Morningstar | Disappointing Quarter for Husky; Stock Falls
Husky Energy reported fourth-quarter results that missed our expectations, and the stock is down almost 4% on the news. Despite a favorable refining environment, no-moat Husky Energy reported fourth-quarter free cash flow of negative CAD 682 million. This compares negatively with free cash flow of CAD 350 in the third quarter and CAD 269 in the prior-year period. The fourth-quarter results were also below our already-low expectations of CAD 40 million. The disappointing results were driven by lower synthetic crude prices as a result of pipeline constraints, lower-than-expected U.S. downstream results, and the suspension of the SeaRose Atlantic production.Husky’s upstream production was also below our expectations driven by the suspension of the SeaRose project. Production averaged 304.3 mboe/d compared with our expectations of 311.7 mboe/d. SeaRose restarted production in January and will continue to ramp-up through the second quarter.
The company announced its 2019 production target in the range or 290-305 mboe/d, which stands below our current forecasts. Husky also expects capital spending in the range of CAD 3.3 billion–CAD 3.5 billion, which is also below our forecasts.
We expect to incorporate these results in our model shortly, but for now our $13 (CAD 17) fair value estimate and no-moat rating are unchanged.
For a detailed look at Canadian crude and pipeline trends, please refer to our January Energy Observer, "Pipelines Are Canada's Lifelines."
Husky Energy is engaged in the exploration, development and production of oil and natural gas. Co.'s operations are located in Canada and United States. As of Dec. 31, 2011, Co. had total proved oil and natural gas reserves of 1,172.4 million barrels of oil equivalent (Mmboe) gross (1,010.7 Mmboe net).
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