Q2 2019 Earnings Call
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Hi, I'm looking to reach the Husky energy earnings call.
And I get your name Sir.
Our same Michael last named Bitch, B. I C H.
Sorry, I see H. Sir.
V. I CHP isn't Victor.
Okay V I C H and can I get your company. Please.
<unk> era spelled A.I.E.R. J.
Okay. Thank you for that joining you know.
Thank you.
Funny.
And then the Atlantic West White Roses, now more than 40% complete and is expected to contribute more than $1 billion per year of cash flow during its peak years.
At our price planning assumption of $64 use flat.
Brent.
Altogether well our results in Twoq, you were impacted by turnarounds and Nonroutine financial adjustments, we remain well positioned for the remainder of this year.
And with that I'll hand, the call.
For a more detailed view of our financial performance.
Thanks, Rob.
Funds from operations were $802 million compared to just over $1.2 billion in Q2 2018.
This reflected a number of factors, including lower production due to Alberta quotas, a heavy turnaround schedule and reduce volumes in the Atlantic and Asia Pacific regions.
We were also impacted by lower year over year commodity prices, Brent down about $5.50 us compared to the year ago period.
Heavy oil location differentials tightened by more than $5 us per barrel compared to Q2 2018.
Typically this would be captured by our upstream oil business.
However production in that segment was lower due to our busy maintenance schedule.
In addition.
Refinery Throughputs were lower because of planned maintenance at Toledo in Prince George and both of these turnarounds went on longer than originally planned as Rob mentioned.
Our maintenance program is now largely complete and our facilities are ramping backup.
As such we expect our overall annual production to remain within guidance.
And funds from operations were further impacted by non routine negative adjustments totaling $106 million.
This included just over $36 million for write offs related to the Tigers I exploration well in the Atlantic region.
It also included a $59 million adjustment associated with the lump sum contract related to this discussion on gathering system expansion.
Net earnings were $370 million.
Which included a positive $233 million provision for Alberta corporate tax reductions.
Partially offset by $77 million after tax of Nonroutine negative items.
Overall upstream production averaged around 268000 Boe per day.
The average realized price was $53.35 per barrel, a 7% increase over Q2 2018.
The upstream operating netback was $33.61 per Boe.
The per unit operating costs in the quarter were up 11% over the previous year to $15.83 per Boe.
It was driven by turnaround activity, coupled with lower production.
The infrastructure and marketing segment recorded a loss of $38 million.
Compared to a gain of $154 million in Q2 2018.
This was due to the non routine associated with this is cash and gathering system as well as tighter heavier location differentials.
The downstream operating.
Was $286 million compared to $466 million at this time last year.
This includes a favorable FIFO pretax inventory valuation impact of 60 cents use per barrel.
Downstream earnings also included $71 million in insurance proceeds related to the superior refinery.
Of which $54 million was related to business interruption.
Capital spending was $858 million.
Compared to 708 million in Q2 last year.
And this is in line with the budget and we are on track with our annual guidance.
Net debt at the end of the quarter was $3.7 billion or one times trailing 12 months funds from operations.
Liquidity was 6.7 billion, including $2.5 billion in cash and $4.2 billion in on U.S credit facility.
Finally, our board has approved a quarterly dividend of 12, and a half cents per common share.
Thanks, and Rob Simons will now provide some additional operational details.
Thanks, Jeff.
As mentioned Q2 was an active quarter for planned maintenance, including the consolidation of five Lloyd thermal turnarounds in June to provide.
Efficiency.
Loan production also reflects our reduced plant operations and the mandated quoted.
Which will be marginally changed from what we faced last quarter. In fact, we were allowed to produce only 770 barrels a day more in Q2 and what was awarded in Q1.
Our July and August quotas are up by only another 1000 barrels per day.
As a result upstream production in Q2 was down 9% from a year ago.
Plus the Scotts run thermal program continues to progress with devalued coming on production later this quarter.
Once it is fully ramped up and we completed three additional planned turnarounds in Q3, we expect to exit this year at just over 90000 barrels a day of Lloyd film production.
I'll just add to this thermal growth combined with the expected increase in offtake in Asia, and the Atlantic becoming fully back on stream will not us exiting the year at around 320000 Boe per day.
In the downstream overall throughput from the upgraded and refineries was about 340000 barrels a day.
With the superior refinery demolition work is progressing to plan.
We expect to start rebuilding this fall pending the appropriate permits with the target of resuming full operations in 2020 one.
As Jeff noted we had two major turnarounds in Q2, both of which went on longer than originally planned.
One of our downstream facilities with the exception of superior and now back running at full rates.
Moving to the offshore business and starting with Asia.
In the second quarter, our share of gas production from the legal on gas project averaged 160 million standard cubic feet per day.
And our share of Madeira was 34 million standard cubic feet per day.
In the Atlantic to infill wells were brought online in May.
The new flow line connector was recently installed on the seabed and the general sense is that north amethyst.
South White rose extension of being ready for restart.
