Husky Energy Inc. (TSX: HSE) -- Good operational performance in the first quarter delivered funds from operations of $709 million, a 63 percent increase compared to a year ago, and free cash flow of $325 million.
"Our consistently improving performance over recent quarters has delivered increased free cash flow, demonstrating that the structural transformation of our business has reached critical mass," said CEO Rob Peabody.
"This moves us closer to our objective of returning cash to shareholders as the market stabilizes, while continuing to invest in a deep portfolio of projects."
First quarter highlights included:
2017 FIRST QUARTER RESULTS
Overall average Upstream production was 334,000 boe/day, up from 327,000 boe/day in the prior quarter. That compares to 341,000 boe/day in the first quarter of 2016. Production reflected the disposition in 2016 of approximately 32,000 boe/day of production in Western Canada, largely offset by growing thermal production and increased volumes from the Liwan Gas Project.
Total upgrading and refining throughputs averaged 367,000 bbls/day, compared to 314,000 bbls/day in the same quarter last year.
WTI prices averaged $51.91 US per barrel compared to $33.45 US per barrel in the first quarter of 2016.
Average realized pricing for total Upstream production was $41.58 per boe, compared to $25.02 per boe in the same quarter the year before. This includes average realized gas pricing of $13.31 per thousand cubic feet (mcf) for sales gas at Liwan.
The Chicago 3:2:1 crack spread averaged $11.22 US per barrel compared to $9.23 US per barrel in the first quarter of 2016. Average realized U.S. refining margins were $8.33 US per barrel compared to $3.76 US per barrel a year ago.
Overall average Upstream operating costs were $13.75 per barrel.
Funds from operations were $709 million, compared to $434 million in the first quarter of 2016.
Capital expenditures were $384 million. Free cash flow was $325 million.
Net earnings were $71 million, compared to a loss of $458 million a year ago, reflecting higher commodity prices, increased production from thermal projects and Liwan, and higher throughputs and realized refining margins in both the Canadian and U.S. downstream operations.
FIRST QUARTER OPERATIONS SUMMARY
Strong performance from the Edam East, Vawn and Edam West Lloyd thermal projects contributed to overall average net thermal bitumen production of 121,000 bbls/day, including the Tucker Thermal Project and Sunrise. Overall thermal operating costs were $11.83 per barrel in the quarter.
The Edam East, Vawn and Edam West developments, which came on production in 2016, are producing at 20 percent above design capacity, averaging 30,000 bbls/day. Average operating costs for the three projects were $8.23 per barrel in the quarter.
Construction continued to advance at the 10,000 bbls/day Rush Lake 2 Lloyd thermal project, with first oil expected in the first half of 2019. Open houses were held for the sanctioned 10,000 bbls/day Lloyd thermal projects at Dee Valley, Spruce Lake North and Spruce Lake Central, advancing the projects toward regulatory approval.
At the Tucker Thermal Project, first production from a new eight-well pad began in the quarter and drilling continued on an additional 15-well pad. Production from Tucker is anticipated to ramp up through 2017 and 2018 towards 30,000 bbls/day.
Gross production at Sunrise averaged 35,800 bbls/day (17,900 bbls/day net to Husky) in the quarter, up about six percent from the fourth quarter. Current production has reached 40,000 bbls/day (20,000 bbls/day net to Husky), with average per well pair production of about 730 bbls/day. Work is progressing to tie in 14 new well pairs, and steaming is expected to commence later this year.
Western Canada Resource Plays
To date, the Company has signed purchase and sales agreements for the sale of about 3,300 boe/day of production in Western Canada for $88 million in gross proceeds.
The Western Canada business is moving ahead with increased capital efficiency. The repositioned portfolio is now more than 70 percent gas-weighted, providing a natural hedge for the Company's energy requirements at its thermal projects and refineries.
A 16-well program targeting the Wilrich formation in the Ansell and Kakwa areas is underway. A drilling program targeting the oil and liquids-rich Montney formation in the Wembley and Karr areas has commenced.
Engineering work continued on the proposed asphalt refinery, which would double Husky's asphalt production capacity. An open house on the project was held in March as part of the regulatory process.
Upgrading and refining throughputs averaged 367,000 bbls/day, contributing to overall capacity utilization of 95.5 percent.
At the liquids-rich BD Project offshore Indonesia, preparations are being finalized for first production, including plans to commission the floating production, storage and offloading (FPSO) vessel. The project is expected to ramp up to its full sales gas rate in the second half of 2017, with a gross sales production target of 100 million cubic feet per day (mmcf/day) of gas (40 mmcf/day net to Husky) and 6,000 bbls/day of liquids (2,400 bbls/day net to Husky).
At the MDA-MBH fields, platform construction is more than 40 percent complete. A contract for the floating production unit is awaiting final government approval. First gas is expected in the 2018-2019 timeframe, with an additional shallow water field at MDK expected to be tied in during the same period.
Total gross sales gas volumes from BD, MDA-MBH and MDK are expected to be approximately 250 mmcf/day of gas (100 mmcf/day net to Husky) and 6,000 bbls/day of associated liquids (2,400 bbls/day net to Husky) once production is fully ramped up.
At the Liwan Gas Project, gross sales gas volumes averaged 272 mmcf/day, with associated liquids production averaging 12,500 bbls/day. The Company realized pricing of $13.31 per mcf for its sales gas production.
In April, Husky signed a production sharing contract for Block 16/25, located in the Pearl River Mouth Basin. The Company expects to drill two exploration wells on the shallow water block during the 2018 timeframe, in conjunction with two planned exploration wells at the nearby Block 15/33.
Negotiations are progressing on a fixed-price gas sales agreement for the Liuhua 29-1 field. Project sanction is anticipated in the second half of 2017, subject to a final price agreement.
A new infill well at North Amethyst began production in the quarter, with peak production of 8,600 bbls/day net to Husky. A second well is planned in 2017 at White Rose, with the combined net peak production expected to be about 15,000 bbls/day. Both wells will be tied back to the SeaRose FPSO, providing for improved capital efficiencies.
Two exploration wells are scheduled to be drilled in the Flemish Pass Basin beginning in mid-2017.
A final investment decision on the West White Rose Project will be considered this year.
2017 PLANNED MAINTENANCE AND TURNAROUNDS
A conference call will take place on Friday, May 5 at 8 a.m. Mountain Time (10 a.m. Eastern Time) to discuss the Company's first quarter results. CEO Rob Peabody, CFO Jon McKenzie and COO Rob Symonds 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. on May 5)
Canada and U.S. Toll Free: 1-800-319-6413
Outside Canada and U.S.: 1-604-638-9010
Duration: Available until June 5, 2017
Audio webcast: Available for 90 days at www.huskyenergy.com/InvestorRelations
Following the conference call, the Company will hold its Annual Meeting of Shareholders at 10:30 a.m. (Mountain Time) in the Palomino Room at the BMO Centre, 20 Roundup Way S.E., Calgary, Alberta.
A live webcast of the meeting will be available at www.huskyenergy.com under Investor Relations. The archived webcasts of the conference call and the meeting will be available for approximately 90 days.
Husky Energy is a Canadian-based integrated energy company. It is headquartered in Calgary, Alberta, Canada and its shares are publicly traded on the Toronto Stock Exchange under the symbols HSE, HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E and HSE.PR.G. More information is available at www.huskyenergy.com
SOURCE: Husky Energy Inc.
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