the company's
long-term
Thesearethe samepriceassumptions
priceassumptions
for crudeoil andnaturalgasmarkets,petroleumproductsandchemicals.
that are usedin the company's
annualplanningandbudgetingprocesses
andarealsousedfor capitalinvestmentdecisions.

In compliance
with the UnitedStatesSecuritiesandExchange
Commission
regulatoryguidance.the companyhasreported2004
reserveson the basisof the dayof December
31, 2004.pricesandcosts("year-endprices").Resultantchangesin ColdLake
bitumenandthe associatednaturalgasreservesfromthe year-end2003estimates,whichwere basedon long-termprojectionsof
oil andgaspricesconsistentwith thoseusedin the company's
investmentdecision-making
process,are shownin the line titled
"Year-endprice/costrevisions"on page59.Therequirement
to useyear-endpricesfor reservesestimationintroducessingle-day
pricefocusandvolatilityin the valuationof reservesto be producedoverthe next20 to 30 years.Thecompanybelievesthat this
approachis inconsistentwith the long-termnatureof the naturalresourcesbusiness.Theuseof pricesfroma singledate is not
relevantto the investmentdecisionsmadeby the company,
andannualvariationsin reservesbasedon suchyear-endpricesare not
of consequence
in howthe businessis managed.

Thestandardized
measureof discountedfuturecashflows on page58 is basedon the year-end2004priceappliedfor all future
years.as requiredunderStatementof FinancialAccountingStandardsNo_69 (SFAS69).Futurepricesusedfor any impairment
testswill varyfromthe oneusedin the SFAS69 disclosureandcouldbe loweror higherfor anygivenyear.

Theimpactof year-endpriceson reservesestimationis mostclearlyshownat ColdLake,whereprovedbitumenandassociated
31. 2004,prices,
naturalgasreserveswere reducedby about485millionoil-equivalentbarrelsas a resultof usingDecember
whichwere unusuallylow.Pricesof ColdLakebitumenwere strongfor mostof 2004,however,theybeganto deterioratein the
middleof the fourthquarterandendedon December
31. 2004,70 percentbelowthe year'saverage.Pricesquicklyrebounded
from
December
31, andthroughJanuary2005returnedto levelsthat haverestoredthe reservesto the provedcategory.

Retirementbenefits
Thecompany's
pensionpian is managedin compliance
with the requirements
of governmental
authoritiesandmeetsfundinglevels
as determinedby independent
third-partyactuaries.Pensionaccountingrequiresexplicitassumptions
regarding,amongothers,the
discountrate for the benefitobligations,the expectedrate of returnon planassetsandthe long-termrateof futurecompensation
are reviewedannuallyby seniormanagement.
Theseassumptions
are adjustedonlyas
increases.A!! pensionassumptions
appropriateto reflectlong-termchangesin marketratesandoutlook.Thelong-termexpectedrate of returnon planassetsof
8.25percentusedin 2004comparesto actualreturnsof 10.7percentand 10.1percentachievedoverthe last 10-and20-year
periodsendingDecember
31, 2004.If differentassumptions
are used,the expenseandobligationscouldincreaseor decreaseas
a result.Thecompany's
potentialexposureto changesin assumptions
is summarized
in note7 to the consolidated
financial
statementson page51.At Imperial.differencesbetweenactualreturnson planassetsversuslong-termexpectedreturnsare not
recordedin the yearthe differencesoccur,but ratherare amortizedin pensionexpenseas permittedby GAAP,
alongwith other
actuarialgainsand lossesoverthe expectedremainingservicelife of employees.
Thecompanyusesthe fair valueof the plan
assetsat year-endto determinethe amountof the actualgainor lossthat will be amortizedanddoesnot usea movingaverage
valueof planassets.Pensionexpenserepresented
aboutonepercentof total expensesin 2004.

Performance-related
revisionscan includeupwardor downwardchangesin previouslyestimatedvolumesof provedreservesfor
existingfieldsdueto the evaluationor revaluationof (1)alreadyavailablegeologic,reservoiror productiondata,or (2)new
geologicor reservoirdata.Performance-related
revisionscanalso includechangesassociatedwith the performance
of improved
recoveryprojectsandsignificantchangesin eitherdevelopment
strategyor productionequipment/facility
capacity.
Thecompanyusesthe successful-efforts
methodto accountfor its explorationandproductionactivities.Underthis method,costs
are accumulated
on a field-by-fieldbasiswith certainexploratoryexpenditures
andexploratorydry holesbeingexpensedas
incurred.Thecompanycontinuesto carryas an assetthe costof drillingexploratorywells that find sufficientquantitiesof reserves
to justify their completionas producingwells if the requiredcapitalexpenditureis madeanddrillingof additionalexploratorywells
is underwayor firmly plannedfor the nearfuture.Onceexplorationactivitiesdemonstrate
that sufficientquantitiesof commercially
produciblereserveshavebeendiscovered,
continuedcapitalizationis dependenton projectreviews,whichtake placeat least
annually,to ensurethat satisfactoryprogresstowardultimatedevelopment
of the reservesis beingachieved.Exploratory
well
costsnot meetingthesecriteriaare chargedto expense.Capitalized
exploratorydrillingcostspendingthe determination
of proved
reservesor the amountof suspended
exploratorywell costswere negligible,$2 millionand$13millionat December
31, 2004,2003
and2002respectivelyCostsof productivewells anddevelopment
dry holesare capitalizedandamortizedon the unit-of-production
methodfor eachfield. Thecompanyusesthis accountingpolicyinsteadof the full-costmethodbecauseit providesa moretimely
accountingof the successor failureof the company's
explorationandproductionactivities.

~
1_ 30 _

I
II
II
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Impactof reserveson depreciation
Thecalculationof unit-of-production
depreciationis a criticalaccountingestimatethat measuresthe depreciationof natural
resourcesassets.It is the ratio of (1)actualvolumesproducedto (2)total proveddevelopedreserves(thosereservesrecoverable
throughexistingwells with existingequipmentandoperatingmethods)appliedto (3)the assetcost Thevolumesproducedand
assetcostare knownand,while proveddevelopedreserveshavea highprobabilityof recoverability,
theyare basedon estimates

Annual report 7.00~

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Assetretirementobligationsand otherenvironmentalliabilities
Legalobligationsassociatedwith site restorationon the retirementof assetswith determinable
usefullivesare recognized
when
theyare incurred,which is typicallyat the time the assetsare installed.Theobligationsare initiallymeasuredat fair valueand
discountedto presentvalue.Overtime, the discountedassetretirementobligationamountwill be accretedfor the changein its
presentvalue,with this effect includedin operatingexpense.As paymentsto settlethe obligationsoccuron an ongoingbasisand
will continueoverthe livesof the operatingassets.whichcanexceed25 years.the discountratewill be adjustedonlyas
appropriateto reflectlong-termchangesin marketratesandoutlook.For2004,the obligationswere discountedat six percentand
the accretionexpensewas $22million,whichwas significantlylessthanonepercentof total expensesin the year.Therewouldbe
no materialimpacton the company's
reportedfinancialresultsif a differentdiscountrate hadbeenused.

Assetretirementobligationsare not recognized
for assetswith an indeterminate
usefullife. Fortheseandnon-operating
assets.
the companyaccruesprovisionsfor environmental
liabilitieswhenit is probablethat obligationshavebeenincurredandthe
amountcanbe reasonably
estimated.

~-- -

i

--------------------------------

lmper,al Oil L1m1ted

I

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31 ..

j

 Management's discussion and analysis of financial condition and results of operations (continued)
Assetretirementobligationsandother environmentalliabilities are basedon engineeringestimatedcosts,takinginto accountthe
anticipatedmethodandextentof remediationconsistentwith legal requirements,
currenttechnologyandthe possibleuseof the
location.Sincetheseestimatesare specificto the locationsinvolved,there are manyindividualassumptionsunderlyingthe
company'stotal assetretirementobligationsand provisiontor otherenvironmentalliabilities While theseindividualassumptions
can be subjectto change,noneof them is individuallysignificantto the company'sreportedfinancialresults.

millions
ofdollars
Totalcompany
sources
: debtandequityperspective
Short-term
debtandcurrentportionof long-term
debt
Long-term
debt
Shareholders'
equity
Add· lmperial's
shareof eguitycompany
debt
Totalcapitalemployed

Market risksand otheruncertainties

2004

2003

2002

1 076
367
6 322
56

573
859
5 545
52
7 029

72
1 46G
4 911
49
6 498

7 821

Returnon averagecapital employed(ROCE)
ROCEis a financialperformanceratio. Foreachof the company'sbusinesssegments.ROCEis annualbusiness-segment
net income
dividedby averagebusiness-segment
capitalemployed(an averageof the beginning-andend-of-yearamounts).Segmentnet
incomeincludeslmperial'sshareof segmentnet incomeof equitycompanies,consistentwith the definitionusedfor capital
employed,and excludesthe cost of financing Thecompany'stotal ROCE1snet incomeexcludingthe after-taxcost of financing
dividedby total averagecapitalemployed.Thecompanyhasconsistentlyappliedits ROCEdefinitionfor manyyearsandviews it
as the bestmeasureof historicalcapitalproductivityin a capital-intensive,long-termindustryto both evaluatemanagement's
performanceanddemonstrateto shareholders
that capitalhasbeenusedwisely overthe longterm.

Thecompanyis exposedto a varietyof financial, operatingandmarketrisksin the courseof its business
. Someof theserisksare
within the company'scontrol,while othersare not. Forthoserisksthat can be controlled,specificrisk-management
strategiesare
employedto reducethe likelihoodof loss Otherrisks, suchas changesin internationalcommoditypricesandcurrency-exchange
rates.are beyondthe company'scontrol.
Althoughthe governmentof Canadain ratifyingthe KyotoProtocolagreedto restrictionsof greenhouse-gas
emissionsby the
period2008-2012,it hasnot determinedwhat measuresit will imposeon companies.Consequently,
attemptsto assessimpacton
Imperialcanonly be speculativeThecompanywill continueto monitorthe developmentof legal requirementsin this area.

millions
ofdollars
Netincome
Financing
costslattertax),including
lmperial's
shareof equitycompanies
excluding
financing
costs
Netincome

Thecompany'ssize,strongfinancialpositionand the complementary
natureof its naturalresources,petroleumproductsand
chemicalssegmentshelpmitigatethe company'sexposureto changesin theseother risks.Thecompany'spotentialexposureto
thesetypesof risk is summarizedin the table below
Thecompanydoesnot usederivativemarketsto speculateon the future directionof currencyor commoditypricesanddoesnot sell
forwardany part of productionfrom any businesssegment.

Average
capitalemployed
Returnonaverage
capitalemployed
!percent)

2004

2003

2 052

I 705

3
2 055

3
1 708

2002
1 214
15
1 229

7 425
27.7

6 764
25.3

6 141
20.0

Thefollowingtableshowstheestimated
annualeffect,undercurrentconditions,
of certainsensitivities
of thecompany's
after-taxnetincome
.
Operatingcosts
Operatingcostsare the combinedtotal of production,manufacturing,
selling,general,exploration,depreciationanddepletion
expensesfrom the consolidatedstatementof incomeand lmperial'sshareof similarcostsfor equitycompaniesOperatingcostsare
the costsincurredduringthe periodto produce.manufactureand otherwisepreparethe company'sproductstor sale- including
energycosts,staffing,maintenance,
andothercoststo explorefor and produceoil andgasand operaterefiningandchemical
plants.Deliverycoststo customersand marketingexpensesare also included.Operatingcostsexcludethe cost of raw materials
andthosecostsincurredin bringinginventoryto its existingconditionandfinal storagepriorto deliveryto a customer
. These
expensesare on a before-taxbasis.While lmperial'smanagementis responsiblefor all revenueandexpenseelementsof net
income.operatingcosts,as definedbelow,representthe expensesmostdirectlyundermanagement's
control.

Earningssensitivities(al
millions
ofdollars
after tax
·-- -- --- ------------ -.-··· ·- Fourdollars(U.S
.) a barrelchange
in crudeoil prices
+ 1-)
$ 200
Sixtycentsa thousand
cubicfeetchangein naturalgasprices
+ (-)
$ 20
Onecenta litrechangein salesmargins
for totalpetroleum
products
+H
$ 170
in salesmargins
for polyethylene
+ (-)
$ 7
Onecent(USI a poundchange
+ 1-1
$ 2
One-quarte
r percent
decrease
(increase)
in short-term
interestrates
_Ei~tcentsdecrease
(increasll)J~
thevalueof theCanadian
c:..:::.:
do
:.:.:
11
.:.:
arcv..;
:.:::
e:..:
rs.:.:
us
:.:.:
tc:.:.
he
::...:::.
U:.:::
S:...:
. d:..:
oc.:.
lla
:..:
r__ _ ___
_ ___
_ +
.:...,_
(-1
_ _ $_.16_0
(.i) Th
e amount
quot
edtoillustrate
theimpact
ofeachsensitivityrepresents
achange
ofabout10 percent
111thevalue
ofthecommodity
or rateinquesti
onatthe
enrlof2004.Each
sensitivity
calculat1011
sho
wstheimpact
onne1i11come
thatresults
froma change
inonefactor.
aftertaxanrlroyalties
and holding
allolher
fac!Ors
constant.
Whrle
these
sensi
tivities areapplicable
under
current
conditions,
they maynotapply
proportro
nately
tolarger
fluctuations.

millions
ofdollar
s
Expenses
lfrompage
371
Exploration
Production
andmanufacturing
Sellingandgeneral
Depreciation
anddepletion
Subtotal
lmperial's
shareof equity company
expenses
Totaloperating
costs

Thesensitivityof net incometo changesin the Canadiandollarversusthe U.S.dollardecreasedfromyear-end2003by about
$10 million(after tax)a yearfor eachone-centchange.Thisis primarilydue to the unusuallylow year-endpricesfor ColdLake
bitumen,which is sold in U.S.dollars.

Frequentlyusedfinancialterms
Listedbeloware definitionsof four of lmperial'sfrequentlyusedfinancialperformancemeasures.Thedefinitionsare providedto
facilitate understanding
of the termsand how they are calculated.

