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The Husky Energy tower in Calgary, Monday, Feb. 1, 2010.

Jeff McIntosh/The Canadian Press

Husky Energy Inc. has struck a deal to sell oil and gas processing assets for $1.7-billion as the company seeks cash to weather the collapse in oil prices.

Husky said late on Monday it would retain a 35-per-cent interest in the assets, which include 1,900 kilometres of pipelines plus storage assets and are located mainly in the Lloydminster region of Alberta and Saskatchewan. Under a new limited partnership, Hong Kong-based Cheung Kong Infrastructure Holdings will hold 16.25 per cent and Power Assets Holdings Ltd. will own 48.75 per cent.

The sale comes as Calgary-based Husky, controlled by Hong Kong billionaire Li Ka-shing, reported a net loss for the first quarter of $458-million.

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"This transaction unlocks significant value and supports our objective of strengthening the balance sheet," Husky chief executive officer Asim Ghosh said in a statement.

Andy Hunter, deputy managing director of Cheung Kong, said the deal with Husky offers predictable revenues and cash flow and fits with the company's expanding portfolio. He praised the "very good" business environment in Canada and said the firm is not done shopping for assets.

"We will continue to study oil and gas related infrastructure projects and other suitable investment opportunities in Canada in the future," he said in an e-mailed statement.

Husky's net loss compares to earnings of $191-million or 19 cents a share in the same period a year ago. In the quarter, the company said production averaged 341,000 barrels of oil equivalent per day versus 356,000 barrels a year ago. Husky is still seeking buyers for oil and gas assets producing about 60,000 barrels a day in Western Canada.

Husky also said it could take legal action against China's CNOOC Ltd. over possible changes in the Guangdong gas market, which it said could lead to lower prices. The two companies are partners in the Liwan deepwater gas in the South China Sea.

Meanwhile, Canada's largest contract driller said Monday it could take months for oil prices to rebound, pouring cold water on a rally that has pushed U.S. crude back above $40 (U.S.) from multiyear lows hit earlier this year.

Precision Drilling Corp. said on Monday it lost $19.9-million (Canadian), or 7 cents a share, in the first quarter as its oil and gas customers slammed the brakes on the drilling plans in the first three months of the year. That compares with earnings of $24-million, or 8 cents, in the same period a year ago.

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CEO Kevin Neveu said the company could gradually redeploy idled rigs as prices start to rebound, even as he warned that a recovery is likely still "several quarters" away.

It's the latest sign of caution to creep back into oil markets after U.S. and global prices surged from lows under $30 (U.S.) a barrel. Service companies and their oil-company customers are taking a conservative approach to reviving dormant plans, a sign of lingering skepticism that the rally is sustainable.

U.S. West Texas intermediate oil slipped 2.5 per cent in Monday trading to $42.64 a barrel, snapping gains that accumulated over the past three weeks. Several forecasters said there is room for prices to sink lower now that the world's top exporters have abandoned plans to curb a global glut.

"We are not yet convinced that prices will remain here or go even higher this quarter," Barclays PLC analysts said in a report.

"Still-elevated inventory levels, the return of some disrupted supply, further boosts to Saudi and Iranian supply, and increased non-OECD product exports all have the potential to move prices lower over the next several months, especially if broader macro sentiment shifts."

The domestic energy industry is grappling with the massive dislocation caused by oil's free fall from more than $100 a barrel in mid-2014. For drilling firms, that has meant job losses in the tens of thousands and a sharp reduction in pricing power owing to a glut of rigs and other unused equipment.

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Speaking to analysts, Mr. Neveu said rates for the company's well service, coil tubing, as well as its camp and catering divisions, had fallen to unsustainable levels. Combined revenues from the segment plunged by more than half from the same period last year.

In the quarter, the Calgary-based oil services firm said the active onshore rig count in the United States plunged by roughly 55 per cent from the first quarter last year, while activity dropped by 49 per cent in Canada.

To cope, Precision and others have sought relaxed conditions from lenders on various debt obligations.

On Monday, the company said it secured new terms with its banks, including a provision that requires earnings before interest, taxes, depreciation and amortization to stay above 1.5 times interest expenses, compared with two times under the previous arrangement. The amendments also restrict debt repurchases and distributions, as well as cash hoarding.

Raymond James Ltd. analyst Andrew Bradford said the additional leeway would give the company needed breathing room to manage the downturn. Its long-term debt stood at about $2.1-billion (Canadian) as of March 31.

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