Imperial Oil Represents ExxonMobil’s Undeveloped Opportunities

The stock of buy-recommended Imperial Oil Limited (IMO) may be priced higher than estimated Net Present Value [NPV] of US$48 a share, but NPV appears to be a moving target on an upward trend. First quarter results fell short of our estimates from three months ago, particularly in the volatile downstream segment.

Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda). NPV exceeds that supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). We make some allowance for the company’s conservative reporting of proven reserves in estimating NPV.

The oft-asked question is “Why doesn’t ExxonMobil (XOM) (the buy-recommended 70% owner of IMO) buy the minority interest? IMO accounts for 10% of XOM market cap and 20% of XOM’s inventory of undeveloped opportunities. The value of the opportunities may expand further as oil price trades above its moving average.

Originally published on May 1, 2008.