Husky Energy's (HUSKF) CEO Asim Ghosh on Q2 2016 Results - Earnings Call Transcript

| About: Husky Energy (HUSKF)
This article is now exclusive for PRO subscribers.

Husky Energy Inc. (OTCPK:HUSKF) Q2 2016 Earnings Conference Call July 22, 2016 11:00 AM ET

Executives

Dan Cuthbertson - Director, Investor Relations and Communications

Asim Ghosh - President and Chief Executive Officer

Jon McKenzie - Chief Financial Officer

Rob Peabody - Chief Operations Officer

Bob Baird - Senior Vice President, Downstream

Analysts

Neil Mehta - Goldman Sachs

Paul Cheng - Barclays

Fernando Valle - Citi

Geoff Morgan - The Financial Post

Julie Gordon - Reuters

Rebecca Penty - Bloomberg News

Jameson Berkow - Business News Network

Reid Southwick - Calgary Herald

Operator

Thank you for standing by. This is the conference operator. Welcome to the Husky Energy Q2 2016 Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Mr. Dan Cuthbertson, Director, Investor Relations and Communications. Please go ahead.

Dan Cuthbertson

Good morning and thanks for joining us. I am here with CEO, Asim Ghosh; COO, Rob Peabody; CFO, Jon McKenzie; and Bob Baird, Senior Vice President from Downstream. We will provide an overview of our second quarter results and then open the line for questions.

Today’s call will include forward-looking information, so various risk factors and assumptions are outlined in this morning’s news release and can be found in our annual filings on SEDAR, EDGAR and on our website. All figures are in Canadian dollars of before royalties unless otherwise stated. Asim will now start it off.

Asim Ghosh

Thanks, Dan and thank you all for joining us. This quarter represents a milestone whirlwind for Husky as the elements of the transformation we initiated 6 years ago are now largely in place. At the strategic level, we have quantified our balance sheet, reduced our earnings breakeven oil price and reduced our sustaining and maintenance capital requirements. On the operation side, we have brought on several major projects. We have transitioned our Lloyd heavy oil business into a thermal growth engine. We have developed two tightly integrated value chains, the Lloyd value chain and the Sunrise value chain to build further capacity and flexibility to capture additional margins. The Western Canada rejuvenation is nearly complete. In the Asia-Pacific region, we continue to build out a material business as we near the finish line on our first Indonesia development. And while still on Asia-Pacific, let me update you on Liwan progress. We have had very constructive discussions with our partner, CNOOC, and the outcome has been a framework for resolution. I expect to be in a position to provide further details very soon.

And finally, in the Atlantic region, production has been stabilized with additional satellite extensions providing a bridge to the next potential phase of growth. At the macro industry level, while all market equilibrium remains illusive and the timing of the supply demand balance is still unclear, today, Husky, within that market is a highly resilient business, better positioned to generate free cash flow even at this lower for longer oil price environment.

In very short order, we completed several transactions that have reduced our debt by almost $3 billion and have given us a rock solid balance sheet. At the same time, these asset sales have advanced several strategic objectives. The start of the midstream deal, which we recently closed, the new limited partnership will reduce our overall infrastructure spending requirements for new thermal growth, while preserving our tight integration and this includes providing the midstream takeaway capacity by the 8 Lloyd thermal projects, which are a key growth engine of the company.

In Western Canada, our business has been further rejuvenated by the sale of about 25,700 barrels per day equivalent of non-core production for approximately $1.2 billion, which is a good value, particularly so in today’s market. As a result of these transactions, we are reducing our sustaining capital requirements by almost $16 million per year. At the same time, we are lowering our ARO by $1.7 billion over the life of the assets on an undiscounted basis. We are now focused on fewer, more material plays that provide competitive investment options.

The nature of this place is such that investment can be dialed up or dialed down as required to quickly respond to changing commodity price environments. We spoke with many of you at our recent Investor Day where we talked about the transformation of our portfolio. I will take a moment to look under the hood. Our focus on higher quality production over the past 6 years has significantly improved the resilience of the company. We have been investing in projects that have lower operating costs and improved margins longer reserve lives and require less capital to maintain production.

