Forward-Looking Statements and Information
Certain statements in this document are forward-looking statements and information (collectively “forward-looking statements”), within the meaning of the 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 annual report 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”, “could”, “aim”, “vision”, “goals”, “objective”, “target”, “scheduled” 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; the emissions reduction target by 2025; ambitions to achieve net zero emissions target by 2050; expectations, targets and goals regarding the Company’s future safety performance; the Company’s use of technology to lower steam-oil ratios and emissions at thermal projects; opportunities to make improvements to address climate change; the belief that more renewable energy is needed and that the world will continue to use oil and gas; results of the Company’s scenario analysis; the Company’s ESG priority topics and objectives, including those for Safety and Operations Integrity, Economic, Environmental, Social and Governance; the timing to finalize maturity scales for priority topics and plans to continue refining such topics; the expected benefits of the Company’s new diluent reduction technology; the timing of first production at Liuhua 29-1; the belief that carbon capture technologies have the potential to reduce carbon capture costs and reduce the carbon intensity of heavy oil production; the advancement of technologies to improve the Company’s water efficiency; the focus on reclamation work at previously abandoned well sites; the goal to decommission facilities in a safe, orderly, timely and cost-effective manner; the timing for decommissioning of Pikes Peak; average time frames for site closures under the ABC program; and the Company’s approach to lobbying, including its positions on key issues.
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 reserves and production estimates.
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, including assumptions regarding the Company’s successful implementation of measures to reduce emissions. 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, 2019 and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com and the EDGAR website www.sec.gov) describe some of the 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 meanings 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 and free cash flow. These non-GAAP measures are considered to be useful as complementary measures in assessing the Company’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 excluding change in non-cash working capital.
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.
Free cash flow was restated in the fourth quarter of 2018 in order to be more comparable to similar non-GAAP measures presented by other companies. Changes from prior period presentation include the removal of investment in joint ventures. Prior periods have been restated to conform to current presentation.
The following table shows the reconciliation of net earnings to funds from operations and free cash flow, and related per share amounts, for the periods indicated:
|Items not affecting cash:|
|Depletion, depreciation, amortization and impairment||5,496||2,591||2,882|
|Inventory write-down to net realizable value||15||60||–|
|Exploration and evaluation expenses||355||29||6|
|Deferred income taxes (recoveries)||(974)||396||(359)|
|Foreign exchange gain (gain)||(26)||(6)||(4)|
|Gain on sale of assets||(8)||(4)||(46)|
|Unrealized mark to market loss (gain)||44||(150)||56|
|Share of equity investment gain||(59)||(69)||(61)|
|Gain on insurance recoveries for damage to property||(207)||(253)||–|
|Settlement of asset retirement obligations||(276)||(181)||(136)|
|Distribution from joint ventures||187||72||25|
|Change in non-cash working capital||(280)||130||398|
|Cash flow - operating activities||2,971||4,134||3,704|
|Change in non-cash working capital||280||(130)||(398)|
|Funds from operations||3,251||4,004||3,306|
|Free cash flow||(181)||426||1,086|
Disclosure of Oil and Gas Information
Unless otherwise indicated: (i) reserves estimates have been prepared by internal qualified reserves evaluators in accordance with the Canadian Oil and Gas Evaluation Handbook, have been audited and reviewed by Sproule, an independent qualified reserves auditor, have an effective date of December 31, 2019 and represent the Company’s working interest share; (ii) historical production volumes provided are gross, which represents the total or the Company’s working interest share, as applicable, before deduction of royalties; (iii) all Husky working interest production volumes quoted are before deduction of royalties; and (iv) historical production volumes provided are for the years ended December 31, 2019, 2018 and 2017, as applicable.
The Company uses the term "barrels of oil equivalent" (or "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.
The following table provides the full product breakdown for production, before royalties, for the periods indicated:
|Production (Twelve Months Ended)||Dec. 31 2019||Dec. 31 2018||Dec. 31 2017|
|Light crude oil & medium (mbbls/day)||25||31||51|
|Heavy crude oil (mbbls/day)||30||37||44|
|Natural gas liquids (mbbls/day)||23||23||18|
|Conventional natural gas (mmcf/day)||501||507||539|
|Total equivalent production (mboe/day)||290||299||323|
(1) Numbers in the table may not add due to rounding.
Note to U.S. Readers
The Company reports its reserves information in accordance with Canadian practices and specifically in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, adopted by the Canadian securities regulators. Because the Company is permitted to prepare its reserves information in accordance with Canadian disclosure requirements, it may use certain terms in that disclosure that U.S. oil and gas companies generally do not include or may be prohibited from including in their filings with the U.S. Securities and Exchange Commission.
All currency is expressed in Canadian dollars unless otherwise indicated.