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Executives

Rob McInnis - Manager, Investor Relations

Asim Ghosh - Chief Executive Officer

Rob Peabody - Chief Operating Officer

Alister Cowan - Chief Financial Officer

Analysts

Greg Pardy - RBC Capital Markets

Paul Cheng - Barclays

David McColl - Morningstar

Peter Ogden - Bank America Merrill Lynch

Mike Dunn - FirstEnergy

Menno Hulshof - TD Securities

Ben Hobratsch - Argus Media

Rebecca Penty - Bloomberg News

Eliot Caroom - Bloomberg News

Pat Roche - Daily Oil Bulletin

Husky Energy Inc. (OTCQB:HUSKF) Q2 2013 Results - Earnings Call Transcript July 25, 2013 12:00 PM ET

Operator

Hello. Welcome to the Husky Energy second quarter 2013 conference call and webcast. As a reminder all participant are in a listen-only mode and the conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Rob McInnis, Manager, Investor Relations. Please go ahead, sir.

Robert McInnis

Good morning and thanks for joining us for our second quarter results. I am joined by CEO, Asim Ghosh; COO, Rob Peabody and CFO, Alister Cowan. We will provide an overview on business results followed by questions.

Today's comments contain forward-looking information. Actual results may differ materially from expected results because of various risk factors and assumptions that are described in our quarterly release and in our annual fillings. These are available on SEDAR, EDGAR and our website.

I'll now turn the call over to Asim.

Asim Ghosh

Thanks, Rob, and good morning, everyone. Once again this past quarter, we've seen consistent execution of our business plan. Net earnings were strong at $605 million, up about 40% over the (inaudible) million realized in the corresponding quarter last year. You will recall that at this time last year we were having our scheduled sea drills in Terra Nova off stations.

Cash flow was also up at $1.45 billion compared to $1.15 billion a year ago. In line with our plan for the quarter, our total average upstream production was 10,000 barrels of oil equivalent per day compared to 282,000 barrels a year ago. And our focused integration continues to backstop our results against some of the market challenges we saw over the quarter. It's also a fundamental element of our balanced growth strategy. If I would illustrate this, you'll recall that last year the target compound annual growth over the next five years to between 5% and 8%, much of that production growth is largely sheltered from market differential variances and access issues.

With the help of our integrated pipeline infrastructure upgraded refineries, we are able to move our Heavy Oil and Western Canada products, south of the border to capture oil prices.

Looking ahead, we've continue to invest in a range of infrastructure options to access diversified markets, specifically we have pipeline and the refinery capacity in place for phase one of our Sunrise oil sands production.

And I will turn back to the quarter. So let me summarize a few highlights beginning with the cornerstone of our foundation business which is Heavy Oil. It's been a full year now, since we commenced commissioned the Pikes Peak South and Paradise Hill thermal developments and both projects continue to outperform their additional design rates and these provide [least] reliable template for our future Heavy Oil several opportunities of which we have a number.

As we said at Investor Day, we have strong portfolio in Heavy Oil sands project starting up over the next few years that should take us to 55,000 barrels per day by 2017. Across the rest of Western Canada, also we made solid progress developing our portfolio of resource plays and Rob will talk to you about that in his section a bit later.

On our growth pillars, the Liwan Gas Project continues to progress as we are closer to first production late this year, early 2014. Construction of the central platform is now finished and we told you this earlier, involved a very precise installation process that plays something like 30,000 tons of steel topside infrastructure on to the jacket. That's located in about 200 meters of water in the South China Sea, a big milestone that was executed safely on schedule.

We now have about 3,000 people who are working on the vessels, the shallow water platform, the gas plant. If you can imagine, it's like a well practiced orchestra. And so far it has been hitting all the right notes. They are supported by a veritable armada vessels including tugs, barges, supply and deepwater ships finishing up the facilities that will connect the wells and pipe to the platform.

Earlier this month, we entered in sales agreement for the gas in the Liuhua 34-2 field, and together with Liwan 3-1 sales contract, all of the initial production from Liwan is now (inaudible).

Pre-commissioned operations are underway in anticipation of first cash in the bank thing that we discussed earlier we said it's later this year or early next year. Coming to Sunrise, they continue to build the world's first oil in 2014 with about 70% of the construction complete. All the pipelines are now in place and we are on track to complete all of the well patch by the end of this year.

The Atlantic region, we continue to advance a number of projects off East Coast. On the exploration front, some of you would have seen an industry press release, we made an oil discovery at Harpoon, located at approximately 10 kilometers southeast of our previous Mizzen discovery and that we have a 35% working interest in this discovery and have recently commenced another exploration well in this play.

