In what Husky Energy Inc. CEO Rod Peabody described as a “tough and noisy quarter on many fronts”, much of the noise came from Atlantic Canada.
The Calgary-based company released its 2018 fourth quarter and annual results on Tuesday (Feb. 26) and the results were not pretty on a number of fronts.
For example, its $1.3 billion in capital expenditures for the fourth quarter of 2018 was $275 million over the high end of the guidance it issued in October.
Husky Energy COO Rob Symonds said during a Tuesday conference call that $226 million of that $275 million was due to cost overruns at its West White Rose project in Newfoundland and Labrador.
While answering a question from oil and gas analyst Greg Pardy from RBC Capital Markets about this issue, Peabody said the rise in capital spent on West White Rose – a satellite field of the White Rose oil field that is expected to start production in 2022 – was due in part to cost pressures.
“We were applying extra resources to hit certain milestones, particularly the 46-metre target on the GBS,” he said.
Peabody is referring to the completion of slip-forming on the West White Rose fixed wellhead platform to 46 metres in height.
Peabody said the company decided to use the extra resources because “we were starting to prioritize schedule over capital efficiency.”
He told Pardy Husky has since gone back to prioritizing capital efficiency over schedule with West White Rose. But it now expects to start production a little later in 2022 than originally planned.
Peak production at West White Rose is expected to be 75,000 barrels per day (52,500 bpd Husky working interest).
Husky’s fourth quarter production averaged 304,300 boe per day, compared to 320,400 boed in the fourth quarter of 2017.
The drop in production was in large part due to shutting down the SeaRose FPSO at the White Rose field on Nov. 16, 2018 when 250,000 litres of oil leaked from a subsea flow line connection at the South White Rose extension drill centre during a severe winter storm.
Husky’s chief financial officer Jeff Hart said the production shutdown at SeaRose resulted in an average loss of 10,000 bpd for the company over the fourth quarter.
Production was re-started at the end of January from the central drill centre. But three more drill centres still aren’t producing. Symonds said the company is looking to bring them back onstream by the middle of the year.
When he was asked why that couldn’t be done sooner, Symonds said it was weather related.
It must recover the failed pipeline connector from the bottom of the sea before the other drill centres can resume production. Unfortunately for Husky, it hasn’t had the weather conditions to allow it to do that.
“We are still waiting for a suitable weather window to complete that operation,” Symonds said. “We hope under normal weather conditions in Atlantic Canada we will be up and running fully by the end of quarter two (of 2019).”
Peabody says to do this work it needs seas where waves are no more than 3.5 metres high and the area is clear of ice.
However, during this time of the year those conditions aren’t present much at the White Rose site. Husky’s CEO says when they are present most of these operations take only two days to complete.
In reporting its annual results for 2018, Husky says the netback for its Newfoundland and Labrador oil – an industry term reflecting the net profit on oil and gas after royalties, production and transportation expenses – was $23.19 per barrel.
As for 2019, the company’s guidance for capital spending says it will sink between $1.12–$1.19 billion in Atlantic Canada – much of that figure being invested on advancing West White Rose.
There will also be an eight-day turnaround at the SeaRose in the third quarter of 2019, and a two-week turnaround at the Terra Nova FPSO in the second quarter of the year. Husky has a 13 per cent interest in this offshore oil field that Suncor Energy (37.7 per cent interest) operates 350 kilometres southeast of Newfoundland and Labrador.