Husky Energy expects to grow funds from operations in its two core businesses at a compounded rate of nine per cent a year over the next five years.
Presenting its five-year plan at an investor day in Toronto this week, Husky outlined a “returns-focused” growth strategy heavy on continued cost structure reductions in its integrated Canada-U.S. upstream and downstream corridor and its offshore production in the Asia Pacific and Atlantic regions.
“We have transformed Husky to grow profitably in this new, lower commodity price era,” said CEO Rob Peabody.
Husky’s plan expects 4.8 percent per year production growth, from about 320,000 – 335,000 boe/d in 2017 to 390,000 – 400,000 boe/day in 2021.
The incremental production will come from new thermal oil development near Lloydminster, the Tucker and Sunrise oilsands projects, and Asia Pacific offshore gas.
“Production will increase steadily over our five-year plan, with funds from operations and free cash flow growing at much higher rates as a result of ongoing reductions in our cost structure,” added Peabody.
Funds from operations are expected to grow to about $4.8 billion in 2021 from about $3.3 billion in 2017, while free cash flow is expected to grow at a compound annual growth rate of 12 percent, rising to about $1.2 billion in 2021 from about $750 million in 2017.
Continued cost efficiencies account for Husky’s lower 2017 capital spend by $100 million to between $2.5 and $2.6 billion.
Five-year plan highlights include:
- 17 percent lower operating costs (to less than $12 per boe) from ongoing investment in lower-cost, longer-life production.
- Sustaining capital set to increase at a lower rate than production growth.
- Strong netbacks with low volatility as a result of fixed-price gas contracts in Asia Pacific.
- Higher downstream margins from increased heavy oil processing capacity, expanded asphalt capacity and product sales flexibility.
- Strong inventory of projects that deliver at least 10 per cent rates of return after tax at $45 US WTI and break even at US$35 WTI.
North American upstream and downstream
Husky’s inventory of heavy oil thermal projects in the Lloydminster region of Saskatchewan and Alberta, and its oilsands SAGD projects at Tucker near Cold Lake and Sunrise north of Fort McMurray are physically integrated with its downstream business.
Husky says its downstream assets—which consist of its storage facilities, Lloydminster Upgrader, asphalt plant and refining capacity in the PADD II district of the U.S. Midwest—provide processing and marketing options, increased margin capture, secured U.S. market access and free cash flow growth.
At the end of 2016, its thermal bitumen production was approximately 120,000 bbls/day, a 55 percent increase from 2015.
Husky expects to add 40,000 bbls/day of new thermal bitumen capacity over the next five years.
A 10,000 bbl/day thermal bitumen project is under construction at Rush Lake 2 and three additional 10,000 bbl/day thermal bitumen projects are progressing in Saskatchewan at Dee Valley, Spruce Lake North and Spruce Lake Central.
Husky has identified at least 14 additional Lloyd thermal developments for potential advancement.
Tucker thermal bitumen production is currently averaging about 23,000 bbls/day. With new wells being commissioned, production is expected to ramp up towards plant capacity of 30,000 bbls/day in 2018.
At Sunrise, gross production is now about 40,000 bbls/day, with 14 new well pairs in the process of being tied-in and placed on production by the end of 2017.
Husky supports its thermal growth with its own natural gas production, which provides a supply and natural hedge for its thermal projects and refineries.
Under Husky’s five-year plan, both its Asia Pacific/offshore China/Indonesia and Atlantic Canada will see continued investment.
Husky expects to grow its Asia Pacific regional production by 50 percent over the five-year plan to 60,000 boe/day.
In the Altantic Canada, Husky and its partners announced this week they are moving forward with development of the West White Rose Project.
West White Rose expects first oil in 2022, with a gross peak production rate of 75,000 bbls/day (52,500 bbls/day net) in 2025.