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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

ý    Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2003

OR
o    Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from                          to                         

Commission file number 0-12014

IMPERIAL OIL LIMITED
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: 1-800-567-3776

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

The number of common shares outstanding, as of March 31, 2003, was 375,830,208.

IMPERIAL OIL LIMITED

INDEX

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

IMPERIAL OIL LIMITED

CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)

CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(unaudited)

The notes to the financial statements are part of these financial statements.

3

CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
inflow/(outflow)

The notes to the financial statements are part of these financial statements.

4

CONSOLIDATED BALANCE SHEET
(unaudited)

The notes to the financial statements are part of these financial statements.

5

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In the opinion of the management, the accompanying unaudited consolidated financial statements reflect all known accruals and adjustments necessary for a fair presentation of the financial position of the company as at March 31, 2003, and December 31, 2002, and the results of operations and changes in cash flows for the three months ending March 31, 2003, and 2002. All such adjustments are of a normal recurring nature.

The results for the three months ending March 31, 2003, are not necessarily indicative of the operations to be expected for the full year.

All figures are in millions of Canadian dollars unless otherwise stated.

1.     Adjustments under United States GAAP

The financial statements of the company have been prepared in accordance with generally accepted accounting principles (GAAP) in Canada. These principles conform in all material respects to those in the United States except for the following:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued.....)
(unaudited)

The adjustments, on the previous page, under United States GAAP result in changes to the Consolidated Balance Sheet of the company as follows:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued.....)
(unaudited)

(a)

Earnings per share — basic and diluted (dollars) (9)

(b)    Impact of accounting principles
An explanation of these items is found on pages 17 to 20 of the company's annual report on Form 10-K for the year ended December 31, 2002.

(c)    Accounting change
As of January 1, 2003, the company adopted Financial Accounting Standards Board (FASB) Statements of Financial Accounting Standards No. 143 (SFAS No. 143), "Accounting for Asset Retirement Obligations". The Canadian Institute of Chartered Accountants (CICA) adopted a similar standard that harmonizes Canadian GAAP with U.S. GAAP. Disclosures required by the new U.S. and Canadian accounting standards are described in note 3.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123". The standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation. It also requires more prominent disclosures in the financial statements about the method of accounting for stock based employee compensation and the effect of the method used in reported results. Effective January 1, 2003, the company adopted for all stock based compensation granted after that date the fair value based recognition provisions as prescribed by SFAS No. 123 "Accounting for Stock Based Compensation" and complied with the disclosure requirements under SFAS No. 148. The company has not issued any new stock based employee compensation to its employees in the first quarter of 2003.

(d)    The company makes limited use of derivatives. There were no significant derivatives outstanding at January 1 or March 31, 2003, nor were any significant derivatives undertaken during the first three months of 2003.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued.....)
(unaudited)

2.     Business segments

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued.....)
(unaudited)

3.     Reporting change

The new CICA standard dealing with accounting for asset retirement obligations changes the method of accruing for certain site-restoration costs. Under the new standard, the fair values of asset retirement obligations are recorded as liabilities on a discounted basis when they are incurred, which is typically at the time the related assets are installed. Amounts recorded for the related assets are increased by the amount of these obligations. Over time the liabilities will be accreted for the change in their present value and the initial capitalized costs will be depreciated over the useful lives of the related assets. There are no asset retirement liabilities set up for those assets which have an indeterminate useful life.

Estimated cash flows have been discounted at six percent. Implementation of the new standard has increased site-restoration liabilities by $8 million to $517 million as of March 31, 2003. The total undiscounted amount of the estimated cash flows required to settle the obligations is $895 million. Payments to settle the obligations occur on an ongoing basis and will continue over the lives of the operating assets, which can exceed more than 25 years. This change in accounting standard has no impact on the cash flow profile of the company. The new standard has been applied retroactively, and the financial statements of prior periods have been restated.

The impact of adopting the new accounting for asset retirement obligations standard on the consolidated balance sheet and statement of earnings is:

Change in consolidated balance sheet

Change in consolidated statement of earnings

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued.....)
(unaudited)

4.     Divestments

Investment and other income includes gains and losses on asset sales as follows:

(a)

Assets sold did not include cash.

5.     Financing costs

6.     Incentive compensation programs

The company accounts for its incentive compensation programs, except for the incentive stock option plan, by using the fair-value-based method. Under this method, compensation expense related to the units of these programs is recorded in the consolidated statement of earnings over the vesting period. The company accounts for incentive stock options issued prior to January 1, 2003, using the intrinsic-value-based method and did not recognize compensation expense on the issuance of those stock options because the exercise price was equal to the market value at the date of grant. If the fair-value-based method of accounting had been adopted to account for the incentive stock option plan, the impact on net earnings and earnings per share would have been negligible.

The company expects to purchase shares on the market to fully offset the dilutive effects from the exercise of incentive stock options. The company does not plan to issue stock options in the future.

7.     Other long-term obligations

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued.....)
(unaudited)

8.     Common shares

In 1995 through 2001, the company purchased shares under seven 12-month normal course share purchase programs, as well as an auction tender. On June 21, 2002, another 12-month normal course program was implemented with an allowable purchase of 18.9 million shares (five percent of the total on June 19, 2002), less any shares purchased by the employee savings plan and company pension fund. The results of these activities are as shown below:

Exxon Mobil Corporation's participation in the above maintained its ownership interest in Imperial at 69.6 percent.

The excess of the purchase cost over the stated value of shares purchased has been recorded as a distribution of retained earnings.

There is no significant dilutive effect on basic net earnings per share from the outstanding incentive stock options described in note 6.

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IMPERIAL OIL LIMITED

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

OPERATING RESULTS

The company's net earnings for the first quarter of 2003 were $538 million or $1.42 a share, the highest quarterly earnings on record, compared with $110 million or $0.29 a share for the same period last year. Earnings increased mainly because of higher prices for crude oil and natural gas and higher industry margins for petroleum products. Favourable foreign exchange effects on the company's U.S.-dollar denominated debt also contributed to the increase in the first quarter's earnings.

Total revenues were $5,478 million in the first quarter versus $3,485 million in the corresponding period last year.

Natural resources

During the first quarter of 2003, net earnings from natural resources were $339 million compared with $144 million in the same period last year. Earnings increased due to higher prices for crude oil and natural gas and higher Cold Lake bitumen volumes from the recently completed phases 11 to 13, partly offset by lower production volumes from the company's interest in Syncrude and lower natural gas volumes.

Prices for natural gas averaged $8.12 a thousand cubic feet in the first quarter of 2003, compared with $3.26 a thousand cubic feet during the same period last year. Prices for conventional crude oil averaged $47.86 a barrel in the first quarter, compared with $30.44 a barrel in the same period last year. Average prices for Cold Lake bitumen in the first quarter of 2003 were about 50 percent higher than the prior year's prices.

Gross production of natural gas during the first quarter of 2003 was 487 million cubic feet a day, compared with 557 million cubic feet a day during the same period in 2002. The decrease was mainly due to reservoir decline and production timing.

Total production of crude oil and natural gas liquids (NGLs) increased to 240 thousand barrels a day in the first quarter from 238 thousand barrels a day in the same period last year.

During the first three months this year, gross production of conventional crude oil averaged 47 thousand barrels a day versus 52 thousand barrels a day during the same period last year. Production of NGLs available for sale was 27 thousand barrels a day during the first quarter, compared with 29 thousand barrels a day in the first three months of 2002. Natural reservoir decline in the Western Canadian Basin was the main reason for the reduced production.

The company's share of Syncrude's gross production was 47 thousand barrels a day in the first quarter of 2003, compared with 57 thousand barrels a day during the same period last year. Lower volume was attributable to an increase in scheduled and unscheduled maintenance activity at the upgrader and Aurora mine site.

Gross production of Cold Lake bitumen was 119 thousand barrels a day during the first quarter of 2003, compared with 100 thousand barrels a day in the same period a year ago. Higher production was a result of the start-up of the new Mahkeses project (phases 11 to 13) in December 2002 and the timing of steaming cycles on existing pads.

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IMPERIAL OIL LIMITED

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations (continued.....)

In March this year, geotechnical work programs began in the Inuvialuit Settlement Region and Gwich'in Settlement Area near Inuvik to advance the proposed Mackenzie Gas Project. The work programs consist mainly of soil analysis and geotechnical surveys that will help to determine the optimal location of the Mackenzie Valley pipeline and associated facilities. The programs will also provide engineering data to support development of regulatory applications for the proposed project. Contracts to carry out the work programs have been awarded to local contractors for services including geotechnical consulting, geotechnical drilling and land surveying.

Petroleum products

The net earnings from petroleum products were $139 million in the first quarter of 2003, compared with a net loss of $37 million during the same period a year ago. Earnings improved as a result of the strengthening of industry margins and higher sales of petroleum products. The increased petroleum product volumes were principally due to higher demand for heating oil, diesel and gasolines.

In the first quarter of this year, the company commissioned the new 62-kilometer extension to the products pipeline connecting its Sarnia and Nanticoke refineries. It provides a critical link in the production of low-sulphur gasoline and allows further manufacturing integration of the two refineries.

