Imperial Oil Raises Dividend 21% on Record Cash Flow

Date of Call: Jan 30, 2026

Guidance:

• Kearl production guidance for 2026 is 285,000-295,000 barrels per day, with a path to 300,000 barrels per day.
• Cold Lake's Leming SAGD project expected to ramp up to 9,000 barrels per day in 2026.
• Mahican SA-SAGD project startup anticipated in 2029, with peak production of 30,000 barrels per day.
• Dividend increased to CAD 0.87 per share, payable April 1, 2026, representing a 21% increase.
• Company remains focused on lowering unit cash costs at Kearl and Cold Lake.

Business Commentary:

Strong Cash Flow and Shareholder Returns:

• Imperial Oil reported cash flow from operations of CAD 1.9 billion in Q4 and CAD 6.7 billion for the full year 2025.
• The company returned CAD 2.1 billion to shareholders in Q4 and CAD 4.6 billion over the year through dividends and share repurchases.
• This was driven by the company's integrated business model, which generates substantial free cash flow across various oil price environments.

Dividend Increase and Financial Strategy:

• The company declared a dividend of CAD 0.87 per share, representing an increase of CAD 0.15 per share, the largest nominal increase in company history.
• This increase reflects the company's confidence in its strategies and financial strength, supported by low breakeven business operations and consistent dividend growth over the past decade.

Operational Performance and Challenges:

• Upstream production averaged 444,000 oil equivalent barrels per day in Q4, with record annual production in 2025, although impacted by wet conditions at Kearl and maintenance in December.
• Despite operational challenges, the company maintained strong production levels, demonstrating resilience and effective recovery strategies post-weather disruptions.

Inventory Optimization and Cost Management:

• A one-time charge of CAD 156 million after tax was recorded due to the optimization of materials and supplies inventory.
• This optimization is expected to result in significant operating and working capital efficiencies, aligning with best practices in inventory management.

Syncrude and Strategic Partnerships:

• Imperial's share of Syncrude production increased to 87,000 barrels per day in Q4, reflecting improved performance and turnaround optimization.
• The positive performance is attributed to operational improvements and the application of learnings from other projects, reinforcing the company's strategic focus on maximizing value from its assets.

Sentiment Analysis:

Overall Tone: Positive

• John Whelan reported 'another strong quarter' with over CAD 1.9 billion in cash flow from operations and expressed being 'very pleased' with results. He highlighted 'record annual volumes' in upstream, 'strong' refining earnings, and confidence in future performance, stating 'the combination of our financial position, strong operating results, and our strategic initiatives...gives me confidence in the future of Imperial.'

Q&A:

• Question from Dennis Fong (CIBC World Markets): Do you mind discussing some of the learnings or implementation of different maintenance or standard operating procedures that could help mitigate downtime or inaccessibility to certain regions in the mine on a go-forward basis, especially as we think about continued operations?
  Response: The wet conditions in October were an extreme, temporary event; no carryover impact. The company will review road design and drainage to better weather future events but remains highly confident in Kearl's guidance and path to 300,000 barrels per day.

• Question from Dennis Fong (CIBC World Markets): You mentioned Mahican as the next project for SA-SAGD. Can you give us a little bit more of a background there? Are you targeting a similar reservoir to the Grand Rapids operation? How are you thinking about production ramp up, and then what is the impact potentially to field SOR and operating costs once that project is fully ramped up?
  Response: Mahican SA-SAGD uses the same technology as Grand Rapids but targets the Clearwater reservoir. Startup is planned for 2029 with a peak production of 30,000 barrels per day; the company is highly confident in the project based on positive technology performance at Grand Rapids.

• Question from Manav Gupta (UBS): How are you thinking about shareholder returns, and does that leave you enough cash for a possible NCIB later in the year?
  Response: The dividend increase reflects long-term confidence, not short-term conditions. The company remains committed to the NCIB, viewing dividend and buybacks as complementary, with the NCIB renewal expected in June.

