CALGARY, AB–(Marketwired – October 30, 2015) – While Husky Energy (TSX: HSE) continues to make progress implementing cost reductions and efficiencies across its operations, it is taking further action to fortify its business in an extended low oil price environment.
“It is evident that the global oil dynamic has experienced a fundamental shift, driven by the resilience in supply,” said CEO Asim Ghosh. “Back in 2010, we made the decision to stay diversified, integrated and begin a transition into a low sustaining capital business. In a lower for longer world, our low sustaining capital projects in the Asia Pacific Region, oil sands, heavy oil thermals and Downstream margin business have become even more strategic.
“With our underlying strategy that has stood the test of five years and the decisive steps we are taking, Husky will come out of this cycle with an even stronger, more resilient business that will grow profitably at $40 US WTI oil and $3 Cdn AECO gas,” added Ghosh. “We are fortifying the business for today and for the long term.”
Fortifying the Business for the Long Term
Husky has taken a number of actions in response to the prolonged low oil price environment and continues to focus on maximizing the margin captured from every barrel produced.
To strengthen the business and the balance sheet for the long term, several parameters have been established. The business planning assumption for the next two years is $40 US per barrel WTI oil price and $3 Cdn per thousand cubic feet (mcf) AECO gas.
In addition, the Company intends to maintain a strong investment-grade credit rating, with no new net debt anticipated.
Based on these parameters, Husky expects to be able to support its sustaining, maintenance and growth capital requirements, further strengthen the balance sheet, be profitable and generate solid returns.
Several initiatives are being implemented in support of the business plan.
Dividend
The Board of Directors has approved a quarterly dividend of $0.30 (Canadian) per common share for the three-month period ended September 30, 2015. To further support the Company’s long-term business objectives, the quarterly dividend will be issued to all shareholders in the form of common shares.
This initiative will provide for cash flow retention while still delivering the dividend. In addition, it supports long-term value maximization while providing further financial flexibility for Husky to achieve its business and financial objectives.
The Board carefully considers numerous factors, including earnings, commodity price outlook, future capital requirements and the financial condition of the Company. As always, it will continue to review the Company’s dividend policy on a quarterly basis.
The quarterly dividend will be issued in the form of common shares on January 11, 2016 to all shareholders of record at the close of business on November 27, 2015.
Structural and Cost Efficiencies
Husky has undertaken a number of actions to reduce its cost structure and further measures are planned.
Historically, sustaining and maintenance capital requirements for both the Upstream and Downstream operations have averaged about $3 billion annually. As a result of the transition to a lower sustaining capital production base and efficiencies achieved to date, sustaining and maintenance capital in 2016 is expected to be in the range of $2.4-2.6 billion. This represents a 15-20 percent reduction.
Accelerating Western Canada Transition
With many elements of the Company’s strategic transformation over the past five years bearing positive results, there is an opportunity in the current environment to further focus the Western Canada portfolio.
Husky is considering a disposition of select oil and natural gas properties in its Western Canada business unit. Such a disposition would not include heavy oil or oil sands assets. This would allow for a more focused capital program with a much larger proportion of capital deployed to higher return assets in a low oil price environment.
To unlock further capital flexibility, the Company is assessing the feasibility of selling third-party royalty interests in Western Canada, representing approximately 2,000 barrels of oil equivalent per day (boe/day) of production in British Columbia, Alberta and Saskatchewan.
Accelerating the rejuvenation of the Western Canada business with these initiatives will improve its resiliency through the various commodity cycles.
Portfolio of Resilient Opportunities – Growing a Higher Quality/Strong Return Production Base
The Company has a rich portfolio of near, mid and long-term growth opportunities. Numerous near-term projects have been identified for potential investment in the 2016 business plan. All are expected to provide strong returns of more than 10 percent at $40 US per barrel WTI and $3 Cdn per mcf AECO gas. In addition, the break even mark for future investments is $30 US per barrel WTI.
A selection of potential near-term projects includes:
Area | Project | Business Case | ||
Heavy Oil | Rush Lake Phase 2 Lloyd Thermal 1 Lloyd Thermal 2 Lloyd Thermal 3 |
4 X 10,000 bbls/day thermal projects Long life with low sustaining capital requirements Fast payback |
||
Western Canada | Select resource plays | Delivering good returns in current price environment Strong land position and production results |
||
Downstream | Lima Refinery Heavy Crude Oil Flexibility Project |
Maintain integration, maximize margin capture Strong returns |
||
Asia Pacific Region | Liuhua 29-1 field (South China Sea)
MDA-MBH, MDK fields (Indonesia) |
Can be efficiently developed using existing infrastructure at Liwan Gas Project Currently negotiating a fixed price and volume sales gas contract Shallow water developments, shared infrastructure |
||
Atlantic Region | Near-field infills at White Rose West White Rose |
Maintain production at White Rose field Uses existing infrastructure, including the SeaRose FPSO Strong netbacks |
||
Detailed guidance on next year’s capital expenditures and production will be provided in December, 2015.
