Husky Energy Inc. cumulative redeemable preferred T.HSE.PR.B

Heavy Oil discount narrow

[Nawaralsaadi]

Western Canada Select heavy blend for October was discussedat around $11.50 a barrel under WTI, compared with about $12under last month.

https://www.reuters.com/article/2011/08/31/markets-cancrude-idUSN1E77U1WA20110831?feedType=RSS&feedName=rbssEnergyNews&rpc=43

It is worth noting that in Q2 the discount averaged $18 (It averaged $23 last year), and this quarter it is averaging under $12, this means the narrowing has reduced the impact of the WTI decline by $6, this is quite significant when we consider that 50% of Husky production is heavy.

This is another data point which indicate that Husky will have very strong Q3 numbers driven by:

- Very Strong refining margins (offset to some extent by seasonal maintenance)
- Growing production (and restart of Rainbow).
- Weaker Canadian dollar.
- Brent holding strong.
- WTI holding at decent levels.
- Narrower Heavy oil discount.
- NG prices holding flat.(thus not a drag)

It takes a long time for the street to change its view, but as Husky continue to deliver stronger and consistent results the street will re-evaluate the shares to a much higher level at some point.

Possible Catalysts to look for in the next few months (in addition to earnings):

- Partnership at Ansell (company already indicated it is searching for a partner there).
- Appraisal well results at Mizzen from Statoil (Husky owns 35%) as well as another well results near Terra Nova also operating by Statoil (husky owns 50%).
- Possible HK listing.
- I also suspect that Husky may buy producing assets if something of interest comes along, the company is cash rich and can tap the credit markets if need be.

However if the macro situation worsen (especially in Europe), global stock market could take a major dip and husky will get hurt in the process.

Regards,
Nawar