April 27, 2010 / 8:39 PM / in 8 years

UPDATE 2-Husky profit rises on higher oil price

* EPS C$0.41 vs C$0.39

* Adj EPS C$0.43 vs C$0.51 expected by analysts

* Cash flow C$1.05/shr vs C$0.67 (Adds details)

CALGARY, Alberta, April 27 (Reuters) - Husky Energy Inc (HSE.TO), Canada’s No. 3 oil exploration and refining company, said on Tuesday its first-quarter profit rose 5 percent as oil prices strengthened even as output dropped and refining margins sagged.

Husky, controlled by Hong Kong magnate Li Ka-shing, said net earnings rose to C$345 million ($338 million), or 41 Canadian cents a share, from C$328 million, or 39 Canadian cents, in the first quarter of 2009.

Adjusted net earnings, which remove some one-time items, rose 6.7 percent to C$368 million, or 43 Canadian cents, from C$345 million, or 41 Canadian cents.

The adjusted result lagged the average analyst forecast for the measure of 51 Canadian cents, according to Thomson Reuters I/B/E/S.

Husky benefited from strengthening oil prices, which climbed 86 percent from the recessionary lows in the first quarter of 2009 to average $78.37 per barrel. However, those gains were offset by continuing weakness in natural gas prices, a poor market for refined products and a rising Canadian dollar.

“Crude oil prices have strengthened over the past 12 months while natural gas prices have remained weak,” John Lau, Husky’s chief executive, said in a statement. “The Canadian dollar relative to the U.S. dollar has increased over that time, reducing the benefit of higher oil prices.”

Husky’s cash flow, a measure of its ability to pay for new projects, rose 58 percent to C$895 million, or $1.05 per share, from C$565 million, or 67 Canadian cents per share. The cash flow result bettered the average analyst forecast of C$1.04 per share.

The company, which is planning to spin off its Southeast Asian operations into a separate company, said oil and gas production fell 14 percent to 295,900 barrels of oil equivalent per day from 342,000 boed in the year-before quarter because of lower output from the White Rose oil project offshore Newfoundland and lower natural gas production.

Husky also said that it has completed initial engineering work on the first 60,000 bpd phase of the Sunrise oil sands project, which it co-owns with BP Plc (BP.L). The partners have issued tenders for engineering and construction work at the site, which is expected to produce its first oil in 2014.

The company said its refineries in British Columbia and Ohio processed 246,400 barrels per day in the quarter, up 4.1 percent, but results from its downstream operations weakened as the spread between crude oil and refined products narrowed.

Revenue rose 22 percent to C$4.47 billion.

Husky shares fell 67 Canadian cents to C$29.24 on Tuesday on the Toronto Stock Exchange. The company released its results after the market close.

$1=$1.02 Canadian Reporting by Scott Haggett; editing by Peter Galloway

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