·

j

,
I

I
'---

'llillions
ofdollars
- - - - -·····--Bus1r1ess
us
-e-s:-a-ss
_e_ta-n-d-lia
- bilityperspective
Totalassets
Less
: totalcurrentliabilitiesexcluding
sl1ort-term
debtand
currentportionof long-termdebt
cesstotallong-term
liabilitiesexcluding
long-term
debt
Add. lmperial's
shareof eQu_l!y
_c,Qmp
_ _ _ --- -----------3 nydebt __
~T_o'-ta
~l~ca
~p_it_al...;;
e'-mLp...c
lo~ye
...;;
d_
-_ -_ -_- _- _--

L3_~-----

- --

--

--

- --

-------...;;

2_00'-4__

2003

59
2 883
1 218
908

12 337

12003

(3 582)
(2 680)
__:5:..:
6__

(2817)
(2543)
52

12671J
12883)
49

2002

55

30
2 320
1 222
708
- -· ·
4 280
49
4 329

Z 782

1 269
755
4 861
56
4 917

5 068
52
5120

2002

14 027

2003

-

-

Cashflow from operatingactivitiesand assetsales
Cashflow from operatingactivitiesandassetsalesis the sumof the net cashprovidedby operatingactivitiesand proceedsfrom
assetsalesreportedin the consolidatedstatementof cashflows. Thiscashflow is the total sourceof cashbothfrom operatingthe
company'sassetsand fromthe divestingof assets.Thecompanyemploysa long-standing,
disciplinedregularreviewprocessto
ensurethat all assetsare contributingto the company'sstrategicandfinancialobjectives.Assetsare divestedwhenthey no longer
meettheseobjectivesor areworth considerablymoreto others. Becauseof the regularnatureof this activity,management
believes
it is usefulfor investorsto considersalesproceedstogetherwith cashprovidedby operatingactivitieswhen evaluatingcash
availablefor investmentin the businessandfinancingactivities,includingshareholderdistributions.

Capitalemployed
Capitalemployedis a measureof net investment.Whenviewedfrom the perspectiveof how capitalis usedby the business,it
includesthe company'sproperty,plant andequipmentandotherassets,less liabilities,excludingbothshort-termand long-term
debt.Whenviewedfrom the perspectiveof the sourcesof capitalemployedfor the whole company,it includestotal debt and
shareholders
' equity.Bothof theseviews includethe company'sshareof amountsapplicableto equitycompanies.

I

2004

millions
ofdollar
s
Cashfromoperating
activities
Proceeds
fromassetsales
____
Totalcashflowfromoperating
activitiesandassetsales

2004
3 312

___________

._...:.
10_2__

3 414

_

2003

2002

2 227

1 688

56
2 283

61
1 749
I

1

---

----

-~ 7~8~21
'-----

-'- 7~0
2
~:_
:...._.~
~~ -----__:6=4
=9.=8----- --

~ - I

____ j

- ~-~~~l~-op_o,~~ o~_ _j

]

Imperial Oil Limn ed

L . _ ____ _

----

] 3

J

 r,

.-

I'
I

II

Management'sdiscussionand analysis of financial condition and results of operations (continued)

Supplementalinformationbasedon generallyacceptedaccountingprinciples(GAAP)in Canada

Petroleumproducts
Returnon averagecapitalemployedwas 18 percentfor the petroleumproductssegment,compared
with 16 percentin 2003
(2002- six percent)

I he company's
financialsummaryandmanagement's
discussionandanalysis,underCanadianGAAP,
are not materiallydifferentfrom
thosereportedunderU.S GAAPas shownon pages20 to 33, exceptfor the following:

Financialstatistics
Financialsummary

j
I

millionsof dollars

2004

2003

2002

2001

2000

Netincome
bysegment:
Naturalresources
Petroleum
products
Chemicals
Corporate
andother
Netincome

1 487
500
100
(54)
2 033

1 139
407
37
99
1 682

1 056
127
52
(11)
1 224

957
353
23
(78)
1 255

1 177
313
59
(139)
1 410

13 992

12 361

11 894

Otherlong-term
obligations

1 010

972

1 207

1 098

1104

Capitalemployed

8137

7262

6 803

5 841

5 635

Cashflowfromoperating
activities
andassetsales

3 380

2 250

1 737

2 050

2 363

5.70
5.69

4.52
4.52

3.23
3.23

3.19
3.19

3.38
3.38

millions of dollars

2004

Capital
employed
at December
31
Return
onaveragecapitalemployed
!percent)
-------

2 660
18.4

2003
2 784
15.5

2002
2 484
5.5

2001
-------

2 148
15.9

-------

2000
2 280
13.9

Chemicals
Returnon averagecapitalemployed
was41 percentfor thechemicals
segment,compared
with 18percentin 2003(2002- 28 percent)
Financialstatistics

Totalassets

Per-share
information
(dollars)
Netincome
pershare- basic
Netincome
pershare- diluted

10 781

millionsof doll::.c
ar"s --------------

11 244

Capital
employed
at December
31
Return
onaverage
capitalemployed
(µe1ce11t
..c.
l _______

11

2003
246
.:..:
17
..:.:
.~:__
- ___

2002
178
......::.
27
:..:.
.9
=-------'-

2001
195
1.::c
3.c7...
___

2000
140
_.: 5:.=.
3.4

Corporateand other
Net incomefromcorporateandotheraccountswas negative$54millionin 2004,compared
with positive$99millionin 2003(2002negative$11million).Lowernet incomein 2004was mainlydueto the absenceof the favourableforeign-exchange
effectson the
company
's U.S.-dollar-denominated
debt,whichwas replacedwith Canadian-dollar-denominated
debtin JuneandJuly of 2003.
Net incomefor 2004alsoincludeda non-recurring
after-tax writedownof $42millionon a northTorontoproperty,whichwas
acquiredin 1991to be the company's
futureTorontoheadquarters
site.Theremeasurement
at fair valueof this propertyreflecteda
changein intendeduseof the propertyandmanagement's
commitmentto sell followingthe announcement
of the relocationof the
company's
headquarters
to Calgary

Resultsof operations
Net incomein 2004was $2,033millionor $5.69a share- the bestyearon record- comparedwith $1,682millionor $4.52a share
in 2003(2002- $1,224millionor $3.23a share).Higherrealizationsfor crudeoil, strongerindustryrefiningandpetrochemical
margins,andhighervolumesof Syncrudeproduction,naturalgasandpetroleumproductscontributedpositivelyto net income,
partlyoffset by lowermarketingmarginsCompared
with 2003, thesefavourableoperatingresultswere partlyoffset by the
combinednegativeeffectsof a higherCanadiandollaron resourceandproductpricesof about$260million,the absenceof
favourableforeign-exchange
effectson the company's
U.S.-dollar-denominated
debtof about$110millionand lowerbenefits
from tax mattersof about$100million.

II

2004
242
4:..:.
1:..:.
.0____

Capitaland explorationexpenditures
Totalcapitalandexploration
expenditures
were$1,411millionin 2004,downslightlyfrom$1,526millionin 2003(2002- $1,600million)

I

Thereturnon averagecapital employedwas 26 percent,comparedwith 24 percentin 2003(2002- 20 percent).
Naturalresources
Net incomefrom naturalresources
was $1,487million,up from$1,139millionin 2003(2002- $1,056million).Thepositive
earningseffectsof improvedrealizationsfor crudeoil andnaturalgas,combinedwith higherSyncrude,
naturalgasandnaturalgas
liquids(NGLs)volumes,were partlyoffset by lowerColdLake bitumenproduction,lowerbenefitsfromtax mattersandthe negative
effectsof a higherCanadian
dollar.

Returnon averagecapitalemployedwas 39 percentfor the naturalresourcessegment,comparedwith 32 percentin 2003(200236 percent),reflectinghighernet income.
Financialstatistics

,-·
I
:i1

_,

--

millions of dollars

2004

Netincome
Capitalemployed
at December
31
Return
onaverage
capitalemployed
!percent)

1 487
3 920
38.6

2003
1 139
3 784
32.0

2002
1 056
3 325
35.8

2001
957
2 580
40.5

·-·--

I

2000
1 177
2 142
51.0·
·----

__

._
A11nual report 200,1

(._ lmpern.il 011 L1m1terJ -------

I

35

 -- i-

·-

i
Managementreport
Theaccompanying
consolidated
financialstatementsandall
informationin this irnnualreportme the responsibilityof
management.
Thefinancialstatementshavebeenpreparedin
accordance
with accountingprinciplesgenerallyacceptedin
the UnitedStatesof AmericaandCanadaandincludecertain
estimatesthat reflectmanagement's
bestjudgmentsFinancial
informationcontainedthroughoutthis annualreportis
consistentwith the financialstatementspreparedunder
UnitedStatesgenerallyacceptedaccountingprinciples.
Supplemental
informationbasedon Canadiangenerally
acceptedaccountingprinciplesis providedon page34.
Management
hasestablishedand maintainsa systemof
internalcontrolsthat providesreasonable
assurance
that all
transactionsare accuratelyrecorded.that the financial
statementsfairly reportthe company's
operatingandfinancial
resultsandthat the company's
assetsare safeguarded.
The
company's
internalauditunit reviewsandevaluatesthe
adequacyof andcompliance
with the company's
internal
controlstandards.It is alsothe company's
policyto maintain
the higheststandardof ethicsin all its activities.
lmperial'sboardof directorshasapprovedthe information
containedin the financialstatements.Theboardfulfills its
responsibilityregardingthe financialstatementsmainly

Consolidatedstatementof income
throughits auditcommittee.which is composed
of the
nonemployee
directors.Theauditcommitteereviewsthe
company's
annualandquarterlyfinancialstatements.
accountingpractices.businessandfinancialcontrols,and
internalaudit programandits findings.It alsorecommends
the externalauditorsto be appointedby the shareholders
at
eachannualmeeting,reviewstheir auditwork planand
approvestheir fees.

millionsof Canadian
dollars
irs onuerl
__
necfrn1be
~31 _____
For_tl1.£__ye,

Revenues
Operatingrevenues(ol
~v~_stmentand other i~ome (n(l\(?
_!_
1.L
Totalrevenues- ··--- -·-

PricewaterhouseCoopers
LLP.an independent
firm of
charteredaccountants.
wasappointedby a voteof shareholders
at the company's
last annualmeetingto examinethe
consolidated
financialstatementsandprovidean independent
professionalopinion.

;I~

L- -

L_

:lu

22 408
52
22 460

59
13 094

2883
1 218

1 264
908
__
7
19 433
3 027

PA Smith

l_11come
taxes (note4) ___ ___ -- ··-_
Incomebeforecumulativeeffect
of accountingchange
Cumulativeeffect of accountingchange,
after incometax

February16,2005

Net income(note21

d~

·-- - ___

2002

.

I

UnderCanadianGAAP

2004

2003

1

_J

2002

19 094
114
19 208

16 890
22 408
19 094
152
52
114
17_0_:_
42-'--- 2-2
- .460___
2-08--

19

I

16 890
152
17- 042 -- l

-- ,

9_75__

55
10 823
2 782
1 269
1 254
755
(120)
16 818

30
9 723
2 320
1 222
1 231
708
20
15 254

59
13 094
2 883
1 218
1 264
903
41
-- - ---19 462

55
10 823
2 782
1 269
1 254
750
(87)
16 84R

30
9 723
2 297
1 222
1 231
705
32
1!i 740

2 390

1 788

2 998

2 362

1 802

680

578

_ 689__

..:_
57'-'4__

---- -

~9.::..:
65

--

- --1i

2 052

1 701

1 214

2 033

1 682

1 224

-----

4

1705

1 214

2 033

1 682

1 224

5.75

4.57

3.20

5.70

4.52

3.23

5.75

4.58

3.20

5.70

4.52

Net incomeper commonshare- diluted(note13)
Incomebeforecumulativeeffect
of accountingchange
5.74
Cumulativeeffect of accountingchange,
_ _______
alter mcometax

4.57

3.20

5.69

4.52

3.23

0_01_____________

Net incomelnoto21

5.74

4.58

3.20

5.69

4.52

3.23

0.88

0.87

0.84

0.88

0.87

0.84

Net income(r1oto
21

- - -----

-----~

0.0~1__________

-- -·- - ···-- ----

Dividends

1

_

I

1

2 052

---

1

1

Per-shareinformation!dollars)
Net incomeper commonshare- basic(note131
Incomebeforecumulativeeffect
of accountingchange
Cumulativeeffect of accountingchange,
alter incometax

In our opinion.theseconsolidated
financialstatementspresent
fairly,in all materialrespects.the financialpositionof the
companyas at December
31. 2004and2003andthe resultsof
its operationsandits cashflows for eachof the threeyearsin
the periodendedDecember
31, 2004in accordance
with
accountingprinciplesgenerallyacceptedin the UnitedStates
of AmericaandCanada
.

2003

I

Incomebeforeincometaxes

TJ. Hearn

la) Oporn\rny
revenues
incluclo
federal
excisetaxof $1.264millior1
(2003 $1,254m1ll1on.
2002- $1.231million)
I

I

- I

3131

ThernformationOil pagos 41 through56
is partof thosecol'solidatou
financial
figuresfor prior
statemen
ts. Cortair1
yearshavebeenreclassified
in the
financiulstatements to conformwith
thocurrentyear'sµresP.ntation

_

rf~ll/,
CharteredAccountants
Toronto.Ontario
February16.2005

I
------------------

_ __ _

-· ·- -.

Totalex enses

Tothe shareholders
of ImperialOil Limited

We conductedour auditsin accordance
with Canadian
generallyacceptedauditingstandards.Thosestandards
requirethat we planandperforman auditto obtainreasonable
assurance
whetherthe financialstatementsare free of
materialmisstatement.
An audit includesexamining,on a test
basis.evidencesupportingthe amountsanddisclosuresin the
financialstatements.An auditalso includesassessingthe
accountingprinciplesusedandsignificantestimatesmadeby
management.
as well as evaluatingthe overallfinancial
statementpresentation.

2004

I

Expenses
Exploration
Purchasesof crudeoil and products
Productionand manufacturing
Sellingand general
Federalexcisetax la)
Depreciationand depletion
Financingcosts(note_15)_____ ___ _ _ ___ __

Auditors'report

We haveauditedthe consolidated
balancesheetsof Imperial
Oil Limitedas at December
31. 2004and2003andthe
consolidated
statementsof income.cashflows and
shareholders'
equityfor eachof the threeyearsin the period
endedDecember
31. 2004.Thesefinancialstatementsarethe
responsibilityof the company's
management.
Ourresponsibility
is to expressan opinionon thesefinancialstatementsbased
on our audits.

UnderUnitedStatesGAAP
_

I

-- .:=-~~u~ -1-re-po
_r_
"'"'

~

I

I
I

II

_L __ _

I

i

\

- -- - ---

l___

1-·~~)C~~d

~-lnlllOd

---

----

- - - - -------

1

 -'

;~

-

Consolidatedbalancesheet

Consolidatedstatementof cashflows

millionsof Canadian
dollars.inflow/(outflowl
,or thoyears endedDecemher
3_1__

UnderUnited States GAAP
2002
2003
2004

millionsoi Canadian
dollars
At Decemher
31

Under Canadian GAAP
2004
2003
2002

UnderUnitedStatesGAAP
2004
2003

UnderCanadianGAAP
2003
2004

-

Assets

Operating activities
Net income
Cumulativeeffect of accountingcl1ange,after tax
Adjustmentsfor non-cashitems:
Depreciationand depletion
(Gain)/loss on asset sales. after tax
Deferredincometaxes and other
Changesin operatingassetsand liabilities
Accountsreceivable
Inventoriesand prepaids
Incometaxes payable
Accountspayable
All other items - net \al

2 052

Cashfromoperatingactivities(note21

3 312

-

1 705
(4)

1 214

2 033

-

--

1 682

--

1 224
-

908
(32)
(90)

755
(10)
(59)

708
(4)
(148)

903
(32)
(100)

750
(10)
(68)

705
(4)
(144)

(311)
(32)
462
308
47

33
31
38
74
(336)
2 227

(356)
51
(225)
323
125
1 688

(311)
(32)
462
308
47
3 278

33
31
38
74
(336)
2194

(356)
51
(225)
323
102
1 676

Currentassets
Cash
Accountsreceivable.less estimated
doubtful amounts
Inventoriesof crudeoil and products{note14)
Materials. suppliesand prepaidexpenses
Deferredincometax assets{note41

1 279

448

1 279

448

1 626
432
112
448

1 315
407
105
353
2 628
97

1 626
432
112
448
3 897
270

1 315
407
105
353
2 628
259

9 267
204
141
12337

9 569
204
52
13992

9 218
204
52
17361

81
2 525
1 057
995
4 658
367
1 010
1 319

72
2 222
595
501
3 390
859
972
1 362

3 897
130

Total currentassets
Investmentsand other long-termassets(note21
Property,plant and equipment.less accumulation.
depreciationand depletion(notes1. 21
Goodwill \note11
Other intangibleassets.net \note21

9 647
204
149

Totalassets\notes1. 21

14027

Investingactivities

II

Includes
contribution
to registered
pensionplansof $114million12003$511million.2002- $19million!
(bl Cashis composed
of cashin bank
andcashequivalents
at cost.Cash
equivalents
areall highlyliquid
securitieswith a maturityof three
monthsor lesswhenpurchased
.

(a)

I~,

Theinformation
onpages41 through56
1s partof theseconsolidated
financial
statements_
Certainfigures for prior
yearshavebeenreclassified
in the
financialstatements
to conformwith
the currentyear'spresentation.

Liabilities

Additionsto property,plant and equipment
and intangibles
Proceedsfrom asset sales
Loansto equity company

(1 376)
102
(32)

(1 482)
56

Cashfrom/(used in) investingactivities(note2)

(1 306)

(1 426)

(1 503)

9
(8)
13
(872)
(317)

818
(818)
2
(799)
(322)
(1119)

(388)
500
(71)

-

(1 564)
61
-

(1 342)
102
(32)

(1 449)
56
-

(1 552)
61

(1 272)

(1 393)

(1 491)

818
(818)
2
(799)
(322)
(1119)

(388)
500
(71)

-

Financingactivities
Short-termdebt - net
Long-termdebt issued
Repaymentof long-termdebt
Issuanceof commonsharesunderstock option plan
Commonsharespurchased\note131
Dividendspaid

Cashfrom/(usedin) financingactivities
lncrease/{decrease)in cash
Cashat beginning of year
Cashat end of vear (bl

(1175)
831
448
1 279

(318)
766
448

-

(13)
(319)
(291)
(106)
872
766

9
-

(8)
13
(872)
(317)
(1175)
831
448
1 279

(318)
766
448

-

(13)
(319)
(291)
(106)
872
766

Currentliabilities
Short-termdebt
Accountspayableand accruedliabilities (note161
Incometaxes payable
Currentportion of long-termdebt
Totalcurrent liabilities
Long-termdebt (note31
Other long-termobligations(notes2. Bl
Deferredincometax liabilities (notes2. 41
Commitmentsand contingentliabilities (note121

4 658
367
1 525
1155

72
2 222
595
501
3 390
859
1 314
1 229

Total liabilities

7705

6 792

7 354

6 583

Commonsharesat stated value (note13)
Earningsreinvested\note21
Accumulatedother nonownerchangesin equity (note21

1 801
4 889
(368)

1 859
3 952
(266)

1 801
4 837
-

1 859
3 919

Total shareholders' equitv

6 322

5 545

6 638

5 778

14027

12337

13992

12361

81
2 525
1 057
995

Shareholders'equity

Total liabilities and shareholders' equity(note21

-

Theinformation
on pages41 through56
is partof theseconsolidated
financial
statements.
Certainfiguresfor prior
yearshavebeenreclassified
in the
financialstatements
to conformwith
thecurrentyear'spresentation
.

Approvedby the directors

-;JI~
T.J Hearn
Chairman.presidentand
chief executiveofficer

fl~
P.A.Smith
Controllerand seniorvice-president.
finance and administration

I

!
i

It
II
It

II
II
II

~ ---- --

t----

38

-

...

Annual report 2004

--

Imperial Oil Limited

-

' ----·-·

39

,J

 ,.....

~-- -

--

-·--

-

II

I

Consolidated
statementof shareholders'equity

Summaryof significantaccountingpolicies

I

I

millionsof Canadiandollars
At December31

I

Common
sharesat statedvalue(note 13)
At beginning
of year
Issuedunderthe stockoptionplan
Sharepurchases
at statedvalue
At endof year

I

UnderUnitedStatesGAAP
2002
2003
2004

UnderCanadianGAAP
2004
2003
2002

1 941

1 941

1859
13

-

(71)

1 801

1 939
2
(82)
1 859

-

(2)
1 939

1 859
13
(71)
1 801

1 939
2
(82)
1 859

-

(2)
1 939

I

Thecompany's
principalbusinessis energy,involvingthe exploration,production,transportationandsaleof crudeoil andnaturalgasandthe
manufacture,
transportationandsaleof petroleumproducts.Imperialis alsoa majormanufacturer
andmarketerof petrochemicals.

I

Theconsolidated
financialstatementshavebeenpreparedin accordance
with generallyacceptedaccountingprinciplesIGAAP)in the United
Statesof America.A descriptionof the differencesbetweenGAAPin Canadaandin the UnitedStatesas theyapplyto the company,includinga
reconciliationof net income,cashflows and impactedbalancesheetline items,is providedin note2. Thefinancialstatementsincludecertain
estimatesthat reflectmanagement's
bestjudgment.All amountsare in Canadiandollarsunlessotherwiseindicated.

I

Principles of consolidation
Theconsolidated
financialstatementsincludethe accountsof ImperialOil Limitedand its subsidiaries.lntercompany
accountsandtransactions
are eliminated.Subsidiaries
includethosecompaniesin which Imperialhasbothan equityinterestandthe continuingabilityto unilaterally
determinestrategicoperating,investingandfinancingpolicies.Significantsubsidiariesincludedin the consolidated
financialstatementsinclude
ImperialOil Resources
Limited,ImperialOil Resources
N.W.TLimited,ImperialOil Resources
VenturesLimitedandMcColl-Frontenac
Petroleum
Inc.All of the abovecompanies
are whollyowned.A significantportionof the company's
activitiesin naturalresourcesis conductedjointly with
othercompanies.
Theaccountsreflectthe company's
shareof undividedinterestin suchactivities,includingits 25-percentinterestin the
Syncrude
joint ventureandits nine-percentinterestin the Sableoffshoreenergyproject.

I

Segment reporting
Thecompanyoperatesits businessin Canadain the followingsegments:

I
Earningsreinvested
At beginning
of year
Netincomefor theyear
Sharepurchases
in excessof statedvalue
Dividends
At endof year

3 952
2 052
(801)
(314)
4 889

Accumulated
othernonownerchangesin equity
At beginning
of year
Minimumpensionliabilitt adjustment(note71

I

(368)

At endof year

I
The informationon pages41 through56
is part of theseconsolidatedfinancial
statements.Certainfiguresfor prior
yearshavebeenreclassifiedin the
financialstatementsto conformwith
the currentyear'spresentation.

I
I

I

I

(266)
(102)

3 287
1 705
(717)
(323)
3 952

2 402
1 214
(11)
(318)
3 287

(315)
49
(266)

3 277
1 682
(717)
(323)
3 919

2 382
1 224
(11)
(318)
3 277 I

(77)

-

-

-

(238)
(315)

-

-

-

-

-

-

Shareholders'
equityat endof year

6 322

5 545

4 911

Nonownerchangesin equityfor the year
Netincomefor theyear
Othernonowner
changes
in equity(note71
Totalnonownerchangesin equityfor the year

2 052
(102)

1 705
49
1 754

1 214
(238)
976

1 950

3 919
2 033
(801)
(314)
4 837

6 638

5 778

Natural resources includesthe explorationfor andproductionof crudeoil andnaturalgas.

I

Petroleumproductscomprisesthe refiningof crudeoil into petroleumproductsandthe distributionandmarketingof theseproducts.
Chemicalsincludesthe manufacturing
andmarketingof varioushydrocarbon-based
chemicalsandchemicalproducts.

5 216

Theabovefunctionshavebeendefinedas the operatingsegmentsof the companybecausetheyare the segmentsla) that engagein business
activitiesfromwhich revenuesare earnedandexpensesare incurred;lb) whoseoperatingresultsare regularlyreviewedby the company's
chief
operatingdecision-maker
to makedecisionsaboutresourcesto be allocatedto the segmentandassessits performance;
andle)for which
discretefinancialinformationis available.
Corporateand other includesassetsand liabilitiesthat do not specificallyrelateto businesssegments- primarilycashandlong-termdebt.
Net incomein this segmentprimarilyincludesfinancingcostsandinterestincome.
Segmentaccountingpoliciesarethe sameas thosedescribedin this summaryof significantaccountingpolicies.Naturalresources,
petroleum
productsandchemicalsexpensesincludeamountsallocatedfromthe "corporateandother"segment.Theallocationis basedon a combination
of fee for service,proportionalsegmentexpensesanda three-yearaverageof capitalexpenditures.
Transfersof assetsbetweensegmentsare
recordedat bookamounts.Itemsincludedin capitalemployedthat are not identifiableby segmentareallocatedaccordingto their nature.
Inventories
Inventoriesare recordedat the lowerof costor net realizablevalue.Thecostof crudeoil andproductsis determinedprimarilyusingthe last-in,
first-out!LIFO)method.LIFOwas selectedoverthe alternativefirst-in,first-outandaveragecostmethodsbecauseit providesa bettermatching
of currentcostswith the revenuesgeneratedin the period.

Inventorycostsincludeexpenditures
andothercharges,includingdepreciation,directlyor indirectlyincurredin bringingthe inventoryto its
existingconditionandfinal storagepriorto deliveryto a customer.Sellingandgeneralexpensesare reportedas periodcostsandexcludedfrom
inventorycosts.

!",

Investments
Theprincipalinvestmentsin companiesotherthansubsidiariesare accountedfor usingthe equitymethod.Theyare recordedat the originalcost
of the investmentplus lmperial'sshareof earningssincethe investmentwas made,lessdividendsreceived.lmperial'sshareof the after-tax
earningsof thesecompaniesis includedin "investmentandotherincome"in the consolidatedstatementof income.Otherinvestments
are
recordedat cost.Dividendsfromtheseotherinvestments
are includedin "investmentandotherincome."

:I

I

i

Theseinvestmentsrepresentinterestsin non-publicly
tradedpipelinecompaniesthat facilitatethe saleandpurchaseof crudeoil andnaturalgas
in the conductof companyoperations.Otherpartieswho alsohavean equityinterestin thesecompanies
sharein the risksandrewards
accordingto their percentage
of ownership.Imperialdoesnot investin thesecompaniesin orderto removeliabilitiesfrom its balancesheet.
Property,plant and equipment
Property,plantandequipmentis recordedat cost.Investmenttax creditsandothersimilargrantsaretreatedas a reductionof the capitalized
costof the assetto whichthey apply.

Thecompanyusesthe successful-efforts
methodto accountfor its explorationandproductionactivities.Underthis method,costsare
accumulated
on a field-by-fieldbasiswith certainexploratoryexpenditures
andexploratorydry holesbeingexpensedas incurred.Thecompany
continuesto carryas an assetthe costof drillingexploratorywells that find sufficientquantitiesof reservesto justifytheir completionas
producingwells if the requiredcapitalexpenditureis madeanddrillingof additionalexploratorywells is underwayor firmly plannedfor the near
future.Onceexplorationactivitiesdemonstrate
that sufficientquantitiesof commercially
produciblereserveshavebeendiscovered,
continued
capitalizationis dependenton projectreviews,whichtake placeat leastannually,to ensurethat satisfactoryprogresstowardultimate
development
of the reservesis beingachieved.Exploratory
well costsnot meetingthesecriteriaare chargedto expense.Costsof productive
wells anddevelopment
dry holesare capitalizedandamortizedon the unit-of-production
methodfor eachfield. Thecompanyusesthis
accountingpolicyinsteadof the full-costmethodbecauseit providesa moretimelyaccountingof the successor failureof the company's
explorationandproductionactivities.

,,

I

,1

I

I

I

I

II
I

I

I

l

I

I

---··

40
--·-·

...

