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Item 7. Management’s discussion and analysis of financial condition and results of operations

Reference is made to the section entitled “Management’s discussion and analysis of financial condition and results of operations” in the “Financial section”, starting on page 47 of this report.

Item 7A. Quantitative and qualitative disclosures about market risk

Reference is made to the section entitled “Market risks” in the “Financial section”, starting on page 63 of this report. All statements other than historical information incorporated in this Item 7A are forward-looking statements. The actual impact of future market changes could differ materially due to, among other things, factors discussed in this report.

Item 8. Financial statements and supplementary data

Reference is made to the table of contents in the “Financial section” on page 41 of this report:

•Consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP (PCAOB ID: 271), Calgary, Canada dated February 22, 2023, beginning with the section entitled “Report of Independent Registered Public Accounting Firm” on page 71 and continuing through note 18, “Divestment activities” on page 106;

•“Supplemental information on oil and gas exploration and production activities” (unaudited) starting on page 107.

Item 9. Changes in and disagreements with accountants on accounting and financial disclosure

None.

Item 9A. Controls and procedures

As indicated in the certifications in Exhibit 31 of this report, the company’s principal executive officer and principal financial officer have evaluated the company’s disclosure controls and procedures as of December 31, 2022. Based on that evaluation, these officers have concluded that the company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Reference is made to page 70 of this report for “Management’s report on internal control over financial reporting” and page 71 for the “Report of Independent Registered Public Accounting Firm” on the company’s internal control over financial reporting as of December 31, 2022.

There has not been any change in the company’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

Item 9B. Other information

None.

Item 9C. Disclosure regarding foreign jurisdiction that prevents inspections

Not applicable.

PART III

Item 10. Directors, executive officers and corporate governance

Sections of the company’s management proxy circular are contained in the “Proxy information section”, starting on page 111. The company’s management proxy circular is prepared in accordance with Canadian securities regulations.

The company currently has seven directors. The articles of the company require that the board have between five and fifteen directors. Each director is elected to hold office until the close of the next annual meeting. Each of the seven individuals listed in the section entitled “Nominees for director” on pages 112 to 116 of this report have been nominated for election at the annual meeting of shareholders to be held May 2, 2023. All of the nominees, with the exception of S.R. Driscoll, J. Floren and G.J. Goldberg, are now directors and have been since the dates indicated. Ms. Driscoll, Mr. Floren and Mr. Goldberg are not currently directors and are being nominated for election as directors at the annual meeting of shareholders for the first time. K.T. Hoeg, J.M. Mintz and D.S. Sutherland are currently directors and are not standing for re-election in 2023 as they have reached the company's mandatory retirement age for directors.

Reference is made to the section under “Nominees for director”:

•“Director nominee tables”, on pages 112 to 116 of this report;

Reference is made to the sections under “Corporate governance disclosure”:

•“Skills and experience of our board members and nominees”, on page 121 of this report.

•“Other public company directorships of our board members and nominees”, on page 125 of this report.

•The table entitled “Audit committee” under “Board and committee structure”, on page 134 of this report;

•“Ethical business conduct”, starting on page 147 of this report; and

•“Largest shareholder”, on page 151 of this report.

Reference is made to the sections under “Company executives and executive compensation”:

•“Named executive officers of the company” and “Other executive officers of the company”, on pages 153 to 154 of this report.

Item 11. Executive compensation

Reference is made to the sections under “Corporate governance disclosure”:

•“Director compensation”, on pages 139 to 146 of this report; and

•“Share ownership guidelines of independent directors and chairman, president and chief executive officer”, on page 146 of this report.

Reference is made to the following sections under “Company executives and executive compensation”:

•“Letter to shareholders from the executive resources committee on executive compensation”, on page 155 of this report; and

•“Compensation discussion and analysis”, on pages 156 to 178 of this report.

Item 12. Security ownership of certain beneficial owners and management and related stockholder matters

Reference is made to the section under “Company executives and executive compensation” entitled “Equity compensation plan information”, within the “Compensation discussion and analysis” section, on page 176 of this report.

Reference is made to the section under “Corporate governance disclosure” entitled “Largest shareholder”, on page 151 of this report.

Reference is also made to the security ownership information for directors and executive officers of the company under the preceding Items 10 and 11. The compensation of the directors and executive officers of the company for the year-ended December 31, 2022 is described in the sections under “Nominees for director” starting on page 112, “Director compensation” starting on page 139 and “Company executives and executive compensation” starting on page 153. The following table shows the number of Imperial Oil Limited and Exxon Mobil Corporation common shares owned and restricted stock units held by each named executive officer, and the incumbent directors and executive officers as a group, as of February 8, 2023.

Imperial Oil Limited Exxon Mobil Corporation

Item 13. Certain relationships and related transactions, and director independence

Reference is made to the section under “Corporate governance disclosure” entitled “Independence of our board members and nominees”, on page 122 of this report.

Reference is made to the section under “Corporate governance disclosure” entitled “Transactions with Exxon Mobil Corporation”, on page 151 of this report.

M.R. Crocker is deemed a non-independent member of the board of directors and the executive resources committee, safety and sustainability committee, nominations and corporate governance committee and community collaboration and engagement committee under the relevant standards. As an employee of Exxon Mobil Corporation, M.R. Crocker is independent of the company’s management and is able to assist these committees by reflecting the perspective of the company’s shareholders.

Item 14. Principal accountant fees and services

Auditor information

The audit committee of the board of directors recommends that PricewaterhouseCoopers LLP (PwC) be reappointed as the auditor of the company until the close of the next annual meeting. PwC has been the auditor of the company for more than five years and are located in Calgary, Alberta. PwC is a participating audit firm with the Canadian Public Accountability Board and the Public Company Accounting Oversight Board (United States) (PCAOB).

Auditor fees

The aggregate fees of PwC for professional services rendered for the audit of the company’s financial statements and other services for the fiscal years ended December 31, 2022 and December 31, 2021 were as follows:

Audit-related fees 92 92

Tax fees — —

All other fees — —

Audit fees included the audit of the company’s annual financial statements, internal control over financial reporting, and a review of the first three quarterly financial statements in 2022. Audit-related fees consisted of other assurance services including the audit of the company’s retirement plan and royalty statement audits for oil and gas producing entities. The company did not engage the auditor for any other services.

The audit committee formally and annually evaluates the performance of the external auditor, recommends the external auditor to be appointed by the shareholders, recommends their remuneration and oversees their work. The audit committee also approves the proposed current year audit program of the external auditor, assesses the results of the program after the end of the program period and approves in advance any non-audit services to be performed by the external auditor after considering the effect of such services on their independence.

All of the services rendered by the auditor to the company were approved by the audit committee.

Auditor independence

The audit committee periodically discusses with PwC their independence from the company and from management. PwC have confirmed that they are independent with respect to the company within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Alberta, the PCAOB and the rules of the SEC. The company has concluded that the auditor’s independence has been maintained.

PART IV

Item 15. Exhibits, financial statement schedules

Reference is made to the table of contents in the “Financial section” on page 41 of this report.

The following exhibits, numbered in accordance with Item 601 of Regulation S-K, are filed as part of this report:

(101) Interactive Data Files (formatted as Inline XBRL).

Copies of Exhibits may be acquired upon written request of any shareholder to the vice president, investor relations, Imperial Oil Limited, 505 Quarry Park Boulevard S.E., Calgary, Alberta T2C 5N1, and payment of processing and mailing costs.

Item 16. Form 10-K summary

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on February 22, 2023 by the undersigned, thereunto duly authorized.

Imperial Oil Limited

by /s/ Bradley W. Corson

(Bradley W. Corson)

Chairman, president and chief executive officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 22, 2023 by the following persons on behalf of the registrant and in the capacities indicated.

Signature Title

(Bradley W. Corson)

(Daniel E. Lyons)

/s/ David W. Cornhill Director

(David W. Cornhill)

/s/ Matthew R. Crocker Director

(Matthew R. Crocker)

/s/ Krystyna T. Hoeg Director

(Krystyna T. Hoeg)

/s/ Miranda C. Hubbs Director

(Miranda C. Hubbs)

/s/ Jack M. Mintz Director

(Jack M. Mintz)

/s/ David S. Sutherland Director

(David S. Sutherland)

Financial section

Table of contents Page

Financial information (U.S. GAAP) 42

Frequently used terms 43

Overview 47

Business environment 48

Business results 52

Liquidity and capital resources 59

Capital and exploration expenditures 62

Market risks 63

Critical accounting estimates 65

Management’s report on internal control over financial reporting 70

Report of Independent Registered Public Accounting Firm 71

Consolidated statement of income (U.S. GAAP) 74

Consolidated statement of comprehensive income (U.S. GAAP) 75

Consolidated balance sheet (U.S. GAAP) 76

Consolidated statement of shareholders’ equity (U.S. GAAP) 77

Consolidated statement of cash flows (U.S. GAAP) 78

Notes to consolidated financial statements 79

1. Summary of significant accounting policies 79

2. Business segments 85

3. Income taxes 87

4. Employee retirement benefits 88

5. Other long-term obligations 93

6. Financial and derivative instruments 94

7. Share-based incentive compensation programs 96

8. Investment and other income 97

9. Litigation and other contingencies 97

11. Miscellaneous financial information 100

12. Financing and additional notes and loans payable information 101

15. Accounting for suspended exploratory well costs 104

16. Transactions with related parties 105

17. Other comprehensive income (loss) information 106

18. Divestment activities 106

Financial information (U.S. GAAP)

Net income (loss):

Per share information (Canadian dollars)

Net income (loss) per common share - basic 11.47 3.48 (2.53)

Net income (loss) per common share - diluted 11.44 3.48 (2.53)

Dividends per common share - declared 1.46 1.03 0.88

Frequently used terms

Listed below are definitions of several of Imperial’s key business and financial performance measures. The definitions are provided to facilitate understanding of the terms and how they are calculated. Certain measures included in this document are not prescribed by U.S. Generally Accepted Accounting Principles (GAAP). These measures constitute “non-GAAP financial measures” under Securities and Exchange Commission Regulation G and Item 10(e) of Regulation S-K, and “specified financial measures” under National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosureof the Canadian Securities Administrators.

