Husky Energy Inc. is slowing its capital spending on western Canadian projects over the next five years to allow downstream capacity to catch up with oil production as pipeline constraints continue to impede the industry’s ability to get oil out of Canada.
Average annual capital spending will fall to $3.15-billion under a new five-year plan unveiled Tuesday, down 10 per cent from about $3.5-billion a year under its 2018-22 plan released a year ago.
Despite a $1.7-billion total capital investment reduction over the five-year period, Husky expects free cash flow before dividends to add up to a total of $8.7-billion based on a flat US$60 West Texas Intermediate price.
“The biggest changes were driven by our desire to focus the business on generating higher levels of free cash flows over the plan,” CEO Rob Peabody said on a webcast from the company’s investor day in Toronto.
“This was achieved by reducing the spending and growth in our Western Canada resource play business and pacing our thermal production growth in light of current production quotas imposed by the Alberta government and basin egress issues.”
He added excess cash is earmarked for higher shareholder dividends.
An example of the investment slowdown is in Husky’s rollout of cookie-cutter 10,000-barrel-a-day steam-driven oil sands projects near Lloydminster, Sask., chief operating officer Rob Symonds said on the call.
Last year, the company said it would aim to complete two projects a year – the pace has now been reduced to three projects every two years, he said, observing one new project will be on stream later in 2019 and five more are planned by the end of 2023.
Some of the savings will also come from Husky’s operations in Indonesia, where regulatory issues have resulted in a one-year delay in its shallow water offshore Madura Strait gas project, the company said.
Meanwhile, Husky will increase by later this year the heavy oil throughput capacity at its Lima, Ohio, refinery by 30,000 b/d to allow more western Canadian oil to displace lighter oil feedstock.
It is planning a minor expansion of its Lloydminster heavy oil upgrader for 2020 and expects to have its Superior, Wis., refinery, which was heavily damaged in a fire last year, to be rebuilt and running at full capacity by 2021.
The Calgary-based company controlled by Hong Kong billionaire Li Ka-Shing says it will boost production by about 100,000 barrels of oil equivalent a day over the five years to between 400,000 and 415,000 boe/d despite the lower spending.
In response to an analyst question, Peabody conceded on the webcast that the Jackfish oil sands project being marketed by Oklahoma City-based Devon Energy Corp. would likely fit into Husky’s “integrated corridor” business plan but he wouldn’t say if the company is interested in making an offer.
Earlier this year, Husky dropped a hostile bid for oil sands rival MEG Energy Corp. after falling just short of the needed two-thirds shareholder support.
Husky’s plan to sell its small Prince George refinery and retail gas-station network is attracting strong interest, Mr. Peabody said, adding he hopes a deal will be concluded by year end although it may be delayed if it requires competition regulator approvals.
In December, Husky took $300-million out of its 2019 capital spending budget to account for the impact of Alberta oil production quotas and lower global oil prices.
It says it still expects to record capital spending of between $3.3-billion and $3.5-billion this year to take average production to between 290,000 and 305,000 boe/d.