By the end of this year, more than 40% of our overall production is expected to come from these types of projects compared to just 8% in 2010. The cornerstone of this production is a going large thermal portfolio. We have seen some significant progress in this quarter with the startup of three additional projects at Edam East, Vawn and Edam West. Once fully ramped up, these projects represent more than 24,000 barrels per day of newer, high quality production.

Here is one way to think about our Lloyd thermals at current pricing. One barrel of Lloyd thermal production has the same netback as about 2 barrels of the best Fort Mac SAGD. And the primary reason for this cost that our Lloyd thermals produce lower viscosity oil, that oil gets a superior price realization and also the project itself has lower operating costs. So therefore, at today’s prices, our Lloyd thermal production of about 100,000 barrels a day at year end provides about the same total netback margin as almost 200,000 barrels a day of Fort Mac SAGD. And with another 18 of these projects in the wings ready to advance over time, representing an additional 150,000 barrels per day potential, that value becomes even more compelling.

Meanwhile, to maintain our focused integration and capture incremental margins out of our growing Lloyd thermal and Sunrise production, we are progressing three Brownfield development projects in our downstream business. At the Lima Refinery, we are in the initial stages of a crude oil flexibly project which will improve our processing capacity to handle growing Lloyd thermal production. We expect to increase our initial capacity by about 8,000 barrels a day by the end of this year and add an additional 32,000 barrels per day of this heavy oil processing capability by 2018.

At our partner-operated Toledo Refinery, we have completed upgrades to increase the amount of bitumen we can take from Sunrise. And we are evaluating opportunities to grow our asphalt business, which is right for expansion with consistently strong margins at any oil price. The outputs of a higher quality production are lower earnings and cash flow breakevens and a significantly improved cost structure. We have seen operating costs come down. But in our case, the bigger price is the sustainable reductions we have achieved through the structural changes in our portfolio.

Our sustaining and maintenance capital costs are expected to be around $1.8 billion upstream and $700 million downstream with a total of $2.5 billion this year, down from a historical average of $3 billion. These costs are expected to decrease further with continued improvements in the quality of production. Husky’s evolution and the results achieved to-date are transformational for the company. Subject to business conditions, by the end of this year, our overall earnings breakeven will be sub $40 U.S. WTI.

In regard to cash flow, our WTI oil price in the mid-30s, we can generate enough cash to maintain our current production levels. The bottom line is that we are in much greater position to generate free cash flow. And looking at the overall portfolio, we are not a monochromatic company and as such cannot truly be defined by any one project or any one business segment. Thermal technology has turned the heavy oil business into an incredibly resilient growth engine. Western Canada has been transformed to focus on fewer, more material short cycle plays. They build out two highly integrated value chains in our downstream business that support Lloyd thermal and Sunrise production. To capture additional margins, oil sands in Asia-Pacific and our material businesses of each with substantial growth prospects over the long-term at Sunrise and in Indonesia and our Atlantic region continue to deliver steady high netback production with the bridge to the net stages of growth.

Now, I will ask Jon to pickup more specifically on Q2 financials.

Jon McKenzie

Thank you, Asim, and welcome, everybody. I will start with a brief reminder of the elements of our financial plan to manage our balance sheet, improve financial flexibility, and lower our cost structure. Asim has touched on the steps we have taken to lower our cost structure, so I will speak to the first two elements.

First, in terms of the balance sheet, the recent asset dispositions are helping us meet our debt objectives sooner than anticipated. Once the dispositions have closed, our net debt is expected to be below $4.5 billion, which compares to about $7 billion in the first quarter of this year. This is in line with our target of 2x debt to cash flow. Second, in terms of – in regard to financial flexibility, we took decisive action to ensure our credit rating was reaffirmed and we continued to have strong investment grade ratings with all agencies.

Following the dispositions, we will have in excess of $4.6 billion in boring capacity, almost entirely un-drawn for us cash on hand. And we have no major long-term debt maturities until 2019. The key objective of our financial plan has been to further strengthen the balance sheet and to provide a secure footing in a volatile commodity price environment. This objective has been entirely realized. Now we are on production guidance, even with the lower sales volumes from Liwan gas project and the Western Canadian dispositions of 25,700 Boe per day, which were not included in the original guidance numbers. Our 2016 annual production remains in the range of 315,000 Boe per day to 345,000 Boe per day, albeit at the lower end of that range. We are able to maintain this production numbers largely because of the consistent performance across the upstream business including strong results from the Lloyd thermal projects and the steady ramp up at Sunrise and Tucker.

In terms of capital expenditures, we expect to remain on track with our 2016 guidance for the remainder of the year. And you will recall that our CapEx was based on a price planning assumption of $30 WTI. Our capital plan was front end loaded and we are expecting stemming for the remainder of the year to stay in line with that plan. We have three new thermals up and running and our heavy turnaround season is largely behind us. Well, this maintenance work impacted production and throughputs we expect to realize improved efficiency up-time and reliability as a result. Looking further out in 2017, we expect our sustaining capital to trend downward, further enhancing our ability to generate free cash flow. And we will keep a steady focus on maintaining a strong balance sheet with financial flexibility as we continue to live within our means.

As you saw on our Investor Day, we are not short of high quality investment opportunities within our portfolio. This includes short cycle resource plays in Western Canada Lloyd thermal developments, infill wells in our Atlantic region and our Indonesian gas fields. As Asim mentioned earlier, some of our downstream – we also had some of our opportunities in our downstream Brownfield investments. In other words, we have plenty of high return opportunities without needing to move from our warehouse even at these prices.

Now turning to our Q2 results, average upstream production was 316,000 Boe per day, which takes into account volumes at Liwan and the shutting of production at Sunrise due to the Fort McMurray wildfires. Production also reflected some dispositions that became effective in the quarter, representing about 3,600 Boe per day. Throughputs at the refinery, refineries and the upgrader averaged 255,000 barrels per day reflecting the turnarounds. Upstream operating costs were $13.90 per barrel in the second quarter compared to $15.72 a year ago, representing a reduction of about 12%. And I will point out that a big portion of our operating cost savings are sustainable due to structural changes and the efficiencies we have implemented.

Cash flow from operations was $488 million compared to $1.2 billion in the second quarter of 2015 and $434 million in the first quarter of this year. This reflected our string of plant turnarounds and after-tax FIFO gain of $88 million and after-tax hedging losses of $79 million. With the completion of our downstream turnarounds during the quarter, the hedging program has now wrapped up. Net earnings were a loss of $196 million. This takes into account items affecting cash flow plus three key non-cash items. And those would be $12 million after-tax property impairment, $22 million charge for exploration and evaluation asset write-downs and a $71 million after-tax loss associated with the dispositions.

Excluding these non-recurring items, the adjusted net loss was $91 million. Now looking at pricing, WTI prices averaged to $45.59 per barrel compared to $57.94 per barrel in the second quarter of 2015. Average realized pricing for total upstream production was $34.59 per barrel compared to $49.50 per barrel in Q2 last year. In regards to the turnarounds, we straddled into Q3, a three week turnaround is now underway on the SeaRose in the Atlantic region and a 10-week turnaround has concluded the Toledo refinery.

Now, Rob will take us through our operations for the quarter.

Rob Peabody

Thanks Jon. Before I get into the business unit updates for the quarter, I will provide an update on our ongoing response to a pipeline release near Lloyd, which happened yesterday. Following detection, we took immediate action to isolate and halt the release, which occurred on a pipeline that carries heavy oil and diluent. Berms and booms are in place and water [indiscernible] and testing program is underway. Total volumes released are estimated around 200 cubic meters and 250 cubic meters. We continue to work closely with government and regulatory authorities as well as downstream communities and nearby land owners. So far, no water advisories have been issued. We will continue to provide regular updates on our progress. And as always, our main focus is on the safety of the public and the protection of the environment. That we have rigorous pipeline testing and inspection process in place and we will build on whatever we learned from our investigations.

Now turning to the quarter, today we are seeing the results of the roadmap we set out several years ago. The resilience we have built can be clearly seen in some of the transformational operational highlights we achieved in the first half of this year. We started up three low cost Lloyd thermal projects, which represent about 25,000 barrels per day of higher quality production once ramped up. At the Tucker thermal project, we brought on the new colony reservoir, which has brought overall production to around 20,000 barrels per day. Sunrise has returned to pre-wildfire production levels and it continues its steady ramp-up of long life production. The Western Canada rejuvenation is in full play, following the successful disposition program. On the downstream side, we completed major turnarounds of several facilities to improve reliability and efficiency. In addition, we increased our heavy oil feedstock capacity at the Lima refinery and added to our high TAN crude processing capacity at Toledo.

In our heavy oil business, Edam East started up in mid-April and has already surpassed its 10,000 barrels per day design capacity. It’s running at about 12,000 barrels per day right now. This is pretty typical of these projects in their first couple of years. In mid-May, we started steam operations at Vawn and we were producing oil just six weeks later. We are now at about 5,500 barrels per day and ramping up ahead of schedule. And in June, we kicked off steaming at Edam West, a 4,500 barrel per day development and we expect production to begin soon. Rush Lake 2, another 10,000 barrel per day project continued to be progressed over the quarter. Site preparation is underway and long lead equipment has been ordered. In addition, we have been leveraging our growing thermal expertise at Tucker where average production was about 20,000 barrels per day in June. We have lowered the SOR from the mid-7s a year ago to around 3.5 today at Tucker. Our combined Lloyd and Tucker thermal production is expected to be around 100,000 barrels per day, once our three new Lloyd projects are fully ramped up.

Turning to Western Canada, completing our asset sales in line with our strategy of moving to a focus on fewer, more material assets was a major objective in the quarter. Production at Ansell averaged approximately 21,000 barrels per day and it’s worth noting that Ansell drilling costs have been reduced by about 50% over the past 2 years. We continue to have an inventory of about 650 drilling locations at Ansell in multiple zones. Most recently, production adds have come mainly from the Willrich. In the downstream, as Jon mentioned, it was a heavy turnaround quarter for us, both the Lima and Toledo turnarounds have now been completed successfully. This included work to increase the amount of high tan crude feedstock. We can run at the Toledo refinery to 65,000 barrels per day allowing us to enhance the profitability of this asset. We also expect to start processing about 8,000 barrels per day of heavy crude feedstock at Lima around the end of this year. This is essentially the first step on our plan to increase heavy crude feedstock to around 40,000 barrels per day in the 2018 timeframe.

In the Asia-Pacific region, Liwan gross natural gas sales averaged about $161 million standard cubic feet per day with associated liquid sales of approximately 9,200 barrels per day. A second deepwater pipeline has been installed at Liwan to provide for additional flow capacity later in the light of the field. Offshore Indonesia, we are continuing to progress our Madura Straits projects. Construction on the wellhead platform and pipeline infrastructure for the liquids-rich BD field is now about 75% complete. More wells are being drilled as part of the initial development plan and we are on schedule to begin production in 2017. Tendering is underway for engineering, procurement, construction and installation contracts related to the MDA and MBH and MBK gas fields. All three fields will be tied into the same infrastructure and begin production in the 2018, 2019 timeframe.

Moving on to Sunrise, the reservoir responded very well to the restart of production in June following the Fort McMurray wildfires. We are currently running at about 30,000 barrels per day, which is about where we were prior to the fires and continuing to ramp up. All 55 well pairs are online and the steam oil ratio and water oil ratios are on track. Finally, in the Atlantic region, as mentioned earlier, we are close to wrapping up the turnaround on the SeaRose. At North Amethyst, the Henry Goodrich rig has resumed operations at the Hibernia formation production well and we expect to see first production from that well in the fall. In the Flemish Pass basin, our exploration and appraisal program in the area the Bay du Nord discovery has wrapped up. Two oil discoveries were made at Bay de Verde and Baccalieu and we are working with our partner to plan our next steps.