Chemicals

Net earnings in the first quarter of 2003 from chemical operations were $6 million, compared with $9 million during the same period last year. Reduced margin as a result of higher feedstock costs was the main factor for the decrease in earnings.

Corporate and other

Net earnings from corporate and other operations were $54 million in the first quarter this year, compared with negative $6 million in the same period last year. Favourable foreign exchange effects on the company's U.S.-dollar denominated debt contributed to the improvement.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities was $700 million during the first quarter of 2003, compared with negative $129 million in the same period last year. The increase in cash inflow was mainly due to higher earnings and timing of scheduled income tax payments.

During the first quarter of 2003, total investing activities used $340 million of cash, compared with $238 million used in the same quarter last year.

Capital and exploration expenditures were $355 million in the first quarter, compared with $259 million during the corresponding period in 2002. For the resources segment, the additional capital and exploration expenditures were used mainly at Syncrude to maintain and expand production capacity. Petroleum products increased its capital expenditures mainly in projects to reduce the sulphur content of gasoline and to improve operating efficiency.

During the first quarter, the company resumed share repurchases and bought 3 million shares for $141 million under a normal course issuer bid that began on June 21, 2002, which has an allowable maximum purchase of 18.9 million shares. In the first quarter of last year, the company purchased 296 thousand shares for $13 million under the previous program which expired on June 20, 2002.

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IMPERIAL OIL LIMITED

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations (continued.....)

Total cash dividends of $79 million were paid in the first quarter in 2003, compared with $80 million paid in the same period last year. Resumption of share repurchase activities reduced the number of shares outstanding and dividend payments. Dividends per share remained unchanged at $0.21 a share.

The above factors led to an increase in the company's balance of cash and marketable securities to $906 million at March 31, 2003, from $766 million at the end of 2002.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Information about market risks for the three months ended March 31, 2003 does not differ materially from that discussed in Item 7A on page 25 in the company's annual report on Form 10-K for the year ended December 31, 2002.

Item 4.    Controls and Procedures

(a)    Evaluation of disclosure control and procedures
As indicated in the certifications on pages 17 and 18 of this report, the company's principal executive officer and principal financial officer have evaluated the company's disclosure controls and procedures as of a date within 90 days prior to the filing of this report. Based on that evaluation, these officers have concluded that the company's disclosure controls and procedures are effective for the purpose of ensuring that material information relating to the company, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this quarterly report is being prepared.

(b)    Changes in internal controls
There have not been significant changes in the company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

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IMPERIAL OIL LIMITED

PART II — OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Security Holders

At the annual meeting of shareholders on April 22, 2003, all of the management's nominee directors were re-elected to hold office until the close of the next annual meeting. The votes for the directors were: P. Des Marais II 316,818,015 shares for and 239,099 shares withheld, B.J. Fischer 316,853,575 shares for and 203,539 shares withheld, T.J. Hearn 316,820,607 shares for and 236,507 shares withheld, R. Phillips 316,852,265 shares for and 204,849 shares withheld, J.F. Shepard 316,845,929 shares for and 211,185 shares withheld, P.A. Smith 316,828,991 shares for and 228,123 shares withheld, S.D. Whittaker 316,828,512 shares for and 228,602 shares withheld, K.C. Williams 316,843,016 shares for and 214,098 shares withheld, and V.L. Young 316,846,184 shares for and 210,930 shares withheld.

At the same annual meeting of shareholders, PricewaterhouseCoopers LLP were reappointed as the auditors by a vote of 316,640,028 shares for and 355,983 shares were withheld from the reappointment of the auditors. By-Law No.1 was approved by a vote of 312,784,654 shares for and 921,763 shares were voted against the approval of By-Law No.1. A shareholders' proposal that the company prepare a report to shareholders on its greenhouse gas emissions was defeated by a vote of 298,966,997 shares against and 14,588,074 shares for.

Item 6.    Exhibits and Reports on Form 8-K

(a)    By-Law No.1 is Exhibit (3)(ii) to this report.

(b)    Reports on Form 8-K.
Except for a report on Form 8-K dated March 26, 2003, no other reports on Form 8-K have been filed during the quarter for which this report is filed. By the report on Form 8-K dated March 26, 2003, the company submitted to the Securities and Exchange Commission written certifications by each of the chief executive officer and the chief financial officer of the company for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the company's annual report on Form 10-K for the year ended December 31, 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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IMPERIAL OIL LIMITED

CERTIFICATIONS

I, Timothy J. Hearn, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Imperial Oil Limited;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.    The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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IMPERIAL OIL LIMITED

CERTIFICATIONS

I, Paul A. Smith, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Imperial Oil Limited;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.    The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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