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Item 1A. Risk factors

Imperial’s financial and operating results are subject to a variety of risks inherent in oil, gas and petrochemical businesses, and the pursuit of lower-emission business opportunities. Many of these risk factors are not within Imperial’s control and could adversely affect Imperial’s business, financial and operating results, or financial position. These risk factors include:

Supply and demand

The oil, gas, fuels and petrochemical businesses are fundamentally commodity businesses. This means the company’s operations and earnings may be significantly affected by changes in oil, natural gas and petrochemical prices, and by changes in margins on refined products and petrochemicals. Crude oil, natural gas, petrochemical and petroleum product prices and margins depend on local, regional, and global events or conditions that affect supply and demand for the relevant commodity or product. Commodity prices have been volatile, and the company expects that volatility to continue. Any material decline in crude oil prices could have a material adverse effect on Imperial’s Upstream operations, financial position, proved reserves and the amount spent to develop reserves. On the other hand, a material increase in crude oil prices could have a material adverse effect on Imperial’s Downstream margins, depending on the market conditions for refined products.

The demand for energy and petrochemicals is generally linked closely with broad-based economic activities and levels of prosperity. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on the company’s results. Other factors that may affect the demand for crude oil, gas, fuels and petrochemicals, and therefore could impact Imperial’s results include technological improvements in energy efficiency; seasonal weather patterns, which affect the demand for our products, including lower demand for gasoline, impacting Downstream results in the winter; increased competitiveness of, or government policy support for, alternative energy sources; new product quality regulations; technological changes or consumer preferences that alter fuel choices, such as technological advances in energy storage that make wind and solar more competitive for power generation; changes in consumer preferences for the company’s products, including consumer demand for alternative fueled or electric transportation or alternatives to plastic products; broad-based changes in personal income levels, interest rates and inflation; and security or public health issues and responses such as epidemics and pandemics. Market factors may also result in losses from commodity derivatives and other instruments used to hedge price exposures or for trading purposes. See also “Climate change, energy transition and greenhouse gas restrictions” below.

Commodity prices and margins also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil and gas supply sources and technologies to enhance recovery from existing sources tends to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases in industry refining or petrochemical manufacturing capacity relative to demand tend to reduce margins on affected products. Crude oil, gas and petrochemical supply levels can also be affected by factors that reduce available supplies, such as the level of and adherence by participating countries or others to production quotas established by OPEC or “OPEC+” and other agreements among sovereigns, government policies that restrict oil and gas production or increase associated costs, including actions intended to reduce greenhouse gas emissions and previous Government of Alberta curtailment regulations, the occurrence of wars, hostile actions, natural disasters, trade tariffs or broader breakdowns in global trade, disruptions in competitors’ operations, or unexpected pipeline or rail constraints that may disrupt supplies. Technological change can also alter the relative costs for competitors to find, produce, and refine oil and gas and to manufacture petrochemicals.

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The market price for western Canadian heavy crude oil is typically lower than light and medium grades of oil, principally due to the higher transportation and refining costs. Western Canadian crude oil may also be subject to limits on transportation capacity to markets. Future crude price differentials between western Canadian crude oil relative to prices in the U.S. Gulf Coast are uncertain and changes in the heavy or light crude oil differentials could have a material adverse effect on the company’s business. Increased differentials in 2018 also led the Government of Alberta to enact temporary mandatory production curtailment regulations in 2019. These regulations enabled the government to impose production limits on large producers in Alberta such as Imperial. Mandatory production curtailment was eliminated in December 2020 and the regulatory authority to impose curtailments was repealed at the end of 2021; however, the use of similar curtailment regulations in the future could have an adverse effect on the company’s business. A significant portion of the company’s production is bitumen, which is blended with diluent for transportation and marketability of heavy crude oil. Increases to diluent prices, relative to heavy crude oil prices, could also have an adverse effect on the company’s business.

Government and political factors

Imperial’s results can be adversely impacted by political, legal or regulatory developments affecting operations and markets. Changes in government policy or regulations, changes in law or interpretation of settled law, third-party opposition to company or infrastructure projects, and duration of regulatory reviews could impact Imperial’s existing operations and planned projects. This includes actions by policy-makers, regulators or other actors to delay or deny necessary licences and permits, restrict the availability of oil and gas leases or the operation of third-party infrastructure that the company relies on, such as pipelines to transport the company’s upstream production to market or that supply feedstock to the company’s refineries. Additionally, changes in environmental regulations, assessment processes or other laws and increasing and expanding stakeholder consultation (including Indigenous stakeholders), may increase the cost of compliance or reduce or delay available business opportunities and adversely impact the company’s results.

Other government and political factors that could adversely affect the company’s financial results include increases in taxes or government royalty rates (including retroactive claims) and changes in trade policies and agreements. Further, the adoption of regulations mandating efficiency standards, and the use of alternative fuels or uncompetitive fuel components could affect the company’s operations. Many governments are providing tax advantages and other subsidies to support alternative energy sources or are mandating the use of specific fuels or technologies. Governments are also introducing bans on certain technologies that could impact demand for products, such as the Government of Canada’s intention to ban the sale of new internal combustion engine cars and light trucks beginning in 2035. Governments and others are also promoting research into new technologies to reduce the cost and increase the scalability of alternative energy sources, and the success of these initiatives may decrease demand for the company’s products. Actions by policy makers, regulators or others may require changes in the company’s business or strategy that could result in reduced returns.

Governments may establish regulations with respect to the control of the company’s production, such as when increased price differentials in 2018 led the Government of Alberta to impose temporary mandatory production curtailment regulations in effect from 2019 through 2021, as discussed in the “Supply and demand” section above. Government intervention in free markets may introduce unintended consequences such as market volatility and uncertainty, misallocation of resources, and erosion of investor confidence.

Environmental risks

All phases of the Upstream, Downstream and Chemical businesses are subject to environmental regulation pursuant to a variety of Canadian federal, provincial, territorial and municipal laws and regulations, as well as international conventions (collectively, “environmental legislation”).

Environmental legislation imposes, among other things, restrictions, liabilities and obligations in connection with the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances into the environment. As well, environmental regulations are imposed on the qualities and compositions of the products sold and imported, and include those aimed at reducing consumption or addressing environmental concerns with certain end products. Changes to these requirements could adversely affect the company’s results by impacting commodity prices, increasing costs and reducing revenues.

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Environmental legislation also requires that wells, facility sites and other properties associated with the company’s operations be operated, maintained, monitored, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. This includes the requirement for specific approvals for many areas of interaction with the environment, such as land use, air quality, water use, biodiversity protection and waste, including mine tailings management. The failure to operate as anticipated and adhere to conditions, the delay or denial of approvals and changes to conditions or regulations could impact the company’s ability to operate its projects and facilities and adversely affect the company’s results.

The implementation of, and compliance with, policies and regulations related to air, water and land, such as Alberta’s Lower Athabasca Regional Plan and Wetland Policy applicable to the company’s oil sands assets, could restrict development in current and future areas of operation. The company also depends on water obtained under licences for withdrawal, storage, reuse and discharge in both its Upstream and Downstream businesses, including future projects and expansions. Water use may be limited by regulatory requirements, seasonal fluctuations, competing demands, environmental sensitivities, increasingly stringent water management standards, and changes to conditions or availability of licences, which may restrict and adversely affect the company’s operations. Additionally, a number of air quality regulations and frameworks are being developed at the federal and provincial levels, and when implemented could impact existing and planned projects through increased capital and operating expenses including retrofits to existing equipment, and could adversely impact the company’s operations and financial results.

Federal and provincial legislation aimed at protecting sensitive, threatened or endangered wildlife, such as woodland caribou and species of migratory birds, may also increase restoration and offset costs and impact the company’s projects. If it is determined that such wildlife and their habitat are not sufficiently protected, governments or other parties may take actions to limit the pace or ability to develop in areas of Imperial’s current and future projects.

The company’s mining operations are subject to tailings management regulations that establish approval, monitoring, reporting and performance criteria for tailings ponds and management plans. Further, the absence or evolving nature of policies and regulations for the timing and closure of tailings ponds, including the approved technologies and methods for closure (such as the use of end pit lakes and water capped tailings), and dam safety directives, regulations, guides and abandonment requirements could have a material impact on conditions for approvals and ultimate mine closure costs. Additionally, successful management and closure requires the release of water to the environment, and although an Alberta water release policy and federal oil sands effluent regulations are being developed, the timing and impact of these regulations is uncertain and the absence of effective regulation could negatively impact the company’s operations and financial results.

In addition, certain types of operations, including exploration and development projects and significant changes to certain existing projects, may require the submission and approval of environmental impact assessments. In 2019, the Government of Canada implemented a new environmental assessment framework under the

Impact Assessment Act

, which expands assessment considerations beyond the environment to include social, health, economic, and gender-based impacts and the impact on Canada’s climate change commitments (including a requirement under the Strategic Assessment for Climate Change to provide a credible plan for the project to deliver

net-zero

greenhouse gas emissions by 2050). It also includes a reliance on strategic and regional assessments and adjusted regulatory review timelines. The impact of this legislation is not fully apparent, but it may impact the cost, manner, duration and ability to advance large energy projects.

Compliance with environmental legislation can require significant expenditures and failure to comply with environmental legislation may result in the cessation of operations, imposition of fines and penalties, and liability for

clean-up

costs and damages.

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The costs of complying with environmental legislation in the future could have a material adverse effect on the company’s financial condition or results of operations. The company anticipates that changes in environmental legislation may require, among other things, reductions in emissions from its operations to the air and water and may result in increased capital expenditures. Changes in environmental legislation (including, but not limited to, application of regulations related to air, water, land, biodiversity and waste, such as mine tailings and the use of new or recycled plastics) may increase the cost of compliance or reduce or delay available business opportunities. Future changes in environmental legislation and the enforcement of regulations could occur and result in stricter standards and enforcement, larger fines, penalties and liability, and increased capital expenditures and operating costs, which could have a material adverse effect on the company’s financial condition or results of operations.

There are operational risks inherent in oil and gas exploration and production activities, as well as the potential to incur substantial financial liabilities, if the company does not manage those risks effectively. Environmental hazards including severe weather events may impact the company’s operational performance, such as extreme cold weather that makes mining operations more difficult. The ability to insure risks is limited by the capacity of the applicable insurance markets, which may not be sufficient to cover the likely cost of a major adverse operating event. Accordingly, the company’s primary focus is on prevention, including through its rigorous operations integrity management system. The company’s future results will depend on the continued effectiveness of these efforts.

Climate change, energy transition and greenhouse gas restrictions

Net zero scenarios

Driven by concern over the risks of climate change, the provinces and the Government of Canada have adopted or have revised regulatory frameworks to reduce greenhouse gas emissions including emissions from the production and use of oil and gas, and their products. These actions are being taken both independently by national and regional governments and within the framework of United Nations Conference of the Parties’ summits under which Canada has endorsed objectives to reduce the atmospheric concentration of CO2 over the coming decades, with an ambition ultimately to achieve “net zero.” Net zero means that emissions of greenhouse gases from human activities would be balanced by actions that remove such gases from the atmosphere. Expectations for transition of the world’s energy system to lower emission sources, and ultimately net zero, derive from hypothetical scenarios that reflect many assumptions about the future and reflect substantial uncertainties. The company’s actions with respect to the energy transition, including its announced ambition, ultimately, to achieve net zero with respect to emissions from its upstream oil sands operations, carries risks that the transition, including underlying technologies, policies, and markets as discussed in more detail below, will not develop at the pace or in the manner expected by current

net-zero

scenarios.

Greenhouse gas restrictions

Government actions intended to reduce greenhouse gas emissions include adoption of carbon emissions pricing, cap and trade regimes, carbon taxes, emissions limits, increased mileage and other efficiency standards, low carbon fuels standards, mandates for sales of electrical vehicles and incentives or mandates for renewable energy. The Government of Canada has updated its nationally determined contribution (NDC) under the Paris Agreement on climate change, to reduce greenhouse gas emissions economy-wide by 40 to 45 percent below 2005 levels by 2030, a substantial increase in ambition beyond its original NDC. To implement these goals, the Government of Canada uses a number of policy tools including the

Greenhouse Gas Pollution Pricing Act

(GGPPA), which sets a federal backstop carbon price Canada-wide through a carbon levy applied to fossil fuels ($50 per tonne CO2 equivalent emissions starting in 2022 and increasing by $15 per tonne annually to $170 per tonne in 2030), and an output-based pricing system for large industrial emitters. Under the GGPPA, provinces are required to either adopt the GGPPA, or obtain equivalency by adopting a price-based system (with a minimum of the federal carbon pricing) or a cap and trade system. Further, in 2021 the Government of Canada enacted legislation to formalize Canada’s target to achieve

net-zero

emissions by 2050 and establish interim emissions reductions targets at five year intervals. For 2022, under the Canadian

Net-Zero

Emissions Accountability Act, the Government of Canada is required to develop an emissions reduction plan for 2030 consistent with achieving

net-zero

emissions by 2050.

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The Government of Alberta has obtained federal equivalency for its Technology Innovation and Emissions Reduction Regulation (TIER) that came into effect in 2020 and applies to facilities with CO2 emissions in excess of 100,000 tonnes per year. TIER is designed to reduce emissions by putting a price on nominally 10 percent of a facility’s emissions in 2020, increasing by 1 percent per year. Further, the Alberta

Oil Sands Emissions Limit Act

sets a limit of 100 megatonnes of CO2 per year of emissions in the oil sands sector, but oil sands emissions remain below the limit and it is not yet possible to predict the impact of this act on the company’s future oil sands operations in Alberta. With respect to other provinces, with Ontario cancelling the cap and trade program in 2018, the company’s operations in Ontario were subject to the federal carbon levy and output based pricing system through 2021. Starting in 2022, Ontario has received equivalency for its Emissions Performance System, which puts a price on 8 percent of a facility’s emissions. British Columbia has carbon pricing in place for all emissions, with pricing expected to align with federal pricing in 2022. Increases in carbon pricing could adversely impact the company’s operations and financial results unless the company can adapt its operations.

There are also various low carbon fuel standards being developed or already applicable to the company’s products. The Government of Canada is finalizing draft regulations for the Clean Fuel Regulations, which will require the reduction in carbon intensity of liquid transportation fuels supplied in Canada starting in December 2022. The regulations build upon the existing federal renewable fuels regulations that require fuel producers and importers to have a specified amount of renewable fuel in gasoline and diesel. Similarly, British Columbia introduced a Low Carbon Fuel Standard in 2013, which increased to a 10 percent carbon intensity reduction requirement in 2020. The British Columbia government has announced its intention to reduce the carbon intensity of fuels by a further 20 percent by 2030. Compliance can be achieved by either blending renewable fuels with low carbon intensity or by purchasing credits.

In 2019, the Government of Canada enacted the

Impact Assessment Act

, which links environmental assessment approvals to climate change-related goals, and has also discussed a goal of establishing legally-binding policies for being carbon-neutral by 2050. Changes and policies related to this act could adversely impact the company’s ability to progress new oil sands projects.

International accords and underlying regional and national regulations covering climate change and greenhouse gas emissions continue to evolve with uncertain timing and outcome, making it difficult to predict their business impact. Such laws and policies could make Imperial’s products more expensive and less competitive, reduce or delay available business opportunities, reduce demand for hydrocarbons, and shift hydrocarbon demand toward lower greenhouse gas emission energy sources. Current and pending greenhouse gas regulations or policies may also increase compliance and abatement costs including taxes and levies, increase abandonment and reclamation obligations and impact decommissioning timelines, lengthen project evaluation and implementation times, impact reserves evaluations and affect operations. Increased costs may not be recoverable in the market place, could negatively affect our returns and could reduce the global competitiveness of the company’s crude oil, natural gas and refined products. Governments may also impose restrictions on production of, or emissions from, oil and gas to the extent they view such measures as a viable approach for pursuing national and global energy and climate policies. For example, the Government of Canada announced its intention to pursue a cap on greenhouse gas emission from oil and gas activities by 2030. Concern over the risks of climate change may lead governments to make laws applicable to the energy industry progressively more stringent over time. Political and other actors and their agents are also increasingly seeking to advance climate change objectives indirectly, such as by seeking to reduce the availability or increase the cost of financing and investment in the oil and gas sector and taking actions intended to promote changes in business strategy for oil and gas companies.

Technology

Achieving societal ambitions to reduce greenhouse gas emissions and ultimately achieve net zero will require new technologies to reduce the cost and increase the scalability of alternative energy sources as well as technologies such as carbon capture and sequestration (CCS). CCS technologies, focused initially capturing and sequestering CO2 emissions from high-intensity industrial activities, can assist in meeting society’s objective to mitigate atmospheric greenhouse gas levels while also helping ensure the availability of the reliable and affordable energy the world requires. The company’s future results and ability to succeed through the energy transition will depend in part on the success of these research and collaboration efforts and on the company’s ability to adapt and apply the strengths of its current business model to providing the energy products of the future in a cost-competitive manner.

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Policy and market development

The scale of the world’s energy system means that, in addition to developments in technology discussed above, a successful energy transition will require appropriate support from governments and private participants throughout the global economy. The company’s ability to develop and deploy CCS and other lower emission energy technologies at commercial scale will depend in part on the continued development of supportive government policies and markets. Failure or delay of these policies or markets to materialize or be maintained could adversely impact these investments. Policy and other actions that result in restricting the availability of hydrocarbon products without commensurate reduction in demand may have unpredictable adverse effects, including increased commodity price volatility; periods of significantly higher commodity prices and resulting inflationary pressures; and local or regional energy shortages. Such effects in turn may depress economic growth or lead to rapid or conflicting shifts in policy by different actors, with resulting adverse effects on the company’s business. See also the discussion of “Supply and demand”, “Government and political factors”, and “Management effectiveness” in this Item 1A.

Currency

Prices for commodities produced by the company 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 value of the Canadian dollar strengthens, the company’s reported earnings will be negatively affected. The company does not currently make use of derivative instruments to offset exposures associated with foreign currency.

Other business risks

Imperial is reliant on a number of key chemicals, catalysts and third-party service providers, including input and output commodity transportation (pipelines, rail, trucking, marine) and utilities providing services, including electricity and water, to various company operations. The lack of availability, capacity or proximity with respect to pipeline facilities and railcars could negatively impact Imperial’s ability to produce at capacity levels. Transportation disruptions, including those caused by events unrelated to the company’s operations, could adversely affect the company’s price realizations, refining operations and sales volumes. This includes outages of key third-party infrastructure, such as pipelines servicing the company’s oil sands assets or pipelines supplying feedstock to its refineries, which could impact the company’s ability to operate its assets or limit the ability to deliver production and products to market. A third-party utilities outage could have an adverse impact on the company’s operations and ability to produce.

The company also enters into contractual relationships with suppliers, partners and other counterparties to procure and sell goods and services, and the company’s operations, market position and financial condition may be adversely impacted if these counterparties do not fulfil their obligations. Imperial may also be adversely affected by the outcome of litigation resulting from its operations or by government enforcement proceedings alleging

non-compliance

with applicable laws or regulations. Litigation is subject to uncertainty and success is not guaranteed, and the company may incur significant expenses and devote significant resources in defending litigation.

Management effectiveness

In addition to external economic and political factors, Imperial’s future business results also depend on the company’s ability to manage successfully those factors that are at least in part within its control. The extent to which Imperial manages these factors will impact its performance relative to competition. For projects in which the company is not the operator, Imperial depends on the management effectiveness of one or more co-venturers whom the company does not control.

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Project management

The nature of the company’s Upstream, Downstream and Chemical businesses depend on complex, long-term, and capital intensive projects that require a high degree of project management expertise to maximize efficiency. This includes development, engineering, construction, commissioning and ongoing operational activities and expertise. The company’s results are affected by its ability to develop and operate projects and facilities as planned, and by events or conditions that affect the advancement, operation, cost or results of such projects or facilities. These risks include the company’s ability to obtain the necessary environmental and other regulatory approvals; changes in regulations; the ability to negotiate successfully with joint venturers, partners, governments, suppliers, customers and others; the ability to model and optimize reservoir performance; changes in resources and operating costs including the availability and cost of materials, equipment and qualified personnel; the impact of general economic, business and market conditions; and the company’s ability to respond effectively to unforeseen technical difficulties that could delay project

start-up

or cause unscheduled downtime.

Operational efficiency

An important component of Imperial’s competitive performance, especially given the commodity based nature of Imperial’s business, is the ability to operate efficiently, including the company’s ability to manage expenses and improve production yields on an ongoing basis. This requires continuous management focus, including technological improvements, cost control, productivity enhancements and regular reappraisal of the company’s asset portfolio. The company’s operations and results also depend on key personnel and subject matter expertise, the recruitment, development and retention of high caliber employees, and the availability of skilled labour.

Research and development and technical change

Imperial relies upon the research and development organizations of the company and ExxonMobil, with whom the company conducts shared research. Innovation and technology are important to maintain the company’s competitive position, especially in light of the technological nature of Imperial’s business and the need for continuous efficiency improvement.

The company’s research and development organizations must be able to adapt to a changing market and policy environment, including developing technologies to help reduce greenhouse gas emissions intensity. To remain competitive, the company must also continuously adapt and capture the benefits of new technologies including growing the company’s capabilities to utilize digital data technologies to gain new business insights. There are risks associated with projects that rely on new technology, including that the results of implementing the new technology may differ from simulated, piloted or expected results. The failure to develop and adopt new technology may have an adverse impact on the company’s operations, ability to meet regulatory requirements and operational commitments and targets (including environmental sustainability and reduction of greenhouse gas emissions), and financial results.

Safety, business controls and environmental risk management

The scope and nature of the company’s operations present a variety of significant hazards and risks, including operational hazards and risks such as explosions, fires, pipeline ruptures and crude oil spills. Imperial’s operations are also subject to the additional hazards of pollution, releases of toxic gas and environmental hazards and risks, such as severe weather and geological events. The company’s results depend on management’s ability to minimize these inherent risks, to effectively control business activities and to minimize the potential for human error. Imperial applies rigorous management systems, including a combined program of effective operations integrity management, ongoing upgrades, key equipment replacements, and comprehensive inspection and surveillance. The company also maintains a disciplined framework of internal controls and applies a controls management system for monitoring compliance with this framework. The company’s upstream and downstream operations may experience loss of production, slowdowns or shutdowns and increased costs due to the failure of interdependent systems, and substantial liabilities and other adverse impacts could result if the company’s management systems and controls do not function as intended.

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Cybersecurity

Imperial is regularly subject to attempted cybersecurity disruptions from a variety of sources, including state-sponsored actors. Imperial’s defensive preparedness includes multi-layered technological capabilities for prevention and detection of cybersecurity disruptions:

non-technological

measures such as threat information sharing with governmental and industry groups; internal training and awareness campaigns including routine testing of employee awareness via mock threats; and an emphasis on resiliency including business response and recovery.

If the measures the company is taking to protect against cybersecurity disruptions prove to be insufficient or if the company’s proprietary data is otherwise not protected, the company as well as its customers, employees or third parties could be adversely affected. The company is exposed to potential harm from cybersecurity events that may affect the operations of third parties, including our partners, suppliers, service providers (including providers of cloud-based services for our data or applications), and customers. Cybersecurity disruptions could cause physical harm to people or the environment; damage or destroy assets; compromise business systems; result in proprietary information being altered, lost or stolen; result in employee, customer or third-party information being compromised; or otherwise disrupt the company’s business operations. Imperial could incur significant costs to remedy the effects of a major cybersecurity disruption, in addition to costs in connection with resulting regulatory actions, litigation or reputational harm.

Preparedness

The company’s operations may be disrupted by severe weather events, natural disasters, human error, and similar events. Imperial’s ability to mitigate the adverse impacts of these events depends in part upon the effectiveness of its rigorous disaster preparedness and response planning, as well as business continuity planning.

COVID-19

As a result of

COVID-19,

governments in many countries, including Canada, have mandated quarantines, closures,

stay-at-home

orders and travel restrictions that have had a significant impact on demand for the company’s products. While these effects are expected to be temporary, the resurgence of cases of

COVID-19

has led to a highly uncertain business environment. Although there has been some movement toward

pre-pandemic

activity levels, the duration of the business disruptions and related financial impact cannot be reasonably estimated at this time and continued or new restrictions could continue to impact the demand for petroleum products.

Imperial’s future business results, including cash flows and financing needs, will be affected by the scope and severity of current and future COVID outbreaks; actions taken by governments and others to address the pandemic and the effects of those actions on national and global economies and markets; changes in consumer behavior that affect demand for our products; and the effectiveness of the company’s own responsive actions to protect the safety and well-being of its people.

