Mr. Rob Peabody reports

HUSKY ENERGY REPORTS THIRD QUARTER 2018 RESULTS

Husky Energy Inc. generated funds from operations of $1.3-billion in the third quarter, up 48 per cent from $891-million in the same period last year. Year to date, funds from operations are $3.4-billion.

Free cash flow in the quarter was $350-million and $1.1-billion year to date.

Net earnings were $545-million, a 300-per-cent increase compared with $136-million in the third quarter of 2017. Net debt at the end of the quarter was lowered to $2.6-billion.

"Husky's physical integration allows the company to benefit fully from strong Brent and WTI prices despite wide location and quality differentials. With committed export pipeline capacity and the flexibility to swing between heavy and light crudes in our refining system, we are maximizing margins across our integrated corridor," said chief executive officer Rob Peabody. "Through Husky's high level of integration and offshore production we continue to attain higher global pricing and generate strong free cash flow.

"Our offer to acquire the outstanding shares of MEG Energy utilizes Husky's strong balance sheet and ability to capture higher prices to create a stronger, more competitive Canadian energy company. Husky's third quarter results demonstrate the value potential for MEG shareholders and our ability to achieve financial targets faster than MEG could as a stand-alone company."

Offer to acquire MEG Energy

On Oct. 2, Husky made an offer to acquire all outstanding shares of MEG Energy. Husky believes the proposal is in the best interests of both Husky and MEG shareholders. For MEG shareholders the benefits include:

• Physical integration with expanded market access, protection from heavy oil differentials and exposure to high netback offshore operations, providing stability in funds from operations;
• An enhanced shareholder return proposition with lower risk, including a strong investment-grade balance sheet that allows for more free cash flow to be directed toward cash returns to shareholders and growth investments, and the opportunity to participate in Husky's dividend;
• $200-million a year in near-term realizable synergies.

For Husky shareholders, the transaction will be accretive to the company's free cash flow, funds from operations, earnings and production on a per-share basis. Husky's offer remains open for acceptance until Jan. 16, 2019.

Third quarter highlights

Corporate:

• Net earnings of $545-million;
• Funds from operations of $1.3-billion;
• Free cash flow of $350-million;
• Quarterly cash dividend of 12.5 cents per common share declared;
• Production of 297,000 barrels of oil equivalent per day (boe/day); see detailed guidance sheet at the company's website;
• Net debt at the end of the quarter was $2.6-billion, representing 0.6 times trailing 12-month funds from operations, well below the company's target.

Integrated corridor:

• Commenced production at the Rush Lake 2 Lloyd thermal project, ahead of schedule;
• Advanced construction at the Dee Valley Lloyd thermal project, with first oil now expected in the fourth quarter of 2019, six months ahead of investor day target;
• Completed a three-week planned turnaround at the Tucker thermal project, and has since ramped up to 30,000 barrels per day (bbl/day) peak daily rate;
• Downstream EBITDA (earnings before interest, taxes, depreciation and amortization) of $580-million, with infrastructure and marketing EBITDA of $206-million, demonstrating continued margin capture from upgrading, refining and long-term committed export pipeline capacity;
• Average realized U.S. refining margins of $17.52 (U.S.) per barrel reflected Husky's flexibility to access discounted WTI Midland crude oil barrels, and included a pretax FIFO (first in, first out) loss of 34 U.S. cents per barrel.

Offshore:

• Liwan gas project production averaging 371 million cubic feet per day, with associated liquids averaging 16,500 bbl/day (182 million cubic feet per day and 8,400 bbl/day Husky working interest), demonstrating continued strong demand despite typhoon season impacts;
• Liquids-rich BD project in the Madura Strait consistently achieving the company's gross daily target, averaging 100 million cubic feet per day (40 million cubic feet per day Husky working interest) of natural gas with 40 per cent higher than expected associated liquids production of 10,400 bbl/day (4,200 bbl/day Husky working interest);
• Completed construction on the base slab at the West White Rose project and began slipforming the column, with top sides construction about 10 per cent complete and living quarters 45 per cent finished.

                                                       Three months ended                Nine months ended
                                        Sept. 30, 2018 June 30, 2018 Sept. 30, 2017 Sept. 30, 2018 Sept. 30, 2017
Daily production, before royalties
Total equivalent production (mboe/day)             297           296            318            298            324
Crude oil and NGL (mbbl/day)                       210           213            224            215            234
Natural gas (mmcf/day)                             520           494            563            497            541
Upstream operating netback ($/boe)              $31.30        $31.31         $23.25         $29.00         $23.66
Refinery and upgrader
throughput (mbbl/day)                              351           355            374            368            352
Funds from operations ($mm)                      1,318         1,208            891          3,421          2,292
Per common share -- basic ($/share)               1.31          1.20           0.89           3.40           2.28
Adjusted net earnings ($mm)                        568           474            136          1,287            219
Per common share -- basic ($/share)               0.57          0.47           0.14           1.28           0.22
Net earnings ($mm)                                 545           448            136          1,241            114
Per common share -- basic ($/share)               0.53          0.44           0.13           1.21           0.09
Net debt ($ billions)                              2.6           3.0            3.0            2.6            3.0
Dividend per common share  ($/share)             0.125         0.125           0.00          0.325           0.00

Third quarter results

Husky Energy generated funds from operations of $1.3-billion in the third quarter and free cash flow of $350-million.

Upstream production averaged 297,000 boe/day, which reflects a turnaround at the Tucker thermal project, planned maintenance at the Sunrise energy project, the decision to slow the pace of CHOPS well optimizations, third party gas and power constraints, and lower-than-anticipated Atlantic production due to well performance. This compared with 318,000 boe/day in the third quarter of 2017 and 296,000 bbl/day in the second quarter of 2018.

Average realized pricing for upstream production was $50.44 per boe, compared with $40.05 per boe in the year-ago period. Realized pricing for oil and liquids averaged $56.02 per barrel, and natural gas averaged $6.15 per 1,000 cubic feet.

Upstream operating costs averaged $14.68 per boe, compared with $14.12 per boe in the third quarter of 2017. Upstream operating netbacks averaged $31.30 per boe compared with $23.25 per boe in the third quarter of 2017.

Downstream throughput was 350,600 bbl/day compared with 374,000 bbl/day in the third quarter of 2017, which includes the turnaround at Lima starting in mid-September this year.

The Chicago 3:2:1 crack spread averaged $19.04 (U.S.) per barrel compared with $19.30 (U.S.) per barrel in the third quarter of 2017. Average realized U.S. refining margins were $17.52 (U.S.) per barrel, which takes into account a pretax FIFO loss of 34 U.S. cents per barrel. This compared with $14.98 (U.S.) per barrel a year ago, which included a pretax FIFO adjustment gain of $1.74 (U.S.) per barrel.

Upgrading net earnings were $88-million, compared with $9-million in the third quarter of 2017. Upgrading margins were $29.19 per barrel, compared with $12.32 per barrel in the year-ago period.

Net earnings in the infrastructure and marketing segment were $149-million, compared with $10-million in the third quarter of 2017. This was primarily due to the wider WTI/WCS (West Texas Intermediate/Western Canadian Select) differential, which averaged $29.09 per barrel compared with $12.44 in the third quarter of 2017.

Infrastructure and marketing realized margins were $202-million, compared with $14-million in the third quarter of 2017, reflecting, in part, the value captured from the company's long-term 75,000 bbl/day committed export capacity on the Keystone pipeline and 160 million cubic feet per day in natural gas pipeline capacity to U.S. markets.

Net debt at the end of the quarter was $2.6-billion.

Integrated corridor

• Upstream average production of 223,000 boe/day;
• Upstream operating netback of $19.75 per boe, including an operating netback of $30.63 per barrel from thermal operations;
• Downstream throughput of 350,600 bbl/day;
• Downstream upgrading/refining margin of $25.27 per barrel.

Thermal production

Thermal bitumen production from Lloyd thermal projects, Tucker and Sunrise averaged 117,300 bbl/day (Husky working interest), compared with 117,700 bbl/day (Husky working interest) in the third quarter of 2017. This takes into account the turnaround at Tucker, planned maintenance at Sunrise and third party gas and power constraints.

Overall thermal operating costs were $12.04 per barrel.

Rush Lake 2 achieved first oil in October and is expected to ramp up to its 10,000 bbl/day design capacity by the first quarter of 2019.

In addition, the company is currently developing five 10,000 bbl/day Lloyd thermal bitumen projects, with a combined design capacity of 50,000 bbl/day coming on line by the end of 2021:

• Construction at Dee Valley has been advanced, with first oil now expected in the fourth quarter of 2019, six months sooner than expected at investor day in May.
• At Spruce Lake Central, construction has started on the central processing facility and drilling on the first well pad has been completed. First production is expected in 2020.
• Site clearing is under way at Spruce Lake North, with first oil expected around the end of 2020.
• Two additional 10,000 bbl/day thermal bitumen projects remain on track to be brought on line in the second half of 2021.

Tucker averaged production of 18,300 bbl/day, reflecting the three-week turnaround completed in the quarter. Since the turnaround, it has achieved a peak daily rate of 30,000 bbl/day.

At Sunrise, average production in the quarter was 49,400 bbl/day (24,700 bbl/day Husky working interest), reflecting maintenance on the once-through steam generators. This compares with 40,500 bbl/day (20,250 bbl/day Husky working interest) in the year-ago period.

Resource plays

The company remains focused on capital-efficient operations in Edson, Grand Prairie and Rainbow Lake, its three core Western Canada hubs.

An accelerated drilling program that was increased from an 18- to a 25-well program in the Ansell and Kakwa areas of the Wilrich formation is progressing, with 15 wells drilled and 13 completed. In the oil- and liquids-rich Montney formation, four wells have been drilled as part of a 2018 program of up to eight wells, primarily in the Wembley and Karr areas. Three have been completed.

Husky Midstream LP is progressing construction on the new Corser gas processing plant in the Ansell area of central Alberta. It is expected to add 120 million cubic feet per day of processing capacity when it starts up in the fourth quarter of 2019.

Downstream

Total Canadian refining throughput, including the Lloydminster upgrader and the Lloydminster asphalt refinery, averaged 116,500 bbl/day, with EBITDA of $243-million.

In the United States, total refining throughput was 234,100 bbl/day. At the Lima refinery, throughput averaged 163,300 bbl/day compared with 178,300 bbl/day in the third quarter of 2017, including a scheduled turnaround starting in mid-September. A crude oil flexibility project to increase heavy oil processing capacity from the current 10,000 bbl/day to 40,000 bbl/day by the end of 2019 is on track.

Operations at the Superior refinery remain suspended, and an investigation into the cause of the April 26 incident is continuing. The company is currently focused on winterizing the site. An engineering contractor has been appointed to oversee design work for the rebuild, with the rebuild beginning once the investigation and design work are complete. Normal operations are not expected to resume until 2020. In the quarter Husky accrued $110-million in insurance proceeds for asset damage and repair costs.

Offshore:

• Average production of 73,400 boe/day;
• Operating netback of $66.34 per boe:
  • Asia Pacific operating netback of $65.45 per boe;
  • Atlantic operating netback of $68.20 per barrel Asia Pacific.

China

At the Liwan gas project, gross production from the two producing fields averaged 371 million cubic feet per day in sales gas volumes, with associated liquids averaging 16,500 bbl/day (182 million cubic feet per day and 8,400 bbl/day Husky working interest). This reflects continued strong demand in China and five days of downtime related to typhoon season.

