Another sell down by Husky, expect more to come
Husky announced that it has reached an agreement to sell royalty interests inWestern Canada representing 1,700 boe/day of capacity for C$163m in cashand other considerations including royalty and interests in select heavy oilproperties in the Lloydminster area. This is the second asset sale this year withthe other being the C$1.7bn sale of its interests in mid-stream assets in theLloydminster area in April. We expect the company to announce further salesof assets in the Western Canada region which were slated for sale and had anaverage sales volume of 44,000 boe/day.
　　Debt reduction and operating cost improvement on track
We estimate the two asset sales to reduce the company’s net debt of C$6.7bnto C$4.8bn. Future sales of assets in the Western Canada region would furtherreduce the debt burden and help transform the company towards a loweroperating cost model with operating costs in the Western Canada region alsohigher compared with other regions as shown below.
　　Expect Husky to be less of a drag going forward
While we expect Husky to continue to be loss making in FY16, with DBforecasting oil price to rebound over FY16 and FY17 and the business makinginroads on reducing the cost base towards the $40/barrel mark, we expect thebusiness to be EBIT positive in FY17 and less of a drag going forward for CKH.
　　Investors of CKH are paying a cheap multiple for the underlying assets
Our valuation for CKH includes its proportionate share of the Husky businesswhich we value based on the current market capitalization, reduced by 20% toincorporate a conglomerate discount. With Husky also trading at a lowermultiple vs its peers, we do believe investors of CKH are paying a low price forthe underlying assets. Husky represents ~8% of our valuation of CKH.