Buy-recommended Imperial Oil (NYSEMKT:IMO) continues to be priced above estimated net present value [NPV] of $42 a share, revised up from $37 a share on May 29 when we raised long-term oil price to $66 a barrel from $60.
Reporting second quarter results on August 2, the Canadian blue chip saw unlevered cash flow (Ebitda) more than double from downstream (Other) along with record industry refining margin (NY Harbor 3-2-1).
NPV is concentrated some 60% on oil sands including Syncrude, the largest miner/upgrader and Cold Lake, the pioneering in situ project.
More certain of the value of existing production than of the economics of rapid expansion, Imperial spent C$1.191 billion on stock repurchase compared to C$416 million of capital and exploration expenditures in the first half of 2007. Those values seem likely to increase with the rising trend in long-term oil price despite volatility of short-term quotes. As long as six-year oil remains above its 40-week average, we expect to keep our buy recommendation of IMO intact.
Originally published on August 3, 2007.
IMO 1-yr chart: