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Executives

Rob Mcinnis - Investor Relations

Asim Ghosh - Chief Executive Officer

Alister Cowen - Chief Financial Officer

Rob Peabody - Chief Operating Officer

Bob Baird - SVP, Downstream

Analysts

George Toriolia - UBS

Greg Pardy - RBC Capital Market

Andrew Potter - CIBC

Mike Dunn - First Energy Capital

Jeff Jones - Reuters

Rebecca Pence - Bloomberg News

Husky Energy, Inc. (OTCQB:HUSKF) Q3 2012 Results Earnings Call November 1, 2012 11:00 AM ET

Operator

At this time, I'd like to turn the conference over to Rob Mcinnis, Manager of Investor Relations. Please go ahead.

Rob Mcinnis

Thank you. Good morning everyone, and thank you for joining us today to discuss our 2012 Third Quarter Results. I'm joined today by CEO, Asim Ghosh; Our CFO, Alister Cowan; Our COO, Rob Peabody; and Our Senior Vice President of Downstream, Bob Baird.

Today, we will provide an update on Husky's business strategy and an overview of results followed by a question-and-answer session. Please note that today's comments contain forward-looking information, actual results may differ materially from the expected results because of various risk factors and assumptions that are described in our quarterly release and in our annual filings, which are available on SEDAR, EDGAR and on our website.

I'll now turn the call over to Asim.

Asim Ghosh

Thanks, Rob, and good morning everybody. I'll get into third quarter highlight in a moment, but first I'd just like to take – start off reflecting on our overall performance to date. And I think in summary, our results show that we continue to build operational momentum. For the first nine months of this year and really since we laid out a strategic plan two years ago, we have delivered on our targets consistently.

And we have done this through consistent execution of our business strategy. Strong operational performance from all the segments of our business and within that more specifically, a greater emphasis on heavy oil thermal and resource plays in our foundation that have contributed to a more oily portfolio and also focus on project delivery on key milestones and growth pillars.

A final [follow-on] this is our focused integration strategy what are called our focus integration strategy in the past has helped us to capture more value by offsetting pricing volatility. Overall, we remain on course in executing our business plan and continue to make steady progress in setting the stage for major group projects.

Let me get into some of the operational highlights now for the third quarter. So let me begin with heavy oil. Heavy oil as you'll recollect is a part of our pedigree in Western Canada, and we've demonstrated our leadership in this resource area time and again over the years.

As I've mentioned to you before, we are transitioning this part of our foundation to more thermal production and horizontal drilling to extract greater value, no pun intended there but [joy].

The Pikes Peak South and Paradise Hill thermal projects are both reached their design production rates within two months of first oil and based on their cost efficiency and performance they will be models for our future heavy oil thermal project developments an my colleague Rob Peabody will speak to more of the specifics of these two projects a bit later this morning.

We expect to accelerate more of these long-life projects in the future using this modular approach for cost efficiency. Currently, for example, construction of the Sandall thermal project is progressing, the first production scheduled for 2014.

And in summary again, heavy oil, as you know is one of the building blocks of our foundation and thermal projects are breathing new life into the future of this foundation.

I'll now turn to Western Canada. We continue to develop and evaluate our oil resource play portfolio getting good results at Bakken, Cardium, Viking developments and we are advancing the evaluation early stages yet to the others at Rainbow and on our North West territories plays and in the Investor Day coming up in the beginning of December we will give you an update on these and our liquids-rich gas play portfolio.

I'll now turn to the Atlantic region. We already sent a press release out on this that SeaRose is back on line well ahead of schedule after the execution of a safe and successful turnaround. The maintenance program in Belfast went off without a hitch and it really just didn't happen. It reflected very strong planning and execution. We reconnected and became operational more than three weeks ahead of schedule. Production was ramped back at the steady-state levels by the end of the quarter. Also ahead of schedule but of course we didn't see the benefit of that throughout the quarter so keep that in mind as you look at our overall production levels and oil gas mix.

And we're continuing to moving forward on evaluating potential development concepts the satellite extension program in the White Rose region. And finally Rob will bring you up-to-date on our plans for exploration program in the Atlantic. In the Asia specific region, oil and gas project has made great progress over the past quarter. Overall, the project is by about three quarters complete, as we draw closer to first gas in the 2013 - 2014 times frame, which is the timeframe we had indicated to you earlier.

The shallow water jacket has been launched and installed on the ocean flow in the South China sea and that is the foundation for the central platform from which we'll work with CNOOC our partner to develop the Liwan 3. Construction of the top size component remains on track. We expect it to be floated over to the jacket in the second quarter of next year and more than half of the two, it's about almost 80 kilometer long deep water pipelines had been laid already from the gas field to the central platform area.

And finally within Asia and Indonesia, we continue our exploration drillings in the Madura Strait Block and evaluating initial results from new discoveries. And this is one more thing that we should have more information to share with you by Investor Day in early December. So in summary on Asia, Liwan is progressing well and we're advancing our developers in Indonesia to hit our target of 50,000 barrels a day equivalent from the Asia Pacific in 2015, and looking in good shape for that.

I finally, turn to the Sunrise Energy Project within the upstream area, it remains on track. We're getting ready to deliver products in 2014 and overall the project is about 50% complete at the end of the quarter. The biggest single building block you'll recollect of this is the central processing facility and in this sub-leg of the project the modules have been delivered regularly to the site along the major equipment. We'd already given you an update on the fact that the drilling was complete, the field facilities are well advanced. So overall this project looks to be in good shape as well.

I'll now turn from the upstream to downstream. Our downstream operations continue to deliver on both performance and reliability. In the quarter, they continued to allow us to effectively capture additional margin to get near Brent pricing for most of our liquids products from upstream. And depends the value of what are called a focused integration strategy in the choppy markets that we have seen.

So in summary overall, we are positioned about where we want to be at the end of this quarter and are executing on our key performance targets. The transformation of the Western Canada Foundation is well underway with a strong focus on oil production and our major projects are making substantial progress.

On that note, let me turn you over to Alister.

Alister Cowen

Thanks, Asim. As Asim has just mentioned in our consistent operational excellence there was demonstrated in the quarter and strong balance sheet that we have, provides us a lots of flexibility to capitalize on the opportunities, to extract most value from the large resource portfolio we have outlined to you before. We did begin the year with some clear expectations about what we would achieve around improved production reliability and cash flow and moving delivering in all four, even though taking into account the planned FPSO offstations.

The net earnings for the quarter were $526 million or $0.53 diluted per share compared to $521 million of $0.53 at diluted per share a year earlier. Then cash flow from operations remained strong at $1.27 billion or $1.29 per share, that's compared just to $1.3 billion or the $1.39 per share a year ago.

If you look at production, we averaged 385,000 barrels of oil equivalent per day in the quarter and that up from 282,000 barrels of oil equivalent per day in the second quarter. And these production totals, as Asim has mentioned reflect the new heavy oil thermal projects, the recently completely SeaRose FPSO maintenance as well as the ongoing Terra Nova offstation. Now you'll have noticed the natural gas production is lower and that's due to a deliberate reallocation of capital away from gas or dry gas to oil developments during the as gas prices remained low.

In downstream, we continue to benefit from the strong operational performance and throughput. We upgraded and contributed $68 million to net earnings in the third quarter and that was compared to $42 million last quarter and $78 million a year ago.

In the U.S., the refining operations are $895 million to net earnings compared to $84 million in the second quarter and $82 million last year. Now as we disclosed in the MD&A there was a FIFO after tax gain of approximately $34 million in the quarter. And year to date there's an FIFO after tax loss of approximately $6 million.

Looking at pricing, the details are all in the MD&A and on the website, but here's a few points. The realized average price for the company's production as a whole was $52.32 per boe in the quarter. And that was lower than last year's $60.80 per boe but certainly comparable to the $51.88 we achieved in the second quarter of 2012.

