CALGARY — Husky Energy Inc. is considering the sale of part of its vast midstream business and will cut capital spending – particularly in Alberta – in 2016 to make itself more resilient in a low oil price environment.
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In capital spending plans for next year announced Tuesday, the Calgary-based integrated oil company said it would trim investment to about $2.9 billion to $3.1 billion in 2016, from $3.1 billion in 2015, and from $5.1 billion in 2014. Husky will also reduce the break-even oil price it uses for planning purposes to sub-US$40 West Texas Intermediate, from the mid-US$50s last year.
Asim Ghosh, president and CEO of Husky, said he is strengthening the company to succeed in a post-OPEC world. The OPEC cartel initiated a price war against North American producers in late 2014 that has slashed oil prices by two-thirds.
It is self-evident to everybody that we are into uncharted territory and the old rules of OPEC calling the shots are no longer valid
“It is self-evident to everybody that we are into uncharted territory and the old rules of OPEC calling the shots are no longer valid,” Ghosh said in an interview.
Husky is in discussions to sell part of its midstream business, which includes pipelines and oil tanks in the Lloydmister area, to unlock its value, he said. It would use the proceeds to pay down debt and would continue to be the operator. The company said in late October that it was planning to sell non-core assets.
On Tuesday Husky also said it’s considering the sale of royalty assets that produce 2,000 barrels of oil equivalent a day.
Husky, majority owned by Hong Kong billionaire Li Ka-Shing, is holding back spending in Alberta, where the new NDP government has raised corporate taxes, is implementing a controversial carbon tax and is expected to reveal a new oil and gas royalty regime by the end of the month.
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Spending in the oilsands, where Husky has just completed the Sunrise project with partner BP PLC, will be reduced to $100 million in 2016, from $200 million in 2015 and $600 million in 2014.
Heavy oil projects in Alberta and Saskatchewan will be allocated $700 million to $800 million, down from $1 billion in 2015 and $1.3 billion in 2014. Other projects in the two provinces will get $400 million, down from $600 million in 2015 and $1.2 billion in 2014.
Ghosh said Husky will work with all governments where it has operations, but “anything that unilaterally reduces Alberta’s competitiveness is not wise.”
“We have added costs (in Alberta) because of transport, because it’s not a cheap basin to operate, and if everybody is concerned about climate change, as the world seems to be, we are in a good position to move in sync with other people with similar interests,” he said, rather than Alberta implementing carbon taxes and waiting for others to do their part.
Meanwhile, Husky is deploying more money next year in Canada’s East Coast offshore and in the Asia Pacific.
In a call with industry analysts Tuesday, Ghosh said shoring up the balance sheet takes precedence, but his company also recognizes that its dividend is important to shareholders.
Husky started paying its cash dividend in shares last month to preserve capital, a move that weakened its share price.
“Should commodity prices rise above our current price planning assumption, I see no reason why a cash dividend would not be re-instated,” Ghosh said.
Husky is moving forward with its ‘flexibility project’ at its Lima, Ohio, refinery, which will enable it to refine up to 40,000 barrels a day of its growing heavy oil production. Ghosh said in the call that the project requires less capital than building upgrading capacity from the ground up. The Alberta government has been encouraging companies to build upgrading in the province to diversify the economy and add value.