NEWS RELEASE TRANSMITTED BY Marketwire



FOR: HUSKY ENERGY INC.

TSX SYMBOL:
 HSE

Husky energy reports record earnings and cash flow

Feb 06, 2006 - 11:59 ET

CALGARY--(CCNMatthews - Feb. 6) - Husky Energy Inc. is pleased to announce its fourth quarter results of 2005. Husky's net earnings were up 200 percent to $669 million or $1.58 per share (diluted) in comparison with the $225 million or $0.53 per share (diluted) in the fourth quarter of 2004. Cash flow from operations climbed 156 percent to $1.2 billion or $2.82 per share (diluted) in the fourth quarter of 2005, compared with $469 million or $1.11 per share (diluted) in the fourth quarter of 2004.

"Husky's fourth quarter earnings tripled to a record $669 million, mainly due to its strong financial discipline and good project execution in a high commodity prices environment," said Mr. John C.S. Lau, President & Chief Executive Officer, Husky Energy Inc. "Husky's East Coast White Rose project commenced production ahead of schedule and on-budget. Regulatory approval was also received for the 200,000 barrel per day Sunrise Oil Sands project."

Production for the fourth quarter of 2005 averaged 328,500 barrels of oil equivalent per day, compared with 324,600 barrels of oil equivalent per day in the fourth quarter of 2004. Total crude oil and natural gas liquids production for the fourth quarter was 215,900 barrels per day, compared with 208,400 barrels per day for the same period in 2004. Natural gas production for the fourth quarter of 2005 averaged 675 million cubic feet per day, compared with 697 million cubic feet per day for the same quarter in 2004.

For the year 2005, Husky Energy Inc. is pleased to report that net earnings were up 100 percent to a record of $2.0 billion or $4.72 per share (diluted), up from $1.0 billion or $2.37 per share (diluted) in 2004. Cash flow from operations in 2005 was $3.8 billion or $8.93 per share (diluted), compared with $2.2 billion or $5.18 per share (diluted) in 2004. Sales and operating revenues in 2005 were $10.2 billion, compared with $8.4 billion in 2004.

Production averaged 315,000 barrels of oil equivalent per day, compared with 325,000 barrels of oil equivalent per day during 2004. Total crude oil and natural gas liquids production for 2005 was 201,700 barrels per day, compared with 210,100 barrels per day in 2004. Natural gas production was 680 million cubic feet per day, compared with 689 million cubic feet per day in 2004.

During the fourth quarter of 2005, Husky achieved first oil from the White Rose project, ahead of schedule and on-budget. The project execution and completion marked a major milestone for Husky. Approximately 2.4 million barrels of oil have been produced from the White Rose field, with 1.74 million net to Husky. The Company is planning to increase gross production to 100,000 barrels per day during the next six months of 2006.

Husky has been awarded exploration rights to two parcels of land in the Jeanne d'Arc Basin with a work commitment of $36 million. The bids represent the expenditure which Husky commits to make in exploring the parcels during the initial five-year period of a nine-year term exploration licence.

In Western Canada, Husky continues to expand production of coal bed methane. Plans for 2006 include the tie-in of 150 net wells, boosting production from 10 million cubic feet per day to 35 million cubic feet per day by the end of 2006.

In December, Husky received regulatory approval of its commercial application for developing its Sunrise Oil Sands project, near Fort McMurray, Alberta. It is estimated that the Sunrise lease contains original bitumen in place of 10.6 billion barrels, and that approximately 3.2 billion barrels of oil resources will be recoverable over its approximate 40 year project life. Husky, which holds a 100 percent interest in the Sunrise lease, intends to develop the 200,000 barrel per day project in phases. Husky is completing a review of its alternatives for upstream development, upgrading, transportation and marketing of the produced bitumen.

At Husky's Tucker Oil Sands project near Cold Lake, Alberta, facility construction continues on-schedule and on-budget. Husky expects to begin steaming in mid-2006 with first oil achieved by the end of 2006.

In the Northwest Territories, Husky has commenced drilling the Stewart D-57 well. This exploration well is targeting a total depth of 3,100 metres and will evaluate multiple zones. Husky began drilling operations for the Summit Creek K-44 well. The K-44 well will appraise the discovery encountered in the Summit Creek B-44 well.

In the South China Sea, a rig has been secured to drill an exploration well on the deep-water 29/26 Block. Drilling will commence in the second quarter of 2006 to test a large natural gas prospect.

Regarding our midstream and downstream operations, the Lloydminster Upgrader debottleneck project continues on-schedule for completion in the third quarter of 2006. Construction of Husky's 130-million litres per year ethanol plant at Lloydminster is progressing with construction approximately 50 percent complete. Project completion is planned for the second quarter of 2006.

A second 130-million litres per year ethanol plant is being constructed at Minnedosa, Manitoba. Detailed engineering of the new facility is progressing and procurement of major equipment and long-lead items is ongoing. The project is scheduled to be completed by mid-2007.

"Husky's long-term strategy is to continue development of its mega projects. The 2006 outlook for commodity prices continues to be strong and we anticipate Husky will have another promising year," said Mr. Lau.



