"Our continued investment in longer-wavelength projects such as heavy oil thermals, resource plays and oil sands provide steady production and more predictable cash flow to support our growth projects in the Asia Pacific and the Atlantic Regions," said CEO Asim Ghosh.

"Our new thermal developments are delivering well above their nameplate designs and production was further boosted this quarter by strong performance from our resource plays and the start up of the Liwan Gas Project."

Net earnings were $628 million, up approximately four percent from $605 million in the second quarter of 2013. Cash flow from operations was $1.50 billion, up from $1.45 billion a year ago.

Upstream production averaged 334,000 barrels of oil equivalent per day (boe/day) up eight percent compared to 310,000 boe/day in the second quarter of 2013.

Throughputs at the Downstream refineries and Lloydminster Upgrader were 304,000 barrels per day (bbls/day), compared to 317,000 bbls/day in the second quarter of 2013.

Highlights Include:

  • Net earnings were $628 million, or $0.63 per share (diluted), compared to $605 million, or $0.59 per share (diluted) a year ago.
  • Cash flow from operations was $1.50 billion, or $1.52 per share (diluted), up from $1.45 billion, or $1.47 per share (diluted) in the second quarter of 2013.
  • Total Upstream production averaged 334,000 boe/day, compared to 310,000 boe/day a year ago.
  • Sales gas from the Liwan Gas Project is flowing into the mainland China market, with the deepwater wells, shallow water platform and onshore gas terminal performing as expected.
  • All major regulatory approvals are in place at the Sunrise Energy Project, including the Maximum Operating Pressure permit.
  • Well pads and gathering pipelines are being commissioned at Sunrise, with startup on track for later this year.
  • Received regulatory approval of the contract award for an FPSO (Floating Production, Storage and Offloading) vessel to develop the BD field in the Madura Strait offshore Indonesia.
  • Construction advanced at the 10,000 bbls/day Rush Lake heavy oil thermal project, with first oil planned in the second half of 2015.
  • Drilling has resumed at the North Amethyst Hibernia formation well in the Atlantic Region, with first oil production expected later this year.
  • A seismic acquisition program has commenced in the Bay du Nord discovery area in the Flemish Pass, with drilling anticipated to begin in the third quarter.

Second quarter production was 334,000 boe/day, compared to 310,000 boe/day in the second quarter of 2013. This reflected growing production from heavy oil thermal developments, oil and liquids-rich gas resource plays and the ramp up of the Liwan Gas Project.

Downstream throughputs of 304,000 bbls/day take into account extended startups at the Lima Refinery and the Upgrader following planned turnarounds.

WTI prices averaged US$102.99 per barrel in the second quarter compared to US$94.22 a year ago. Average realized pricing for the Company’s crude oil, natural gas liquids and bitumen was $90.33 per barrel, compared to $77.98 in the second quarter of 2013.

U.S. refining Chicago market crack spreads averaged US$19.40 per barrel in the second quarter, compared to US$30.78 in the same period in 2013, while the realized U.S. refining margin averaged US$14.40 per barrel compared to US$20.24 a year ago.

KEY AREA SUMMARY

THE FOUNDATION BUSINESS

Heavy Oil

Growing production volumes and longer-life thermal projects are helping lengthen the stride of the heavy oil business with improved earnings per barrel of production.

Consistent performance from thermal developments delivered approximately 44,000 bbls/day during the second quarter, compared to 41,000 bbls/day in the first quarter and 37,500 bbls/day a year ago.

The Sandall thermal project continues to deliver strong results, with average production of 5,300 bbls/day in the second quarter, well above its design capacity of 3,500 bbls/day.

Husky continued to advance construction on a series of high-netback, modular thermal projects.

The 10,000 bbls/day Rush Lake thermal development is being advanced towards first production in the second half of 2015.
The 10,000 bbls/day Edam East thermal project is on pace for first oil in the first half of 2016.
The 3,500 bbls/day Edam West thermal project is set to come on production in the second half of 2016.
The 10,000 bbls/day Vawn thermal project is anticipated to begin production in the second half of 2016.

Four horizontal heavy oil wells were drilled in the second quarter, with 27 wells drilled to date in 2014. Two Cold Heavy Oil Production with Sand (CHOPS) wells were drilled, with 75 wells drilled so far in 2014.

Western Canada

The transformation of the Company’s Western Canada business continued in the second quarter, with production from an extensive liquids-rich gas and oil resource portfolio averaging 32,500 boe/day compared to 24,700 boe/day in the second quarter of 2013.

