Husky Energy (OTCQB:HUSKF) is a growing integrated energy company with a foothold in the oilsands, Asia Pacific and Atlantic regions. With a dividend yield of over 4% and new oil and gas production soon coming online, Husky Energy is an attractive long-term investment.
In this article I will discuss the 3 reasons I believe Husky Energy is a solid long-term investment. Firstly, Husky Energy is growing, secondly, it pays an attractive dividend and thirdly, I believe it may be a potential takeover target. Below I discuss these points in more detail.
Husky Energy is one of Canada's largest integrated energy companies with operations in the Oil Sands, Asia Pacific Region and Atlantic Coast.
"Western Canada is Husky's historic foundation. With extensive conventional oil and natural gas assets, significant heavy oil production, and upgrading and transportation infrastructure, the Company is pursuing new oil and gas resource plays and using technological innovation to unlock value."
On July 25th, Husky Energy reported impressive Q2 earnings of $605 million, up more than 40% from the same period in 2012. This coincided with a 26% increase in cash flow from operations to $1.45 billion versus $1.15 billion in 2012. "Total Upstream production was 310,000 boe/day, up from 282,000 boe/day in the second quarter of 2012" (from Husky Energy Q2 report).
Growth is a key focus of the management team and will therefore be discussed in more detail:
"(Husky Energy's) balanced growth strategy is built on its foundation in Heavy Oil and Western Canada, supported by the focused integration of its Downstream business. From that solid base, three pillars of growth are being developed in the Asia Pacific Region, the Oil Sands and the Atlantic Region."
1. Asia Pacific Region
Husky energy is getting a foothold in the gas market in Asia. Notably, the Liwan Gas project located in the South China Sea is on schedule and should yield gas in late 2013/early 2014. Projects in Indonesia are expected to yield gas in 2015 and the company aims to produce 50,000 boe/per day from the Asia Pacific Region by 2015.
2. Oil Sands
The Sunrise energy project is heading towards first production in 2014. Regulatory approvals are in place for 200,000 bbls/day.
3. Atlantic Region
Although the White Rose development has surpassed its original production estimate, a light, high quality oil discovery was made offshore Newfoundland and Labrador. Plans to maximize the life of the White Rose development are underway and, together with the new oil discoveries, may lead to increased production from this region.
As detailed on the Husky website, Husky has been reliably distributing a dividend since 2001 and has on several occasions paid a special dividend. Husky currently yields 4.10% ($0.30 paid quarterly).
3. Takeover Target
This point may be considered speculative however most would agree that bids on oilsands projects are not uncommon. For instance, Petrochina's bid for Athabasca Oil Sands Corp. and very recently Warren Buffett entered the scene by purchasing a stake in Suncor Energy (SU).
I believe that the current valuation of Husky Energy together with its dividend yield and growth prospects make it an attractive 5-10 year investment. In any case, I believe Husky Energy has limited downside due to the fact that oilsands projects, on occasion, attract takeover bids.