National Post (National Edition)
Oilpatch comfortable in US$50 world
IMPROVED RESULTS
CALGARY• Slow and steady improvement in oil prices and consistently declining costs have helped two Canadian heavy oil producers, Husky Energy Inc. and MEG Energy Corp., rebound from previous losses.
Both Calgary-based oil producers reversed losses recorded earlier in the year and swung to profit in third quarter results released Thursday.
Husky and MEG cited continued efforts to drive down costs as a reason for the improved results and both reduced their planned capital spending for the remainder of the year, citing efficiency gains and cost savings.
“Over the past six quarters, we have steadily increased funds from operations against a similar business environment,” Husky president and CEO Rob Peabody said during an earnings call, adding the company’s operating costs had fallen to $14.12 per barrel of oil equivalent in the third quarter.
Husky’s pulled in $136 million in net earnings in the third quarter, up sharply from a $96 million net loss in the second quarter.
In the third quarter of 2016, Husky recorded earnings of $1.3 billion in 2016 but that was entirely a result of $1.3-billion asset sale and the company’s adjusted net loss was $100 million.
Similarly, MEG earned $190 million in the third quarter, up from a net loss of $124 million in the preceding quarter, and up from a $109 million loss during the same period last year.
Both companies benefited from rising oil prices, improved access to refineries and falling costs.
West Texas Intermediate benchmark oil prices climbed steadily over the course of the third quarter, from a low of close to US$45 per barrel in July to close to US$52 per barrel in the second half of September. WTI edged up half a per cent on Thursday to US$52.50 per barrel.
“Since 2011, we’ve reduced our non-energy costs by about 55 per cent and since 2014, 42 per cent,” MEG president and CEO Bill McCaffrey said during an earnings call, adding that the savings have come from both staff reductions and efficiency gains.
At the same time, McCaffrey said MEG had hedged more of its oil production at higher prices and had taken space on Enbridge Inc.’s Flanagan South pipeline to get its barrels to the U.S. Gulf Coast, where heavy oil is in demand.
MEG, a steam-based oilsands producer, has been rolling out a new process — which requires injecting its oilsands reservoir with methane — across its operations in an attempt to reduce costs, boost production and increase efficiency.
National Bank Financial analyst Brian Milne said in a research note that MEG “continues to make positive headway on the efficiency side” and was able to decrease its planned capital spending by 14 per cent, or $80 million, as a result.
“We are pleased to see positive changes in the model culminating in a potentially self-funded 2018 growth program,” Milne said, but added the investment case “is still overshadowed, in our view, by a large debt load and still relatively anemic cash flow position.”
Husky also reduced its planned capital spending for the year from between $2.5 billion and $2.6 billion to between $2.2 billion and $2.3 billion and exceeded analysts’ expectations for the quarter as a result of its refining business unit.