FORM 10-K IMPERIAL OIL LIMITED

Petroleum products
The downstream continues to experience ongoing volatility in industry margins. Refining margins are the
difference between what a refinery pays for its raw materials (primarily crude oil) and the wholesale market
prices for the range of products produced (primarily gasoline, diesel fuel, heating oil, jet fuel and fuel oil).
Crude oil and many products are widely traded with published international prices. Prices for those
commodities are determined by the marketplace, often an international marketplace, and are impacted by
many factors, including global and regional supply/demand balances, inventory levels, refinery operations,
import/export balances, seasonality and weather. Canadian wholesale prices in particular are largely
determined by wholesale prices in adjacent U.S. regions. These prices and factors are continually
monitored and provide input to operating decisions about which raw materials to buy, facilities to operate
and products to make. However, there are no reliable indicators of future market factors that accurately
predict changes in margins from period to period.
The Company's downstream strategies are to provide customers with quality service at the lowest total
cost offer, have the lowest unit costs amongst the Company’s competitors, ensure efficient and effective
use of capital and capitalize on integration with the Company's other businesses. The Company owns and
operates four refineries in Canada with distillation capacity of 502,000 barrels a day and lubricant manufacturing
capacity of 9,000 barrels a day. The Company’s fuels marketing business includes retail operations
across Canada serving customers through about 2,000 Esso-branded service stations, of which about 720
are Company owned or leased, and wholesale and industrial operations through a network of 30 distribution
terminals.
Chemicals
Although the current business environment is favourable, the North American petrochemical industry
is cyclical. The Company’s strategy for its chemicals business is to reduce costs and maximize value by
continuing to increase the integration of its chemicals plants at Sarnia and Dartmouth with the refineries.
The Company also benefits from its integration within ExxonMobil’s North American chemicals businesses,
enabling the Company to maintain a leadership position in its key market segments.
Results of operations
Net income in 2004 was $2,052 million or $5.74 a share – the best year on record – compared with
$1,705 million or $4.58 a share in 2003 (2002 – $1,214 million or $3.20 a share). Higher realizations for
crude oil, stronger industry refining and petrochemical margins, and higher volumes of Syncrude production,
natural gas and petroleum products contributed positively to net income, partly offset by lower marketing
margins. Compared with 2003, these favourable operating results were partly offset by the combined
negative effects of a higher Canadian dollar on resource and product prices of about $260 million, the
absence of favourable foreign exchange effects on the Company’s U.S. dollar denominated debt of about
$110 million, and lower benefits from tax matters of about $100 million.
Total revenues were $22.5 billion, up about 17 percent from 2003.
Natural Resources
Net income from natural resources was a record $1,487 million, up from $1,143 million in 2003 (2002 –
$1,042 million). The positive earnings effects of improved realizations for crude oil and natural gas,
combined with higher Syncrude, natural gas and natural gas liquids (NGLs) volumes were partly offset by
lower Cold Lake bitumen production, lower benefits from tax matters and the negative effects of a higher
Canadian dollar.
Resource revenues were $6.6 billion, up from $5.6 billion in 2003 (2002 – $4.9 billion). The main reasons
for the increase were higher prices for crude oil and increased natural gas and Syncrude volumes.
Financial statistics
2004 2003 2002 2001 2000
(millions)
Net income ....................................................... $1,487 $1,143 $1,042 $ 941 $1,165
Revenues ......................................................... 6,625 5,648 4,894 5,321 5,900
U.S. dollar world oil prices were considerably higher in 2004 than in the previous year. The annual
average price of Brent crude oil, the most actively traded North Sea crude and a common benchmark of
world oil markets, was $38 (U.S.) a barrel in 2004, a more than 30 percent increase over the average price
of $29 in 2003 (2002 – $25).
However, increases in the Company’s Canadian dollar realizations for conventional crude oil and Cold
Lake bitumen were dampened by the effects of a higher Canadian dollar. Average realizations for conventional
crude oil during the year were $48.96 (Cdn) a barrel, an increase of 22 percent from that of
$40.10 in 2003 (2002 – $36.81).
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