ALBERTA

Husky Energy says Sunrise oilsands project half complete, no delays so far

11/01/2012 10:42 EDT | Updated 01/23/2014 06:58 EST
CALGARY - Husky Energy Inc. says the first phase of its Sunrise oilsands project is about half complete and so far there haven't been any concerns about costs or schedules missing their targets.

The $2.5 billion, 60,000-barrel-per-day project, part of a joint venture with BP PLC, is slated to start up in 2014.

"We have a reasonable handle on where we are," CEO Asim Ghosh told analysts on a conference call Thursday.

"We see nothing in terms of what we have that indicates a blowout in money or in timing."

Ghosh's remarks come as oilsands players look to avoid the pitfalls that caused major cost overruns and delays in the years leading up to the 2009 recession.

For instance, oilsands giant Suncor Energy Inc. (TSX:SU) is honing its focus on cost and quality for its expansion plans, rather than striving to meet set deadlines. Suncor is taking the time to review its expansion plans, and could ditch some of them if they're found not to be profitable enough.

Ghosh said Husky (TSX:HSE) is "very comfortable" with its current plan. It buys most of its materials and procures most of its labour using lump sum payments or at fixed unit prices, which takes some of the volatility out of the equation. It's also assembling a lot of the Sunrise facilities at module yards near Edmonton, instead of in the overheated northern Alberta market.

"I think our contracting strategy on Sunrise has turned out to be very sound," said Ghosh.

Also Thursday, the Calgary-based oil and gas company's net income increased to $526 million in the three months ended Sept. 30 from $521 million a year earlier.

Husky's net earnings per share were unchanged at 53 cents.

Analysts had been expecting about 49 cents of net income before adjustments.

Husky's revenue was down by more than half a billion dollars, falling to $5.3 billion from $6 billion before paying royalties in the third quarter of 2011.

Husky made up for the lower revenue by reducing operating expenses to $4.5 billion from $5 billion.

"Our results show that we continue to build operational momentum," said Ghosh.

Husky, controlled by Hong Kong billionaire Li Ka-Shing, produces oil and gas in Western Canada, off Canada's east coast and in southeast Asia. It also has retail and refinery operations in Canada and the United States.

The company's overall output fell to the equivalent of 285,000 barrels of oil per day, down 24,100 barrels a day from last year — mostly because of maintenance work in its Atlantic Canada offshore oil operations.

Husky also reduced its natural gas production as it focused more on oil and liquids-rich gas, which have been commanding higher margins than dry gas.

It has said plans to explore for oil this winter in a shale formation in the Northwest Territories called the Canol.

Husky said this summer it was seeking regulatory approval to build an all-weather access road and other infrastructure in the remote region, as well as further evaluate two vertical wells it drilled last winter.

There could be between two and three billion barrels of recoverable oil in the Canol, putting it the same league as the Bakken, a major shale oil region that underlies parts of North Dakota, Montana and Saskatchewan.

Work on its Liwan natural gas field in the South China Sea is also progressing, with a projected 2013 or 2014 startup.

Husky had contemplated spinning off its southeast Asian properties into a new publicly traded company, but ultimately decided in late 2010 to keep the high-growth assets in its portfolio.

Husky also has interests in BP-operated refineries in the United States, and a chain of Husky-branded fuel retail outlets in Canada.

Husky shares rose more than three per cent to $27.95 in afternoon trading on the Toronto Stock Exchange.

MORE:Albertacp