THIRD QUARTER RESULTS
FINANCIAL AND OPERATIONAL HIGHLIGHTS
The Company recorded an adjusted net loss of $101 million in the third quarter, excluding charges for impairments and write downs. Including an after-tax impairment of $3.8 billion and a write down of $167 million related to legacy oil and natural gas assets in Western Canada, the net loss was $4.1 billion. The impairment and write down are non-cash charges stemming from a downward revision in Husky’s longer term oil and natural gas price outlook.
Cash flow from operations was $674 million. Results were impacted by several events, including heavy oil production exposure to the sharp widening of heavy oil differentials as a result of industry refinery outages, an unplanned eight-week shutdown at the Lloydminster Upgrader, which had a $67 million impact, and a FIFO impact of $127 million.
Average Upstream production was 333,000 boe/day compared to 341,000 boe/day in the third quarter of 2014. Highlights included the steady ramp up of the Sunrise Energy Project and strong results from the Liwan Gas Project and the suite of heavy oil thermal projects, including the Rush Lake development which began production in the third quarter. Production in the third quarter was impacted by a planned 18-day turnaround on the SeaRose FPSO (floating production, storage and offloading) vessel in August. A 10-week maintenance program on the Terra Nova FPSO concluded in early July. Overall production in 2015 remains on track with guidance.
Average throughputs at the Downstream refineries and Lloydminster Upgrader were 291,000 barrels per day (bbls/day) compared to 334,000 bbls/day in the third quarter of 2014, which takes into account reduced capacity at the Lima Refinery and unscheduled maintenance at the Upgrader that commenced in late June and concluded in August.
Three Months Ended | Nine Months Ended | ||||||||||
Sept 30 2015 | June 30 2015 | Sept 30 2014 | Sept 30 2015 | Sept 30 2014 | |||||||
1) Daily Production, before royalties | |||||||||||
Total Equivalent Production (mboe/day) | 333 | 337 | 341 | 342 | 334 | ||||||
Crude Oil and NGLs (mbbls/day) | 223 | 217 | 229 | 226 | 235 | ||||||
Natural Gas (mmcf/day) | 658 | 722 | 670 | 699 | 594 | ||||||
2) Operating Netback ($/boe) (1)(2) | 20.72 | 28.93 | 43.05 | 23.67 | 45.51 | ||||||
3) Refinery and Upgrader Throughput (mbbls/day) | 291 | 313 | 334 | 301 | 309 | ||||||
4) Cash Flow from Operations(2) (Cdn $ millions) | 674 | 1,177 | 1,341 | 2,689 | 4,390 | ||||||
Per Common Share – Basic ($/share) | 0.68 | 1.20 | 1.36 | 2.73 | 4.46 | ||||||
Per Common Share – Diluted ($/share) | 0.68 | 1.20 | 1.36 | 2.73 | 4.45 | ||||||
5) Net Earnings (Cdn $ millions) | (4,092) | 120 | 571 | (3,781) | 1,861 | ||||||
Per Common Share – Basic ($/share) | (4.17) | 0.11 | 0.58 | (3.87) | 1.88 | ||||||
Per Common Share – Diluted ($/share) | (4.19) | 0.10 | 0.52 | (3.92) | 1.84 | ||||||
6) Adjusted Net Earnings (loss)(2) | (101) | 124 | 572 | 214 | 1,871 | ||||||
7) Capital Investment, including acquisitions (Cdn $ millions) | 823 | 735 | 1,279 | 2,379 | 3,604 | ||||||
8) Dividend Per Common Share ($/share) | 0.30 | 0.30 | 0.30 | 0.90 | 0.90 |
(1) Operating netback includes results from Upstream Exploration and Production and excludes Upstream Infrastructure and Marketing.
(2) Operating netback, cash flow from operations and adjusted net earnings (loss) are non-GAAP measures. Refer to the Q3 MD&A, Section 11, which is incorporated herein by reference.
KEY AREA SUMMARY
The Company remains on track to add approximately 85,000 bbls/day of net new production by the end of 2016, a portion of which is anticipated to offset natural declines across the portfolio.
