February 15, 2011 / 12:49 PM / in 7 years

UPDATE 4-Husky Energy profit lags Street, shares dip

* Q2 net income C$0.35 vs yr-earlier profit of C$0.38

* Adjusted EPS C$0.38 vs C$0.39 a year earlier

* Shares fall 1 percent in Toronto (Adds CEO, analyst comments)

By Jeffrey Jones

CALGARY, Alberta, Feb 15 (Reuters) - Husky Energy Inc (HSE.TO) reported a 5 percent drop in quarterly profit on Tuesday, a lower-than-expected result the Canadian oil producer and refiner blamed on a drop in output, export pipeline restrictions and a stronger domestic currency.

Husky said production has already started to recover as planned maintenance at some of its facilities has wrapped up and the impact of C$1.2 billion ($1.21 billion) of recent acquisitions has kicked in.

Those included an C$860 million purchase of oil and gas properties from Exxon Mobil Corp (XOM.N) as well as an acquisition of west-central Alberta natural gas assets.

“Together, on a full run-rate basis, these acquisitions add about 33,000 barrels of oil equivalent per day, and most importantly, given the oil component in particular, they have an attractive rate of return at today’s prices,” Chief Executive Asim Ghosh told analysts.

Husky, controlled by Hong Kong billionaire Li Ka-shing, said it earned C$305 million, or 35 Canadian cents a share, in the fourth quarter, down from C$320 million, or 38 Canadian cents a share, a year earlier.

Adjusted earnings, which exclude most one-time items, fell to C$328 million, or 38 Canadian cents a share, from C$334 million, or 39 Canadian cents a share.

That lagged analysts’ average estimate of 41 Canadian cents a share, as compiled by Thomson Reuters I/B/E/S.

Husky shares dipped 31 Canadian cents, or 1 percent, to C$27.67 on the Toronto Stock Exchange. The stock had risen 3.4 percent over the last 12 months, against a 21 percent rise in the exchange’s main energy index.

Oil and gas output lagged expectations, raising some concerns that the company could be reverting to its previous record of missing its own forecasts, FirstEnergy Capital Corp analyst Michael Dunn said.

“Production was a little disappointing versus what guys like me were expecting,” Dunn said.

Quarterly production fell 3.8 percent to 281,000 barrels of oil equivalent per day.

However, Dunn pointed out that the output had recovered by December.

Husky produces oil in Canada and Southeast Asia and owns refineries in British Columbia and Ohio. It is also building an oil sands project in northern Alberta called Sunrise with partner BP Plc (BP.L).

Production was cut mostly by scheduled maintenance on the production vessel at the Terra Nova oil project off the Newfoundland coast, the company said.

Meanwhile, outages on two Enbridge Inc (ENB.TO) pipelines in the U.S. Midwest forced it to store, rather than sell, output, reducing earnings by C$17 million, it said.

The pipeline restrictions led to an industry-wide glut of oil supplies in Western Canada and unusually deep price discounts on the crude.

A stronger Canadian dollar tends to weaken results for oil producers, which sell their products in U.S. dollars. The Canadian currency climbed to par with the greenback and is currently worth slightly more.

Cash flow — an indicator of the company’s ability to fund growth plans — rose to C$1.04 billion, or C$1.21 a share, in the quarter ended Dec. 31. That compared with C$657 million, or 77 Canadian cents a share, a year earlier.

The company said the stronger cash flow was driven by higher crude oil prices and improved refining margins.

$1=$0.99 Canadian Additional reporting by Euan Rocha; editing by Peter Galloway and Rob Wilson

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