The company realized gas pricing of $13.14 per 1,000 cubic feet, with liquids pricing of $76.13 per barrel.

Construction at Liuhua 29-1, the third deepwater field at Liwan, is under way with detailed design work in progress. Drilling of three additional wells is scheduled to commence in the fourth quarter of 2018, adding to the four wells previously drilled. All three wells will be tied in to the existing Liwan infrastructure. First gas is anticipated around the end of 2020, with target net production of 45 million cubic feet per day gas and 1,800 bbl/day liquids when fully ramped up, reflecting Husky's 75-per-cent working interest.

The company is progressing commercial development plans following the successful drilling of an oil exploration well on block 15/33 in the South China Sea, approximately 160 kilometres southeast of Hong Kong. Husky is the operator during the exploration phase, with a working interest of 100 per cent in the wells. CNOOC may assume operatorship and up to a 51-per-cent working interest, with exploration cost recovery from production allocated to Husky.

During the quarter, an exploration well was drilled on the nearby block 16/25. The results will be evaluated further.

Indonesia

At the liquids-rich BD project, gross gas sales averaged 100 million cubic feet per day with associated liquids production of 10,400 bbl/day (40 million cubic feet per day and 4,200 bbl/day Husky working interest). Liquids production was 40 per cent higher than expected. BD gas was sold into the East Java market at contracted rates for a realized price of $9.79 per 1,000 cubic feet, with liquids pricing of $95.61 per barrel.

At the combined MDA-MBH fields in the Madura Strait, seven production wells are scheduled to be drilled in 2019 and come on line in 2020.

Atlantic

Construction was completed on the base slab of the West White Rose project's concrete gravity structure, and slipforming of the column is under way. Work continues on the top sides and living quarters. First oil is anticipated in 2022, with West White Rose expected to reach peak production of 75,000 bbl/day (52,500 bbl/day Husky working interest) in 2025 as development wells are drilled and brought on line.

At the North Amethyst infill well, remediation work to address a high water cut was unsuccessful and future intervention options on this well are being evaluated. Two well workovers were completed at the White Rose field during the quarter and two additional infill wells are scheduled to come on line in the fourth quarter of 2018. These are part of a program to offset reservoir declines at the White Rose field and its satellite extensions until the start-up of West White Rose in 2022.

Evaluation of the successful White Rose A-24 well is continuing.

Corporate developments

The board of directors has approved a quarterly dividend of 12.5 cents per common share for the three-month period ended Sept. 30, 2018. The dividend will be payable on Jan. 2, 2019, to shareholders of record at the close of business on Nov. 26, 2018.

Regular dividend payments on each of the cumulative redeemable preferred shares -- Series 1, Series 2, Series 3, Series 5 and Series 7 -- will be paid for the three-month period ended Dec. 31, 2018. The dividends will be payable on Dec. 31, 2018, to holders of record at the close of business on Nov. 26, 2018.

Share series      Dividend type       Rate         Dividend paid
                                       (%)             ($/share)

Series 1                regular      2.404              $0.15025
Series 2                regular      3.239              $0.20410
Series 3                regular       4.50              $0.28125
Series 5                regular       4.50              $0.28125
Series 7                regular       4.60              $0.28750

Conference call

A conference call will take place on Thursday, Oct. 25, at 9 a.m. Mountain Time (11 a.m. Eastern Time) to discuss Husky's third quarter 2018 results. Mr. Peabody, chief operating officer Rob Symonds and acting chief financial officer Jeff Hart will participate in the call.

To listen live:

Canada and U.S. toll-free:  1-855-327-6838

Outside Canada and U.S.:  1-604-235-2082

To listen to a recording (after 10 a.m. MT on Oct. 25):

Canada and U.S. toll-free:  1-800-319-6413

Outside Canada and U.S.:  1-604-638-9010

Pass code:  2615

Duration:  available until Nov. 25, 2018

Audio webcast:   available for 90 days at the company's website

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