Husky Energy Inc. Annual Report Building on The

UILDING ON THE HORIZON HUSKY ENERGY INC. ANNUAL REPORT B 2004 BUILDING ON THE HORIZON HUSKY ENERGY INC. 2004 ANNUAL REPORT Printed in Canada. Box 6525, Station D Printed on recycled paper algary, Alberta T2P 3G7 .O. HUSKY ENERGY INC. P S.W. 707 Eighth Avenue C (403) 298-6111 Telephone: Fax: (403) 298-7464 www.huskyenergy.ca HSE_CoverSpread_Mar1 3/1/05 5:22 PM Page 1 HSE_CoverSpread_Mar1 3/1/05 5:22 PM Page 2 $3425 Husky Share Price at December 31, 2004 Total Shareholder Return, including ordinary and special dividends, of 50% in 2004 Market Capitalization of $14.5 billion Husky Share Price Performance vs. Indices Terms and Abbreviations 150 Husky Energy S&P/TSX Energy Index S&P/TSX Composite Index bbls barrels GJ gigajoule 140 bps basis points mmbtu million British Thermal Units mbbls thousand barrels mmlt million long tons mbbls/day thousand barrels per day MW megawatt mmbbls million barrels MWh megawatt hour 130 mcf thousand cubic feet NGL natural gas liquids mmcf million cubic feet WTI West Texas Intermediate mmcf/day million cubic feet per day NYMEX New York Mercantile Exchange 120 bcf billion cubic feet NIT NOVA Inventory Transfer (1) tcf trillion cubic feet LIBOR London Interbank Offered Rate boe barrels of oil equivalent CDOR Certificate of Deposit Offered Rate mboe thousand barrels of oil equivalent hectare 1 hectare is equal to 2.47 acres 110 mboe/day thousand barrels of oil equivalent per day (1) NOVA Inventory Transfer is an exchange or transfer of title of gas that mmboe million barrels of oil equivalent has been received into the NOVA pipeline system but not delivered to mcfge thousand cubic feet of gas equivalent a connecting pipeline. 100 90 Capital Employed Short- and long-term debt and shareholders’ equity Capital Expenditures Includes capitalized administrative expenses 2004J F M A M J J A S O N D and capitalized interest but does not include proceeds or other assets Equity Capital securities and accrued return, shares, retained earnings and amounts due to TABLE OF CONTENTS shareholders prior to August 25, 2000 Net Debt Total debt net of cash and cash equivalents HUSKY AT A GLANCE 30 CORPORATE GOVERNANCE 74 NOTES TO THE CONSOLIDATED Total Debt Long-term debt including current portion and FINANCIAL STATEMENTS bank operating loans 3 FINANCIAL AND 32 MANAGEMENT’S DISCUSSION OPERATING HIGHLIGHTS AND ANALYSIS 107 SUPPLEMENTAL FINANCIAL AND Natural gas converted on the basis that six mcf of natural gas equals OPERATING INFORMATION one barrel of oil. 4 REPORT TO OUR SHAREHOLDERS 70 MANAGEMENT’S REPORT In this report, the terms “Husky Energy Inc.,” “Husky” or “the Company” 114 CORPORATE INFORMATION mean Husky Energy Inc. and its subsidiaries and partnership interests on 6 QUESTIONS AND ANSWERS 70 AUDITORS’ REPORT TO a consolidated basis. THE SHAREHOLDERS 118 INVESTOR INFORMATION 10 REPORT ON OPERATIONS 71 CONSOLIDATED FINANCIAL INSIDE BACK COVER 26 OUR CORPORATE MISSION STATEMENTS TERMS AND ABBREVIATIONS 28 HUSKY AND OUR COMMUNITIES ON THE COVER Top: Drilling platform at the Wenchang oil field. Lower Left: Drilling in northern Alberta. Lower Right: SeaRose FPSO arriving at Marystown, Newfoundland and Labrador. HSE_Foldout_Mar1 3/1/05 5:23 PM Page 2 UPSTREAM BUSINESS STRATEGY 2004 PLANS 2004 ACHIEVEMENTS WESTERN CANADA • Crude oil and natural gas development • Increase oil and gas production through • Maintain existing drilling program and • Increased production 7% to 292 mboe/day and production exploitation and exploration achieve production replacement ratio and achieved production reserves replacement greater than 100% of 106% • Heavy oil production • Optimize and expand heavy oil operations • Continue expanded heavy oil program • 420 cold production heavy wells drilled in 2004 by drilling 400 to 500 wells • Increased thermal production by 27% to 19,000 bbls/day • Natural gas exploration • Focus on natural gas exploration in the • Continue natural gas exploration program • New discoveries made in the Ekwan/Bivouac and deeper portion of the Western Canada and expand exploration into the N.W.T. Lynx/Copton areas and participated in N.W.T. Sedimentary Basin and shallow gas exploration exploration in the plains region OIL SANDS • Cold Lake and Athabasca oil sands • Develop in-situ bitumen resources • Obtain regulatory approval for Tucker Oil • Regulatory approval received and construction development commencing with Tucker and then Sunrise Sands Project and initiate development initiated at Tucker • Initiate regulatory approval process for the • Regulatory application process initiated for Sunrise proposed Sunrise Oil Sands Project • Possible reserves increased 42% to 3.2 billion barrels for Sunrise CANADA’S EAST COAST • 12.51% interest in Terra Nova oil field • Participate in continuing development of • Increase production to 17,500 bbls/day • Husky’s share of production averaged 13,700 light oil production from Terra Nova bbls/day • 72.5% interest in and operator of White • Maximize value of White Rose assets • Commission floating production, storage • Topsides installed, hookups and commissioning Rose oil field and offloading (FPSO) vessel and continue under way development drilling • 2.5 million acres of exploration acreage and • Explore White Rose satellite oil • Drill one exploration well in South Whale • South Whale Basin well deferred to 2005 due holder of 15 Significant Discovery Areas opportunities and evaluate gas potential Basin to rig availability INTERNATIONAL • 40% interest in Wenchang 13-1 and 13-2 • Pursue development opportunities near • Optimize Wenchang production with new • Drilled three successful Wenchang producing oil fields in the South China Sea Wenchang development wells developmental wells • 100% interest in six exploration blocks in • Increase resource base through exploration • Drill at least two exploratory wells offshore • One unsuccessful South China Sea well drilled the South and East China Seas drilling China and others delayed due to unavailability of rigs • 100% working interest in the Madura • Increase production from international • Continue negotiations of new gas sales • Acquired partner’s share in Madura Block Block offshore Indonesia areas to 10% of total production contract MIDSTREAM • Upgrading of heavy oil into premium • Increase upgrader capacity to meet future • Continue with debottlenecking projects • Engineering for debottlenecking project is 60% synthetic crude oil heavy oil and bitumen production volumes and improve operating efficiencies complete • A 2,050-kilometre crude oil pipeline system • Increase and optimize crude oil pipeline • Exploit strategic position of assets in the • Husky begins blending the new Western Canada capacity heavy oil/bitumen corridor Select crude oil stream • Marketing of crude oil, natural gas, natural • Increase value of Husky’s assets through • Expand marketing volumes to over • Commodity Marketing volumes exceeded gas liquids, sulphur and petroleum coke growth in the commodity marketing 900,000 boe/day 900,000 boe/day business REFINED PRODUCTS • A retail network of over 500 outlets • Enhance outlets with improvements, • Increase throughput volumes per outlet • Average throughput volume per outlet increased upgrades, ancillary sales and alliances 8.3% over 2003 • A 10,000-barrel per day light oil refinery at • Optimize product supply agreements • Finalize Clean Fuels Project decision to • Committed capital funds to produce low sulphur Prince George, B.C. meet new environmental regulations and gasoline and diesel, and expand refinery expand throughput throughput to 12,000 bbls/day • A 25,000-barrel per day asphalt refinery at • Grow asphalt sales through higher margin • Encourage adoption of higher asphalt • Set new asphalt sales record of 22,800 bbls/day Lloydminster, Alberta premium products and new markets specifications • A 10-million litre per year ethanol plant in • Expand the use of ethanol in gasoline • Initiate construction of a 130-million litre • Construction commenced Minnedosa, Manitoba per year ethanol plant at Lloydminster, SK HSE_Foldout_Mar1 3/1/05 5:23 PM Page 1 2005 PLANS 2 HUSKY ENERGY 2004 ANNUAL REPORT WESTERN CANADA • Grow Western Canada conventional oil and gas production by 4% 24% 4% 1% 71% • Achieve production replacement ratio greater than 100% Midstream Refined Products Corporate Upstream • Grow heavy oil production up to 10% • Pursue unconventional gas plays and participate in the drilling of 300 natural gas from coal wells OIL SANDS • Commence drilling and facility construction for Tucker Oil Sands Project $1.0 billion • Obtain regulatory approval and progress with front-end engineering for NET EARNINGS Sunrise Oil Sands Project CANADA’S EAST COAST • Drill exploratory wells in Terra Nova Far East block and in South Whale Basin • Achieve White Rose first oil in late 2005 or early 2006 • Investigate feasibility of developing and transporting gas from E C White Rose field N A M R O 2004 PERFORMANCE F INTERNATIONAL R E P • Additional development drilling in the Wenchang field 4 0 • Drill three exploration wells offshore China 0 2 • Secure gas sales contract and prepare development plan for Madura BD field, Indonesia % % % 4 4 % 10 % % Refined Products Midstream 4 Midstream 5 16 % Refined Products Refined Products Midstream 91 MIDSTREAM Upstream % % % • Upgrader debottlenecking project, including construction, to be 88 1 1 Upstream Corporate Corporate 60% complete by end of 2005 • Expand Husky’s transmission pipeline to meet demand 84% • Expand gas storage business by 20% Upstream • Expand commodity marketing

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