Husky Energy Reports Second Quarter 2020 Results

Source Press Release
Company Husky Energy Inc. 
Tags Refining & Marketing Activities, Strategy - Upstream, Capital Spending, Guidance, Strategy - Corporate, Financial & Operating Data
Date July 30, 2020

Husky Energy recorded funds from operations of $18 million in the second quarter. Cash flow from operating activities, which includes changes in non-cash working capital, was a loss of $10 million.

“Husky quickly adapted to the global market downturn by immediately reducing capital spending, implementing sustainable cost savings measures and reinforcing our liquidity position,” said CEO Rob Peabody. “The early actions we took in the first half of 2020 to dial back production in response to the severe reduction in product demand has effectively stabilized our business, and in May and June, our net debt position.”

Husky’s Integrated Corridor business is uniquely positioned to capture margin opportunities in volatile market conditions while balancing upstream production and refinery throughput with product demand in the Company’s key markets.

The Company has the flexibility to reduce annual capital spending to the range of $1.2-$1.4 billion in 2021, excluding Superior Refinery rebuild costs, while maintaining a strong production base and current downstream throughput capacity.

Following recent rating agency reviews, Husky has maintained its investment-grade credit ratings. As previously announced, the Company reinforced its liquidity position in the second quarter with a $500 million term loan that is due in 2022, with no other near-term debt maturities.

The Company has improved its process and occupational safety metrics, including a 38% reduction in Tier 1 and 2 Process Safety Events and a 31% reduction in the Total Recordable Injury Rate, year to date, compared to the same period in 2019.

SECOND QUARTER SUMMARY

  • Funds from operations were $18 million. This included negative impacts from the realization of $274 million in after-tax inventory losses that were recognized in the first quarter, as well as a first-in first-out (FIFO) after-tax loss of $3 million.
  • Cash flow from operating activities was a loss of $10 million, including changes in non-cash working capital.
  • Net earnings were a loss of $304 million.
  • 2020 capital expenditures remain on track within the previously guided range of $1.6-1.8 billion.
  • In the second quarter, capital expenditures were $310 million, including $63 million in Superior Refinery rebuild capital. Spending was primarily directed towards the safe ramp-down of activities at the West White Rose Project and the Superior Refinery, as well as completion of the Liuhua 29-1 field offshore China and the 10,000 barrel-per-day Spruce Lake Central thermal bitumen project in Saskatchewan, which has commenced steaming operations as a result of improving market conditions.
  • Net debt at the end of the second quarter was $5.1 billion.
  • Total liquidity was $4.6 billion, comprised of $633 million in cash and $3.9 billion in available credit facilities.
  • Overall upstream production was 246,500 barrels of oil equivalent per day (boe/day). In the Integrated Corridor, production averaged 175,400 boe/day, with approximately 50,000 barrels per day (bbls/day) of heavy oil shut in during the second quarter.
  • Downstream throughput in the Integrated Corridor averaged 281,300 bbls/day, representing approximately 75% of overall capacity. Average refinery capacity in June reached 85% following increased product demand in the PADD II region.
  • Offshore production averaged 71,100 boe/day. The overall Offshore operating margin was $42.38 per boe.

Husky continues to work on lowering operating costs and ongoing sustaining capital requirements. Approximately
$150 million in cost efficiencies have been identified to date and the Company is evaluating additional opportunities for operating and capital cost reductions.

RESULTS

   Three Months Ended  Six Months Ended 

 
June 30
2020 
Mar 31
2020 
June 30
2019 
  June 30
2020 
June 30
2019 
Integrated Corridor1             
  Upstream production2 (mboe/day)  175  235  214    205  223 
  Upgrader and refinery throughput3 (mbbls/day)  281  308  340    294  337 
Offshore production2 (mboe/day)  71  64  54    68  54 
             