J

Annual report 2004

I

--Imperial Oil Limited

--

41

 ---

F
Summaryof significantaccountingpolicies(continued)
Maintenance
andrepaircosts.includingplannedmajormaintenance,
are expensedas incurred.Improvements
that increasethe capacityor
prolongthe servicelife of anassetarecapitalized.
Production
costsareexpensed
as incurred.Production
involveslifting the oil andgasto the surfaceandgathering,treating,field processing
and
field storageof the oil andgas. Theproductionfunctionnormallyterminatesat the outletvalveon the lease or field productionstoragetank.
Production
costs arethoseincurredto operateandmaintainthe company
's wells andrelated equipmentandfacilities Theybecomepart of the
costof oil andgasproduced.
Thesecosts,sometimesreferredto as lifting costs.includesuchitemsas labourcoststo operatethe wells and
relatedequipment;repairandmaintenance
costsonthe wells andequipment;materials,suppliesandenergycostsrequiredto operatethe wells
andrelatedequipment
; andadministrativeexpensesrelatedto the productionactivity.
Depreciation
anddepletionfor assetsassociated
with producingpropertiesbeginat the timewhenproductioncommences
on a regularbasis.
Depreciation
for otherassetsbeginswhenthe assetis in placeandreadyfor its intendeduse.Assetsunderconstruction
are not depreciated
or
depleted.Depreciation
anddepletionare calculatedusingthe unit-of-production
methodfor producingpropertiesbasedon proveddeveloped
reserves.Depreciation
of otherplantandequipmentis calculatedusingthe straight-linemethod.basedon the estimatedservicelife of the
asset.In general.refineries aredepreciated
over25years;othermajorassets,includingchemicalplantsandservicestations.aredepreciated
over20 years.
Provedoil andgaspropertiesheldandusedbythe companyare reviewedfor impairmentwheneverevents or change
s in circumstances
indicate
that the carryingamounts maynot be recoverable.
Assetsaregroupedat the lowestlevelfor whichthereare identifiablecashflows that are
largelyindependent
of the cashflows of othergroupsof assets.
Thecompanyestimatesthe futureundiscounted
cashflows of the affectedpropertiesto judgethe recoverability
of carryingamounts.Cashflows
usedin impairmentevaluationsare developedusingannuallyupdatedcorporateplaninvestmentevaluationassumptions
for crudeoil commodity
pricesandforeign-currency
exchange
rates.Annualvolumesare basedon individualfield productionprofiles,whicharealsoupdatedannually
.
Pricesfor naturalgasandotherproductssoldundercontractare basedon corporateplanassumptions
that are developed
annuallyandalsoused
for investmentevaluationpurposes.
In general.impairmentanalysesare basedon provedreserves.Whereprobablereservesexist, an appropriately
risk-adjustedamountof these
reservesmaybe includedin the impairmentevaluation.An assetwouldbe impairedif the undiscounted
cashflows were lessthanits carrying
value.Impairments
are measured
bythe amountbywhichthe asset'scarryingvalueexceedsits fair value.
Gainsor losseson assetssoldare includedin "investmentandotherincome"in the consolidated
statementof income
.
Interestcapitalization
Interestcostsrelatingto majorcapitalprojectsunderconstruction
arecapitalizedas partof property,plantandequipment.Capitalization
of
interestceaseswhenthe property,plantandequipmentis substantiallycompleteandreadyfor its intendeduse.
Goodwilland otherintangibleassets
Goodwillandintangibleassetswith indefinitelivesare not subjectto amortization.
Theseassetsaretestedfor impairmentannuallyor more
frequentlyif eventsor circumstances
indicatethe assetsmightbe impaired.Impairmentlossesare recognized
in currentperiodearnings.The
evaluationfor impairmentof goodwillis basedon a comparison
of the carryingvaluesof goodwillandassociatedoperatingassetswith the
estimatedpresentvalueof net cashflows fromthoseoperatingassets.

Intangibleassetswith determinable
usefullivesareamortizedoverthe estimatedservicelivesof the assets.Computersoftwaredevelopment
costsareamortizedovera maximumof 15yearsandcustomerlists areamortizedovera maximumof 10years.Theamortizationis includedin
"depreciation
anddepletion"in the consolidated
statementof income.
Assetretirementobligationsand otherenvironmentalliabilities
Legalobligationsassociated
with site restorationon the retirementof assetswith determinable
usefullivesare recognized
whentheyare
incurred.whichis typicallyat the time the assetsare installed.Theobligationsare initiallymeasured
at fair valueanddiscounted
to present
value.A corresponding
amountequalto that of the initial obligationis addedto the capitalizedcostsof the relatedasset.Overtime the
discountedassetretirementobligationamountwill be accretedfor the changein its presentvalue,andthe initial capitalizedcostswill be
depreciated
overthe usefullivesof the relatedassets.

Noassetretirementobligationsare set up for assetswith an indeterminate
usefullife. becausesuchpotentialobligationscannotbe measured
sinceit is not possibleto estimatethe settlementdates.Provisionfor environmental
liabilitiesof theseandnon-operating
assetsis madewhen
it is probablethat obligationshavebeenincurredandthe amountcanbe reasonably
estimated.Theseliabilitiesare not discounted
. Asset
retirementobligationsandotherprovisionsfor environmental
liabilitiesaredeterminedbasedon engineering
estimatedcosts,takinginto
accountthe anticipatedmethodandextent of remediationconsistentwith legalrequirement
s. currenttechnology
andthe possibleuseof the
location.

Thecompanydoesnot use financingstructuresfor the purposeof alteringaccountingoutcomesor removingdebtfromthe balancesheet.The
companydoesnot usederivativeinstruments
to speculateon the futuredirectionof currencyor commodity
pricesanddoesnot sell forwardany
partof productionfromanybusinesssegment.
Revenues
Revenues
associatedwith salesof crudeoil, naturalgas.petroleumandchemicalproductsandotheritemsare recordedwhenthe products
aredelivered.Deliveryoccurswhenthe customerhastakentitle andhasassumedthe risksandrewardsof ownership,pricesarefixedor
determinable
andcollectibilityis reasonably
assured
. Thecompanydoesnot enterinto ongoingarrangements
wherebyit is requiredto
repurchase
its products,nordoesthe companyprovidethe customerwith a right of return.

Revenues
includeamountsbilledto customers
for shippingandhandling.Shippingandhandlingcostsincurredupto the pointof final storage
priorto deliveryto a customerare includedin "purchases
of crudeoil andproducts"in the consolidated
statementof income.Deliverycostsfrom
final storageto customerare recordedas a marketingexpensein sellingandgeneralexpenses.
Revenues
includethe salesportionof certaintransactions
wherethe companycontemporaneously
negotiatespurchases
with the same
counterparty
undercontractualarrangements
that establishthe agreement
termseitherjointly,in a singlecontract.or separately
in individual
contracts.
Thepurchases
arerecorded
in "purchases
of crudeoil andproducts."
Thesetransactions
arecommonly
calledpurchase
/ saletransactions
.
Togetherwith non-monetary
exchanges
aswell as independently
transactedpurchases
andsales.purchase
/ saletransactionsarc used to ensure
that the rightcrudeoil is at the appropriaterefineriesat the righttime andthe appropriateproductsareavailableto meetconsumerdemands.
Eachpurchase/sale
transactionis composed
of a separatepurchaseanda separatesaletransactionandthereforeis accounted
for as anyother
independently
transactedmonetarypurchaseor sale,measured
at fair valueas agreeduponby a willing buyeranda willing seller. Theyare
enteredintowith our normalsuppliersandcustomers
for substantivebusinesspurposesandphysicaldeliveryis required.Thisaccounting
practicehasrecentlybeenaddressed
in EITFIssue03-11."ReportingRealizedGainsandLosseson DerivativeInstruments
ThatAre Subjectto
FASBStatementNo. 133andNot Heldfor TradingPurposes
as Definedin IssueNo.02-3."While Issue03-11addres
ses the issueof gross
versusnet classificationfor derivativeinstruments.
it alsoprovidesguidancefor purchase
/ saletransactions
that are not accounted
for as
derivativeinstruments.In Issue03-11, the EITFconcluded
that the determination
of whethercontractsnot heldfor tradingpurposesshouldbe
reportedin the incomestatementon a grossor net basisis a matterof judgmentthat dependsonthe relevantfactsandcircumstances.
In the
judgmentof management,
the relevantfactsandcircumstances
supportaccountingfor thesetransactions
in revenues
, measured
at fair value.
Stock-basedcompensation
Thecompanyaccountsfor its stock-based
compensation
programs,
exceptfor the incentivestockoptionsgrantedin April 2002,by usingthe fairvalue-based
method.Underthis method.compensation
expenserelatedto the unitsof theseprogramsis measured
bythe fair valueof the
liabilitiesincurredandis recordedin the consolidated
statementof incomeoverthe vestingperiod.Thefair valueof liabilitiesis remeasured
at
the endof eachreportingperiodthroughsettlement.

As permittedby the Statementof FinancialAccountingStandardsNo.123(SFAS123).the companycontinuesto applythe intrinsic-value-based
methodof accounting
for the incentivestockoptionsgrantedin April 2002. Underthis method.compensation
expenseis not recognized
on the
issuanceof stockoptionsas longas the exercisepriceis equalto the marketvalueat the dateof grant.
If the provisionsof SFAS123hadbeenadoptedfor all prioryears,net incomeandnet incomepersharewouldhavebeenasfollows:
millions of dollars

Netincomeasshownin financialstatements
Add:stock-based
compensation
expense
asreported,
netof tax
Deduct
: stock-basedcompen
sationexpen
se. netof tax, determined
underfair-value-based
method
Proformanetincome
Netincomepershare(dollars)
As reported- basic
- diluted
Proforma - basic
- diluted

2003
1 705
76
(81)

2002
1 214
24
(41)

2 050

1 700

1197

5.75
5.74
5.74
5.73

4.58
4.58
4.57
4.57

3.20
3.20
3.16
3.16

2004
2 052
84
(86)

Consumertaxes

Foreign-currency
translation
Monetaryassetsandliabilitiesin foreigncurrencie
s havebeentranslatedat the ratesof exchange
prevailingon December
31.
Anyexchange
gainsor lossesare recognized
in net income.

Taxesleviedonthe consumer
andcollectedbythe companyareexcludedfromthe consolidated
statementof income.Theseareprimarily
provincialtaxeson motorfuelsandthe federalgoodsandservicestax.

Financialinstruments
Thefair valuesof cash,accountsreceivableandcurrentliabilitiesapproximate
recordedamountsbecause of the shortperiodto receiptor
paymentof cash. Thefair valueof the company's
long-termdebt is estimatedbasedon quotedmarketpricesfor the sameor similarissuesor on
the currentratesofferedto the companyfor debtof the samedurationto maturity. Thefair valuesof the company's
otherfinancialinstruments.
whichare mainlylong-termreceivables,
areestimatedprimarilybydiscountingfuturecashflows.usingcurrentratesfor similarfinancial
instrumentsundersimilarcreditriskandmaturityconditions.
42

An nu al repo rt 2004

Imperi al Oil Lim ite d

43

 Notesto consolidatedfinancial statements
1.

Businesssegments
millionsof dollars
Revenues
Externalsales(cl
lntersegment
sales
Investmentandotherincome
Totalrevenues
Expenses
Exploration
Purchases
of crudeoil andproducts
Production
andmanufacturing
Sellingandgeneral(di
Federalexcisetax
Depreciation
anddepletion
Financingcosts(note151
Totalexpenses
Incomebeforeincometaxes
Incometaxes (note41
Current
Deferred
Totalincometax expense
Incomebeforecumulativeeffectof
accountingchange
Cumulativeeffectof accountingchange,
after incometax
Net income
Capitaland explorationexpenditures(el
Property,plantand equipment
Cost
Accumulated
depreciationanddepletion
Net property,plantand equipment{fl(gl
Totalassets(hi

Naturalresources(al
2002
2003

2004
3 689
2 891
45
6 625

3 390
2 224
34
5 648

2 573
2 217
104
4 894

59
2110
1 608
27

55
1 873
1 577
28

30
1 599
1 228
21

633
1
4 438
2187

517
1
4 051
1 597

477
1
3 356
1 538

763
(63)
700

535
177)
458

517
(21)
496

1 487

1139

1 042

1 487
1113

4
1143
1 007

1 042
986

13 538
7 337
6 201
6 875

12610
6 813
5 797
6 418

11612
6 269
5 343
6 013

millionsof dollars
Revenues
Externalsales(cl
lntersegment
sales
Investmentandotherincome
Totalrevenues
Expenses
Exploration
Purchases
of crudeoil andproducts
Production
andmanufacturing
Sellingandgeneral(di
Federalexcisetax
Depreciation
anddepletion
Financing
costs{note15)
Totalexpenses
Incomebeforeincometaxes
Incometaxes {note4)
Current
Deferred
Totalincometax expense
Incomebeforecumulativeeffectof accountingchange
Cumulativeeffectof accountingchange,after incometax
Net income
Capitaland explorationexpenditures(el
Property,plantandequipment
Cost
Accumulated
depreciationanddepletion
Net property,plantand equipment(f) (gl
Totalassets(hi
.I

ii
44

Annual report 2004

Imperial Oil Limited

45

 Notes to consolidated financial statements (continued)
2.

UnderU.S GAAP,interestcostsrelatedto major capitalprojectsunderconstructionare requiredto be capitalizedas part of property,
plant and equipment.UnderCanad
ian GAAP, the companydid not capitalizeinterestcosts for the sameprojects.

Differences between United States and Canadian generally accepted accounting principles

Effective2004,the companyprepares its financial statementsin accordancewith the generallyacceptedaccountingprinciples (GAAP)of
the United States.Priorto 2004,the company'sfinancial statements were preparedin conformitywith CanadianGAAP A reconcilia
t ion
of the differencesbetweenGAAPin Canadaand in the UnitedStatesas they applyto the companyis providedbelow:
Reported
under

U.S.

