This report focuses on performance for the 12-month period ending December 31, 2017, unless otherwise noted.
All financial data is reported in Canadian dollars, and excludes discontinued operations. Please refer to the 2017 Annual Report and other reporting documents at www.huskyenergy.com for detailed information on financial and operational performance.
Financial information is presented on a net equity basis. Quantitative information is presented on a gross operated basis, unless otherwise stated.
This report covers 2017 activities and metrics, with reference to activities before 2017 or in early 2018 when they provide more context around our performance. This report uses gross operated information for assets where Husky was the operator during 2017 or for any portion of that year. All air emissions and energy numbers are the exception, where we report gross operated information for assets where Husky was the operator as at 31 December 2017, unless otherwise noted.
Monitoring and Measurement
Asset retirement obligation data, energy, emissions to air and water, groundwater quality and greenhouse gas data are estimated and recorded as per Husky’s Environmental Performance Reporting System.
Quantifiable data for operations is presented to meet or exceed regional jurisdictional and reporting requirements. Excluded data is footnoted.
Internal Governance and Verification
Husky’s health, safety and environment activities are guided by a committee of the Board of Directors and the Executive Health, Safety and Environment Committee.
The data in this report has been reported, reviewed and approved in accordance with internal measurement and verification practices, and reflects information relevant to Husky’s business sustainability and its shareholders.
KPMG provided independent limited assurance on select 2016 performance indicators disclosed in this report.
Forward-Looking Statements and Information
Certain statements in this document, including “financial outlook”, are forward-looking statements and information (collectively “forward-looking statements”), within the meaning of applicable Canadian securities legislation, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. The forward-looking statements contained in this document are forward-looking and not historical facts.
Some of the forward-looking statements may be identified by statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result”, “are expected to”, “will continue”, “is anticipated”, “is targeting”, “estimated”, “intend”, “plan”, “projection”, “forecast”, “guidance”, “could”, “may”, “would”, “aim”, “vision”, “goals”, “objective”, “target”, “schedules” and “outlook”). In particular, forward-looking statements in this document include, but are not limited to, references to: the Company’s general strategic plans and growth strategies; expected total daily production volumes from the Westhazel, Edam Central, Rush Lake 2, Dee Valley, Spruce Lake North and Spruce Lake Central Lloyd thermal bitumen projects; expected timing of ramp up of production and expected 2018 production volumes from the Tucker Thermal Project; expected timing of first production from Liuhua 29-1; expected timing of first oil from the West White Rose Project; anticipated benefits from, and expected timing of start-up and design capacity of, Husky’s hydrogen diluent reduction pilot program at the Sunrise Energy Project; anticipated benefits from, and expected timing of construction of, a landfill at a former sulphur handling facility near Whitecourt, Alberta; anticipated benefits from an agreement between Husky and a Calgary company relating to the reuse of sulphur from the base of a former sulphur pad at the Ram River gas plant; anticipated timing of deployment of, and benefits from, methane and GHG emission reduction pilot projects, including at Ansell and some of the Company’s CHOPS operations; planned changes to executive compensation and employee bonus program, and timing of implementing these changes; anticipated benefits from, and expected timing of commissioning and design capacity of, Husky’s second CO2 capture pilot project at Pikes Peak South Lloyd thermal project; and anticipated benefits from a crude oil flexibility project underway at the Company’s Lima Refinery.
In addition, statements relating to “reserves” are deemed to be forward-looking statements as they involve the implied assessment based on certain estimates and assumptions that the reserves described can be profitably produced in the future. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary from reserve and production estimates.
Certain of the information in this report is “financial outlook” within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding the Company’s reasonable expectations as to the anticipated results of its proposed business activities. Readers are cautioned that this financial outlook may not be appropriate for other purposes.
Although the Company believes that the expectations reflected by the forward-looking statements presented in this document are reasonable, the Company’s forward-looking statements have been based on assumptions and factors concerning future events that may prove to be inaccurate. Those assumptions and factors are based on information currently available to the Company about itself and the businesses in which it operates. Information used in developing forward-looking statements has been acquired from various sources, including third party consultants, suppliers and regulators, among others.
Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors should not place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Some of these risks, uncertainties and other factors are similar to those faced by other oil and gas companies and some are unique to the Company.
The Company’s Annual Information Form for the year ended December 31, 2017 and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com and the EDGAR website www.sec.gov) describe risks, material assumptions and other factors that could influence actual results and are incorporated herein by reference.
