CALGARY – Husky Energy (TSX:HSE) says it will spend an extra $100 million next year to connect additional wells at its underperforming Sunrise oilsands project to spur it to design capacity of 60,000 barrels per day by 2018.
The new spending is included in the Calgary-based company’s 2017 capital budget of between $2.6 billion and $2.7 billion, revealed Tuesday. Husky’s spending this year is expected to come in at about $2 billion, down $100 million from previous estimates due to cost cutting initiatives and production gains.
New CEO Rob Peabody, on his first conference call with analysts after taking over from retiring CEO Asim Ghosh earlier this month, laid out a stay-the-course plan for 2017 and beyond. He had served as Husky’s chief operating officer since 2006.
“We’ve made great gains over the past several years in transforming our business and dramatically improving our resilience,” Peabody said. “Our vitals have never been stronger.”
Ramp up of the $3.2-billion Sunrise thermal oilsands project, a 50-50 joint venture with British energy giant BP, has been far from smooth. It fell behind during a three-week shutdown last spring forced by the wildfires that raged through the city of Fort McMurray in northern Alberta.
The 14 new wells that are being connected this year have already been drilled but were expected to be connected in future years to replace output from the original 55 well-pairs, as their bitumen resources are depleted.
Husky said the well-pairs at Sunrise are now expected to produce 800 to 900 barrels per day. That’s below previous expectations of about 1,100 bpd, CIBC analyst Arthur Grayfer pointed out in a note to investors.
Sunrise production is expected to average 40,000 to 44,000 bpd next year, up from the current level of 35,000 bpd.
Also Tuesday, Husky officially sanctioned three more of the cookie-cutter-style thermal heavy oil projects it has been building near Lloydminster on the Alberta-Saskatchewan border.
It says each 10,000-bpd project will cost about $350 million for a total commitment of over $1 billion, with first production from all three expected in 2020.
The company is producing from six of the steam-driven projects, five of which were built over the past three years. It has identified a total of 18 potential projects with capacity of about 150,000 bpd.
Rising oil prices in the wake of OPEC and non-OPEC countries agreeing to limit production won’t change Husky’s spending, Peabody said on the call. But they may allow the company to restore cash payouts to shareholders which were suspended in 2015 to save money, he added.
Peabody said it’s also unlikely the company will cut spending if commodity prices fall because projects are expected to break even at benchmark U.S. oil prices per barrel in the low US$30s.
Husky said its average daily production in 2016 is on track to be between 318,000 and 320,000 barrels per day and will rise to between 320,000 and 335,000 bpd in 2017.
It said it’s completing engineering and will consider next year a project to double the capacity of its Lloydminster asphalt plant to 60,000 bpd.
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Note to readers: This is a corrected story. An earlier version indicated Husky’s spending estimates were in U.S. dollars rather than Canadian currency.