TSX Commentary » Husky Energy Inc.

Husky Energy Inc. HSE Volumes Down in 2009 on East Coast Turnarounds

admin — Thu, 04 Feb 2010 15:12:21 +0000

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.

Husky Energy Inc. HSE Q4 2009 Supercharged Under the Hood

admin — Thu, 04 Feb 2010 15:09:20 +0000

Husky Energy Inc. (HSE) – $26.94 – Q4: Supercharged Under the Hood?
Sector Perform, Average Risk, Price Target: $37.00
Husky Energy’s fourth-quarter operating EPS of $0.39 fell shy of RBC CM’s $0.45 estimate, largely in connection with soft downstream earnings in Canada and higher upstream depletion, but its results contained little drama otherwise. Husky’s fourth-quarter production of 291,500 boe/d was in line, its U.S refining losses of $43 million were as expected, and its Lloydminster
upgrading operations exceeded our expectations. Husky’s Mizzen (35% wi) oil discovery off-shore Newfoundland is notable, and is sure to be a feature on Husky’s conference call, slated for 4:15 PM ET (800-597-1419) on February 4. The potential spin-out of a portion of Husky’s Asian assets – Liwan and Wenchang oil – into a separate entity, has been telegraphed since last spring, but remains dependent upon market conditions. At current levels, Husky is arguably inexpensive, trading at a 2010E debt-adjusted cash flow multiple of 5.1x (vs. 8.0x for RBC CM’s Canadian integrated peer group) and a P/NAV ratio of 0.82x, in line with its peer group. RBC CM notes that while it remains neutral on Husky, the stock still appears oversold on a relative multiple basis. RBC CM’s target price reflects an equal weighting toward a multiple of 1.0x estimated Base NAV of $33.02 per share (vs. $33.39 previously) and a 2011E mid-cycle debt-adjusted cash flow multiple of 7.1x.

Husky Energy Inc. HSE Shedding a Little More Light on the Road Map

admin — Thu, 21 Jan 2010 16:56:14 +0000

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.

HSE Lloydminster Deal – Enquiring Minds Want to Know

admin — Tue, 01 Dec 2009 17:45:24 +0000

Husky Energy’s agreement to acquire 6,000 bbl/d of conventional heavy oil production in the Lloydminster area from Penn West appears logical on paper, although the purchase price is an open question. In connection with its third-quarter results, Penn West indicated that it was nearing the completion of a circa $250 million heavy oil disposition in eastern Alberta that would be completed before year-end. In the context of that $250 million figure, the acquisition is mildly accretive to RBC CM’ 2010/11 earnings/cash flow estimates, and would map to reasonable metrics of approximately $41,700 per flowing barrel of production per day and $20.85/bbl of proven reserves ($12.20/bbl on a 2P basis). Husky’s relative valuation appears compelling, but the missing piece in the story these days concerns better definition regarding its strategic direction and priorities moving ahead. Husky major catalysts revolve around: (1) sanctioning of its Liwan gas field in the South China Sea – expected in 2Q 2010; (2) details regarding its contemplated AsiaCo spinout – expected by mid-2010; and (3) giving its 60,000 bbl/d (50% wi) Sunrise in-situ oil sands project the green light – expected in 3Q 2010. RBC CM reiterates its Sector Perform, Average Risk rating on Husky Energy and one-year target price of $37 per share.

HSE Q309 Results In Line Potential Spin Out Of SE Asia

admin — Thu, 22 Oct 2009 17:57:49 +0000

Q3/09 production of 276 MBoe/d & CFPS of $0.53 were in line respective 283 MBoe/d & $0.54 estimates. CF was significantly below
consensus of $0.68. We suspect the variance was largely due to higher cost
related to its East Coast turn around activities and lower NG volumes.
Debt levels remain solid as we forecast
year D/CF at 0.9x and available capital of $2.6 B (working capital adjusted).
Looking into 2010, we expect East Coast volumes to ramp up to about 82
MBbl/d (versus Q3/09 volumes of 29 MBbl/d), the first phase of Sunrise
(~$2.5 B gross; SAGD project) to be sanctioned, ramp of Tucker volumes,
and the spin out of its SE Asian assets (in H1/10).
HSE is trading in line with our static NAV estimate of $31.32.
The valuation already accounts for the potential spin out of SE Asia. A conference call will be held on October
21

Husky Energy Inc. Strong Operational Results for Q2/09; Stock is Fairly Valued

admin — Sun, 26 Jul 2009 23:31:39 +0000

Production of 317 MBoe/d and CFPS of $0.98 came in above our
expectations of 296 MBoe/d and $0.64, respectively due to our
conservatism on White Rose downtime (i.e. ~20 MBbl/d lower than actual),
lower cash taxes and significantly higher US downstream earnings.

In terms of upcoming developments, HSE is 1) planning a maintenance
shutdown of its White Rose FPSO in Q3; 2) installing subsea tie-backs of the
North Amethyst field; 3) drilling its 3rd Liwan appraisal well and 1st East
Bawean exploration well; and 4) optimizing the scope of its Sunrise project.

Overall, HSE offers a solid balance sheet with a favorable dividend (3.8%
yield) and option value on its SE Asian exploration program and oil sands
business (Sunrise).