(Adds analyst comment, share price reaction)
By Nia Williams
CALGARY, Alberta, April 26 (Reuters) - Husky Energy Inc
HSE.TO said on Tuesday it was confident a dispute with China's
CNOOC Ltd 0883.HK over delivery payments for South China Sea
gas will be resolved but warned it would take legal action
against the state-owned energy company if necessary.
Husky operates and owns 49 percent of the offshore Liwan Gas
Project, approximately 300 kilometres (190 miles) south of Hong
Kong, while CNOOC holds the remaining interest and buys the gas
from Husky through a take-or-pay contract. Such an agreement
requires CNOOC to pay for contracted volumes whether it receives
them or not.
A pipeline outage in the first quarter affected natural gas
sales from Liwan, and Husky said it received payment only for
actual volumes of around 150 million cubic feet per day, roughly
50 percent of contracted volumes.
At the same time, CNOOC officials said there had been price
changes in the Guangdong natural gas market and asked Husky to
consider a cut to the fixed price the Chinese company pays for
gas.
"Our view is that there's no contractual basis to change the
price unilaterally. We have a legally binding take-or-pay
contract in place," Husky Chief Executive Asim Ghosh said during
a call to discuss the company's first-quarter results. He added
that he was confident there would be a satisfactory outcome with
Husky's "long-standing" partner.
Calgary, Alberta-based Husky, in talks with CNOOC to find a
solution, said it will take legal action in the absence of a
satisfactory outcome.
FirstEnergy (NYSE:FE) Capital analyst Mike Dunn said the fixed-price
agreement had been made before Liwan went ahead and was key to
Husky's final decision to invest in the project.
"The price commitment seems to me to be the more
sacrosanct," Dunn said, adding that it was fixed in local
currency but amounted to around $13 to $15 mcf/day.
Husky shares dropped 10 percent on the Toronto Stock
Exchange to C$15.93, which TD Securities analyst Menno Hulshof
described as "excessively negative."
"While these issues clearly carry headline risk, and could
take some time to resolve, the potential impact to our Husky net
asset value estimate is not significant," he wrote in a note.
(Editing by Paul Simao and Steve Orlofsky)