The company has had positive

COVID-19

cases, but these cases have not had a material impact on its operations or business. The company has initiated numerous emergency response and business continuity plans, and a substantial portion of the company’s workforce has implemented remote working arrangements. However, if the company’s mitigation and response efforts prove insufficient, then large outbreaks of epidemics, pandemics or other health crises such as

COVID-19

at operating sites, particularly in remote locations and where work camps are utilized, could materially impact the company’s personnel and its operations, reducing productivity and increasing costs.

The company could also be impacted by disruption to supply chains, methods of distribution and key third-party service providers, which could impact the ability to produce or sell its products, as well as increase the costs associated with its operations and decrease revenues and margins.

The

COVID-19

pandemic continues to evolve, with changing case numbers and the potential for additional public health restrictions. The impact of the pandemic remains difficult to predict.

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Reputation

Imperial’s reputation is an important corporate asset. Factors that could have an impact on the company’s reputation including an operating incident or significant cybersecurity disruption; changes in consumer views concerning the company’s products; a perception by investors or others that insufficient progress is being made with respect to the company’s ambition in the energy transition, or that pursuit of this ambition may result in allocation of capital to investments with reduced returns; and other adverse events such as those described in this Item 1A. Negative impacts on Imperial’s reputation could, in turn, make it more difficult for the company to compete successfully for new opportunities, obtain necessary regulatory approvals, obtain financing, or could reduce consumer demand for the company’s branded products. Imperial’s reputation may also be harmed by events which negatively affect the image of the industry as a whole, including public and investor perception of Alberta oil sands in relation to greenhouse gas emissions and environmental impact.

Reserves

The company’s future production and cash flows from bitumen, synthetic oil, liquids and natural gas reserves are highly dependent upon the company’s success in exploiting its current reserves. To maintain production and cash flows over the long term, the company must replace produced reserves, which can be accomplished through exploration discovery of new resources, appraisal and investments in developing discovered resources, or acquisition of reserves. To the extent cash flows from operations are insufficient to fund capital expenditures and external sources of capital become limited or unavailable, the company’s ability to make the necessary capital investments to maintain and grow oil and natural gas reserves will be adversely impacted. In addition, the company may be unable to find and develop or acquire additional reserves to replace oil and natural gas production at acceptable costs.

Estimates of economically recoverable oil and natural gas reserves and future net cash flows involve many uncertainties, including factors beyond the company’s control. Key factors with uncertainty include: geological and engineering estimates, including that additional information obtained through seismic and drilling programs, reservoir analysis and production and operational history may result in revisions to reserves; the assumed effects of regulation or changes to regulation by government agencies, including royalty frameworks and environmental regulations (such as the regulation of greenhouse gas emissions, which could impose significant compliance costs on the company, require new technology, or impact the economic viability of certain projects); future commodity prices, where low commodity prices may affect reserves development; abandonment and reclamation costs, including reclamation and tailings requirements for mining operations; and operating costs. Actual production, revenues, taxes and royalties, development costs, abandonment and reclamation costs, and operating expenditures with respect to reserves will likely vary from such estimates, and such variances could be material.

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Item 1B. Unresolved staff comments

None.

Item 2. Properties

Reference is made to Item 1 above.

Item 3. Legal proceedings

On October 8, 2021, Imperial was charged by the Ontario Crown in the Ontario Court of Justice with committing the offences, at Imperial’s refinery in Nanticoke, Ontario, of: (a) discharging or causing or permitting the discharge of a petroleum product into a watercourse contrary to section 30(1) of the Ontario Water Resources Act, R.S.O. 1990, c. O. 40, as amended (the “OWRA”); (b) failing to forthwith notify the Ministry of the Environment, Conservation and Parks of the discharge contrary to section 30(2) of the OWRA; and (c) discharging or causing or permitting the discharge of a petroleum product into the natural environment contrary to section 14(1) of the Environmental Protection Act, R.S.O. 1990, c. E.19, as amended. These offences were alleged to have occurred between May 31, 2019 and June 3, 2019. No determination of impact can be made at this time.

Refer to the relevant portions of note 9. Litigation and other contingencies of the “Financial section” of this report for additional information on legal proceedings.

Imperial has elected to use a $1 million threshold for disclosing environmental proceedings.

Item 4. Mine safety disclosures

Not applicable.

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PART II

Market information

The company’s common shares are listed and trade on the Toronto Stock Exchange in Canada, and have unlisted trading privileges and trade on the NYSE American LLC in the United States. The symbol for the company’s common shares on these exchanges is IMO.

As of February 15, 2022 there were

9,826 holders of record of common shares of the company.

Information for security holders outside Canada

Cash dividends paid to shareholders resident in countries with which Canada has an income tax convention are usually subject to a Canadian

non-resident

withholding tax of 15 percent, but may vary from one tax convention to another.

The withholding tax is reduced to 5 percent on dividends paid to a corporation resident in the U.S. that owns at least 10 percent of the voting shares of the company.

The company is a qualified foreign corporation for purposes of the reduced U.S. capital gains tax rates, which are applicable to dividends paid by U.S. domestic corporations and qualified foreign corporations.

There is no Canadian tax on gains from selling shares or debt instruments owned by

non-residents

not carrying on business in Canada, as long as the shareholder does not, in any given 60 month period, own 25 percent or more of the shares of the company.

Canada has approved several positions with respect to the

Multilateral Convention to Implement Tax Treaty

Related Measures to Prevent Base Erosion and Profit Shifting

(“MLI”)

which may impact the taxability of dividends and capital gains in Canada if the shareholder’s country of residence has also approved these same positions of the MLI.

Between October 1, 2021 and December 31, 2021, pursuant to the company’s restricted stock unit plan, 6,725 shares were issued to employees or former employees outside the U.S. in reliance on Regulation S under the Securities Act.

Securities authorized for issuance under equity compensation plans

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.

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

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Issuer purchases of equity securities

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. The company will continue to evaluate the renewal of its normal course issuer bid share purchase program in June 2022 in the context of its overall capital activities.

Purchase plans may be modified at any time without prior notice.

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 48 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.

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Item 8. Financial statements and supplementary data

Reference is made to the table of contents in the “Financial section” on page 42 of this report:

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, 2021. 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 71 of this report for “Management’s report on internal control over financial reporting” and page 72 for the “Report of independent registered public accounting firm” on the company’s internal control over financial reporting as of December 31, 2021.

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.

