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Husky Energy (TSE:HSE) |
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WIKI ANALYSIS
Husky Energy Inc. (TSE:HSE) is a major Canadian oil and gas company.[1] The company's core business relies on the production and sale of oil, natural gas, natural gas liquids (NGL), and ethanol.[1] The company also manages more than 500 retail gas stations across Canada and is currently the largest producer and marketer of ethanol in Western Canada.[2] Husky Energy has net reserves of 552 million barrels of oil and bitumen, and 1.9 trillion cubic feet of natural gas.[3]
In light of the global economic crisis, the fourth quarter of 2008 registered a significant decline in world oil and natural gas consumption. As such, the comparable second quarter of 2009 saw Huksy's crude oil and NGL production fall by 12% while natural gas production tumbled 11%. Adjusted net income for the company from the first 6 months of 2009 fell from Cdn $2,256 million to Cdn $816 million.[4]
Company Overview
As a fully integrated energy producer, the company earns its revenue from three different industry-defined channels: upstream, midstream and downstream.
Husky's financial health fluctuates with the prices of energy.[5] Lower energy prices drive down the revenue for the company because it earns less per barrel of energy equivalent when prices are low. Husky's crude oil prices are dependent on OPEC quotas, socioeconomic conditions of oil producing countries, weather patterns, natural disasters, and the availability of alternative energy sources (AENS).[6]
Business and Financial Metrics
Second Quarter 2010 Results[7]
During the second quarter of 2010, Husky Energy reported net earnings of $266 million, compared to $430 million in the second quarter of 2009. EPS was reported as Cdn $0.31, or Cdn $0.41.
Cash flow for the quarter was $806 million. Total production before royalties averaged 283,900 boe/day, and capital expenditures totaled $638 million.
A $14 million loss in the U.S. Downstream segment resulted from weak realized refining margins. The stronger Canadian dollar in the quarter relative to the U.S. dollar also reduced the benefit of higher benchmark commodity prices year-over-year.
Business Segments
While Husky Energy earns its revenue from three main channels, the company's income is beyond sales from natural gas and crude oil . The other revenue generators include natural gas liquids, asphalt, sulphur, diesel, gasoline, ethanol, lubricants, and petroleum coke.[8] Husky targets its heavy crude oil market directly to refiners in the mid-west and eastern United States and Canada while its light and synthetic crude oil production is concentrated mainly on third party refiners in Canada, the United States and Asia. On the other hand, natural gas liquids are sold to Canadian petrochemical retail, wholesale distributors and consumers as well as refiners in North America.[9]
Upstream Activities (44.4% of Revenue)
Husky's upstream activities involve exploration and production of crude oil, natural gas and natural gas liquids. The company’s upstream operations and key prospects are located in parts of Western Canada, offshore Eastern Canada, offshore China, Indonesia and Greenland.[10].
Midstream Activities (6.2% of Revenue)
Husky's midstream activities include upgrading, marketing, processing and transporting crude oil and natural gas. In addition, the company also cogeneratejs electrical and thermal energy. Husky's upgrader plant that is based in Lloydminister, Saskatchewan, is capable of producing an average of 57.5 mbbls/day of synthetic crude oil, 10.4 mbbls/day of diluent and 3.2 mbbls/day of low sulphur diesel .[11]
Downstream Activities (49.4% of Revenue)
The company's downstream activities include refining light crude oil, manufacturing fuel and industrial grade ethanol, as well acquiring refined petroleum products. The company also maintains its retail network which provides a platform for substantial non-fuel related convenience product businesses. [12]
Revenue by Product
In addition to its three business segments, Husky also classifies its revenues by hydrocarbon type.
Crude oil (79.9% of total revenue)
Husky Energy constantly makes new explorations and oil lease purchases across the globe to further expand operations. The company had produced an average of 329,600 barrels of oil per day in 2009.[13]
Natural Gas (20.1% of total revenue)
Husky's natural gas production is concentrated solely in Western Canada.[2], and its highly susceptible to North American natural gas market forces. The company had produced an average of 604 million cubic feet of natural gas per day for 2009.[14]
Trends and Forces
Husky Energy is expanding cautiously into alternative energy
Husky is anticipating that changes in the requirements of environmental legislation may have an exponential impact on the company's capital expenditures.[15] Husky Energy's Cheektowaga factory is now entirely powered by wind energy, generating an estimated 2.5 million fewer pounds of carbon dioxide compared to conventional power sources like oil and natural gas.[16] Husky Energy had also completed a multi-million dollar ethanol plant in Manitoba that has an annual production capacity of 130 million liters of ethanol and 130,000 tons of a high protein feed supplement, which will result in the elimination of more than 135,000 tons of greenhouse gases.[17]
Husky's revenue is affected by the U.S. Dollar (USD) to Canadian Dollar (CAD) Exchange Rate
Husky engages heavily in trading and logistics activities in regions across North America where Canadian gas is sold.[18] In 2008, the North American Market accounted for 63.4% or 348 million cubic feet of natural gas sales per day to end users. When translated to the scale of revenue generated, the U.S. to Canadian Dollar rate has significant impact on the company's net income. [19]
Husky targets expansion in Asia
Husky Energy is the first company to embark on deepwater natural gas discovery at the Liwan 3-1-1 field in the South China Sea.[20] Within 6 months of drilling the first appraisal well (Liwan) in block 29/26 in the South China Sea, the company is now lining up work for the third appraisal well, which is scheduled to come on line between 2012 and 2013.[21] High technology software maker 3-D Seismic Data has reported that the well (Liwan) could have contained an estimated four to six trillion cubic feet of natural gas.[22] Husky Energy is looking at possible gas production of over 150 million cubic feet of natural gas per day (figures based on production of the first Liwan well).