Gas Resource Plays

With a large land base of more than 120,000 net acres and multi-zone potential, the Ansell liquids-rich gas play is a key development in the Company’s Western Canada resource portfolio. Eleven horizontal wells were drilled and five completed at Ansell in the second quarter, contributing to production of about 17,000 boe/day compared to 13,500 boe/day in the second quarter of 2013. Planning is under way for an additional four-well pad later this year.

Results from a four-well pad and a two-well pad at Kaybob in the Duvernay continued to be monitored as the play is worked for greater productivity and efficiency.

At the Wilrich liquids-rich gas play at Kakwa, three horizontal gas wells were drilled and three wells were completed during the second quarter. At the Strachan Cardium play, two horizontal gas wells were completed with further development drilling scheduled later in 2014.

Oil Resource Plays

Three horizontal wells were drilled and three completed in the second quarter, with activity primarily focused on the Viking and Cardium oil resource plays.

A four-well pad at Wapiti Cardium is delivering good results, and the Company has expanded its land position on the play to add more drilling locations.

Downstream

The focused integration of Husky’s Downstream business enables it to capture Brent-like pricing for its Western Canada crude production. The Company is undertaking several initiatives to further build flexibility of feedstocks, product range and market access.

Work was advanced on a terminal expansion project at Hardisty, Alberta in the second quarter to add value through extended pipeline connectivity, blending capability and storage capacity. Construction on two 300,000-barrel storage tanks and new pipe interconnections is scheduled to be completed in 2015.

Plans are underway to extend the Company’s South Saskatchewan Gathering System to accommodate increased heavy oil thermal production from Rush Lake, Edam West, Edam East and Vawn.

Equipment upgrades are progressing at the Lima Refinery to allow for the processing of up to 40,000 bbls/day of heavy crude feedstock starting in 2017, which will support the Company’s growing heavy oil thermal business. FEED is approximately 95 percent complete.

A new recycle gas compressor at the partner-operated refinery in Toledo, Ohio is scheduled to come online later in 2014.

GROWTH PILLARS

Asia Pacific Region

Husky is building on its strong track record in the Asia Pacific Region.

Sales gas from the Liwan Gas Project continues to be sold into the mainland China market, and the Company recently began regular shipments of natural gas liquids and condensates.

Construction vessels have commenced work to complete the installation of a second deepwater production pipeline from the main Liwan 3-1 field to the shallow water central platform. The field is scheduled to be shut-in for six to eight weeks starting in the fourth quarter to facilitate the installation.

Liwan production will continue to ramp up as several third-party power plants complete their commissioning and startup process.

In Indonesia, construction is progressing on the shallow water platform infrastructure for the BD field and the contract award for the FPSO (Floating Production, Storage and Offloading) vessel has received final regulatory approval. The tendering process for the MDA and MBH joint development is in progress, and a gas sales agreement is being negotiated.

Oil Sands

A rich portfolio of oil sands leases in northern Alberta is providing the foundation for predictable, long-wavelength production and cash flow.

The Sunrise Energy Project is progressing towards startup later this year. All major regulatory approvals, including the Maximum Operating Pressure permit, are now in place for Phase 1. The well pads, diluent, diluted bitumen and gathering pipelines are moving through the commissioning phase, and major electrical systems for Plant 1A have been completed and energized.

Phase 1 production is expected to ramp up over 18-24 months to 60,000 bbls/day (30,000 bbls/day net to Husky). Plant 1A is scheduled to be brought online first, followed by Plant 1B approximately six months afterwards.

Atlantic Region

Husky is developing a wide range of projects in the White Rose field offshore Eastern Canada to maintain production over the near and mid-term, while exploration and appraisal activities are opening up a new chapter of long-term growth.

In the Jeanne d’Arc Basin offshore Newfoundland and Labrador, drilling has resumed on a Hibernia-formation well that will target a deeper zone beneath the North Amethyst field, with first production planned later in 2014.

Production equipment for the South White Rose extension in the White Rose field is scheduled for installation in the third quarter, with first oil expected around the end of the year.

A public review process is underway for the West White Rose extension project and work continues on a graving dock to support construction of a fixed wellhead platform. Subject to final approvals, first oil is scheduled for the 2017 timeframe.

The Company and its partner have initiated a 3-D seismic program in the Bay du Nord discovery area of the Flemish Pass Basin, which will be followed in the third quarter by an 18-month deepwater drilling program. Husky holds a 35 percent working interest in the Bay du Nord, Mizzen and Harpoon discoveries in the Flemish Pass.