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PART III

Item 10. Directors, executive officers and corporate governance

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 115 of this report have been nominated for election at the annual meeting of shareholders to be held May 3, 2022. All of the nominees are now directors and have been since the dates indicated.

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

● “Director nominee tables”, on pages 112 to 115 of this report;

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

● “Ethical business conduct”, starting on page 145 of this report; and

● “Largest shareholder”, on page 149 of this report.

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

Item 11. Executive compensation

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

● “Director compensation”, on pages 137 to 143 of this report; and

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

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

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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 149 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, 2021 is described in the sections under “Nominees for director” starting on page 112, “Director compensation” starting on page 137 and “Company executives and executive compensation” starting on page 151. 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 15, 2022.

Imperial Oil Limited Exxon Mobil Corporation

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Reference is made to the section under “Corporate governance disclosure” entitled “Independence of our board members and nominees”, on page 121 of this report.

Reference is made to the section under “Corporate governance disclosure” entitled “Transactions with Exxon Mobil Corporation”, on page 149 of this report.

M.R. Crocker is deemed a

non-independent

member of the board of directors and the executive resources committee, public policy and corporate responsibility 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.

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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.

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, 2021 and December 31, 2020 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 2021. 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 continually 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 Public Company Accounting Oversight Board (United States) (PCAOB) and the rules of the U.S. Securities and Exchange Commission. The company has concluded that the auditor’s independence has been maintained.

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PART IV

Item 15. Exhibits, financial statement schedules

Reference is made to the table

of contents in the “Financial section” on page 42 of this report.

The following exhibits, numbered in accordance with Item 601 of Regulation

S-K,

are filed as part of this report:

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(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.

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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 23, 2022 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 23, 2022 by the following persons on behalf of the registrant and in the capacities indicated.

Signature Title

(Bradley W. Corson)

(Principal executive officer)

(Daniel E. Lyons)

(Principal financial officer and principal

accounting officer)

/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)

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Financial section

Table of contents Page

Financial information (U.S. GAAP) 43

Frequently used terms 44

Overview 48

Business environment 49

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 71

Report of independent registered public accounting firm 72

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

Consolidated statement of comprehensive income (U.S. GAAP) 76

Consolidated balance sheet (U.S. GAAP) 77

Consolidated statement of shareholders’ equity (U.S. GAAP) 78

Consolidated statement of cash flows (U.S. GAAP) 79

Notes to consolidated financial statements 80

1. Summary of significant accounting policies 80

2. Business segments 86

3. Income taxes 88

4. Employee retirement benefits 89

5. Other long-term obligations 94

6. Financial and derivative instruments 95

7. Share-based incentive compensation programs 97

8. Investment and other income 98

9. Litigation and other contingencies 98

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

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Financial information (U.S. GAAP)

Net income (loss):

Per share information (Canadian dollars)

Net income (loss) per common share - basic 3.48 (2.53 ) 2.88

Net income (loss) per common share - diluted 3.48 (2.53 ) 2.88

Dividends per common share - declared 1.03 0.88 0.85

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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. These measures 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 “specified financial measures” under National Instrument

52-112

Non-GAAP

and Other Financial Measures Disclosure of the Canadian Securities Administrators.

Reconciliation of these financial measures to the most comparable GAAP financial 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 (8,439 ) (8,276 ) (8,355 )

Add: Imperial’s share of equity company debt 20 26 24

Total company sources: Debt and equity perspective

Add: Imperial’s share of equity company debt 20 26 24

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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 40 52 66

Return on average capital employed (percent) – corporate total 9.4 (6.4 ) 7.7

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

Proceeds from asset sales 81 82 82

Total cash flows from operating activities and asset sales 5,557 880 4,511

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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 61 64 76

Components of operating costs

From the Consolidated statement of income

Depreciation and depletion (includes impairments) 1,977 3,293 1,598

Non-service pension and postretirement benefit 42 121 143

Imperial’s share of equity company expenses 61 64 76

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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)

Impairments - (1,171 ) -

Tax adjustments - - 662

Subtotal of identified items - (1,171 ) 662

Net income (loss) excluding identified items 2,479 (686 ) 1,538

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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 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 energy supply and demand 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 emission prices 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 major investments are made, a reappraisal process is completed to ensure relevant lessons are learned and improvements are incorporated 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.

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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 energy fundamentals. These fundamentals include energy 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. In addition, the Outlook considers a range of scenarios - including remote scenarios - to help inform perspective of the future and enhance strategic thinking over time. Included in the range of these scenarios are the Intergovernmental Panel on Climate Change Lower 2°C and the International Energy Agency’s Net Zero Emissions (IEA NZE) by 2050 scenario. To effectively evaluate the pace of change, ExxonMobil uses many scenarios to help identify signposts to provide leading indicators of future developments and allow for timely adjustments to the Outlook. The IEA describes the IEA NZE as extremely challenging, requiring all stakeholders – governments, businesses, investors and citizens – to take action this year and every year after so that the goal does not slip out of reach. The scenario assumes unprecedented and sustained energy efficiency gains, innovation and technology transfer, lower-emission investments, and globally coordinated greenhouse gas reduction policy. The IEA acknowledges that society is not on the IEA NZE pathway.

By 2050, the world’s population is projected at around 9.7 billion people, or about 2 billion more than in 2019. Coincident with this population increase, the company expects worldwide economic growth to average close to 2.5 percent per year, with economic output growing by around 125 percent by 2050 compared to 2019. 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 2019 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 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 almost 75 percent from 2019 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 2019, in part as a result of policies to improve air quality as well as reduce greenhouse gas emissions to address risks related to climate change. From 2019 to 2050, the amount of electricity supplied using natural gas, nuclear power, and renewables is likely 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 600 percent, helping total renewables (including other sources, i.e., hydropower) to account for about 80 percent of the increase in electricity supplies worldwide through 2050. Total renewables are expected reach about 50 percent of global electricity supplies by 2050. Natural gas and nuclear are also expected to increase shares over the period to 2050, reaching more than 25 percent and about 10 percent of global electricity supplies, respectively, 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.

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Under the Outlook, energy for transportation – including cars, trucks, ships, trains and airplanes – is expected to increase by almost 25 percent from 2019 to 2050. Transportation energy demand is expected to account for over 40 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 about 75 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 widely available and offer practical advantages in providing a large quantity of energy in small volumes.

