Husky Energy Seeks Additional Heavy Oil Refining Capacity with Wisconsin Purchase

Researched by Industrial Info Resources (Sugar Land, Texas)--Husky Energy Incorporated (TSX:HSE) (Calgary, Alberta) announced on Monday that it will buy a 50,000-barrel-per-day (BBL/d) refinery in Superior, Wisconsin, from Calumet Specialty Products Partners (Indianapolis, Indiana) for $435 million. The deal, which is expected to close in the fourth quarter, will increase Husky's refining capacity to about 395,000 BBL/d and allow the company to keep up with expected increased upstream production from its sites in Canada.

In its second-quarter earnings conference call in July, Husky Chief Executive Officer Rob Peabody said the company's Integrated Corridor, which includes thermal production and refineries in the U.S. Midwest, produced about 247,000 barrels of oil equivalent per day in the second quarter of this year and that average upgrading and refining throughputs were 316,000 BBL/d, compared with 255,000 BBL/d in second-quarter 2016.

The Superior refinery is a heavy oil-based refinery, which will increase Husky's capacity to refine heavy oil to about 205,000 BBL/d, company spokesperson Kim Guttormson told Canadian Broadcasting Corporation. For more information on the refinery, see Industrial Info's plant profile. Husky's heavy oil production from Alberta and Saskatchewan is about 120,000 BBL/d, but this is expected to increase by about 40,000 BBL/d over the next three years, Guttormson said.

Husky plans to begin construction next year of a pilot-scale bitumen production and processing plant at its site in Alberta. The plant will have a capacity of 3,000 BBL/d to test carbonate oil sands extraction technologies and could lead to the implementation of larger, commercial scale technologies at the site in the future. For more information, see Industrial Info's project report.

Seeking additional heavy oil refining capacity also is behind Husky's $300 million crude flexibility project at its refinery in Lima, Ohio. The largest part of the project involves the addition of a sulfur recovery unit (SRU) with a processing capacity of 195 tons per day. Construction is planned to begin soon and be completed by the fourth quarter of next year. For more information, see Industrial Info's project report. Husky also will construct a 40,000-BBL/d rail loading facility to receive additional Canadian crude and load out sulfur from the SRU. For more information, see Industrial Info's project report. GEM Industrial Incorporated (Toledo, Ohio) is acting as contractor on the projects.

As the company carries out its onshore expansions, among its largest projects is the $2.2 billion West White Rose offshore platform, located about 217 miles from the Canadian shore in the Atlantic Ocean. The facility will produce an average of 52,500 BBL/d, with peak production of 75,000 BBL/d. Construction is planned to kick off in the first half of next year and be completed in summer 2022. In the conference call, Peabody said the project could deliver a 12% rate of return at a flat $45 per barrel price for West Texas Intermediate (WTI) crude oil. For more information, see Industrial Info's project report.

Husky expects capital expenditures of between C$2 billion ($1.57 billion) and C$2.6 billion ($2 billion) for the year and spent about C$580 million ($455 million) in the second quarter. The company seems to accept that the low price of oil may be here to stay awhile. "We need to break even on earnings," said Peabody. "We are doing this by investing in a deep portfolio of projects that will materially lower our cost structure, improve margins and provide free cash flow in a low-price environment. Each new investment must generate a 10% IRR [internal rate of return] on a flat US$45 WTI oil price and have at least a zero IRR at US$35 WTI."

Husky Energy reported a net loss of C$93 million ($73 million) in second-quarter 2017, compared to a net loss of C$196 million ($153.7 million) in second-quarter 2016.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.