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This dog has teeth Wheeling and dealing pulls Husky out of doldrums, prowling for assets Gary Park Petroleum News Calgary Correspondent
Husky Energy is finally starting to show more bite than bark, but the after-thought among Canada’s five integrated oil companies remains a riddle wrapped in a conundrum.
The startling C$800 million-plus acquisition of Marathon Oil’s holdings in Western Canada, accompanied by the even more breathtaking flip of one-quarter of that production, including 375 billion cubic feet of proved and probable reserves, to EOG Resources for about C$450 million, pulled Husky out of the shadows of endless takeover speculation.
But its future will remain shrouded, so long as Hong Kong billionaire tycoon Li Ka-shing owns 71.5 percent of Husky’s shares.
Chief Executive Officer John Lau, who once predicted Husky was destined to become “one turbo-charged puppy,” said the Marathon deal was not necessarily the end of his company’s ambitions.
Backed by a healthy balance sheet, he told the Financial Post in a rare interview that Husky is on the prowl for assets worth up to C$2 billion, ready to draw on C$1.1 billion in unused credit facilities.
He said the fact that Husky acquisitions are not subject to bank approval, makes “a deal with us better than with other companies.”
Such swaggering confidence is in keeping with Husky’s grander ambitions of achieving 500,000 barrels of oil equivalent per day by 2007, a gain of almost 200,000 boe/d from its second-quarter output. Investment community still wary Whatever optimism Lau expresses, the tightly held nature of Husky continues to make the investment community wary, not least after the roller coaster of rumors in 2001 and 2002 — or what UBS Warburg described as the “Here we go again” era.
Twice in six months the company confirmed speculation that it was in discussions for a possible takeover deal — first with TotalFinaElf, then with PetroChina, the subsidiary of state-owned China National Petroleum Corp.
Those deals just as quickly blew apart, but not before Canadian Natural Resources, Conoco, Phillips Petroleum (before they merged) and PanCanadian Energy (before it merged with Alberta Energy Co. to form EnCana) found themselves on the list of possible suitors.
It was all consistent with the checkered history since Li and his Hutchison Whampoa conglomerate swallowed up Husky in 1987 and took the company private, then bought out co-owner Nova Corp’s stake in 1991.
Over most of the 1990s, there was little to get excited about as Husky struggled under heavy debts, high operating costs and marginal heavy oil and gas assets. Five years of cost cutting and profit discipline But five years of cost cutting and profit discipline under Hong Kong turnaround manager and accountant Lau started to earn some grudging admiration, boosted by Husky’s potential in offshore Eastern Canada and the Wenchang oilfield in the South China Sea, and lately by its success in a shallow natural gas play in southwestern Saskatchewan.
For the latest quarter, Husky’s 12.5 percent stake in Newfoundland’s Terra Nova field averaged 19,000 barrels per day with ever more in store when the nearby White Rose field comes on stream in late 2005, yielding about 72,500 bpd for Husky.
In addition to 610 million cubic feet per day of gas production, 210,000 bpd of crude and gas liquids from its far-flung properties, Husky owns a 77,000 bpd heavy oil upgrader in Saskatchewan, which will increase to 82,000 bpd in 2004 after debottlenecking.
As well, it owns 580 retail outlets across Canada and wholesales both fuels and asphalt in Canada and the United States.
With a solid history in heavy oil, including output of 94,700 bpd in the second quarter, Husky is also pushing ahead with oil sands ventures in northeastern Alberta, starting with its C$500 million Tucker project targeted to produce 30,000 bpd over 25 years, starting in 2005. The objective is to channel cash flow from Tucker into its Kearl Lake leases, which could be built in four phases, growing from 25,000 bpd to 100,000 bpd, although no timetable has been set. Renewed interest in stock Now the Marathon deal has apparently fired up renewed interest in Husky stock, which has floundered since going public three years ago as part of its C$4.4 billion takeover of Renaissance Energy.
Other than stirring to life in response to takeover speculation, the shares rallied only briefly above C$15 and the company was often accused of continuing to operate as if it remained privately held.
Those negative views have been less in evidence over the past three months, as shares have climbed 20 percent, edging above C$20 and making Husky the top performer against its peers — Imperial Oil, Petro-Canada, Shell Canada and Suncor Energy.
RBC Capital Markets analysts Gordon Gee and Jennifer So have lifted their ratings to “top pick” from “outperform,” noting that the Marathon assets give Husky a more balanced portfolio, with gas production accounting for 35 percent from 33 percent.
“It also indicates that the major shareholders are proactive and want to increase shareholder value, rather than maintaining the status quo,” they said.
Jim Bartlett, an analyst with Odlum Brown, has set a 12-month share target of C$25 based on Husky’s strong balance sheet and financial resources.
But Li, if nothing else, is capable of pulling a surprise at unexpected times and given his struggles with bad telecom investments in Hong Kong, his need for liquidity could make Husky a very disposable part of his vast business empire.
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