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 114 million

oil-equivalent

barrels per day, an increase of about 14 percent from 2019. 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 more than 20 percent. Much of the global liquid fuels demand today is met by crude production from traditional 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 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 2019 to 2050, meeting about 55 percent of global energy demand growth. Global natural gas demand is expected to rise nearly 35 percent from 2019 to 2050, with more than half 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 more than

two-thirds

of worldwide demand in 2050. Liquefied natural gas (LNG) trade will expand significantly, meeting about 40 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 is currently the second largest source of energy, but it is expected to lose that position to natural gas in the next few years. The share of natural gas is expected to reach more than 25 percent by 2050, while the share of coal falls to about half that. Nuclear power is projected to grow significantly, 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 biomass, hydro and geothermal contributing a combined share of more than 10 percent. Total energy supplied from wind, solar and biofuels is expected to increase rapidly, growing over 420 percent from 2019 to 2050, when they are projected to be about 10 percent of the world energy mix.

To meet this projected demand under the Outlook, 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. This reflects a fundamental aspect of the oil and natural gas business as the International Energy Agency (IEA) describes in its

World Energy Outlook 2021

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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 ExxonMobil’s

Outlook for Energy

as a foundation for estimating energy supply and demand requirements from various energy sources and uses, and the

Outlook for Energy

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

Outlook for Energy

reflects an environment with increasingly stringent climate policies and is consistent with the global aggregation of Nationally Determined Contributions (NDCs), as available at the end of 2020, which were submitted by signatories to the United Nations Framework Convention on Climate Change (UNFCCC) 2015 Paris Agreement. The

Outlook for Energy

seeks to identify potential impacts of climate related policies, which often target specific sectors. It estimates potential impacts of these policies on consumer energy demand by using various assumptions and tools – including, depending on the sector, and as applicable, use of a proxy cost of carbon or assessment of targeted policies (i.e., automotive fuel economy standards). 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 have provided around COP 26 in Glasgow in November 2021 as well as other policy developments in light of net zero ambitions recently formulated by some nations, including Canada.

The information provided in the “Long-term business outlook” includes internal estimates and projections based upon ExxonMobil’s internal data and analyses, as well as publicly available information from external sources including the International Energy Agency.

Advancing climate solutions

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 has a goal to achieve net zero Scope 1 and 2 greenhouse gas emissions in the company’s oil sands operations by 2050 in support of Canada’s commitment to move towards net zero emissions. To support this

net-zero

ambition, by the end of 2030 Imperial anticipates to reduce Scope 1 and 2 greenhouse gas emissions intensity of its operated oil sands facilities by 30 percent, compared with 2016 levels. The company plans to achieve this through implementation of lower greenhouse gas next generation technologies at its Cold Lake operation, efficiency improvements at its facilities, and the use of carbon capture and storage. In the near term, the company remains on track to meet its previous Scope 1 and Scope 2 greenhouse gas emissions intensity goal of a 10 percent reduction for operated oil sands facilities by the end of 2023, compared to 2016 levels. In June, Imperial and its industry peers announced the launch of the Oil Sands Pathways to Net Zero alliance. The goal of this unique alliance, working collectively with the federal and Alberta governments, is to achieve net zero greenhouse gas emissions from oil sands operations by 2050 to help Canada meet its climate goals.

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Current business environment

In early 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the

COVID-19

pandemic spread rapidly through most areas of the world resulting in substantial reductions in consumer and business activity and significantly reduced demand for crude oil, natural gas and petroleum products. This reduction in demand coincided with announcements of increased production in certain key

oil-producing

countries which led to increases in inventory levels and sharp declines in prices for crude oil, natural gas and petroleum products.

Through 2021, demand for petroleum and petrochemical products has continued to recover, with the company’s financial results benefiting from stronger prices and margins, notably prices for crude oil and natural gas as well as Chemical product margins. The company continues to closely monitor industry and global economic conditions amid this uneven global recovery from the

COVID-19

pandemic which has brought unprecedented uncertainties to near-term economic outlooks, including recovery from the

COVID-19

pandemic.

The general rate of inflation in Canada and many other countries experienced a brief decline in the initial stage of the

COVID-19

pandemic. However inflation rates increased in 2021 across major economies, with some regions experiencing multi-decade highs, largely reflecting overall imbalances between supply and demand recoveries from the pandemic. The underlying factors include, but are not limited to, global supply chain disruptions, shipping bottlenecks, labor market constraints and side effects from monetary and fiscal expansions. The global economic recovery remains uneven with significant uncertainty. Prices for services and materials continue to evolve in response to fast-changing commodity markets, industry activities, as well as government policies, impacting operating and capital costs. The company closely monitors market trends and works to mitigate cost impacts in all price environments through its economies of scale in global procurement, efficient project management practices, and general productivity improvements.

Business results

Consolidated

Identified items included in Net income (loss) (a)

Impairments - (1,171 ) -

Tax adjustments - - 662

Subtotal of identified items - (1,171 ) 662

Net income (loss) excluding identified items (a) 2,479 (686 ) 1,538

(a) Net income (loss) excluding identified items is a

non-GAAP

financial measure - see “Frequently used terms” section (page 44)

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 items

of $1,171 million after tax, related to the company’s decision to no longer develop a significant portion of its unconventional portfolio.

2020

Net loss in 2020 was $1,857 million, or $2.53 per share on a diluted basis, compared to net income of $2,200 million or $2.88 per share in 2019. Current year results reflect a

non-cash

impairment charge of $1,171 million after tax, related to the company’s decision to no longer develop a significant portion of its unconventional portfolio. Full-year 2019 results included a favourable impact of $662 million associated with the Alberta corporate income tax rate decrease.

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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.

The upstream industry environment has a history of significant price volatility. Market demand and prices experienced a sharp decline in the first half of 2020 largely driven by the

COVID-19

pandemic. Following this decline, prices improved in the second half of 2020 and throughout 2021, as supply and demand began to rebalance. 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. Volatility in differentials can lead to government action, such as in 2019 when the Government of Alberta imposed temporary mandatory production curtailment regulations on large producers. Mandatory curtailment was eliminated in December 2020 and the regulatory authority to impose curtailment was repealed at the end of 2021.

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 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

In 2021, demand for petroleum and petrochemical products continued to recover, with the company’s financial results benefiting from stronger prices compared to the prior year. The company continues to closely monitor industry and global economic conditions, including recovery from the

COVID-19

pandemic.