• Question from Manav Gupta (UBS): Your refining earnings have been very resilient. Can you talk a little bit about, you know, Imperial and the overall refining macro?
  Response: Strong refining margins in Q4, especially in November, and the ability to tweak output to capture high distillate margins drove performance. The company feels well-positioned for the future with a flexible network and growing demand for liquids and biofuels.

• Question from Menno Hulshof (TD Cowen): Maybe I’ll just start with one on optimization of materials and supplies inventory. Can you maybe elaborate on the scope of this optimization work? And what practically changes in terms of procurement and inventory management looking forward?
  Response: The optimization involved a comprehensive review informed by external benchmarking, leading to a standardized approach with enhanced analysis, better inventory utilization, reduced storage requirements, and improved visibility/simplicity via technology, expected to yield significant ongoing efficiencies.

• Question from Menno Hulshof (TD Cowen): What are you seeing on the ground in terms of shifting fundamentals for Canadian heavies, since the Venezuelan news first broke, if anything at all?
  Response: No significant changes observed; Venezuelan news caused a marginal, temporary differential widening. The company is monitoring developments but remains focused on its balanced business model and improving competitive position, noting Canada's key role in global supply.

• Question from Patrick O’Rourke (ATB Capital Markets): How that has sort of continued on into January here...if you could sort of benchmark those 300,000 barrel a day high output days, what’s sort of the goal as a percentage of the days for 2026 or total nominal days you would be looking to hit this year?
  Response: The company is confident in the 285-295 guidance for 2026 and the path to 300,000 barrels per day, with upside potential beyond that. Winterization protocols and ongoing reliability/improvement projects support the target.

• Question from Patrick O’Rourke (ATB Capital Markets): Just on the downstream, I looked at...market capture was up a little bit...As we roll into 2026 here, maybe if diesel and distillate gets a little bit softer. Just what you’re seeing boots on the ground in terms of those local markets today, looking out into 2026.
  Response: The company leverages its coast-to-coast network and logistics to capture demand where margins are strongest. Even with margin fluctuations, the business remains profitable, and the company is well-positioned to capture upside when markets improve.

• Question from Neil Mehta (Goldman Sachs): Your perspective on where we are on the journey at Syncrude. Any things that you and your partner are focused on there? And any thoughts on realizations in a pretty good distillate market right now?
  Response: Pleased with Syncrude's performance improvement, attributing some success to knowledge sharing with Kearl. In the distillate market, global supply-demand imbalances and the ability to locally produce renewable diesel are supporting margins and downstream plans.

• Question from Neil Mehta (Goldman Sachs): Just talk about organizationally, some of the changes that you are making and how that fits into it in terms of driving some of the cost goals you have.
  Response: The announced restructuring (20% staff reduction, relocation to sites) aims to capture CAD 150 million in annual efficiencies from 2028 by outsourcing work to global capability centers, improving technology leverage, and aligning with the strategy to maximize value and lower costs.

• Question from Doug Leggate (Wolfe Research): Obviously, a lot of focus on Kearl today. Maybe you could just help us with, if you strip away weather, what do you think today is the sustainable production capacity, gross production capacity at Kearl?
  Response: The company remains very confident in the 285-295 barrels per day target for 2026 and the path to 300,000 barrels per day, with upside potential; the Q4 weather event was a one-off and is behind them.

• Question from Doug Leggate (Wolfe Research): So 20% dividend bump...Are you prepared to lean on your balance sheet? Are you prepared to allow your dividend break even to move up?...can you help us reconcile which of those two is supporting the dividend growth?
  Response: The dividend increase is based on a long-term outlook, stress-tested for sustainability, driven by strategies to reduce unit OpEx, grow volumes, and improve cost structure (e.g., restructuring). It is not tied to a specific break-even target, and the buyback program continues to return surplus cash.

Contradiction Point 1

Kearl Production Capacity Target Timeline

Inconsistent messaging on when the 300k boe/day target will be achieved, impacting investor expectations for asset performance.