We also received the green lights from the regulator to move forward in our South White Rose extension and we expect to see first oil from that project in late 2014. To wrap up, I would take a moment to acknowledge the work undertaken by our team during the heavy rains and unprecedented of flooding in Alberta last year.

And as a result of those efforts and the continued execution across all business segments, we have had enough strong quarter and let me now turn you over to Alister to take you through some of the more granular details.

Alister Cowan

Thanks Asim. And it's been another good quarter on the financial front and it reflects the benefits of the consistent execution, but also some improved fundamentals in the market. We've included in all of our products allocation discounts, stronger realized commodity prices and good returns from the upgrading and refining business.

As a result, we reported net earnings of $605 million compared to $431 million in the second quarter of 2012. As Asim noted last year that reflect the SeaRose and Terra Nova off season both commenced in the quarter.

Cash flow from operations was $1.45 billion or a $1.47 per diluted share and that was up about 17% compared to $1.15 billion or a $1.17 a year ago. On pricing on the MD&A gives you all the detail, but I'll go over a few high points for you. The average utilized price for a total upstream production was $62.88 per BOE in the second quarter that compared $51.98 a year ago.

The average utilized price for crude oil and natural gas liquids and bitumen were $77.98 per barrel compared to $71.61 in the second quarter of 2012. And both of these excludes the capture of Western Canada allocation differentials by the infrastructure and marketing business and those are showing separately in those business unit results and the MD&A.

The increase was due imparts to high commodity market prices as well as now our Western Canada crude and the bitumen differentials. Average utilized natural gas prices were $3.72 per Mcf that was up sharply from last year's $2.05 on a kind of improving supply and demand fundamentals.

The realized US downstream refining margin was $20.24 per barrel to $14.79 a year ago and that also excludes the products of at least $5 per barrel of benefit on the free stock ship to Lima from the upgrader to our infrastructure. And again that benefits to the infrastructure and marketing business earnings.

And second quarter upstream production was approximately 310,000 barrels of oil equivalent per day compared to 321,000 BOEs in last year. In Q1, so we are up 281,900 BOEs in the last year. And this reflects the normal season impacts related to the spring breakup which implies infrastructure maintenance as well as some impacts from our flooding experience in Southern Alberta.

Declines in the natural gas but (inaudible) Western Canada continue to reflect our reinvestment as we focus on capital efficiency and leads the way to our investment capital into higher return liquids-rich in oil projects.

During the year where we allocated additional capital to the liquids-rich Ansell play which will deliver production in 2014. As a result, we anticipate natural gas production being at the bottom of our guidance range. Given that to current natural gas pricing, we should have a minimal impact in net earnings and cash flow from 2013.

The second quarter, the partner-operated Terra Nova facility in the Atlantic region did continue to tackle some operational issues. The partner has also announced its plan for program beginning in September which we will able to extend into 11 weeks to accommodate (inaudible) and mediations that gives a 13% working interest at Terra Nova.

In line with our revenue ratio strategies as Western Canada occasion differentials noted during the quarter. We saw a shift in earnings from our infrastructure and marketing business to the exploration and production business that's in the upstream segment and you can see that in the disclosures. And the teams are upgrading refining and marketing businesses continue to demonstrate the integration value adding a strong contribution to net earnings.

We have upgraded it around [$88 million] as compared to $42 million a year ago, which takes them to again the higher upgrading differentials throughputs over the quarter compared to last year. As you recall, we conducted the (inaudible).

U.S. refining and marketing operations added a $163 million to net earnings, as compared to $84 million a year ago, reflected higher market prices received from refining products as well as increased refinery throughputs of the partner-operated refinery in Toledo.

And as you all have seen in the MD&A, there was a FIFO after-tax gain to net earnings of approximately $90 million in the quarter. As we mentioned earlier this year, Q2 was a start of turnaround season and we were delighted this coming up in the third quarter.

Few events to keep in mind, first, in the upstream, we just completed the 14-day turnaround of the Tucker Oil Sands project where we reduced production in July from around 11,000 barrel a day to about 4,000 barrel.

In the Atlantic region, we have planned six-day routine maintenance program taking place in July on the SeaRose FPSO. We estimate this will improve production by approximately 12,000 barrels per day for the month. And as I mentioned earlier, our partners announced an 11-week maintenance program for the Terra Nova FPSO offstation starting in September. And our share of production from Terra Nova is currently averaging about 8000 barrels per day.

