Husky Energy - Cumulative FCF C$8.7bn in the next five years
Husky Energy’s integrated corridor business physically connects assets across North America, from the wellhead to the refinery, enabling the company to maximise value per barrel produced. Accounting for c 70% of Husky’s cash flow, the integrated corridor underpins its five-year plan, which envisages cumulative group free cash flow (FCF) of C$8.7bn from FY19 to FY23. Coupled with high/fixed-price contracts in Asia and high-margin offshore assets in the Atlantic, this enables Husky to maximise operational margins and be resilient through the cycles. Excess FCF is to be directed towards increasing shareholder returns and strategic growth projects. These are Husky’s main objectives, along with becoming a high-reliability organisation in terms of safety. Net debt remains below a targeted 2x funds from operations when stress tested at US$40/bbl WTI. Husky trades at 2.4x FY20 P/CF vs the North American large-cap E&P average of 3.5x and North American integrated average of 6.0x.
10 Sep 19
HSE proposes unsolicited offer for MEG Energy
Offering ~$11.00/share in cash and shares for MEG. Estimates ~$200 mm/year in near-term realizable synergies. ~18% accretive to ‘20e FCFPS at strip (relative to sustaining capital). Suspect this plays out like SU/COS did (deal closes after bid raised). Expect the shares to be weak in near term.
01 Oct 18
Husky investor day: modest erosion to estimates – maintain HOLD rating
HSE’s latest investor day reinforced for us the strength and resilience of its strategy and asset base. That said, there were some modest negatives to post 2018e guidance (delays to first gas from Madura satellites, a more tempered view of Lloyd thermal volumes, and ~$0.3B/yr higher capex in ‘19e/’20e than we and the Street were forecasting). Our ‘19e/‘20e forecasts for production and CFPS are reduced by 1%/2%. Maintain HOLD rating and $19.50 TP. Multiple expansion could be significant, but HSE may need to show prolonged record of delivering without any major negative surprises.
30 May 18
Commodity Price Update – Impact on Integrateds, Large Cap E&P, Oilsands
3Q16e WTI prices look set to average ~US$44.50/bbl vs. our $50.00/bbl prior estimate. We have also reduced our 4Q16e WTI forecasts by US$5.00 to US$50.00/ bbl, but left our 2016e+ oil & gas price deck largely unchanged. For the second time in three months we are increasing our forecasts for Canadian refined product premiums relative to New York Harbor.
HSE CVE IMO SU CNQ ECA ATH MEG PXX
28 Sep 16
New Liwan Agreement with CNOOC
Husky and CNOOC have agreed to a new fixed price at Liwan (~10% lower than previous), and are finalizing terms for a smaller Liuhua 29-1 development. The price concession is significantly less than many feared. Clarity on the price, together with the positive news that Liuhua 29-1 is about to move forward, should be a positive for the stock on Tuesday. Liwan production is back to normal, and Husky estimates to receive ~US$100 mm in back payments from CNOOC. We maintain our Outperform ranking on the shares. Our RENAV (10% Atax) increases $0.38/share as Liuhua 29-1 economics are looking much better than we had previously assumed.
03 Aug 16
2Q16 Update – Expect Catalysts in 2H16
2H16e catalysts to watch for include a resolution at Liwan (further details “very soon”), ramp up at Sunrise, potential reinstatement of a dividend, and potential use of asset sale proceeds. We have reduced 2017e capex estimates (thermal growth timing, conventional), while our production estimates have increased very modestly. Maintaining Outperform ranking and $18.00/share target price.
27 Jul 16
Integrateds, Oilsands & Large Caps
The Fort McMurray wildfire took more than 1.2 mmbbl/d of oilsands production offline at one point, disrupting operations of many companies within our coverage universe. We expect production estimates for many oilsands producers (HSE, IMO, SU, ATH) to be more varied than usual with more variables to account for than usual (downtime, ramp up, sales volumes). SCO prices were boosted by the wildfire, with CNQ best positioned to have taken advantage, given the upgrader at Horizon was only mildly affected by wildfires. CVE, HSE and SU likely benefited from a positive FIFO impact. We estimate a positive FIFO impact of $4-5/bbl of throughput assuming a 30 day lag, with a larger positive FIFO impact on longer lags. We are generally close to consensus for most CFPS estimates, with the exception of Suncor, where we are estimating $0.34/share versus consensus at $0.44/share. There are no target price or ranking changes with this publication.
Commodities - Energy
20 Jul 16
Sustaining Capital and Implied Free Cash Flow
We have analyzed recent Company estimates of sustaining capital. Relative to our approximations of sustaining capital, post Horizon expansion, at current prices CNQ offers a far better free cash flow yield than the Canadian Integrateds, even in a high case refining margin scenario (see charts on page 2). We are upgrading our ranking on CNQ to Top Pick from Outperform, increasing our target price by $3.00 to $47.00/share, while we have reduced our target prices for both HSE and CVE by $1.00/share, to $18.00/share. In our view CNQ is clearly better value than any of the Canadian Integrateds.
HSE CNQ CVE IMO MEG SU
07 Jul 16
PARTNER STATOIL ANNOUNCES FLEMISH PASS EXPLORATION UPDATE
Market Impact: Slightly negative as the size of Bay du Nord was said to be "potentially towards the lower end" of the previously estimated range. Two additional discoveries were disclosed but not quantified, so we would assume they are not massive. Husky has a 35% stake in the discoveries. We do not believe the market was ascribing significant value to Husky's Flemish Pass interests, so if Bay du Nord is modestly smaller than hoped we do not believe this will have an overly material impact on the stock today.
10 Jun 16
2016 Investor Day Update
• Resource to support another ~150 mbbl/d of Lloyd thermal projects has now been identified. •Husky disclosed an additional ~$400 mm in asset sales (~11 mboe/d), and is negotiating on another ~10 mboe/d, but it sounds like Alberta conventional gas assets are not expected to be sold (large abandonment liabilities). •HSE is confident Sunrise will recover from forest fire outages, but now expects to hit 60 mbbl/d by early 2017e instead of YE2016e. •A Flemish Pass exploration update is expected in the coming weeks. • No update on Liwan contract discussions. •Maintaining Outperform ranking. Target price increased $0.50 to $18.00/share.
03 Jun 16
ANNOUNCES ~$300 MM ADDITIONAL ASSET SALES AND ~110 MBBL/D ADDITIONAL THERMAL PROJECTS
Market Impact: Positive. Husky has sold an additional ~$300 mm of assets in western Canada (~9,000 boe/d, ~$34,000/boe/d), and identified an incremental ~110 mbbl/d of thermal projects. Investors will be looking for updates on Liwan, Sunrise, and the dividend at Husky's investor day this morning.
02 Jun 16
INVESTOR DAY NOTES
Market Impact: Should be positive overall given ~$400 mm in additional western Canada asset sales announced, 110 mbbl/d of new Lloyd thermal projects identified, reduced cost expectations, and pending news on Flemish Pass exploration in the coming weeks. On the downside, there was no news on the Liwan gas contract, and Husky does not appear to expect to sell its high cost Alberta gas assets anytime soon.
01 Jun 16
Husky 1Q16 Update – Asset Sales Overshadowed by CNOOC’s Renege
Liwan’s value to Husky would drop by only ~$0.73/share (24%) if the gas price was lowered by US$4.00/mcf. Its valuation is not as sensitive as we would have thought, due to low costs, significant NGLs revenues, and recent positive reserve revisions. Husky will insist any compromise is value-neutral.
09 May 16
CONFERENCE CALL NOTES - 1Q16 RESULTS
Highlights Informal guidance is now for 2016e Liwan gas volumes to be roughly half of prior guidance. This will likely knock ~$0.30/share out of our CFPS estimate. Reinstatement of the dividend is not likely to occur until the oil market is balanced and inventories are reduced. The Midstream JV transaction is expected to be tax efficient. A royalty transaction (2 mboe/d) announcement is expected in the "very near future", followed thereafter by conventional asset sale announcement(s).
26 Apr 16
Best Value in Canadian Integrateds
4Q15 production was in line with prior guidance, while financial results were more or less in line. Unit operating costs continue to fall while thermal production continues to grow, and Liwan continues to contribute fixed U.S. dollar based revenues. Bids are due in March on Husky’s upstream assets. Combined with its royalty and midstream assets being marketed, we think $2-$3 billion in proceeds may be garnered. In our view, Husky is clearly the best value within the Canadian Integrateds (see charts on page 8). Outperform ranking maintained. Target price increased by $1.00 to $18.00/share.
07 Mar 16
Market Impact: Slightly positive as financial results were more or less as expected, and Sunrise continues to progress. Husky reported 4Q15 results this morning. Highlights: Production of 357 mboe/d was in line with our 357 mboe/d estimate, and was no real surprise as full year volumes of 346 mboe/d were guided to in December. Consensus was 354 mboe/d. CFPS of $0.65/share (dil.) was behind our $0.69/share estimate (lower realized prices, higher cash taxes, partially offset by stronger Downstream) but in line with the survey average of $0.66. Sunrise production reached >25 mbbl/d recently - decent progress in our view. No material updates on the asset sale process front. Husky sold its Boundary Lake property in 4Q15 for ~$100 mm.
26 Feb 16
Reduced Oil Price Forecasts – Impact on Integrateds, Large Cap E&P, Oilsands
With the reduction to our oil price deck (see our commodities analyst Martin King’s note), we have made significant reductions to our target prices for this group of companies. Notably, we have taken our rankings for Imperial Oil and Suncor to Underperform, as we believe the equity valuations for these two companies are implying much, much higher oil prices, AND much better refining margins, going forward, than we believe is reasonable to assume at this time. We do not believe these two stocks will participate in much of the upside if oil prices rally in the near term, and to the downside, refining margins year-to date are looking weaker, with Eastern Canada margins the only bright spot, and that may not last.
HSE CVE IMO SU CNQ ECA ATH MEG PXX
08 Feb 16
4Q15e Preview, Liquidity Analysis, & Bitumen Pricing Update
4Q15 results will be ugly, but 1Q16e is obviously shaping up to be much worse. We anticipate further capex budget reductions and have moved capex estimates below current guidance for several companies. Bitumen prices are single digits. If they go negative we suspect some bitumen producing projects could curtail output at least modestly. Liquidity Analysis: futures strip pricing would imply massive debt increases in 2016e-2017e for most names, but most names have sufficient liquidity arranged. We have reduced our ECA target price by US$2.00/share to more appropriately reflect commitments associated with non-core assets.
HSE CVE IMO SU CNQ ECA ATH MEG PXX COS
25 Jan 16
Husky Reduces Capital Budget and Halts Dividend
Market Impact: Should be positive over the next few months, but we suspect will be negative nearer term, due to forced selling out of dividend funds. Husky announced a ~$0.8 billion cut to its previously announced 2016e capex program, a 4% reduction to production guidance, and the halting of its dividend. Spending cuts are largely coming from western Canada (heavy oil & Ansell), while spending on its thermal and Asia projects is unaffected. We are now forecasting 2016e cash flow of $3.4 billion (or $2.3 billion at the strip). Outperform ranking maintained. Husky remains by far the best value within the Canadian Integrateds. This announcement should (eventually) remove a significant overhang from sentiment on this stock.
20 Jan 16
Husky 2016 Budget As Expected – Midstream Monetization Planned
2016 guidance calls for flat production and capex relative to 2015e, in line with expectations. The production ramp up at Sunrise continues to track Management’s expectations. Husky will try to sell a partial stake in its midstream business. Together with Upstream assets for sale, it appears that Husky is assuming at least $2.2 billion in total proceeds, given its new target of <1.5x debt to cash flow at US$40/bbl WTI, and expectation for cash flow to fund its ~$3 billion capex program in 2016e.
14 Dec 15
Revised Commodity Price Forecasts – Impact on Canadian Integrated Oils, Senior E&Ps, Oilsands
FirstEnergy has reduced its 2016e WTI oil price forecast from US$57.00/bbl to US$49.75/bbl, and also reduced its natural gas price forecasts going forward. We have updated our estimates and target prices, also incorporating this past week’s guidance and news disclosures. Given no significant changes to our oil price forecasts for 2017e+, and the predominance of long life oil producing assets within this group of companies, our target prices have only been reduced modestly, while we have made no changes to rankings, which continue to be biased towards stocks that should benefit the most from a recovery in oil prices.
