DBRS Confirms Ratings of Husky Energy Inc.

DBRS has today confirmed the ratings of Husky Energy Inc. (Husky or the Company) as follows:

-- Senior Unsecured Notes and Debentures at A (low)
-- Issuer Rating at A (low)
-- Commercial Paper at R-1 (low)
-- Preferred Shares – Cumulative at Pfd-2 (low).

All trends are Stable. The confirmation reflects Husky’s continued and disciplined higher netback liquids-rich and international natural gas growth with improved markets access, which remain supported by a conservatively managed financial risk profile.

Husky’s business risk profile is underpinned by successful growth in its liquids production while maintaining strong integration with its downstream operations and increased market access that continue to mitigate its concentration risk within Western Canada. The Company has benefitted from its strong integration in managing the light-heavy crude differential that has remained key in supporting the improvement in the Company’s profitability. As Husky’s heavy oil production is expected to become an even larger proportion of its total production in the near term, downstream feedstock flexibility in its Lima refinery operations and access to alternative markets would become even more critical in sustaining the Company through any continued downturn in crude prices.

Whereas Husky does not actively hedge its production, the recent decline in crude prices is likely to put a damper on the Company’s earnings during Q4 2014. DBRS expects that the impact on earnings from lower oil prices for 2014 will likely be muted, as the price-driven decrease in net revenues would be offset by (1) increased overall production, (2) higher proportion of liquids, (3) weaker Canadian dollar and (4) tighter light-heavy differentials.

With several near-to-medium term projects ongoing, Husky’s capex is expected to remain elevated at near 2014 levels ($4.8 billion on a run-rate basis), which could potentially result in a sizable free cash flow deficit under the current falling commodity price environment. While Husky has no major near-term debt maturities, the Company is expected to repay the $1.5 billion in contributions payable before December 2015 to British Petroleum p.l.c (BP; rated “A” with Stable trend) for its 50% share in the downstream partnership (see Joint Venture with BP section on page 11). DBRS believes that Husky has sufficient debt capacity within its credit metrics and liquidity in the form of cash and undrawn credit facilities to fulfill this obligation while maintaining its current ratings. DBRS expects that Husky will maintain strong financial discipline in the wake of falling commodity prices, deferring spending on mid- and long-term projects to the extent of any decline in its operating cash flow. As a result, DBRS expects Husky’s financial risk profile to remain well supportive of its rating category.

Notes:
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.

The applicable methodologies are Rating Companies in the Oil and Gas Industry, Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on our website under Methodologies.

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