On the crude oil pricing the average realized price was $70.14 per barrel, down from $78.70 per barrel a year ago and $71.61 per barrel in the second quarter. Again this reflects the impact of Atlantic region offstations, which is high priced Brent crude, slightly higher commodity prices and higher product and Western Canada discounts. There's not much new unfortunately to report on the natural gas front, although we have seen a slight uptick lately. The third quarter saw prices of $2.48 per mcf compared to $4.12 per mcf in the same quarter a year ago and $2.05 per mcf for second quarter of this year.

And as you all know, commodity prices have been quite volatile over the last couple of weeks with the WTI at around US$86 per barrel and Brent at US$108 per barrel yesterday. And these did have impacts on the realized price for Q4 production. And in addition of these prices are sustained and we expect to see a FIFO loss on our 60 million barrels of oil inventory for processing (Inaudible) upgrade under refineries.

Now over time FIFO gains and losses to tend to even out, but certainly FIFO accounting does give some volatility to the quarterly results. US to mid-continent track spreads were certainly choppy in October and do reflect the usual seasonal downward trend that we always see in Q4.

The balance sheet and debt metrics remains strong, and that was their operational performance as I mentioned earlier, makes us confident we had the capacity and ability to deliver on all of our term commitments with financial flexibility to pursue further opportunities as they emerge.

And finally the Board of Directors have approved a quarterly dividend of $0.30 per share. I'll pass to you Rob, he's going to give you an update on the operations.

Rob Peabody

Thanks, Alister. As both Asim and Alister have mentioned the SeaRose offstation program has concluded safely, successfully and under budget, and we had the added bonus of returning to production more than three weeks ahead of schedule. We ramped quickly back up to approximately 40,000 barrels per day net production, the work we in managing the White Rose reservoir, and including drilling and infill production well has paid dividends in allowing a rapid return to pre-shutdown production rates.

Looking at our operations during the quarter and starting in Western Canada, overall we continue to shift the focus to more oil drilling, over 95% of the wells we drilled in the quarter targeted oil. We were active across our portfolio of resource plays. These include six key oil plays, the Bakken, the Viking, Cardium, Shaunavon, Rainbow Muskwa, as well as the Slater River play in the North West territories. In total we've drilled 32 horizontal oil resources wells over the third quarter bringing our total number to 66 over the first 9 months of the year. This includes a horizontal well at our Rainbow Muskwa shale oil project in Northwest Alberta, it's still early but we have plans to drill up six more wells this year to better understand the sweet spots of this play.

And in the Northwest territories at our Slater River project this is the work there is proceeding on schedule, pending further regulatory approvals over the next few weeks, we're planning to build an old season access road this winter and further evaluate the two vertical wells we drilled their last year.

Looking ahead we're expecting to drill another 31 wells across our oil resource play portfolio over the remainder of the year. This reflects our commitment to develop and derisk our extensive resource play portfolio as we transform the foundations of Western Canada. Our gas resource plays were continuing to pursue liquids rich gas opportunities, but given the current price, gas price environment as Alister alluded to we have further focused our efforts on high grading our capital spending.

Current activity is restricted to play to generate competitive returns at today's gas prices are where we believe this potential exist as we drive down cost. At Ansell in West Central Alberta we resumed drilling over the quarter after a long-spring break out. We drilled a total of 14 wells on this play over the first nine months of 2012, while completing another 38 net wells. Up to four more wells are planned at Ansell for the remainder of the year. We still consider Ansell as the core asset and it certainly has lots of potential. However with the current price environment, we have been shifting some of the capital into our oil plays.

In the Duvernay, we completed and tested our second horizontal well at Kaybob. We currently have one well producing in this play. Overall we remain on track to meet our goal that we set out in 2010 of having one-third of our production from Western Canada coming from resource plays, in 2016.

Our Heavy Oil business achieved some major strategic milestones in the quarter with both Pikes Peak South and Paradise Hill reaching full production capacity. As Asim mentioned we were making great progress on repositioning our Heavy Oil foundation to focus more on thermal projects. This has certainly been a high performance area of our business.

Our next two thermal projects are the 3500 barrel per day Sandall Thermal element which is currently under construction and the 8000 barrel per day Rush Lake project. We're also advancing reservoir evaluations on additional commercial heavy oil thermal projects.

