Husky recorded a 42 percent increase in 2010 cash flow compared to 2009. The Company reported a 58 percent improvement to fourth quarter cash flow compared to the same period of 2009. Net earnings in the quarter were higher by 19 percent compared to the third quarter 2010 on the strength of higher light oil crude prices, improved refining margins and settlement of the Terra Nova re-determination process.
"2010 was a transitional year as we undertook a comprehensive portfolio review. From this, we developed and implemented a strategic plan setting out clear financial and operational milestones," said CEO Asim Ghosh. "We successfully implemented near-term steps to stabilize production and accelerate value, while providing clear direction around our mid and long-term initiatives. We developed a comprehensive financing plan, allowing us to build on our momentum and provide the disciplined capital investment to develop our growth pillars: the Oil Sands, the Atlantic Region and South East Asia."
Key 2010 and fourth quarter highlights include:
South East Asia
Annual production was in accordance with guidance at 287,100 boe/day. In the fourth quarter, total production averaged 280,500 boe/day compared with 288,700 boe/day in the third quarter and was primarily impacted by the scheduled maintenance turnaround of the SeaRose FPSO. Total production at year-end was 292,500 boe/day.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
For the fourth quarter, cash flow from operations increased 58 percent from the same period last year due to higher light crude oil prices, cash taxes returning to normal levels and improved refining margins partially offset by a strengthening of the Canadian dollar. Crude oil prices (WTI) averaged U.S. $84.89 per barrel for the quarter, an increase of 11 percent compared to the same period of 2009. Of the Company's total production, all Atlantic Region volumes (approximately 15 percent) are priced and sold relative to the North Sea Brent benchmark, which is now trading at a significant premium to WTI. For the fourth quarter, heavy blend crude prices (Lloydminster blend) averaged U.S. $66.52 per barrel as compared to U.S. $63.82 per barrel for the same period of 2009, a 4% increase. U.S. refining market crack spreads were 86 percent higher during the fourth quarter as the Chicago 3:2:1 crack spread averaged U.S. $9.13 per barrel, compared to U.S. $4.92 per barrel in the fourth quarter of 2009.
Net Earnings of $305 million in the quarter resulted from higher light crude oil prices, settlement of the Terra Nova re-determination and the improved downstream price environment. These were partially offset by the strengthening of the Canadian dollar, lower production and increased operating costs and depletion. The Enbridge Line 6A/6B shutdowns reduced net earnings by an estimated $17 million for the quarter. The Enbridge shutdowns increased Husky's inventory position at year-end as product was stored to mitigate the impact of selling medium and heavy crude oil and bitumen at distressed prices given the wider differential. Upstream capital spending in the quarter was $1,280 million, with 80 percent directed to Western Canadian exploration and development. The benefits of this exploration and development spending are anticipated to be realized through 2011 and 2012.
"To support our strategic growth initiatives, we built a solid financing plan that will provide the necessary capital to develop our three growth pillars," said CFO Alister Cowan. "We closed our common share offering in late 2010 and are taking steps to introduce a mechanism that allows shareholders to receive dividends in cash or common shares."
During 2010, Husky invested $4.0 billion including $3.2 billion directed at the Upstream business. Of the Upstream capital, $1 billion was allocated to the three growth pillars with the remainder going to Western Canada production. To help stabilize short-term production and increase cash flow generation, $0.4 billion was spent on developed property acquisitions. The capital invested in the Midstream and Downstream segments was focused primarily on maintenance activities.
"We plan to increase our return on capital employed (ROCE) by five percentage points over the next five years by investing in higher return projects. A one percentage point increase translates into approximately $200 million in increased earnings from operations,” explained CEO Ghosh. “Our plan focuses on increasing production, improving our reserve replacement ratio, containing our operating costs, and reducing our finding and development costs, while producing higher netbacks."
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