We do continue to experience some third party infrastructure outages that are restricted in Western Canada and we do expect to see some of those challenges continue for the balance of the year.

In downstream, we have a major turnaround scheduled for our Lloyd upgrader starting in early September and is going to be offlane for about 45 days.

Looking now at pricing, should current market pricing trends continue, at Q3 we will see some movement on where in our business we're making the cash flow, with an integration strategy that results will mainly be reflected and a shift to the upstream business. Western Canada location differentials have narrowed, so we will see a continued shift around in the cash flow from an infrastructure and marketing and downstream business units to upstream.

U.S. refining crack spreads at Chicago have declined reflecting the narrowing of the WTI Brent differential plus the return to production of the refineries and the part two region. Finally, the Board has approved the quarterly dividend of $0.30 per share.

I'll hand you over to Rob to give you a bit of a more details upbeat on our operations.

Rob Peabody

During 2Q, we saw normal seasonal impacts on production due to spring breakup and routine maintenance as well we saw the floods in Southern Alberta. As Alister mentioned, looking forward, we're expecting some downstream throughput and upstream production impacts for the second half of the year associated with planned turnarounds. We're also continuing to reduce our dry gas production in favor of production from higher return oil and liquids rich plays through our capital allocation decisions.

Taking a look at our heavy oil business, Asim mentioned how Pikes Peak South and Paradise Hill are providing a template for future thermal developments. So I'll provide an update on where we're at with these new projects. Our 3,500 barrel per day Sandall project is making great progress. Overall, we're a little over 80% complete, all drilling is finished and we remain on track for first oil in 2014. Rush Lake, the 10,000 barrel per day project coming on stream in 2015 saw second pilot well pair brought on production during the last quarter.

Production from the pilot continues to be strong and the main project is now a little over 10% complete. There are non-thermal heavy oil portfolios. We drilled eight horizontal wells during Q2, reflecting the annual spring break-up season. This brings the total to 46 wells out of a planned 140 well program for this year. In addition, four CHOPS wells drilled with about 141 left to go over the balance of the year to fulfil our planned 200 well program. Overall, our total production from heavy oil and thermal projects over the quarter was about 121,000 barrels per day compared with about 108,000 barrels a day a year ago.

Turning to Western Canada, we are making good progress in advancing our oil and liquids rich resource plays which with continued focus on reducing well costs and improving performance. Looking at our oil resource plays, 14 horizontal wells were completed on our Viking and Bakken plays in the quarter. In the Northwest territories, at the Slater Canol shale play we're continuing our consultations with the community about our program and we are planning to resume construction on the all season access road during this quarter.

Moving to our liquids rich gas resource plays at the Ansell project, we drilled three horizontal wells and completed another six in Q2. We are now moving forward with a four rig development program at Ansell in the second half of the year. We're on target to double production from the current level of above 14,000 barrels per day over the next few years. We've also been continuing our activity on the Duvernay play and wrapped up drilling on the first four well pad at Kaybob. It will be completed and brought on production by the end of the year.

We currently have three wells producing in this play. So in total, we expect to have seven on production by year end. Our growth pillars continue to progress as planned. Asim has given you an update on our progress in the Asia Pacific region, I'll just add a little more color. At Liwan, we completed the full 260 kilometers of pipeline infrastructure from the central gathering platform to the onshore gas plant. Our next milestones include the completion of the gas plant, which is now more than 95% done and wrapping up work on the deepwater pipeline. We have locked in sales agreements for two of the three gas fields at Liwan, which represent all of the additional production from this project. Negotiations to sell gas from the third field are ongoing.

Looking at our business in Indonesia, we're moving ahead with two shallow water projects in the Madura Strait. Infrastructure contracts for the BD field have received government approval and the tender for the FPSO was under evaluation. The tender plans for the dual MDA, MDH field developments have also been submitted to the government for review.

Turning to the Sunrise Energy project, the first well pad consisting of six steam injection wells and six production wells was recently turned over to our operations team for free commissioning. The field facilities are about 95% complete now and that is despite some pretty wet weather we had experienced up north over the last quarter. Meanwhile preliminary design work on Sunrise stage 2 was completed in the quarter.

In the Atlantic region, as you heard earlier we made a royal discovery with our Harpoon exploration well. Harpoon is operated by our partner and is located in the same neighborhood as the Mizzen discovery where we hold a 35 percentage risk. Recently drilling started on the Bay du Nord prospect which is in the Mizzen, Harpoon area and is also 35% completed.

