TOP CONTRIBUTORS

CHAN WEI NIGEL

Husky Energy (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 a series of more than 500 retail Gas stations across Canada and is currently the largest producer and marketer of Ethanol in Western Canada.^[2] It has net reserves of 552 million barrels of Oil and Bitumen, and 1.9 trillion cubic feet of Natural Gas.^[3]

In view of the global economic crisis, the last 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 fell by 12% while Natural Gas production tumbled 11% respectively. Adjusted Net Income for the company from the first 6 months of 2009 fell from $2256 million to $816 million Canadian Dollar (CAD) .^[4] Before the global economic crisis,annual Net Income of the company in 2007 registered $3.2billion, an 18% increase over 2006. Sales and Operating revenues, net of royalties, were $15.5 billion, an increase of 23% over 2006. ^[1]

In 2006, the company began to diversify into various regions of Asia where one of the greatest gas discovery off the South China Sea was made. Also, a Gas sale and purchase agreement with Indonesia has been reached and is expected in 2011.^[1]. Husky Energy has also reached an agreement in principle with BP based on a 50/50 partnership on a North American Oil Sands project where it's first phase is projected to roll out in 2012. ^[5]

Business Overview

As a fully integrated Energy producer, the company earns its revenue from three different industry-defined channels; namely upstream, midstream and downstream projects. A breakdown of the company's Net Income as well as the Revenue from crude Oil and Natural Gas for the last 3 years are shown in the graph below. Husky's financial health fluctuates with the prices of Energy as well as the amount of cash flow that the company has. ^[6]. Lower energy prices drives down the revenue for the company since it's factories produce significantly more heavier grade crude oil which will then have to be traded at a discount due to low demand. Husky's crude Oil prices are dependent on OPEC quota, socio-economic conditions of oil producing countries, weather patterns, natural disasters and the availability of Alternative Energy Sources (AENS).^[7]

Breakdown of Husky Energy total revenue

Prices of Crude oil and Natural Gas over three years

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]

Explorations and Acquisitions over the last 3 years

Breakdown of Husky Energy total revenue

Upstream Activities (44.4% of Revenue in 2008)

Husky's Upstream activities involves exploration and production of crude oil, natural gas and NGL. 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 in 2008)

Husky's Midstream activities include upgrading, marketing, processing and transportation of crude oil and natural gas. In addition, the company also does cogeneration of electrical and thermal energy. As of 2008, 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 in 2008)

The company's downstream activities include refining of light crude oil, manufacturing of fuel and industrial grade ethanol as well as acquisitions of 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 Products

In addition to its three business segments, Husky also classifies its revenues by hydrocarbon type. The breakdown is as follows:

Crude oil (79.9% of total revenue in 2008) Huksy Energy constantly makes new explorations and oil lease purchases across the globe to further expand operations.In 2007, Husky Energy had one of the biggest exploration expansion in recent years with an additional 24,142 square kilometers blocks of land. The company had produced an average of 329,600 barrels of oil per day in the first 6 months of 2009.^[13]

Natural Gas (20.1% of total revenue in 2008) Husky's Natural gas production are 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 the first 6 months of 2009.^[14]

Energy production per day 2008 vs 2009

Key Trends and Forces

Husky Energy is making limited, conservative, forays into alternative energy

Husky is anticipating that changes in the requirements of the enviornmental legislation may have an exponential impact on the company's Capital Expenditures^[15]. Husky Energy has now its Cheektowaga factory entirely powered by Wind Energy, generating an estimated of 2.5 million fewer pounds of carbon dioxide when 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 litres of ethanol and 130,000 tonnes of a high protein feed supplement, which will result in the elimination of more than 135,000 tonnes of greenhouse gases.^[17]

Husky's Revenue resonates with the U.S. Dollar (USD) to Canadian Dollar (CAD) Exchange Rate

