CK HUTCHISON HOLDINGS LIMITED "This is a milestone moment for the Company, as the elements of the transformation initiated six years ago are now largely in place," said CEO Asim Ghosh. "We have fortified our balance sheet, reduced our earnings break-even oil price and lowered our sustaining and maintenance capital requirements.
"In short, we are now a highly resilient business better positioned to generate free cash flow even in a lower for longer oil price environment."
FORTIFYING THE BALANCE SHEETThe Company is in line to achieve and surpass its objective of less than two times net debt-to-cash flow from operations with the closing of several transactions, resulting in a balance sheet that is amongst the strongest in the industry. Upon the completion of the dispositions, net debt will be below $4.5 billion, compared to about $7 billion in the first quarter of 2016.
In addition, these initiatives advanced several strategic business objectives, including:
The new Husky Midstream Limited Partnership reduces overall infrastructure funding requirements associated with new thermal growth, while preserving tight integration with the Downstream assets. The transaction has now closed. It has delivered $1.7 billion in proceeds, with the sale price representing about 13 times the expected 2016 EBITDA of the assets.
The Western Canada operations are undergoing a strategic transformation. Fewer, more material plays are providing for a more capital efficient business with reduced sustaining capital requirements. Approximately 25,700 barrels of oil equivalent per day (boe/day) of production, including royalty interests, has been sold for about $1.2 billion.
GROWING HIGHER QUALITY PRODUCTIONSeveral projects were progressed in the second quarter, including:
The Edam East Lloyd Thermal Project came on production in mid-April and has surpassed its 10,000 barrels per day (bbls/day) design capacity.
First oil was achieved ahead of plan at the 10,000 bbls/day Vawn Lloyd Thermal Project, which is now producing about 5,500 bbls/day and ramping up ahead of schedule.
Steaming commenced at the 4,500 bbls/day Edam West Lloyd Thermal Project earlier than scheduled, with production on track for the third quarter.
The Tucker Thermal Project averaged about 20,000 bbls/day in June, up from 4,000 bbls/day at the end of 2010 when the current rejuvenation program began.
The Sunrise Energy Project was restarted in June following the Fort McMurray wildfires. Production continues to ramp up with recent volumes of more than 30,000 bbls/day.
An additional 18 Lloyd thermal projects have been identified for potential advancement.
With a focus on higher quality production, Husky requires less sustaining and maintenance capital while providing for improved margins and reduced cash flow variability.
Through these structural changes, by the end of 2016 the overall earnings break-even is expected to be sub-$40 US WTI. Annual sustaining and maintenance capital requirements are down significantly from a historical average of $3 billion. Upstream sustaining and maintenance capital requirements are down from $2.3 billion to $1.8 billion, while Downstream remains steady at about $700 million. These totals are expected to decrease further with continued improvements in the quality of production.
IMPROVING EFFICIENCY AND RELIABILITYSeveral planned turnarounds were completed in the quarter, further improving efficiency and reliability.
In Upstream, a six-week turnaround was conducted at the partner-operated Terra Nova FPSO (floating production, storage and offloading) vessel, while a three-week turnaround was completed at the Ram River gas plant in Alberta. Offshore China, the Wenchang oil field underwent a one-week turnaround.
In Downstream, a major eight-week turnaround was completed at the Lima Refinery and a five-week turnaround was performed at the Prince George Refinery. At the partner-operated refinery in Toledo, a 10-week turnaround was recently completed and startup operations are under way. The refinery is now able to process about 65,000 bbls/day of Hi-TAN crude to support production from the Sunrise Energy Project, while maintaining its overall capacity.
SECOND QUARTER RESULTSAverage Upstream production in the quarter was about 316,000 boe/day, reflecting planned turnarounds, the production interruption at Sunrise due to the Fort McMurray wildfires and reduced volumes from the Liwan Gas Project.
Even with the Western Canada dispositions of about 25,700 boe/day and lower sales volumes from Liwan, annual production guidance remains 315,000-345,000 boe/day, albeit at the lower end.
This is largely due to the consistent performance across the Upstream business, including strong results from the Lloyd thermal projects and the steady ramp ups at Sunrise and Tucker.
Throughputs at the refineries and Lloydminster Upgrader averaged 255,000 bbls/day, which takes planned turnarounds into account.
WTI prices averaged $45.59 US per barrel compared to $57.94 US per barrel in the second quarter of 2015. Average realized pricing for total Upstream production was $34.59 per boe, compared to $49.50 per boe in the second quarter of 2015.
Upstream operating costs were $13.90 ($10.79 US) per barrel compared to $15.72 ($12.78 US) per barrel a year ago, a reduction of 12 percent. The majority of these savings are expected to be sustainable due to the deliberate structural changes and efficiencies undertaken as part of Husky's transformation.
Cash flow from operations was $488 million for the quarter, reflecting planned turnarounds, after-tax hedging losses of
$79 million and an after-tax FIFO gain of $88 million.
Net earnings were a loss of $196 million, which takes into account the factors affecting cash flow as well as three non-cash items: a $71 million after-tax loss associated with the dispositions, a $12 million after-tax property impairment and $22 million in exploration and evaluation asset write-downs. Excluding the above non-recurring items, the adjusted net loss was $91 million.