We are continuing to advance our other projects in the region. At North Amethyst, we are drilling a four quarter injection well. This will bring the total number of operating wells to 8 on the subsea tieback four producers and four water injectors. We have also recently received regulatory and governmental approval of our development plan amendment for the South White Rose project. This provides for gas injection to enhance oil production and also gives us access to additional production opportunities at the southernmost tip of the main White Rose field.

Just a reminder that the South White Rose will be tied back to the SeaRose FPSO and we are looking for first oil production later this year. On the West White Rose project, we are moving into the detailed engineering phase.

In the downstream, flexibility and reliability continued to be key performance drivers as we focus on improving the crudes we can refine, the products we produce and the markets we can access. In 2Q our focused integration strategy continued to capture additional value from our downstream asset through the world pricing we are effectively receiving for our Western Canada and heavy oil production.

An additional benefit from our approach is that our Sunrise bitumen will get world pricing because it already has a downstream home, and the way to get there which we and when we begin production from the project next year. This removes much of the kind of uncertainty and volatility we're seeing in the market today. So in summary we continued our progress over the second quarter as we advance the transformation of our foundation business as we are moving forward on our major growth projects.

I will now turn you to back over to our operator, Sachi. Thanks.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we will now begin the analyst question-and-answer session. (Operator Instructions) First question is from Greg Pardy of RBC Capital Markets.

Greg Pardy - RBC Capital Markets

It was a good run down I had three questions for you, Alister, I'm just wondering where you think cash tax will shake out this year. That's question one, second question is, I guess, just for Rob around what you would look upon as threshold or is there upsize in Atlantic Canada in terms of actually ultimate development? And the third question is just around rents. I think it is still as you guys have indicated like 1% or 2% of your cash flow, so it's not really a big number but just any color you can shed about how those dynamics work and so forth would be great? Thanks very much.

Asim Ghosh

Why don't you start off with the cash tax?

Alister Cowan

Okay, on the tax is, Greg, we're looking at say cash tax is being a very, roughly two-thirds of the total tax bill and one third would be deferred tax.

Greg Pardy - RBC Capital Markets

Okay. So what you think your total tax bill will be?

Alister Cowan

I will tell you that, I'll tell you what think [Miami], (inaudible) we think Miami is going to be.

Greg Pardy - RBC Capital Markets

Okay what about, maybe just a book they're for the year?

Alister Cowan

We will probably give in the earnings coming out of the U.S. downstream in the first half. We're probably looking at a tax rate of probably in the high 20s, 28%, 29%. Remember the old tax is 36.5%.

Greg Pardy - RBC Capital Markets

Okay, so 28%, 29% that would be corporate whole company, upstream, downstream average for 2013?

Alister Cowan

Yes, that would be about that yes, probably 29%.

Asim Ghosh

Rob, you want to take the, (inaudible) I guess that's the first of the complex of new discovery.

Rob Peabody

Yes, I assume you are referring to sort of a (inaudible) area.

Greg Pardy - RBC Capital Markets

Exactly.

Rob Peabody

I don't want to be evasive, Greg, but I also don't want to be pinned down on the number at the moment. There is a lot of factors involved here. Ultimately, how the oil is actually accumulated in different accumulations and that sort. It's a bit early to say. It's more than 100, and it's less than 500, but you could narrow me down in future calls.

Greg Pardy - RBC Capital Markets

Okay. Maybe just a bit more on that, you mentioned earlier, you said it's high quality light, can you give us any additional details around, how are you going to define, assuming it's sweet, it's 35, 38 API type of crude?

Asim Ghosh

It's sweet, it varies between the two reservoirs so far. So it's not the same [mizzen] in this and as it is harpoon.

Greg Pardy - RBC Capital Markets

Okay.

Asim Ghosh

It's but that's part because the blend of it actually makes for a commercial product, I think suffice to say that with the two discoveries so far we don't think we had the (inaudible) so we will continue exploration program. I think that's about as much we are prepared to professional say, at this point in time.

Greg Pardy - RBC Capital Markets

Okay. Yeah thanks a lot.

Operator

Next question is from Paul Cheng of Barclays. Please go ahead.

Paul Cheng - Barclays

Hey guys, as the - on I think you had said you don't have a lot of exposure but I think earlier questions that, can you give us some idea that roughly how much is your on requirement do actually need to purchase from the open market than we can meet our own gas, I mean how high the [RIN] cost going to be?

Asim Ghosh

Just I just want to make one overall comment on this and then I'll pass you on Alister, but the overall comment on greens, greens is an industry issue, so eventually one way or the other there will be, we believe there will be some price adjustment in the market to reflect [RIN], I just want to keep the overall perspective in mind as we discuss longer term rents issues, having said that, Alister why don't you talk about the specific question that is asked?

Alister Cowan

So, we kindly blend about 60% 70% of ethanol into our product. So we're not buy (inaudible) for all the product. So we're also were proactive [RIN] buying program. So we will see probably bigger impact from [RINs] towards the end of this year into next year rather than this year, Paul.

Paul Cheng - Barclays

Okay. So you're saying that it is about 30% 40% after RIN requirement, you need to purchase.

Alister Cowan

No, we're not saying that. We're saying blending two-thirds already for ethanol, so ultimately that there was a requirement. But we don't have that sort of level of exposure in the terms of remaining to be purchased this year or anything like that so. And the other comment I'd just add is that we have to do some of the flexibility we've talked about that we built into our downstream facilities helps us as well. For example the kero hydrotreater Lima that we installed allows us to produce more jet less diesel and you don't need RINs for Jet. So there is a number of other things we can do internally to minimize our requirements.

Paul Cheng - Barclays

Okay, alright. And Asim in 2015, can you give us an estimate of what is the payment to BP, are we still looking at $1.1 billion?

Asim Ghosh

You can see that on the balance sheet, Paul what is the contribution payable as of end of this year, as of the end of June, I think it's about $1.1 billion, $1.2 billion. But it's separately identified as I think $1.4 billion identified on the balance sheet in the interim consolidated financial statement.

Paul Cheng - Barclays

Okay, and that on maybe this is Asim, Asim you're kind of looking at the preliminary that increased NIMA, heavy oil say to 540,000 barrels per day maybe up by 2017 other than that quarter as you pursue more and more heavy oil production, both in Sunrise maybe it's phase 2 and go on and also the other projects. From a company standpoint this is the (inaudible) important for you to kick up you downstream heavy oil processing capability with upstream or you don't believe this is necessary?

Asim Ghosh

First of all let me distinguish what we in our company call heavy oil and that's different from bitumen. So the two are not the same thing. And secondly we believe as a strategy, [PCB] integration as a hedge and we are covered from phase 1 of Sunrise but we don't have a plan to be completely integrated and the reason for that is very simple, that since the major bitumen project started in Canada there has been a substantial, I use the word in two sense, substantial upgrading of (inaudible) capacities and so we believe there is sufficient market capacity available particularly in the gulf of Mexico complex to refine bitumen outward.

So net-net is want a measure of integration, we want that's a critical part of our hedge but we do not plan long-term to be completely integrated. It will be a combination of outside market processing and in-house processing.

Paul Cheng - Barclays

Two final questions, one, do you have any commit to go pay obligation that (inaudible) itself especially on the (inaudible) lake. And secondly that, as you are doing more into the non-conventional oil side what kind of exploration expense going forward on average per year that we should be assuming? Should we assume that it's is going to be acceleration on the increased campaign in the next several years compared to this year and last year?

Asim Ghosh

So on the pipeline issue, we actually have a cocktail of pipelines and therefore, we basically got participated in the open season process a number of pipelines. I don't believe we have given guidance on specific commitments and that's part of our market negotiations. So we are not telling you exactly what but basically we said we have secured capacity already for the majority of anticipated growth during our current five-year plan.

Now second question was about exploration. So basically, we managed our exploration budget to a level, okay and that will continue in the case, we have a huge number of exploration opportunities and we basically prioritize them and sequence them to maintain a relatively steady level of exploration expense every year.

Operator

Next question is from David McColl of Morningstar. Please go ahead.

David McColl - Morningstar

In the release, your comments on the increasing operating cost in Western Canada specifically being due to increasing natural gas prices and electricity prices, now, given that non-thermal cost of 27% or so over last year and then conventional being up over 20%. I am just wondering if you can provide some additional context to what's behind these cost escalations if it's beyond electricity and gas of course and maybe thoughts going forward for the rest of the year. Thank you.

Asim Ghosh

Alister, why don't you take that?

Alister Cowan

Okay, a couple of things just referring to the gas. Eagle gas is higher even in non-thermal operations. So that still impacts us. So I just remind you that the Eagle gas price is up 96% quarter-over-quarter, so, that kind of slow in power prices were up 80% quarter-over-quarter. So obviously a big impact on that. I would also remind you that we use 30% of our gas production and so while we're taking the cost at an operating cost, we were also getting pretty significant increase in our revenues from that gas production. We did see some high; more oil production 73% versus 67%. So that drives [EVR] more costly than a gas well because in contrast we get much higher net (inaudible) and really it's the maintenance and servicing of those oil wells that they are driving now.

Operator

The next question is from Peter Ogden of Bank of America Merrill Lynch. Please go ahead.

Peter Ogden - Bank America Merrill Lynch

I got a couple of questions on Sunrise, you are saying first oil in 2014 that's quite a wide range, I was wondering if you could give me may be some more specifics around when we could see first [steam] whether winter start up would cause a problem and that would necessarily push that into a Q2, Q3 take timeframe? Also I was wondering if you could update the capital cost from Sunrise, I think last time on the Q4 you mentioned 85% of that cost were fixed now two-thirds of the cost have been spent, has that changed, how much of the remaining cost are fixed and anything imply there would be great?

Asim Ghosh

I think timing guidance continues unchanged. We are still saying first oil in 2014. I don't think we are giving more specific guidance yet, given how much of the project still needs to be executed. And on the cost say, we will give you more details when we've reason to give you more details, at this point, you know, we are---

Peter Ogden - Bank America Merrill Lynch

Okay. So no change in that and then first oil some time in 2014. Second question I guess on the refining side of things maybe you can talk me through, sometimes I have trouble understanding the US refining, the cash flow was $265 million last quarter, it was $240 million crack spreads went down and differentials narrowed. So maybe you can explain me how I guess, US refining outperformed I would say relative in Q2 relative to Q1 was it a feedstock issue or an inventory issue, how does that flow through the refining?

Asim Ghosh

Alister?

Alister Cowan

Yeah. I mean regarding FIFO has a big gain and the feedstock has a big impact, I know you are processing because we had a FIFO gain in the quarter. So we are processing in cheaper feedstock and so when you're looking at the crack spreads they are based on current pricing now the feedstock that we are buying. So we are buying, we achieved our feedstock at the beginning of the quarter. We processed it and that generated the FIFO gain of $19 million.

Peter Ogden - Bank America Merrill Lynch

But you would have a FIFO gain in Q1? Right you had a FIFO gain in Q1 and it's not a tax issue between Q1 and Q2. So was there a lengthening of the inventory cycle or something that we're not seeing or I just having it to produce more to have more cash flow in Q2 over Q1 doesn't seem to jive with us, but.

Alister Cowan

I think that we are getting a little more production in Q2.

Peter Ogden - Bank America Merrill Lynch

So you…

Alister Cowan

There is no real specific need in borrowing for the inventory that I just discussed.

Operator

The next question is from Mike Dunn of FirstEnergy. Please go ahead.

Mike Dunn - FirstEnergy

Just one of the follow-up to Peter's questions on Sunrise, we saw in June Cygam announced, they were having issues with the projects in Canada, you guys confirmed that was Sunrise. Can you just sort of talk us through the issues with the central processing facility; are you getting involved in the project management there? And how are you assessing the risk of that project being over budget or that part of the budget being over budget and or late?

Asim Ghosh

You want to say for that.

Rob Peabody

Sure, Mike. I just reiterate first and foremost, I guess Cygam is involved in two of our projects, they do some with Livan, they are doing some work at Sunrise, in both cases the projects remain on track broadly is what we say and we are providing as we on all the projects to the point on management. We provide diligent project management on all of our projects. We are not passive owners by any means and so we are very involved but it's nothing sort of, nothing new to certain points out there.

Mike Dunn - FirstEnergy

So should we be worried about this thing being late or not, I guess it's what I am getting at?

Asim Ghosh

No, I just said that look in terms of original guidance which is Livan end of late '13, early 2014 and Sunrise in 2014. We are sticking with that.

Mike Dunn - FirstEnergy

Okay, I guess 2014 is five months away. So, I guess several months delay.

Asim Ghosh

17 months away.

Mike Dunn - FirstEnergy

Well, I guess that's the whole point is…

Asim Ghosh

17 months.

Mike Dunn - FirstEnergy

Is you know, this thing could be six or nine months later than you previously thought but you haven't indicated that to the market. So anyway just…

Asim Ghosh

I want to be (inaudible) to think this. Okay, I don't think we have ever given a monthly guidance on any of this. We've given a window; we continue to be within the window when it comes to look out in the guidance. We are not trying to send any new signals in this call.

Operator

Next question is from Menno Hulshof of TD Securities.

Menno Hulshof - TD Securities

I've got a couple of questions. The first relates to the Duvernay, so what can you tell us about the three wells that are currently producing and what do you see and that gives you the confidence to go directly to a four well pad in 2014? And then the second question relates to Sunrise, what are your current thoughts on sizing or otherwise for the next expansion?

Rob Peabody

Just first on the Duvernay, we haven't given out any specific results or anything, but we have said that we are seeing good results in line with what the rest of the industry is seeing. When we look at overall industry results, plus our results, that's actually given us confidence to move forward with a four well pad, they are actually, it's not in 2014, we've actually finished drilling it now. We are in the process of completing all the wells. We expect to bring those on production before the end of the year. We will have seven produce there. So everything looks very positive to us there and so we are feeling pretty good on that.

The second, what was the second half, Menno?

Menno Hulshof - TD Securities

So the second question was on Sunrise, the next expansion at Sunrise, what you are thinking in terms of the size, timing, etcetera?

Rob Peabody

Yeah, I think, I'll just limit my comments there at the moment just to say we have approval for 200,000 barrels a day on the lease overall. We are working a plan that aims to get us there towards the end of this decade effectively early, very early in the next decade and not end, and it's just going to be sequential moving forward with the pieces of the, with these phases as we go in that direction. I think I have actually said before too that, well, Phase 2, whatever the headline number of Phase 2 is, we will still be building it in chunks, phasing it to keep manpower on site and that down to levels that we feel are manageable and allowing us to have a much more manageable sort of project execution of the whole thing.

Menno Hulshof - TD Securities

And when do you think you can make that decision or plan on making that decision?

Rob Peabody

Which decision?

Menno Hulshof - TD Securities

Yes, when you can start to talk about that more publicly?

Rob Peabody

Well, I think we're really as the -- we're just commencing an engineering reading, so there is a ways to go to.

Asim Ghosh

Well, I think, that's right. And I would just reiterate too that our number one focus is on getting Phase 1 up and running, and so I don't anticipate that we will get really public about final decision to proceed with Phase 2 until we have Phase 1 up and running.

Operator

This concludes the analyst Q&A portion of today's call. We will now take questions from members of the media. (Operator Instructions). The first question is from Ben Hobratsch of Argus Media. Please go ahead.

Ben Hobratsch - Argus Media

My quick question is for Mr. Peabody. He had mentioned that the Sunrise production already has a home the way to get there and should be achieving world pricing, it was my understanding that the Sunrise production would go to JV refinery in Toledo, Ohio which is currently upgrading its metallurgy. If that is the home that Mr. Peabody was talking about, how would that be world pricing if it's in inland refinery?

Rob Peabody

Well, first and foremost, we are talking about world pricing for bitumen and it is achieved fundamentally by the fact that we turn the bitumen into products which go into that market and are essentially competing with products of refineries that are using feedstocks, Brent etcetera that are holding off the global market, seaboard and crude markets. So effectively through the products that's ultimately how you get the full value from the bitumen that's produced.

Operator

The next question is from Rebecca Penty of Bloomberg News.

Rebecca Penty - Bloomberg News

Mr. Ghosh, you mentioned earlier on that Husky basically has booked pipeline capacity to take to handle its five year growth plans so maybe that answers the question. But I'm curious whether Husky has any need for moving crude by rail. And if so, what your view is on the role of rail in tightening differentials that Western Canada select WTI that some analysts have been accrediting - doing?

Asim Ghosh

Well, I think basically I think overall we support the objective of reaching new markets in an responsible run up all, while industries and Canada's oil and gas production. While our company we've taken a portfolio approach as I mentioned earlier I think I might have used the world cocktail, but we are not dependent on the single solution, but we had a good position with current five plan commitments. I repeat we've secured transportation for all of our production from Phase 1 of Sunrise. We shipped minor amounts of crude by rail, so it's part of the cocktail, but it's relatively smaller part of the cocktail.

Rebecca Penty - Bloomberg News

Do you see roles for rail in terms of narrowing of differentials that we've seen get so wide in the last?

Asim Ghosh

We are in favor of industry having a number of solutions. I don't think this is a single bullet solution that is called for. So there is a role for every solution, but most importantly, clearly, we are into an environment where every type of solution is being -- has to be high standards of safety and that is only right.

Operator

Next question is from Eliot Caroom of Bloomberg News.

Eliot Caroom - Bloomberg News

Earlier I think you had said that some third party problems might affect production on the second half of the year, could you be a little more specific on that and are you talking about pipeline operators or somebody else?

Rob Peabody

It's Rob Peabody. I guess there is a number of things, I mean clearly the one of our partners on the East Coast announced that they're going to have an extended turnaround, so that has an impact. In Western Canada we've actually seen a little more, what I'd say as pipeline operators, process plant operators are really responding to the increased regulatory oversight and frankly just the general spotlight on all operations. We are seeing more turnarounds and temporary shutdowns putting well who's operators are immediately responding to anything that looks unusual on an inspection report or something like that. So we are seeing a little more of that which gives us a little more or so of third party downtime.

Asim Ghosh

I don't think that we are referring other than the east coast thing that Rob referred to. We are not referring to any specific thing, it's just that we've seen a number of smaller outages nothing defining, nothing that lasts very long but cumulative a few thousand barrels a day.

Operator

The next question is from [Chester Dawson of Wall Street Journal].

Unidentified Analyst

I've got two things that I would like to ask about, first is can you update on the Canol shale play you know whether you're going to bullish on that or where things stand? And secondly that kind of an odd question but do you still have production on the Cold Lake [air weapons] range if so how much and has that been affected at all by what's going on with (inaudible) issues that with some huff and puff leak issue?

Robert Baird

Just yeah let me answer the second one first, it's very simple we don't so there's no impact on our production (inaudible). So that's the first thing. The second one on the Canol shale play as I said earlier we're going to continue to finish off our all season road long term we see it a project with significant potential and the results we've had and the progress we've made to date still leave us very happy to continue there. We are as I said working through with community consultations.

On the next stage of our program and we will, and we're also continuing to analyze the results from the first wells that we drilled there in the last year. So next steps include, some more drilling, next year we will probably be drill and evaluate two more vertical wells and we'll go from there but overall everything we've seen to-date keeps us happy continue out there.

Operator

Next question is from Pat Roche of the Daily Oil Bulletin. Please go ahead.

Pat Roche - Daily Oil Bulletin

Hi, I wonder if you could give any kind of a ballpark idea when you might make a decision on the mode of development for West, white roads?

Robert Baird

As I said earlier, we're just moving in to some detailed engineering on [West White Roads] continue to like the project a lot. It will be a subsea type [vac]. It will be a facility that ultimately uses the FPSO for processing which we feel gives it a very good economics. We're just going through all the final applications, getting all the approvals from the Newfoundland government and hopefully we'll be able to come up with some clear view, a clear announcement sort of on our intentions moving forward later on the year.

Pat Roche - Daily Oil Bulletin

Thank you, that's all I have.

Operator

Next question is from [Lauren Cargo of Canadian Press]. Please go ahead.

Unidentified Analyst

Good morning I have another question about the Canol shale, I understand some new packages are coming available and kind of further north from where you are right now, just wondering if there was any interest in expanding your position up in the Northwest Territories?

Asim Ghosh

I don't believe we ever give guidance on participation and options.

Unidentified Analyst

Okay. Fair enough. You've talked about this all season road that you are building up there, but I am just wondering whether there was anything else infrastructure wise I know it is a difficult environment to be operating and that Husky needs to really move its Canol to position ahead?

Asim Ghosh

Yeah. I think that will, that whole discussion is premature at this point in time if it's going to basic a play it's going to be very significant play, and that will inevitably require industry solutions we are upset with the number of other major players, but we recognize the fact that this will require significant pipelines and the like make it commercial.

Unidentified Analyst

And what do you think of this idea that made in the North pipeline kind of going up to (inaudible) as a means to get to market and something that has been discussed politically, but I am just wondering what your thoughts are on that?

Asim Ghosh

Yeah. Well look I think there are number of loose (inaudible) in the pot so to speak and I think there, they are all going through appropriate study but some of these are the very early stage.

Unidentified Analyst

Okay, thank you.

Operator

There are no further questions at this time, I will hand the call back over to Asim Ghosh for any closing remarks.

Asim Ghosh

Well, thank you all for your questions to wrap up we are consistently meeting the milestones we have laid out in our five-year business plan. Our major projects are coming together as planned and we expect to leap the valley from the first major project in the coming months really, as (inaudible) gets to set to begin production. And I guess the final takeaway is that our focus integration infrastructure commitments are continuing to pay off for the company in a (inaudible) right at the volatilities that we continue to see.

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Source: Husky Energy Inc. (HUSKF.PK) CEO Discusses Q2 2013 Results - Earnings Call Transcript

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