Thanks. And I will now turn the call back to the operator.

Question-and-Answer Session

Operator

[Operator Instructions] The first question today is from Neil Mehta of Goldman Sachs. Please go ahead.

Neil Mehta

Good morning, guys and congratulations on the progress and strengthening the balance sheet. Just want to kick it off here and talk about FIDs. There when we think about incremental growth, Lloyd thermal certainly comes to mind and the other is West White Rose. Can you just talk to us about where you stand in terms of potentially sanctioning growth at both of those projects?

Asim Ghosh

Well, in our Investor Day, we had already told you that we had identified a string of 8 thermals already. And then, it’s all a question of really not – it’s a question of being limited by the execution capability, but the projects, everything that we have identified that we spoke about today in terms of future options, will generate at least 10% returns in a $40 in perpetuity WTI environment. Now, in terms of exact FID, we have already sanctioned one Lloyd thermal which we announced last year. And as soon as we sanction the next, we will be back to you.

Neil Mehta

I appreciate this.

Asim Ghosh

You also ask about the Atlantic region. So, in terms of the reduced oil price environment, we had been reengineering and we told you before that we have been looking at both value reengineered the GBS, the West White Rose option as well as the subsea development option, that work is progressing at pace. And then, when we make a final decision on that, then we will be back to you with an announcement on that.

Neil Mehta

Thank you. And then I want to come back on Liwan natural gas, it sounds like based on the release, you have made some progress here in terms of coming up with the path forward. I understand there is some sensitivities. But what can you share about where you stand on Liwan?

Asim Ghosh

Yes. So I think, basically, I mean I would say we have had to start the discussions with our partner, CNOOC. And the outcome, as we said in our release, has been a framework for the resolution between us. I expect to be in a position to provide fuller details very soon. And as soon as we are in a position for the disclosure, we will make sure it gets out at the earliest opportunity.

Neil Mehta

Okay. And then last question for me is, just can you talk through the resumption of the dividend and the calculus that’s going on in your minds and the board’s minds about at what point you want to bring this back?

Asim Ghosh

Yes, all I can say is, look, I wouldn’t repeat, I don’t see this as sort of A or B priorities. I see a plus A priorities being maintaining a strong balance sheet, point number 1. That is not done – that’s more of a hygiene factor. Past that, two other classier priorities, one is the hygiene factor is the sort of the [indiscernible] investing in our diverse portfolio and establishing sustainable cash dividend, a step sustainable. And so therefore that latter part requires a clear sense that there is a supply demand balance that has the dirt to the oil market. And at that point in time, we will reinvest that free cash flow in this balance. We don’t see that balance in the oil market as being quite achieved yet.

Neil Mehta

Alright, thank you.

Operator

[Operator Instructions] The next question is from Paul Cheng of Barclays. Please go ahead.

Paul Cheng

Hey, guys. Maybe, either this is for Rob or for Jon. Any preliminary 2017 CapEx that you can share and also that with your manpower today, what is the CapEx there for that manpower can efficiently execute?

Jon McKenzie

Yes. So, well, with the front end of putting together our 2017 CapEx programs, it’s a bit premature to maybe give you some detailed guidance on it. But just in terms of some things that we have said publicly and some of the things that are core in terms of the principles that are going to guide us as we put our budget together is remember that we are going to live within our mains. And what we mean by that is we are going to keep within the cash flow constraints based on the budget assumptions that we build at that time. Also remember that when we do come up with our capital program, we have some pretty rigorous streams in terms of the requirements for returns on projects. Projects need to be IRR 0 and $30 WTI and give us a cost of capital return at $40. The other thing that we have said publicly, I mean, we will be very true to in that process is we want to have a good diversification projects across all of our different businesses. We are not going to put ourselves in a position where we are over-investing in one asset to the exclusion of other. So, maintaining diversity and maintaining integration is going to be important to us. And just in terms of manpower...