SUMMARY OF QUARTERLY RESULTS

-------------------------------------------------------

Financial Summary(1) Three months ended

(millions of dollars, Dec. Sept. June March

except per share 31 30 30 31

amounts and ratios) 2005 2005 2005 2005

-------------------------------------------------------

Sales and operating

revenues, net of

royalties(2) $ 3,207 $ 2,594 $ 2,350 $ 2,094

Segmented earnings

Upstream $ 533 $ 445 $ 307 $ 239

Midstream 135 61 130 169

Refined Products 17 27 20 18

Corporate and

eliminations (16) 23 (63) (42)

-------------------------------------------------------

Net earnings $ 669 $ 556 $ 394 $ 384

-------------------------------------------------------

-------------------------------------------------------

Per share

- Basic $ 1.58 $ 1.31 $ 0.93 $ 0.91

- Diluted 1.58 1.31 0.93 0.91

Cash flow from

operations 1,197 944 828 816

Per share

- Basic 2.82 2.23 1.95 1.93

- Diluted 2.82 2.23 1.95 1.93

Dividends per

common share 0.25 0.14 0.14 0.12

Special dividend

per common share 1.00 - - -

Total assets 15,797 14,712 14,058 13,690

Total long-term debt

including current

portion 1,886 1,896 2,192 2,290

Return on equity(3)

(percent) 29.2 22.9 20.2 18.3

Return on average

capital employed(3)

(percent) 22.8 17.9 15.3 13.9

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-------------------------------------------------------

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Three months ended Year ended

(millions of dollars, Dec. Sept. June March December 31

except per share 31 30 30 31

amounts and ratios) 2004 2004 2004 2004 2005 2004

-------------------------------------------------------------------------

Sales and operating

revenues, net of

royalties(2) $ 2,018 $ 2,191 $ 2,210 $ 2,021 $10,245 $ 8,440

Segmented earnings

Upstream $ 112 $ 161 $ 204 $ 236 $ 1,524 $ 713

Midstream 77 50 53 60 495 240

Refined Products (3) 18 21 5 82 41

Corporate and

eliminations 39 68 (49) (46) (98) 12

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Net earnings $ 225 $ 297 $ 229 $ 255 $ 2,003 $ 1,006

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Per share

- Basic $ 0.53 $ 0.70 $ 0.54 $ 0.60 $ 4.72 $ 2.37

- Diluted 0.53 0.70 0.54 0.60 4.72 2.37

Cash flow from

operations 469 571 581 576 3,785 2,197

Per share

- Basic 1.11 1.34 1.37 1.36 8.93 5.19

- Diluted 1.11 1.34 1.37 1.36 8.93 5.18

Dividends per

common share 0.12 0.12 0.12 0.10 0.65 0.46

Special dividend

per common share 0.54 - - - 1.00 0.54

Total assets 13,240 12,901 12,542 12,317 15,797 13,240

Total long-term debt

including current

portion 2,103 2,096 2,229 1,993 1,886 2,103

Return on equity(3)

(percent) 17.0 17.7 16.8 21.8 29.2 17.0

Return on average

capital employed(3)

(percent) 13.0 13.4 12.7 16.2 22.8 13.0

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(1) 2004 amounts as restated. Refer to Note 3 to the Consolidated

Financial Statements.

(2) The three months ended September 30, 2005, June 30, 2005 and

March 31, 2005 have been reclassified for revenues included as a

consolidated expense.

(3) Calculated for the twelve months ended for the periods shown.

UPSTREAM

-------------------------------------------------------------------------

Daily Production, before Royalties

Three months ended

Dec. 31 Sept. 30 June 30 March 31 Dec. 31

2005 2005 2005 2005 2004

-------------------------------------------------------------------------

Crude oil and NGL

(mbbls/day)

Western Canada

Light crude

oil & NGL 30.1 31.8 31.7 31.9 32.9

Medium crude oil 31.0 30.3 30.6 32.4 33.7

Heavy crude oil 109.5 103.3 100.9 110.4 113.8

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170.6 165.4 163.2 174.7 180.4

East Coast Canada

Terra Nova -

light crude oil 12.2 10.2 13.5 13.7 10.1

White Rose -

light crude oil 19.0 - - - -

China

Wenchang -

light crude oil 14.1 14.4 17.3 18.5 17.9

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215.9 190.0 194.0 206.9 208.4

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Natural gas (mmcf/day) 675.3 679.2 689.3 676.2 697.4

-------------------------------------------------------------------------

Total (mboe/day) 328.5 303.2 308.9 319.6 324.6

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Total crude oil and natural gas production increased by eight percent to 328.5 mboe/day in the fourth quarter of 2005 from 303.2 mboe/day in the third quarter of 2005 due to:

- The end of wet weather improved operating conditions in Western Canada

resulting in increased production from heavy oil of 6.2 mbbls/day in

the fourth quarter

- Increased Terra Nova production as a result of sustained operations of

2.0 mbbls/day for the fourth quarter

- White Rose oil production commencing on November 12, 2005 adding

19.0 mbbls/day during the quarter

Partially offset by:

- Natural gas production decreased by 0.6 mboe/day due to natural

declines and service contractor availability affecting completion of

well tie-ins and plant construction



2006 Production Forecast and 2005 Production Versus Forecast

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Gross Production Year ended

Forecast December 31 Forecast

2006 2005 2005

-------------------------------------------------------------------------

Crude oil & NGL (mbbls/day)

Light crude oil & NGL 103 - 116 64.6 64 - 71

Medium crude oil 29 - 32 31.1 32 - 36

Heavy crude oil 115 - 120 106.0 112 - 120

-------------------------------------------------------------------------

247 - 268 201.7 208 - 227

Natural gas (mmcf/day) 680 - 730 680.0 700 - 740

Total barrels of oil equivalent

(mboe/day) 360 - 390 315.0 325 - 350

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Major Projects

Tucker

At Tucker, a steam-assisted gravity drainage ("SAGD") oil sands project, construction is on budget and on schedule to produce first oil during the fourth quarter of 2006. Tucker, located in the Cold Lake, Alberta oil sands region, is expected to attain production of approximately 30 mbbls/day of eight to ten degree API bitumen.

