18. Acquisition

Description of the Transaction: On February 26, 2013, ExxonMobil Canada acquired Celtic Exploration Ltd. (Celtic). Immediately following the acquisition, Imperial acquired a 50 percent interest in Celtic’s assets and liabilities from ExxonMobil Canada for $1.6 billion, financed by a combination of related party and third party debt. Concurrently, a general partnership was formed to hold and operate the assets of Celtic. The name of the general partnership was changed to XTO Energy Canada (XTO Canada). XTO Canada is involved in the exploration for, production of, and transportation and sale of natural gas and crude oil, condensate and natural gas liquids.

Recording of Assets Acquired and Liabilities Assumed: Imperial used the acquisition method of accounting to record its pro-rata share of the assets acquired and liabilities assumed. This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the assets acquired and liabilities assumed:


millions of dollars
Cash			6
Accounts receivable			38
Materials, supplies and prepaid expenses			5
Property, plant and equipment (a)			2,045
Goodwill (b)			20
Total assets acquired			2,114

Accounts payable and accrued liabilities			62
Deferred income tax liabilities (c)			377
Other long-term obligations			67
Total liabilities assumed			506
Net assets acquired			1,608

(a)

Property, plant and equipment were measured primarily using an income approach. The fair value measurements of the oil and gas assets were based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs included Celtic resources, assumed future production profiles, commodity prices (mainly based on observable market inputs), risk adjusted discount rate of 10 percent, inflation of 2 percent and assumptions on the timing and amount of future development and operating costs. The property, plant and equipment additions were segmented to the Upstream business, with all of the assets in Canada.

(b)

Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized in the Upstream reporting unit. Goodwill is not amortized and is not deductible for tax purposes.

(c)	Deferred income taxes reflect the future tax consequences on the temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The deferred income taxes recorded as part of the acquisition were:


millions of dollars
Property, plant and equipment	414
Total deferred income tax liabilities	414

Asset retirement obligations	(17	)
Other	(20	)
Total deferred income tax assets	(37	)
Net deferred income tax liabilities	377

Actual and Pro Forma Impact of the Acquisition: Revenues for XTO Canada from the acquisition date included in the company’s consolidated financial statement of income for the twelve months ended December 31, 2013 were $89 million. After-tax earnings for XTO Canada from the acquisition date through December 31, 2013 were de minimis.

Transaction costs related to the acquisition were expensed as incurred and were de minimis in the twelve months ended December 31, 2013.

Unaudited pro forma revenues, earnings and basic and diluted earnings per share information as if the acquisition had occurred at the beginning of 2013 or the comparable prior reporting period is not presented, since the effect on Imperial’s consolidated annual financial results for the year ended December 31, 2013 and the comparable prior reporting periods, would not have been material.