Husky to boost spending
Dividend suspended during downturn could be reinstated, CEO Peabody says
Emboldened by an improved outlook for oil prices, Husky Energy Inc. will boost spending next year for the first time since 2014 even as its direct competitors pare their budgets back.
Husky announced Monday it would spend between $2.9 billion and $3.1 billion in 2018 — up roughly 35 per cent from the $2.2 billion to $2.3 billion it plans to spend this year.
Despite a bigger capital budget and improved confidence, the Calgary-based oil and gas producer did not reinstate its dividend, which had been suspended during the oil price collapse, though management hinted that could happen.
“Barring unforeseen events, at this point in time, I think the board is likely to be favourably disposed (to reinstating a dividend) when they sit down and discuss it with the fourth quarter results,” Husky president and CEO Rob Peabody said, noting the oil price environment had “stabilized.”
For now, Husky plans to spend the additional cash it expects to generate next year on two new heavy oil projects, new wells at its properties offshore Newfoundland and the expansion of its offshore gas project in China.
The company’s plans contrast the budgets announced by other major producers such as Canadian Natural Resources Ltd., which expects to spend roughly $500 million less in 2018 than the $4.9 billion it spent in 2017. Similarly, Suncor Energy Inc. announced a 10 per cent cut to its planned spending next year, a reduction of $750 million, when it announced its $4.5 billion to $5 billion budget for 2018.
Both Suncor and CNRL had spent billions in recent years to complete major oilsands projects that are now ramping up. Husky, meanwhile, has been working on smaller-scale heavy oil projects and ramping up production at existing oilsands facilities.
“We expect capital spending to be covered by cash flow at US$50 oil prices, with limited opportunity to reinstate a dividend unless oil prices stay near current levels,” BMO Capital Markets analyst Randy Ollenberger said of Husky in a research note.
He said he expects Husky would generate $1 billion in free cash flow if West Texas Intermediate oil prices stay at US$55 per barrel.
The WTI benchmark slipped during mid-day trading Monday to US$57.52 per barrel, but has been trending upward since falling to US$42.53 per barrel in June.
“Recent higher oil prices have been supported by global economic growth forecasts, production restraints and increased geopolitical risk,” Moody’s senior vicepresident Terry Marshall said in a report Monday. He added, “risks to prices persist, including reduced consumption due to higher prices, as well as increased supply.”
The debt ratings agency report showed WTI expected to range between US$40 and US$60 per barrel through 2018 and into 2019 because there are still “significant global supplies” and modest growth in oil demand. It noted that oil prices above US$50 per barrel will encourage more oil production, which would weigh on the price.
Husky, for its part, indicated it planned to increase production from current levels around 320,000 to 335,000 barrels of oil equivalent per day to 400,000 boepd in 2021.
Recent higher oil prices have been supported by global economic growth forecasts (and) production restraints.