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Hong Kong billionaire Li Ka-shing first bought into Husky in 1987, when the industry was reeling from depressed crude prices.LARRY MACDOUGAL/The Canadian Press

Husky Energy Inc. could be ripe for privatization by its long-time controlling shareholder based on company-specific math and the sorry state of Canada’s oil patch.

Of course, the big question is whether Hong Kong billionaire Li Ka-shing and his organization believe such a deal is worth pursuing. A buyout of the minority investors, at more than $2.8-billion, would be a lot cheaper than it was even a year go.

It would also be a bargain compared with just about every other global integrated oil company, according to veteran RBC Dominion Securities analyst Greg Pardy, who laid out the case in a research report on Monday.

It’s a sign of the times. Speculation about Husky’s future has cropped up as its sector’s woes have played out in the form of a meltdown in market value.

Energy shares have tanked as the industry struggles with its age-old problem of tight pipeline capacity to move oil and gas out of Western Canada. It has sent weary investors elsewhere, and prompted producers to shift capital from boosting output to a steady diet of paying down debt and buying back shares. Companies that stray from that formula get roundly punished in the market.

Mr. Pardy’s thesis: Husky already operates as a “quasi-private company,” in which the majority shareholder wields the power. Indeed, this has been cited as a drag on the stock at various times since Husky re-entered public markets with its acquisition of Renaissance Energy in 2000. Since then, Mr. Li has benefited handsomely from regular and, at times, special dividends.

A buyout would allow investors to partake in some of the gap that exists between the current share price of $9.22 and estimated net asset value of $19.53, based on proved and probable reserves. Husky’s shares had lost nearly 60 per cent over 12 months. On Monday, Mr. Pardy’s assessment of a buyout prompted a 5-per-cent gain.

Finally, Husky would enjoy full alignment with the major owners, which include the conglomerate CK Hutchison Holdings Ltd., of which Mr. Li is a major shareholder. The retired tycoon also has a large direct stake. In total, the control block is just under 70 per cent.

Husky declined to comment on the speculation.

As conditions weaken, there’s chafing in the industry over the requirement of explaining to public investors each quarter why share prices have tumbled despite enviable assets, strong balance sheets and profitable operations. Harold Hamm, chief executive and 77-per-cent-owner of U.S. shale producer Continental Resources Inc., voiced that very lament early this month.

Husky has had its own problems, including operational mishaps, from oil spills in Saskatchewan and off the Newfoundland coast to a refinery explosion in Superior, Wis. Analysts have also said it is a difficult company to research, given its disparate producing and refining operations in Canada, the United States and in the South China Sea, as lucrative as some of those are.

According to TD Securities, Husky trades at a multiple of enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) of about 3.5 times. That compares with an average multiple for U.S. integrated companies of about six times.

Of course, it is a denizen of a Canadian industry that can’t catch a break. The S&P/TSX energy group is down 36 per cent in the past year, far underperforming the global oil market and the Canadian stock market.

In that time, Husky launched a $2.5-billion hostile takeover bid for rival oil sands producer MEG Energy Corp., and subsequently walked away, blaming partly the Alberta government’s mandated oil-production cuts. The policy was aimed at rescuing heavy oil prices that had skidded due to a glut of supply within the province. So even if a company lifted output, its options for selling the stuff would be limited.

Mr. Pardy said a go-private transaction would have its downsides, including limiting Husky’s options for raising capital in the future. Equity markets have been anything but welcoming to Canadian oil producers in recent years, though.

Mr. Li first bought into Husky in 1987, a time when the industry was reeling from depressed crude prices. As a long-term investor, perhaps today’s crisis spells opportunity for him once again.

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