Oct. 29 (Bloomberg) -- Imperial Oil Ltd., the Canadian oil and natural-gas producer majority-owned by Exxon Mobil Corp., said third-quarter profit fell as commodity prices plunged.

Net income dropped 61 percent to C$547 million ($512 million), or 64 cents a share, from C$1.39 billion, or C$1.57, a year earlier, the Calgary-based company said today in a statement. Imperial Oil was expected to earn 60 cents a share, the average analyst estimate compiled by Bloomberg.

“It was definitely a beat relative to what we were expecting,” said Chris Feltin, an analyst at Macquarie Capital in Calgary, who had estimated net income of 57 cents a share. He said the drop in refining profit wasn’t as strong as he expected and that Imperial Oil benefited from lower royalties.

Imperial Oil said weaker price realizations were partly offset by lower royalty costs of about C$200 million in the quarter. Profit at the refining business, which includes plants in Alberta and Ontario, fell to C$62 million in the third quarter from C$270 million a year earlier. The refining unit lost money in the second quarter of this year.

Production of oil and gas liquids fell 1.2 percent to the equivalent of 255,000 barrels of oil a day, Imperial said. The company’s conventional crude sold for an average of C$65.29 a barrel, a decline of 43 percent from a year earlier. Its heavy oil price dropped 39 percent to C$63.74 a barrel.

Gas Output

Gas production decreased 5.8 percent to 291 million cubic feet a day. Gas fetched an average of C$2.90 per thousand cubic feet in the third quarter, an annual drop of 68 percent.

Oil prices have rebounded this year, allowing producers such as Imperial to move ahead with previously stalled projects and add new ones.

Imperial filed an amended application last month for its Cold Lake Nabiye project in Alberta that was previously approved in 2004. The company expects the project to add about 30,000 barrels a day of production from a new plant that will access 250 million barrels of untapped heavy crude. The existing Cold Lake project surpassed 1 billion barrels of cumulative output in the third quarter, the company said in today’s statement.

Imperial will push ahead with its C$8 billion Kearl oil- sands project, the company said in May. Kearl will likely be developed in three phases with the first phase producing about 110,000 barrels of oil a day from 2012. Eventually, output may reach 300,000 barrels a day.

Kearl was among Canadian developments temporarily put on hold after last year’s collapse in crude prices put their economic viability in doubt.

Oil Sands

Producers will probably invest about $200 billion in the tar-like sands in Alberta over the next decade, boosting output to more than 4 million barrels a day over the next 20 years, Imperial Chief Executive Officer Bruce March said in a speech in Calgary on Oct. 15.

The oil-sands hold the world’s second-largest reserves after Saudi Arabia’s.

New York oil futures averaged 42 percent lower in the third quarter than a year earlier as the global recession sapped demand for energy. Gas prices were 62 percent lower in the period because of record storage levels. About 80 percent of Imperial’s production is oil.

Revenue dropped 42 percent to C$5.56 billion.

Imperial Oil is 70 percent-owned by Irving, Texas-based Exxon Mobil, the world’s largest oil company.

The company released its report after the close of trading on North American markets. The shares rose 22 cents to C$40.23.

The stock, which has three buy recommendations from analysts, five holds and four sells, has fallen 1.9 percent this year, compared with a 30 percent gain for the 51-member S&P/TSX Energy Index.

To contact the reporter on this story: Sonja Franklin in Calgary at sfranklin6@bloomberg.net

Last Updated: October 29, 2009 17:54 EDT