Husky Energy Slows Investment in Oil Sands

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Researched by Industrial Info Resources (Sugar Land, Texas)--Husky Energy Incorporated (TSX:HSE) (Calgary, Alberta) has decreased investment in the Alberta oil sands patch from $300 million spent in 2008 to $65 million in 2009, a decrease of roughly 78%. Husky is still moving forward with the Sunrise oil sands project, located approximately 60 kilometers northeast of Fort McMurray, Alberta. The progress will be at a slower pace, and the original scheme of a 60,000-barrel-per-day (BBL/d) bitumen-production facility has been divided into two 30,000-BBL/d phases, known as Phase I-A and Phase I-B, which could cost as much as $2 billion or more to construct. The purpose of dividing the 60,000-BBL/d facility into two 30,000-BBL/d plants is to take advantage of experience with the 30,000-BBL/d Tucker Thermal project, which is now online.

Because of the turbulent atmosphere in the Canadian oil sands patch that has resulted from declining crude oil prices and a previously overheated materials and labor market, the Sunrise project was to begin construction this year, but has now been pushed back to 2010 in order to see how events will unfold in the crude oil market. If construction does begin in 2010, then the Phase I-A and Phase I-B facility start-up could be as early as 2012.

Husky has received permitting approvals for Sunrise and has awarded the DBM and front-end engineering and design (FEED) to the Calgary office of SNC-Lavalin Group Incorporated (TSX:SNC). In a related contract, SNC-Lavalin and Peter Kiewit Sons' Incorporated (Omaha, Nebraska) have formed a joint venture for the detailed design and construction contract for Sunrise. The construction contract has taken the form of a lump-sum contract for both phases of the project.

Husky is still planning a further two 60,000-BBL/d phases for Sunrise, referred to as Phase II & Phase III, each of which could have its own 85-megawatt natural gas-fired cogeneration plant.

Because of the slowdown in the oil sands sector, Husky has placed the development of the Saleski, Caribou, and Tucker Phase II expansion on hold for at least the next 18-24 months pending review. This effectively removed 28.1 billion barrels of bitumen from development.

In conventional oil production areas, Husky still intends to focus its capital mainly on maintaining upstream production, midstream and downstream developments, as well as major projects offshore of Canada's east coast and in Southeast Asia. Husky expects to spend $725 million in western Canada for development and exploration. Husky will also fund $800 million for the company's Canadian east coast and frontier operations. A large portion of the east coast capital will be spent on the completion of the White Rose Satellite tie-back project in North Amethyst and to continue work on the West White Rose satellite project.

Husky will also put forward $500 million for projects in Indochina and offshore China. The majority will be used delineating and evaluating block 29/26 in the South China Sea. The remainder will be used for additional exploration in the South and East China Seas and for the development of the Madura BD field in offshore Indonesia.

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