The capital intensity of these thermal projects is very attractive, their modular design and small scale means we've been able to reduce the cost per barrel to develop. In heavy oil, we also drilled 49 horizontal wells in the third quarter. In total $99 horizontal wells been drilled to date out of, around a 140 to 150 well program we have planned for this year. Well we're focusing at greater amount of our energy on thermal projects in horizontal wells, our legacy approach using cold heavy oil production with sand is continuing to provide value.

We're on track to drill approximately 265 of these wells, this year, in areas where they provide the best economics. And we're also progressing in number of solvent EOR projects.

Turning to the growth pillars in the Asia Pacific region the Liwan gas project has really hit at full stride as we approach first production in the late 2013, early 2014 timeframe. We've realized some significant milestones with our partners, over the past few months. As Asim mentioned earlier the Jacket for the central platform which is at the heart of the Liwan gas project has been anchored to the Seabed. We're finishing up construction on the top sides of the platform which is due to be floated out and installed on top of the jacket next year in the spring. All the wells at Liwan have been drilled and we have confirmed the deliverability of the gas.

Looking at Indonesia, we're anticipating first gas from the Madura Strait Block, in the 2015 timeframe. We have an approved developmental plan and gas sales agreement in place for the BD field and we're advancing the development of the combined MDA, MBH fields towards production.

We're continuing exploration work on our five-well program in the Madura Strait Block with additional new discoveries now under evaluation. In the oil sands, the Sunrise energy project is continuing to advance as planned and is about 50% complete. In the Atlantic region we continue to progress engineering work on the White Rose extension projects. We've excavated a new subsea drill center for the South White Rose extension over the past quarter and continue further development drilling at the North Amethyst satellite field.

Let me just update you on our exploration program, our Searcher prospect has been spudded in the Southern Jeanne d'Arc basin. And we're also participating in the Harpoon exploration well near the Mizzen discovery in the Flemish Pass, which should spud by the end of the year. And you'll recall we hold a 35% interest in this well with our partner.

Turning to the downstream, at our refineries at Lima and Toledo, we're nearing completion of two projects which will further increase product flexibility and reduced cost. At Lima a new kerosene hydrotreater will give us enhanced stability to swing product production from gasoline over to diesel and jet fuel and vice versa, depending on market conditions.

At Toledo a new continuous catalytic reformer unit will replace three older units and enable us to address new environmental regulations while significantly reducing energy consumption in operating costs. We had another good quarter of operation across the downstream, throughput edged up to 328,000 barrels per day at our refineries and the upgrader compared to 323,000 per day at this time last year. Our focused integration strategy which includes infrastructure assets and marketing expertise continues to give us the flexibilities we need to maximize our suite of upstream opportunities.

So just to wrap up, we're continuing to deliver on our performance targets, safely and reliably, our foundation in Western Canada in Heavy Oil is undergoing rejuvenation and we're positioning our business for significant near and mid-term growth. In the Asia Pacific region the oil sands and the Atlantic region off these coasts.

I'll now turn you back to the operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question today comes from George Toriolia - UBS. Please go ahead.

George Toriolia – UBS

Thanks and good morning, guys. I have a couple of questions. The first is on the economics of the your thermal projects. Could you just quickly review that in terms of the capital cost the operating cost, payback period, recycle ratios those types of things, just in your thermal projects?

Asim Ghosh

George, I think we intend cover this most exhaustibly at the Investor Day, so if you just be patient for a few weeks more, we do intent to have a comprehensive discussion in greater specifics on this.

George Toriolia – UBS

Okay, certainly. And then the other question is just around, Rob, had mentioned this, as you transition your portfolio, as we look towards 2016, is there any way you can fast track this, or hasten this and move this closer than 2016?

Asim Ghosh

I think the present, I mean if you're talking of Heavy Oil, I think the profile that you're seeing today is already considerably fast tracked from what we – from the targets we gave to you a year ago. Rob, do you want to take up on the specifics of that?

Rob Peabody

Well, I think Asim has covered Heavy Oil and I think George, you know our game plan a little bit around that. I think on the resource play front, I think we're still comfortable with our original target of one-third of our production coming by 2016, as we go through these, as I've emphasized before, the need to sort of work through these plays and doing your homework before you really apply lots of capitals to them and I guess the only other thing I'd say is we look at the overall capital plan for the company that fits well with our overall capital plan.

So we have lots of opportunities and the pace we're going there, both technically and overall when we look at the rest portfolio fields, am I right.

George Toriolia – UBS

Great, thanks a lot.

Operator

The next question comes Greg Pardy of RBC Capital Markets. Please go ahead.

Greg Pardy - RBC Capital Market

Yeah, thanks good morning guys. Wondering just how relevant the fact that you're still negotiating the gas sales contract on Liuhua 34-2, just wondering if you can provide a little color around that?

Secondly, given the push in terms of Western Canada, I think last year's investor day you suggested you could hold volumes flat, but I'm wondering if on the Oil Liquid side now you would be looking for growth and then lastly just any color around the Rainbow Muskwa would be great? Thanks.

Asim Ghosh

So I think I'll start with the last question, first, again I think we – this is a subject for the Investor Day disclosure, and we expect to have more information but, this is a major project but in its early stages of gestation and we will have that -what information we think is in the bag we will disclose to you, at investor day.

On the Liuhua pricing, I think that's just basically work-in-progress. And we have given you guidance on the first part of the project which is quite significant, there are few development options and market options being discussed for the second part. But you know it's under 10% of the volume so really you have reasonable disclosure on the 90% of the volume and it would be really - now we've discussed this, you've got the dog, you're looking at the tail.

And there was – if you ask so many questions I'm going to forget which are the three you asked, (Inaudible).

Greg Pardy - RBC Capital Market

Oh, come on. Come on, Asim.

Greg Pardy - RBC Capital Market

I know the last one is a (Inaudible) for you. So do you think you can now grow Western Canada on the oil and liquid side?

Asim Ghosh

The short answer is that is precisely the plant that we're working on. But I remind you of our overall road map. So the first mega project that comes on stream is the South China Sea, and we've given you a timeframe on that. The next one is Sunrise and then we are advancing work on the East Coast, and in the context of this overall strategic plan, we are looking at transformational projects for Western Canada, as the next leg past that. I'm sorry I always miss the fact that the transformation of heavy oil is already well underway.

And what I don't want to fall into the trap of is stripping the gears, by trying to do short-cuts and having the company running in every direction at the same time, just by phasing our efforts properly we've kept the ship on track now pretty well since, I took over 2.5 years ago, and we want to stick to a predictable steady well thought-through pace on the development of this company.

Greg Pardy - RBC Capital Market

Okay, that's great. Thanks very much.

Operator

The next question comes from Andrew Potter of CIBC. Please go ahead.

Andrew Potter - CIBC

Hey, guys. I've got a few questions but first on Sunrise, there's been a lot of speculation in the market about potential cost overruns there, so maybe you can comment a little bit in terms of how confident you are in the costs? Or if it is under some pressure, what magnitude we're talking? And then I've got a few other questions.

Asim Ghosh

I believe we've given some guidance on that in some meetings recently, but overall I think this is again an update subject for the Investor Day, when we expect to have concrete information for you. But you know, here we are – about – overall projects 50% complete, facilities about 60% complete, detail engineering complete, and we have a reasonable handle on where we are. So we see nothing in terms of what we have which indicates a blowout either in money or in timing.

Andrew Potter - CIBC

Sure. And how do, I mean whatever inflationary pressures you are seeing on Sunrise, 1, what does that indicate to you about economics for Sunrise to – if this is starting to make in future growth, but more challenging going forward just with inflation you're seeing or does it still seem like it's – economics are robust enough and inflation in control?

Asim Ghosh

Anything we are seeing so far does not give us any concern about the economics of the project versus our sanction plan. We are very comfortable with our sanction plan.

Andrew Potter - CIBC

And also I was talking more about - how you think about Sunrise too?

Asim Ghosh

Okay, Rob, why don't you take that.

Rob Peabody

I mean, it's almost the same, as Asim just said. I mean we as you know we're proceeding and have been doing the front-end engineering work around Sunrise phase II. So we have a good idea of how this is developing of course, it has the advantage that some of the infrastructure was put in place as part of Sunrise phase 1, so we still believe those projects are going to have robust economics going forward.