Sunrise

The Sunrise SAGD in-situ oil sands project was approved by the Alberta Energy and Utilities Board in December 2005. The project plan is for development in phases to an expected capacity of 200,000 barrels per day of seven to eight degree API bitumen. Front-end engineering and design and other early stage development work is progressing, including the drilling of 18 resource evaluation wells.

Indonesia

Front-end engineering design for the Madura Strait offshore natural gas and natural gas liquids development project is approximately one-third complete. This stage, which is expected to be completed by mid-2006, will be followed by a revised "Plan of Development", execution of a natural gas sales contract and application to extend the production sharing agreement with a view to project sanction.

Exploration

- Western Canada

In Western Canada during the fourth quarter of 2005, we drilled a total of 189 gross exploratory wells (95 net) that resulted in 26 gross oil completions (25 net) and 153 gross natural gas completions (60 net).

During the fourth quarter of 2005, our exploration activities were conducted in the foothills, deep basin and northern plains areas of Alberta and British Columbia where we drilled 12 gross exploration wells (7 net), all of which resulted in natural gas wells.

- Northwest Territories

In the Northwest Territories we initiated the drilling of two wells in the Central Mackenzie region. Planning is ongoing for the Summit Creek K-44 delineation well to the B-44 discovery, and for the Stewart D-57 well that will evaluate a new exploration prospect.

- East Coast

An East Coast 3-D seismic program commenced but was halted due to severe weather conditions in the Jeanne d'Arc Basin. Approximately 60 percent of the program was shot and the remainder will be finished in 2006.

- China

The Wushi 32-1-1 well was drilled and abandoned on Block 23/20 in the Beibu Gulf. This block is adjacent to Block 23/15 where the Wushi 17-1-1 oil discovery was drilled in the third quarter of 2005. The 17-1-1 results are still under evaluation.

MIDSTREAM

Husky Lloydminster Upgrader

Engineering is progressing on the four remaining debottleneck projects. The debottleneck projects are scheduled to increase the plant's throughput capacity from 77 to 82 mbbls/day of synthetic crude oil and diluent at a cost of $60 million. Completion is on schedule to be completed in the third quarter of 2006.

REFINED PRODUCTS

Prince George Refinery

The second phase of the Prince George Refinery Clean Fuels Project, which will produce low sulphur diesel fuel, is expected to be operational in May 2006. During the fourth quarter of 2005 the vacuum distillation unit was completed and will be operational in January 2006. The completion of this project will enable the Prince George Refinery to produce fuel that will comply with Canada's federal low sulphur fuel requirements.

Lloydminster Ethanol Plant

The ethanol plant currently being constructed at Lloydminster, Saskatchewan, adjacent to the Husky Lloydminster Upgrader is approximately 50 percent complete. The foundations and structural steel are substantially complete and installation of equipment, piping and electrical systems is progressing. Construction of the plant is scheduled to be completed in the second quarter of 2006.

Minnedosa Ethanol Plant

The process design for the new 130 million litre per year ethanol plant at Minnedosa, Manitoba is complete and detailed plant engineering is underway. Procurement of major equipment is proceeding and field construction has commenced. The plant is scheduled to be operational in mid-2007.



BUSINESS ENVIRONMENT

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Average Benchmark Prices and Three months ended

Exchange Rate

Dec. Sept. June March Dec.

31 30 30 31 31

2005 2005 2005 2005 2004

-------------------------------------------------------------------------

WTI crude oil(1)

(U.S. $/bbl) $ 60.02 $ 63.10 $ 53.17 $ 49.84 $ 48.28

Dated Brent (U.S. $/bbl) 56.90 61.54 51.58 47.50 44.01

Canadian par light crude

0.3% sulphur ($/bbl) 71.65 77.04 66.43 62.02 58.01

Lloyd @ Lloydminster

heavy crude oil ($/bbl) 29.60 44.13 27.95 22.62 25.31

NYMEX natural gas(1)

(U.S. $/mmbtu) 12.97 8.49 6.73 6.27 7.11

NIT natural gas ($/GJ) 11.08 7.75 6.99 6.34 6.72

WTI/Lloyd crude blend

differential (U.S. $/bbl) 24.24 18.90 21.27 19.57 19.82

U.S./Canadian dollar

exchange rate (U.S. $) 0.852 0.833 0.804 0.815 0.819

-------------------------------------------------------------------------

-------------------------------------------------------------------------

(1) Prices quoted are near-month contract prices for settlement during

the next month.

 


SENSITIVITY ANALYSIS

The following table indicates the relative effect of changes in certain key variables on our pre-tax cash flow and net earnings. The analysis is based on business conditions and production volumes during the fourth quarter of 2005. Each separate item in the sensitivity analysis shows the effect of an increase in that variable only; all other variables are held constant. While these sensitivities are applicable for the period and magnitude of changes on which they are based, they may not be applicable in other periods, under other economic circumstances or greater magnitudes of change.



