Husky increased 2010 capital spending to $4 billion. The increase will progress the Company's strategic initiatives and advance the development of its extensive upstream portfolio, including acquisitions. "We will continue disciplined, step-wise development of our assets as we focus on near-term production growth while advancing our rich and diverse portfolio of mid to long-term value generating assets," said CEO Asim Ghosh.
In Western Canada, the Company expects the previously announced Foothills asset acquisition to close in the fourth quarter and has added incremental production from successful oil resource drilling in Saskatchewan. The Company received regulatory approval for a SAGD thermal pilot at its Rush Lake heavy oil property in Lloydminster. In Eastern Canada, Husky successfully completed a second production well at the North Amethyst field and received regulatory approval for a two-well pilot project to target the West White Rose reservoir.
A summary of third quarter results, together with recent key highlights, follows:
As a result of the ongoing review of our business priorities and the outlook for the remainder of the year, Husky has adjusted its 2010 budgeted capital spending to $4 billion. The majority of the additional capital has been allocated to the development of existing assets in the upstream portfolio and acquisitions that provide near-term production and upside potential.
Production is in accordance with the production guidance. In the third quarter, total production averaged 288,700 boe/day compared with 276,200 boe/day in the third quarter of 2009 and 283,900 boe/day in the second quarter of 2010. Total production for the quarter was impacted by a planned maintenance turnaround at Terra Nova.
Cash flow from operations increased from the same period last year primarily due to higher Upstream production, higher realized light crude oil and natural gas prices and lower cash taxes paid. Net earnings decreased from the same period last year due to the maintenance turnaround at the Lloydminster Upgrader, lower trading margins in infrastructure & marketing and higher depletion in Southeast Asia. U.S. downstream results remain weak due to the continuation of weak realized refining margins and the impact of the Enbridge Line 6A/6B shutdowns.
"We continue to exercise discipline in all aspects of our capital and operating expenditures," said Alister Cowan, CFO. "We will prudently manage our financial position in support of value creation initiatives and acquisition opportunities. Our debt to capital of 22% and debt to cash flow of 1.3 times are below the targeted ranges."
KEY AREA SUMMARY AND GROWTH UPDATE
Western Canada - Unconventional and Conventional
As part of our heightened focus on growing near term production, the Company has accelerated exploration and development drilling of its natural gas liquids-rich assets in the Ansell area. In the third quarter, four Cardium development wells were drilled and six exploration wells were spud to test the deeper multi-zone potential. Drilling and completion operations are expected to continue for the remainder of 2010 and into 2011. Husky is progressing development drilling in the Bivouac and Galloway areas with an additional three Bivouac and five Galloway wells to be completed by the end of 2010 with production expected in the second quarter of 2011.
The Company continues to build its portfolio of gas resource plays and acquired additional land in the Ansell area of the Alberta deep basin, and the Bivouac area of northeast British Columbia.
Oil resource play evaluation and testing activity continued in Western Canada. In the third quarter, three Viking wells were placed on production in Southwest Saskatchewan. Eight Viking horizontal wells were drilled at Redwater, Alberta, and an additional seven wells are planned for the remainder of the year.
Husky participated in a well in the Grizzly Valley of the British Columbia foothills which successfully tested at a rate of 33 mmcf per day and tie-in of the well is expected to be completed in early 2011.
Husky has extensive experience with Alkaline Surfactant Polymer ("ASP") technology to enhance oil recovery. The Company continues with active projects in Southern Alberta and Saskatchewan and future floods under development include Fosterton and Bone Creek, Saskatchewan. Total production from ASP projects reached 3,100 barrels per day in the quarter.
Husky is amongst the industry leaders in heavy oil production. Over the last two years, the Company has pioneered the drilling of horizontal wells to access heavy oil in thinner reservoirs. During the third quarter, 28 horizontal wells were drilled and in 2010 over 100 wells are expected to be drilled.
Construction of the Pikes Peak South project was approximately 37% complete at the end of the third quarter. This project is progressing on schedule, with production expected to commence in the second quarter of 2012.
Husky continued to advance the Sunrise Energy Project as tenders for major engineering and construction contracts were received and are currently being evaluated. Husky signed a transportation agreement for Sunrise production and an agreement for the transportation of diluent to the Sunrise oilsands site.
The Sunrise Energy Project Phase 1 is planned for sanction in late 2010 and first oil is expected in 2014.
At the Tucker Oil Sands Project, three newly designed well pairs commenced production.
Regulatory approval was received for a thermal recovery pilot project at the McMullen oil sands lease.
The Company continued to ramp up production at the North Amethyst satellite oil field through the third quarter with the completion of a second producing well. Production from the North Amethyst satellite field averaged 13,200 barrels per day during the quarter. The second production well is expected to produce at approximately 20,000 barrels per day gross once the second water injector is completed. A total of eleven wells are currently planned for North Amethyst and drilling of the additional wells will continue through to 2013.
In the third quarter, Husky received regulatory approval for a two-well pilot project to target the West White Rose reservoir. These wells will be drilled from existing infrastructure at the White Rose field and will provide additional information on the reservoir. This information will be used to refine the development plan for the full West White Rose field. Drilling of the first West White Rose well is underway and first production from the pilot wells is expected in mid 2011.
Husky completed 2-D seismic acquisition surveys offshore Eastern Canada in the Sydney Basin and offshore Labrador. The data will be evaluated and will help define the exploration potential for the region.
South East Asia
In the third quarter, Husky completed the drilling of an exploration well on the Liuhua 34-3 prospect which encountered natural gas. The well was suspended pending further evaluation of the size and suitability to develop this new discovery as part of the overall Block 29/26 deepwater gas development project.
Additionally, the Liwan 3-1-10 well was drilled and cased as the first development on the Liwan 3-1 field. This well will be completed at a later date and used as a future producing well for the field.
Husky drilled a second appraisal well on the Liuhua 29-1 field towards the end of the third quarter. The well encountered approximately 60 meters of gas pay and the results demonstrate an extension of the Liuhua 29-1 field to the north.
Husky plans to develop the Liwan 3-1 and Liuhua 34-2 fields in parallel, with first gas production targeted in late 2013. The Company is currently tendering subsea equipment and installation work packages in concert with the submission of the plan of development for the Liwan 3-1 field. The Liuhua 34-2 field will be tied into the planned offshore infrastructure associated with the Liwan 3-1 project.
The plan of development for the Liuhua 29-1 field, the Company's third significant deepwater gas discovery, is targeted for submission in late 2011 upon completion of the evaluation work.
Husky received approval from the Government of Indonesia for an extension to the existing Madura Strait Production Sharing Contract (PSC). The Madura Strait PSC includes the Madura BD and MDA gas fields.
Quarterly dividend of $0.30 cents per share declared
Husky's Board of Directors has declared a quarterly dividend of $0.30 (Canadian) per share on its common shares for the three-month period ending September 30, 2010. The dividend will be payable on January 4, 2011 to shareholders of record at the close of business on November 29, 2010.
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