Southern drill center was brought back online in early June .
We've used the downtime on the sea rose to tackle various maintenance and regulatory scopes.
So we no longer require the turnaround originally planned for the vessel in August .
And finally at the West White Rose projects construction is progressing in our three fabrication sites in new from land in Texas.
To tell out and installation of the concrete gravity structures scheduled for 2022.
With first on around the end of that year.
Thank you and I'll turn.
Back to the operator for questions.
Thank you we will now begin the analyst question and answer session any analyst questions to ask a question you May press star one on your Touchtone phone you will hear a tone to indicate during Q.
Participants using speaker phone may be necessary to pick up your handset before pressing any key.
If you wish to remove yourself from the question queue. Please.
Start to one moment, please while we poll for questions.
Our first question comes from Neil Mehta.
With Goldman Sachs. Please go ahead.
[noise], Hey, Tim Thanks, very much.
Thanks, very much for taking feet, taking my questions. This morning, I guess the first one is a high level question, Rob, It's just where we stand in terms of the operational performance turnaround I know that is is your number one priority as leader of this organization. So just talk about where we are and how this quarter fits into that to that.
To do that.
Strategy.
Yes, thanks Neil.
Yes, I think overall.
I guess the first thing I'd, just say is I think the quarter overall was reasonably what I'd call steady for operational performance, we didnt have any sort of incidents or that thank goodness that didn't.
That really affected operations I mean.
Most of the most of the the lower production you saw were combination quotas and actually planned turnarounds in most cases and in particular in the heavy oil segment, where we decided to synchronize those turnarounds in order to do them as efficiently as possible in June so so.
Nothing nothing untoward in the operation of course in general on the whole journey of continuing to focus on high end high reliability organization I think we took.
We took a good amount of grounded in the quarter with.
Peter Rosenthal really getting in.
As the SPP in charge of that reporting directly to me.
We've reorganized a little bit so that all the safety people in the organization wherever they sit line report back to Peter and Peter is held engagement sessions with those people. He has been out into all the businesses I think his report back is I think.
You know I think was happy to see in general where we were after because this wasn't the start of the journey, we've been working with various people for the last year or so.
Where we were and Buddy setting a very clear plan.
Going forward, so I'm feeling a lots going on there I think we're getting a lot of traction and.
And it's gratifying to see quarter over quarter, when we look at the metrics and we're looking at.
The low lower level incidents, which we track in order to get a sense of where things are getting better or worse, we're seeing quarter over quarter.
Some of those metrics.
Yes, Thats helpful. I guess the other question I had was just the infrastructure and marketing segment I think there was.
There was some nonroutine provision here with that with your schedule on gathering system along with.
It looked like crude differentials.
Might have caused caused us to really.
Miss our expectations, but anything you can call out there and how we should just think about the run rate for the segment.
Yes, sure I'll, let Jeff kind of start into that we also have Jeff Brinker here, So theres, a little more detail Mike.
Provide that as well, yes, no I'll talk number one two we caused kind of onetime or.
Unusual item and when.
Theres a first couple of projects that we had ultimately we're set so any agreement.
Ultimately with expanded scope on this project it costs, a little bit higher but I'll look at last year is the first couple of projects basically had a positive impact last year in a similar magnitude so.
We're through the first projects on this and net net it's neutral over the last couple of years, but we did see it manifest itself this quarter, so I wouldn't.
Model that going forward and then you're right on the second part on an ongoing basis is.
Really infrastructure marketing has our storage capacity as well as of our export capacity out of basin and that was negatively impacted by the Alberta production quotas in the tighter location differentials and that's really where it manifests itself.
In the financials and as you look last year is given the wider differentials we were gaining in that segment versus the upstream. So Jeff did you want to do.
Maybe just give a sense of kind of if you look forward, what's kind of a more.
What's more typical sort of earnings level, given that it's very hard to pick a typical earnings level in this area.
Yes. It does I think you just take out the thing that are there.
Clearly one off raises assess get to on gathering system.
Item is not going to recur.
And I think you also have to think about when you compare the results of this quarter to the previous quarter.
There is a certain timing element that figures into the OEM segment, where we're typically we're buying crude and in January just to ship in February and received in March on the long haul pipelines and so for example in the first quarter, we were still seeing some benefits at the very very wide differentials that we saw in the fourth quarter there were coming through in the results in the first quarter, we didnt have that benefit in the second quarter. This year when the differentials were quite tight and flat throughout the throughout the quarter.
Okay. Thanks.
Thanks, guys.
Once again any analysts who wish to ask a question. Please press star one at this time.
Our next question comes from Prashant Rao with Citigroup. Please go ahead Sir.
Good morning. This is Joe on for Shaun. Thank you for the question.
Thank you.
Could you give us an update on the profit potential sale on the Canadian retail and commercial fuels business and the Prince Georges refinery.
Indicated that you were seeing some strong interest has the market changed turned up.
Last few months.
Should we expect more because.