Accounting
change

Reported
under
Canadian
GAAP

Consolidated
statement of income
Net incomefor 2004lmillionsof dollars)
Net incomeper commonshare !dollars)
Basic
Diluted

GAAP

Capitalized
interest

2 052

(19)

2 033

5.75
5.74

(0.05)
(0.05)

5.70
5.69

Net income for 2003 imillionsof dollars)
Net incomeper commonshare!dollars)
Basic
Diluted

1 705

(19)

(4)

1 682

4.58
4.58

(0 05)
(0.05)

(001)
(001)

4.52
4.52

Net income for 2002Imillions of dollars)
Net income per common share !dollars)
Basic
Diluted

1 214

(4)

14

1 224

3.20
3.20

(001)
(001)

0.04
0.04

3.23
3.23

lncrease/(decrease)
due to
Capitalized
interest

Reported
under
Canadian
GAAP

3 312
(1 306)

(34)
34

3 278
(1 272)

Cash from operating activities for 2003
Cash from/(used in) investing activities for 2003

2 227
(1 426)

(33)
33

2 194
(1 393)

Cashfrom operatingactivities for 2002
Cashfrom/(usedin) investingactivities for 2002

1 688
(1 503)

(12)
12

1 676
(1 491)

Consolidated
statementof cashflows

U.S.

millionsof dollars

GAAP

Cashfromoperatingactivities for 2004
Cashfrom/(usedin) investingactivitiesfor 2004

Reported
under

Consolidated
balancesheet
millionsof dollars

Under U.S. GAAP.the accumula
ted benefit obligation(ABO)is the actuarialpresentvalue of benefits attributed to employeeservice
renderedup to the endof the year andis basedon currentcompensation levels.Sincethe amountby which the ABOlessthe fair value
of planassetswas greaterthanthe liability previouslyrecognized
in the consolidatedbalancesheet,an additionalminimumpension
liability was required.Theminimumpensionliabilityhasno impacton net incomeandbecausethis adjustmentwas non-cash,its effect
hasbeen excludedfromthe accompa
nying consolidatedstatementof cashflows. No such adjustmentis requiredunder Canadian GAAP
3.

Long-term debt
2004

Reported
under

46

lncrease/(decrease)
due to

Under U.S.GAAP,the cumulativeeffect of accountingchangefor the adoptionof the standardon accountingfor assetretirement
obligationsin 2003was reflectedin the consolidated
net incomefor 2003.UnderCanadianGAAP,
financialstatementsof priorperiods
were restatedto reflectthe effectof the sameaccountingchange.

U.S.
GAAP

As at December31, 2004
Investments
andotherlong-term assets
Property
, plantandequipmen
t
Otherintangibleassets
Totalassets

130
9 647
149
14027

Otherlong-term obligations
Deferredincometax liabilities
Earningsreinvested
Accumulatedothernonownerchangesin equity
Total liabilitiesandshareholders'equity

1 525
1155
4 889
(368)
14 027

As at December31, 2003
Investmentsand other long-termassets
Property,plant and equipment
Other intangible assets
Total assets

97
9 267
141
12 337

Other long-termobligations
Deferredincometax liabilities
Earningsreinvested
Accumulated other nonownerchangesin equity
Total liabilities and shareholders'equity

1 314
1 229
3 952
(266)
12 337

lncrease/(dec
rease)due to
Capitalized
interest

Minimum
pension
liabilit ies

140
(78)
(97)
(78)

(26)
(52)
(78)

43
(515)
190
368
43

162
(49)
(49)

(16)
(33)
(49)

(89)
73
(342)
149
266
73

issued

maturitydate

2003

$250million due May 26, 2005,and
$250million due August 26,2005ia)
January 19, 2006(al

_20
_0_3 _ ____

Long-termdebtlb)
Capital leasesle)
Totallong-term debtId)lei

270
9 569
52
13 992
1 010
1 319
4 837

13 992

Variable
Variable

2003

millions of dollms

318
318
49
367

500
318
818
41
859

la) Thesearelong-term
variable-rate
loansfromExxonOverseas
Corporation.
anaffiliatedcompany
of ExxonMobilCorporation.
.
lb) Averageeffectiveinterestratewas2.5 percentfor 200412003- 2.7 percent)
le) Theseobligationsprimarilyrelateto thecapitalleasefor marineservices,
whichareprovided
bythe lessorcommencing
in 2004for a periodof 10 years.extendable
for anadditionalfive years.Theaverageimputedinterestratewas10.3 percentin 200412003- 12.7percent).
l payments
oncapitalleasesof approximately
$4 milliona yearareduein eachof the
(di Principal payments
on long-term
loansof $318millionareduein 2006.Principa
nextfiveyears.
(el Theseamount
s excludethat portionof long-term
debt.totalling$995 million(2003- $501million).whichmatureswithinoneyearandis includedin currentliabilities.

OnMay 6, 2004, the company filed a final short-formshelf prospectusin Canadain connectionwith the issuanceof medium-termnotes
over the 25-month periodthat the shelf prospectus remains valid. The unsecured noteswill be issuedfromtime to time at the discretion
of the companyin an aggregateamountnot to exceed$1 billion.Thecompanyhasnot issuedanynotesunderthis shelf prospectus.
4.

Income taxes
millionsof dollars

Reported
under
Canadian
GAAP

interest rate

Current income tax expense
Deferred income tax expense(a)

Totalincometax expense(bl
Statutorycorporatetax rate (percent)
lncrease/(decrease)
resultingfrom:
Non-deductible royalty payments to governments
Resourceallowancein lieu of royalty deduction
Manufacturing and processing credit
Enactedtax-rate and tax-law changes
Other
Effectiveincometax rate

2004
1103
(128)
975
37.0
3.9
(7.0)
(1.8)
0.1
32.2

2003

2002

610
79

718
(144)

689

574

38.5

42.0

5.0
(7.5)
0.2
(3.1)
(43)

5.4
(118)
(03)
(0.9)
(23)

28.8

32.1

(a)Thedeferredincometaxexpense
for theyearis thedifferencein netdeferredincometax liabilitiesat the beginning
andendof theyear.Theprovisions
for deferred
incometaxesincludenet(charges)/credits
for the effectof changesin tax lawsandratesof $25 millionin 2004(2003-$72 million;2002-- $15 million).
(bl Cashoutflow fromincometaxes.plusinvestment
creditsearned,was$641millionin 2004(2003- $573million;2002- $935million)

259
9 218
52
12 361
972
1 362
3 919
12 361
Annual report 2004

Imperial Oil Limited

47

 Notesto consolidatedfinancialstatements(continued)
Deferredincometaxesare basedon differencesbetweenthe accountingand tax valuesof assetsand liabilities.Thesedifferencesin
valueare remeasured
at eachperiod-endusingthe tax ratesandtax laws expectedto applywhen thosedifferencesare realizedor
settledin the future.Components
of deferredincometax liabilities andassetsas at December31 were:
millions
ofdollars
Depreciation
andamortization
Successful
drillingandlandacquisitions
Pension
andbenefits
la)
Siterestoration
Nettaxlosscarryforwards
(bl
Capitalized
interest
Other
Deferred
income
taxliabilities

1287
403
(343)
(158)
(57)
26
(3)

2003
1 233
495
(286)
(167)
(57)
16
(5)

1155

1 229

2004

Detailsof the employeeretirementbenefitsplansare as follows:
millions
ofdollar
s
Components
of netbenefitcost:
Curren
t servicecost
Interestcost
Expected
returnonplanassets
Amortization
of priorservice
cost
Recognized
actuarialloss/(gain)
Netbenefitcost(a)

(268)
(343)
LIFO
inventory
valuation
(85)
(105)
Other
(353)
(448)
Deferred
income
taxassets
Valuation
allowance
707
876
Net deferredincometax liabilities
la)Income
taxe
s charged
directl
y toshareholders·
equityrelat
edtominimum
pension
liabilit
y adjustment
were$41 million
benefit
in200412003- $57 million
expense
;
2002- $155 million
benefit).
(b)Taxlosses
canbecarried
forward
indefinitely
.

Theoperationsof the companyare complex.and relatedtax interpretations.regulationsand legislationare continuallychanging
.
As a result.thereare usuallysometax mattersin question.Thecompanybelievesthe provisionmadefor incometaxesis adequate.
5.

6.

7.

Reportingof fuel consumedin operations
Beginningin 2004.fuel consumedin operations.previouslyincludedin purchasesof crudeoil and products.has beenreclassifiedas
productionand manufacturingexpensesin the consolidatedstatementof income.Priorperiodamountshavebeenreclassifiedfor
comparativepurposes.Thisreclassificationhasno impacton total expensesand net incomeor on the cash-flowprofileof the company.
Headquartersrelocation
OnSeptember29, 2004,the companyannouncedits intentionto relocateits headoffice from Toronto,Ontario,to Calgary,Alberta.
Completionof the moveis expectedby August2005.Severance,relocationand othercostsassociatedwith the relocationare expected
to be recordedin 2005,consistentwith management
decisionsand the spendingprofileof thesecosts.
Employeeretirement benefits
Retirementbenefits,which cover almostall retiredemployeesandtheir survivingspouses.includepension-income
andcertainhealthcareand life-insurancebenefits.Theyare met throughfundedregisteredretirementplansandthroughunfundedsupplementary
benefits
that are paiddirectlyto recipients.Fundingof registeredretirementplanscomplieswith federaland provincialpensionregulations,and
the companymakescontributionsto the plansbaseduponan independentactuarialvaluation.

Pension-income
benefitsconsistmainlyof company-paiddefinedbenefitplansthat are basedon yearsof serviceandfinal average
earnings.Thecompanysharesin the cost of health-careand life-insurancebenefits.Thecompany'sbenefitobligationsare basedon the
projectedbenefitmethodof valuationthat includes employeeserviceto dateand presentcompensation
levelsas well as a projectionof
salariesandservice to retirement.
Theexpenseandobligationsfor bothfundedand unfundedbenefitsare determinedin accordance
with UnitedStatesgenerallyaccepted
accounting principlesand actuarial proceduresTheprocessfor determiningretirement-income
expenseand relatedobligationsincludes
makingcertainlong-termassumptionsregardingthe discountrate. rate of returnon planassets and rate of compensation
increases
.
Thetotal obligationfor retirementbenefitsexceededthe fair valueof planassetsat December31, 2004,by $1.712million(2003$1,357million).$1,276million(2003- $975million)of which was relatedto pensionbenefitsand $436million(2003- $382million)
to other post-retirementbenefits.Theobligationand pensionexpensecanvarysignificantlywith changesin the assumptionsusedto
estimatethe obligationandthe expectedreturnon planassets.

L

48

Anrual

Otherpost-retir
ement
benefits

Pension
benefits

report 200~

2004

2003

2002

76
237
(223)
27
68

71
219
(179)
25
69
205

64
222
(191)
25
34
154

185

Changein benefitobligation
Benefitobligation
at January1
Current
servicecost
Interestcost
Amendments
Actuarialloss/(gain)
Benefits
paid
Benefitobligation
at December
31

3 761
76
237
37
405
(256)

3 530
71
219

4 260

3 761

31
Accumulated
benefitobligation
at December

3 743

3 347

Changein planassets
Fairvalueof planassetsat January
1
Actualreturnonplanassets
Company
contributions
Payments
directlyto participants
Benefits
paid
Fairvalueof planassetsat December
31

2 786
315
114
25
(256)

2104
377
511
24
(230)

2 984

2 786

Excess/(deficiency)
of planassets
overbenefitobligation
Unrecognized
netactuarial
(gain)/loss
(b)
~riorservice
cost(bl
Unrecognized
Netamountrecognized
Amountrecognized
intheconsolidated
balance
sheetconsists
of:
Accrued
benefitcost(noteBl
Intangible
assets
Accumulated
othernonowner
changes
in equity,
minimum
pension
liabilityadjustment
Netamount
recognized

171
(230)

2004

2003

2002

6
24

5
22

4
21

4
34

3
30

26

382
6
24

354
5
22

47
(23)

(18)

436

382

19

(1 276)
1 073
99
(104)

(975)
829
89
(57)

(436)
95

(382)
52

(341)

(330)

(759)
97

(561)
89

(341)

(330)

558
(104)

415
(57)

(341)

(330)

5.75
3.50

6.25
3.50

6.25
3.50

6.25
3.50

Assumptions
31 !percent)
Assumptions
usedto determine
benefitobligations
at December
5.75
6.25
Discount
rate
3.50
3.50
increase
Long-term
rateof com~ensation

Assumptions
usedto determine
netbenefit costforyears
31!percent)
endedDecember
Discount
rate
Long-term
rateof compensation
increase
Long-term
rateof returnonfundedassets

Imperial Oil Limited

6.25
3.50
8.25

6.25
3.50
8.25

6.75
3.50
8.25

6.75
3.50

49

 11

~ ~-- ----

Notes to consolidated financial statements (continued)
la)A summary
of netbenefit
costwithelements
of employee
futurebenefit
costsbefore
andafteradjustments
to recognize
thelong-term
nature
ofemployee
benefitcostisshowninthetablebelow:
Other
post-retirement
benefits
Pension
benefits
2002
2004
2003
2002
millions
of dollars
2004
2003
Component
s of net benefitcost:
4
64
6
5
Current
service
cost
76
71
21
24
22
222
Interest
cost
237
219
107
Actualreturn
onplanassets
(3151
1377)
27
Planamendments
forpriorservice
37
19
25
47
196
171
Actuarial
loss/(gain)
405
Elements
ofemployee
futurebenefit
costsbefore
adjustments
to recognize
thelong
-termnature
of
50
77
46
616
employee
futurebenefit
costs
440
84
Adjustments
to recognize
thelong-term
nature
of employee
futurebenefit
costs
:

In 2005,the company expectsto make cash contributions of about $350million to its pension plan
A summary of the change in other nonowner changesin equity related to the minimum pension liability adjustmentis shown in
the table below.

millions
of dollars
lncrease/(decrease)
in accumulated
othernonowner
changesin equity,beforetax
Deferredincometax(char~e)/credit
(note4)
lncrease/(decrease)
in accumu
latedothernonowner
changesin equity,aftertax

-

Difference
between
expected
return
andactualreturn
onplanassets
fortheyear
Difference
between
amortization
ofpriorservice
costs
fortheyearandactual
planamendments
forthe year
Difference
between
actuarial
(gain)/loss
recognized
fortheyearandactuarial
(gain)/loss
onaccrued
benefit
obligation
fortheyear
Netbenefit
cost

2004

Pension
benefits
2003

I

ii

I

2002

(143)
41

106
(57)

(393)
155

(102)

49

(238)

i

A summaryof pension plans with accumulated benefit obligations in excessof plan assets is shown in the table below:
92

198

(298)

-

-

(10)

25

(2)

-

(337)

(102)
205

(162)
154

(43}

185

34

-

(16)
30

II

-

Pensionbenefits
2003

millions
of dollars
For fundedpensionplanswith accumulatedbenefit
obligationsin excessof planassets:
Projected
benefit obligation
Accumulated
benefitobligation
Fairvalueof planassets
Accumu
latedbenefitobligationlessfair value of planassets

-

(24)
26

lb)Unrecorded
assets/lliabilities)
areamortized
overtheaverage
remaining
service
lifeof employees.
whichfor2005andsubsequent
yearsis 13years
(2004
- 13years;
2003- 13.5years).

