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Business segments
 12 Months Ended
Dec. 31, 2014
Business segments

2. Business segments

The company operates its business in Canada. The Upstream, Downstream and Chemical functions best define the operating segments of the business that are reported separately. The factors used to identify these reportable segments are based on the nature of the operations that are undertaken by each segment and the structure of the company’s internal organization. The Upstream segment is organized and operates to explore for and ultimately produce crude oil and its equivalent, and natural gas. The Downstream segment is organized and operates to refine crude oil into petroleum products and the distribution and marketing of these products. The Chemical segment is organized and operates to manufacture and market hydrocarbon-based chemicals and chemical products. The above segmentation has been the long-standing practice of the company and is broadly understood across the petroleum and petrochemical industries.

These functions have been defined as the operating segments of the company because they are the segments (a) that engage in business activities from which revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the company’s chief operating decision maker to make decisions about resources to be allocated to each segment and assess its performance; and (c) for which discrete financial information is available.

Corporate and Other includes assets and liabilities that do not specifically relate to business segments – primarily cash, capitalized interest costs, short-term borrowings, long-term debt and liabilities associated with incentive compensation and post-retirement benefits liability adjustment. Net income in this segment primarily includes debt-related financing costs, interest income and share-based incentive compensation expenses.

Segment accounting policies are the same as those described in the summary of significant accounting policies. Upstream, Downstream and Chemical expenses include amounts allocated from the Corporate and Other segment. The allocation is based on a combination of fee for service, proportional segment expenses and a three-year average of capital expenditures. Transfers of assets between segments are recorded at book amounts. Intersegment sales are made essentially at prevailing market prices. Assets and liabilities that are not identifiable by segment are allocated.

 

     Upstream     Downstream     Chemical  
millions of dollars    2014     2013     2012     2014     2013     2012     2014     2013     2012  

Revenues and other income

                   

Operating revenues (a)

      8,408        6,016        4,674        26,400        25,450        25,077        1,423        1,256        1,302   

Intersegment sales

      4,087        4,026        4,110        1,359        1,978        2,603        381        318        299   

Investment and other income

      667        145        46        65        59        81        -        -        -   
       13,162        10,187        8,830        27,824        27,487        27,761        1,804        1,574        1,601   

Expenses

                   

Exploration

      67        123        83        -        -        -        -        -        -   

Purchases of crude oil and products

      5,628        3,778        3,056        21,476        21,628        21,316        1,196        1,065        1,115   

Production and manufacturing (b)

      3,882        3,389        2,704        1,564        1,695        1,569        216        210        185   

Selling and general

      3        5        1        887        886        935        70        66        67   

Federal excise tax

      -        -        -        1,562        1,423        1,338        -        -        -   

Depreciation and depletion (b)

      857        636        498        216        452        242        12        12        12   

Financing costs (note 12)

      4        9        (1 )      -        2        -        -        -        -   

Total expenses

      10,441        7,940        6,341        25,705        26,086        25,400        1,494        1,353        1,379   

Income before income taxes

      2,721        2,247        2,489        2,119        1,401        2,361        310        221        222   

Income taxes (note 3)

                   

Current

      (219 )      (14 )      72        296        395        486        76        62        67   

Deferred

      881        549        529        229        (46 )      103        5        (3 )      (10 ) 

Total income tax expense

      662        535        601        525        349        589        81        59        57   

Net income

      2,059        1,712        1,888        1,594        1,052        1,772        229        162        165   

Cash flows from (used in) operating activities

      2,519        1,690        2,625        1,666        1,453        1,961        250        198        127   

Capital and exploration expenditures (c)

      4,974        7,755        5,518        572        187        140        26        9        4   

Property, plant and equipment

                   

Cost

      42,142        38,819        30,602        7,460        7,146        7,038        798        771        765   

Accumulated depreciation and depletion

      (10,103 )      (10,749 )      (10,146 )      (4,459 )      (4,347 )      (3,967 )      (601 )      (586 )      (576 ) 

Net property, plant and equipment (d)

      32,039        28,070        20,456        3,001        2,799        3,071        197        185        189   

Total assets

      34,421        30,553        22,317        5,823        5,732        6,409        372        397        372   
     Corporate and Other     Eliminations     Consolidated  
millions of dollars    2014     2013     2012     2014     2013     2012     2014     2013     2012  

Revenues and other income

                   

Operating revenues (a)

      -        -        -        -        -        -        36,231        32,722        31,053   

Intersegment sales

      -        -        -        (5,827 )      (6,322 )      (7,012 )      -        -        -   

Investment and other income

      3        3        8        -        -        -        735        207        135   
       3        3        8        (5,827 )      (6,322 )      (7,012 )      36,966        32,929        31,188   

Expenses

                   

Exploration

      -        -        -        -        -        -        67        123        83   

Purchases of crude oil and products

      -        -        -        (5,821 )      (6,316 )      (7,011 )      22,479        20,155        18,476   

Production and manufacturing (b)

      -        -        -        -        (6 )      (1 )      5,662        5,288        4,457   

Selling and general

      121        125        78        (6 )      -        -        1,075        1,082        1,081   

Federal excise tax

      -        -        -        -        -        -        1,562        1,423        1,338   

Depreciation and depletion (b)

      11        10        9        -        -        -        1,096        1,110        761   

Financing costs (note 12)

      -        -        -        -        -        -        4        11        (1 ) 

Total expenses

      132        135        87        (5,827 )      (6,322 )      (7,012 )      31,945        29,192        26,195   

Income before income taxes

      (129 )      (132 )      (79 )      -        -        -        5,021        3,737        4,993   

Income taxes (note 3)

                   

Current

      (47 )      (18 )      (32 )      -        -        -        106        425        593   

Deferred

      15        (16 )      12        -        -        -        1,130        484        634   

Total income tax expense

      (32 )      (34 )      (20 )      -        -        -        1,236        909        1,227   

Net income

      (97 )      (98 )      (59 )      -        -        -        3,785        2,828        3,766   

Cash flows from (used in) operating activities

      (30 )      (49 )      (33 )      -        -        -        4,405        3,292        4,680   

Capital and exploration expenditures (c)

      82        69        21        -        -        -        5,654        8,020        5,683   

Property, plant and equipment

                   

Cost

      511        429        360        -        -        -        50,911        47,165        38,765   

Accumulated depreciation and depletion

      (174 )      (163 )      (154 )      -        -        -        (15,337 )      (15,845 )      (14,843 ) 

Net property, plant and equipment (d)

      337        266        206        -        -        -        35,574        31,320        23,922   

Total assets

      565        581        704        (351 )      (45 )      (438 )      40,830        37,218        29,364   

 

  (a) Includes export sales to the United States of $5,940 million (2013 - $5,217 million, 2012 - $4,358 million). Export sales to the United States were recorded in all operating segments, with the largest effects in the Upstream segment.
  (b) A 2013 charge in the Downstream segment of $377 million ($280 million, after-tax) associated with the company’s decision to convert the Dartmouth refinery to a terminal included the write-down of refinery plant and equipment not included in the terminal conversion of $245 million, reported as part of depreciation and depletion expenses, and decommissioning, environmental and employee-related costs of $132 million, reported as part of production and manufacturing expenses. By the end of 2014, amounts incurred associated with decommissioning, environmental and employee-related costs totalled $90 million.
  (c) Capital and exploration expenditures (CAPEX) include exploration expenses, additions to property, plant and equipment, additions to capital leases, additional investments and acquisitions.
  (d) Includes property, plant and equipment under construction of $12,535 million (2013 - $9,234 million).