Husky breaks production records in 2018, but remains gloomy on prospects for this year

Husky breaks production records in 2018, but remains gloomy on prospects for this year

In this week's earnings release, Husky Energy reported some major milestones for 2018, but called the last quarter "challenging."

THE HITS

Husky reported record fourth quarter output from its Sunrise project north of Fort McMurray, the Tucker Thermal Project near Cold Lake, and the Rush Lake 2 thermal bitumen project at Lloydminster.

  • Sunrise averaged 54,000 bbl/day in Q4, reaching peak rates of 62,600 bbl/day, higher than its design capacity of 60,000 bbl/day. Sunrise is owned jointly with UK oil major BP.

  • Tucker averaged 25,200 bbl/day in the fourth quarter, and also hit its nameplate of 30,000 bbl/day.

  • Rush Lake 2 began production in October, and also topped its design capacity of 10,000 bbl/day during the quarter.

Total bitumen production averaged 133,000 bbl/day, up 12,000 bbl/day from Q4/2017. Operating costs at Sunrise, Tucker and Lloyd averaged a combined $11/bbl during the quarter.

Five expansions are currently underway at Lloyd, which will add 50,000 bbl/day of capacity by 2022.

THE MISSES

CEO Rob Peabody called the last quarter "challenging," particularly in reference to a spill that occurred at its SeaRose FPSO vessel in mid-November. The outage curtailed quarterly production by about 10,000 bbl/day. The FSPO has since been restarted and will continue to ramp up through the second quarter.

Total upstream production declined to 299,000 bbl/day in 2018, down 7% y/y, reflecting the outage at SeaRose. 

Refinery throughput averaged 387,000 bbl/day last year, down 12% from 2017. Throughput averaged just 287,000 bbl/day in the fourth quarter, due to a major turnaround at its Lima Refinery in the US Midwest. The shutdown included upgrades which will boost Lima's heavy oil capacity by 10,000 bbl/day by the end of this year. 

Husky's Superior Refinery, also in the US Midwest, still remains offline due to a fire that occurred last spring.

PLANS FOR 2019

This year's production is expected to be about 295,000 boe/day, down about 5,000 boe/day from its previous forecast. Production from Husky's oil sands and thermal properties is expected to dip slightly this year, by as much as 3%.

The downgrade reflects curtailments mandated by the Alberta government, which Husky says has "impacted investor confidence and created several business challenges." The company maintains it is being disproportionately impacted by the curtailment quotas, and is calling for an end to the program.

Husky also warned that some of its cold heavy oil production (CHOPS) in Lloydminster "may never come back on stream" due to instability caused by the forced shutdown of well bores. Husky has been asked to take 8,000 bbl/day of its CHOPS production offline, but estimates 4,000 bbl/day may be permanently lost.

Husky plans to spend $3.3 to $3.5 billion in capital this year. About one-third of its budget is dedicated to the continued construction of the West White Rose Project located offshore Newfoundland, and owned jointly with Suncor and Nalcor Energy.

The company says it will continue to "optimize its portfolio" this year, aimed at further reducing break-even costs. Husky recently put its 12,000 bbl/day Prince George refinery up for sale, along with its 500 retail gasoline stations. According to analysts, those assets could fetch as much as $1 billion.

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