Husky turns to investors to finance growth strategy

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Husky Energy Inc. is raising equity for the third time in just seven months, tapping investors for another $1.2-billion to help finance its aggressive growth plan.

Since November the oil company has raised $2.5-billion in common and preferred equity, all of which has been used to fund a new business strategy. Late in 2010 the company embarked on a $4.8-billion capital spending program while also announcing that it will keep its assets in southeast Asia, a move that surprised investors because the company had already initiated a lengthy strategic review.

Around that time, Husky also inked a $860-million deal with Exxon Mobil Canada Ltd. to acquire oil and natural gas properties in Alberta and northeast British Columbia. Combined, the moves were designed to jolt some life into a company that has struggled to shake declining growth and restore investor confidence.

Husky has turned to its major shareholders, L.F. Investments (Barbados) Ltd. and Hutchison Whampoa Luxembourg Holdings S.a.r.l., both of which are owned by billionaire Li Ka-shing, to backstop a substantial part of the deals. In the latest offering, the two companies bought $200-million of the $1.2-billion, and last November they purchased $700-million of the $1-billion deal.

"It's the right environment to be doing this right now," said Rafi Tahmazian, senior portfolio manager at Canoe Financial. "The markets have checked up quite dramatically and it appears that there's a lot of cash sitting in a lot of funds."

Husky, he said, fits in the category of "lower-risk liquid, flight-to-quality names" that are attractive in such times. But it has not yet succeeded in proving that it's worth a better valuation. Husky has a "a very lucrative asset base," he said, "with a very questionable way that they run the asset base at this point."

Husky said it will use the new cash injection to advance its strategic plan, noting that the funds will "provide additional financial flexibility." The company's goals include developing assets in the oil sands, southeast Asia and the Atlantic region, especially big name projects such as the Liwan Gas Project off of China and the second phase of its Sunrise energy project in northern Alberta.

The latest financing comes in the form of 36 million shares priced at $27.05 each, a 4 per cent discount to their closing price on Wednesday.

Unlike most other Canadian energy companies, Husky has yet to shake the beating it took in the recent economic downturn. Its shares, which rose to over $50 in early 2008, have remained mired largely below $30 since late 2008. In part, the ailing stock value has come as markets lost faith in a company whose oil and gas production - and reserves, a key to future growth - have languished.

Asim Ghosh, the company's new chief executive officer, has sought to improve the company's performance, holding its first-ever investor day last year and promising 3- to 5-per-cent annual production growth between now and 2015. And by raising the new cash, Husky now says it believes it will accelerate that growth.

"We feel more comfortable with the 2011 to 2015 guidance, saying we can reach the higher end [of that range]" Rob McInnis, the company's manager of investor relations, said Wednesday. "We're comfortable that we can continue to achieve that range out to 2021."

Part of that growth will come from the southeast Asia assets, which Husky decided not to sell late last year because they are a "a key pillar" of its growth strategy.