DBRS Confirms Husky Energy at A (low), Pfd-2 (low), Stable

DBRS has today confirmed the ratings of Husky Energy Inc. (Husky or the Company). The confirmation reflects Husky’s improving business risk profile, while maintaining a conservative balance sheet.

Husky’s financial risk profile is indicative of a strong “A”-rated entity with key credit metrics being well above the minimum benchmarks prescribed for the rating. For the last 12 months ended Q3 2013, Husky’s adjusted debt-to-capital of 19.3% (< 35% required for an “A”-rated entity) and debt-to-cash flow of 0.75 times (x) (< 1.5x required for an “A”-rated entity) remain strong for its rating category. In 2014, DBRS anticipates Husky’s capex to be approximately $4.8 billion and its dividends around $1.2 billion. Based on the current pricing environment and new incremental production, DBRS estimates Husky to have a free cash flow shortfall of approximately $300 million to $500 million in 2014. To finance this deficit, Husky has $4.8 billion (Q3 2013) in liquidity consisting of cash on hand ($1.6 billion) and committed credit facilities ($3.2 billion). DBRS, therefore, does not anticipate deterioration in current credit metrics in 2014.

The Company’s business profile is reflective of a BBB (high) rating with (1) average reserve life (9.8 years), (2) relatively high reserve replacement costs and (3) mid-sized operations (313 thousand barrels of oil equivalent per day (mboe/d)). DBRS acknowledges Husky’s business risk profile has been improving largely driven by its increasing production and a more diversified geographical mix. The Company is on track to achieve annual production growth targets of 5% to 8% compounded through 2017. To achieve this growth, the Company’s strategy is to invest heavily in Asia-Pacific, Oil Sands and Atlantic Canada. This should help the Company diversify and reduce its risk exposure to heavy oil in Western Canada.

The stable trend reflects DBRS’s expectation that the Company will continue to maintain its financial discipline through the phased capital investment approach as it increases its production, and assuming current commodity prices, its cash flow through 2017. Given the near completion stage of some of its key growth projects (i.e., the Liwan Gas and Sunrise Energy projects), the Company should see its production and resultant cash flow ramp up significantly over the next two years, and support for its incremental capex program and/or higher dividends without affecting the current rating category.

Note: All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.