2004

3 876
3430

2 984
446

Forunfunded
plans coveredbybookreserves:
Projected
benefitobligation
Accumulated
benefit obligation

384
313

3 464
3126
2 786
340

297
221

Planassets
The company'spension plan asset allocati on at December31, 2003 and 2004, and target allocation for 2005are as follows:

Assetcategory(percent)
Equities
Bonds
Other
Total

I .

Percent
age of planassets
at December
31
2004
2003
62
62
38
38

Target
allocation
2005
50- 75
25-50
0-10

100

The company'sinvestment strategyfor benefit plan assetsreflects a long-term view, a careful assessmentof the risks inherent in various
asset classesand broaddiversification to reducethe risk of the total portfolio. The companyprimarily invests in funds that follow an
index-basedstrategyto achieve its objectives of diversifyingrisk while minimizing costs.The fund holds ImperialOil Limitedcommon
shares only to the extent necessary to replicate the relevant equity index. Asset-liability studies, or simulations of the interaction of cash
flows associatedwith both assetsand liabilities, are periodicallyusedto establishthe preferredtarget asset allocation.Thetarget asset
allocation for equity securities reflects the long-term nature of the liability. The balance of the fund is targeted to debt securities.

'

1'
I

The following benefit payments,which reflect expectedfuture service, as appropriate,are expectedto be paid:

millions
of dollars
2005

'I

~
~

A one-percent change in the assumptions at which retirement liabilities could be effectively settled is shown as follows:

increase/(
decrease
I
millions
of dollars
Rateof returnonplanassets:
Effectonnet benefit costs

One-percent
increase

One-percent
decrease

(30)

30

Discountrate:
Effecton netbenefitcosts
Effectonbenefitobligations

(45)
(525)

50
645

Rateof payincreases:
Effecton netbenefitcosts
Effectonbenefit obligations

30
160

(25)
(140)

'
I

Formeasurement
purposes.
a five-percent
health-care
costtrendratewasassumed
for 2004andthereafter.
A one-percent
changein the
assumed
health-care
costtrendratewould havethefollowingeffects:

Cash flows

i

The most recent independentactuarial valuationwas as of June 30, 2004, and the next required valuationwill be as of
June 30, 2005.The measurementdate usedto determinethe fair value of plan assetsand the benefit obligationswas
December 31, 2004.

-

100

The company establishes the long-t erm expected rate of return by developing a forward-looking long-term return assumption for each
asset class. taking into accountfactors such as the expectedreal return for the specific asset class and inflation. A single, long-term rate
of return is then calculated as the weighted averageof the target asset allocation and the long-term return assumption for each asset
class.The 2004long-term expectedreturn of 8.25 percent used in the calculations of pensionexpensecomparesto an actual rate of
return over the past decadeof 10.7 percent.
I

Additional expensesincludecontributionsto defined contribution plans. primarily the employeesavingsplan. of $32million
in 2004 (2003- $31 million; 2002 - $30 million)

Pension
benefits
230
~

m

increase/(
decre
aseI
millions
of dollars
Effectonserviceandinterestcostcomponents
Effectonotherpost-retirement
benefitobligations

Other
post-retirement
benefits
20
ll

One-percent
increase
4
45

I

I

One-percent
decrease

I

(3)

(40)

I

I

I
I

i

~

2008
244
26
2009
251
28
~
Ye=a~
rs~2~
01~0_-~2=0~
14'--~~~~~~~~~~~~~~~~~~~~1~3~9~
8 ~~~~~~~~~161
50

I)

I

Annual report 2004

Imperial Oil Limited

51

I
k

 ..
I

I

Notes to consolidated financial statements (continued)
8.

Underthe restrictedstockunit plan,eachunit entitlesthe recipientto the conditionalrightto receivefromthe company,
uponexercise,an
amountequalto the closingpriceof the company's
commonshareson the TorontoStockExchange
on the exercisedates.Fiftypercentof
the unitsareexercisedthreeyearsfollowingthe grantdate,andthe remainderare exercisedsevenyearsfollowingthe grantdate.The
unitsmaybe exercisedearlyin the eventof deathor disability.

Other long-termobligations
millionsof dollars

Employee
retirement
benefits
(note7) (al
Assetretirement
obligations
andotherenvironmental
liabilities(bl
Otherobligations
Totalotherlong-term
obligations

2004
1 052
380
93
1 525

2003
847
393
74
1 314

All unitsrequiresettlementby cashpaymentswith oneexception.Therestrictedstockunit planwas amendedfor unitsgrantedin 2003
andfutureyearsby providingthat the recipientmayreceiveonecommonshareof the companyperunit or electto receivethe cash
paymentfor the unitsto be exercisedon the seventhanniversary
of the grantdate.Themaximumnumberof commonsharesthat maybe
issuedunderthe restrictedstockunit planis 3.5 million.

(a) Totalrecordedemployeeretirementbenefitsobligationsalso include$48millionin currentliabilities(2003- $44million)
(bl Totalassetretirementobligationsandotherenvironmental
liabilitiesalso include$76million in currentliabilities(2003- $69million).Theestimated
cashflows of assetretirementobligationshavebeendiscountedat six percent.Thetotal undiscounted
amountof the estimatedcashflows required
to settle the obligationsis $970million.Payments
to settlethe obligationsoccuron an ongoingbasisandwill continueoverthe livesof the operating
assets.whichcanexceed25 years.Thechangein assetretirementobligationsliability is as follows:
millionsof dollars

I

9.

I

2004

Fordeferredshareunits,a chargeis madeto expensein the yearof grantequalto the cashperformance
bonuspaymentanddirectors'
feesforegone.Thecompanyrecordsexpensefor incentiveshare,deferredshareandrestrictedstockunitsbasedon changesin the price
of commonsharesin the year.Expense
for earningsbonusunitsis recordedbasedon the cumulativenet earningsper outstanding
commonsharefrom issuedate,up to the maximumsettlementvaluefor the units.

2003

Assetretirementobligationsliability at January1
Additions
Accretion
Settlement

327
16
22
(37)

341

Assetretirementobligationsliability at December
31

328

327

20
(34)

Derivativesand financial instruments
No significantenergyderivatives,foreign-exchange
forwardcontractsor currencyand interest-rateswapsweretransactedin the past
threeyears.Thecompanymaintainsa systemof controlsthat includesa policycoveringthe authorization,
reportingandmonitoringof
derivativeactivity.

Thefair valueof the company's
financialinstruments
is determined
by referenceto variousmarketdataandotherappropriate
valuation
techniques.
Thereareno materialdifferencesbetweenthe fair valuesof the company's
financialinstruments
andthe recordedbookvalue.
10. Incentive compensationprograms
Incentivecompensation
programsare designedto retainselectedemployees,
rewardthemfor highperformance
andpromoteindividual
contributionsto sustainedimprovement
in the company's
futurebusinessperformance
andshareholder
value.
Incentiveshare units,deferredshare units,earningsbonusunitsand restrictedstock units
Incentiveshareunitshavevalueif the marketpriceof the company's
commonshareswhenthe unit is exercisedexceedsthe marketvalue
whenthe unit was issued.Theissuepriceof incentiveshareunitsis the closingpriceof the company's
shareson the TorontoStock
Exchange
on the grantdate.Upto 50 percentof the unitsmaybe exercisedafter oneyearfromissuance;an additional25 percentmaybe
exercisedafter two years;andthe remaining25 percentmaybe exercisedafter threeyears.Incentiveshareunitsare eligiblefor exercise
upto 10yearsfrom issuance.
Theunitsmayexpireearlierif employment
is terminatedotherthanby retirement,deathor disability.

Thedeferredshareunit planis madeavailableto selectedexecutivesandnonemployee
directors.Theselectedexecutivescanelectto
receiveall or part of their performance
bonuscompensation
in units,andthe nonemployee
directorscanelectto receiveall or part of
their directors'fees in units.Thenumberof unitsgrantedto executivesis determinedby dividingthe amountof the bonuselectedto be
receivedas deferredshareunitsby the averageof the closingpricesof the company's
shareson the TorontoStockExchange
for the
five consecutive
tradingdaysimmediatelypriorto the datethat the bonuswouldhavebeenpaid.Thenumberof unitsgrantedto a
nonemployee
directoris determinedat the endof eachcalendarquarterby dividingthe amountof directors'feesfor the calendarquarter
that the nonemployee
directorelectedto receiveas deferredshareunitsby the averageclosingpriceof the company's
sharesfor the
five consecutive
tradingdaysimmediatelypriorto the last dayof the calendarquarter.Additionalunitsaregrantedbasedon the cash
dividendpayableon the company's
sharesdividedby the averageclosingpriceimmediatelypriorto the paymentdatefor that dividend
andmultiplyingthe resultingnumberby the numberof deferredshareunitsheldby the recipient.
Deferredshareunitscannotbe exerciseduntil after terminationof employment
with the companyor resignationas a directorandmust
be exercisedno laterthan December
31 of the yearfollowingterminationor resignation.Onthe exercisedate,the cashvalueto be
receivedfor the unitsis determinedbasedon the averageclosingpriceof the company's
sharesfor the five consecutive
tradingdays
immediatelypriorto the dateof exercise.

Incentivestock options
In April 2002,incentivestockoptionswere grantedfor the purchaseof the company's
commonsharesat an exercisepriceof $46.50per
share.Upto 50 percentof the optionsmaybe exercisedon or after January1, 2003,a further25 percentmaybe exercisedon or after
January1, 2004,andthe remaining25 percentmaybe exercisedon or after January1, 2005.Any unexercised
optionsexpireafter
April29,2012.Thecompany
hasnot issuedincentivestockoptionssince2002andhasno plansto issueincentivestockoptionsin the future.

Thecompanydoesnot recognize
compensation
expenseon the issuanceof stockoptionsbecause
the exercisepriceis equalto the market
valueat the dateof grant.If the fair-value-based
methodof accounting
hadbeenadopted,the impacton net incomeandearningspershare
wouldbe as shownin the summaryof significantaccounting
policieson page43.Theaveragefair valueof eachoptiongrantedduring
2002was $12.70.Thefair valuewas estimatedat the grantdateusingan option-pricing
modelwith the followingweightedaverage
assumptions:
risk-freeinterestrateof 5.7percent,expectedlife of five years,volatilityof 25 percentanda dividendyieldof 1.9percent.
Thecompanyhaspurchased
shareson the marketto fully offsetthe dilutiveeffectsfromthe exerciseof stockoptions.Thispracticeis
expectedto continue.
Obligations
Number
of units
Expensed
in outstanding
at
at
period December
Cancelled Outstanding
31
31 (millionsof dollars) (millionsof dollars)
Exercised oradjusted December

A summaryof the incentivecompensation
programsis as follows:
Granted
Incentive
shareunits
2004

(1 619 907)

(3 000)

5 266 423

94

245

2003
2002

11142145)
1812550)

19225
15325)

6 889330
8 012250

109
39

216
142

7 000

Deferred
shareunits
2004

4 899

2003
2002

8 253
7 479

1379)

149486)
19853)

48 810

4

43 911
85 523

3
4

Earnings
bonusunits
2004

1889740

(1139 160)

3 984 830

7

6

2003
2002

2 221580
1 036 500

11156370)

3 234250
2169 040

3
3

3
3

Incentive
stockoptions
2004

(274250)

(7 400)

2 854 500

2003
2002

149050)

111500)
113500)

3 136150
3196 700

(5 710)

2 642 325

31

41

1 660555
791890

11

11

2004
102
59
43
32

2003

2002

56
44

61
56

12
10

4

3 210200

Restricted
stockunits
2004

987 480

2003
2002

872085
791890

13300)

1120)

11. Investmentand other income
Theearningsbonusunit planis availableto selectedexecutives.Eachearningsbonusunit entitlesthe recipientto receivean amount
equalto the company's
cumulativenet earningspercommonshareas announced
eachquarterbeginningafter the grant.Payoutoccurs
on the fifth anniversary
of the grantor whenthe maximumsettlementvalueper unit is reached,if earlier.Earningsbonusunitsmay
expireif employment
is terminatedotherthan by deathor disability.

52

Annual report 2004

Investmentandotherincomeincludesgainsandlosseson assetsalesas follows:
millionsof dollars

Proceeds
fromassetsales
Bookvalueof assetssold
Gain/(loss)
onassetsales,beforetax
Gain/(loss)
onassetsales,aftertax
Imperial Oil Limited

5

53

 11

I!
Notes to consolidated financial statements (continued)
15. Financingcosts
millionsof dollars
Debt-relatedinterest
Capitalizedinterest
Net interest expense
Other interest

Totalinterestexpense(al

2004
37
(34)
3
4
7

Foreign-exchangeexpense/(gain)on long-termdebt

Totalfinancingcosts

7

2003
38
(33)

Naturalresourcessegment- supplementalinformation

2002
40
(12)

5
4

28
2

9
(129)
(120)

30
(10)
20

(a) Cashinterestpaymentsin 2004were$41 million(2003-$38 million;2002- $41 million). Theweighted-average
interestrateonshort-termborrowingsin 2004was
2.3 percent(2003- 3.1percent)
.

16. Transactionswith related parties
Revenues
andexpensesof the companyalso includethe resultsof transactionswith ExxonMobil Corporation
andaffiliatedcompanies
(ExxonMobil)
in the normalcourseof operations.Thesewere conductedon termsas favourableas theywouldhavebeenwith unrelated
partiesandprimarilyconsistedof the purchase
andsaleof crudeoil, petroleumandchemicalproducts,aswell as transportation,
technical
andengineeringservices.Transactions
with ExxonMobil
also includedamountspaidandreceivedin connection
with the company's
participationin a numberof naturalresourceactivitiesconductedjointly in Canada.Thecompanyhasagreements
with affiliatesof Exxon
Mobil Corporation
to providecomputerandcustomersupportservicesto the companyandto sharecommonbusinessandoperational
supportservicesto allow the companies
to consolidateduplicatework andsystems.Theamountspaidor receivedhavebeenreflected
in the statement of incomeas shownbelow.
millionsof dollars
Total revenues
Purchasesof crude oil and products
Total expenses

2004
1 580
3133
43

2003
950
2 464
14

Pages57 to 59 provideinformationaboutthe naturalresourcessegment(seenote 1, page44).Theinformationexcludesitemsnot
relatedto oil andnaturalgasextraction suchas administrativeandgeneralexpenses,pipelineoperations,gasplantprocessing
fees and
gainsor losseson assetsales.

,,

In additionto provedoil andgasreserves,the companyhasa 25-percentinterestin provedsynthetic crudeoil reservesin the Syncrude
purposes,the companyviews thesereservesandtheir development
as an integral part of its total
project.Forinternalmanagement
natural resourcesoperations.However,for financial reportingpurposes,thesereservesare requiredto be reportedseparatelyfromthe
oil andgasreservesas shownon page59.

11

Thesyntheticcrudeoil reservesare not consideredin the standardized
measureof discountedfuturecashflows for oil andgasreserves
on page58.Thecompany's
shareof Syncrude's
resultsof operations,capitalandexplorationexpenditures
andproperty,plantand
equipmentis alsoexcludedfromthe followingtableson this page.
Resultsof operations
Oil and gas
millionsof dollars

2004
2160
976
3136
915
44
565
532
1 080

Sales to customers
lntersegmentsales
Total sales (al
Productionexpenses
Explorationexpenses
Depreciationand depletion
Incometaxes

2002
1 036
2 134
57

Resultsof operations

Accountspayabledueto ExxonMobil Corporation
at December
31, 2004,with respectto the abovetransactions
were $67million
(2003- $167million).

2003
2 067
665
2 732
926
55
463
364
924

2002
1 485
797
2 282
736
30
426
350
740

Capitaland explorationexpenditures

Certainchargesfrom ExxonMobil
havebeencapitalized;theyare not materialin the aggregate.

Oil and gas
millionsof dollars

II

During2003,the companyborrowed$818million(Cdn)from ExxonOverseas
Corporation
undertwo long-termloan agreements
as
presentedin note3. Interestpaidon the loansin 2004was $20 million(2003- $14million).

I

Propertycosts (bl
Proved
Unproved
Explorationcosts
Developmentcosts

During2004,the companyextendedloansof $32millionto MontrealPipeLineLimited,in whichthe companyhasan equityinterest,for
financingof the equitycompany's
capitalexpenditureprogramsandworkingcapitalrequirements.

2004

2003

1
43
408
452

2
55
339
396

~-

2002
13

Totalcapitalandexploration
expenditures

5
34
469
521

17. Net payments/payablesto governments
millionsof dollars
Currentincome tax expense(note4)
Federalexcise tax
Propertytaxes included in expenses
Payrolland other taxes included in expenses
GST/OST/HST collected {al
GST/OST/HST input tax credits (a)
Other consumertaxes collected for governments
Crown royalties
Total paid or payableto governments
Lessinvestmenttax credits and other receipts
Net paid or payableto governments
Net paymentsto:
Federalgovernment
Provincialgovernments
Local governments
Net paid or payableto governments

2004
1103
1 264
85
50
2 297
(1 948)
1 670
472
4 993
14
4 979

2003
610
1 254
80
52
2 015
(1 705)
1 662
418
4 386
30
4 356

2002
718
1 231
85
51
1 717
(1 368)
1 589
314
4 337
12
4 325

2 472
2 422
85
4 979

2 061
2 215
80
4 356

2 171
2 069
85
4 325

Property,plant and equipment
Oil and gas
millionsof dollars
Propertycosts (bl
Proved
Unproved
Producingassets
Supportfacilities
Incompleteconstruction
Total cost
Accumulateddepreciationand depletion

Net property,
plantandequipment

56

3 328
141
6 099
122
235
9 925
6 514
3 411

3 332
163
5 775
125
200
9 595
6 012
3 583

'

I
I

I

I

Anrwal report 200~

Imperial Oil Limited
~----

~

2003

(al Salesof crudeoil to consolidated
affiliatesareat marketvalue,usingpostedfield prices.Salesof naturalgasliquidsto consolidated
affiliatesareat pricesestimated
to beobtainablein a competitive,
arm's-length
transaction.
Totalsalesexcludethe saleof naturalgasandnaturalgasliquidspurchased
for resale,as well as royalty
payments.
Theseitemsarereportedgrossin note1 in "total revenues
" andin "purchases
of crudeoil andproducts."
{bl "Propertycosts"arepaymentsfor rightsto explorefor petroleumandnaturalgasandfor purchased
reserves(acquiredtangibleandintangibleassetssuchas gas
plants.productionfacilitiesandproducing-well
costsareincludedunder"producing
assets")."Proved"represents
areaswheresuccessful
drillinghasdelineateda field
capableof production.
"Unproved"represents
all otherareas.

(a) Theabbreviations
referto the federalgoodsandservicestax, the Ouebecsalestax andthe federal/provincial
harmonized
sales tax,respectively
. TheHSTis applicable
in the provinces
of NovaScotia.NewBrunswick
andNewfoundland
andLabrador
.

i----------J

2004

~----~---

.J

\...__-~

-

---------

-- __ _

_ _ ______

__

______________________

__

________

57

__J

 •

"""~-·
- --

-- -- ----

- -· - - - --- -

- - ---- -- - - ·- -

-- --- - - --

-----·----- -- ----- -------- ·----------- -- -- ---------·-----!
I

Naturalresourcessegment- supplemental
information(continued)

l
Standardizedmeasure of discountedfuture cash flows
As required by the Financial Accounting Standards Board,the standardizedmeasure of discountedfuture net cash flows is computed
by applying year-end prices, costs and legislated tax rates and a discount factor of 1D percent to net proved reserves.The standardized
measure includes costs for future dismantlement, abandonmentand rehabilitation obligations. The companybelieves the standardized
measure does not provide a reliable estimate of the company'sexpected future cash flows to be obtained from the development and
production of its oil and gas properties or of the value of its proved oil and gas reserves.The standardizedmeasure is preparedon the
basis of certain prescribed assumptionsincluding year-end prices, which represent a single point in time and therefore may cause
significant variability in cash flows from year to year as prices change.The table below excludes the company'sinterest in Syncrude.

l'I

I

I
i

I

Net proveddevelopedandundeveloped
reserves(a)

-- --

- - - -- - - ----

Beginningof year 2002

--

-- - - - - -

Revisions
of previousestimates andimproved recovery
(Sale)/purchase
of reservesin place
Discoveries
andextensions
Production

3
-

(22)
146

Endof year2002

Standardized measure of discounted future net cash flows related to proved oil and gas reserves

millionsof dollars
Futurecashflows
Futureproductioncosts
Futuredevelopment
costs
Futureincometaxes
Futurenet cashflows
Annualdiscountof 10 percent
for estimatedtimingof cashflows

I

Discountedfuturecashflows

2004
11625
(3123)
(1 492)
(2260)
4 750

Oil andgas
2003
27 611
(10871)
(3 084)
(5 543)

Revisions
of previousestimatesandimprovedrecovery
(Sale)/purchase
of reservesin place
Discoveries
andextensions
Production
Endof year2003

1

8113

(1 433)

(3 375)

(6 446)

Performance-related
revisionsand improvedrecovery
(Sale)/purchase
of reservesin place
Discoveriesandextensions
Production

3 317

4 738

8 201

Totalbeforeyear-endprice/costrevisions

I:

I

800
-

(21)

(64)

-

6
(167)

(19)

126

763

889

-

i!l
I l

_@

-

1 023

I

I

-

_

(40)

6

I

-

-

I

Ii

___

33
36
(26)
2
3
(39) _ ___ _ _ (61) - - -· (169)
801
947
1 224
5
(43)

-

2002
35 811
(8 940)
(3117)
(9107)
14647

-

I
Synthetic
Crudeoil andNGLs
Naturalgas
crudeoil
millions
ofbarrels
ofcubic
feet millions
s
-- - - - - - ·- - - --- - -- --- - - - - billions
----- ofbarrel
Conve
ntional
Cold
Lake
__
Total
__
_
_
_
___
_
_
_
Syncrude
--- - --- - -- - -- -165
807
972
1 414
821

I

I

I

I

I

781

t

I!
6
(22)

(20)
(41)

110

702

-

(14)
(63)

57
(13)
3
(190)

(3)
(21)

812

880

757

-

r
i
I

11
;

I

Year-enderice/costrevisions
Endof year 2004

5
(470)
(465)
(89)
115
232
347
791
757
(a)Netreserves
arethecompany's
shareof reservesafterdeducting
theshares
of mineral
owners
orgovernm
entsorboth.All reported
reserves
arelocated
in Canada.
Reserves
of naturalgasarecalculated
at a pressure
of 14.73 pounds
persquareinchat 60degreesFahrenheit.

Ii

Changes in standardized measure of discounted future net cash flows related to proved oil and gas reserves
Oilandgas
million
s of dollars
Balanceat beginningof year
Changesresultingfrom:
Salesandtransfersof oil andgasproduced,net of productioncosts
Net changesin prices, development
costsandproductioncosts
Extensions,
discoveries,
additionsandimprovedrecovery,lessrelatedcosts
Purchases/(sales)
of mineralsin place
Development
costsincurredduringthe year
Revisions
of previousquantityestimates
Accretionof discount
Net changein incometaxes
Net change
Balanceat endof year

ii

2004
4 738

2003
8 201

2002
2 789

(2 240)
(3 692)
(43)
345
1838
663
1 708
(1 421)

(2 075)
(4 395)
22
281
(368)
1 108
1 964
(3 463)

3 317

4 738

(1 645)
9 276
34
4
432
111
423
(3 223)
5 412
8 201

-

Theaboveinformationdescribeschangesduringthe yearsandbalancesof provedoil andgasandsyntheticcrudeoil reservesat year-end2002,2003and
2004. Thedefinitionsusedfor oil andgasreservesare in accordance
with the U.S.SecuritiesandExchange
Commission's
(SEC)Rule4-1O(a)of
RegulationS-X, paragraphs
(2),(3)and(4).
Crudeoil andnaturalgasreserveestimates,excludingSyncrude,
are basedon geologicalandengineering
data,whichhavedemonstrated
with
reasonable
certaintythat thesereservesare recoverable
in futureyearsfromknownreservoirsunderexistingeconomicandoperatingconditions;i.e.,
pricesandcostsas of the datethe estimateis made.Reserves
of crudeoil at ColdLakearethoseestimatedto be recoverable
fromthe Lemingplantand
assessments
of in-place
commercialphases1 through13. Estimatesof syntheticcrudeoil reservesare basedon detailedgeologicalandengineering
crudebitumenvolumes,the miningplan,historicalextractionrecoveryandupgradingyieldfactors,installedplantoperatingcapacityandoperating
approvallimits.

11

I

In compliance
with SECregulatoryguidance,the companyhasreported2004reserve
s on the basisof the dayof December
31, 2004,pricesandcosts
("year-endprices"). Resultantchangesin ColdLakebitumenandthe associatednaturalgasreserve
s fromthe year-end2003reservesestimates,which
were basedon long-termprojectionsof oil andgaspricesconsistentwith thoseusedin the company's
investmentdecision-making
process,are shownin
the line "Year-end
price/costrevisions."Therequirement
to useyear-endpricesfor reservesestimationintroducessingle-daypricefocusandvolatilityin
the valuationof reservesto be producedoverthe next20 to 30 years.Thecompany
believesthatthisapproach
is inconsistent
with the long-term
natureof the
naturalresources
business.
Theuseof prices froma singledateis notrelevantto the investment
decisions
madebythecompany
andannualvariationsin
reserves
basedonsuchyear-end
pricesarenotof consequence
in howthebusiness
is managed.

J

Theimpactof year-endpriceson reservesestimationis mostclearlyshownat ColdLakewhereprovedbitumenandassociatednaturalgasreserveswere
reducedby about485millionoil-equivalentbarrelsas a resultof usingDecember
31, 2004,prices,whichwereunusuallylow.Pricesquicklyrebounded
fromDecember
31,andthroughJanuary2005returnedto levelsthat haverestoredthe reservesto the provedcategory.

I
I

Performance-related
revisionscanincludeupwardor downwardchangesin previouslyestimatedvolumesof provedreservesfor existingfields dueto the
evaluationor revaluationof (1)alreadyavailablegeologic,reservoiror productiondata,or (2)newgeologicor reservoirdata.Performance-related
revisionscanalso includechangesassociatedwith the performance
of improvedrecoveryprojectsandsignificantchangesin eitherdevelopment
strategy
or productionequipment/facility
capacity.Duringthe pastfive years,performance-related
revisionsaveragedan upwardadjustmentof 16 millionoilequivalentbarrelsperyear.

I

I
I

I

Reserves
datado not includecertainresourcesof crudeoil andnaturalgassuchas thosediscovered
in the BeaufortSea-Mackenzie
Deltaandthe Arctic
islands,or the resources
containedin oil sandsotherthanthoseattributableto Syncrude,
the ColdLakeLemingplantandphases 1 through13of Cold
Lakeproductionoperations
.
Oil-equivalent
barrels(DEB)maybe misleading,particularlyif usedin isolation.An DEBconversion
ratio of 6,000cubicfeet to onebarrelis basedon an
energy-equivalency
conversion
methodprimarilyapplicableat the burnertip anddoesnot representa valueequivalency
at the well head.No independent
qualifiedreserve
s evaluatoror auditorwas involvedin the preparationof the reservesdata.

l

58

-

Annualreport 2004

I

Net provedreservesare determinedby deductingthe estimatedfutureshareof mineralownersor governments
or both.Forconventional
crudeoil
(excludingenhancedoil-recovery
projects)andnaturalgas,net provedreservesare basedon estimatedfutureroyaltyratesrepresentative
of those
existingas of the datethe estimateis made.Actualfutureroyaltyrates mayvarywith productionandprice Forenhanced
oil-recovery
projects,Syncrude
andColdLake,net provedreservesare basedon the company's
bestestimateof averageroyaltyratesoverthe life of eachproject.Actualfutureroyalty
ratesmayvarywith production,priceandcosts.