Three Months Ended | Six Months Ended | ||||
June 30 2016 | Mar 31 2016 | June 30 2015 | June 30 2016 | June 30 2015 | |
1) Daily Production, before royalties | |||||
Total Equivalent Production (mboe/day) | 316 | 341 | 337 | 329 | 346 |
Crude Oil and NGLs (mbbls/day) | 228 | 238 | 217 | 233 | 227 |
Natural Gas (mmcf/day) | 529 | 619 | 722 | 574 | 719 |
2) Operating Netback ($/boe) (1)(2) | 17.30 | 9.68 | 28.93 | 13.34 | 25.10 |
3) Refinery and Upgrader Throughput (mbbls/day) | 255 | 314 | 319 | 284 | 309 |
4) Cash Flow from Operations(2) (Cdn $ millions) | 488 | 434 | 1,177 | 922 | 2,015 |
Per Common Share - Basic ($/share) Per Common Share - Diluted ($/share) | 0.49 0.49 | 0.43 0.43 | 1.20 1.20 | 0.92 0.92 | 2.05 2.05 |
5) Net Earnings (Cdn $ millions) Per Common Share - Basic ($/share) Per Common Share - Diluted ($/share) | (196) (0.20) (0.20) | (458) (0.47) (0.47) | 120 0.11 0.10 | (654) (0.67) (0.67) | 311 0.30 0.27 |
6) Adjusted Net Earnings (loss)(2) | (91) | (458) | 124 | (549) | 315 |
7) Capital Investment, including acquisitions (Cdn $ millions) | 595 | 410 | 727 | 1,005 | 1,547 |
8) Dividend Per Common Share ($/share) | 0.00(3) | 0.00(3) | 0.30 | 0.00(3) | 0.60 |
Operating netback includes results from Upstream Exploration and Production and excludes Upstream Infrastructure and Marketing.
Operating netback, cash flow from operations and adjusted net earnings (loss) are non-GAAP measures. Refer to Section 11 of the Q2 MD&A, which is incorporated herein by reference.
The quarterly common share dividend remains suspended.
Thermal technology continues to fundamentally transform the heavy oil portfolio through the development of long life, low risk and capital efficient Lloyd thermal projects.
Three Lloyd thermal projects started up in the quarter, with combined design capacity of 24,500 bbls/day. Total Tucker and Lloyd thermal production is expected to be approximately 100,000 bbls/day once all three Lloyd projects are fully ramped up.
Western CanadaApproximately 25,700 boe/day of production, including royalty interests, was sold for about $1.2 billion. In addition, Husky obtained certain royalty transfers and lands in the Lloydminster region that will contribute to its growing thermal portfolio.
As a result of these transactions, sustaining and maintenance capital requirements are being further reduced and corporate asset retirement obligations are expected to be lowered by about $1.7 billion over the life of the assets, on an undiscounted basis.
DownstreamWork continued on the initial stages of the crude oil flexibility project at the Lima Refinery, which will allow the refinery to process up to 40,000 bbls/day of heavy crude feedstock. Initial capacity of 8,000 bbls/day of heavy crude feedstock
capability is expected to be available in the fourth quarter, with the full scope of the project scheduled to be completed in 2018.
Construction continued on the Saskatchewan Gathering System expansion, with work expected to be completed in the third quarter.
Regulatory approval was received for the creation of a single expanded truck transport fuel network of 160 sites. The larger national network is expected to better serve Canadian commercial and truck transport customers.
Asia Pacific RegionChina
Husky's discussions with CNOOC and its affiliated entities to resolve an issue related to the Liwan Gas Project have progressed to a framework for resolution. Further updates will be provided as the details are finalized.
Liwan gross gas sales averaged 161 million cubic feet per day (mmcf/day), with associated liquids sales of 9,200 bbls/day.
Indonesia
Husky continues to progress its Madura Strait natural gas developments.
The wellhead and pipeline infrastructure at the liquids-rich BD field is more than 75 percent complete, and drilling is ongoing on four wells as part of the initial development plan. Construction of an FPSO to process gas and liquids from the field is about 85 percent complete, with the remaining processing modules scheduled for installation in the next few months. First production is expected to commence in 2017, with a net production target of 40 mmcf/day gas and 2,400 bbls/day of associated liquids.
At the shallow water MDA-MBH and MDK gas fields, tendering is under way for engineering, procurement, construction and installation contracts. The fields will be developed in tandem and share infrastructure.
Combined net sales volumes from the BD, MDA-MBH and MDK fields are expected to be approximately 100 mmcf/day of gas and 2,400 bbls/day of associated liquids once the fields are fully ramped up in the 2018-2019 timeframe.
Oil SandsThe Sunrise Energy Project continues its steady ramp-up following the restart of operations in June. All 55 well pairs are back online and recent production is more than 30,000 bbls/day.
The steam-oil ratio continues to steadily improve towards the design SOR of 3.0 while the water-oil ratio is in line with the forecast 3.6-3.8 range.
Atlantic RegionAverage net production was about 32,700 bbls/day, which takes into account a six-week turnaround at the partner- operated Terra Nova FPSO.
CK Hutchison Holdings Limited published this content on 22 July 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 25 July 2016 02:30:01 UTC.
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