Husky: Lima upgrade on hold

LIMA — Declining gas prices caught up with Husky Energy in the second quarter of 2009, leaving the company with profits close to $1 billion shy of what it made in the same period last year and forcing the company to push back plans for the Lima Refinery.

The Canada-based Husky, owner of the Lima Refinery, released its quarterly report last week announcing net earnings of $430 million in the second quarter of the year. That compares to $1.36 billion earned in the second quarter of last year.

The biggest news in the report for Lima is that the company will push back plans to reconfigure the Lima facility to process the heavy crude it draws from the Canadian oil sands. The company has said it plans to spend $2 billion or more on the upgrades.

Husky spokesman Graham White said the company is still investing in the Lima facility and will eventually move ahead with the reconfiguration, but exactly when remains up in the air.

“Timing depends on project economic drivers, mainly the differential as well as the North American economy, which is outside of Husky’s control, so we won’t speculate on the timing,” White said. “But we’re spending over $100 million on environmental compliance over the next five years, this is still very much a long-term goal. The plan hasn’t changed but with the economy as it is, we’ve changed the timing until that improves.”

The drop in company profits ties directly to a marked dip in oil and natural gas prices in the past year along with the decline in crack spread — the difference between the cost of crude oil and eventual value of the refined gas.

Crude oil prices averaged $59.62 per barrel in the second quarter of 2009, compared to $123.98 in the second quarter of 2008. Natural gas prices averaged $3.50 per million British Thermal Units in the second quarter compared to $10.93 in the second quarter of 2008. At the same time, the New York Harbor 3:2:1 crack spread averaged $9.05 per barrel compared to $13.02 in the same quarter of 2008.

“Lower commodity prices and crack spreads compared to the same period in 2008 impacted Husky’s results in the second quarter of 2009. For the quarter, Husky achieved good financial results and remains in a strong financial position,” said John C.S. Lau, president and chief executive officer of Husky Energy Inc.

Despite the drop in profits, Husky is still making money and still investing in its future, Lau said.

“The company continues to focus on the development of its mid- to long-term assets. Progress has been made on the North Amethyst satellite tie-back project offshore Newfoundland and on appraisal drillings in the Liwan gas field in the South China Sea,” Lau said.

Husky’s capital expenditures in the United States totaled $69 million, of which $38 million was spent at the Lima Refinery for front-end engineering related to various projects, optimizations and environmental initiatives that will be undertaken during a turnaround planned for this fall.