DBRS Confirms Ratings of Husky Energy Inc. at A (low), Pfd-2 (low), Stable Trends

DBRS has today confirmed the Senior Unsecured Notes and Debentures and the Preferred Shares of Husky Energy Inc. (Husky or the Company) at A (low) and Pfd-2 (low), respectively, both with Stable trends. The rating actions are based on DBRS’s review of Husky’s progress to date on its long-term plans, which incorporate its major strategic growth initiatives, upstream operational targets and financial targets through 2015.

Husky’s production rose by 9% in 2011, a reversal of the 24% drop between 2007 and 2010. Although production at the low end of the 2012 guidance range (including the impact of planned Atlantic Canada turnarounds), would equate to a 7% drop from 2011, the impact would likely be temporary. Successful execution of its growth projects would allow Husky to meet targeted production growth, towards the higher end of its annual 3% to 5% production growth target range through 2015, while maintaining its favourable liquids-weighted mix and high weighting toward Canadian production, which entails minimal political risk.

Husky has also made progress in improving its below-average reserve replacement metrics, including three-year average reserve replacement costs of $25.32/boe from 2009 to 2011 ($28.30/boe in 2008-2010) and net proved reserve life index (RLI) of 9.6 years and net proved developed RLI of 6.2 years in 2011 (9.3 and 5.9 in 2008-2010). Successful execution of its growth projects would support continuing improvement, which would enhance the Company’s profitability.

Husky maintains a conservative financial profile. Its debt-to-capital and debt-to-cash flow ratios improved to 18% and 0.77 times, respectively, in 2011 from 22% and 1.39 times, respectively, in 2010. Common and preferred share issuance totaling $2.0 billion (including dividends paid in shares) strengthened its key credit metrics and liquidity position, with $3.3 billion of bank facility availability and $1.8 billion of cash at December 31, 2011.

DBRS expects Husky to maintain its conservative financial profile, with only modest weakening of its key credit metrics relative to year-end 2010 levels during the high capex period through 2015, as well as making significant progress on its upstream operational targets over the period in order to maintain the current ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies,which can be found on our website under Methodologies.