“Our vitals are strong, including a solid balance sheet, a low break-even and a high return portfolio,” said CEO Rob Peabody.
“Our investment program will generate higher margins, further lower our corporate break even and increase our free cash flow.”
As a result of the ongoing transformation, overall sustaining and maintenance capital requirements have decreased about 25 percent over the last two years and are forecast to be in the range of $2.2-2.3 billion for 2017, added Peabody.
Project investments continue to deliver a minimum 10 percent (after tax) internal rate of return at a WTI oil price in the low $40s US per barrel, and break even with a WTI oil price in the low $30s US per barrel.
The capital expenditure program for 2017 will be in the range of $2.6-2.7 billion. Capital spending is expected to be fully funded within cash flow from operations.
NEAR-TERM GROWTH CATALYSTS
Husky plans to add approximately 45,000 barrels per day (bbls/day) of new higher return production, with average production for the year expected to be in the range of 320,000-335,000 barrels of oil equivalent per day (boe/day).
- Increasing volumes from the Edam East, Vawn and Edam West Lloyd thermal projects, the Tucker Thermal Project and the Sunrise Energy Project are expected to raise average thermal production to about 125,000 bbls/day, an increase of more than 30 percent over 2016 average thermal production.
- Tucker production is expected to continue to increase in 2017 towards a sustained production level of about 30,000 bbls/day in 2018.
- Current production at Sunrise is about 35,000 bbls/day. Production will continue to ramp up throughout 2017 with average annual production expected to be in the range of 40,000 to 44,000 bbls/day (gross). Utilizing existing plant capacity, 14 previously drilled well pairs will be tied in for approximately $50 million net in late 2017. Once ramped up, average well pair production is expected to be 800-900 bbls/day.
- The liquids-rich BD field offshore Indonesia is scheduled to ramp up to its full gas sales rate by the second half of 2017, with a fixed-price contract and a net production target of 40 million cubic feet per day (mmcf/day) of gas and 2,400 bbls/day of liquids.
- Two new infill wells are planned in the Atlantic Region, with expected combined net peak production of about 15,000 bbls/day.
MID-TERM GROWTH CATALYSTS
The Board has sanctioned several new projects that will provide resilient growth while further lowering the Company’s cost base.
- Three new Lloyd thermal projects with total design capacity of about 30,000 bbls/day have been sanctioned at Dee Valley, Spruce Lake North and Spruce Lake Central. Subject to regulatory approval, first production for all three is expected in 2020.
- Development continues on a 10,000 bbls/day Rush Lake 2 Lloyd thermal project, with first oil scheduled for the first half of 2019.
- Further investments are being made in high value flexibility projects in the Downstream business to support the growing thermal business and capture additional margins:
- At the Lima Refinery, the crude oil flexibility project has increased heavy crude feedstock processing capacity to around 10,000 bbls/day, with the full scope of the project expected to increase capacity to 40,000 bbls/day in 2018.
- At the partner-operated Toledo Refinery, the Company is expected to realize the full benefit of its recently completed project to increase capacity to process 65,000 bbls/day of high-TAN crude. The Refinery’s overall nameplate capacity will remain at 160,000 bbls/day.
- Engineering is progressing to provide for the expansion of Lloydminster asphalt capacity to 60,000 bbls/day by 2021 to accommodate growing Lloyd thermal volumes; the project will be considered for sanction next year.
- Four additional gas fields are being progressed in the Madura Strait offshore Indonesia. The MDA-MBH and MDK fields will be developed in tandem and are scheduled to come on production in the 2018-2019 timeframe, and a plan of development has been approved for the MAC field.
- Engineering design and subsurface evaluation work continues at West White Rose to increase capital efficiency and improve resource capture; the project will be considered for sanction next year.
- The Company is increasing investment in Western Canada resource plays, with 16 wells slated to be drilled next year. This will contribute to an anticipated increase in resource play production to about 36,000 boe/day by the end of the year.
STRONG VITALS IN PLACE
Husky’s firm foundation for growth is underpinned by the successful delivery of its financial objectives:
- The Company now has one of the strongest balance sheets in the industry.
- The net debt target was achieved in 2016 and is now approximately $4 billion compared to $7 billion at the beginning of the year.
- More than 40 percent of production is now being generated from low sustaining capital projects.
- This target was reached ahead of schedule this year and has resulted in a significant reduction in operating costs and sustaining and maintenance capital.
Annual average production is expected to be in the range of 320,000-335,000 boe/day.
|Oil and Liquids (mbbls/day)|
|Lloyd and Tucker thermal||103 – 105|
|Oil Sands thermal||20 – 22|
|Lloyd non-thermal||44 – 46|
|Atlantic Region||35 – 37|
|W. Canada (light, medium, heavy and NGLs)||19 – 20|
|Asia Pacific Region|
|Light, medium & NGLs||13 – 15|
|Total Oil and Liquids||234 – 245|
|Natural gas (mmcf/day)|
|Canada||345 – 353|
|Asia Pacific Region||171 – 182|
|Total Natural Gas||516 – 535|
|Total Production (mboe/day)||320 – 335|
Capital Expenditures (1)
|Lloyd and Tucker thermal||600 – 630|
|Oil Sands thermal||90 – 100|
|Lloyd non-thermal||85 – 90|
|Atlantic Region||320 – 335|
|W. Canada (light, medium, heavy and NGLs)||60 – 65|
|W. Canada natural gas||150 – 160|
|Asia Pacific Region||230 – 240|
|Upstream Total||1,535– 1,620|
|Unallocated capital||200 – 250|
|Downstream(2)||725 – 765|
|Corporate||95 – 105|
|Total||2,555 – 2,740|
(1) All amounts exclude asset retirement obligations, capitalized interest and administration.
(2) Includes planned turnarounds.
2017 PLANNED MAINTENANCE AND TURNAROUNDS
- A three-week turnaround is planned at the SeaRose FPSO (floating production, storage and offloading) vessel in the third quarter.
- A three-week turnaround at the partner-operated Terra Nova FPSO is scheduled in the third quarter.
- A four-week turnaround is planned at the Lloydminster asphalt refinery in the second quarter.
- The Lloydminster Upgrader will undergo a seven-week turnaround beginning in the second quarter.
- A five-week turnaround is scheduled at the Lima Refinery in the fourth quarter.
2016 GUIDANCE ON TRACK
Production for 2016 is expected to be within guidance at 318,000-320,000 boe/day. This was achieved even with the sale throughout the year of more than 30,000 boe/day of production, and does not include 47 mmcf/day of deferred revenue from production at the Liwan Gas Project, for which cash has been received.
The planned capital expenditure program was completed under budget with additional scope. Capex for the year is anticipated to be about $2.0 billion, about $100 million below the guided range. This reflects the ongoing cost reduction program, significant procurement savings and improved productivity throughout 2016.
U.S. refining margins are expected to remain under pressure in the fourth quarter.