Reconciliation of these non-GAAP financial measures to the most comparable GAAP measure, and other information required by these regulations, have been provided. Non-GAAP financial measures and specified financial measures are not standardized financial measures under GAAP and do not have a standardized definition. As such, these measures may not be directly comparable to measures presented by other companies, and should not be considered a substitute for GAAP financial measures.

Capital employed

Capital employed is a non-GAAP financial measure that is a measurement of net investment. When viewed from the perspective of how capital is used by the business, it includes the company’s property, plant and equipment and other assets, less liabilities, excluding both short-term and long-term debt. When viewed from the perspective of the sources of capital employed in total for the company, it includes total debt and equity. The most directly comparable financial measure that is disclosed in the financial statements is total assets within the company’s Consolidated balance sheet. Both of these views include the company’s share of amounts applicable to equity companies, which the company believes should be included to provide a more comprehensive measurement of capital employed.

Reconciliation of capital employed

From the Consolidated balance sheet

Business uses: asset and liability perspective

Total long-term liabilities excluding long-term debt (8,180) (8,439) (8,276)

Add: Imperial’s share of equity company debt 25 20 26

Total company sources: Debt and equity perspective

Add: Imperial’s share of equity company debt 25 20 26

Return on average capital employed (ROCE)

ROCE is a non-GAAP ratio. From the perspective of the business segments, ROCE is annual business segment net income divided by average business segment capital employed (an average of the beginning and end-of-year amounts). Segment net income includes Imperial’s share of segment net income of equity companies, consistent with the definition used for capital employed, and excludes the cost of financing. Capital employed is a non-GAAP financial measure and is disclosed and reconciled above. The company’s total ROCE is net income excluding the after-tax cost of financing divided by total average capital employed. The company has consistently applied its ROCE definition for many years and views it as one of the best measures of historical capital productivity in a capital-intensive, long-term industry. Additional measures, which are more cash flow based, are used to make investment decisions.

Components of return on average capital employed

From the Consolidated statement of income

Financing (after-tax) including Imperial’s share of equity companies 55 40 52

Return on average capital employed (percent) – corporate total 27.6 9.4 (6.4)

Cash flows from operating activities and asset sales

Cash flows from operating activities and asset sales is a non-GAAP financial measure that is the sum of the net cash provided by operating activities and proceeds from asset sales reported in the Consolidated statement of cash flows. This cash flow reflects the total sources of cash both from operating the company’s assets and from the divesting of assets. The most directly comparable financial measure that is disclosed in the financial statements is cash flows from (used in) operating activities within the company’s Consolidated statement of cash flows. The company employs a long-standing and regular disciplined review process to ensure that assets are contributing to the company’s strategic objectives. Assets are divested when they no longer meet these objectives or are worth considerably more to others. Because of the regular nature of this activity, the company believes it is useful for investors to consider sales proceeds together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions.

Reconciliation of cash flows from (used in) operating activities and asset sales

From the Consolidated statement of cash flows

Cash flows from (used in) operating activities 10,482 5,476 798

Operating costs

Operating costs is a non-GAAP financial measure that are the costs during the period to produce, manufacture, and otherwise prepare the company’s products for sale – including energy costs, staffing and maintenance costs. It excludes the cost of raw materials, taxes and interest expense and are on a before-tax basis. The most directly comparable financial measure that is disclosed in the financial statements is total expenses within the company’s Consolidated statement of income. While the company is responsible for all revenue and expense elements of net income, operating costs represent the expenses most directly under the company’s control and therefore, are useful in evaluating the company’s performance.

Reconciliation of operating costs

From the Consolidated statement of income

Less:

Imperial's share of equity company expenses 71 61 64

Components of operating costs

From the Consolidated statement of income

Depreciation and depletion (includes impairments) 1,897 1,977 3,293

Non-service pension and postretirement benefit 17 42 121

Imperial's share of equity company expenses 71 61 64

Net income (loss) excluding identified items

Net income (loss) excluding identified items is a non-GAAP financial measure that is total net income (loss) excluding individually significant non-operational events with an absolute corporate total earnings impact of at least $100 million in a given quarter. The net income (loss) impact of an identified item for an individual segment in a given quarter may be less than $100 million when the item impacts several segments or several periods. The most directly comparable financial measure that is disclosed in the financial statements is net income (loss) within the company’s Consolidated statement of income. Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant non-operational events from business results. The company believes this view provides investors increased transparency into business results and trends, and provides investors with a view of the business as seen through the eyes of management. Net income (loss) excluding identified items is not meant to be viewed in isolation or as a substitute for net income (loss) as prepared in accordance with U.S. GAAP. All identified items are presented on an after-tax basis.

Reconciliation of net income (loss) excluding identified items

From the Consolidated statement of income

Less identified items included in Net income (loss)

Gain/(loss) on sale of assets 208 — —

Impairments — — (1,171)

Subtotal of identified items 208 — (1,171)

Net income (loss) excluding identified items 7,132 2,479 (686)

Management’s discussion and analysis of financial condition and results of operations

Overview

The following discussion and analysis of Imperial’s financial results, as well as the accompanying financial statements and related notes to consolidated financial statements to which they refer, are the responsibility of the management of Imperial Oil Limited.

The company’s accounting and financial reporting fairly reflect its integrated business model involving exploration for, and production of, crude oil and natural gas, manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a variety of specialty products.

Imperial, with its resource base, financial strength, disciplined investment approach and technology portfolio, is well-positioned to participate in substantial investments to develop new Canadian energy supplies. The company’s operating segments are Upstream, Downstream, Chemicals, and Corporate and other. The company’s integrated business model generally reduces the company’s risk from changes in commodity prices. While commodity prices depend on supply and demand and may be volatile on a short-term basis, Imperial’s investment decisions are grounded on fundamentals reflected in its long-term business outlook, and use a disciplined approach in selecting and pursuing the most attractive investment opportunities. The Corporate Plan is a fundamental annual management process that is the basis for setting operating and capital objectives, in addition to providing the economic assumptions used for investment evaluation purposes. The foundation for the assumptions supporting the Corporate Plan is ExxonMobil’s Outlook for Energy, and Corporate Plan volume projections are based on individual field production profiles, which are also updated annually. Price ranges for crude oil, natural gas, including price differentials, refinery and chemical margins, volumes and operating costs including greenhouse gas emissions pricing, and foreign currency exchange rates are based on Corporate Plan assumptions developed annually and are utilized for investment evaluation purposes. Major investment opportunities are evaluated over a range of potential market conditions. Once the company makes major investments, it completes a reappraisal process to ensure that it learns from the investment decision and incorporates the lessons into future projects.

The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.

Business environment

Long-term business outlook

The “Long-term business outlook” is based on Exxon Mobil Corporation’s Outlook for Energy (the Outlook), which combined with the near-term pathways, is used to help inform the company’s long-term business strategies and investment plans.

The company’s business planning is underpinned by a deep understanding of long-term market fundamentals. These fundamentals include supply and demand trends, the scale and variety of energy needs worldwide; capability, practicality and affordability of energy alternatives including low-carbon solutions; greenhouse gas emission-reduction technologies; and supportive government policies. The Outlook considers these fundamentals to form the basis for the company’s long-term business planning, investment decisions, and research programs. The Outlook reflects the company’s view of global energy demand and supply through 2050. It is a projection based on current trends in technology, government policies, consumer preferences, geopolitics, and economic development.

The Outlook uses projections and scenarios from reputable third parties such as the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC). The IEA describes the Net Zero Emissions by 2050 (NZE) as extremely challenging, requiring all stakeholders - governments, businesses, investors, and citizens - to take immediate, unprecedented action. The IEA acknowledges that society is not currently on the IEA NZE pathway. No single transition pathway can be reasonably predicted, given the wide range of uncertainties. Key unknowns include yet-to-be-developed government policies, market conditions, and advances in technology that may influence the cost, pace, and potential availability of certain pathways. Scenarios that employ a full complement of technology options are likely to provide the most economically efficient pathways.

By 2050, the world’s population is projected at around 9.7 billion people, or about 2 billion more than in 2021. Coincident with this population increase, the Outlook projects worldwide economic growth to average close to 2.5 percent per year, with economic output growing by around 110 percent by 2050 compared to 2021. As economies and populations grow, and as living standards improve for billions of people, the need for energy is expected to continue to rise. Even with significant efficiency gains, global energy demand is projected to rise by almost 15 percent from 2021 to 2050. This increase in energy demand is expected to be driven by developing countries (i.e., those that are not member nations of the Organization for Economic Co-operation and Development (OECD)).