Asim Ghosh

I do want to make the point, Andrew, I think our contracting strategy on Sunrise has turned out to be very sound and it's been a good learning for us, and of course as you go into any project there are additional learnigns, and we will incorporate those into Sunrise Phase 2 but if anything there will lead to greater efficiency is not less.

Andrew Potter - CIBC

Okay. And then just on the (Inaudible) as well what are the steam oil rations on Pikes Peak in (Inaudible)?

Asim Ghosh

We'll give you better information at the Investor Day, but there's certainly under 3.

Andrew Potter - CIBC

Okay, good. And very last question, completely unrelated, there was announcement I guess in the last week or week before about LNG exports on East Coast Canada, I mean I know this has always been a very long-term thing for you guys, but does this make your gas development from Terra Nova and White Rose a possibility this decade or is that still more of a next decade type thing.

Rob Peabody

Maybe I'll let Asim catch up on this, but just I would say that our focus on gas development on the East Coast is to actually [aid] in our oil development. So that's I mean, in terms of our utilization the gas we're actually using it right now to enhance our oil production going forward and given sort of the gas prices in the market out there it seems like a sensible thing to do now. In the long term, there is a resource there that's going to be valuable for, I'm sure new for the land valuable for ourselves and in the long term I'm sure it'll get developed.

Andrew Potter - CIBC

Okay. Thanks.

Operator

The next question comes from Mike Dunn of First Energy Capital. Please go ahead.

Mike Dunn – First Energy Capital

Yeah. Good morning everyone. Just a question on your Saskatchewan thermal projects and Asim you may be deferring me to the Investor Day. But just in general, I wanted to just to reconfirming, my impression is that the reserve life on these types of projects is somewhere sort of 15 to 20 years. So much longer than conventional but not maybe quite as long as some of the Athabasca Oil Sands project. Is that sort of ballpark, am I in the right range there?

Asim Ghosh

The short answer to that is yes.

Mike Dunn – First Energy Capital

Okay, great. And on the Muskwa, I'll try for one in the Muskwa. Are any of those wells that are completed, are they tied in and they're producing, yet?

Asim Ghosh

That is definitely for the Investor Day.

Mike Dunn – First Energy Capital

Okay. And then the last one on the Lima Refinery, can you just review what you're looking at there to get, I know you're getting a bit more inland discounted crudes in there than you were in the past. But are you investing any initiatives to make a longer term solution? Or are you thinking that you don't want invest any pipelines because two or three years from now, those differentials maybe closed?

Asim Ghosh

No, actually the overall strategic thrust of our what I call our focused integration strategy is to create flexibility and optionality. Okay, so we actually have made commitments to pipeline capacity whether they are pipelines or whether they are dedicated outsource capacity is an element. But fundamentally, I'll remind of what I said to you in earlier meetings there are three strategic focus areas on our overall integration plan, input flexibility i.e. including options on where we get feedstock so that we can switch from WTI to Brents to Canadian stock as the occasion demands. Product flexibility, which is including options and what we make reacting to product market pricing at any point in time.

And finally, market flexibility improving options and where we sell product and that therefore includes greater connectivity with the Atlantic Sea board from our Midwest location. Okay, so it's along those three areas that we've driven and we've actually made substantial commitments in improving pipeline connectivity and are constantly looking at low hanging fruit investments in terms of product flexibility.

Mike Dunn – First Energy Capital

Great, thanks everyone.

Operator

(Operator Instructions) The next question comes from Andy Gustajtis of D & D Securities Inc. Please go ahead.

Andy Gustajtis - D & D Securities Inc.

Good morning, gentlemen, very good quarter. I just wanted to ask a question with reference to the South China Sea project. I recall reading sometime ago that the ODP was still pending has that been finally granted or is that still in process?

Asim Ghosh

No, there is a long pipeline of ODPs for several companies in the South China - in China, in general at this point in time and we are a very exulted company because pretty well every super major is in there as well. But basically we have received permitting for all the appropriate stages of our project so far. And it overall ODP process is just something that's the process in China right now. But there is no reason to change our guidance because of that that how the regulatory process works in China.