New factors emerge from time to time and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are dependent upon other factors, and the Company’s course of action would depend upon management’s assessment of the future considering all information available to it at the relevant time. Any forward-looking statement speaks only as of the date on which such statement is made and, except as required by applicable securities laws, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
This document contains certain terms which do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and are therefore unlikely to be comparable to similar measures presented by other issuers. None of these measures is used to enhance the Company’s reported financial performance or position. The non-GAAP measures included in this document are: funds from operations, free cash flow, and WTI price required to break even. These non-GAAP measures are considered to be useful as complementary measures in assessing Husky’s financial performance, efficiency and liquidity.
Funds from operations is a non-GAAP measure which should not be considered an alternative to, or more meaningful than, “cash flow – operating activities” as determined in accordance with IFRS, as an indicator of financial performance. Funds from operations is presented in the Company’s financial reports to assist management and investors in analyzing operating performance of the Company in the stated period. Funds from operations equals cash flow – operating activities plus change in non-cash working capital.
Funds from operations has been restated in the second quarter of 2017 in order to be more comparable to similar non-GAAP measures presented by other companies. Changes from prior period presentation include the removal of adjustments for settlement of asset retirement obligations and deferred revenue. Prior periods have been restated to conform to current presentation.
Free cash flow is a non-GAAP measure which should not be considered an alternative to, or more meaningful than, “cash flow – operating activities” as determined in accordance with IFRS, as an indicator of financial performance. Free cash flow is presented to assist management and investors in analyzing operating performance by the business in the stated period. Free cash flow equals funds from operations less capital expenditures.
The following table shows the reconciliation of cash flow – operating activities to funds from operations and free cash flow for the years ended December 31:
|Net earnings (loss)||786||922||(3,850)|
|Items not affecting cash:|
|Depletion, depreciation, amortization and impairment||2,882||2,462||8,644|
|Inventory write-down to NRV||-||9||22|
|Exploration and evaluation expenses||6||86||242|
|Deferred income taxes||(359)||29||(1,827)|
|Foreign exchange loss (gain)||(4)||(4)||27|
|Loss (gain) on sale of assets||(46)||(1,634)||(16)|
|Unrealized market to market loss (gain)||56||38||-|
|Share of equity investment loss (gain)||(61)||(15)||-|
|Settlement of asset retirement obligations||(136)||(87)||(98)|
|Distribution from joint ventures||25||-||-|
|Change in non-cash working capital||398||(227)||427|
|Cash flow – operating activities||3,704||1,971||3,760|
|Change in non-cash working capital||(398)||227||(427)|
|Funds from operations||3,306||2,198||3,333|
|Free cash flow||1,086||493|
WTI price required to break even reflects the estimated WTI oil price per barrel priced in US dollars required in order to generate a net income of Cdn$0 in the 12-month period ending December 31, 2017. This assumption is based on holding several variables constant throughout the period, including foreign exchange rate, light-heavy oil differentials, realized refining margins, forecast utilization of downstream facilities, estimated production levels and other factors consistent with normal oil and gas company operations. WTI price required to break even is used to assess the impact of changes in WTI oil prices on the net earnings of the Company and could impact future investment decisions. WTI price required to break even does not have any standardized meaning and therefore should not be used to make comparisons to similar measures presented by other issuers.
Disclosure of Oil and Gas Information
Unless otherwise indicated: (i) reserves estimates in this document have been prepared by internal qualified reserves evaluators in accordance with the Canadian Oil and Gas Evaluation Handbook, have an effective date of December 31 in the years indicated and represent the Company’s working interest share before royalties; (ii) projected and historical production volumes provided represent the Company’s working interest share before royalties; and (iii) historical production volumes provided are for the years ended December 31, 2017, 2016 and 2015, as applicable.
The Company uses the term barrels of oil equivalent (“boe”), which is consistent with other oil and gas companies’ disclosures, and is calculated on an energy equivalence basis applicable at the burner tip whereby one barrel of crude oil is equivalent to six thousand cubic feet of natural gas. The term boe is used to express the sum of the total company products in one unit that can be used for comparisons. Readers are cautioned that the term boe may be misleading, particularly if used in isolation. This measure is used for consistency with other oil and gas companies and does not represent value equivalency at the wellhead.
All currency is expressed in Canadian dollars, unless otherwise directed.