I

l

I

I

I

--- --------- ---- - - - -- --- - ------------·----- - ------1I

Imperial Oil Limi ted

-

-

- - --- --- - - - --- - - - · - - - - - -·-- ·-- - - -

- - - ·- -· - - - - - - - ··- - - --

- - ---

59

- - - --

J

'
I

 -

-------

Share ownership, trading and performance
2004

2003

2002

2001

2000

356834

372011

378875

393 121

417753

349320
14.6

362653
15.2

378863
15.8

379159
15.9

398263
16.6

14 953

15 516

15988

16 483

17 104

------

13088

13601

14 014

14 358

14 873

Sharestraded(thousand
s)

93 778

94 063

83 019

129285

117980

Shareownership
Averagenumberoutstanding,
weightedmonthly(thousands)
Numberof shares outstandingat
December31 (thousa
nclsl
Shares held in Canadaat December31 (perce
nt)
Numberof registeredshareholders
at December31 (al
Numberof shareholdersregistered
in Canada

II

Quarterly financial and stock-trading data lal

Mar. 31
Financialdata,underU.S. GAAPlmillionsof dollars)
Totalrevenues
5 067
Totalexpenses
4 347
Incomebeforeincometaxes
720
Incometaxes
(254)
Cumulativeeffect of accountingchange
Net income
466
Segmentednet income,underU.S.GAAP(millionsof dollars)
Naturalresource
s
319
Petroleumproducts
135
Chemicals
12
Corporateandother
Net income
466

11

Shareprices(dollars)
TorontoStockExchange
High
Low
Closeat Decemb
er 31
AmericanStock Exchange
($U.S.)
High
Low
Closeat December31

73.65
56.42
71.15

58.22
43.20
57.53

49.38
38.51
44.86

46.50
34.05
44.31

62.45
42.34
59.38

44.75
28.25
44.42

31.85
24.00
28.70

29.45
22.59
27.88

42.25
26.50
39.45

5.75
5.74

4.58
4.58

3.20
3.20

3.11
3.11

3.37
3.37

Price ratiosat December31
Sharepriceto net earningslbl

12.4

12.6

14.0

14.2

117

Dividendsdeclared(cl
318
314
323
Total(millionsof dollars)
0.87
0.84
0.88
Pershare!dollars)
owns696 percent
ol lmperial's
shares.
la) Exxon
MobilCorporation
sharepriceat December
31nt theToronto
StockExchange,
dividecl
bynetearningspershare- basicanddiluted.
lb) Closing
lei Thefourth-quarter
dividend
is paidonJanuary1 of thosucceeding
year

324
0.83

5 466
4 767
699
(195)

5 814
4 986
828
(284)

6113
5 333
780
(242)

504

544

368
108
29
(1)

411
99
31
3
544

504

Segmentedcashflows fromoperatingactivities, underU.S. GAAP(nu/lions of dollars)
Naturalresources
395
438
738
Petroleumproducts
(4)
204
309
Chemicals
3
45
55
Corporateandother
4
3
7
Cashflows from operatingactivities
398
690
1109

27.81
17.94
26.30

Net incomeper share,underU.S. GAAP(dollars)
- basic
- diluted

2004
three monthsended
June30 Sept.30 Dec.31

Per shareinformation,underU.S.GAAP(dollars)
Net income- basic
Net income- diluted
Dividends!declaredquarterly)
Shareprices(dollnrsJ(bi
TorontoStock Exchange
High
Low
Close
!$U.S.)
AmericanStockExchange
High
Low
Close

325
0.78

Information for security holders outside Canada

Cashdividendspaidto shareho
lders residentin countries with whichCanadahasan income-ta
x convention are usuallysubjectto
a Canadian nonresident withholdingtax of 15 percent.

Mar. 31
5 478
4 685

2003
threemonthsended
June30 Sept.30
4 510
3 888

Dec. 31

4 626
4 057

4 594
4 188

793
(253)
4

622
(162)

569
1189)

406
185)

538

544

460

380

321

389
158
28
(37)

343
139
6
56

292
102
7
59

257
115
R

251
51

538

544

460

380

321

729
354
23
9
1115

531

418
217
50
14)

441
63
111)
1

269
68
116)
27

704

681

494

348

172
11)
2

1n
3

1.29
1.29
0.22

1.40
1.40
0.22

1.53
1.53
0.22

1.53
1.52
0.22

1.44
1.44
0.21

1.23
1.23
0.22

1.03
1.03
0.22

0.88
0.88
0.22

64.45
56.42
58.87

64.25
58.40
62.40

66.76
59.50
65.48

73.65
65.28
71.15

47.80
43.48
47.35

47.40
43.20
47.10

53.49
45.62
50.80

58.22
50.16
57.53

48.70
42.34
44.84

47.13
43.17
46.82

52.22
45.50
51.71

62.45
51.43
59.38

32.20
28.25
32.14

34.99
29.94
34.92

38.79
33.04
37.21

44.75
37.24
44.42

Sharestraded(thousands)
(cl
26 559
21 640
22132
23 447
21 350
23 171
21 434
28 108
(al Quarterly
datahasnotbeenauditedor revie
wedbythecompany's
independent
auditors.
icanStockExchang
e in New York.Thesymbolonthese
(bl lmperial'ssharesarelistedonthe Toronto
StockExchange
andareadmitted
to unlistedtradingonthe Amer
records.
exchanges
for lmperial'scommonsharesis IMO. Share priceswere obtainedfromstockexchange
onbothof theabovestockexchanges.
(cl The number
of sharestradedis basedontransactions

Thewithholdingtax is reducedto five percenton dividend
s paidto a corporationresidentin the UnitedStatesthat ownsat least
10percentof the voting sharesof the company
.
ImperialOil Limitedis a qualifiedforeigncorporationfor purposesat the reducedU.S capitalgainstax rates115percentandfive percent
andqualifiedforeigncorporations.
for certainindividuals)that are applicableto dividendspaidby U.S.domesticcorporations

Dividend and share-purchase information
2ndquarter,2005 3rd quarter,2005. 4th quarter,2005_ 1s!_q_tlarter,
20~~
-

Thereis no Canadian
tax on gainsfromsellingsharesownedby nonresidents
not carryingon business in Canada.

-Declaration
-··-- - ·-·---date---Dividendrecorddate

Valuation day price

Dividendpaymentdate
- - ------------""Share-purchase
cutoffdate(chequestor sharepurchase
£11.U~t_
be dated andreceivedno later than)
Investmentdate (dividendreinvestmentand share-pur
chase
funds a~einvestedby the companyon)

Forcapitalgainspurposes.lmperial'scommo
n shareswere quotedat $10.50a shareon December
31, 1971, and$15.29on
February
22. 1994. Bothamounts are restatedfor the 1998three-for-oneshare split

I

I

-·--__ ___

--------"
_ ______

M=ay 26. 2005____August17,2005.. November_l§,..2QQ~
__February15,2006
J_une8. 2005 September1. 20(!§_
. _.December
1. 2005 _ March3, 2006_
Jucly
;.;.
'----'
1."2""'00
;;..;c
5_ ___:
D
:...:
c--'
to-'b"e_r--'1_:_.c:_,
2005 _-·January_1, 2006_____ April 1, 2006
June 16.2005 September16, 2005 . December
.14. 2005_-·-- March17. 2006
.....::.:
Ju::1
1y__
4cc.:
. 2:::
0c:c
05
::...___:
D:.::
c.:..:
to.:..:
be:.:...
r .:..:
3,..::
2::_
00,5____ January3, 2006 _____ April 3, 200§

andthedatesshownaresubJoct
to ch,rnge
bytro boardof d1rectO'S
T~e.1o
clarat
io•:ofd,,ideorJs
tlie rightto amend.
suspcod
orterminate
thed;1ided re;mr.strrent
aodshare-pu
rchase
p'anat .ir , t,rno
Trecompany
rose•1es
cheques
sl1ou1d
bernad
e pa1able
to CIBC
MellonTrustComparv
Share-p;irchase
.irenow1
allv mailedthreeto f<1e
daysprio•tu pavrnont
d.ites
.
D1
v1derdcheques
0

Ouarter
;y'siatemerts for d11.,idcrid
re1nvr.stn:en!
andstiare-purchaso
pkrn part1cipm1ts
arer.ort"Jialiy
rnoiiedhvo v"veeKs
nfte,t~GJ"IVl:'~t
rner-~drite~.

--------------GO

----------------------

Annual rep ort 2004

i

I

L_

tmpenaf

011 L1m1ted

-----

-···~

__J

 Information for investors

Directors , senior management and officer s
Dividend reinvestment and share-purchase plan

Head office

ImperialOil Limited
111St. ClairAvenueWest
Toronto,Ontario,CanadaM5W 1K3
Annual meeting

Theannualmeetingof shareholders
will be heldon
Thursday,
April 21, 2005,at 10:30 a.m. localtime at the
MetroTorontoConvention
Centre,255 FrontStreetWest,
Toronto,Ontario,Canada.

Thisplanprovidesshareholders
with two waysto addto
their shareholdings
at a reducedcost.Theplanenables
shareholders
to reinvesttheir cashdividendsin additional
sharesat an averagemarketprice.Shareholders
canalso
investbetween$50and$5,000eachcalendarquarterin
additionalsharesat an averagemarketprice.
Fundsdirectedto the dividendreinvestment
andshare
purchaseplanare usedto buyexistingshareson a stock
exchangeratherthannewlyissuedshares.

Shareholder account matters

Tochangeyouraddress,transfershares,eliminatemultiple
mailings,electto receivedividendsin U.S.fundsor have
dividendsdepositeddirectlyinto accountsat financial
institutionsin Canadathat provideelectronicfund-transfer
services,enrolin the dividendreinvestment
andshare
purchaseplan,or enrolfor electronicdeliveryof shareholder
reports,pleasecontactCIBCMellonTrustCompany
CIBCMellonTrustCompany
PO.Box7010
AdelaideStreetPostalStation
Toronto,Ontario,CanadaM5C2W9
Telephone1-800-387-0825
(fromCanadaor USA)
or 416-643-5500
Fax
416-643-5660
or -5661
E-mail
inquiries@cibcmellon
.com
www.cibcmellon.com
UnitedStatesresidentshareholders
maytransfertheir
sharesthroughMellonInvestorServicesLLC.

Imperial on-line

lmperial'sWebsite containsa varietyof corporate
and investorinformation,including:
• currentstockprices
• annualand interimreports
• Form10-K
• Informationfor Investors(a factbookthat describes
the companyandits operationsin detail)
• investorpresentations
• earningsandothernewsreleases
• historicaldividendinformation
• corporatecitizensh
ip practices
www.i mperialoil,c a
Board of director s (fromleft to rrghtl

Investor information

Informationis alsoavailableby writing to the investor
relationsmanagerat lmperial'sheadofficeor by:
Telephone
416-968-8145
Fax
416-968-5345

Pierre Des Marais II

Paul A, Smith

John F.Kyle

President
GestionPDMInc.
Montreal,Quebec

Controllerand senior
vice-president,
finance
andadministration
ImperialOil Limited
Toronto,Ontario

Vice-president
and treasurer

Other contact numbers

MellonInvestorServicesLl.C
85 ChallengerRoad
RidgefieldPark,NewJersey,U.SA 07660
Telephone1-800-526-0801

Roger Phillips

Customerandotherinquiries:
Telephone: 1-800-567-3776
Fax
1-800-367-0585

Retiredpresidentand
chief executiv
e officer
IPSCOInc.
Regina,Saskatchewan

Corporate secretary

Telephone
:
Fax

9

Imperial Oil

416-968-4966
416-968-5407

Victor L. Young

Corporatedirector of
severalcorporations
St John's,Newfoundland
andLabrador

Version fram,:aise du rapport

Pourobtenirla versionfram;aisedu rapportde la Compagnie
PetrolierelmperialeLtee,veuillezecrire la divisiondes
Petroliere
Relationsavec!esinvestisseurs,
Compagnie
lmperialeLtee,771St. ClairAvenueWest,Toronto,Ontario,
CanadaM5W 1K3.

a

Sheelagh D. Whittaker

Managing director,
PublicSectorBusiness
Electron
ic DataSystemsLimited
London, England
Tim J. Hearn

Design

Chairman,
presidentand
chiefexecutiveofficer
Imperial Oil Limited
Toronto,Ontario

Smith·Boake DesignwerkeInc

Pl:otograpliyJeanBecq.BernardBorn. J. Christoprer Lawson.AlanMarsh/firstlight.
PrismnProduction
s, Imperial OJIarchives
Pr1ntirg

I

Gt

Qi.;ebecor
Wo~ldMll Inc

Annual rep o rt 2004

Imperial

Other offi c ers

Oil Limited

Jim F.Shepard

Retired chairmanand
chief executiveofficer
Finning International Inc.
Vancouver, British Columbia
Brian J, Fischer

Seniorvice-president,
products
andchemicalsdivision
Imperial Oil Limited
Toronto,Ontario
J. Michael Yeager

Seniorvice-president,
resourcesdivision
Imperial Oil Limited
Calgary,Alberta

Brian W. Livingston

Vice-president,
generalcounsel
andcorporate secretary

  

 

Imperial Oil

Corporate profile

Imperial Oil Limited has been a leading
member of the Canadian energy industry for
125 years and is well positioned to deliver
long-term shareholder value by participating
in some of the industry's most promising
growth opportunities.

One of the largest producers of crude oil

and natural gas liquids in Canada and a
major producer of natural gas, the company
is Canada?s largest refiner and marketer of
petroleum products sold primarily under
the E330 brand name and a major producer
of petrochemicals.

 

Imperial Oil Limited

111 St. Clair Avenue West
Toronto, Ontario

Canada M5W1K3



{3 This report has been printed and bound to facilitate recycling.

Imperial on-line

The company?s Web site contains a wealth of
information for investors and others seeking
to evaluate lmperial's performance and
prospects: the latest news releases, the most
recent reports and presentations, information
about dividends and taxes, key dates, historical
share information, contact numbers and a
frequently updated stock?price feed from the
Toronto Stock Exchange (TSX) all this and
more is gathered in one convenient location.

Information on products and services, career
opportunities, corporate citizenship, donations
and sponsorships, coast-to-coast Operations
and the company?s history is also available by
visiting 

 



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Cover photos, from left to right:

Scientists cenduct research in a 19403 lab in Sarnia; the company now
operates two industry-leading research facilities, in Sarnia and Calgary;

the Sarnia manufacturing site opens its petrochemical plant in 1950;

today, the site is the most integrated fuels, lubricating oil and chemicals
manufacturing facility in Canada; Imperial's association with hockey dates
from the 19305; the company continues to sponsor Canada's national winter
sport at all levels; lmperial's Leduc discovery in 1947 signals the beginning
of Canada's role as a major oil producer; the company drills new wells at its
Cold Lake heavy-oil operations; customers fill-up with gasoline at a 1916
service station; today Esso service stations offer fast, friendly service,
quality products and one-stop convenience for busy customers on the go.