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Sensitivity Analysis

Effect on Pre-tax Effect on

Item Increase Cash Flow Net Earnings

-------------------------------------------------------------------------

($ ($/share) ($ ($/share)

millions) (4) millions) (4)

WTI benchmark

crude oil

price U.S. $1.00/bbl 81 0.19 52 0.12

NYMEX benchmark

natural gas

price(1) U.S. $0.20/mmbtu 33 0.08 21 0.05

Light/heavy

crude oil

differential(2) Cdn $1.00/bbl (25) (0.06) (16) (0.04)

Light oil

margins Cdn $0.005/litre 17 0.04 11 0.03

Asphalt margins Cdn $1.00/bbl 8 0.02 5 0.01

Exchange rate

(U.S. $ / Cdn $)

(3) U.S. $0.01 (67) (0.16) (44) (0.10)

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-------------------------------------------------------------------------

(1) Includes decrease in earnings related to natural gas consumption.

(2) Includes impact of upstream and upgrading operations only.

(3) Assumes no foreign exchange gains or losses on U.S. dollar

denominated long-term debt and other monetary items. The impact of

the Canadian dollar strengthening by U.S. $0.01 would be an increase

of $10 million in net earnings based on December 31, 2005 U.S. dollar

denominated debt levels.

(4) Based on December 31, 2005 common shares outstanding of

424.1 million.

RESULTS OF OPERATIONS

UPSTREAM

-------------------------------------------------------------------------

Upstream Earnings Summary

Three months Year ended

ended Dec. 31 Dec. 31

(millions of dollars) 2005 2004 2005 2004

-------------------------------------------------------------------------

Gross revenues $ 1,591 $ 1,099 $ 5,207 $ 4,392

Royalties 264 174 840 711

Hedging - 203 - 561

-------------------------------------------------------------------------

Net revenues 1,327 722 4,367 3,120

Operating and

administration expenses 299 247 1,050 967

Depletion, depreciation

and amortization 313 283 1,144 1,077

Income taxes 182 80 649 363

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Earnings $ 533 $ 112 $ 1,524 $ 713

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Fourth Quarter

Upstream earnings were $421 million higher in the fourth quarter of 2005 than in the fourth quarter of 2004 as a result of the following factors:

- Higher natural gas and crude oil prices

- Absence of commodity price hedging in 2005, which diminished revenues

by $203 million in the fourth quarter of 2004

- Higher sales volume of light crude oil resulting from the start-up of

White Rose

Partially offset by:

- Lower sales volume of natural gas and crude oil from our operations in

Western Canada

- Higher unit operating costs, which, overall, were $8.90 per boe during

the fourth quarter of 2005 versus $7.50 per boe in the fourth quarter

of 2004

- Higher unit depletion, depreciation and amortization, which, overall,

was $10.36 per boe during the fourth quarter of 2005 versus $9.51

during the fourth quarter of 2004.

Twelve Months

The factors that affected upstream performance in 2005 compared with 2004 were essentially the same as those during the fourth quarter of 2005 and 2004 with the exception of light crude oil sales volume, which for the year ended 2005 was lower than 2004 reflecting natural reservoir declines in Western Canada and at Wenchang that were partially offset by start-up of White Rose in November 2005.

Unit Operating Costs

Unit operating costs were 19 percent higher in the fourth quarter of 2005 compared with 2004 due to higher energy costs, increased natural gas compression costs, higher natural gas well count and production declines. In addition, high commodity prices are affecting rates charged by our service providers with the high level of industry activity creating tight service markets.

Unit Depletion, Depreciation and Amortization

Unit depletion, depreciation and amortization expense increased nine percent in the fourth quarter of 2005 compared with the same period in 2004. The increase was primarily due to the start-up of White Rose and also the increasing capital intensity in the Western Canada Sedimentary Basin.



Operating Netbacks

Western Canada

-------------------------------------------------------------------------

Light Crude Oil Netbacks(1) Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 69.42 $ 51.15 $ 60.74 $ 46.12

Royalties 12.02 7.89 8.66 7.76

Operating costs 11.94 10.10 9.86 8.94

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Netback $ 45.46 $ 33.16 $ 42.22 $ 29.42

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Medium Crude Oil Netbacks(1) Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 44.69 $ 35.43 $ 43.67 $ 36.20

Royalties 8.05 5.24 7.77 6.10

Operating costs 11.84 10.11 10.97 10.07

-------------------------------------------------------------------------

Netback $ 24.80 $ 20.08 $ 24.93 $ 20.03

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Heavy Crude Oil Netbacks(1) Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 30.23 $ 25.91 $ 31.22 $ 28.73

Royalties 3.53 3.33 3.75 3.38

Operating costs 10.97 8.83 9.90 9.33

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Netback $ 15.73 $ 13.75 $ 17.57 $ 16.02

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Natural Gas Netbacks(2) Three months Year ended

ended Dec. 31 Dec. 31

Per mcfge 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 11.20 $ 6.63 $ 8.02 $ 6.25

Royalties 2.38 1.40 1.76 1.44

Operating costs 1.06 0.94 1.04 0.89

-------------------------------------------------------------------------

Netback $ 7.76 $ 4.29 $ 5.22 $ 3.92

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Total Western Canada

Upstream Netbacks(1) Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 50.41 $ 35.10 $ 42.53 $ 35.01

Royalties 9.14 5.99 7.45 6.22

Operating costs 9.40 7.91 8.59 7.85

-------------------------------------------------------------------------

Netback $ 31.87 $ 21.20 $ 26.49 $ 20.94

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(1) Includes associated co-products converted to boe.

(2) Includes associated co-products converted to mcfge.

