First quarter results from Imperial Oil Ltd. (NYSEMKT:IMO) beat analysts’ expectations due primarily to higher realizations for heavy oil at its Cold Lake oilsands project and better-than-expected volumes at its Syncrude joint-venture – both key assets for the company.
Earnings before interest and taxes of C$809-million from Imperial’s Natural Resources operating segment was above the C$667-million expected by Desjardins Securities analyst Adam Zive, as both production and natural gas price realizations came in above estimates.
He rates Imperial shares a “hold” with a C$36 price target given the low probability of a takeout by ExxonMobil (NYSE:XOM), flat or declining production expected for the rest of the decade and the lack of other near-term catalysts.
Mr. Zive also thinks the Mackenzie Valley Gas Pipeline will likely not go ahead anytime soon given higher-than-forecast cost estimates.
Andrew Potter at UBS says further progress on the project will depend on both regulatory and fiscal improvements.
Despite the company’s impressive resource base, given Mr. Potter’s view that the bulk of Imperial’s upside is already reflected in its share price, he maintained his “neutral” rating and C$45 price target.
He also stressed that the company’s other key growth project, the Kearl oilsands project, which it has not provided cost estimates for, also faces development risk.