Seeking Alpha: Imperial Oil — Levered Exposure To Oil Prices At A Fair Price

Image source: Imperial Oil Corp. Corporate Overview – Winter-Spring 2017. pg. 5

  • Imperial Oil Corp is a rationally integrated enterprise — assessing any given business segment in isolation ignores synergies which are especially important during the lower half of the commodities cycle.
  • The upstream business segment, by far the largest in terms of capital investment, is heavily exposed to Canadian oil sands projects which are marginal in the current commodity prices environment.
  • Yet, records profits from the downstream and chemical business segments demonstrate how they have benefited from cost advantaged feeds.
  • In the current commodity price environment, IMO’s common shares are likely fairly valued $22 to $32 per share; there is significant uncertainty in that estimate.
  • Given non-compelling valuation and risks, I do not hold the equity outright. However, I believe that call options may provide favorable risk-reward characteristics given their leverage to crude oil prices.

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