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Husky Energy adds bite to bark New CEO targets 50% production growth over next decade, using oil sands, Canada’s East Coast, Asia as pillars; Greenland possible Gary Park For Petroleum News
Over 17 years under the leadership of John Lau, Husky Energy absorbed the first lesson of canine obedience — “sit, stay.”
Over the past six months under Asim Ghosh it’s working on a second trick — “fetch.”
When he moved into the chief executive’s office, Ghosh, 62, made it clear he was not prepared to let a sleeping dog lie.
He said his time at the helm of Canada’s third-largest petroleum producing and refining company would not be marked by a “stand still” approach.
“I’m not a maintenance manager,” Ghosh said. “I like to build things.”
His professional record included turning Vodafone Essar into India’s second largest cell phone company.
What he inherited at Husky was a company dominated by caution and populated by investors unhappy with a failure to achieve production targets, not least Lau’s once-bold target of 500,000 barrels of oil equivalent per day, which remains about 200,000 boe per day beyond Husky’s reach.
Not that Lau adopted a passive role. He left Husky with billions of barrels of recoverable bitumen from the Alberta oil sands, made it a leading performer in the Newfoundland offshore and established a strong presence in the South China Sea — still the company’s key pillars of growth.
New stamp But Ghosh has moved swiftly to put his stamp on Husky.
Three months after arriving he struck a deal to pay C$450 million to acquire 65 million cubic feet per day of Alberta gas production from Talisman Energy.
That was a mere blip alongside an omnibus announcement on Nov. 29 when Husky disclosed it was buying C$860 million worth of Western Canadian oil and gas properties from ExxonMobil Canada, formally launching the initial C$2.5 billion phase of its 200,000 bpd Sunrise oil sands project (a joint venture with BP) and abandoning plans started by Lau to turn its Asian holdings into a standalone company.
The ExxonMobil deal will contribute 33,000 boe per day to Husky’s portfolio and, along with the Talisman acquisition, has enabled the company to set a production goal of 290,000-310,000 boe per day for 2011, up from this year’s 285,000-295,000 boe per day.
The ExxonMobil assets include 113 million boe of reserves and represent a purchase price of C$38,400 per flowing boe, stacking up favorably with ATB Financial’s estimate of C$45,000 per boe for recent deals.
Ghosh said the new properties “have very attractive metrics, reflecting our commitment to financial discipline. They are located in core operating areas where we will be able to leverage our existing infrastructure to create additional shareholder value.”
Sunrise due onstream in 2014 Sunrise, which will use thermal recovery technology, is estimated to contain 3.7 billion barrels of proven, probable and possible reserves.
The first 60,000 bpd is due onstream in 2014, with two more stages planned to attain 200,000 bpd, although Husky is no longer setting 2020 as its target for peak production.
However, BP will cover the full cost of the first phase. Cost estimates have yet to be released for reconfiguring BP’s Toledo, Ohio, refinery to handle heavy crude — another element of the joint venture.
In giving Husky its most public profile in almost two decades, Ghosh set an “aggressive” target of 140 percent reserve replacement over the next five years and a 50 percent hike in production by 2020, using the oil sands and Asia as its major springboards.
The company is also looking to Greenland for potential growth, spurred on by recent drilling results from Cairn Energy that pointed to what could be a massive hydrocarbon field.
Fixed platforms possible Ghosh said Husky may also change the way it operates in the Atlantic offshore by turning from floating rigs to fixed platforms, which he said have high up-front costs, but lower variable costs.
“We’re positioning ourselves as a balanced-growth rather than a milk-the-cow company,” he told Husky’s first investor day.
Some of the money needed to commercialize the opportunities will come from the disposal of “smaller non-core peripheral assets,” said Chief Financial Officer Alister Cowan, while joint-venture partners will be sought to develop nonconventional gas fields in British Columbia.
Analysts did not trip over each other in their rush to jump on Ghosh’s bandwagon.
Lanny Pendhill, with Edward Jones, questioned whether Husky has the growth side compared to its peers, but rates the shares a “hold” even though they have fallen 18 percent this year.
However, while noting Husky’s current output is back at 2002 levels, he conceded the ExxonMobil assets carry low maintenance costs and will help fill a short-term gap in production.
Les Stelmach, a portfolio manager at Bissett Investment, said Husky “has not performed very well for the last few years,” so he is waiting to see proof in the production growth category.
BMO Capital Markets analyst Randy Ollenberger said it is “positive” that Husky is now trying to deal with its record of almost flat production over the past decade.
He wants to see “more responsibility on production guidance (and) execution in turning the business around and profitably growing it.”
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