DBRS Morningstar Confirms Ratings of Husky Energy Inc.

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Notes and Debentures rating of Husky Energy Inc. (Husky or the Company) at A (low). DBRS Morningstar also confirmed the Company’s Commercial Paper at R-1 (low) and Preferred Shares – Cumulative at Pfd-2 (low). All trends are Stable. The ratings are supported by the Company’s size, highly integrated heavy and thermal oil business, capital flexibility and portfolio of lower-cost growth opportunities. Factors tempering the ratings are the Company’s higher percentage of production from Western Canada, relatively shorter proved developed reserve life of 4.7 years and a reserve base geared more to heavy and thermal oil (64% of total proved reserves at YE2018). Also lending support to the ratings, in DBRS Morningstar’s view, is the majority equity stake held effectively by Mr. Li Ka-shing’s family trust and indirectly by CK Hutchinson Holdings Limited that has been of strategic importance in the implementation of Husky’s growth plans.

Husky continues to place a high priority on balance sheet strength, delivering safe and reliable operations and further enhancing the resiliency of the company operations. Capital spending (capex) is being managed to align with free cash flow (FCF) (cashflow after capital spending and dividends before working capital changes). The Company incurred a small FCF deficit in 2018 and DBRS Morningstar anticipates the Company to be near FCF neutral in 2019. Based on DBRS Morningstar’s average West Texas Intermediate (WTI) oil price forecast of USD 55 per barrel in 2020 and 2021 and a light-heavy oil price differential of USD 20 per barrel in both years, neutral FCF is projected in 2020 and a FCF surplus is projected in 2021. Key credit metrics are anticipated to remain relatively unchanged and should underpin the Company’s A (low) rating.

The Company also continues to streamline its asset portfolio. The Company recently closed the sale of the Prince George refinery for $215 million in cash plus a closing adjustment of approximately $53.5 million for inventories and a contingent payment of up to $60 million over two years. In addition, the Company is advancing its strategic review to potentially sell the Canadian retail and commercial fuels business. Proceeds from the sale of the refinery are to be directed to maintaining balance sheet strength and returning capital to shareholders.

The Company’s liquidity profile is satisfactory with a well spread out debt maturity schedule, $4.3 billion of unused credit facilities and $2.4 billion of cash at September 30, 2019. The Company has $993 million of debt maturing by year end which it intends to pay off with available cash. Another $400 million of debt matures next year. DBRS Morningstar views the primary risk to the rating as the oil price risk. If the price of WTI oil declines to the low forties and remains at that level for an extended time period, it could cause material pressure on the Company’s credit metrics. If such a scenario unfolds, DBRS Morningstar may consider a negative rating action.

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

The principal methodologies are Rating Companies in the Oil and Gas and Oilfield Services Industries (August 2019), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019), DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2019) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada