Husky Energy Inc., which posted a record loss last year amid the worst oil market downturn in decades, raised C$1.7 billion ($1.3 billion) for some of its Canadian pipelines by keeping them in the family.
The family is that of Li Ka-Shing, Hong Kong’s richest man, who controls Husky. On Monday, Li got a couple of his other units — Power Assets Holdings Ltd. and Cheung Kong Infrastructure Holdings Ltd. — to buy 65 percent in the Canadian company’s midstream operations. Husky will keep operating those assets, which include about 1,900 kilometers (1,181 miles) of pipelines and tanks able to store 4.1 million barrels of oil in Hardisty and Lloydminster.
“For a large part, it’s just them moving money around but it helps Husky’s balance sheet,” Michael Dunn, an analyst at FirstEnergy Capital Corp. in Calgary, said Monday in a phone interview.
Energy companies are making dispositions, reducing spending and cutting workers as U.S. crude prices hover above $40 a barrel almost two years into a slump. Husky’s sale of the midstream assets announced Monday is part of a plan for divestitures laid out last year that also includes oil and natural gas producing properties across Western Canada and a royalty interest on some of its output that altogether could be worth C$3.6 billion to C$4.7 billion, according to an estimate from RBC Dominion Securities.
Best Outcome
The sale to businesses controlled by Li, the richest man in Hong Kong, is probably the best outcome for Husky because the offer was presumably the highest bid Husky received and the company might not have wanted to sell such a large stake in the pipelines to anyone other than the majority shareholder, Dunn said. Husky will retain a 35 percent interest in the assets and continue to operate them, according to terms of the deal.
Li and one of his investment companies together own about 69 percent of Husky, according to data compiled by Bloomberg.
“This transaction unlocks significant value and supports our objective of strengthening the balance sheet,” Asim Ghosh, chief executive officer of Calgary-based Husky, said in a statement Monday.
Power Assets fell as much as 2.8 percent to HK$75.50 and traded 2.5 percent lower as of 1:05 p.m. in Hong Kong. Cheung Kong dropped 1.7 percent to HK$73.70.
Quarterly Loss
RBC Capital Markets and HSBC Securities (Canada) Inc. acted as financial advisers to Husky, while BMO Capital Markets acted as an adviser to a committee of independent directors of Husky and also gave a fairness opinion to the entire board.
Husky posted a loss of C$458 million in the first quarter, or 47 cents a share, compared with a profit of C$191 million or 17 cents a year earlier, the company also said on Monday in a release after North American markets closed. In addition to depressed oil prices and the lowest refining margins in the U.S. Midwest since 2010, the results included losses tied to Husky’s hedging, refining inventories and income tax expenses.
U.S. crude averaged $33.63 a barrel in the first quarter, down from $48.57 a barrel in the same period of 2015.
Husky disclosed a dispute over gas sales from the Liwan field in the South China Sea. Husky said it was paid by its customer, which it didn’t identify, only for volumes sold in the first quarter, rather than for the full volumes agreed to under its take-or-pay contract.
Its partner in the project Cnooc Ltd., a Chinese state-owned energy company, indicated that there were changes in the gas market in Guangdong, a coastal province in Southeast China, Husky said. Husky said it’s in discussions with Cnooc to find a solution and will take legal action if it can’t obtain a “satisfactory outcome.”
A Beijing-based spokeswoman for Cnooc didn’t immediately respond to requests for comment.