July 28, 2010 / 12:44 PM / 7 years ago

UPDATE 4-Husky shares sag on weaker profit, output forecast

* Q2 EPS C$0.31 vs year-earlier C$0.41

* Adjusted EPS C$0.31 vs analyst forecast C$0.42

* Says production fell at White Rose field

* Cuts 2010 output target

* Shares fall 3.8 pct (Adds details and closing share price.)

By Scott Haggett

CALGARY, Alberta, July 28 (Reuters) - Husky Energy Inc (HSE.TO) posted a 23 percent drop in quarterly profit on Wednesday, missing analyst estimates, and lowered its output forecast largely because of falling production at its White Rose project off the Newfoundland coast.

Shares of Canada’s No. 3 integrated oil production and refining company fell nearly 4 percent after it said it would cut production targets due to the rapid decline in output at White Rose as well as the slow ramp-up of production from its new North Amethyst field, also off Newfoundland’s Atlantic coast.

It also said wet weather had lowered heavy oil production in Western Canada.

Husky lowered its production forecast for the year to between 285,000 and 295,000 barrels of oil equivalent a day from its previous forecast of 306,000 to 330,000 boe/d.

Missing production targets has become a familiar pattern for Husky, which has repeatedly failed to live up to its promises.

“This will be at least the sixth year in a row where Husky will not hit its original production guidance range,” said Michael Dunn, an analyst at FirstEnergy Capital. “By this time, you’d think they would have learned to be better forecasters. It’s certainly disappointing.”

PROFIT FALLS

Along with the lowered target, Husky’s earnings also fell short of expectations.

The company, under recently installed Chief Executive Asim Ghosh, posted net income of C$266 million ($256 million), or 31 Canadian cents a share, for the second quarter, down from C$345 million, or 41 Canadian cents a share, a year earlier.

Closely watched adjusted earnings, which exclude most one-time items, fell 28 percent to C$265 million, or 31 Canadian cents a share, from C$368 million, or 43 Canadian cents a share.

The adjusted result was well below the average analyst estimate of 42 Canadian cents a share as compiled by Thomson Reuters I/B/E/S.

The results fell short of expectations “due to lower than expected production volumes, coupled with continued weakness in the downstream,” Matt Donohue, an analyst at UBS Securities Canada, said in a note to clients.

Husky’s cash flow, a measure of its ability to fund new projects and drilling, fell to C$806 million, or 95 Canadian cents a share, from C$895 million, or C$1.05 a share.

Husky, controlled by Hong Kong billionaire Li Ka-shing, said production in the quarter fell 11 percent to average 283,900 boe/d, compared with 317,200 boe/d in the year-earlier quarter.

The quarter is the first under Ghosh, a former Indian telecom executive who replaced John Lau at the beginning of June.

Ghosh said the company would take steps to improve production growth through acquisitions and new projects.

“We are going to rebalance our portfolio,” he said on a conference call. “We will direct a measure of our capital to those low-cost, high-return projects which give us reasonably short-term returns ... the goal will be to build our production base.”

Husky said it has signed a letter of intent to buy Alberta gas properties from an unnamed seller. The properties produce 10,000 barrels or oil equivalent a day. The company did not say how much it will pay, or who is selling the properties. The acquisition is expected to close in the fall.

Former CEO John Lau moved on to run Husky’s Asian operations, which are slated to be spun off as a separate company. A final decision on the spinoff is expected by year-end.

Husky’s shares fell 99 Canadian cents to C$25.40 on the Toronto Stock Exchange on Wednesday. The stock has dropped 22 percent over the past 12 months.

$1=$1.04 Canadian Additional reporting by Bhaswati Mukhopadhyay; editing by Peter Galloway and Rob Wilson

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