Paul Cheng

Jon, may I just ask one quick one. You said [indiscernible], what kind of oil price assumption that you intend to use for next year?

Jon McKenzie

Yes, we haven’t got to that point, Paul. We will look at the market at that time and we will make some internal evaluation as to where we see the oil price going over 2017, but we are not there yet.

Paul Cheng

Okay.

Jon McKenzie

Okay. Just in terms of manpower and capability of executing the capital budgeting, I recall this year our capital budget is about $2 billion. We are more than capable with the manpower that we have got today to execute their budget. Yes, in the future, we choose to flex that budget where it reflects that capital program up into 2017. We are capable of executing an increased capital program?

Asim Ghosh

Paul, I spoke at late about the structural changes in the business that has made us more efficient. We have not been – we have been jealous regarding our human resource space. It’s something from the first day I came into the company, I saw the strength in Husky and it’s not something I wanted to monkey around with. So therefore, whatever results you have seen in terms of our cost efficiencies have really for the most part reflected structural changes. And therefore, we have not in any way cut flesh in a way that will jeopardize the future of Husky. We have retained a central human resource capability in the company.

Paul Cheng

Okay. Two final questions for me, first, Rob any rough estimate now with the appraisal program and exploration program, look like you have come to a conclusion, what is the total resource estimate at Flemish Pass. And then any preliminary estimate based on the current cost structure, what oil price it take, we will get a 15% full cycle IRR and what is the next step on over day, you said that you are looking at the next step, so can you give us some guide and what does the next step means. And then the final question is that what the asphalt the 30,000 barrels per day expansion, any the rough estimate on the cost and also are you concerned about increasing by 30,000 over land market?

Rob Peabody

Yes. Paul thanks. Yes. Just on the whole Bay du Nord Flemish pass area, I would say at the moment, we haven’t released any changes. We basically said, look we are still looking for same range, as you recall. It was a fairly big range Statoil put out. But we are still within those ranges we believe going forward. We do believe, what we wouldn’t be continuing to move forward, if we didn’t think we could achieve 15% returns on a development of the Flemish Pass down the road. And there are various reasons that looks like and I won’t get into them all, but I think both partners are given pretty good ultimately and that there is a development down the line there. And next steps for discussing those with our partner and I don’t really have anything specific to report on there. On the asphalt side, again, we are just looking at all the – we haven’t announced anything on the specifics of capital cost estimate that goes with our asphalt expansion. What I will say is just to remind everyone, because of the very specific feedstock we used at Lloyd crude. It is advantaged crude from a perspective of making asphalt, because we don’t have to add a whole lot of additives to get it to the type of premium specifications, the market that we are targeting. And that gives us that deep, embedded advantage going forward. And so we will provide more details when we have it all scoped out a little tighter. We do by the way, just your comment on market, of course that’s a big part of our study is looking at the market and where we would place this material and ensuring that we wouldn’t be damaging margins by moving the product to those markets.

Asim Ghosh

Paul, Jon did give you some investment criteria that we use for upstream. I would say that in downstream and that the nature of the business is not related to oil price, but the margins could be relatively stable regardless of oil price. We would be interested in advancing projects that give us high-teens returns. And so that will be kind of a return criteria you need to keep in mind in terms of whatever we are looking at in terms of downstream investments.

Paul Cheng

Asim, do have a timeline when you will decide whether you are going to FID on these projects?

Asim Ghosh

I would say that we will spend the next year doing the pre-engineering on this project. So it’s in the early stages of assessment that no decision has been made. But our immediate next steps are really to scope out exactly the question you asked, what is the size of the project and potential investment terms.

Paul Cheng

Thank you.

Operator

The next question is from Fernando Valle of Citi. Please go ahead.

Fernando Valle

Hi guys. Thanks for taking my question. I just wanted to ask on the portfolio, I know you have talked about being balanced, but is there still room for asset divestitures on the commercial side in Northern Canada where you could use those proceeds to reinvest on the thermal portfolio?

