Alberta's government-mandated cap on oil production has prompted Husky Energy Inc. to slow spending in the province and move it to jurisdictions that offer more room for growth.
The Calgary, Alberta-based integrated oil company will shift new investment to Saskatchewan and its offshore fields in Canada and Asia to increase output, President and CEO Robert Peabody said on the company's third-quarter earnings call. Husky saw earnings in the last quarter hurt by lower crude prices and narrower refining margins amid relatively flat production. The company is controlled by entities owned by billionaire Li Ka-shing.
"We would love to spend more money in Alberta," Peabody said on the Oct. 24 call. "There are quotas in place that mean that we could spend to develop crude oil, but then they wouldn't let us sell it. So that doesn't make any sense."
Husky Energy CEO Robert Peabody
Alberta introduced production quotas amid a pipeline capacity crunch that sent prices for crude produced in the province to near-record lows compared with U.S. benchmark crudes. The cuts, which have gradually been eased to allow more production, caused an immediate rebound in heavy crude prices but split the producing community over their value. Integrated producers, which sell gasoline and other refined products, saw downstream margins tighten as input prices rose. Husky, which has ample pipeline capacity and refines more crude at its facilities in the U.S. and Canada than it produces, saw gains from the bargain-priced crude.
Peabody called the Alberta situation "very different to Saskatchewan where we are still spending at very high levels" and expressed hope that the quotas would be a short-term issue. He praised Premier Jason Kenney's corporate tax cuts as a positive for the industry.
"Certainly they will encourage us to make whatever investments we can, but we are an oil company and so producing what we produce is actually quite important to us," Peabody said. "But I do want to emphasize our continuing to invest strongly in Saskatchewan, very strongly in Newfoundland, and we're investing very strongly in the United States in our refining system."
Husky is continuing the rebuilding process at its refinery in Superior, Wis., which experienced an explosion and fire shortly after the company bought it in 2017. The company received pretax insurance proceeds relating to the incident of C$132 million in the third quarter. Work at an expansion at its refinery in Lima, Ohio, which will allow the company to process more heavy crude, is about 90% complete. The facility must be fully shut down to allow for a final tie-in of new equipment, which the company expects to be completed in late November. Once the work is finished, Lima's ability to process heavy crude will jump to 40,000 barrels per day from 10,000 bbl/d.
Husky announced it was cutting staff at its Alberta operations Oct. 22, a day after Canada's federal election. Peabody stressed the layoffs were part of the company's overall strategy and not related to the outcome of the vote.
"These weren't a sort of short-term reaction to any sort of recent political developments or anything like that," Peabody said. "I think we are now positioned in a really good place to deliver" on the company's overall plan for growth.
Separately on Oct. 24 Husky posted C$273 million, or 26 Canadian cents per share, in net earnings for the third quarter, compared with C$545 million, or 53 Canadian cents per share, in the prior-year quarter. The S&P Global Market Intelligence consensus earnings estimate for the third quarter was 26 Canadian cents per share.