As expanding prosperity drives global energy demand higher, increasing use of energy-efficient technologies and practices, as well as lower-emission products, will continue to help significantly reduce energy consumption and CO2 emissions per unit of economic output over time. Substantial efficiency gains are likely in all key aspects of the world’s economy through 2050, affecting energy requirements for power generation, transportation, industrial applications, and residential and commercial needs.

Under the Outlook, global electricity demand is expected to increase over 75 percent from 2021 to 2050, with developing countries likely to account for about 80 percent of the increase. Consistent with this projection, power generation is expected to remain the largest and fastest growing major segment of global primary energy demand, supported by a wide variety of energy sources. The share of coal-fired generation is expected to decline substantially and approach 15 percent of the world’s electricity in 2050, versus nearly 35 percent in 2021, in part due to policies to improve air quality as well as reduce greenhouse gas emissions to address risks related to climate change. From 2021 to 2050, the amount of electricity supplied using natural gas, nuclear power and renewables is expected to more than double, accounting for the entire growth in electricity supplies and offsetting the reduction of coal. Electricity from wind and solar is expected to increase more than 550 percent, helping total renewables (including other sources, e.g., hydropower) to account for over 80 percent of the increase in electricity supplies worldwide through 2050. Total renewables are expected to reach about 50 percent of global electricity supplies by 2050. Natural gas and nuclear are expected to be about 25 percent and 10 percent, respectively, of global electricity supplies by 2050. Supplies of electricity by energy type will reflect significant differences across regions reflecting a wide range of factors including the cost and availability of various energy supplies and policy developments.

Under the Outlook, energy for transportation – including cars, trucks, ships, trains and airplanes – is expected to increase by over 30 percent from 2021 to 2050. Transportation energy demand is expected to account for around 65 percent of the growth in liquid fuels demand worldwide over this period. Light-duty vehicle demand for liquid fuels is projected to peak by around 2025, and then decline to levels seen in the early-2000s by 2050, as the impact of better fuel economy and significant growth in electric cars, led by China, Europe, and the United States, work to offset growth in the worldwide car fleet of almost 70 percent. By 2050, light-duty vehicles are expected to account for around 15 percent of global liquid fuels demand. During the same time period, nearly all the world’s commercial transportation fleets are expected to continue to run on liquid fuels, including biofuels, which are expected to be widely available and offer practical advantages in providing a large quantity of energy in small volumes.

Almost half of the world’s energy use is dedicated to industrial activity. As the global middle class continues to grow, demand for durable products, appliances, and consumable goods will increase. Industry uses energy products both as a fuel and as a feedstock for chemicals, asphalt, lubricants, waxes, and other specialty products. The Outlook anticipates technology advances, as well as the increasing shift toward cleaner forms of energy such as electricity and natural gas, with coal declining. Demand for oil will continue to grow as a feedstock for industry.

As populations grow and prosperity rises, more energy will be needed to power homes, offices, schools, shopping centers, hospitals, etc. Combined residential and commercial energy demand is projected to rise by around 15 percent through 2050. Led by the growing economies of developing nations, average worldwide household electricity use will rise about 75 percent between 2021 and 2050.

Liquid fuels provide the largest share of global energy supplies today reflecting broad-based availability, affordability, ease of transportation, and fitness as a practical solution to meet a wide variety of needs. By 2050, global demand for liquid fuels is projected to grow to approximately 110 million oil-equivalent barrels per day, an increase of about 17 percent from 2021. The non-OECD share of global liquid fuels demand is expected to increase to nearly 70 percent by 2050, as liquid fuels demand in the OECD is expected to decline by around 20 percent. Much of the global liquid fuels demand today is met by crude production from conventional sources; these supplies will remain important, and significant development activity is expected to offset much of the natural declines from these fields. At the same time, a variety of emerging supply sources – including tight oil, deepwater, oil sands, natural gas liquids, and biofuels – are expected to grow to help meet rising demand. The world’s resource base is sufficient to meet projected demand through 2050 as technology advances continue to expand the availability of more economic and lower-carbon supply options. However, timely investments will remain critical to meeting global needs with reliable and affordable supplies.

Natural gas is a lower-emission, versatile and practical fuel for a wide variety of applications, and it is expected to grow the most of any primary energy type from 2021 to 2050, meeting about 40 percent of global energy demand growth. Global natural gas demand is expected to rise nearly 25 percent from 2021 to 2050, with around two thirds of that increase coming from the Asia Pacific region. Significant growth in supplies of unconventional gas – the natural gas found in shale and other tight rock formations – will help meet these needs. In total, about 50 percent of the growth in natural gas supplies is expected to be from unconventional sources. At the same time, conventionally-produced natural gas is likely to remain the cornerstone of global supply, meeting around two-thirds of worldwide demand in 2050. Liquefied natural gas (LNG) trade will expand significantly, meeting about 50 percent of the increase in global demand growth, with much of this supply expected to help meet rising demand in Asia Pacific.

The world’s energy mix is highly diverse and will remain so through 2050. Oil is expected to remain the largest source of energy with its share remaining close to 30 percent in 2050. Coal and natural gas are the next largest sources of energy today, with the share of natural gas growing to more than 25 percent by 2050, while the share of coal falls to about half that of natural gas. Nuclear power is projected to grow, as many nations are likely to expand nuclear capacity to address rising electricity needs as well as energy security and environmental issues. Total renewable energy is expected to exceed 20 percent of global energy by 2050, with other renewables (e.g., biomass, hydropower, geothermal) contributing a combined share of more than 10 percent. Total energy supplied from wind and solar is expected to increase rapidly, growing over 480 percent from 2021 to 2050, when they are projected to be around 10 percent of the world energy mix.

Decarbonization of industry activities will require a suite of nascent or future lower-carbon technologies and supporting policies. Lower-emission fuels, hydrogen-based fuels, and carbon capture and storage are three key lower-carbon solutions needed to support a lower-emission future, in addition to wind and solar. Along with electrification, lower-emission fuels are expected to play an important role in decarbonization of the transportation sector, particularly in hard-to-decarbonize areas, such as aviation. Low-carbon hydrogen will be a key enabler replacing traditional furnace fuel to decarbonize the industrial sector. Hydrogen and hydrogen-based fuels like ammonia are also expected to make inroads into commercial transportation as technology improves to lower its cost and policy develops to support the needed infrastructure development. Carbon capture and storage on its own, or in combination with hydrogen production, is among the few proven technologies that could enable CO2 emission reductions from high-emitting and hard-to-decarbonize sectors such as power generation and heavy industries, including manufacturing, refining and petrochemicals.

To meet this projected demand under the Outlook and the IEA's Stated Policies Scenario (STEPS), the company anticipates that the world’s available oil and gas resource base will grow, not only from new discoveries, but also from increases in previously discovered fields. Technology will underpin these increases. The investments to develop and supply resources to meet global demand through 2050 will be significant, and would be needed to meet even the rapidly declining demand for oil and gas envisioned in the IEA's Net Zero Emissions by 2050 scenario.

International accords and underlying regional and national regulations covering greenhouse gas emissions continue to evolve with uncertain timing and outcome, making it difficult to predict their business impact. Imperial’s estimates of potential costs related to greenhouse gas emissions align with applicable provincial and federal regulations. Additionally, Imperial uses the Outlookas a foundation for estimating energy supply and demand requirements from various energy sources and uses, and the Outlook takes into account policies established to reduce energy related greenhouse gas emissions. The climate accord reached at the Conference of the Parties (COP 21) in Paris set many new goals, and many related policies are still emerging. The Outlookreflects an environment with increasingly stringent climate policies and is consistent with the global aggregation of Nationally Determined Contributions (NDCs), submitted by the nations that are signatories to the Paris Agreement, as available at the end of 2021. The Outlookseeks to identify potential impacts of climate related government policies, which often target specific sectors. As people and nations look for ways to reduce risks of global climate change, they will continue to need practical solutions that do not jeopardize the affordability or reliability of the energy they need. The company continues to monitor the updates to the NDCs that nations provided around COP 27 in Egypt in November 2022 as well as other policy developments in light of net-zero ambitions formulated by some nations, including Canada.

The information provided in the Outlook includes ExxonMobil's internal estimates and projections based upon internal data and analyses, as well as publicly available information from external sources including the International Energy Agency.

Progress reducing emissions

Practical solutions to the world’s energy and climate challenges will benefit from market competition in addition to well-informed, well-designed and transparent policy approaches that carefully weigh costs and benefits. Such policies are likely to help manage the risks of climate change while also enabling societies to pursue other high priority goals around the world – including clean air and water, access to reliable and affordable energy, and economic progress for all people. The company encourages sound policy solutions that reduce climate-related risks across the economy at the lowest societal cost. All practical and economically viable energy sources will need to be pursued to continue meeting global energy demand, recognizing the scale and variety of worldwide energy needs, as well as the importance of expanding access to modern energy to promote better standards of living for billions of people.

Imperial and its industry peers launched the Oil Sands Pathways to Net Zero alliance in 2021, with the goal of working collectively with the federal and Alberta governments to achieve net-zero greenhouse gas emissions from oil sands operations by 2050 to help Canada meet its climate goals.