Asim Ghosh

Well. I think the bulk of the restructuring we want to do in Western Canada has been done and as we highlighted – explained earlier, this was not the best year to sell gas assets. However, we could need to have gas assets that don’t fit in within our overall focused portfolio, but nonetheless, good assets of their own ride. And at the right time, we will look at some further work on that. But I think the back of the – the bulk of the restructuring is now behind us.

Fernando Valle

Great. Thank you very much.

Operator

This concludes the analysts Q&A portion of today’s call. We will now take questions from members of the media. [Operator Instructions] The first question is from Geoff Morgan of The Financial Post. Please go ahead.

Geoff Morgan

Good morning. Thanks for taking my question. With respect to the spill, how far downstream did the heavy oil reach, has it gotten to any of the cities downstream from Lloydminster, for example North Battleford?

Rob Peabody

Yes, okay. This is Rob Peabody again. Just again, I will reemphasize major events I will address your question. As we say, the volumes were about 200 cubic meters to 250 cubic meters. Some of that was – some of that was just on the land and we are recovering some of that at the moment. We put firms in place and booms are deployed along the river. We are working closely with the government, joint effort just to ensure that all the municipalities are very well informed and can deal with any water quality issue they see. We have got a water sampling and testing program that we are going to be doing. No – and I would emphasize that as of now, there have been no water advisories issue. In terms of how far this has gone down the river, there was a sheen noticed initially. We really haven’t seen anything since. And none of the communities down the river so far have recorded any cyclings of oil or energy.

Geoff Morgan

Okay. So, the cities like North Battleford have not noticed a sheen on the river?

Asim Ghosh

Yes. And just separately as I said, we are working very closely with these cities. The battle for us in particular, if it was required, they have their own backup water system, because they can’t always draw from the river in any case because of changes in torpidity and things like that. So they have a system they draw and if they have to, but they haven’t seen any.

Geoff Morgan

Okay. And another question unrelated with your disposition program, do you see any further asset sales over the course of the third quarter or the fourth quarter?

Asim Ghosh

Jon, do you want to take that?

Jon McKenzie

Yes, sure. This is Jon McKenzie. We do have some asset sales that have closed in the month July they are smaller than what we had closed in Q2. And as Asim spoke to in a prior question, the bulk of our assets sales are really behind us. We did announce a bigger program of currency and supply, this was probably not the best year to sell natural gas assets. We said at very beginning of this program that this wouldn’t be a fire sell. So if the market changes and allows us to do a further restructure we will consider that the bulk of the heavy lifting is now behind us.

Geoff Morgan

Thank you.

Operator

The next question is from Julie Gordon of Reuters. Please go ahead.

Julie Gordon

Hi there. Thanks for taking my call. If I could just go back to the spill, again I am just wondering if the pipeline closures having any impact on flows, if there is some material impact there that we should be aware of that’s it’s effecting any shipments?

Rob Peabody

Yes. So this is Rob again. In terms of business impact, we are working through it. But this gathering system is flexible. There is more than one way to get through the front line system and so as we really are expecting minimal impact to production at this stage.

Operator

The next question is from Rebecca Penty of the Bloomberg News. Please go ahead.

Rebecca Penty

Thanks for taking my question. I think it was Jon earlier who was talking about the spill and that you guys would apply some lessons learned in him. I am curious whether you have any insights yet on what caused the spill and why there was the pipeline failure as well as do you know lessons that you have learned so far in responding?

Rob Peabody

This is Rob again. The – yes, the investigation will take place subsequent to the first priority here, which is just to absolutely focus on containment and water quality monitoring and working with our local communities to ensure that we mitigate any effects that might appear from it. Then we will get on to the investigation. And my experience in these things is it takes several weeks before you actually can get to conclusive results and that’s sometimes optimistic, it’s sometimes even longer than that. But whatever we do ultimately get to is the root cause of this will be incorporated into our management systems going forward.

