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Husky Oil

In: Business and Management

Submitted By jayhse
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Husky Energy Inc; Foreign Exposure, Portfolio Analysis

Phillip Oliveira
Sheridan College
FINA30065
March 22, 2015
Husky Energy; Foreign Exchange Exposure
Husky Energy is Canadian, vertically integrated oil and gas retailer, operating “555 gas stations in Canada” (Hoover’s Inc, 2015), along with oil refining operations in the Canadian oil sands and off-shore Newfoundland and Labrador refineries. They are also operating the Liwan Gas Project, which consists of a 40% “working interest in the Wenchang oil field in the South China Sea”. (Husky Energy Inc., 2015) They are also planning further offshore developments in Indonesia. Husky itself, is actually controlled by Hutchison Whampoa Lmt, a Chinese investment holding company. (Hoover’s Inc, 2015)
While Husky is an international oil extraction company. As the majority of Husky’s operations are located in Canada, it is primarily a Canadian company. Its operations in both China and Indonesia though, it faces exchange rate exposure from both the Chinese Yuan and the Indonesian Rupiah. This is because it currently owns a 40% stake in the Chinese Wenchang oil field extraction operation, and has plans to develop oil fields in Indonesia. Assuming that local Chinese labour will be used for the construction and operation of these facilities, all labour cost will be incurred in local currencies. Also, it can be assumed that materials suppliers and contractors will be acquired from local suppliers in order to cut down on transportation costs. In all these scenarios, a devaluation of the Canadian dollar against the Yuan and Rupiah would lead to higher operating costs. Also, because Husky itself is owned by a Chinese firm, a devaluation of the Canadian dollar relative to the Yuan makes Husky less profitable to its owners, which could lead to decisions affecting it’s Canadian shareholders. For example, a Chinese recession

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