Upstream asset performance met or exceeded expectations in 2021. The company continued to benefit from its actions implemented in 2020 to reduce the cost structure and improve reliability of its assets, enabling the Upstream to capture significant value and take advantage of the improving business environment throughout 2021.

Upstream delivered its highest production in over 30 years, supported by Kearl achieving record annual total gross production of about 263,000 barrels per day (186,000 barrels Imperial’s share). The company adjusted its planned maintenance and turnaround activity at Kearl, eliminating its fall turnaround and transitioned to a single annual turnaround, one year ahead of schedule.

During 2021, Cold Lake gross production was about 140,000 barrels per day, driven by continued focus on production optimization and reliability enhancements.

As described in more detail in Item 1A. “Risk factors”, environmental risks and climate related regulations, and

COVID-19

could have negative impacts on the upstream business.

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Results of operations

2021 Net income (loss) factor analysis

millions of Canadian dollars

Price – Higher realizations increased net income by about $3,640 million, primarily driven by average bitumen realizations increasing by $32.22 per barrel and synthetic realizations increasing by $31.85 per barrel.

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 decreased net income by about $680 million, primarily driven by higher commodity prices.

Identified items

– Prior year results included unfavourable identified items

of $1,171 million related to the company’s decision to no longer develop a significant portion of its unconventional portfolio.

Other – All other items decreased net income by $968 million, primarily driven by 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.

2020 Net income (loss) factor analysis

millions of Canadian dollars

Price – Lower realizations decreased net income by about $2,620 million.

Volumes – Lower volumes decreased net income by about $130 million.

Royalty – Lower royalties increased net income by about $540 million.

Identified items

–

Non-cash

impairment charge of $1,171 million, related to the company’s decision to no longer develop a significant portion of its unconventional portfolio. Absence of a favourable impact of $689 million associated with the Alberta corporate income tax rate decrease in 2019.

Other – All other items increased net income by $404 million, primarily driven by lower operating expenses of about $250 million, favourable foreign exchange impacts of about $100 million, and about $70 million associated with the Canada Emergency Wage Subsidy received by the company which includes Imperial’s proportionate share of a joint venture.

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Marker prices and average realizations

Natural gas (per thousand cubic feet) 3.83 1.90 2.05

Average foreign exchange rate (US$) 0.80 0.75 0.75

2021

Imperial’s average Canadian dollar realizations for bitumen increased in 2021, generally in line with Western Canada Select. The company’s average Canadian dollar realizations for synthetic crude increase generally in line with West Texas Intermediate, adjusted for changes in exchange rates and transportation costs.

2020

Imperial’s average Canadian dollar realizations for bitumen decreased in 2020 primarily due to a decrease in WCS. The company’s average Canadian dollar realizations for synthetic crude decreased generally in line with WTI, adjusted for changes in exchange rates and transportation costs.

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

gross net gross net gross net

NGLs available for sale 1 1 2 2 2 1

Bitumen sales, including diluent (c) 451 401 387

NGL sales (d) - 2 6

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

gross net gross net gross net

Production available for sale (g) 81 115 108

(d) 2021 NGL sales round to 0.

2021

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

2020

Kearl achieved the highest annual production in the asset’s history. Improved production was mainly due to the addition of supplemental crushing facilities in 2020, partially offset by the balancing of near term production with demand through the advancement and extension of planned turnaround activities.

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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 428,000 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 at 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 climate. Imperial’s integration across the value chain, from refining to marketing, enhances overall value across the fuels business.

Key events

Through 2021, demand for petroleum products continued to recover, with the Downstream financial results benefiting from stronger margins. The company continues to closely monitor industry and global economic conditions, including recovery from the

COVID-19

pandemic.

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 to the motoring public through Esso and Mobil-branded sites and independent marketers. At the end of 2021, there were about 2,400 sites operating under a branded wholesaler model whereby Imperial supplies fuel to independent third parties who own and operate sites in alignment with Esso and Mobil brand standards.

Results of operations

2021 Net income (loss) factor analysis

millions of Canadian dollars

Margins – Higher margins increased net income by about $600 million, reflecting improved product demand.

Other – All other items decreased net income by $258 million, primarily driven by unfavourable foreign exchange impacts of about $150 million and an unfavourable inventory adjustment of $74 million

, partially offset by lower operating expenses of about $50 million.

In 2021, the company recorded an unfavourable $74 million ($82 million, before tax) inventory adjustment (including the proportionate share of LIFO changes) related to reconciliations of additives and products inventory at equity and third-party terminals. The out-of-period impact of $57 million ($63 million, before tax) occurred over a number of years, and has been resolved.

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2020 Net income (loss) factor analysis

millions of Canadian dollars

Margins – Results were negatively impacted by lower margins of about $710 million.

Other – All other items increased net income by $302 million, primarily driven by lower operating expenses of about $190 million, lower turnaround impacts of about $190 million primarily related to reduced turnaround activity in the current year and improved reliability of about $180 million primarily due to the absence of the Sarnia fractionation tower incident which occurred in April 2019. These items were partially offset by lower sales volumes of about $290 million.

Refinery utilization

Utilization of total refinery capacity (percent) 89 80 83

2021

Improved refinery throughput in 2021 primarily reflects reduced impacts associated with the

COVID-19

pandemic, partially offset by a planned turnaround at Strathcona.

2020

Lower throughput was driven by reduced demand due to the

COVID-19

Imperial Oil Ltd IMO US Equity

IMO · 10-K · period ended 2021-12-31

Item 1A. Risk factors

Item 1B. Unresolved staff comments

Item 2. Properties

Item 3. Legal proceedings

Item 4. Mine safety disclosures

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Financial statements and supplementary data

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 14. Principal accountant fees and services

Item 15. Exhibits, financial statement schedules

Item 16. Form

Imperial Oil Ltd IMO US Equity☆

IMO · 10-K · period ended 2021-12-31

Item 1A. Risk factors

Item 1B. Unresolved staff comments

Item 2. Properties

Item 3. Legal proceedings

Item 4. Mine safety disclosures

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Financial statements and supplementary data

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 14. Principal accountant fees and services

Item 15. Exhibits, financial statement schedules

Item 16. Form

Imperial Oil Ltd IMO US Equity