The company's foothold in the China region include a 40% stake in an offshore oil producing operation at Wenchang and another 100% stake in six exploration blocks in the South China Sea and another in the East China Sea.[23]
Husky's other Asian counterpart, Indonesia, is looking at extending an agreement for a natural gas block off East Java. This partnership is scheduled to begin in 2012 and will produce an estimated 515 billion cubic feet of natural gas.[24] The company has now a 50% stake in the Madura Strait Block production sharing contract (PSC), and a 100% stake in the North Sumbawa II and Bawean II exploration block.[25]
Competition
Husky’s competitors consist mainly of Canadian-based energy companies such as Imperial Oil (IMO), Petro-Canada (PCZ), Shell-Canada, Encana (ECA), Nexen (NXY), Canadian Natural Resources (CNQ), and Syncrude Canada.[28] These industry players compete primarily in oil and gas exploration, production, refining, marketing, and distribution channels.
In 2008, Imperial oil's net income topped it's list of competitors with Cdn $3.878 billion,[29] with Husky Energy closing in at Cdn $3.754 billion,[30] followed by Petro Canada with Cdn $3.1 billion.[31]
References
- ↑ 1.0 1.1 Husky Energy Home/ About
- ↑ 2.0 2.1 Western Canada includes the western edge of the Sedimentary Basin, in northwestern Alberta and northeastern British Columbia
- ↑ Answers.com: Husky Energy Inc.
- ↑ [http://www.huskyenergy.com/downloads/InvestorRelations/2009/HSE_MDA_2Q09.pdf Management'sdiscussionandanalysis/July22/2009/Page7,8,28
- ↑ HE/40F//adequacyofcrudeoilandnaturalgasprices/pg13
- ↑ 40-F/adequacyofcrudeoilandnaturalgasprices/pg13
- ↑ Husky Energy Investor Relations: "HUSKY ENERGY ANNOUNCES A HEIGHTENED FOCUS ON PRODUCTION GROWTH IN REPORTING ITS SECOND QUARTER 2010 RESULTS
- ↑ Huskyenergy/homepage
- ↑ [http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm HuskyEnergy/40-F/distributionofoilandgasproduction/pg55
- ↑ HE/40F/BET/General
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm#aif15959_13 HuskyEnergy/40-F/Midstreamactivities
- ↑ HE/40F/BET/General
- ↑ Newsblaze/July22,2009
- ↑ Newsblaze/July22,2009
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-F/Environmentarisk/pg15
- ↑ [http://buffalo.bizjournals.com/buffalo/stories/2003/01/06/daily32.html Buffalo/Businessfirst/Husky energy strategy is blowing in the wind/9thjan2003
- ↑ journalofcommerce/Multi-milliondollarethanolplantcompleted/01072008
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40F/Adequacy of crude oil and natural gas prices/pg13
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huksyenergy/40-F/Naturalgas/pg55
- ↑ http://www.eia.doe.gov/emeu/cabs/China/NaturalGas.html Chinaenergydata
- ↑ upstreamonline.com/live/huskylinesupworkwithchina/08062009
- ↑ http://www.huskyenergy.com/downloads/AboutHusky/Publications/FactSheets/2009/FS_SouthEastAsia.pdf www.huskyenergy.com
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-f/International/pg51
- ↑ Upstreamonline.com/jakartaweighsupmaduraBDmove
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-f/International/pg51
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-F/China/pg51
- ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-F/Indonesia/pg53
- ↑ [http://canadaonline.about.com/od/oilandgascos/Oil_and_Gas_Companies_in_Canada.htm about.com/Oil and Gas Companies in Canada
- ↑ Yahoo! Business
- ↑ United States Securities and Exchange Commission
- ↑ page 6 U.S. Securities and Exchange Commission
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