Rebecca Penty

Okay. And just a quick follow-up question, you mentioned that some of the spill was on the land. Do you have a sense of how much oil actually would have made it into the river versus on the land?

Asim Ghosh

Yes. No, we don’t have any specifics on that. We are kind of focused on picking up everything we can.

Rebecca Penty

Okay, thank you.

Operator

The next question is from [indiscernible] of Radio Canada. Please go ahead.

Unidentified Analyst

Yes, hi. My question is in regards to the spill as well. Do you know how old is the pipeline and also when was the last inspection?

Asim Ghosh

I don’t have any specifics on that. So, we do have a normal management plan. And all pipelines great regular inspections and so those details are around, but as I say, at the moment, the focus has just been on dealing with the incident we are dealing with.

Unidentified Analyst

Okay. And just a quick follow-up as well, you don’t know if the leak was on vertical or horizontal segment of the pipeline?

Rob Peabody

No, not specifically. What we do know is the leak was not under the river. As far as we can see, the leak was kind of in a location near the river.

Unidentified Analyst

Okay, thank you.

Operator

The next question is from Jameson Berkow of Business News Network. Please go ahead.

Jameson Berkow

Hi, there. More broadly speaking, I am curious to know your thoughts on the whole public perception issue the fact that second quarter results at least from the media perspective getting kind of overshadowed by the spill. Are you concerned at all that perhaps this is a PR issue that’s almost un-winable in the sense that there is no 100% guarantee that there will never be pipeline spills. And yet every time, one comes up, there is a very strong, increasingly strong, you could say, public reaction.

Asim Ghosh

Well, look, I mean, to be honest with you, I distinguish between the media reaction and the public reaction. But as far as we are concerned, we are just focused on getting on with the job. If we have a pipeline spill, we address the pipeline spill. We ensure we have got procedures in place and we ensure that we make the procedures even more robust formation, I think experience. And as far as the results of that, we will continue to work on the internal results of the company regardless, I mean, it’s not an either/or, but as far as the pipeline is concerned, we will continue to provide regular updates on our progress. And as always, as Rob said, it is speech, our main focus is on the safety of the public and the protection of the environment.

Jameson Berkow

Could you just maybe elaborate a little on the distinction between the media reaction and the public reaction? Is that we are paying more attention to it than the general public?

Asim Ghosh

Well, we are obviously very sensitive to whatever we get from the public. And we are making sure that we are communicating with them. And from our point of view, both are important.

Rob Peabody

Yes. And I would just add one thing both are absolutely important, but we are very engaged with the local communities, all the landowners in the area and working together with them to make sure that we get the best outcome here we possibly can and that’s been going very well.

Jameson Berkow

Thank you very much.

Operator

[Operator Instructions] The next question is from Reid Southwick of the Calgary Herald. Please go ahead.

Reid Southwick

Hi, hello there. Thanks for taking my question. I am just wondering whether management believes we have hit the bottom on oil and gas prices yet or if there is still some room to go. And how any of those projections will influence decisions on capital spending over the next 18 months or so?

Asim Ghosh

Well, I think as we said what the capital spending for the next year will be for this year, we have already given guidance for the next we will be in a position to give guidance in our normal communication process towards the end of the year. As to what the oil price will be, I just have to say that we are focused on making Husky resilient and to be able to write out cycles at any reasonable sustainable levels, the market could throw at us. So, what we are focused on is internal resiliency rather than forecasting an oil price and therefore looking at Husky’s resilience coming at from that gift from the market.

Reid Southwick

Okay, thank you.

Operator

This concludes the time allocated for questions on today’s call. I would now like to turn it back over to Mr. Asim Ghosh for closing remarks.

Asim Ghosh

Yes, thank you. So, basically to summarize what I just said earlier when I started off this morning, the main elements of the transformation we have undertaken over the past 6 years are now largely in place. And as a result, Husky is now in a place where we do not need to be defined by any single project or any particular business segment. There are many strings in that, that together make us a more resilient business. Thank you for joining us as always.

Operator

This concludes today’s conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!