Husky Energy bucks the trend on spending

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Amid a round of spending cuts across the resource sector, Husky Energy Inc. is pushing on with its budget plans.

"At this point in time we are not changing our capital guidance," said chief executive officer Asim Ghosh in an interview.

Husky is bucking a trend that has seen some of the industry's larger players, including Suncor Energy Inc. and Talisman Energy Inc., trim spending plans. Mr. Ghosh credits his decision to bring in $3.7-billion, through equity offerings and dividend reinvestments, a move that raised eyebrows in the markets.

"The reason we took that tough decision – trust me, it was a very difficult decision – to recapitalize the company was precisely so that we didn't have to get into these twists and turns if we faced any difficulties in our major projects," he said.

Still, the decision to hold the line on spending comes as the company continues to struggle with performance, at least by the numbers. Four years ago, it pumped 355,900 barrels a day. In the third quarter of 2012, it pumped 285,000 barrels a day. Amid a large maintenance program that included sending its SeaRose platform to Belfast, the company has said it expects 2012 full-year production to be roughly level with 2011. Husky shares remain mired in a post-2009 funk.

And market rumours point to cost overruns at its $2.5-billion Sunrise oil sands project, which it is jointly building with BP PLC. Husky has not completely dispelled those rumours. "We see nothing in terms of what we have which indicates a blowout either in money or in timing," Mr. Ghosh said.

Yet the company has turned its back on a history of over-promising and under-delivering; its third quarter was called a "massive beat" by CIBC. Its SeaRose maintenance program was done faster and more cheaply than expected.

At the same time, Husky has become an ambitious oil explorer, poking holes in rocks that could provide large new supplies – although there is always the risk they will turn out dry. Late last year, it disclosed a pilot project to test so-called carbonate reservoirs in the oil sands that stand to be "a mind-boggling resource," Mr. Ghosh said then.

This winter, Husky expects to build an all-weather road to another potential oil play in the Northwest Territories. It has also drilled several wells at a northwestern Alberta play it calls the Rainbow Muskwa, whose potential it has pledged to reveal at its coming investor day.

That's on top of projects it's building in the oil sands and offshore China, which will spin out significant new energy supplies when they are built in coming years.

Internally, too, it has sought to put better controls on the money it's spending.

"We are encouraging people to think hard about what sorts of plays should be coming forward to our corporate investment committee," Mr. Ghosh said. "And we have actually internally upped our [return] targets versus what we would have done historically."

Mr. Ghosh said Husky, long an under-performer in markets as well as energy output, is beginning to achieve a "balance between having what I'd call head-in-the-clouds for the long-term future, and feet on the ground for short-term delivery."

But even as Husky seeks to turn the corner, Mr. Ghosh called it very unlikely Hong Kong billionaire Li Ka-shing, will seek to boost his 70 per cent ownership of the company.

"Every conversation I have had is this is seen as a long-term investment, and as a long-term investment in its present form," Mr. Ghosh said.