Husky Energy to Buy Valero's Refinery in Ohio

CALGARY (CP) -- Husky Energy Inc. [TSX:HSE] announced Wednesday a US$1.9 billion deal to buy a crude oil refinery in the United States from Valero Energy Corp. as part of the integrated company's expansion plans.

The deal put to rest speculation Husky, Canada's No.3 integrated oil and gas company, was bidding on the 165,000 barrel per day refinery in Lima, Ohio.

''The acquisition of the Lima refinery represents a significant step in Husky's ongoing strategic move of expanding our downstream business and supports Husky's objective as a fully integrated energy and energy-related company,'' John Lau, president and chief executive said in a statement.

''This transaction is expected to have an immediate positive financial contribution to Husky's earnings and cash flow.''

The acquisition will be made through the purchase of all the outstanding shares of Lima Refining Company, Husky said, plus net working capital.

The company plans to reconfigure and expand the Lima refinery to process heavy crude and bitumen to accommodate growing production from Husky's oilsands projects.

''This is a great acquisition on its own,'' Husky spokeswoman Tanis Thacker said. ''We have had an ongoing project to investigate refining and upgrading options for our oilsands production, so this is one step toward fulfilling that solution.''

Alberta's massive oilsands region is the site of $100 billion in investments over the next decade as North America, Asia and European countries seek secure supplies of crude.

While some of the 54 proposed projects won't go beyond the boardroom, and others will stall because of equally massive costs, the region's rising bitumen production will need to be upgraded, and refined.

Several companies have started negotiating with corporations in the United States for refining capacity south of the border, and all are looking into or building transportation networks.

Husky will start engineering studies by mid-year on converting the Lima refinery to a bitumen facility, once the acquisition has been completed, Thacker said.

The Calgary-based firm, Canada's No. 3 integrated oil and gas corporation, expects to produce 500,000 barrels of crude a day from its various oilsands operations by 2020.

Husky's $475-million Tucker Oil Sands project, which started production last November, is expected to reach target levels of 30,000 barrels per day within the next 20 months.

The company's headliner Sunrise project will start production around 2012 with around 50,000 bpd, eventually ramping up to 200,000 bpd.

The company also holds a massive 239,200 acres of undeveloped lands in the Fort McMurry region.

Husky is expanding its Lloydminster heavy oil upgrader to 82,000 bpd by later this year, and is studying expanding the facility's capacity to 150,000 bpd.

However, even with an expansion, the company would still require additional refinery capacity for planned incremental production from the oilsands.

The company also operates a 2,000-kilometre crude oil pipeline network, running down to Hardisty, Alberta.

Husky Energy recently reported a 24% hike in first quarter earnings from last year to $650 million, or $1.53 per share.

The integrated company has oil and gas interests in Western Canada, operations in Alberta's oilsands, and offshore production in Canada's East Coast, south China and Indonesia.

Husky's refined product segment included refining, marketing and distribution of gasoline, diesel, asphalt, and ethanol. The company has a retail network of more than 500 gasoline stations across Canada.

(c) The Canadian Press 2006

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