Revenue, net of royalties4 ($mm)  2,378  4,068  5,238    6,446  9,777 
Operating margin5 ($mm)  239  (169)  885    70  1,873 
  Integrated Corridor  41  (378)  730    (337)  1,554 
  Offshore  265  253  240    518  447 
Funds from operations5 ($mm)
  Per common share – Basic ($/share)   
18
0.02 
25
0.02 
802
0.80 
  43
0.04 
1,761
1.75 
Cash flow – operating activities ($mm)  (10)  355  760    345  1,305 
Capital expenditures6 ($mm)  310  612  858    922  1,670 
Free cash flow5 (loss) ($mm)  (292)  (587)  (56)    (879)  91 
Net earnings (loss) ($mm)
  Per common share – Basic ($/share) 
(304)
(0.31) 
(1,705)
(1.71) 
370
0.36 
  (2,009)
(2.02) 
698
(0.68) 
Net debt5 ($ billions)  5.1  4.6  3.7    5.1  3.7 
Net debt to trailing funds from operations5(times)  3.3  2.0  1.0    3.3  1.0 
1Includes Lloydminster Heavy Oil Value Chain, Oil Sands, Western Canada Production, U.S. Refining and Canadian Refined Products.
2Refer to advisory for full product breakdown.
32019 refinery throughput includes the Prince George Refinery, which was sold in November 2019.
4Revenue, net of royalties results reported for 2019 have been recast to reflect a change in reclassification of intersegment sales eliminations and a change in presentation of the Integrated Corridor and Offshore business units.
5Non-GAAP measure; refer to advisory.
6Includes Superior Refinery rebuild costs; expected to be largely covered by insurance. 

INTEGRATED CORRIDOR

  • Overall operating margin of $41 million
  • Average upstream production of 175,400 boe/day
  • Downstream throughput of 281,300 bbls/day

Lloydminster Heavy Oil Value Chain

The Lloydminster Heavy Oil Value Chain (LHOVC) includes the Lloydminster and Tucker thermal projects, enhanced oil recovery (EOR) assets, cold heavy oil production with sand (CHOPS), and the Lloydminster Upgrader and Asphalt Refinery.

The LHOVC operating margin was $5 million, compared to $474 million in Q2 2019.

Average sales for synthetic crude oil (SCO) and refined products were 78,800 bbls/day, compared to 84,100 bbls/day in the year-ago period. Average SCO and refined products realized pricing was $44.44 per barrel, compared to $86.60 per barrel in the second quarter of 2019.

Throughput at the Lloydminster Upgrader was 65,700 bbls/day, compared to 73,400 bbls/day in the same period in 2019. Volumes at the Upgrader were reduced early in the second quarter but ramped back up in line with increased demand.

Lloydminster Asphalt Refinery throughput was 28,200 bbls/day, compared to 26,100 bbls/day in the same period in 2019. The refinery continued full operations during the quarter due to strong asphalt pricing. Blended crude oil not processed through the Upgrader or Refinery averaged 86,600 bbls/day, compared to 100,700 bbls/day in Q2 2019.

Realized pricing for blended crude oil averaged $24.36 per barrel, compared to $67.82 per barrel in Q2 2019.

Total LHOVC thermal bitumen production averaged 82,300 bbls/day, compared to 97,700 bbls/day in Q2 2019. CHOPS and EOR crude production was 19,800 bbls/day, compared to 33,100 bbls/day in Q2 2019.

LHOVC operating costs were $9.72 per boe, compared to $11.83 per boe in Q2 2019. The operating margin was $6.88 per boe, compared to $33.31 per boe in the year-ago period.

Construction of the 10,000 barrel-per-day Spruce Lake Central project was completed in the second quarter. As a result of positive market signals, the project commenced steaming in mid-June and first oil is expected later in the third quarter.

Oil Sands

The Sunrise Energy Project averaged 25,600 bbls/day (12,800 bbls/day Husky working interest), compared to 54,000 bbls/day (27,000 bbls/day Husky working interest) in the first quarter of 2020. Average June production was 34,700 bbls/day (17,350 bbls/day Husky working interest) and is currently about 50,000 bbls/day (25,000 bbls/day Husky working interest.)

Western Canada Production

Total production averaged 60,500 boe/day, compared to 62,600 boe/day in the first quarter of 2020. Capital expenditures and development activities have been reduced to minimum levels.

