December 10, 2014 / 6:28 PM / 4 years ago

Canada's Husky pushes back start dates on two heavy oil projects

CALGARY, Alberta, Dec 10 (Reuters) - Husky Energy Inc pushed back its forecasts for first production from two new heavy oil projects in Western Canada on Wednesday although it said the slight delays were not related to falling oil prices.

First oil from the 10,000 barrel per day Rush Lake heavy oil thermal project in Saskatchewan is now planned for the third quarter of 2015, while the 10,000 bpd Edam East project in Saskatchewan will come on stream in third-quarter 2016.

Both projects are delayed by three months. Thermal projects involve pumping steam underground to liquefy heavy oil deposits so the crude can flow to the surface.

“The change in first-oil time frames for the Rush Lake and Edam East projects is not related to oil prices. It’s just a reflection that as we get further along in the projects we have a better handle on when they are likely to begin operations,” Husky spokesman Mel Duvall said.

Husky said its 3,500 bpd Edam West thermal project and its 10,000 bpd Vawn thermal development are both on track to begin production in fourth-quarter 2016.

Husky also released an independent assessment of its heavy oil reserves in the 37,000 square-kilometre Lloydminster block, which straddles the Alberta-Saskatchewan border.

The report estimated total reserves at 17 billion barrels. Contingent resources - meaning oil recoverable using technology currently available - were estimated at 1.9 billion barrels, of which 1 billion could be recovered using thermal methods.

That’s up from the 107 million barrels booked in an assessment in late 2013, which only took into account projects well advanced towards development.

Duvall could not specify how much of the contingent resources would be economic to develop at current oil prices but said that with a Brent crude price of $65 a barrel, Husky’s internal rate of return on thermal projects is around 20 percent.

Brent was last trading at $64.11 a barrel.

BMO Capital Market analyst Randy Ollenberger said that while higher contingent resources are a sign Husky may be able to expand development at Lloydminster, investors are unlikely to support long-dated growth plans in the current price environment.

“We also expect a muted reaction to the slight slippage to the start-up dates of the existing thermal projects in the area given their limited contribution to expected corporate cash flows,” Ollenberger said.

Husky shares were down 2.3 percent at C$44.90 on the Toronto Stock Exchange.

$1=$1.15 Canadian Editing by Peter Galloway

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