2 Reasons to Buy Husky Energy

Growth-oriented investors should look no further than this well-positioned energy major.

| More on:
The Motley Fool

With Husky Energy’s (TSX: HSE) four-year-old repositioning strategy now firmly paying dividends, the company is open to making a major transformational acquisition. But it is not only this development, or even its solid balance sheet, diversified portfolio of projects, growing cash flows, or tasty dividend yield of over 3% that makes the company attractive to investors.

Husky has two key assets that hold considerable long-term growth potential, making it a must-have investment for any growth-oriented share portfolio. So let’s take a closer look at those assets and the promise they hold.

1. A strong and growing presence in Asia

Unlike the majority of its Canadian peers, Husky has a particularly strong presence in Asia. It has exploration and production assets located offshore of China and Indonesia, which are particularly important because they give it access to these lucrative energy markets.

China has already overtaken the U.S. to become the world’s largest net importer of crude, and it, along with southeast Asia, is expected to become the global driver of energy demand over the next 25 years.

Of Husky’s assets in the region, the most critical at this time is the Liwan natural gas project located in the South China Sea. Husky has a 49% working interest in the project, with the remainder held by China’s CNOOC (TSX: CNU)(NYSE: CEO). It is the first deep water gas project offshore of China and Husky’s largest project to date, giving it access to the lucrative Chinese energy market. Even more importantly, the partnership with CNOOC gives Husky a partner with deep pockets, and one that is familiar with the convoluted nature of doing business in China.

The project delivered first gas in March of this year, with production during 2014 expected to be between 250 and 300 million cubic feet daily. More promising is that Husky and CNOOC have secured a contract that sets the price paid for natural gas from $11 to $13 per thousand cubic feet. This represents a significant premium over the current NYMEX price for natural gas, which is almost 2.5 times greater, boding well for Husky’s profitability from the project.

More impressively, there are two additional fields yet to be fully developed and commence production. These fields are expected to produce first gas between the second half of 2014 and 2016, with the potential to expand production to as high as 500 million cubic feet daily.

Husky’s share of total gas and natural gas liquids sales is expected to be 32,000 barrels of crude equivalent daily, which is a 10% increase over Husky’s average daily production in the first quarter of 2014.

This highlights the remarkable potential of this project for Husky and the significant contribution it can make to the company’s bottom line.

2. Husky’s Atlantic assets hold considerable promise

The next key assets that hold considerable promise, which Husky defines as core assets, are those in the Atlantic Ocean. These assets are comprised of a 72.5% interest in the White Rose field and a 68.75% interest in the South and West White Rose fields, as well as the North Amethyst field. It also holds a 13% working interest in the Terra Nova field, operated by Suncor Energy (TSX: SU)(NYSE: SU), which has a 37.68% interest.

These assets are important because they give Husky access to light crude with its sale price benchmarked to Brent, which trades at a premium to West Texas Intermediate. Over the last year this premium has typically been between 3% and 15% and is currently at around 6%, giving Husky higher margins on the crude produced from these assets. It also gives Husky access to European energy markets, reducing dependence on oil exports to the U.S. This is important as the U.S. is becoming an increasingly saturated market due to exponential growth in light crude production thanks to the shale oil boom.

More importantly, Husky has a 35% working interest in three Flemish Pass Basin discoveries — the Bay du Nord, Mizzen, and Harpoon discoveries — which it made with its partner, Norway’s Statoil (NYSE: STO). Of these three, Bay du Nord holds the most promise. It is estimated that this discovery alone holds up to 600 million recoverable barrels of light crude. Depending on the results of various appraisal activities, it is estimated that this discovery will come online to commence production around 2020.

The Flemish Pass Basin is fast shaping up as an exciting new frontier for oil and gas drilling, as it’s believed to hold tremendous potential. This bodes well for Husky to continue expanding its oil reserves, while providing it with a long-term development opportunity.

These assets give Husky a clear advantage over many of its peers, with it now able to access the lucrative and increasingly important Chinese energy market. In addition, Husky is gaining increased access to European energy markets at a time when Europe is looking to reduce dependence on Russian energy exports, thereby boosting the proportion of Husky’s sales benchmarked to lucrative Brent pricing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith does not own shares of any companies mentioned.

More on Investing

investor looks at volatility chart
Investing

I’d Put $5,000 in These 2 Canadian Stocks Despite Current Market Uncertainty

Here are two top Canadian stocks long-term investors worried about continued uncertainty may want to consider.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Top TSX Stocks

Here Are the Average Canadian TFSA and RRSP Balances at Age 45

Are you investing enough? Learn what the average Canadian is investing in a TFSA and RRSP at age 45, and…

Read more »

A plant grows from coins.
Dividend Stocks

TFSA Income: 2 Top Dividend-Growth Stocks With 5% Yields

These stocks have increased their dividends annually for more than two decades.

Read more »

Senior uses a laptop computer
Stocks for Beginners

Smart TFSA Strategy: How I’d Invest $10,000 in Today’s Canadian Market

A TFSA can save you a massive amount of cash, especially if your investment hits a huge home run. Here's…

Read more »

clock time
Dividend Stocks

This Canadian Dividend Stock Down 68%: Why I’d Add it to My $7,000 TFSA Investment

Do you want trophy office assets at 40 cents on the dollar while collecting an 11.4% distribution yield? This beaten-down…

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Energy Stocks

3 Canadian Green Energy Stocks to Buy and Hold in Your TFSA for a Sustainable Future

Renewable energy stocks are some of the best options for long-term growth, and these are top options.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

How I’d Use This 8.7% Monthly Dividend Stock in my Income Strategy

This monthly dividend stock continues to be one of the best options for investors looking for passive income.

Read more »

A child pretends to blast off into space.
Top TSX Stocks

How I’d Navigate the Market With Canadian Value Stocks in My Portfolio

The current market scenario is nirvana for value seekers as the fear of a recession has pulled down the price…

Read more »