What measures have been taken to mitigate wet-weather downtime at Kearl, and what is their impact on future operations? - Dennis Fong (CIBC World Markets)

2025Q4: Confidence remains high in annual guidance of 285-295k boe/day for 2026 and the path to 300k boe/day target. - John Whelan(CEO)

What is driving Kearl's improvements, and how is this asset positioning Imperial for the future? - Manav Gupta (UBS)

2025Q3: The asset is on track to deliver annual production of 300,000 barrels per day and unit cost target of $18 per barrel by 2027. - John Whelan(CEO) and Cheryl Gomez-Smith(COO)

Contradiction Point 2

NCIB Program Commitment and Timing

Contradiction on the ability to commence a new buyback program in the first half of 2026, affecting shareholder return expectations.

Is there sufficient cash remaining after the dividend increase for a potential NCIB this year? - Manav Gupta (UBS)

2025Q4: The company remains committed to the NCIB, which will commence after its renewal at the end of June. - John Whelan(CEO) and Dan Lyons(CFO)

With the accelerated buyback this quarter, are there plans for a Special Issuer Bid (SIB) before mid-2026? - Doug Leggett (Wolf Research) – Follow-up:

2025Q3: The principle remains: surplus cash will be returned in a timely manner... Ability to return cash in first half of 2026 depends on commodity prices. - John Whelan(CEO)

Contradiction Point 3

Timeline and Details for the Mahican SAGD Project

Contradiction on the project's startup year and production capacity, impacting strategic plans for future growth.

Can you provide background on the Mahican SA-SAGD project at Cold Lake, including reservoir targets, ramp-up plans, and impacts on SOR and operating costs? - Dennis Fong (CIBC World Markets)

2025Q4: Startup is planned for 2029 with a peak production of 30,000 barrels per day. - John Whelan(CEO)

Could you provide details on the planned SAGD projects at Cold Lake, including timelines, next steps, and how the technology offers a competitive advantage? - Lydia Alexandra Gould (Goldman Sachs)

2025Q2: The next SA-SAGD plant, Mahkeses, is planned for a 2029 start-up with a peak rate of 30,000 barrels per day. - John R. Whelan(CEO)

Contradiction Point 4

Outlook on Distillate Margins and Market Positioning

Contradiction on the primary driver of refining margins and the company's ability to capture them, affecting expectations for downstream performance.

What drove the stronger-than-expected refining earnings, and what is the refining macro outlook? - Manav Gupta (UBS)

2025Q4: Strong refining margins in Q4... and the ability to flexibly adjust output to capture high distillate margins drove performance. Looking ahead, the company sees strong liquid demand in Canada... and expects stable jet/distillate markets. - John Whelan(CEO) and Dan Lyons(CFO)

How did the Trans Mountain expansion contribute to higher refined product sales and margins, and how did Kearl's Q2 outperformance split between turnaround efficiency and days above 300,000 barrels per day, with implications for H2? - Patrick Joseph O'Rourke (ATB Capital Markets)

2025Q2: The increased refined product sales (480,000 bpd) were enabled by additional supply flexibility from the Trans Mountain expansion, which was used for both local sales and profitable export opportunities. All movements are aimed at generating margin uplift, with the primary focus on the domestic Canadian market. - John R. Whelan(CEO) and Scott Maloney(CFO)

Contradiction Point 5

Dividend Sustainability and Funding

Inconsistent messaging on the relationship between the dividend increase and the company's balance sheet or buyback program, affecting shareholder capital return expectations.

Will the recent dividend hike leave sufficient cash for a potential NCIB later this year? - Manav Gupta (UBS)

2025Q4: The dividend increase is based on a long-term outlook and confidence in the business... It is complementary to the NCIB program. - John Whelan and Dan Lyons(CFO)

Given the current oil price environment, is the company planning to accelerate the NCIB or execute it over a one-year timeframe? - Greg Pardy (RBC Capital Markets)

2025Q1: The company will monitor external factors but has a strong cash position... They will decide the pace as they go, aiming to return surplus cash to shareholders. - Brad Corson(CFO)