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Terra Nova Crude Oil Netbacks Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 62.07 $ 52.07 $ 62.19 $ 47.87

Royalties 15.04 2.51 7.95 1.80

Operating costs 5.63 4.06 4.53 3.28

-------------------------------------------------------------------------

Netback $ 41.40 $ 45.50 $ 49.71 $ 42.79

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White Rose Crude Oil Netbacks Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 63.68 $ - $ 63.68 $ -

Royalties 0.61 - 0.61 -

Operating costs 6.72 - 6.72 -

-------------------------------------------------------------------------

Netback $ 56.35 $ - $ 56.35 $ -

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Wenchang Crude Oil Netbacks Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 60.03 $ 44.89 $ 63.15 $ 47.66

Royalties 5.67 4.77 5.93 4.91

Operating costs 4.64 2.50 2.92 2.16

-------------------------------------------------------------------------

Netback $ 49.72 $ 37.62 $ 54.30 $ 40.59

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Total Upstream Segment

Netbacks(1) Three months Year ended

ended Dec. 31 Dec. 31

Per boe 2005 2004 2005 2004

-------------------------------------------------------------------------

Sales revenues $ 51.75 $ 36.17 $ 44.56 $ 36.34

Royalties 8.71 5.82 7.29 5.96

Operating costs 8.90 7.50 8.12 7.32

-------------------------------------------------------------------------

Netback $ 34.14 $ 22.85 $ 29.15 $ 23.06

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(1) Includes associated co-products converted to boe.

MIDSTREAM

-------------------------------------------------------------------------

Upgrading Earnings Summary

Three months Year ended

(millions of dollars, ended Dec. 31 Dec. 31

except where indicated) 2005 2004 2005 2004

-------------------------------------------------------------------------

Gross margin $ 198 $ 122 $ 692 $ 383

Operating costs 77 54 228 214

Other recoveries (2) (1) (6) (5)

Depreciation and

amortization 6 5 21 19

Income taxes 35 18 136 43

-------------------------------------------------------------------------

Earnings $ 82 $ 46 $ 313 $ 112

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Selected operating data:

Upgrader throughput(1)

(mbbls/day) 74.7 60.0 66.6 64.6

Synthetic crude oil sales

(mbbls/day) 62.2 52.5 57.5 53.7

Upgrading differential

($/bbl) $ 33.31 $ 25.72 $ 30.70 $ 17.79

Unit margin ($/bbl) $ 34.59 $ 25.37 $ 33.01 $ 19.48

Unit operating cost(2)

($/bbl) $ 11.08 $ 9.94 $ 9.38 $ 9.07

-------------------------------------------------------------------------

-------------------------------------------------------------------------

(1) Throughput includes diluent returned to the field.

(2) Based on throughput.

 


Fourth Quarter

Upgrading earnings increased in the fourth quarter of 2005 by $36 million compared with the fourth quarter of 2004 due to:

- Wider upgrading differential

- Higher sales volume of synthetic crude oil

Partially offset by:

- Higher energy and non-energy related unit operating costs

Twelve Months

The factors that affected upgrading performance in 2005 compared with 2004 were essentially the same as those during the fourth quarter of 2005 and 2004 except that the wider differential was far more dominant overall.



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Infrastructure and Marketing

Earnings Summary

Three months Year ended

(millions of dollars, ended Dec. 31 Dec. 31

except where indicated) 2005 2004 2005 2004

-------------------------------------------------------------------------

Gross margin

- pipeline $ 24 $ 19 $ 92 $ 84

- other infrastructure

and marketing 63 33 217 136

-------------------------------------------------------------------------

87 52 309 220

Other expenses 2 1 10 8

Depreciation and

amortization 5 5 21 21

Income taxes 27 15 96 63

-------------------------------------------------------------------------

Earnings $ 53 $ 31 $ 182 $ 128

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Selected operating data:

Aggregate pipeline

throughput (mbbls/day) 480 479 474 492

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Fourth Quarter

Infrastructure and marketing earnings increased by $22 million in the fourth quarter of 2005 compared with the fourth quarter of 2004 due to:

- Higher income from oil and gas commodity marketing

- Higher pipeline throughput and margins

Partially offset by:

- Higher operating costs due primarily to higher energy costs

Twelve Months

With the exception of lower pipeline throughput, the factors that affected infrastructure and marketing earnings in 2005 compared with 2004 were essentially the same as those during the fourth quarter of 2005 and 2004.



REFINED PRODUCTS

-------------------------------------------------------------------------

Refined Products

Earnings Summary

Three months Year ended

(millions of dollars, ended Dec. 31 Dec. 31

except where indicated) 2005 2004 2005 2004

-------------------------------------------------------------------------

Gross margin

- fuel sales $ 32 $ 7 $ 126 $ 93

- ancillary sales 8 8 34 30

- asphalt sales 20 10 91 51

-------------------------------------------------------------------------

60 25 251 174

Operating and other expenses 20 18 75 71

Depreciation and amortization 13 11 47 38

Income taxes 10 (1) 47 24

-------------------------------------------------------------------------

Earnings $ 17 $ (3) $ 82 $ 41

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Selected operating data:

Number of fuel outlets 515 531

Light oil sales

(million litres/day) 9.0 8.1 8.9 8.4

Light oil sales per outlet

(thousand litres/day) 12.9 12.0 12.7 11.7

Prince George refinery

throughput (mbbls/day) 9.7 8.6 9.7 9.8

Asphalt sales (mbbls/day) 22.4 20.8 22.5 22.8

Lloydminster refinery

throughput (mbbls/day) 27.4 26.1 25.5 25.3

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Fourth Quarter

Refined products earnings increased by $20 million in the fourth quarter of 2005 compared with the fourth quarter of 2004 due to:

- Higher marketing margins and sales volume for gasoline and distillates

- Higher marketing margins and sales volume of asphalt products

Partially offset by:

- Higher depreciation expense

Twelve Months

The factors that affected refined products earnings in 2005 compared with 2004 were essentially the same as those during the fourth quarter of 2005 and 2004 except asphalt sales volume, which was lower overall in 2005.



CORPORATE

-------------------------------------------------------------------------

Corporate Summary(1)

Three months Year ended

(millions of dollars) ended Dec. 31 Dec. 31

income (expense) 2005 2004 2005 2004

-------------------------------------------------------------------------

Intersegment eliminations

- net $ 3 $ 11 $ (50) $ (14)

Administration expenses (4) (11) (19) (27)

Stock-based compensation 6 (22) (171) (67)

Accretion - - (2) (2)

Other - net (2) (3) 49 (8)

Depreciation and

amortization (6) 2 (23) (24)

Interest on debt (39) (34) (146) (135)

Interest capitalized 23 21 114 75

Foreign exchange (5) 60 31 120

Income taxes 8 15 119 94

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Earnings (loss) $ (16) $ 39 $ (98) $ 12

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-------------------------------------------------------------------------

(1) 2004 amounts as restated. Refer to Note 3 to the Consolidated

Financial Statements.

-------------------------------------------------------------------------

Foreign Exchange Summary Three months Year ended

ended Dec. 31 Dec. 31

(millions of dollars) 2005 2004 2005 2004

-------------------------------------------------------------------------

(Gain) loss on translation

of U.S. dollar denominated

long-term debt

Realized $ (4) $ (5) $ (13) $ (10)

Unrealized 11 (82) (38) (140)

-------------------------------------------------------------------------

7 (87) (51) (150)

Cross currency swaps (2) 19 14 27

Other losses - 8 6 3

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$ 5 $ (60) $ (31) $ (120)

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U.S./Canadian dollar

exchange rates:

At beginning of period U.S. U.S. U.S. U.S.

$ 0.861 $ 0.791 $ 0.831 $ 0.774

At end of period U.S. U.S. U.S. U.S.

$ 0.858 $ 0.831 $ 0.858 $ 0.831

-------------------------------------------------------------------------

-------------------------------------------------------------------------

 


Fourth Quarter

The corporate expense increased by $55 million in the fourth quarter of 2005 compared with the fourth quarter of 2004 due to:

- Higher interest costs

- Loss on translation of U.S. dollar denominated debt compared with a

gain in the fourth quarter of 2004

- Higher depreciation and amortization

Partially offset by:

- Stock-based compensation recovery during the fourth quarter of 2005

- Higher capitalized interest resulting from the higher White Rose and

Tucker project capital base

- Lower intersegment profit elimination

Twelve Months

The corporate expense in 2005 compared with a recovery in 2004 was due to:

- Higher intersegment profit elimination

- Higher stock-based compensation expense

- Higher interest costs

- Lower gains on translation of U.S. dollar denominated debt

- Provision for retrospective insurance premiums in respect of past

claims on a mutual insurance consortium

Partially offset by:

- Proceeds from a litigation settlement

- Higher capitalized interest resulting from the higher White Rose and

Tucker project capital base



CAPITAL EXPENDITURES

-------------------------------------------------------------------------

Capital Expenditures Summary(1) Three months Year ended

ended Dec. 31 Dec. 31

(millions of dollars) 2005 2004 2005 2004

-------------------------------------------------------------------------

Upstream

Exploration

Western Canada $ 123 $ 77 $ 389 $ 322

East Coast Canada

and Frontier 20 7 66 24

International 16 2 55 18

-------------------------------------------------------------------------

159 86 510 364

-------------------------------------------------------------------------

Development

Western Canada 525 356 1,618 1,211

East Coast Canada 131 160 579 515

International 16 62 23 67

-------------------------------------------------------------------------

672 578 2,220 1,793

-------------------------------------------------------------------------

831 664 2,730 2,157

-------------------------------------------------------------------------

Midstream

Upgrader 35 24 120 62

Infrastructure and

Marketing 13 19 37 31

-------------------------------------------------------------------------

48 43 157 93

-------------------------------------------------------------------------

Refined Products 86 53 191 106

Corporate 7 4 21 23

-------------------------------------------------------------------------

Capital expenditures 972 764 3,099 2,379

Settlement of asset

retirement obligations (13) (12) (31) (30)

-------------------------------------------------------------------------

Capital expenditures per

Consolidated Statements

of Cash Flows $ 959 $ 752 $ 3,068 $ 2,349

-------------------------------------------------------------------------

-------------------------------------------------------------------------

(1) Excludes capitalized costs related to asset retirement obligations

incurred during the period and corporate acquisitions.

