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Rating Action:

MOODY'S CONFIRMS HUSKY OIL'S DEBT (SR. UNSEC. AT Baa3)

20 Jun 2000
MOODY'S CONFIRMS HUSKY OIL'S DEBT (SR. UNSEC. AT Baa3) Moody's Investors Service confirmed the Baa3 senior unsecured and Ba2 subordinated unsecured debt ratings of Husky Oil Limited, in response to the company's proposed merger with Renaissance Energy Ltd. in a transaction valued at approximately C$4.4 billion (US$2.9 billion), including assumed Renaissance debt of C$1.4 billion (US$950 million). Also confirmed is the Baa3 senior secured debt rating of Husky Terra Nova Finance Limited, an entity formed to project finance Husky Oil's share of development costs in the Terra Nova offshore oil project. The confirmation and maintenance of a stable rating outlook reflect the equity financing in the transaction and the larger, more diversified operations the will result for the new entity, which will be called Husky Energy Inc.

Husky Oil Limited is currently privately held through various ownership interests by Hutchison Whampoa Ltd., a diversified company in Hong Kong, the Li Ka-Shing family of Hong Kong and the Canadian Imperial Bank of Commerce. The proposed transaction, which is subject to approval by Renaissance shareholders, will be effected by issuing one share of Husky Energy Inc., the merged entity, for each Renaissance share. As a result, Husky Energy will be 65% owned and controlled by the current Husky Oil shareholders and 35% owned by Renaissance holders. Husky Oil shareholders have offered to acquire from Renaissance shareholders up to 27.8 million shares for cash at a price of C$18.00 (US$12.24) per share. A full takeup under the offer would increase the Husky Oil shareholder stake to 71.5%. A special return of capital of C$2.50 per share, approximately C$380 million (US$258 million), is also to be paid to Renaissance shareholders from Renaissance's cash flow.

Moody's rating confirmations reflect the equity financing and the combined operating profile of the two companies, including some 1.0 billion barrels of gross proven oil equivalent reserves; the accretive cash flow to be gained in 2000 from Renaissance's projected gross average production of 164 mboe/d; the natural synergies and economies of scale between Renaissance and Husky in areas where both companies have significant operations; and the complementary nature of Husky's other assets in Western Canada, all of which create a more diversified and balanced operation.

Assuming the merger closes on October 1, 2000, Husky expects pro forma gross production of approximately 113,000 bbls/d of liquids and 375 MMcf/d of natural gas in 2000, including Renaissance production for the final three months only. Husky is relying on strong cash flow in 2000 from a currently positive commodity price environment, rising production, and lower operating costs to support planned capital expenditures of approximately C$756 million (US$514 million), with the combined cash flow of the two companies to internally fund future exploration and development. Husky Energy would also establish an annual dividend of C$0.36 per share, payable quarterly. Husky Energy's pro forma debt as of March 31, 2000, totaled C$2.9 billion (US$1.97 billion), excluding shareholders' loans of C$813 million (US$553 million), resulting in a debt-to-capitalization ratio of 42%.

Husky Energy will become one of the largest integrated oil and gas companies in Canada, with proved reserves of 1.0 billion boe (59% oil and 41% gas) and total production of 298 mboe/d (62% oil and 38% gas), based on a pro forma effect for full year 2000. Natural synergies and opportunities for economies of scale exist for Husky and Renaissance in the Lloydminster region along the Alberta and Saskatchewan border where both companies have operations. Husky has significant heavy oil and infrastruacture operations in the region, while almost 30% of Renaissance's crude oil production is located in the area. Husky's diversification comes from its existing ownership and operations of its 12.5% working interest in the Terra Nova oil field offshore Newfoundland, scheduled to begin production in 2001, as well as its large midstream and downstream operations, including a heavy oil upgrader. Renaissance brings further diversification with its operations in Manitoba and the Northwest Territories.

Accomplishing Husky's production goals of 134 mboe/d in 2000 will be a critical element in Husky's achieving cash flow growth sufficient to successfully fund capital expenditures, dividends, and other cash requirements from internal sources.

Husky Oil is an integrated oil and gas company headquartered in Calgary, Alberta, owned 49% by Hutchison Whampoa Limited (A3, negative outlook), a diversified company headquartered in Hong Kong, 46% by the Li Ka-Shing family, and 5% by the Canadian Imperial Bank of Commerce. Husky's operations include production of oil and gas, pipeline transportation, upgrading, refining and marketing of oil and refined petroleum products. Renaissance Energy Ltd., headquartered in Calgary, is engaged in exploration and production of oil and natural gas throughout the Western Canadian Sedimentary Basin.

No Related Data.
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