Husky engages heavily on 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. As such, when translated to the scale of revenue generated, the US to Canadian Dollar rate has significant impact on the company's takings. ^[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 between 2012 and 2013.^[21] High technology software 3-D Seismic Data has reported that the well (Liwan) could have contained an estimated of four to six trillion cubic feet of Natural Gas.^[22] Husky Envergy is looking at a possible gas production of over 150 million cubic feet of natural gas per day (figures based on production of the first Liwan well). By far, 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, stating a collaboration between Husky and Indonesia's state oil company Pertamina as one of the likely terms and conditions. This partnership is scheduled to begin in 2012 and will see through an estimated quantity of 515 billion cubic feet of natural gas being produced.^[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]

Map of Husky's Exploration Blocks off the Chinese Coast^[26]

Map of Husky's Exploration Blocks off the Indonesian Coast^[27]

Competition

Husky’s competitors consist of all types of energy companies, of which are mainly Canadian-based companies such as Imperial Oil (IMO), Petro-Canada (PCZ), Shell-Canada,Encana (ECA) ,Nexen (NXY) ,Canadian Natural Resources (CNQ), Syncrude Canada.^[28]These industry players compete primarily in the oil and gas exploration, production, refining, marketing and distribution channels. In 2008, Imperial oil's net income topped it's list of competitors with 3.878 billion^[29], with Husky energy closing in at 3.754 billion^[30]followed by Petro Canada with 3.1 billion.^[31] Besides, these companies also compete in terms of daily production capacity as shown in the figure below.

References

1. ↑ ^{1.0 1.1 1.2 1.3} Husky Energy Home/ About
2. ↑ ^{2.0 2.1} Western Canada includes western edge of the Sedimentary Basin, in northwestern Alberta and northeastern British Columbia
3. ↑ [1]
4. ↑ [http://www.huskyenergy.com/downloads/InvestorRelations/2009/HSE_MDA_2Q09.pdf Management'sdiscussionandanalysis/July22/2009/Page7,8,28
5. ↑ [2]
6. ↑ HE/40F//adequacyofcrudeoilandnaturalgasprices/pg13
7. ↑ 40-F/adequacyofcrudeoilandnaturalgasprices/pg13
8. ↑ Huskyenergy/homepage
9. ↑ [http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm HuskyEnergy/40-F/distributionofoilandgasproduction/pg55
10. ↑ HE/40F/BET/General
11. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm#aif15959_13 HuskyEnergy/40-F/Midstreamactivities
12. ↑ HE/40F/BET/General
13. ↑ Newsblaze/July22,2009
14. ↑ Newsblaze/July22,2009
15. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-F/Environmentarisk/pg15
16. ↑ [http://buffalo.bizjournals.com/buffalo/stories/2003/01/06/daily32.html Buffalo/Businessfirst/Husky energy strategy is blowing in the wind/9thjan2003
17. ↑ journalofcommerce/Multi-milliondollarethanolplantcompleted/01072008
18. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40F/Adequacy of crude oil and natural gas prices/pg13
19. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huksyenergy/40-F/Naturalgas/pg55
20. ↑ http://www.eia.doe.gov/emeu/cabs/China/NaturalGas.html Chinaenergydata
21. ↑ upstreamonline.com/live/huskylinesupworkwithchina/08062009
22. ↑ http://www.huskyenergy.com/downloads/AboutHusky/Publications/FactSheets/2009/FS_SouthEastAsia.pdf www.huskyenergy.com
23. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-f/International/pg51
24. ↑ Upstreamonline.com/jakartaweighsupmaduraBDmove
25. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-f/International/pg51
26. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-F/China/pg51
27. ↑ http://www.sec.gov/Archives/edgar/data/49279/000119312509032207/d40f.htm Huskyenergy/40-F/Indonesia/pg53
28. ↑ [http://canadaonline.about.com/od/oilandgascos/Oil_and_Gas_Companies_in_Canada.htm about.com/Oil and Gas Companies in Canada
29. ↑ [3]
30. ↑ page 5
31. ↑ page 6