TSX Commentary

Veritas Research: Husky Energy Inc. (HSE) – $26.94 – Volumes Down in 2009 on East Coast Turnarounds
Sell, Intrinsic Value Estimate: $31.00 (Oil at $80/bbl)
Husky’s volumes fell to 306,500 barrels of oil equivalent per day (boe/d) in 2009 from 355,900 boe/d in 2008. Over half of the lost volumes were due to interruptions on the East Coast at White Rose, resulting from tie-in work on the North Amethyst extension and subsea operational issues. The remainder of the year-over-year drop in volumes reflects equal parts natural gas and Western Canadian declines. Husky’s production sank to 291,600 boe/d in Q4, but it expects to reach 306,000 to 330,000 boe/d in 2010, with a third of 2010 volumes tied to heavy oil and bitumen. It will offset flat to lower gas production with the startup of the North Amethyst extension at White Rose in 2010 Q1 and an increased focus on heavy oil and enhanced oil recovery, highlighted by the Q4 purchase of 6,000 boe/d of heavy oil production from Penn West. Husky also holds a variety of shale and tight gas assets that can be ramped up as pricing improves. Upstream spending will increase to $2.4B from $2.0B in 2009, split roughly equally between Western Canada and Husky’s offshore ventures. Midstream, Downstream and Corporate spending adds an additional $670 MM, for a combined total of $3.1B or $3.65 per share. Delineation and exploration drilling continued at Liwan in the South China Sea, with FEED nearly complete and first production targeted for 2013. Husky successfully tested a potential tie-in to Liwan at Lihua, which it estimates can produce at 144 million cubic feet per day. In Indonesia, Husky continues to wait on an extension to its Production Sharing Contract at Madura. Husky now trades at a noticeable discount to Veritas’s $31 per share intrinsic value
assuming US$80 oil and US$6 gas, with downside risk to $23 per share on US$70 oil and US$5.50 gas. At present, Veritas rates Husky a Sell.