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Husky Energy Can Handle Low Oil Prices

We think the market is underestimating the Canadian firm's ability to generate cash flow in a low-energy price environment.


Joe Gemino: Best idea Husky Energy remains our top Canadian integrated pick, with the stock trading at a 20% discount to our fair value estimate. We believe that the market is overlooking Husky's ability to generate free cash flow in low oil price environments. Husky's downstream and midstream operations comprise about 30% of the company's EBITDA and help mitigate market volatility by generating cash flow when commodity prices are low. 

The company continues to further its strategic transition toward low sustaining capital production, with capital costs approximating CAD 6/bbl. We expect such production to grow from 8% of the company's total production in 2010 to approximately 45% by the end of this year. Improved efficiency on the company's oil sands production affords the company break-even prices below $35/bbl Brent (excluding overhead costs). This cost structure compares favorably to its peers.

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Joe Gemino does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.