As part of the company’s efforts to provide solutions that lower the greenhouse gas emissions intensity of its operations and provide lower life-cycle emissions products to customers, Imperial has announced a company-wide goal to achieve net zero emissions (Scope 1 and 2) by 2050 in its operated assets through collaboration with government and industry partners. Successful technology development and supportive fiscal and regulatory frameworks will be needed to achieve this goal. This work builds on Imperial’s previously announced net-zero goal for operated oil sands as part of the Pathways Alliance initiative, as well as the company’s emission intensity reduction goal of 30 percent by 2030 for operated oil sands facilities when compared to 2016 levels. The company plans to achieve its net zero goal by applying oil sands recovery technologies that use less steam, implementing carbon capture and storage and implementing efficiency projects including the use of lower carbon fuels at its operations.

Recent business environment

Prior to the COVID-19 pandemic, many companies in the industry invested below the levels needed to maintain or increase production capacity to meet anticipated demand. During the COVID-19 pandemic, this decline in investments accelerated as industry revenue collapsed, resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered. Across late 2021 and the first half of 2022, these reductions, along with supply chain constraints, and a continuation of demand recovery, led to a steady increase in oil and natural gas prices and refining margins.

Demand for petroleum and petrochemical products grew in 2022, with the company's financial results benefiting from stronger prices and margins. Commodity and product prices are expected to remain volatile given the current global economic uncertainty and geopolitical events affecting supply and demand, including Russia's military action in Ukraine that has impacted global crude oil and gas supply levels and prices.

The general rate of inflation in Canada and many other countries experienced a brief decline in the initial stage of the COVID-19 pandemic, before starting to increase steadily in 2021, due to an imbalance in supply and demand, and continued to increase in 2022. The underlying factors include, but are not limited to, time cycle of capacity investments, supply chain disruptions, shipping bottlenecks, labour constraints, and side effects from monetary and fiscal expansions. The company closely monitors market trends and works to mitigate both operating and capital cost impacts in all price environments.

Business results

Consolidated

Identified items1 included in Net income (loss)

Gain/(loss) on sale of assets 208 — —

Impairments — — (1,171)

Subtotal of identified items1 208 — (1,171)

Net income (loss) excluding identified items1 7,132 2,479 (686)

2022

Net income in 2022 was $7,340 million, or $11.44 per share on a diluted basis, up from $2,479 million, or $3.48 per share in 2021. Current year results include favourable identified items1 of $208 million after tax, related to the company’s gain on the sale of interests in XTO Energy Canada.

2021

Net income in 2021 was $2,479 million, or $3.48 per share on a diluted basis, compared to a net loss of $1,857 million, or $2.53 per share in 2020. Prior year results include unfavourable identified items1 of $1,171 million after tax, related to the company’s decision to no longer develop a significant portion of its unconventional portfolio.

Upstream

Overview

Imperial produces crude oil and natural gas for sale predominantly into North American markets. Imperial’s Upstream business strategies guide the company’s exploration, development, production, research and gas marketing activities. These strategies include improving asset reliability, accelerating development and application of high impact technologies, maximizing value by capturing new business opportunities and managing the existing portfolio, as well as pursuing sustainable improvements in organizational efficiency and effectiveness. These strategies are underpinned by a relentless focus on operations integrity, commitment to innovative technologies, disciplined approach to investing and cost management, development of employees and investment in the communities within which the company operates.

Imperial has a significant oil and gas resource base and a large inventory of potential projects. The company’s current investment strategy is to invest for value and select volume growth, with focus on optimization within existing assets, cost reduction opportunities and productivity enhancements that aim to deliver robust returns at a wide range of prices. The company also continues to evaluate opportunities to support long-term growth. Although actual volumes will vary from year to year, the focus is on value-add, long-term growth opportunities within the context of the factors described in Item 1A. “Risk factors”. Imperial continually evaluates opportunities, including crude shipments by rail and the pace of the development of its Aspen in-situ oil sands project, as economically justified.

Prices for most of the company's crude oil sold are referenced to Western Canada Select (WCS) and West Texas Intermediate (WTI) oil markets. Additionally, the market price for WCS is typically lower than light and medium grades of oil, and price differentials between WCS and WTI can fluctuate.

Imperial believes prices over the long term will be driven by market supply and demand, with the demand side largely being a function of general economic activity, alternative energy sources, levels of prosperity, technology advancements, consumer preference and government policies. On the supply side, prices may be significantly impacted by political events, logistics constraints, the actions of OPEC, governments, alternative energy sources, and other factors. To manage the risks associated with price, Imperial tests the resiliency of its annual plans and all major investments across a range of price scenarios.

Key events

Upstream assets demonstrated strong performance in 2022. The company continued to benefit from its actions implemented in prior years to manage the cost structure and improve the reliability of its assets, enabling the Upstream to capture significant value and take advantage of the improving business environment throughout 2022.

Upstream full-year production averaged 416,000 gross oil-equivalent barrels per day.

At Kearl, gross production was about 242,000 barrels per day (172,000 barrels Imperial’s share), down 21,000 barrels per day (14,000 barrels Imperial's share) compared to 2021, as a result of extreme cold weather impacts in Q1 2022.

At Cold Lake, annual production averaged 144,000 gross oil-equivalent barrels per day.

At Syncrude, annual production averaged 77,000 gross oil-equivalent barrels per day, supported by the interconnect pipeline.

On August 31, 2022, jointly with ExxonMobil Canada, Imperial sold its interests in XTO Energy Canada to Whitecap Resources Inc.

As described in more detail in Item 1A. “Risk factors”, environmental risks and climate related regulations could have negative impacts on the upstream business.

Results of operations

2022 Net income (loss) factor analysis

millions of Canadian dollars

Price – Higher realizations were generally in line with increases in marker prices, driven primarily by increased demand. Average bitumen realizations increased by $26.76 per barrel generally in line with WCS, and synthetic crude oil realizations increased by $43.85 per barrel.

Volumes – Lower volumes were primarily the result of downtime at Kearl in the first half of the year, partly offset by higher production at Syncrude and Cold Lake.

Royalty – Higher royalties primarily driven by improved commodity prices.

Identified items1 – Current year results include favourable identified items1 related to the company's gain on the sale of interests in XTO Energy Canada.

Other – Higher operating expenses of about $500 million, primarily from higher energy prices, partially offset by favourable foreign exchange impacts of about $270 million, and higher electricity sales at Cold Lake of about $60 million due to increased prices.

2021 Net income (loss) factor analysis

millions of Canadian dollars

Price – Higher realizations were primarily driven by average bitumen realizations increasing by $32.22 per barrel generally in line with WCS, and synthetic crude oil realizations increasing by $31.85 per barrel generally in line with WTI.

Volumes – Higher volumes primarily driven by the absence of production balancing with market demands that occurred in 2020 increased net income by about $550 million.

Royalty – Higher royalties primarily driven by higher commodity prices.

Identified items1 – Prior year results included unfavourable identified items1 of $1,171 million related to the company's decision to no longer develop a significant portion of its unconventional portfolio.

Other – Higher operating expenses of about $720 million, unfavourable foreign exchange impacts of about $230 million and lower Canada Emergency Wage Subsidy received by the company compared to prior year of about $60 million, which includes Imperial's proportionate share of a joint venture.

Marker prices and average realizations

Natural gas (per thousand cubic feet) 5.69 3.83 1.90

Average foreign exchange rate (US$) 0.77 0.80 0.75

Crude oil and natural gas liquids (NGL) - production and sales (a)

gross net gross net gross net

NGLs available for sale 1 1 1 1 2 2

Bitumen sales, including diluent (c) 424 451 401

NGL sales (d) 1 — 2

Natural gas - production and production available for sale (a)

gross net gross net gross net

Production available for sale (g) 50 81 115

2022

Lower production at Kearl was primarily a result of downtime in the first half of the year.

2021

Higher production at Kearl was primarily driven by the absence of prior year production balancing with market

demands.

Downstream

Overview

Imperial’s Downstream serves predominantly Canadian markets with refining, trading, logistics and marketing activities. Imperial’s Downstream business strategies competitively position the company across a range of market conditions. These strategies include targeting industry-leading performance in reliability, safety and operations integrity, as well as maximizing value from advanced technologies, capitalizing on integration across Imperial’s businesses, selectively investing for resilient and advantaged returns, operating efficiently and effectively, and providing quality, valued and differentiated products and services to customers.

Imperial owns and operates three refineries in Canada with aggregate distillation capacity of 433,000 barrels per day. Refining margins are largely driven by differences in commodity prices and are a function of the difference between what a refinery pays for its raw materials (primarily crude oil) and the market prices for the range of products produced (primarily gasoline, heating oil, diesel oil, jet fuel, fuel oil and asphalt). Crude oil and many products are widely traded with published prices, including those quoted on the New York Mercantile Exchange. Prices for these commodities are determined by the global and regional marketplaces and are influenced by many factors, including global and regional supply / demand balances, inventory levels, industry refinery operations, import / export balances, currency fluctuations, seasonal demand, weather and political considerations. While industry refining margins significantly impact earnings, strong operations performance, product mix optimization, and disciplined cost control are also critical to the company's strong financial performance. Imperial's integration across the value chain, from refining to marketing, enhances overall value across the fuels business.

Key events

Refining margins increased sharply in 2022 in the face of strengthening demand, low inventory levels, and supply uncertainty. While refining margins are anticipated to remain volatile in the near term, the company continues to closely monitor industry and global economic conditions.

