CALGARY, ALBERTA–(Marketwired – June 1, 2016) – Husky Energy (TSX:HSE) is positioned to increase free cash flow as a result of the structural changes that have taken root across the business while significantly lowering its cost base.
“Husky has been transformed over the past six years,” said CEO Asim Ghosh. “We now have an oil price earnings break-even that is amongst the lowest in the oil industry and have significantly reduced our sustaining and maintenance capital requirements.
“In addition, the steps we have taken to reduce our debt will result in a balance sheet that will be amongst the strongest in our industry.”
Industry Leading Earnings Break Even
In 2010, Husky began its transformation, which included increasing the percentage of higher quality barrels in its production base. This includes investing in projects that have lower operating costs and improved margins, have a longer life, require less capital to maintain production, and reduce cash flow variability through integrated value chains.
By the end of 2016, more than 40 percent of production will come from these types of projects, up from just eight percent in 2010.
The transition to higher quality production has resulted in:
Free Cash Flow Growth
As a result of the structural changes that have taken place, Husky can generate enough cash to maintain current production levels with WTI oil prices in the mid-$30s US. Oil prices above that point are expected to produce free cash flow.
An increase in WTI oil prices from $40 to $50 US on an annualized basis is expected to generate about $800 million in free cash flow.
“As a result, we are now much better positioned to deliver on our three business priorities of maintaining a strong balance sheet, investing in our rich portfolio of opportunities and establishing a sustainable cash dividend,” said Ghosh.
At Least 18 New Lloyd Thermal Projects Identified in Opportunity-Rich Portfolio
The Company has a rich and diverse organic portfolio of growth projects in which to invest, with numerous opportunities that can generate returns greater than 10 percent at today’s prices.
Inherent strengths of the portfolio include its focused diversity – projects that are well balanced across product mix and geography – and its flexibility, with strong opportunities across short, mid, and long project cycle times.
The Lloyd thermal portfolio has been a particularly resilient growth engine. With some of the lowest operating costs in the industry, and with support from the Lloyd Value Chain, the expanding thermal portfolio has resulted in a material transformation to the heavy oil business.
At least 18 additional thermal projects in the Lloyd region have been identified for advancement. Twelve projects are based on a 10,000 barrels per day (bbls/day) template and six on a 5,000 bbls/day template.
This growing thermal expertise is being leveraged at the Tucker Thermal Project near Cold Lake, where production has now surpassed 20,000 bbls/day.
Combined production from Lloyd thermals and Tucker is expected to exceed 100,000 bbls/day in the second half of the year.
Strong Balance Sheet
A key objective of the 2016 business plan has been to further strengthen the balance sheet and provide secure footing in a volatile commodity price environment.
Significant results have been realized in short order and the Company is expected to achieve its target ratio of about 2x net debt-to-cash flow from operations. Agreements have been reached on transactions that upon closing will result in aggregate proceeds of about $2.8 billion.
Transactions include:
Near Term Project Deliveries on Track
The Company is on track to complete eight projects by the end of 2016, which are expected to contribute close to 90,000 bbls/day of new production once fully ramped up. While the majority of this production will offset natural declines and divestments in 2016, it will continue to improve the quality of production in the portfolio and further lower the overall earnings break-even.
Project | Net Production (bbls/d) / Nameplate Capacity |
Start Date |
Sunrise Energy Project | 30,000 | March 2015 |
South White Rose Extension | 15,000 | June 2015 |
Rush Lake Lloyd Thermal | 10,000 | July 2015 |
Edam East Lloyd Thermal | 10,000 | April 2016 |
Colony formation (Tucker Thermal Project) | 5,000 | April 2016 |
Vawn Lloyd Thermal | 10,000 | Steaming |
Edam West Lloyd Thermal | 4,500 | Q3 |
North Amethyst Hibernia well | 5,000 | Q3 |
2016 Investor Day
Members of the senior management team will provide further details on the Company’s strategy and portfolio at the 2016 Investor Day, scheduled for 9 a.m. (Eastern Time) on Wednesday, June 1, 2016 in Toronto, Ontario, Canada. The presentation will be webcast and will be available at www.huskyenergy.com
Husky Energy is one of Canada’s largest integrated energy companies. It is headquartered in Calgary, Alberta, Canada and its common shares are publicly traded on the Toronto Stock Exchange under the symbol HSE. More information is available at www.huskyenergy.com
FORWARD-LOOKING STATEMENTS
Certain statements in this new 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 new 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 new release include, but are not limited to, references to:
There are numerous uncertainties inherent in projecting future rates of production. The total amount or timing of actual future production may vary from production estimates.
Although the Company believes that the expectations reflected by the forward-looking statements presented in this new 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, 2015 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 cash flow from operations and free cash flow, 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:
($ millions) | Q1 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||
Net earnings (loss) | (458 | ) | (3,850 | ) | 1,258 | 1,829 | 2,022 | 2,224 | |||||
Items not affecting cash: | |||||||||||||
Accretion | 34 | 121 | 134 | 125 | 97 | 79 | |||||||
Depletion, depreciation, | |||||||||||||
amortization and | 722 | 8,644 | 4,010 | 3,005 | 2,580 | 2,519 | |||||||
Inventory write-down to ne | – | 22 | 211 | – | – | – | |||||||
Exploration and evaluation | – | 242 | 6 | 10 | 60 | 68 | |||||||
Deferred income taxes | (7 | ) | (1,827 | ) | (191 | ) | 210 | 278 | 562 | ||||
Foreign exchange | 1 | 27 | 71 | 11 | (20 | ) | 14 | ||||||
Stock-based compensation | 17 | (39 | ) | (17 | ) | 105 | 54 | (1 | ) | ||||
Loss/(gain) on sale of asset | 2 | (16 | ) | (36 | ) | (27 | ) | 1 | (261 | ) | |||
Unrealized mark to market | 123 | (14 | ) | 79 | (11 | ) | (50 | ) | (8 | ) | |||
Other | – | 19 | 10 | (35 | ) | (12 | ) | 2 | |||||
Capital expenditures | (410 | ) | (3,005 | ) | (5,023 | ) | (5,028 | ) | (4,701 | ) | (4,800 | ) | |
Free cash flow | 24 | 324 | 512 | 194 | 309 | 398 |
Disclosure of Oil and Gas Information
Unless otherwise noted, projected and historical production numbers given represent Husky’s share. Unless otherwise noted, historical production numbers are for the year ended December 31, 2015.
The Company uses the terms barrels of oil equivalent (“boe”), which is consistent with other oil and gas companies’ 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 oil and gas companies and does not represent value equivalency at the wellhead.
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