TSX Commentary

Husky Energy Inc. (HSE) – $28.70 – Shedding a Little More Light on the Road Map
Sector Perform, Average Risk, Price Target: $37.00
Husky Energy announced an update to their Sunrise Oil Sands Project (50% wi), providing greater visibility in its growth outlook.
The Sunrise in-situ oil sands project is a 50/50 joint venture with BP Plc., with capital costs estimated at $2.5 billion ($1.25 billion net to Husky), approximately $41,700/bbl/d, $1+ billion less than the original design plan. RBC CM’s base NAV of $33.51 per share already incorporates a $0.30 attributable value to Phase 1 with a $2.5 billion capital figure. Husky has earmarked $85 million in 2010 for the Sunrise project in its 2010 capital expenditure guidance. Husky’s growth outlook is beginning to take shape with Sunrise’s timeline reaffirmed and its Liwan (49% wi) gas project in the South China Sea expected to be sanctioned in
early 2010 with production in the 2012/13 timeframe. At current levels, Husky is arguably inexpensive, trading at a 2010 debt-adjusted cash flow multiple of 5.1x (vs. 7.6x for RBC CM’s Canadian integrated peer group) and a P/NAV ratio of 0.9x in-line with its peer group. RBC CM reaffirms its Sector Perform, Average Risk rating on Husky Energy and one-year target price of $37 per share. RBC CM notes that while it remains neutral on Husky, the stock still appears oversold on a relative multiple basis.