The company progressed the Strathcona renewable diesel project in 2022, culminating in a final investment decision in January 2023 to construct the largest such facility in Canada, designed to produce more than one billion litres of renewable diesel annually.

As described in more detail in Item 1A. “Risk factors”, proposed carbon policy and other climate related regulations, as well as continued biofuels mandates, could have negative impacts on the downstream business.

Imperial supplies petroleum products through Esso and Mobil-branded sites and independent marketers. At the end of 2022, there were about 2,400 sites operating under a branded wholesaler model, in alignment with Esso and Mobil brand standards, whereby Imperial supplies fuel to independent third parties.

Results of operations

2022 Net income (loss) factor analysis

millions of Canadian dollars

Margins – Higher margins primarily reflect improved market conditions.

Other – Lower turnaround impacts of about $140 million, reflecting the absence of turnaround activities at Strathcona refinery, improved volumes of about $130 million, favourable foreign exchange impacts of about $120 million, and absence of the prior year unfavourable out-of-period inventory adjustment of $74 million, partially offset by higher operating expenses of about $190 million.

2021 Net income (loss) factor analysis

millions of Canadian dollars

Margins – Higher margins reflect improved product demand.

Other – Unfavourable foreign exchange impacts of about $150 million and an unfavourable inventory adjustment of $74 million1, partially offset by lower operating expenses of about $50 million.

Refinery utilization

Utilization of total refinery capacity (percent) 98 89 80

2022

Improved refinery throughput in 2022 was primarily driven by increased demand and reduced turnaround activity.

2021

Improved refinery throughput in 2021 primarily reflects reduced impacts associated with the COVID-19 pandemic, partially offset by a planned turnaround at Strathcona.

Petroleum product sales

Lube oils and other products 47 45 40

2022

Improved petroleum product sales in 2022 primarily reflects increased demand.

2021

Improved petroleum product sales in 2021 primarily reflects reduced impacts associated with the COVID-19 pandemic.

Chemical

Overview

North America continued to benefit from abundant supplies of natural gas and gas liquids, providing both low cost energy and feedstock for steam crackers.

Key events

In 2022, margins were adversely impacted by increased domestic supply of polyethylene.

Imperial maintains a competitive advantage through continued operational excellence, consistent product quality, investment and cost discipline, and integration of its chemical plant in Sarnia with the refinery. The company also benefits from its relationship with ExxonMobil’s North American chemical businesses, enabling Imperial to maintain a leadership position in its key market segments.

Results of operations

2022 Net income (loss) factor analysis

millions of Canadian dollars

Margins – Lower margins primarily reflect weaker industry polyethylene margins.

2021 Net income (loss) factor analysis

millions of Canadian dollars

Margins – Improved margins were primarily due to stronger industry polyethylene margins.

Sales

Corporate and other

Liquidity and capital resources

Sources and uses of cash

The company issues long-term debt from time to time and maintains a commercial paper program. However, internally generated funds cover the majority of its financial requirements. Cash that may be temporarily surplus to the company’s immediate needs is carefully managed through counterparty quality and investment guidelines to ensure that it is secure and readily available to meet the company’s cash requirements and to optimize returns.

Cash flows from operating activities are highly dependent on crude oil and natural gas prices, as well as petroleum and chemical product margins. In addition, to provide for cash flow in future periods, the company needs to continually find and develop new resources, and continue to develop and apply new technologies to existing fields in order to maintain or increase production.

The company’s financial strength enables it to make large, long-term capital expenditures. Imperial’s portfolio of development opportunities and the complementary nature of its business segments help mitigate the overall risks for the company and its cash flows. Further, due to its financial strength, debt capacity and portfolio of opportunities, the risk associated with delay of any single project would not have a significant impact on the company’s liquidity or ability to generate sufficient cash flows for its operations and fixed commitments.

Funding of registered retirement plans complies with federal and provincial pension regulations, and the company makes contributions to the plans based on an independent actuarial valuation completed at least once every three years depending on funding status. The most recent valuation of the company’s registered retirement plans was completed as at December 31, 2019. A valuation of the company’s registered retirement plans as at December 31, 2022 is expected to be completed in 2023. The company contributed $174 million to the registered retirement plans in 2022. Future funding requirements are not expected to affect the company’s existing capital investment plans or its ability to pursue new investment opportunities.

Cash provided by (used in)

Increase (decrease) in cash and cash equivalents 1,596 1,382 (947)

Cash and cash equivalents at end of year 3,749 2,153 771

Cash flow from operating activities

2022

Cash flow generated from operating activities primarily reflects higher Upstream realizations, improved Downstream margins, and favourable working capital impacts.

2021

Cash flow generated from operating activities primarily reflects higher Upstream realizations and stronger Downstream margins.

Cash flow used in investing activities

2022

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment, which were partially offset by proceeds from the sale of interests in XTO Energy Canada.

2021

Cash flow used in investing activities primarily reflects higher additions to property, plant and equipment.

Cash flow used in financing activities

2022

At the end of 2022, total debt outstanding was $4,155 million, compared with $5,176 million at the end of 2021.

During the third quarter of 2022, the company decreased its long-term debt by $1 billion by partially repaying an existing facility with an affiliated company of ExxonMobil.

During the second quarter of 2022, the company reduced its existing $500 million committed long-term line of credit to $250 million and extended the maturity date to June 30, 2023. Subsequently in the fourth quarter of 2022, this committed long-term line of credit was cancelled in full. The company also extended one of its $250 million committed long-term lines of credit to June 30, 2024.

In November 2022, the company extended the maturity date of an existing $250 million committed short-term line of credit to November 2023.

The company has not drawn on any of its outstanding $500 million of available credit facilities.

2021

At the end of 2021, total debt outstanding was $5,176million, compared with $5,184 million at the end of 2020.

During the second quarter of 2021, the company extended the maturity date of two of its short-term lines of credit, totalling $750 million, to May 2023, these facilities are now long-term. The company also extended its $300 million committed short-term line of credit to June 2022.

In November 2021, the company extended the maturity date of an existing $250 million committed short-term line of credit to November 2022.

The company has not drawn on these facilities.

Share repurchases

Number of shares purchased (millions) (a) 93.9 56.0 9.8

2022

On June 27, 2022, the company announced that it had received final approval from the Toronto Stock Exchange for a new normal course issuer bid. The program enabled the company to purchase up to a maximum of 31,833,809 common shares during the period June 29, 2022 to June 28, 2023. The program completed on October 21, 2022 as a result of the company purchasing the maximum allowable number of shares under the program.

On May 6, 2022, the company commenced a substantial issuer bid pursuant to which it offered to purchase for cancellation up to $2.5 billion of its common shares through a modified Dutch auction and proportionate tender offer. The substantial issuer bid was completed on June 15, 2022, with the company taking up and paying for 32,467,532 common shares at a price of $77.00 per share, for an aggregate purchase of $2.5 billion and4.9 percent of Imperial’s issued and outstanding shares at the close of business on May 2, 2022. This included 22,597,379 shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

On November 4, 2022, the company commenced a substantial issuer bid pursuant to which it offered to purchase for cancellation up to $1.5 billion of its common shares through a modified Dutch auction and proportionate tender offer. The substantial issuer bid was completed on December 14, 2022, with the company taking up and paying for 20,689,655 common shares at a price of $72.50 per share, for an aggregate purchase of $1.5 billion and 3.4 percent of Imperial's issued and outstanding shares at the close of business on

October 31, 2022. This included 14,399,985 shares purchased from Exxon Mobil Corporation by way of a proportionate tender to maintain its ownership percentage at approximately 69.6 percent.

2021

On April 30, 2021, the company announced an amendment to its normal course issuer bid to increase the number of common shares that were available to be purchased. Under the amendment, the number of common shares available for purchase increased to a maximum of 29,363,070 common shares during the period June 29, 2020 to June 28, 2021. In 2021, the company purchased 29,356,095 shares under this amended program.

On June 23, 2021, the company announced that it received final approval from the Toronto Stock Exchange for a new normal course issuer bid to continue its existing share purchase program. The program enabled the company to purchase up to a maximum of 35,583,671 common shares during the period June 29, 2021 to June 28, 2022. In accordance with the company’s announcement in November 2021 that it intended to accelerate purchases under the normal course issuer bid, the program was subsequently completed on January 31, 2022 as a result of the company purchasing the maximum allowable number of shares under the program.

Dividends

Per share dividend paid (dollars) 1.29 0.98 0.88

Financial strength

The table below shows Imperial’s consolidated debt-to-capital ratio. The data demonstrates the company’s creditworthiness:

percent

Debt-related interest incurred in 2022, before capitalization of interest, was $111 million, up from $63 million in 2021. The weighted-average interest rate on the company’s debt was 2.2 percent in 2022, up from 1.2 percent in 2021.

The company’s financial strength represents a competitive advantage of strategic importance providing it the opportunity to readily access capital markets across a range of market conditions and enables the company to take on large, long-term capital commitments in the pursuit of maximizing shareholder value.

Contractual obligations

The company has contractual obligations involving commitments to third parties that impact its liquidity and capital resource needs. These contractual obligations are primarily for leases, debt, asset retirement obligations, pension and other postretirement benefits, other long-term obligations, and firm capital commitments. Further information on this topic can be found in notes 4, 5, 13 and 14 to the consolidated financial statements.

