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Husky's 10% Production Increase Spurred by Liwan Project

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   |    Thursday,October 23,2014

Husky Energy has announced 2014 third quarter results

CEO Asim Ghosh said: "With all areas of our business, we are carefully staging our activities to not only provide dependable cash flows and returns, but to also fund future projects. 

Husky's expansive portfolio and strong balance sheet give us the flexibility to manage through economic cycles and adjust as necessary."

Upstream production averaged 341,000 barrels of oil equivalent per day (boe/day), up approximately 10 percent from 309,000 boe/day in the third quarter of 2013.

Average throughputs at the Downstream refineries and Lloydminster Upgrader were 334,000 barrels per day (bbls/day), compared to 300,000 bbls/day in the third quarter of last year.

Highlights Include:

• Total Upstream production averaged 341,000 boe/day, up from 309,000 boe/day a year ago.
• Commissioning work continues on Phase 1 of the Sunrise Energy Project, which is on track to start steaming around the end of the year.
• Construction of the Rush Lake heavy oil thermal project is now more than 70 percent complete with first production on schedule for the second half of 2015.
• Sales gas volumes from the Liwan Gas Project were in the range of 200 to 220 million cubic feet (mmcf/day, gross), up from a 180 to 200 mmcf/day (gross) range in the second quarter.
• A letter of intent has been issued to award the contract for leasing an FPSO (floating production, storage and offloading) vessel for the liquids-rich BD gas field development offshore Indonesia, allowing design work on the vessel to begin.
• Production facilities were completed at the South White Rose field in the Jeanne d'Arc Basin in the Atlantic Region, with first oil anticipated in the second quarter of 2015 following the drilling of the first production well.
• Construction was completed on two 300,000-barrel tanks at Hardisty, Alberta, which are scheduled to be in service in early 2015.

Third quarter production reflected increased volumes from the Liwan Gas Project, which came onstream earlier this year, and strong performance from heavy oil thermal projects. Production in the Atlantic Region was impacted by approximately 10,300 bbls/day due to the planned installation of production equipment for the South White Rose development, as well as planned turnarounds on the SeaRose and Terra Nova FPSOs, which have resumed production. Western Canada production also takes into account a number of third-party outages and turnarounds.

Downstream throughputs of 334,000 bbls/day take into account a 42-day turnaround at the Lloydminster Upgrader that began in early September and strong performance from the Company's refineries.

At the Sunrise Energy Project, the development cost estimate for Phase 1 is $3.2 billion, of which 50 percent is net to Husky. Capital cost efficiency remains in the range of other projects completed or in construction in the industry since 2013.

The Company has incorporated several technologies to reduce sustaining capital, including a customized mobile drilling rig and multi-phase metering. The rig provides for closer spacing of wellheads, resulting in a smaller footprint and less piping and facilities on the pad.

Key Area Summary

Heavy Oil

Thermal projects continued to perform very well during the quarter, averaging approximately 45,400 bbls/day compared to 38,800 bbls/day a year ago. The Sandall thermal project, which came on stream in the first quarter of 2014, continues to produce well above its 3,500 bbls/day nameplate capacity, averaging about 5,300 bbls/day in the quarter.

Longer-life thermals are helping to lengthen the stride of the heavy oil business and deliver improved earnings per barrel of production. Construction is advancing on a series of high-netback, modular projects.

• The 10,000 bbls/day Rush Lake thermal development is now more than 70 percent complete and on schedule for first production in the second half of 2015.
• The 10,000 bbls/day Edam East thermal project is advancing towards first oil in the first half of 2016.
• The 3,500 bbls/day Edam West thermal project is set to come on production in the second half of 2016.
• The 10,000 bbls/day Vawn thermal project is targeted for production in the second half of 2016.
• The Company's Saskatchewan pipeline gathering system is being expanded to accommodate production from the new thermal projects. Work progressed over the 2014 construction season and the project is expected to be completed in 2015.

Total horizontal heavy oil production averaged 12,700 boe/day during the third quarter, with operating costs of $14.42 per barrel.

Western Canada

Production from oil and liquids-rich gas resource plays averaged more than 34,000 boe/day in the quarter, compared to approximately 25,000 boe/day in the third quarter of 2013.

Gas Resource Plays

Drilling continued at the Ansell liquids-rich gas play. Nine wells were completed in the quarter, with 17 wells completed to date in 2014. Average production from Ansell during the quarter was approximately 17,500 boe/day, compared to about 13,700 boe/day in the same period the year before.

