Imperial Oil: Estimates Could Rise on Oil Price Momentum

May. 7.07 | About: Imperial Oil (IMO)

As global benchmark crude oil confirms a renewed uptrend by trading above its 40-week average
quote of $67 for delivery over the next six years, we upgrade our rating of Imperial Oil (NYSEMKT:IMO) to Buy from Hold.

Though stock price matches estimated net present value [NPV] of $37 a share, the estimate depends on oil price and could be raised with continued long-term commodity price strength. Tied to proven reserves of 1.6 billion barrels, NPV could also increase if we took more account of 12 billion barrels of non-proven resources Chief Executive Tim Hearn believes lie under Imperial’s lands.

Mineable oil resources are not in our count for Kearl, a new project in preliminary engineering or for future expansion of 25%-owned Syncrude. In situ oil sands resources are not in our count for Cold Lake lands beyond those currently developed.

Achieving long-term growth with reinvestment of just a third of after tax cash flow, the company may return more than 6% of current stock price in the next twelve months to shareholders in dividends and stock repurchase. We restore IMO to a half weighting in our illustrative energy portfolio concentrated on real assets that promise a high return providing clean fuel for global growth.

IMO 1-yr chart:
imo chart may 07

Originally published on March 29, 2007