Other long-term purchase agreements are commitments that are non-cancelable, or cancelable only under certain conditions, as well as long-term commitments, other than unconditional purchase obligations. They include primarily transportation services agreements, raw material supply and community benefits agreements. The total obligation at year-end 2022 was $8.8 billion, of which $783 million is due in 2023, and $670 million is due in 2024.

Litigation and other contingencies

As discussed in note 9 to the consolidated financial statements on page 97, a variety of claims have been made against Imperial and its subsidiaries. Based on a consideration of all relevant facts and circumstances, the company does not believe the ultimate outcome of any currently pending lawsuits against the company will have a material adverse effect on the company’s operations, financial condition, or financial statements taken as a whole.

Additionally, as discussed in note 9, Imperial was contingently liable at December 31, 2022, for guarantees relating to performance under contracts. These guarantees do not have a material effect on the company’s operations, financial condition, or financial statements taken as a whole.

There are no events or uncertainties beyond those already included in reported financial information that would indicate a material change in future operating results or financial condition.

Capital and exploration expenditures

Capital and exploration expenditures represent the combined total of additions at cost to property, plant and equipment, additions to finance leases, additional investments and acquisitions; exploration expenses on a before-tax basis from the Consolidated statement of income; and the company’s share of similar costs for equity companies. Capital and exploration expenditures exclude the purchase of carbon emission credits. While Imperial’s management is responsible for all investments and elements of net income, particular focus is placed on managing the controllable aspects of this group of expenditures.

Corporate and other 57 24

(a)Exploration expenses included.

For the Upstream segment, capital and exploration expenditures were primarily related to sustaining activity in support of the company’s in-situ and oil sands assets.

For the Downstream segment, capital expenditures were primarily for enhancing the company’s distribution network as well as refinery projects to improve environmental performance, reliability, feedstock flexibility, and energy efficiency.

Total capital and exploration expenditures are expected to be approximately $1.7 billion in 2023.

Expected capital and exploration expenditures for 2023 includes firm capital commitments of $407 million for the construction and purchase of fixed assets and other permanent investments. An additional $211 million of firm capital commitments have been made for years 2024 and beyond.

Actual spending could vary depending on the progress of individual projects.

Market risks

Crude oil, natural gas, petroleum product and chemical prices have fluctuated in response to changing market forces. The impacts of these price fluctuations on earnings from Upstream, Downstream and Chemical operations have varied.

Imperial’s earnings are influenced by North American crude oil benchmark prices as well as changes in the differentials between these benchmarks and western Canadian prices for light and heavy crude oil. Imperial’s integrated business model reduces the company’s risk from changes in commodity prices. For instance, when differentials between North American crude benchmarks and western Canadian prices widen, Imperial is able to mitigate the impact of widening differentials on the Upstream through integration with Downstream investments in refineries, pipeline commitments and the Edmonton rail terminal.

In the competitive downstream and chemical environments, earnings are primarily determined by margin capture rather than absolute price levels on products sold. Refining margins are a function of the difference between what a refiner pays for its raw materials (primarily crude oil) and the market prices for the range of products produced. These prices, in turn, depend on global and regional supply / demand balances, inventory levels, refinery operations, import / export balances and weather.

Industry crude oil commodity prices and petroleum and chemical product prices are commonly benchmarked in U.S. dollars. The majority of Imperial’s sales and purchases are related to these industry U.S. dollar benchmarks. As the company records and reports its financial results in Canadian dollars, to the extent that the Canadian / U.S. dollar exchange rate fluctuates, the company’s earnings will be affected.

Imperial is exposed to changes in interest rates, primarily on its debt which carries floating interest rates. The impact of a quarter percent change in interest rates affecting Imperial’s debt would not be material to earnings or cash flow. Imperial has access to significant sources of long-term and short-term liquidity. Internally generated funds are expected to cover the majority of financial requirements, supplemented by long-term and short-term debt as needed.

The company’s potential exposure to commodity price and margin, and Canadian / U.S. dollar exchange rate fluctuations is summarized in the earnings sensitivities table, which shows the estimated annual effect, under current conditions, on the company’s after-tax net income. For any given period, the extent of actual benefit or detriment will be dependent on the price movements of individual types of crude oil and products, production and sales volumes, transportation capacity, costs and egress methods, and other factors. Accordingly, changes in benchmark prices for crude oil and crude oil differentials, and other factors listed in the table following, only provide broad indicators of changes in the earnings experienced in any particular period.

Earnings sensitivities (a)

millions of Canadian dollars, after-tax

One dollar (U.S.) per barrel increase (decrease) in crude oil prices + (-) 105

The demand for crude oil, petroleum products and petrochemical products are generally linked closely with economic growth. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on the company’s financial results. Although price levels of crude oil may rise and fall significantly over the short to medium-term due to global economic conditions, political events, decisions by OPEC, governments and other factors, industry economics over the long-term will continue to be driven by market supply and demand. The company evaluates investments over a range of prices, including estimated greenhouse gas emission costs.

The global energy markets can give rise to extended periods in which market conditions are adverse to one or more of the company’s businesses. Such conditions, along with the capital-intensive nature of the industry and very long lead times associated with many of the company’s projects, underscore the importance of maintaining a strong financial position. Management views the company’s financial strength as a competitive advantage.

In general, segment results are not dependent on the ability to sell and / or purchase products to / from other segments. Where such intersegment sales take place, they are the result of efficiencies and competitive advantages from integrated business segments and refinery and chemical complexes. The company’s intersegment sales include crude oil produced by the Upstream and sold to the Downstream, as well as sales between refineries and the chemical plant related to raw materials, feedstocks and finished products. All intersegment sales are at market based prices. Refer to note 2 for additional information on intersegment revenue.

The company has an active asset management program in which nonstrategic assets are considered for divestment. The asset management program includes a disciplined, regular review to ensure that assets are contributing to the company’s strategic objectives.

Risk management

The company’s size, strong capital structure and the complementary nature of its business segments reduces the company’s enterprise-wide risk from changes in commodity prices and currency exchange rates. In addition, the company may use commodity-based contracts, including derivatives, to manage commodity price risk and to generate returns from trading. The company’s derivatives are not accounted for under hedge accounting. Credit risk associated with the company’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. No material market or credit risks to the company’s financial position, results of operations or liquidity exist as a result of the derivatives described in note 6 on page 94. The company maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.

Critical accounting estimates

The company’s financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The company’s accounting and financial reporting fairly reflect its business model involving exploration for, and production of, crude oil and natural gas; manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a variety of specialty products; and pursuit of lower-emission business opportunities, including carbon capture and storage, hydrogen and lower-emission fuels. Imperial does not use financing structures for the purpose of altering accounting outcomes or removing debt from the balance sheet. The company’s significant accounting policies are summarized in note 1 to the consolidated financial statements on page 79.

Oil and natural gas reserves

Evaluations of oil and natural gas reserves are important to the effective management of upstream assets. They are an integral part of investment decisions about oil and gas properties such as whether development should proceed.

The estimation of proved reserve volumes, which is based on the requirement of reasonable certainty, is an ongoing process based on rigorous technical evaluations, commercial and market assessments, detailed analysis of well information such as flow rates and reservoir pressures, and development and production costs, and other factors. The estimation of proved reserves is controlled by the company through long-standing approval guidelines. Reserves changes are made within a well-established, disciplined process driven by qualified geoscience and engineering professionals, assisted by the reserves management group which has significant technical experience, culminating in reviews with and approval by senior management and the company’s board of directors. Notably, the company does not use specific quantitative reserves targets to determine compensation. Key features of the reserves estimation process are covered in “Disclosure of reserves” in Item 1.

Oil and natural gas reserves include both proved and unproved reserves.

•Proved oil and natural gas reserves are determined in accordance with U.S. Securities and Exchange Commission (SEC) requirements. Proved reserves are those quantities of oil and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible under existing economic and operating conditions and government regulations. Proved reserves are determined using the average of first-day-of-the-month oil and natural gas prices during the reporting year.

Proved reserves can be further subdivided into developed and undeveloped reserves. Proved developed reserves include amounts which are expected to be recovered through existing wells, facilities, or mining activities with existing equipment and operating methods. Proved undeveloped reserves include amounts expected to be recovered from new wells, existing wells, facilities, or mining activities, where a relatively major capital expenditure is required. Proved undeveloped reserves are recognized when a development plan has been adopted indicating that the reserves are scheduled to be developed within five years, unless specific circumstances support a longer period of time.

The company is reasonably certain that proved reserves will be produced. However, the timing and amount recovered can be affected by a number of factors including completion and optimization of development projects, reservoir performance, regulatory approvals, government policies, consumer preferences, royalty frameworks and significant changes in oil and natural gas price levels.

•Unproved reserves are quantities of oil and natural gas with less than reasonable certainty of recoverability and include probable reserves. Probable reserves are reserves that, together with proved reserves, are as likely as not to be recovered.

Revisions in previously estimated volumes of proved reserves for existing fields can occur due to the evaluation or re-evaluation of already available geologic, reservoir or production data; new geologic, reservoir or production data; or changes in the average of first-day-of-the-month oil and natural gas prices and / or costs that are used in the estimation of reserves. Revisions can also result from significant changes in either development strategy or production equipment and facility capacity.

In 2020, downward revisions of proved bitumen reserves were a result of low prices. The 2.2 billion barrels of bitumen at Kearl and 0.6 billion barrels of bitumen at Cold Lake no longer qualified as proved reserves under the SEC definition of proved reserves. Downward revisions to proved synthetic crude oil reserves were a result of lower prices, offset by the addition of proved undeveloped reserves associated with future development at Syncrude. Changes to the liquids and natural gas proved reserves were the result of updated development plans at the Montney and Duvernay unconventional assets and the divestment of conventional properties.

In 2021, upward revisions of proved bitumen reserves were a result of improved prices. The 1.7 billion barrels of bitumen at Kearl and 0.5 billion barrels of bitumen at Cold Lake qualified as proved reserves under the SEC definition of proved reserves. Upward revisions to proved synthetic crude oil reserves were a result of improved prices. Changes to the liquids and natural gas proved reserves were the result of updated development plans and divestments at the Montney and Duvernay unconventional assets.

In 2022, downward revisions of proved bitumen reserves were driven by a decrease of 0.2 billion barrels at Kearl as a result of higher royalty obligations associated with pricing, and a decrease of 0.2 billion barrels at Cold Lake due to an updated development plan. An increase to the bitumen reserves of 0.1 billion barrels is associated with extensions at Cold Lake for the Grand Rapids Phase 1 SA-SAGD and Leming SAGD projects. Downward revisions to proved synthetic crude oil reserves were a result of mine development plan updates and higher royalty obligations at Syncrude associated with pricing. Changes to the liquids and natural gas proved reserves were primarily a result of the sale of the company’s interest in the Montney and Duvernay unconventional assets.

Under the terms of certain contractual arrangements or government royalty regimes, lower prices can also increase proved reserves attributable to Imperial. The company’s operating decisions and its outlook for future production volumes are not impacted by proved reserves as disclosed under the SEC definition.

Unit-of-production depreciation

Oil and natural gas reserve volumes are used as the basis to calculate unit-of-production depreciation rates for most upstream assets. Depreciation is calculated by taking the ratio of asset cost to total proved reserves or proved developed reserves applied to actual production. The volumes produced and asset cost are known, while proved reserves are based on estimates that are subject to some variability.

In the event that the unit-of-production method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life than the reserves, and as such, the company uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life.

To the extent that proved reserves for a property are substantially de-booked and that property continues to produce such that the resulting depreciation charge does not result in an equitable allocation of cost over the expected life, assets will be depreciated using a unit-of-production method based on reserves determined at the most recent SEC price which results in a more meaningful quantity of proved reserves, appropriately adjusted for production and technical changes. This approach was applied in 2021, with the corresponding effect on depreciation expense being immaterial compared to prior periods. For 2022 and 2023, all properties have sufficient reserves at current SEC prices which will enable equitable allocation of cost over the economic lives of the Upstream assets.

Impact of oil and gas reserves and prices and margins on testing for impairment

The company tests assets or groups of assets for recoverability on an ongoing basis whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The company has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and ASC 932 and relies, in part, on the company’s planning and budgeting cycle.

Because the lifespans of the vast majority of the company’s major assets are measured in decades, the future cash flows of these assets are predominantly based on long-term oil and natural gas commodity prices, industry margins, and development and production costs. Significant reductions in the company’s view of oil or natural gas commodity prices or margin ranges, especially the longer-term prices and margins, and changes in the development plans, including decisions to defer, reduce or eliminate planned capital spending, can be an indicator of potential impairment. Other events or changes in circumstances, including indicators outlined in ASC 360 can be indicators of potential impairment as well.

In general, Imperial does not view temporarily low prices or margins as an indication of impairment. Management believes that prices over the long term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand fundamentals. On the supply side, industry production from mature fields is declining. This is being offset by investments to generate production from new discoveries, field developments, and technology and efficiency advancements. OPEC investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic activities, alternative energy sources and levels of prosperity. During the lifespan of its major assets, the company expects that oil and gas prices and industry margins will experience significant volatility. Consequently, these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing whether events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the company considers recent periods of operating losses in the context of its longer-term view of prices and margins.

Outlook for Energy and cash flow assessment

The annual planning and budgeting process, known as the company plan, is the mechanism by which resources (capital, operating expenses and people) are allocated across the company. The foundation for the energy supply and demand assumptions supporting the company plan begins with the Outlook, which contains demand and supply projections based on its assessment of current trends in technology, government policies, consumer preferences, geopolitics, economic development, and other factors.

Reflective of the existing global policy environment, the Outlook does not attempt to project the degree of required future policy and technology advancement and deployment for the world or the company, to meet net zero by 2050. As future policies and technology advancements emerge, they will be incorporated into the Outlook, and consequently, the company’s business plans will be updated accordingly.

If events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, the company estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on the assumptions developed in the company plan, which is reviewed and approved by the board of directors, and are consistent with the criteria management uses to evaluate investment opportunities. These evaluations make use of the company’s assumptions of future capital allocations, crude oil and natural gas commodity prices including price differentials, refining and chemical margins, volumes, development and operating costs, including greenhouse gas emissions prices, and foreign currency exchange rates. Volumes are based on projected field and facility production profiles, throughput, or sales. Management’s estimate of upstream production volumes used for projected cash flows makes use of proved reserve quantities and may include risk-adjusted unproved reserve quantities. The greenhouse gas emission prices reflect existing or anticipated policy actions of applicable provincial and federal governments. While third-party scenarios, such as the International Energy Agency Net Zero Emissions by 2050, may be used to test the resiliency of company’s businesses or strategies, they are not used as a basis for developing future cash flows for impairment assessments.

Fair value of impaired assets

An asset group is impaired if its estimated future undiscounted cash flows are less than the asset group’s carrying value. Impairments are measured by the excess of the carrying value over fair value. The assessment of fair value is based on the views of a likely market participant. The principal parameters used to establish fair value include estimates of acreage values and flowing production metrics from comparable market transactions, market-based estimates of historical cash flow multiples, and discounted cash flows. Inputs and assumptions used in discounted cash flow models include estimates of future production volumes, throughput and product sales volumes, commodity prices which are consistent with the average of third-party industry experts and government agencies, refining and chemical margins, drilling and development costs, operating costs, and discount rates which are reflective of the characteristics of the asset group.

Other impairment estimates

Unproved properties are assessed periodically to determine whether they have been impaired. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the company’s future development plans, the estimated economic chance of success and the length of time that the company expects to hold the properties. Properties that are not individually significant are aggregated by groups and amortized based on development risk and average holding period.

Long-lived assets that are held for sale are evaluated for possible impairment by comparing the carrying value of the asset with its fair value less the cost to sell. If the net book value exceeds the fair value less cost to sell, the assets are considered impaired and adjusted to the lower value. Judgment is required to determine if assets are held for sale, and to determine the fair value less cost to sell.

Investments accounted for by the equity method are assessed for possible impairment when events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. Examples of key indicators include a history of operating losses, negative earnings and cash flow outlook, significant downward revisions to oil and gas reserves, and the financial condition and prospects for the investee’s business segment or geographic region. If the decline in value of the investment is other than temporary, the carrying value of the investment is written down to fair value. In the absence of market prices for the investment, discounted cash flows are used to assess fair value, which requires significant judgment.

Recent impairments

In 2020, the company announced its decision to not further develop a significant portion of its unconventional portfolio in Alberta, resulting in a non-cash, after-tax impairment charge of $1,171 million in the company’s 2020 Upstream results.

Factors which could put further assets at risk of impairment in the future include reductions in the company’s price or margin outlooks, changes in the allocation of capital or development plans, reduced long-term demand for the company’s products and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price increases or margins. However, due to the inherent difficulty in predicting future commodity prices or margins, and the relationship between industry prices and costs, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges related to the company’s long-lived assets.

Supplemental information regarding oil and gas results of operations, capitalized costs and reserves is provided following the notes to consolidated financial statements.

Pension benefits

The company’s pension plan is managed in compliance with the requirements of governmental authorities and meets funding levels as determined by independent third-party actuaries. Pension accounting requires explicit assumptions regarding, among others, the discount rate for the benefit obligations, the expected rate of return on plan assets and the long-term rate of future compensation increases. All pension assumptions are reviewed annually by senior management. These assumptions are adjusted only as appropriate to reflect long-term changes in market rates and outlook. The long-term expected rate of return on plan assets of 4.3 percent used in 2022 compares to actual returns of 5.6 percent and 6.5 percent achieved over the last 10- and 20-year periods respectively, ending December 31, 2022. If different assumptions are used, the obligation and expense could increase or decrease as a result. As an indication of the company’s potential exposure to changes in the critical assumptions such as the expected rate of return on plan assets and the discount rate for measuring the pension plan benefits obligation, a reduction of 1 percent in the discount rate would increase the benefits obligation by approximately $1 billion. Similarly, a reduction of 1 percent in the long-term rate of return on plan assets would increase the annual pension expense by approximately $95 million before tax. At Imperial, differences between actual returns on plan assets and the long-term expected returns are not recorded in pension expense in the year the differences occur. Such differences are deferred, along with other actuarial gains and losses, and are amortized into pension expense over the expected average remaining service life of employees. Employee benefits expense represented about 1 percent of total expenses in 2022.

Asset retirement obligations

The company is subject to retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the company uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation; technical assessments of the assets; estimated amounts and timing of settlements; discount rates; and inflation rates. On page 93, note 5 to the consolidated financial statements provides a three-year continuity table detailing the changes in asset retirement obligations.

