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by Stockwatch Business Reporter

West Texas Intermediate crude for September delivery added $1.43 to $41.09 on the New York Merc, while Brent for October added $1.43 to $43.35 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.80 to WTI ($24.96), unchanged. Natural gas for September added 11 cents to $2.85. The TSX energy index added 4.00 points to close at 187.80.

Li Ka-Shing's Husky Energy Inc. (HSE) bounded up $1.05 to $16.24 on 4.03 million shares, after settling its gas price dispute with China's CNOOC on better terms than expected. (Of course, if anyone can get a good deal out of the Chinese, it would be Mr. Li, the 88-year-old Hong Kong billionaire.) The dispute had caused a disquieting rift between the two joint venturers, which work together on the Liwan gas project in the South China Sea. Husky owns 49 per cent of the project, while CNOOC owns 51 per cent and buys the gas under contracts that require it to pay fixed prices for specified volumes. The fixed prices are around $11 (U.S.) to $13 (U.S.) per thousand cubic feet. Months ago, evidently upset that it had to pay $11 (U.S.) to $13 (U.S.) when regional prices were just $6 (U.S.) to $8 (U.S.), CNOOC simply stopped buying all of the required volumes, instead buying just half and demanding that the contracts be renegotiated. Husky liked the contracts just fine and threatened to sue if CNOOC did not honour them. The two sides sat down to talk. Hanging worrisomely in the balance was not just the price of production from Liwan's two existing fields, but also the fate of a planned expansion through the addition of a third field. This field has the potential to take Liwan's gross capacity to 500 million cubic feet a day in 2018 from about 300 million now. Negotiations over the field have been in progress for years, and CNOOC could (and probably did) use them as a bargaining chip in the discussions over the other two fields. The question, then, was not whether Husky would be able to persuade CNOOC to honour the existing contracts, but how big a hit Husky would have to take in the new contracts.

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