Near-Term Growth Projects | Business | First Production | Forecast Net Peak Production (bbls/day) | |||
Sunrise Energy Project Plant 1A | Oil Sands | Delivered | 15,000 (mid-2016) | |||
South White Rose Extension | Atlantic Region | Delivered | 15,000 | |||
Rush Lake | Heavy Oil Thermal | Delivered | 10,000 (Achieved) | |||
Sunrise Energy Project Plant 1B | Oil Sands | Delivered | 15,000 (late 2016) | |||
Edam East | Heavy Oil Thermal | Q2/16 (Accelerated) | 10,000 | |||
Edam West | Heavy Oil Thermal | Q3/16 (Accelerated) | 4,500 | |||
Vawn | Heavy Oil Thermal | Q3/16 (Accelerated) | 10,000 | |||
North Amethyst Hibernia well | Atlantic Region | 2016-2017 | 5,000 | |||
Husky has advanced its production timetable for three heavy oil thermal projects.
Production from heavy oil thermal projects has reached approximately 55,000 bbls/day, reflecting the startup of the 10,000 bbls/day Rush Lake project. Including Rush Lake, which is the seventh thermal project, the Company expects to add about 35,000 bbls/day of new Lloydminster heavy oil thermal production by the end of 2016.
Husky has identified four additional 10,000 bbls/day thermal projects for potential development before 2021, subject to final approvals and capital availability. Based on recent resource estimates, the Company is continuing to evaluate and assess a substantial inventory of new thermal projects for potential development in the 2020-plus timeframe.
At the Tucker Thermal Project, work is continuing to increase production and improve returns, with a new sustaining well pad drilled to help offset natural declines. Overall production at Tucker has averaged about 15,000 bbls/day since the beginning of September, 2015 compared to average production of about 6,000 bbls/day in 2010.
Production from the Ansell resource play averaged 20,000 boe/day in the third quarter, compared to about 17,500 boe/day in the third quarter of 2014. Overall resource play production was approximately 38,500 boe/day compared to 34,000 boe/day in the same period a year ago.
Oil-related drilling and completion activity in 2015 continues to be curtailed as a result of the low oil price environment.
Construction of the Saskatchewan Gathering System continued in the third quarter and is more than three quarters complete. The increased capacity will accommodate growing thermal production and is a key part of the fully integrated Downstream business.
Husky and Imperial Oil have entered into a contractual agreement to create a single expanded truck transport network of about 160 sites. The larger national network is expected to better serve Canadian commercial and truck transport customers. The agreement is subject to approval by Canada’s Competition Bureau and other closing conditions.
The Liwan Gas Project maintained steady production in the third quarter with combined gross gas sales volumes, including the Liuhua 34-2 field, averaging 295 million cubic feet per day (mmcf/day), comparable to the second quarter. Gross sales of associated natural gas liquids were about 14,800 boe/day.
Indonesia
Offshore Indonesia in the Madura Strait, construction of a wellhead platform and pipeline infrastructure at the liquids-rich BD field is more than 50 percent complete. An FPSO is being built to process the gas and liquids production from the field, which is on track for first production in 2017.
A tendering process is under way for a floating production vessel and related engineering, procurement, construction and installation contract to develop the combined MDA-MBH fields in the Madura Strait. The fields are expected to be progressively brought on production in the 2017-2019 timeframe. The MDK field is scheduled to be tied into the MDA-MBH fields in the same timeframe.
Combined net sales volumes from the BD, MDA-MBH and MDK fields are expected to be about 100 mmcf/day of gas and 2,400 boe/day of associated liquids once fully ramped up.
The Sunrise Energy Project is steadily ramping up production towards expected capacity of about 60,000 bbls/day (30,000 bbls/day net to Husky) around the end of 2016. The second of two processing plants began steaming in the third quarter.
Steaming is under way on all 55 well pairs, up from 25 well pairs at the end of July, with 36 well pairs now on production. Volumes are continuing to increase ahead of plan.
Consistent reservoir and facility performance has contributed to increasing production volumes, which are currently in the range of 13,000-14,000 bbls/day (gross) compared to 5,500 to 6,000 bbls/day (gross) reported in the second quarter.
Production from Sunrise is being processed at the Company’s jointly owned refinery in Toledo.
Oil production has commenced from the second of two development wells at the South White Rose extension drill centre. Production is tied back to the SeaRose FPSO vessel. Net combined peak production reached about 15,000 bbls/day in early September.
Subject to rig availability, drilling of the Hibernia formation well beneath the North Amethyst field is now planned in the 2016-2017 timeframe.
MAINTENANCE AND TURNAROUNDS
Upstream
Downstream
CORPORATE DEVELOPMENTS
The Board of Directors has approved a quarterly dividend of $0.30 (Canadian) per common share for the three-month period ended September 30, 2015.
