Joe Gemino
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Morningstar | Husky Is Now Trading in 4-Star Territory

Husky Energy is one of Canada’s largest integrated energy companies, operating in western Canada, the United States, and the Asia-Pacific and Atlantic regions. The company continues to further its strategic transition toward low-sustaining-capital production, with sustaining capital costs approximating CAD 6 per barrel. We expect production from low-sustaining-capital projects, which includes oil sands production, to grow from 8% of total production in 2010 to approximately 55% by the end of the year. Improved efficiency on oil sands production affords the company with corporate cash break-even prices of $31/barrel West Texas Intermediate at current production levels, which compares favorably with peers.We believe that the market finally realizes the value of Husky's downstream and midstream operations. Accounting for approximately 30% of the company’s EBITDA, midstream and downstream operations help mitigate market volatility and capture refined product pricing for the company’s crude oil production. Ownership of midstream and downstream assets allows the company to control the transport of its own production, lowering the overall cost structure and capturing higher price realizations. Thus, leverage remains best in class among oil sands peers. Additionally, concerns about natural gas production in China appear overstated, despite causing repeated meaningful share price moves. Although Husky came to a favorable agreement with CNOOC over price realizations for its Chinese production, concerns remain that CNOOC will attempt to renegotiate if low prices persist. Whatever transpires from here, natural gas production from China represents only 7% of Husky’s total production, and additional price declines will not have a significant impact on the company’s value.Husky is in less of a position to benefit from advanced extraction technologies, and with the reinstatement of the dividend, we believe that the market can finally look toward Husky’s ability to generate free cash flow with its low corporate break-evens in low-oil-price environments. Accordingly, the stock is trading in 4-star territory, and we see upside at current levels.
Husky Energy Inc.

Husky Energy is engaged in the exploration, development and production of oil and natural gas. Co.'s operations are located in Canada and United States. As of Dec. 31, 2011, Co. had total proved oil and natural gas reserves of 1,172.4 million barrels of oil equivalent (Mmboe) gross (1,010.7 Mmboe net).


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Joe Gemino

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