Husky defers two offshore projects after taking an ax to capital spending

Canadian oil and gas company Husky Energy has decided to cut its 2020 capital spending by $900 million in upstream spending and an additional $100 million in additional measures. 

Under the new plan, Husky has decided to delay the development of an oilfield located offshore China as well as development of a natural gas field offshore Indonesia.

Husky said on Thursday it is taking a series of actions to fortify its business in response to challenging global market conditions.

With these initiatives Husky is looking maintain the strength of its balance sheet while protecting value in an extended low commodity price environment.

“Husky has three important advantages: a strong balance sheet, an Integrated Corridor which includes a sizeable downstream and midstream segment, and Offshore operations that include long-term gas contracts in the Asia Pacific region not linked to the price of oil,” said CEO Rob Peabody.

Given current market conditions, Husky will start the reduction, or shut-in, of production where it is cash negative on a variable cost basis at current prices.

The company’s total liquidity is $4.9 billion, comprised of $1.4 billion in cash and $3.5 billion in unused credit facilities. In line with its committed credit facilities, Husky is required to maintain debt to capital of no more than 65%, and is well below this threshold with a ratio of 27% with no long-term debt maturities until 2022.

The company has revised its capital investment guidance in Upstream from $2.6 billion – $2.8 billion to $1.75 billion – $1.9 billion.

The company’s total investment guidance was reduced from $3.2 billion – $3.4 billion to $2.3 billion – $2.5 billion.

Total Upstream Production (mboe/day) has been revised from 295 – 310 to to 275 – 300.

According to Husky, investment in resource plays and conventional heavy oil projects in Western Canada has been halted, with a focus on optimizing existing production and lowering costs. Furthermore, drilling of sustaining pads at all thermal operations has been suspended and Lloydminster thermal projects scheduled to be delivered beyond 2020 have been deferred and will be reconsidered as market conditions improve.

In the Asia Pacific region, the development of the Block 15/33 oil field offshore China has been deferred by a year. In Indonesia, development of the MDA-MBH natural gas field has been deferred.

The Liuhua 29-1 field at the Liwan Gas Project is being advanced as planned, with first production expected by the end of 2020.

The company said it continues to review further capital adjustments in response to the current market environment.

Additional cost reduction initiatives totalling approximately $100 million in 2020 will include a reduction in well servicing activities on uneconomic production, and a halt in exploration activity.