MENU

First Brexit… then Trump… Now, it’s time for Pro

Is your portfolio really prepared for what’s coming next?

To help investors like you navigate this historically uncertain — yet high-flying — market and prepare for an inevitable downturn, we’re re-opening our Motley Fool Pro Canada service to a select few new members for a short time.

To discover how Pro Canada could help you to increase your upside potential… reduce your downside risk… and earn paycheque-like income in the process, simply click here — before the small number of spots we have left are all gone!

Husky Energy Inc. Just Made a Critical Deal

After posting a record loss last quarter, Husky Energy Inc. (TSX:HSE) needed to free up billions in capital to ensure it could continue operating throughout the industry downturn.

This week it received a lifeline from its controlling shareholder, Li Ka-Shing, who used his other companies to buy a 65% interest in Husky’s midstream operations. The $1.7 billion deal included 1,900 kilometres of pipelines and 4.1 million barrels of fuel storage tanks. “This transaction unlocks significant value and supports our objective of strengthening the balance sheet,” said CEO Asim Ghosh.

With its balance sheet now intact, what’s next for Husky Energy?

Don’t expect anything splashy

On its conference call, Husky’s CEO said the company will wait for the oil markets to rebalance before ramping up capital expenditures or dividends.  The company has been hit by both depressed oil prices and the lowest refining margins in the U.S. Midwest since 2010. “We take every input into account, including reading about the massive reshaping of the Saudi world,” he said. “We want to look at a state of solidity, rather than just short-term headlines.”

Until oil markets stage a sustainable rebound, expect Husky to continue driving operational effeciencies throughout its business segments. Last year it lowered maintenance costs by 15-20% and aims for a sub-$40 breakeven level by the end of 2016. According to management, any new investments will have a breakeven level of just $30 a barrel.

So, even with oil hovering around $40 a barrel, many projects should remain profitable. If oil improves, profitability will grow exponentially. While other companies are still pursuing higher-cost growth projects, Husky is comfortable with focusing on high-quality assets.

Revamped balance sheet ensures viability

Even before the recent asset sales, Husky management anticipated adding zero debt to the balance sheet, something few other operators could do. Now armed with $1.7 billion in extra cash, the company is completely capable of withstanding a prolonged downturn. It maintains an investment grade rating and still has $2.8 billion in unused credit facilities.

The company doesn’t have any material debt maturities until 2019, and its net debt to capital levels are now lower than Cenovus Energy Inc.Imperial Oil Limited, and Suncor Energy Inc.

When shares hit a decade low of just $11.34 in January, the market was concerned with Husky’s ability to keep operating at depressed oil prices. The latest cash infusion should put those fears to rest.

A safe harbour during the storm

Husky is now positioned to not only weather the current downturn, but be very profitable when markets stabilize. Cash flows should support capital spending this year, even with prices as low as $30 a barrel. That combined with efforts to reduce its breakeven price makes Husky a worthy option for energy investors playing a long-term rebound in oil.

Urgent update: Motley Fool issues rare "double down" stock alert

Not to alarm you but you recently missed an important and rare event. Stock Advisor Canada issued a "double down"... and history suggests it pays to listen. Because 10 of the most lucrative "double downs" in one of the Motley Fool's premier services skyrocketed an average of 434%!

So, simply click here to discover why Motley Fool "double downs" have some investors rocking with excitement. Five years from now, you'll wish you'd grabbed this stock.

Click here to learn more.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.