The quarterly dividend will be issued in the form of common shares on January 11, 2016 to all shareholders of record at the close of business on November 27, 2015.
Regular quarterly dividend payments on each of the Cumulative Redeemable Preferred Shares, Series 1, Series 3, Series 5 and Series 7 will be paid for the three-month period ended December 31, 2015. The dividends will be payable on December 31, 2015 to holders of record at the close of business on November 27, 2015
Share Series | Dividend Type | Rate (%) | Dividend Paid ($/share) | |||
Series 1 | Regular | 4.45 | $0.27813 | |||
Series 3 | Regular | 4.50 | $0.28125 | |||
Series 5 | Regular | 4.50 | $0.28125 | |||
Series 7 | Regular | 4.60 | $0.28750 | |||
[expand title=”Advisories & Contact”]
CONFERENCE CALL
A conference call will take place on Friday, October 30 at 9 a.m. Mountain Time (11 a.m. Eastern Time) to discuss Husky’s third quarter results. CEO Asim Ghosh, COO Rob Peabody, CFO Jon McKenzie and Downstream Senior VP Bob Baird will participate in the call.
To listen live: Canada and U.S. Toll Free: 1-800-319-4610 Outside Canada and U.S.: 1-604-638-5340 |
To listen to a recording (after 10 a.m. Oct. 30): Canada and U.S. Toll Free: 1-800-319-6413 Outside Canada and U.S.: 1-604-638-9010 Passcode: 2658 followed by # sign Duration: Available until November 29, 2015 Audio webcast: Available for 90 days at www.huskyenergy.com under Investor Relations |
|
Husky Energy is one of Canada’s largest integrated energy companies. It is headquartered in Calgary, Alberta, Canada and its shares are publicly traded on the Toronto Stock Exchange under the symbols HSE, HSE.PR.A, HSE.PR.C, HSE.PR.E. and HSE.PR.G. More information is available at www.huskyenergy.com
FORWARD-LOOKING STATEMENTS
Certain statements in this news release are forward-looking statements and information (collectively “forward-looking statements”), within the meaning of the applicable Canadian securities legislation, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. The forward-looking statements contained in this news release are forward-looking and not historical facts.
Some of the forward-looking statements may be identified by statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “will continue”, “is anticipated”, “is targeting”, “estimated”, “intend”, “plan”, “projection”, “could”, “aim”, “vision”, “goals”, “objective”, “target”, “schedules” and “outlook”). In particular, forward-looking statements in this news release include, but are not limited to, references to:
Although the Company believes that the expectations reflected by the forward-looking statements presented in this news release are reasonable, the Company’s forward-looking statements have been based on assumptions and factors concerning future events that may prove to be inaccurate. Those assumptions and factors are based on information currently available to the Company about itself and the businesses in which it operates. Information used in developing forward-looking statements has been acquired from various sources including third-party consultants, suppliers, regulators and other sources.
Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors should not place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Some of these risks, uncertainties and other factors are similar to those faced by other oil and gas companies and some are unique to Husky.
The Company’s Annual Information Form for the year ended December 31, 2014 and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com and the EDGAR website www.sec.gov) describe risks, material assumptions and other factors that could influence actual results and are incorporated herein by reference.
Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable securities laws, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are dependent upon other factors, and the Company’s course of action would depend upon its assessment of the future considering all information then available.
Non-GAAP Measures
This news release contains certain terms which do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. None of these measurements are used to enhance the Company’s reported financial performance or position. With the exception of adjusted net earnings (loss) and cash flow from operations, there are no comparable measures to these non-GAAP measures in accordance with IFRS. These non-GAAP measures are considered to be useful as complementary measures in assessing Husky’s financial performance, efficiency and liquidity. These terms include:
Disclosure of Oil and Gas Information
Unless otherwise noted, historical production numbers given represent Husky’s share.
The Company uses the terms barrels of oil equivalent (“boe”), which is consistent with other oil and gas producer’s disclosures, and is calculated on an energy equivalence basis applicable at the burner tip whereby one barrel of crude oil is equivalent to six thousand cubic feet of natural gas. The term boe is used to express the sum of the total company products in one unit that can be used for comparisons. Readers are cautioned that the term boe may be misleading, particularly if used in isolation. This measure is used for consistency with other producers but does not represent value equivalency at the wellhead.
Note to U.S. Readers
All currency is expressed in Canadian dollars unless otherwise directed.
For further information, please contact:
Investor Inquiries:
Dan Cuthbertson
Manager, Investor Relations
Husky Energy Inc.
403-523-2395
Media Inquiries:
Mel Duvall
Manager, Media & Issues
Husky Energy Inc.
403-513-7602
[/expand]