Andy Gustajtis - D & D Securities Inc.

Thank you very much. I appreciate it and very good job. Thank you.

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 from media comes from Jeff Jones of Reuters. Please go ahead.

Jeff Jones - Reuters

Yes, I had two questions. The first relates to the economics of upgrading. And I am wondering how that is being affected by the boom in light oil production in North America?

Asim Ghosh

Bob, why don't you take that one?

Bob Baird

Well, that's why - as Asim had related earlier in terms of our flexibility at the refinery in feedstocks, our investments in the Lima Refinery will allow us to have to continue to operate as a cracking refinery and to have flexibility for heavy crudes when we want to use them and if there economic. So we've actually looked that flexibility of the feedstocks and we feel we're well positioned there.

Jeff Jones - Reuters

Okay, so but I was - were you being squeezed in the Western Canadian upgrading environment?

Asim Ghosh

No, that's just a question of value moving between upstream and downstream for us. so, when you got and upgrader, about years ago at very attractive book values. And so basically that's just value moving up and down the chain. Bob why don't you just speak to the actual point while we're at it.

Bob Baird

And, don't forget, we do have the upgrader in Lloyd as well as our [asphalt] refinery that provides us about 29,000, 30,000 barrels a day of upgrading capacity where we get high returns for our asphalt business. So as Asim alluded to it, just now we move that value up and down the value chain as we see fit.

Jeff Jones - Reuters

Okay. And just one more question if I might, obviously refining margins in the - interior North America were pretty strong in the quarter, how long do you see guys continuing?

Asim Ghosh

I think you just have to go back to this flexibility point because if those refining margins go down it's presumably because WTI of which the price Western Canada product is going up and then the value comes back upstream. So broadly, I am not - I don't have crystal ball any better than anybody else is, but I am just positioning myself as a company to be in the place where in choppy markets I can move up and down the value chain and provide some overall stability.

Jeff Jones - Reuters

Thank you.

Operator

The next question comes from Rebecca Pence of Bloomberg News. Please go ahead.

Rebecca Pence - Bloomberg News

Hi there, thanks for taking my question. There was mentioned earlier on the call about focusing drilling - focusing gas activity on projects that can deliver returns at current gas prices. I'm just wondering whether Husky has a forecast for gas prices whether you think the forward strip is accurate whether it will see higher or lower prices going forward.

Asim Ghosh

We are of the firm view, that as I said a moment earlier there is no extra magic in our crystal ball than anybody else's and we don't give guidance on future pricing.

Rebecca Pence - Bloomberg News

Okay. Thanks.

Operator

That is all the time allotted for questions on today's call. I will now turn the call back over to management for concluding comments.

Asim Ghosh

Thank you. Thank you everybody for your questions and for joining us on this call. So I remind you again our Annual Investor Day is scheduled for December 4, at the New Four Seasons Hotel in Toronto, which I'm told is a spectacular venue.

I'll leave you with the few thoughts until then. We've had a busy and productive year, it's continue to build on the progress we have achieved to-date. We are consistently meeting or exceeding all our key performance goals and it's been a very key focus for us internally to make sure that we have a predictable machine and we have machine focused on execution because I think the strategy that we laid out two years ago continues to be – it's standing the test of time.

We are within that strategy rejuvenating our foundation in Western Canada in Heavy Oil to extract the greatest possible value from our all resource plays on thermal technologies and continue to set the stage for our major growth project at Sunrise and Liwan, while advancing like clockwork I would like to think towards delivery over the next 12 to 18 months.

Now, the only thing I'd like to leave you with finally is it remember that in all of these I just remind you of what Alister said that part of the price we've paid for this focus in division strategy is that we've got the FIFO volatilities from quarter-to-quarter that is not really fundamentally operational but it affects reported figures and just keep that in mind as you look ahead. Okay, thank you very much.

Operator

Ladies and gentlemen, the conference is now concluded. And you may disconnect your telephone. Thank you for joining and have a pleasant day. Good-bye.

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