Husky Energy Inc. (TSX:HSE) is one of the largest producers of oil in Canada. The stock crashed 67% from peak to trough during the oil rout and has been struggling to rebound ever since. The stock has been relatively flat for over a year, suggesting that many investors probably aren’t looking at Husky because of the lack of a dividend.
If oil prices continue to rise to the high $50 or $60 levels, then I believe the dividend could be brought back and the stock could enjoy a substantial amount of upside from current levels. The company owns a lot of capital-intensive projects, and that’s a part of the reason why its stock was hit harder than some of its large-cap peers.
The company is planning to sell some of its eastern Canadian offshore assets with the hopes to obtain a few billion dollars in cash.
Hong Kong billionaire and controller of Husky Energy, Li Ka-Shing, believes that assets that are capital intensive aren’t great to have in a low-oil-price environment. It is believed that the cash raised from the sale of such capital-intensive assets will go towards an investment in a foreign market like Africa or Asia.
Capital-intensive assets will continue to be a huge thorn in the sides of the management team at Husky. The company was hit hard when oil prices tanked over a year ago, and if oil drops to these levels again, it will be very difficult to generate long-term value for shareholders. I believe the capital-intensive asset sales are a step in the right direction as the company looks to improve its risk-management strategy.
Nobody knows where the price of oil is going from here. There are fears that members of OPEC may break the recent pact to cut down on production, and oil stocks could potentially be hit hard, so it’s a good sign that the company is taking action to improve itself for when times are tough.
Husky has an increased production forecast for 2017, and capital expenditures are expected to increase. An average production of 320,000-335,000 barrels of oil per day is expected for this year — up from 318,000-320,000 barrels of oil per day last year. The company has a decent balance sheet, and it’s quite possible that the company could bring back its dividend this year if oil prices continue to rise.
I think the company is incredibly cheap right now, and if you’re bullish on oil prices, you should scoop up shares today. Sure, there’s no dividend right now, but that could soon change.
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Fool contributor Joey Frenette has no position in any stocks mentioned.