So the process continues is what I could tell you and we are still in negotiation with a number of parties and hopefully we'll have something to say on that in the.
Before the year end.
Okay got it and then my second question or.
Asia Pacific after completing and ramping up that new R 29, Ash, one and the project in Indonesia, what would be some future growth opportunities between 2021 and 2023.
I think so.
Where there is a number of options and possibilities were working in the region with various.
Parties, Rob did you want to add to that yes. This is Rob Simon so in Indonesia, the existing developments that will be coming on in 21. There are additional M fields that could be tied into that.
That gathering system.
In the Indonesian space. We're also looking at other alternatives, but thats. The those are the from ones as you move to China Post 29, one the deepwater space is.
Without specific additional things, but in the shallow water.
The discovery, we made last year at 15 33 is something that we can bring on stream so that would be something else and we're also.
In the shallow water offshore China things can move quite quickly because of the existing infrastructure. We do have to two additional blocks into baby, Larry and that could also be brought on.
Got it thank you.
Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Yes, hi, guys lifetime to speak into the oil well.
David while the physical one or two other positive D.
Yeah, I guess, it's been six or seven months now since the the Mega deal.
Didn't go through is there any more color you can provide about why that didn't materialize and then just your latest thoughts on on the M&A environment and whether Huskies happy with the portfolio as it has whether we should continue to think of the organization as a potential buyer of assets.
Okay.
You know in general of course, we I'm not going to talk on any specific M&A.
I think we've been pretty thorough on our explanations around make.
You know we thought it was a good idea strategically they never really wanted to dance in this party and as I've always said, it's hard it's hard to contemplate a combination if the other sides really not too interested in it and by the time, we came to the end you know we saw decreases in oil prices very different environment.
We had a very clear off ramp and you know frankly again, if you look at.
Where the overall market is I think if you look across the entire energy sector.
Let alone May give you know equity values are quite significantly down and.
I think I think there was a bit of a sense that was coming.
Thats fine too frankly, and so you know the idea at the time, we would have ended up paying substantially higher than the current market prices egg, even if you add 30% do it. So I think all those factored into it and as we said at the time.
We're still very happy in as we outlined again at our Investor Day, we have we still have a very large portfolio.
Resorts to develop.
Particularly well in both actually the offshore business, but particularly in the integrated corridor, where we have a strong pipeline of heavy oil thermal projects, we still have a lot of opportunity to expand sunrise over time, which we still think is a phenomenal resource. It's a very large resource and as we expanded it becomes more and more efficient going forward as well so.
Given given that portfolio there wasn't a compelling reason to where we felt we had to go and do a transaction.
That being said, we're going to continue to look at at various things, but I think we've been also very clear about the criteria that they've got to be accretive if we're going to do a transaction we want it to be accretive to earnings and we want it to be accretive to cash flow and we actually want it to be accretive to free cash flow. So so those are sort of the criteria. We're looking at there may be some possibilities out there we havent seen them yet thanks.
Thanks, guys appreciate it.
This concludes the analyst Q and a portion of today's call. We will now take questions from members of the media.
As a reminder, please press star one on your Touchtone phone to ask a question. If you wish to remove yourself from the question queue Press Star two.
We will pause for one more moment.
Our first question comes from Robert Tuttle with Bloomberg News. Please go ahead.
Yes, Hello, Robert.
Robert.
Yes.
Okay.
I was wondering your view on the.
Okay.
Plans to follow on from the rail program going if you guys are.
Im all interest to them.
Arnaud.
Yes, I mean, I guess, what I would say there is.
You know, we're not a big fan of curtailment I think we made that clear in the past, but I think.
What the Alberta government is trying to do is a couple of things, which we which we would support which is.
Try to make some other rail capacity available to companies and I think you know hopefully if we can get more crude moving on rail out of his basin. It just it just gives a lot more flexibility to handle the issues around curtailment and get fundamentally get get this market working again.
Working with kind of free market principles, which we certainly would advocate. So so I know they are talking about that I know the industry has put some proposals to the Alberta government around you know how we could maybe combine.
Using more rail with easing curtailment quicker than might happen. If we just have to rely on pipelines and again, we're very supportive of those sort of initiatives.
Are you involved in the discussions about.
About this proposal of occur either.
Loosening the restart of the limits for an extra and from our rail are you guys.
All right, where does that stand those talks channel.
Oh I've been involved in some of the work to put some proposals to the government on that.
Okay.
Thank you.
Super Thanks.
This concludes the question and answer session I would like to turn the conference back over to Mr. Rob Peabody for any closing remarks.
Yes, okay, well, thanks very much thanks for your questions and I'll, just close by saying that Twoq was a heavy quarter for planned maintenance in both the upstream and the downstream.
It was also disappointing that we didn't see.
Much of an increase in the Alberta production quotas and so we continue to work with them on that however, we did make some good progress on the projects underpinning our drive to increase volumes Throughputs and margins as we outlined in the Investor day that we had a few months ago. So thanks again for joining us today.
Well.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Mhm.
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