Suspended exploratory well costs

The company continues capitalization of exploratory well costs when it has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. Assessing whether the company is making sufficient progress on a project requires careful consideration of the facts and circumstances. The facts and circumstances that support continued capitalization of suspended wells at year-end are disclosed in note 15 to the consolidated financial statements on page 104.

Tax contingencies

The operations of the company are complex, and related tax interpretations, regulations and legislation are continually changing.

The benefits of uncertain tax positions that the company has taken or expects to take in its income tax returns are recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. Significant management judgment is required in the accounting for income tax contingencies and tax disputes because the outcomes are often difficult to predict. The company’s unrecognized tax benefits and a description of open tax years are summarized in note 3 to the consolidated financial statements.

Management’s report on internal control over financial reporting

Management, including the company’s chief executive officer and principal accounting officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over the company’s financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Imperial Oil Limited’s internal control over financial reporting was effective as of December 31, 2022.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the company’s internal control over financial reporting as of December 31, 2022, as stated in their report which is included herein.

/s/ Bradley W. Corson

Bradley W. Corson

Chairman, president and chief executive officer

(Principal executive officer)

/s/ Daniel E. Lyons

Daniel E. Lyons

Senior vice-president,finance and administration, and controller

(Principal accounting officer and principal financial officer)

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Imperial Oil Limited

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Imperial Oil Limited and its subsidiaries (together, the Company) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The Impact of Proved Oil and Natural Gas Reserves on Upstream Property, Plant and Equipment, Net

As described in Notes 1 and 2 to the consolidated financial statements, the Company’s upstream property, plant and equipment (PP&E), net balance was $26,949 million as of December 31, 2022, and the related depreciation and depletion expense for the year ended December 31, 2022 was $1,673 million. Management uses the successful efforts method to account for its exploration and production activities. Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved) are capitalized when incurred. As disclosed by management, proved oil and natural gas reserve volumes are used as the basis to calculate unit-of-production depreciation rates for most upstream assets. The estimation of proved oil and natural gas reserve volumes is an ongoing process based on technical evaluations, commercial and market assessments, detailed analysis of well information such as flow rates and reservoir pressures, and development and production costs, among other factors. As further disclosed by management, reserves changes are made within a well-established, disciplined process driven by qualified geoscience and engineering professionals, assisted by the reserves management group (together “management’s specialists”).

The principal considerations for our determination that performing procedures relating to the impact of proved oil and natural gas reserves on upstream PP&E, net is a critical audit matter are (i) the significant judgment by management, including the use of management’s specialists, when developing the estimates of proved oil and natural gas reserve volumes, as the reserve volumes are based on engineering assumptions and methods, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence related to the data, methods, and assumptions used by management and its specialists in developing the estimates of proved oil and natural gas reserve volumes.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimates of proved oil and natural gas reserve volumes. The work of management’s specialists was used in performing the procedures to evaluate the reasonableness of estimates of proved oil and natural gas reserve volumes. As a basis for using this work, management’s specialists’ qualifications were understood and the Company’s relationship with management’s specialists was assessed. The procedures performed also included evaluation of the methods and assumptions used by management’s specialists, tests of the data used by management’s specialists, and an evaluation of management’s specialists’ findings.

/s/ PricewaterhouseCoopers LLP

Chartered Professional Accountants

Calgary, Canada

February 22, 2023

We have served as the Company’s auditor since 1934.

Consolidated statement of income (U.S. GAAP)

millions of Canadian dollars

Revenues and other income

Expenses

Depreciation and depletion (includes impairments) (note 2, 11) 1,897 1,977 3,293

Non-service pension and postretirement benefit 17 42 121

Per share information (Canadian dollars)

Net income (loss) per common share - basic (note 10) 11.47 3.48 (2.53)

Net income (loss) per common share - diluted (note 10) 11.44 3.48 (2.53)

(d) Amounts to related parties included in financing, (note 16). 78 28 61

Consolidated statement of comprehensive income (U.S. GAAP)

millions of Canadian dollars

Other comprehensive income (loss), net of income taxes

Total other comprehensive income (loss) 665 812 (78)

Consolidated balance sheet (U.S. GAAP)

millions of Canadian dollars

Assets

Current assets

Accounts receivable - net (a) 4,719 3,869

Inventories of crude oil and products (note 11) 1,514 1,102

Materials, supplies and prepaid expenses 754 689

Investments and long-term receivables (b) 893 757

Property, plant and equipment,

less accumulated depreciation and depletion (note 2, 18) 30,506 31,240

Other assets, including intangibles - net 1,223 806

Liabilities

Current liabilities

Notes and loans payable (note 12) 122 122

Accounts payable and accrued liabilities (a) (note 11) 6,194 5,184

Other long-term obligations (note 5) 3,467 3,897

Deferred income tax liabilities (note 3) 4,713 4,542

Commitments and contingent liabilities (note 9)

Shareholders’ equity

Common shares at stated value (d) (note 10) 1,079 1,252

Accumulated other comprehensive income (loss) (note 17) (512) (1,177)

Total liabilities and shareholders’ equity 43,524 40,782

Approved by the directors.

/s/ Bradley W. Corson /s/ Daniel E. Lyons

Bradley W. Corson Daniel E. Lyons

Chairman, president and Senior vice-president

chief executive officer finance and administration, and controller

Consolidated statement of shareholders’ equity (U.S. GAAP)

millions of Canadian dollars

Common shares at stated value (note 10)

Share purchases at stated value (173) (105) (18)

Earnings reinvested

Share purchases in excess of stated value (6,222) (2,140) (256)

Cumulative effect of accounting change — — (2)

Accumulated other comprehensive income (loss) (note 17)

Other comprehensive income (loss) 665 812 (78)

Consolidated statement of cash flows (U.S. GAAP)

millions of Canadian dollars

Operating activities

Adjustments for non-cash items:

Depreciation and depletion (includes impairments) (note 2) 1,897 1,977 3,273

Impairment of intangible assets (note 11) — — 20

(Gain) loss on asset sales (note 8, 18) (158) (49) (35)

Deferred income taxes and other (77) 91 (521)

Changes in operating assets and liabilities:

Inventories, materials, supplies and prepaid expenses (477) 45 78

Accounts payable and accrued liabilities 948 2,020 (1,087)

All other items - net (b) (5) 615 253

Cash flows from (used in) operating activities 10,482 5,476 798

Investing activities

Additions to property, plant and equipment (1,526) (1,108) (868)

Additional investments (6) — —

Loans to equity companies - net 10 15 (16)

Cash flows from (used in) investing activities (618) (1,012) (802)

Financing activities

Short-term debt - net (note 12) — (111) —

Long-term debt - reduction (note 14) (1,000) — —

Finance lease obligations - reduction (note 14) (22) (20) (20)

Cash flows from (used in) financing activities (8,268) (3,082) (943)

Cash and cash equivalents at beginning of year 2,153 771 1,718

Cash and cash equivalents at end of year (a) 3,749 2,153 771

(b) Included contributions to registered pension plans. (174) (164) (195)

Income taxes (paid) refunded. (374) 58 (42)

Interest (paid), net of capitalization. (60) (43) (62)

The information in the notes to consolidated financial statements is an integral part of these statements.

Notes to consolidated financial statements

The accompanying consolidated financial statements and the supporting and supplemental material are the responsibility of the management of Imperial Oil Limited.

The company’s principal business involves exploration for, and production of, crude oil and natural gas; manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a variety of specialty products; and pursuit of lower-emission business opportunities including carbon capture and storage, hydrogen and lower-emission fuels.

The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP), which requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Prior years’ data have been reclassified in certain cases to conform to the 2022 presentation basis. All amounts are in Canadian dollars unless otherwise indicated.

Imperial Oil Ltd IMO US Equity

IMO · 10-K · period ended 2022-12-31

Item 7. Management’s discussion and analysis of financial condition and results of operations

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Financial statements and supplementary data

Item 9. Changes in and disagreements with accountants on accounting and financial disclosure

Item 9A. Controls and procedures

Item 9B. Other information

Item 9C. Disclosure regarding foreign jurisdiction that prevents inspections

Item 10. Directors, executive officers and corporate governance

Item 11. Executive compensation

Item 12. Security ownership of certain beneficial owners and management and related stockholder matters

Item 13. Certain relationships and related transactions, and director independence

Item 14. Principal accountant fees and services

Item 15. Exhibits, financial statement schedules

Item 16. Form 10-K summary

Imperial Oil Ltd IMO US Equity☆

IMO · 10-K · period ended 2022-12-31

Item 7. Management’s discussion and analysis of financial condition and results of operations

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Financial statements and supplementary data

Item 9. Changes in and disagreements with accountants on accounting and financial disclosure

Item 9A. Controls and procedures

Item 9B. Other information

Item 9C. Disclosure regarding foreign jurisdiction that prevents inspections

Item 10. Directors, executive officers and corporate governance

Item 11. Executive compensation

Item 12. Security ownership of certain beneficial owners and management and related stockholder matters

Item 13. Certain relationships and related transactions, and director independence

Item 14. Principal accountant fees and services

Item 15. Exhibits, financial statement schedules

Item 16. Form 10-K summary

Imperial Oil Ltd IMO US Equity