A year after a new leader swept into the top spot at Husky Energy Inc. with promises to shake up a flagging company, one of the least-favoured names in the oil patch is taking a step toward a long-awaited turnaround.
Husky issued second-quarter results that saw a rise in production and substantial financial gains, drawing new attention from investors that have spurned the company in recent years.
"I think you're seeing signs that the company is turning the corner in terms of operations and delivering on expectations," said CIBC analyst Andrew Potter.
"Husky historically was kind of weak on the production execution front, and missing numbers generally. What you've seen the last couple of quarters is Husky seems to be on the right track."
It's too early to suggest that the worst is behind Husky, whose shares still have not recovered from the economic collapse of late 2008, analysts say. Indeed, the company may still struggle to post growth numbers in the next years as it spends heavily on longer-term energy projects in the oil sands and offshore China that won't bring new oil and gas volumes until 2013 at the earliest.
But for investors, the better-than-expected results are a refreshing surprise.
"I don't remember ever seeing 'Husky' and 'beat consensus' in the same sentence," said Rafi Tahmazian senior portfolio manager at Calgary-based Canoe Financial.
Indeed, Husky posted cash flow of $1.67 a share, well ahead of analyst estimates, and 311,600 barrels of daily oil equivalent production, a 10-per-cent increase over the same period last year. Its $669-million in earnings matched market estimates and nearly quadrupled from the same period last year on the strength of oil prices and refining margins, which came in 3½ times higher.
Asim Ghosh, the chief executive officer who has worked to prod Husky into action after years of relatively flat performance in several key areas - including production - said he has seen "significant progress over a relatively short time."
"Our goal is to build on this momentum and to continue to execute against our strategic growth plan," he said Wednesday.
The company reiterated it believes it can achieve the upper end of a forecast of 3- to 5-per-cent average annual growth until 2015. The company has also said it plans to maintain that pace of growth until 2020. Markets responded favourably, keeping Husky shares were slightly lower on a day when declining oil prices created 2.5-per cent-drops at some of its peers.
The past few months have not, of course, been problem-free for the company. The continued closure of part of the Rainbow pipeline, which leaked a major spill in northern Alberta, knocked more than 13,000 barrels a day from the company's production in the second quarter. The outage is expected to continue holding back 11,000 daily barrels until the pipe is fixed.
Husky has also been punished by markets for conducting two equity issues in the past few months. Analysts pointed out that market dilution means the company's production per share has actually declined. And the company's plan to bring on a joint venture partner for some of its natural gas lands raised eyebrows among some who questioned why it would give away some of its more promising growth areas.
But the company succeeded in negotiating a high price for natural gas from its Liwan field offshore. Gas sold there will fetch roughly $11 to $13 (U.S.) per thousand cubic feet. That's higher than, for example, the $10 expected by CIBC.
And Husky has worked quietly to pick up additional lands in a number of high-profile new oil plays, including Saskatchewan's Bakken, where it added 11,500 net acres. The company now has land in a series of areas that have been promising new sources of crude - including the Bakken, Lower Shaunavon, Viking and Cardium - and said Wednesday it is devoting $500-million toward additional exploration in new oil and gas lands.
Husky's major future growth areas, which include its Sunrise oil sands project and Liwan gas field, won't deliver production gains for several years. But the new oil plays could help fill the gap, with volumes starting "to creep up in 2012 and 2013," Mr. Potter said.
"Maybe you start to see enough growth out of these emerging plays that it starts to bridge the gap toward Sunrise," he said. "You're starting to see glimmers of where they're going. But it's not at the point where it's totally quantifiable."