Integrated producer Husky Energy Inc. has agreed to pay ExxonMobil Canada Ltd. C$860 million for natural gas-weighted properties in Alberta and northeast British Columbia as one of several "cornerstone" strategic growth initiatives intended to accelerate near-term production and reserve growth.
Based on internal estimates, the purchase would add 21,900 boe/d of production and 113 million boe of proved and probable reserves, which would help Husky to achieve its 3-5% annual growth target.
"The initiatives announced today represent the culmination of significant effort and focus to bring forward major projects that will create sustainable shareholder value over the near, mid and long term," CEO Asim Ghosh said Monday. "Together, they are a statement of confidence in our business and in the tremendous growth opportunities in our portfolio."
Including the cost of the purchase, the Calgary-based producer said spending in 2011 would total C$4.86 billion, which would be 20% more than this year. Upstream capital spending "is being directed to those opportunities offering the highest potential returns, such as oil and liquids-rich gas resource plays, and focuses on Husky's extensive portfolio of resources and land holdings in Western Canada," officials stated. "As natural gas pricing improves, the company is ready to increase gas tie-ins and production."
The ExxonMobil purchase includes 16,300 boe/d of natural gas production, 4,800 b/d of oil production and 800 b/d of natural gas liquids. Husky's reserve estimate is 104 million bbl of proven oil equivalent and 9 million boe of probable reserves, based on an effective date of Dec. 1, 2010.
"The properties have very attractive metrics, reflecting our commitment to financial discipline," said Ghosh. "They are located in core operating areas where we will be able to leverage our existing infrastructure to create additional shareholder value."
Husky also said its purchase of natural gas properties in west central Alberta, announced in September, has received regulatory approval. The previous acquisition announced in September adds 10,800 boe/d in a core producing area and nearly doubled the company's land base at the time (see Daily GPI, Sept. 2).
Together with the ExxonMobil purchase, Husky would increase its total production base by 33,000 boe/d.
According to the company's production guidance, natural gas output would increase in 2011 to 560-610 MMcf/d, up from 510-520 MMcf/d in 2010. Total oil and gas production is expected to be 290-315 million boe/d in 2011, up from 285-295 million boe/d this year.
As part of its medium-growth initiatives, Husky also sanctioned for development Phase I of the Sunrise Energy Project in the Fort McMurray region of northern Alberta. The first phase of the in-situ oilsands project, estimated to cost C$2.5 billion, is expected to produce about 60,000 b/d gross beginning in 2014. Contracts for transportation, engineering and construction worth about C$2 billion are to be awarded "soon," said the producer.
After weighing a spin-off or sale of its Southeast Asia properties, Husky also has opted to keep them and said they would "remain a key pillar" of its growth. Husky now is finalizing a joint venture agreement with China National Offshore Oil Corp. to develop the Liwan 3-1 natural gas project. First gas is expected in late 2013, ramping up through 2014.
To support the growth initiatives, Husky plans to issue C$1 billion in equity through a public common share offering and a private placement to its principal shareholders for their pro rata share of the equity. Husky also is taking steps to establish a mechanism to allow common shareholders to choose to receive dividends in cash or shares.
The producer also is exploring "hybrid and other financing options as required" to support its growth. In addition, Husky is restructuring its organization around three business sectors: Upstream, Midstream and Downstream.
"Over the past six months we have stabilized production and made solid progress on a number of key strategic fronts," said Ghosh. "We have executed two core acquisitions that add immediate value and production, given the green light to begin construction on the Sunrise Energy Project, made an important decision on the future of our Southeast Asia assets, and approved financing initiatives and a capital expenditure program that will allow us to build on our momentum in 2011.
"While there is a lot of hard work ahead, the achievements of the past six months have set us on a sound course to achieve our goals."
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