October 23, 2014 / 12:37 PM / in 3 years

UPDATE 2-Husky Energy ups price tag of Sunrise oil sands project to C$3.2 billion

(Recasts to focus on Sunrise costs going up, adds detail on Sunrise, updates share price)

By Nia Williams

CALGARY, Alberta, Oct 23 (Reuters) - Canada’s No. 3 integrated oil and gas producer Husky Energy Inc raised cost estimates on its new Sunrise oil sands project by nearly 19 percent to C$3.2 billion as it reported third quarter earnings on Thursday.

First production from the northern Alberta project, operated by Husky as a joint venture with BP Plc, will also be delayed.

Husky Chief Operating Officer Robert Peabody said steaming is expected to start at Sunrise by the end of 2014. Previous guidance was for first oil to be achieved by then.

Sunrise will be an in situ project, in which steam is injected into underground reservoirs to liquefy bitumen so it can be pumped to the surface. Production will be ramped up to 60,000 barrels per day over two years.

Husky management did not go into details about the revised estimate, other than to attribute it to increasing “cost pressure around the central facilities”.

Rob Symonds, senior vice president of Western Canadian Production at Husky, first warned costs could rise at an investor day in June.

Although most analysts were expecting Sunrise costs to go up, some warned it would disappoint investors.

“Increased capex at Sunrise and its delayed start-up may further weigh on investor sentiment,” said BMO Capital Markets analyst Randy Ollenberger.

Husky shares were last up 18 cents on the Toronto Stock Exchange at C$28.08, recovering from losses earlier in the session.

Husky, controlled by Hong Kong billionaire Li Ka-shing, reported an 11.5 percent rise in quarterly profit, helped by a 10 percent increase in production.

Total production rose to 341,000 barrels of oil equivalent per day (boepd) in the third quarter ended Sept. 30, from 309,000 boepd a year earlier.

The increase was driven by higher volumes from Husky’s deepwater Liwan Gas Project in the South China Sea, which came onstream earlier this year, and a strong performance from heavy oil thermal projects, the company said.

Cash flow, a measure of its ability to pay for new projects, fell less than a percent to C$1.34 billion ($1.19 billion).

Husky owns all or part of four refineries in North America and operates a heavy oil upgrader at Lloydminster, Saskatchewan. The company’s Toledo, Ohio refinery is a 50/50 joint venture operated by BP.

Average throughput at the company’s downstream refineries and its Lloydminster upgrader rose 11 percent to 334,000 bpd.

Husky said its Lima, Ohio refinery, which produces light sweet crude oil, has been running at reduced rates of about 110,000 barrels per day since Oct. 16 due to unplanned interruptions on third-party feedstock pipelines.

The company’s third-quarter net income rose to C$571 million, from C$512 million a year earlier. Net income was flat on a per share basis at 52 Canadian cents per share. ($1 = 1.1231 Canadian dollar) (Reporting by Scott Haggett in Calgary and Sneha Banerjee in Bangalore; Editing by Simon Jennings and Andrew Hay)

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