FORM 10-K IMPERIAL OIL LIMITED

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Consolidated statement of shareholders’ equity millions of Canadian dollars At December 31 2004 2003 2002 Common shares at stated value (note 13) At beginning of year 1 859 1 939 1 941 Issued under the stock option plan 13 2 – Share purchases at stated value (71) (82) (2) At end of year 1 801 1 859 1 939 Earnings reinvested At beginning of year 3 952 3 287 2 402 Net income for the year 2 052 1 705 1 214 Share purchases in excess of stated value (801) (717) (11) Dividends (314) (323) (318) At end of year 4 889 3 952 3 287 Accumulated other nonowner changes in equity At beginning of year (266) (315) (77) Minimum pension liability adjustment (note 7) (<strong>10</strong>2) 49 (238) At end of year (368) (266) (315) Shareholders’ equity at end of year 6 322 5 545 4 911 The information on pages F-7 thro u g h F-20 is part of these consolidated financial statements. Certain figures for prior years have been reclassified in the financial statements to conform with the current year’s pre s e n t a t i o n . Nonowner changes in equity for the year Net income for the year 2 052 1 705 1 214 Other nonowner changes in equity (note 7) (<strong>10</strong>2) 49 (238) Total nonowner changes in equity for the year 1 950 1 754 976 F-6
Notes to consolidated financial statements 1. Summary of significant accounting policies The company’s principal business is energy, involving the exploration, production, transportation and sale of crude oil and natural gas and t h e m a n u f a c t u re, transportation and sale of petroleum products. Imperial is also a major manufacturer and marketer of petro c h e m i c a l s . The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America. The financial statements include certain estimates that reflect management’s best judgment. All amounts are in Canadian dollars unless otherwise indicated. Principles of consolidation The consolidated financial statements include the accounts of Imperial Oil Limited and its subsidiaries. Intercompany accounts and transactions are eliminated. Subsidiaries include those companies in which Imperial has both an equity interest and the continuing ability to unilaterally determine strategic operating, investing and financing policies. Significant subsidiaries included in the consolidated financial statements include Imperial Oil Resourc e s Limited, Imperial Oil Resources N.W. T. Limited, Imperial Oil Resources Ve n t u res Limited and McColl-Frontenac Petroleum Inc. All of the above companies a re wholly owned. A significant portion of the company’s activities in natural re s o u rces is conducted jointly with other companies. The accounts reflect the c o m p a n y ’s share of undivided interest in such activities, including its 25-percent interest in the Syncrude joint venture and its nine-percent interest in the Sable o ff s h o re energ y p roject. Segment reporting The company operates its business in Canada in the following segments: Natural resources includes the exploration for and production of crude oil and natural gas. Petroleum products comprises the refining of crude oil into petroleum products and the distribution and marketing of these products. Chemicals includes the manufacturing and marketing of various hydrocarbon-based chemicals and chemical products. The above functions have been defined as the operating segments of the company because they are the segments (a) that engage in business activities from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the company’s chief operating decisionmaker to make decisions about resources to be allocated to the segment and assess its performance; and (c) for which discrete financial information is available. Corporate and other includes assets and liabilities that do not specifically relate to business segments – primarily cash and long-term debt. Net income in this segment primarily includes financing costs and interest income. Segment accounting policies are the same as those described in this summary of significant accounting policies. Natural resources, petroleum products and chemicals expenses include amounts allocated from the ”corporate and other” segment. The allocation is based on a combination of fee for service, proportional segment expenses and a three-year average of capital expenditures. Transfers of assets between segments are recorded at book amounts. Items included in capital employed that are not identifiable by segment are allocated according to their nature. Inventories Inventories are recorded at the lower of cost or net realizable value. The cost of crude oil and products is determined primarily using the last-in, first-out (LIFO) method. LIFO was selected over the alternative first-in, first-out and average cost methods because it provides a better matching of current costs with the revenues generated in the period. Inventory costs include expenditures and other charges, including depreciation, directly or indirectly incurred in bringing the inventory to its existing condition and final storage prior to delivery to a customer. Selling and general expenses are reported as period costs and excluded from inventory costs. Investments The principal investments in companies other than subsidiaries are accounted for using the equity method. They are recorded at the original cost of the investment plus Imperial’s share of earnings since the investment was made, less dividends received. Imperial’s share of the after-tax earnings of these companies is included in ”investment and other income” in the consolidated statement of income. Other investments are recorded at cost. Dividends from these other investments are included in ”investment and other income.” These investments represent interests in non-publicly traded pipeline companies that facilitate the sale and purchase of crude oil and natural gas in the conduct of company operations. Other parties who also have an equity interest in these companies share in the risks and rewards according to their percentage of ownership. Imperial does not invest in these companies in order to remove liabilities from its balance sheet. Property, plant and equipment Property, plant and equipment is recorded at cost. Investment tax credits and other similar grants are treated as a reduction of the capitalized cost of the asset to which they apply. The company uses the successful-efforts method to account for its exploration and production activities. Under this method, costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. The company continues to car ry as an asset the cost of drilling exploratory wells that find sufficient quantities of reserves to justify their completion as producing wells if the required capital expenditure is made and drilling of additional exploratory wells is underway or firmly planned for the near future. Once exploration activities demonstrate that sufficient quantities of commercially producible reserves have been discovered, continued capitalization is dependent on project reviews, which take place at least annually, to ensure that satisfactory progress toward ultimate development of the reserves is being achieved. Exploratory well costs not meeting these criteria are charged to expense. Costs of productive wells and development dry holes are capitalized and amortized on the unit-ofproduction method for each field. The company uses this accounting policy instead of the full-cost method because it provides a more timely accounting of the success or failure of the company’s exploration and production activities. F-7
Page 1 and 2:
SECURITIES AND EXCHANGE COMMISSION
Page 3 and 4: This report contains forward lookin
Page 5 and 6: The Company’s average daily produ
Page 7 and 8: The Province of Alberta, in its cap
Page 9 and 10: Land Holdings At December 31, 2004
Page 11 and 12: etaining its 70 percent interest in
Page 13 and 14: Chemicals The Company’s Chemicals
Page 15 and 16: Item 2. Properties. Reference is ma
Page 17 and 18: Petroleum products The downstream c
Page 19 and 20: Petroleum Products Net income from
Page 21 and 22: Capital and exploration expenditure
Page 23 and 24: (c) (d) (e) The amount by which acc
Page 25 and 26: operating methods) applied to (3) t
Page 27 and 28: The following table sets forth the
Page 29 and 30: Crude oil and natural gas liquids C
Page 31 and 32: Changes in Standardized Measure of
Page 33 and 34: Name and current principal occupati
Page 35 and 36: Item 11. Executive Compensation. Di
Page 37 and 38: (1) K.C. Williams was on a loan ass
Page 39 and 40: date. The Company will pay the reci
Page 41 and 42: Payments to employees who retire Pe
Page 43 and 44: For selected executives, the execut
Page 45 and 46: PART IV Item 15. Exhibits and Finan
Page 47 and 48: (3) Deferred Share Unit Plan. (Inco
Page 49 and 50: INDEX TO FINANCIAL STATEMENTS Pages
Page 51 and 52: Consolidated statement of income mi
Page 53: Consolidated balance sheet millions
Page 57 and 58: Notes to consolidated financial sta
Page 69 and 70: Exhibit (23)(ii)(A) Consent of Inde
Page 71 and 72: Exhibit (31.1) Certifications I, Ti
Page 73 and 74: Exhibit (32.1) Certification of Per
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FORM 10-K IMPERIAL OIL LIMITED

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