U.S. Refining                                                                                                               

The U.S. Refining operating margin was $46 million, compared to a margin of $200 million in Q2 2019, reflecting lower volumes and crack spreads.

U.S. refinery throughput averaged 187,400 bbls/day, compared to 237,300 bbls/day in the year-ago period. Average throughput at the Lima Refinery was 130,000 bbls/day, reflecting the optimization of refinery runs to match product demand.

The Chicago 3:2:1 crack spread averaged $6.15 US per barrel, compared to $21.61 US per barrel in Q2 2019.

The average realized U.S. refining and marketing margin was $11.25 US per barrel of crude oil throughput, which included an unfavourable FIFO pre-tax inventory valuation adjustment of $2.34 US per barrel. This compared to $15.55 US per barrel a year ago, which included a favourable FIFO pre-tax inventory valuation adjustment of $0.60 US per barrel.

Construction has resumed at the Superior Refinery in Wisconsin under strict health and safety protocols. The rebuild project is scheduled for completion in 2022, with costs expected to be substantially covered by property damage insurance.

OFFSHORE

  • Overall operating margin of $265 million
  • Average net production of 71,100 boe/day
  • Operating margin of $42.38 per boe

Asia Pacific

China
Gross natural gas sales from the two producing fields at the Liwan Gas Project averaged 431 million cubic feet per day (mmcf/day), with associated liquids sales of 18,900 bbls/day (211 mmcf/day and 9,300 bbls/day Husky working interest).

Construction of the Liuhua 29-1 field at Liwan was 95% complete at the end of the second quarter as the project advances towards first gas by the end of 2020. Target production is 45 mmcf/day of gas and 1,800 bbls/day of liquids when fully ramped up, reflecting Husky’s 75% working interest plus exploration cost recovery volumes.

Indonesia
Gross natural gas sales at the BD Project in the Madura Strait averaged 87 mmcf/day, with associated liquids sales of 4,600 bbls/day (35 mmcf/day and 1,800 bbls/day Husky working interest).

Atlantic

Overall average production in the Atlantic region was approximately 19,000 bbls/day, Husky working interest. This takes into account the ongoing suspension of production-related operations on the partner-operated Terra Nova floating production, storage and offloading (FPSO) vessel, in which Husky has a 13% working interest.

Work remains suspended on the West White Rose Project.

CORPORATE DEVELOPMENTS

The Board of Directors has approved a quarterly dividend of $0.0125 per common share for the three-month period ended June 30, 2020. The dividend will be payable October 1, 2020 to shareholders of record at the close of business on September 1, 2020.

Regular dividend payments on each of the Cumulative Redeemable Preferred Shares – Series 1, Series 2, Series 3, Series 5 and Series 7 – will be paid for the three-month period ended September 30, 2020. The dividends will be payable on September 30, 2020 to holders of record at the close of business on September 1, 2020.

  Share Series    Dividend Type    Rate (%)    Dividend Paid ($/share) 
Series 1  Regular  2.404  $0.15025 
Series 2  Regular  1.985  $0.12474 
Series 3  Regular  4.689  $0.29306 
Series 5  Regular  4.591  $0.28694 
Series 7  Regular  3.935  $0.24594 

CONFERENCE CALL

A conference call will be held on Thursday, July 30 at 9 a.m. Mountain Time (11 a.m. Eastern Time) to discuss Husky’s second quarter results. CEO Rob Peabody, CFO Jeff Hart and other members of the senior executive team will participate in the call.

To listen live:

Canada and U.S. Toll Free: 1-800-319-4610
Outside Canada and U.S.: 1-604-638-5340



 
To listen to a recording (after 10 a.m. MT on July 30):

Canada and U.S. Toll Free: 1-800-319-6413
Outside Canada and U.S.: 1-604-638-9010
Passcode: 4881
Duration: Available until August 30, 2020
Audio webcast: Available for 90 days at  

Investor and Media Inquiries:         

Leo Villegas, Senior Manager, Investor Relations
403-513-7817

Kim Guttormson, Manager, Communication Services
403-298-7088

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd