Husky's Net Profit Bulks Up

Husky Energy Inc. said that its annual net earnings were up 36% to $2.7 billion or $6.43 per share (diluted) compared with $2.0 billion or $4.72 per share (diluted) in 2005. Cash flow from operations improved by 19% to $4.5 billion or $10.61 per share (diluted), compared with $3.8 billion or $8.93 per share (diluted) in 2005. Sales and operating revenues, net of royalties, were $12.7 billion in 2006, an increase of 24% compared with $10.2 billion in 2005.

"It has been an exciting year for Husky," said Mr. John C.S. Lau, President & Chief Executive Officer, Husky Energy Inc. "Our initiatives to create shareholder value in growth and diversification are delivering impressive results in annual net earnings and cash flows. Husky's vision, strong financial discipline and successful project execution will continue to provide a dynamic and enriched future for the Company and its shareholders."

Husky continues to build on its financial strength. Debt to capital employed further improved to 14% at December 31, 2006 from 20% at December 31, 2005. Debt to cash flow from operations decreased to 0.4 times at December 31, 2006 compared with 0.5 times at December 31, 2005.

Production in 2006 was 360,000 barrels of oil equivalent per day, compared with 315,000 barrels of oil equivalent per day in 2005, an increase of 14%. Crude oil and natural gas liquids production increased 23% to 248,000 barrels per day, compared with 202,000 barrels per day in 2005. Natural gas production was relatively the same at 672 million cubic feet per day, compared with 680 million cubic feet per day in 2005.

For the fourth quarter, Husky's net earnings, mainly impacted by lower gas commodity prices, were $542 million or $1.28 per share (diluted) in 2006, compared with $669 million or $1.58 per share (diluted) in the fourth quarter of 2005. Cash flow from operations was $1.2 billion or $2.84 per share in the fourth quarter of 2006, compared with $1.2 billion or $2.82 per share in the fourth quarter of 2005. Sales and operating revenues, net of royalties, were $3.1 billion in the fourth quarter of 2006, compared with $3.2 billion in the fourth quarter of 2005.

Production for the fourth quarter of 2006 was 376,100 barrels of oil equivalent per day, compared with 328,500 barrels of oil equivalent per day in 2005, an increase of 14%. Crude oil and natural gas liquids production increased 23% to 265,700 barrels per day, compared with 215,900 barrels per day in 2005. Natural gas production was comparatively the same at 662 million cubic feet per day, compared with 675 million cubic feet per day in 2005.

The Company entered into an agreement to dispose of certain non-core properties in Western Canada for total proceeds of $339 million, currently producing approximately 5,200 barrels of oil equivalent per day. This transaction is expected to close in the first quarter of 2007.

The Tucker Oil Sands project, which was completed on-schedule and under budget, achieved its first oil at the end of 2006. Tucker will ramp up production over the next two years to achieve peak production of 30 mbbls/day of bitumen.

The Sunrise Oil Sands project front-end engineering design is expected to be completed by the third quarter of 2007. Husky plans to drill 29 stratigraphic wells in 2007. Husky continues to evaluate alternatives for the downstream portion of the project and collaboration continues with industry participants to address regional infrastructure issues.

In 2006 Husky acquired additional leases in the Saleski area increasing our acreage to 239,200 acres with discovered resource of approximately 24 billion barrels of bitumen in place within the Grosmont and Nisku carbonates. Conceptual planning and bitumen recovery process evaluation continue at Caribou Lake. Husky has selected 44 stratigraphic wells to drill during the 2007 winter drilling season. In December, Husky submitted an application to the Alberta Energy and Utilities Board and Alberta Environment for the first phase of the Caribou Lake project.

Canada's East Coast White Rose project continues to perform better than expected. During the fourth quarter, a sixth production well was brought onstream, increasing reservoir production capacity to 125,000 barrels of oil per day. A seventh production well, which will further increase the production level of the reservoir will be completed by mid 2007. Husky's 2006 delineation program contributed possible reserves of 138 million barrels of light crude oil to White Rose, which had combined proved, probable and possible reserves of 379 million barrels of light crude oil at the end of 2006.

In the fourth quarter of 2006, Husky successfully acquired three exploration blocks in the Jeanne d'Arc Basin. Husky holds a 100% working interest in Exploration Block 1099 and 50% working interest in Exploration Blocks 1100 and 1101.

Internationally, expansion of Husky's offshore acreage position in the South China Sea continued with the signing of three petroleum contracts with CNOOC (the China National Offshore Oil Corporation). The three exploration blocks cover approximately 16,871 square kilometers.

In the South China Sea, Husky made a significant hydrocarbon discovery at Liwan 3-1-1 on Block 29/26. This discovery contains contingent resource of four to six trillion cubic feet of natural gas, making it one of the largest discoveries offshore China. A major seismic program is planned for 2007 over Block 29/26 and the adjacent Block 29/06. A development program is currently proceeding and a deep water rig has been secured for a three-year term commencing in 2008.

In the Midstream segment, a turnaround is planned at the Lloydminster Upgrader in the second quarter of 2007 to complete debottleneck work which will increase throughput capacity of the upgrader to 82,000 barrels per day. Engineering for the potential expansion of the upgrader to approximately 150,000 barrels per day will be completed by the end of 2007.

In the Refined Products segment, Husky completed and commissioned the Lloydminster ethanol plant in 2006. Husky's facility is the largest wheat based ethanol facility in Western Canada with annual peak production of 130 million liters of ethanol and 134,000 tonnes of Distillers Dried Grain with Solubles (DDGS), a high protein feed supplement. A second 130 million liter per year plant is being constructed in Minnedosa, Manitoba. The new facility, which is scheduled to be completed in the third quarter of 2007, is planned to be fully operational in the fourth quarter of 2007.

MAJOR PROJECTS

UPSTREAM

East Coast Canada Exploration and Delineation

• In November 2006 we completed drilling operations at the North Amethyst K-15 delineation well in the Significant Discovery License 1044 southwest of White Rose. Analysis is continuing on this reservoir.
• In October 2006 drilling operations were completed at the West Bonne Bay F-12 delineation well and the F-12Z side track well in the Significant Discovery License 1040 block adjacent to the Terra Nova field. Preliminary results indicate hydrocarbons in the Upper Hibernia Reservoir. Further analysis will determine more about the resources in this reservoir.
• In June 2006 we completed drilling operations at the White Rose O-28 delineation well and the O-28X side track well in the Significant Discovery License 1024 adjacent to the western border of the White Rose field. The O-28 well encountered a 280 meter oil column, further delineation will determine the aerial extent of the reservoir.
• We are currently in the early stages of planning to integrate satellite pools at South White Rose and North Amethyst.
• A 3-D seismic program was shot on Exploration License 1067, northwest of the White Rose oil field, covering 270 square kilometers and on Exploration License 1011 in the Fortune area, southwest of White Rose, covering 625 square kilometers. Planning is underway for our 2007 exploration and delineation drilling program, which currently includes three locations in the Jeanne d'Arc Basin.
• At Terra Nova, we are currently participating in a delineation well in the Far East Block.

Tucker Oil Sands Project

At Tucker the first five wells of the total 32 completed well pairs were producing at the end of December and steaming of the other wells continued. Tucker will ramp up production over the next two years to achieve peak production of 30 mbbls/day of bitumen.

Sunrise Oil Sands Project

The conceptual design for the upstream development of the Sunrise Oil Sands project was completed during the fourth quarter of 2006. This aspect of the project includes options for field development, oil treatment and steam generation. Front-end engineering design has commenced and is scheduled to be complete by the third quarter of 2007.

Five water source wells were drilled and evaluated in the fourth quarter of 2006 and an additional five water source wells and 29 stratigraphic wells are planned for the current winter drilling season. Collaboration with various industry participants continues on regional infrastructure issues, including an access highway and airport.

Caribou and Saleski

During 2006 we participated in three land sales in the Saleski area and acquired leases totaling 84,320 acres increasing total leases to 239,200 acres in the Saleski area. In December we submitted an application to the Alberta Energy and Utilities Board and Alberta Environment for the first phase of the Caribou Lake project.

In addition, conceptual development planning continued with water source and disposal well studies for both Saleski and Caribou and determination of an appropriate bitumen recovery process for Saleski. At Caribou we completed the selection of 44 stratigraphic well locations to be drilled during the 2007 winter drilling season.

Northwest Territories Exploration

A seismic program was completed during September 2006 that included our newly acquired Exploration License 441, which is contiguous with the eastern boundary of our Exploration License 397 containing the Stewart D-57 natural gas discovery. Based on the timing of this seismic program and subsequent analytical work we, with our partners, have decided to defer further exploration drilling until the winter of 2007/2008. This will allow for full incorporation of new seismic data into the prospect mapping that is currently underway.

China Exploration

In the fourth quarter the China National Offshore Oil Corporation agreed to a 3-D seismic program on Block 29/26, on which the Liwan natural gas discovery is located and also on the adjacent Block 29/06. The program will investigate several structures with characteristics similar to those of Liwan. A deep water rig has been secured for a three-year term commencing in 2008.

Indonesia Natural Gas Development

At Madura, negotiations for a natural gas sales agreement are continuing. Development of the Madura natural gas field is contingent on receiving government approval for our Plan of Development and an extension to the Production Sharing Contract. In September, Husky signed the Production Sharing Contract for the 4,254 square kilometer East Bawean II Block and is currently planning to commence a 3-D seismic program in the second half of 2007.

MIDSTREAM

Lloydminster Upgrader Expansion

The front-end engineering design for the major expansion of the Lloydminster Upgrader progressed to approximately 25% of completion. Completion of this engineering design is scheduled by the end of 2007. The expansion envisions increasing throughput capacity to 150 mbbls/day.

REFINED PRODUCTS

Lloydminster and Minnedosa Ethanol Plants

To meet the increasing demand for ethanol blended gasoline, we completed construction and commissioned our new Lloydminster, Saskatchewan ethanol plant. Additionally, we commenced construction of a second ethanol plant at Minnedosa, Manitoba. Construction of the new plant at Minnedosa is expected to be completed during the third quarter of 2007 and planned to be fully operational in the fourth quarter of 2007. Each plant is designed to have throughput capacity of 130 million liters of ethanol per year.

RESULTS OF OPERATIONS

UPSTREAM

Fourth Quarter

Upstream earnings were $80 million lower in the fourth quarter of 2006 than in the fourth quarter of 2005 mainly as a result of lower natural gas prices and lower sales volume of light crude oil from Terra Nova and Wenchang offset by higher sales volume of light crude oil from White Rose and higher heavy crude oil prices.

Twelve Months

Upstream earnings were $771 million higher in 2006 than in 2005 as a result of higher sales volume of light crude oil from White Rose and higher crude oil prices partially offset by lower natural gas prices and lower sales volume of light crude oil from Terra Nova and Wenchang.

Unit Operating Costs

Unit operating costs were seven percent higher in the fourth quarter of 2006 compared with the same period in 2005 primarily due to higher power costs, workovers, trucking, natural gas compression, higher number of producing wells and higher service and material costs. Higher unit operating costs in Western Canada were partially offset by lower operating costs at White Rose.

Unit Depletion, Depreciation and Amortization

Unit depletion, depreciation and amortization expense increased nine percent in the fourth quarter of 2006 compared with the same period in 2005. The increase was primarily due to net growth of the capital base in 2006 as a result of increased requirements for production maintenance capital in the Western Canada Sedimentary Basin and the start-up of the White Rose oil field, which has a higher than average ratio of capital to reserves.

MIDSTREAM

Upgrading

Fourth Quarter

Upgrading earnings in the fourth quarter of 2006 were $23 million lower than the fourth quarter of 2005 due to a narrower upgrading differential partially offset by higher sales volume of synthetic crude oil, lower costs for natural gas and thermal energy and lower income taxes.

Twelve Months

Upgrading earnings in 2006 were $28 million less than 2005 due to narrower differentials and increased electrical energy costs offset by higher sales volume of synthetic crude, lower costs for natural gas and thermal energy and lower income taxes.

Infrastructure and Marketing

Fourth Quarter

Infrastructure and marketing earnings in the fourth quarter of 2006 decreased by $7 million compared with the same period in 2005 primarily due to lower earnings from sales of blended heavy crude oil partially offset by higher cogeneration earnings and crude oil and NGL trading earnings.

Twelve Months

Infrastructure and marketing earnings in 2006 increased by $15 million compared with 2005 primarily due to higher crude oil pipeline margins, higher natural gas marketing earnings, higher cogeneration earnings and lower income taxes partially offset by lower earnings from blended heavy crude oil marketing.

Midstream Capital Expenditures

Midstream capital expenditures totaled $252 million in 2006; $184 million at the Lloydminster Upgrader, primarily for debottleneck and reliability projects and front-end engineering design for a potential expansion project and $68 million on pipelines and infrastructure.

REFINED PRODUCTS

Fourth Quarter

Refined Products earnings in the fourth quarter of 2006 decreased by $7 million compared with the fourth quarter of 2005 due to lower margins for gasoline and distillates partially offset by higher margins for asphalt products.

Twelve Months

Refined Products earnings in 2006 increased by $24 million compared with 2005 due to higher margins for gasoline and distillates and higher sales volume of asphalt products partially offset by lower sales volume of gasoline and distillates.

Refined Products Capital Expenditures

Refined Products capital expenditures totaled $285 million in 2006; $94 million at the Lloydminster ethanol plant, $94 million at the Minnedosa ethanol plant, $57 million for marketing outlet and facilities upgrades and at the Prince George refinery $40 million.

Credit Ratings

Based on successful completion of the White Rose project and the Company's internal growth prospects, competitive full cycle cost and consistently moderate financial risk profile, Standard and Poor's Rating Services upgraded the Company's long-term corporate credit and senior unsecured debt rating to BBB+ with a stable outlook.

Corporate Capital Expenditures

Corporate capital expenditures totaled $37 million in 2006 primarily for various office and information system upgrades.