CALGARY – Husky Energy Inc. (TSX:HSE) says its 2015 capital budget will be about one third lower than what it expects to spend this year as it responds to weak oil prices and wraps up spending on projects in the South China Sea and the oilsands.
Next year’s capital expenditures are projected to be about $3.4 billion, down from the $5.1 billion Husky expects to spend in 2014.
“We continue to steer a steady ship through stormy waters,” said CEO Asim Ghosh. “Our strong financial position and resilient portfolio are helping weatherproof our business against current market conditions.”
Several of Canada’s major energy producers and drilling companies have announced reduced spending plans as the industry responds to a near 50 per cent drop in the price of crude over the past six months. On Wednesday, crude for January delivery was just below US$58 a barrel, a gain of about $2 from Tuesday.
Husky will trim spending across all major upstream areas, although the impact will be relatively small in the Atlantic region where the company is active in offshore production off the coast of Newfoundland. The biggest spending reductions will be in Western Canada, where it has heavy oil, oilsands and conventional oil and gas operations.
The 2015 capital budget cuts allocations for production projects in Western Canada by about 42 per cent to $1.8 billion, while spending in the Atlantic region will be reduced by 14 per cent to $600 million. The projects in the West include Husky’s Western Canada conventional upstream assets, as well as heavy oil and oilsands production.
Husky will maintain its capital budgets for downstream operations, which include refining and retailing, at $700 million, and for corporate spending at $100 million — the same as in 2014.
Husky expects Phase 1A of the Sunrise oilsands project in northeastern Alberta, which is co-owned 50-50 with BP, will begin producing towards the end of the first quarter of 2015. Phase 1B is expected to begin steam injections in mid-2015 and production several months later.
Each half of Phase 1 is designed to produce up to 30,000 barrels per day, although output will ramp up over a two-year period.
Overseas, Husky and CNOOC — one of China’s biggest oil and gas companies — have been ramping up production at the Liwan natural gas field in the South China Sea.
Desjardins Capital Markets analyst Justin Bouchard said Husky should be able to weather the storm.
“Given the uncertainty and volatility in oil prices, it makes sense to deeply cut spending to preserve financial flexibility,” he wrote in a research note, adding that Husky “appears to be in good shape” even if crude were to stay at US$55 a barrel in 2015.
Note to readers: This is a corrected story. An earlier version said Husky’s partner at Sunrise is Imperial Oil rather than BP. A previous version also mislabelled Phase 1B as Phase 2.