HSE CVE IMO SU CNQ ECA ATH COS MEG PXX
14 Dec 15
FirstEnergy - DAILY RESEARCH SUMMARY
ARC Resources Ltd. (ARX) Reports 3Q15 Results, 2016e Guidance, Maintains Balance Sheet Strength | Husky Energy Inc. (HSE) Sunrise Review & 3Q15, Upgrading to Outperform | Paramount Resources Ltd. (POU) 3Q15 Results Behind, Accelerated 2015e Capital Plans, Reduced Production Outlook | Tourmaline Oil Corp. (TOU) Announces Third Quarter Results | Gran Tierra Energy Inc. (GTE) Posts Strong 3Q15 Results, Operational Update, and Preliminary 2016 Guidance | Trinidad Drilling Ltd. (TDG) Reports Busy 3Q15 with CanElson Now Included and Dividend Reduced | Gibson Energy Inc. (GEI): 3Q15 Adj. EBITDA of $95 mm Beats FCC/Consensus Estimates | Keyera Corp. (KEY): Reports Impressive 3Q15; Beats Adjusted EBITDA and EPS Estimates; Increase Target to $44.00/Share, Maintain Market Perform | TransCanada Corporation (TRP) Reports 3Q15; Beats Estimates; Maintain $45.00 per Share Target Price and Market Perform Ranking | Veresen Inc. (VSN): Reports 3Q15; Missed Estimates; Maintain Target Price ($14.25 per Share) and Outperform Ranking
HSE POU TOU GEI KEY TRP VSN
05 Nov 15
3Q15 CONFERENCE CALL HIGHLIGHTS
Potential divestments in Western Canada are a result of trying to transform this segment from a portfolio with many small plays to a focus on fewer but larger plays; Husky feels its business is focused in all areas of its portfolio except Western Canada For the Western Canadian assets that Husky plans on focusing on (more details when 2016e budget released in December), Company believes it has enough depth in the existing asset portfolio already that it does not need to make an acquisition Divestment process could be over next couple of years
30 Oct 15
3Q15 SEES $5 BILLION IN IMPAIRMENTS - ALL DIVIDENDS TO BE PAID IN STOCK
Market Impact:Likely Negative, due to the >$5 billion in impairment charges and decision to now pay the dividend in shares instead of cash. However we are on-side with the steps that Management is taking. Many will wonder if the decisions announced today are preparing the Company for future acquisitions.
30 Oct 15
3Q15 Preview – Integrated Oils, Large Cap, E&P, Oilsands
This document reviews our expectations for upcoming quarterly updates for the Canadian Integrated Oils, Large Cap E&Ps, and Oilsands names. Our 3Q15 CFPS estimates are notably ahead of ‘consensus’ for IMO, and notably behind ‘consensus’ for CVE and SU. We have made no ranking or target price changes with this report, but note that earlier this week we increased our target price for Canadian Oil Sands to reflect our belief that Suncor will ultimately raise its bid to the 0.32 share exchange ratio it previously offered COS’s Board in April (current bid is a 0.25 exchange ratio).
HSE CVE IMO SU CNQ ECA COS MEG
22 Oct 15
INTEGRATEDS, OILSANDS & LARGE CAPS - Commodity Price Deck Update – Impact for Canadian Integrated Oils, Large Cap E&Ps, Oilsands
Our 3Q15e estimates have been updated to reflect quarter-to-date commodity prices (see Martin King’s notes on oil and natural gas prices), and recently available production data and company disclosures. Going forward, our commodity price forecasts are largely unchanged, other than a US$0.35/mcf reduction to our NYMEX Henry Hub forecast in 2016e, a narrower AECO discount, and a reduction to our 4Q15e and 2016e Canadian dollar forecast.
HSE CVE IMO SU CNQ ECA ATH COS MEG PXX
28 Sep 15
DAY TWO SUMMARY
The second day of Husky's two-day tour occurred Thursday, with visits to some thermal heavy oil projects (Rush Lake, Pikes Peak South), the Lloydminster upgrader and Lloydminster asphalt refinery. Points of note included: Husky highlighted its cost savings using modular, replicable designs for its heavy oil SAGD projects, citing an engineering cost of $40-50 mm for a project without modular design, compared with the Company's Edam East and Vawn projects with estimated engineering costs of $15 mm. Upcoming projects (2017e+) are expected to have engineering costs less than $10 mm while using an exact template of Rush Lake. Rush Lake is the first design that will work with many variables, such as differences in sulphur content, encountering bottom water and gas caps. Other benefits of a replicable design include allowing plant operators to train on another similar asset before start-up of a new project, saving on time, while plant operators can also be moved to any similar heavy oil SAGD project, allowing for flexibility in the labour pool.