Performance from test wells at the Duvernay liquids-rich gas play at Kaybob continued to meet expectations.

Oil Resource Plays

Fifteen horizontal wells were drilled and 15 completed in the third quarter, with activity primarily focused on the Viking and Bakken oil resource plays.

Downstream

Construction was completed on two 300,000-barrel storage tanks at Hardisty, Alberta to improve storage capacity. The tanks are expected to be in service in early 2015.

The Company has made commitments on the Cochin pipeline to provide diluent for the Sunrise Energy Project.

A 40,000 bbls/day heavy crude flexibility project is underway at the Lima Refinery to support Husky's growing heavy oil thermal production. Front-end engineering and design (FEED) is complete and further equipment upgrades are planned.

The Lima Refinery has been running at reduced rates of about 110,000 bbls/day since October 16 as the result of unplanned interruptions on third-party feedstock pipelines.

Growth Pillars

China

Gas sales from the Liwan Gas Project in the South China Sea were in the range of 200 to 220 mmcf/day (gross), up from a 180 to 200 mmcf/day (gross) range in the second quarter. With the longer ramp-up of production at Liwan, exploration cost recovery will be extended into 2015.

About $210 million US of approximately $800 million US in exploration costs have been recovered to date.

Progress was made in laying a second 22-inch pipeline from the 3-1 field to the shallow water platform. Pending vessel availability, plans are being finalized for the completion of the pipeline, which will provide for increased operational flexibility and reliable performance late in the field life.

The Liuhua 34-2 field is due to be commissioned, subject to final approvals.

Market opportunities for the Liuhua 29-1 field continue to be assessed, with first production anticipated in the 2018 timeframe.

Indonesia

Offshore Indonesia, a letter of intent awarding the contract for an FPSO vessel has been issued. The vessel will be used to develop the BD field in the Madura Strait, which contains natural gas and liquids. Construction is progressing on a wellhead platform and pipeline infrastructure, with first gas expected in the 2017 timeframe.

A Plan of Development was approved by government regulators for the MDK natural gas field, which calls for a two-well platform with production tied back to the shallow water MDA/MBH floating production unit. First gas is planned for the 2017-2018 timeframe.

Husky owns a 40 percent interest in the Madura Strait developments, which includes the BD, MDA, MBH and MDK natural gas fields, plus various other discoveries and prospects.

Oil Sands

The Sunrise Energy Project is undergoing final commissioning, with the first 30,000 bbls/day central processing plant scheduled to start steaming around the end of the year.

Work continues to advance on the second 30,000 bbls/day plant, which is on track for startup approximately six months after the first. Production is expected to ramp up over a two-year period.

Extensive 2-D and 3-D seismic surveys and appraisal drilling have confirmed the quality of the reservoir, facilitating optimal well placement. Other enhancements contributing to planned well performance include:

• Vacuum-insulated tubing to reduce heat loss and improve steam efficiency
• Electrical Submersible Pumps (ESPs) to more effectively produce the wells
• An advanced casing design to improve inflow performance from the reservoir

Atlantic Region

Several projects are advancing towards first production in the Jeanne d'Arc Basin offshore Newfoundland and Labrador.

• A Hibernia-formation well targeting a deeper zone at the North Amethyst field neared completion, with first production planned around the end of the year. Production is expected to increase to approximately 5,000 bbls/day (net).
• At the South White Rose field, all production equipment is now in place. Subject to rig availability, first oil is anticipated in the second quarter of 2015, with production volumes expected to increase to approximately 15,000 bbls/day (net).
• Early site preparation continued for the West White Rose field development, including construction of the graving dock. The project is subject to Company, partner and regulatory approvals.

Exploration

In the Flemish Pass, a 3-D seismic program in the area of the Bay du Nord discovery wrapped up in the third quarter. The West Hercules drilling rig arrived offshore Newfoundland in mid-October to begin an 18-month appraisal and exploration drilling program. Husky holds a 35 percent working interest in the Bay du Nord, Mizzen and Harpoon discoveries.

Corporate Developments

A search for a Chief Financial Officer continued during the quarter.

Husky has established a new commercial paper program under which it may issue unsecured commercial paper notes of up to $1 billion. Reflecting the Company's strong credit quality, the program is rated R-1 (Low) and provides access to a cost effective and flexible financing vehicle. Approximately $920 million has been issued to date.