25 Sep 15
DAY ONE SUMMARY
The first day of Husky's two-day investor tour occurred Wednesday, with a tour of the Sunrise project. Points of note included: The Company has begun installing Electric Submersible Pumps in the producer wells, and will be rolling this out onto all wells, which may enable the project to achieve steam-oil ratios better than the 3.0x nameplate design, reduce gas use (vs. gas lift), reduce GHGs, and reduce the footprint of the well pad design, by potentially ~40%, as wells can be spaced closer together.
24 Sep 15
STEAMING COMMENCES AT SECOND SUNRISE PLANT
Market Impact: Neutral. Husky announced its second processing plant ("Plant 1B") at its Sunrise SAGD oilsands project has started steam operations, with first oil expected later this year. In the press release for 2Q15 financial results, first oil was expected for 3Q15e and it appears this won't happen until 4Q15e, but we are not concerned about this shift in timing.
01 Sep 15
INTEGRATEDS, OILSANDS & LARGE CAPS - Reduced Oil Price Forcecasts - Impact For Canadian Integrated Oils, Large Cap E&P, Oilsands
With our firm reducing our WTI price forecasts by more than US$10/bbl for the second half of this year and 2016e, and by US$5/bbl longer term, we have reduced our target prices across the board (see FirstEnergy commodity analyst Martin King’s note on oil prices). Our target prices continue to be derived primarily in relation to our Risked NAVs (‘RENAVs’). Generally, we have looked at a weighted average of our estimated RENAVs (75% FirstEnergy price deck/25% futures strip) for the Integrateds & Large Caps, with an average target price reduction of 11% for those companies.
Commodities - Energy
31 Aug 15
Husky Posts Another Decent Quarter
Husky reported another quarter that exhibited the resilience of its business while projects continue to progress more or less as planned. Management estimates the Company’s full cycle sustaining capital is ~$3.0 billion/year. Our 2015e cash flow estimate of $3.8 billion almost covers sustaining capital and the $1.2 billion dividend, which we believe is very safe for now.
30 Jul 15
LLOYDMINSTER UPGRADER UNPLANNED MAINTENANCE SIX TO EIGHT WEEKS
Market Impact: Negative. Husky Energy announced after market close on July 3rd that its Lloydminster Upgrader will be down an expected six to eight weeks to repair coke drums. Upstream heavy oil production is not expected to be impacted.
06 Jul 15
FIRST OIL AT SOUTH WHITE ROSE ACHIEVED, SLIGHT DELAY ON HIBERNIA FORMATION WELL AT NORTH AMETHYST
Market Impact: Neutral to Slightly Negative. Husky announced this morning that production has commenced at its South White Rose project (HSE 68.9%, SU 26.1%). This is in line with prior guidance for production start-up in "mid-2015". Also disclosed was the expectation for the Hibernia-formation well at North Amethyst to commence production during 4Q15e, compared to guidance of 3Q15e that was provided in the 1Q15 financial results.
29 Jun 15
Commodity Price Deck Update: Impact for Canadian Integrated Oils, Senior E&Ps, Oilsands
FirstEnergy’s updated commodity price forecast has resulted in significant increase to our cash flow estimates for 2Q15e for our group, driven by strong Canadian oil prices. Beyond this quarter we are calling for heavy oil differentials to be narrower than previously forecast, and as a result our cash flow estimates beyond 2015e have increased (see Martin King’s notes on oil and gas). Estimates for names with the highest leverage to heavy oil prices (i.e. MEG, CVE, CNQ, PXX) see the largest lift, while our COS estimates have been reduced due to its negative leverage to heavy oil prices. We have upgraded MEG to Outperform and taken our target up by $3.00 to $25.00/share, and reduced our target price for COS by $1.00 to $10.00/share.
HSE CVE IMO SU CNQ ECA COS MEG
25 Jun 15
Husky Energy Inc. (HSE): 1Q15 Update
Our go-forward estimates are largely unchanged following Husky’s 1Q15 update. The Company continues to advance several projects, which we expect to result in a relatively flat oil production outlook for the next few years but with a lengthened reserve life. Results from the Flemish Pass exploration program, already drilling its fifth well in the Bay du Nord area since obtaining the West Hercules Rig in November, will be in focus in the upcoming quarters. We have left our $26.00/share target price and Market Perform ranking unchanged.
12 May 15