-------------------------------------------------------------------------

Western Canada Wells

Drilled(1)(2) Three months Year ended

ended Dec. 31 Dec. 31

2005 2004 2005 2004

Gross Net Gross Net Gross Net Gross Net

-------------------------------------------------------------------------

Exploration Oil 26 25 26 23 89 85 45 39

Gas 153 60 81 46 392 196 234 180

Dry 10 10 4 3 36 36 34 33

-------------------------------------------------------------------------

189 95 111 72 517 317 313 252

-------------------------------------------------------------------------

Development Oil 181 167 156 131 466 433 552 499

Gas 168 150 175 148 610 551 807 740

Dry 17 16 6 5 42 39 57 53

-------------------------------------------------------------------------

366 333 337 284 1,118 1,023 1,416 1,292

-------------------------------------------------------------------------

Total 555 428 448 356 1,635 1,340 1,729 1,544

-------------------------------------------------------------------------

-------------------------------------------------------------------------

(1) Excludes stratigraphic test wells.

(2) Includes non-operated wells.

ADDITIONAL INFORMATION

OIL AND GAS RESERVES

Reconciliation of Proved Reserves

-------------------------------------------------------------------------

Canada

-----------------------------------------------------

East

Western Canada Coast

-----------------------------------------------------

Light

Crude Medium Heavy Light

Oil Crude Crude Natural Crude

(constant price & NGL Oil Oil Gas Bitumen Oil

before royalties) (mmbbls) (mmbbls) (mmbbls) (bcf) (mmbbls) (mmbbls)

-------------------------------------------------------------------------

Proved reserves at

December 31, 2004 171 86 225 2,172 - 47

Heavy oil price

revision - - (120) (3) - -

-----------------------------------------------------

Proved reserves at

December 31, 2004 171 86 105 2,169 - 47

Technical revisions 3 9 1 (68) - 9

Heavy oil price

revision - - 120 3 - -

Purchase of reserves

in place - - 7 3 - -

Sale of reserves in

place - (3) (4) (9) - -

Discoveries,

extensions and

improved recovery 5 10 27 286 48 39

Production (12) (11) (39) (248) - (6)

-----------------------------------------------------

Proved reserves at

December 31, 2005 167 91 217 2,136 48 89

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Proved and probable

reserves

At December 31,

2005 225 105 291 2,542 951 207

-----------------------------------------------------

At December 31,

2004 229 96 150 2,557 79 203

-------------------------------------------------------------------------

-------------------------------------------------------------------------

----------------------------------------------------------------

International Total

--------------------------------------------

Light Crude

Crude Natural Oil Natural

(constant price Oil Gas & NGL Gas

before royalties) (mmbbls) (bcf) (mmbbls) (bcf) (mmboe)

----------------------------------------------------------------

Proved reserves at

December 31, 2004 20 - 549 2,172 911

Heavy oil price

revision - - (120) (3) (120)

--------------------------------------------

Proved reserves at

December 31, 2004 20 - 429 2,169 791

Technical revisions 2 - 24 (68) 13

Heavy oil price

revision - - 120 3 120

Purchase of reserves

in place - - 7 3 7

Sale of reserves in

place - - (7) (9) (9)

Discoveries,

extensions and

improved recovery 1 - 130 286 178

Production (6) - (74) (248) (115)

--------------------------------------------

Proved reserves at

December 31, 2005 17 - 629 2,136 985

----------------------------------------------------------------

----------------------------------------------------------------

Proved and probable

reserves

At December 31,

2005 30 167 1,809 2,709 2,260

--------------------------------------------

At December 31,

2004 33 167 790 2,724 1,244

----------------------------------------------------------------

----------------------------------------------------------------

 


NON-GAAP MEASURES

Disclosure of Cash Flow from Operations

This document contains the term "cash flow from operations", which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with generally accepted accounting principles as an indicator of our financial performance. Our determination of cash flow from operations may not be comparable to that reported by other companies. Cash flow from operations generated by each business segment represents a measurement of financial performance for which each reporting business segment is responsible. The items reported under the caption, "Corporate and eliminations", are required to reconcile to the consolidated total and are not considered to be attributable to a business segment.



The following table shows the reconciliation of cash flow from operations to cash flow - operating activities for the periods noted:

-------------------------------------------------------------------------

Year ended

December 31

(millions of dollars) 2005 2004

-------------------------------------------------------------------------

Non-GAAP Cash flow from operations $ 3,785 $ 2,197

Settlement of asset retirement

obligations (41) (40)

Change in non-cash working capital (72) 169

-------------------------------------------------------------------------

GAAP Cash flow - operating activities $ 3,672 $ 2,326

-------------------------------------------------------------------------

-------------------------------------------------------------------------

 


ADVISORY REGARDING RESERVES DATA AND OTHER OIL AND GAS INFORMATION

Our disclosure of reserves data and other oil and gas information has been made in reliance on an exemption granted to us by the Canadian Securities Administrators. The exemption permits us to make our disclosures in accordance with U.S. disclosure requirements and practices in order to provide comparability with U.S. and other international issuers. These requirements may differ from Canadian requirements under National Instrument 51-101, "Standards of Disclosure for Oil and Gas Activities." Our proved reserves disclosure has been evaluated in accordance with the standards contained in Rule 4-10 of Regulation S-X of the Securities Exchange Act of 1934.

We use the terms barrels of oil equivalent ("boe") and thousand cubic feet of gas equivalent ("mcfge"), which are calculated on an energy equivalence basis whereby one barrel of crude oil is equivalent to six thousand cubic feet of natural gas. Readers are cautioned that the terms boe and mcfge may be misleading, particularly if used in isolation. This measure is primarily applicable at the burner tip and does not represent value equivalence at the well head.

Cautionary Note to U.S. Investors - The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated with actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this release, such as "original bitumen in place" and "oil resources", that the SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. investors should refer to our Annual Report or Form 40-F available from us or the SEC for further reserve disclosure.

FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF

THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This document contains certain forward-looking statements relating, but not limited, to Husky's operations, anticipated financial performance, levels of production, business prospects and strategies and which are based on our expectations, estimates, projections and assumptions and were made by us in light of experience and perception of historical trends. All statements that address expectations or projections about the future, including statements about strategy for growth, expected expenditures, commodity prices, costs, production volumes and operating or financial results, are forward-looking statements. Some of our forward-looking statements may be identified by words like "expects", "anticipates", "plans", "intends", "believes", "projects", "could", "vision", "goal", "objective" and similar expressions. In addition, our production forecast and our estimate of productive capacity for White Rose, Tucker and Sunrise and plans associated with our exploration programs are forward-looking statements. Our business is subject to risks and uncertainties, some of which are similar to other energy companies and some of which are unique to Husky. Our actual results may differ materially from those expressed or implied by our forward-looking statements as a result of known and unknown risks, uncertainties and other factors.

The reader is cautioned not to place undue reliance on our forward- looking statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. The risks, uncertainties and other factors, many of which are beyond our control, that could influence actual results include, but are not limited to:

- Fluctuations in commodity prices

- The accuracy of our oil and gas reserve estimates and estimated

production levels as they are affected by our success at exploration

and development drilling and related activities and estimated decline

rates

- The uncertainties resulting from potential delays or changes in plans

with respect to exploration or development projects or capital

expenditures

- Changes in general economic, market and business conditions

- Fluctuations in supply and demand for our products

- Fluctuations in the cost of borrowing

- Our use of derivative financial instruments to hedge exposure to

changes in commodity prices and fluctuations in interest rates and

foreign currency exchange rates

- Political and economic developments, expropriations, royalty and tax

increases, retroactive tax claims and changes to import and export

regulations and other foreign laws and policies in the countries in

which we operate

- Our ability to receive timely regulatory approvals

- The integrity and reliability of our capital assets

- The cumulative impact of other resource development projects

- The maintenance of satisfactory relationships with unions, employee

associations and joint venturers

- Competitive actions of other companies, including increased competition

from other oil and gas companies or from companies that provide

alternate sources of energy

- Actions by governmental authorities, including changes in environmental

and other regulations that may impose restriction in areas where we

operate

- The ability and willingness of parties with whom we have material

relationships to fulfill their obligations

- The occurrence of unexpected events such as fires, blowouts,

freeze-ups, equipment failures and other similar events affecting us or

other parties, whose operations or assets directly or indirectly affect

us and that may or may not be financially recoverable



CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

-------------------------------------------------------------------------

December December

31 31

(millions of dollars) 2005 2004

-------------------------------------------------------------------------

(unaudited) (audited)

Assets

Current assets

Cash and cash equivalents $ 249 $ 7

Accounts receivable 856 446

Inventories 471 274

Prepaid expenses 40 52

-------------------------------------------------------------------------

1,616 779

Property, plant and equipment - (full cost

accounting) 22,375 19,451

Less accumulated depletion, depreciation and

amortization 8,416 7,258

-------------------------------------------------------------------------

13,959 12,193

Goodwill 160 160

Other assets 62 108

-------------------------------------------------------------------------

$ 15,797 $ 13,240

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities

Bank operating loans $ - $ 49

Accounts payable and accrued liabilities 2,391 1,498

Long-term debt due within one year (note 5) 274 56

-------------------------------------------------------------------------

2,665 1,603

Long-term debt (notes 3, 5) 1,612 2,047

Other long-term liabilities (note 4) 730 632

Future income taxes 3,270 2,758

Commitments and contingencies (note 6)

Shareholders' equity

Common shares (note 7) 3,523 3,506

Retained earnings 3,997 2,694

-------------------------------------------------------------------------

7,520 6,200

-------------------------------------------------------------------------

$ 15,797 $ 13,240

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Common shares outstanding (millions) (note 7) 424.1 423.7

-------------------------------------------------------------------------

-------------------------------------------------------------------------

The accompanying notes to the consolidated financial statements are an

integral part of these statements. 2004 amounts as restated (note 3).



Consolidated Statements of Earnings

-------------------------------------------------------------------------

Three months Year ended

ended Dec. 31 Dec. 31

(millions of dollars,

except per share amounts) 2005 2004 2005 2004

-------------------------------------------------------------------------

(unaudited) (unaudited) (unaudited) (audited)

Sales and operating

revenues, net of

royalties $ 3,207 $ 2,018 $ 10,245 $ 8,440

Costs and expenses

Cost of sales and

operating expenses 1,903 1,380 5,917 5,706

Selling and

administration

expenses 29 36 138 135

Stock-based compensation (6) 22 171 67

Depletion, depreciation

and amortization 343 302 1,256 1,179

Interest - net

(notes 3, 5) 16 13 32 60

Foreign exchange

(notes 3, 5) 5 (60) (31) (120)

Other - net 2 3 (50) 8

-------------------------------------------------------------------------

2,292 1,696 7,433 7,035

-------------------------------------------------------------------------

Earnings before

income taxes 915 322 2,812 1,405

-------------------------------------------------------------------------

Income taxes

Current 77 102 297 302

Future 169 (5) 512 97

-------------------------------------------------------------------------

246 97 809 399

-------------------------------------------------------------------------

Net earnings $ 669 $ 225 $ 2,003 $ 1,006

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Earnings per share (note 8)

Basic $ 1.58 $ 0.53 $ 4.72 $ 2.37

Diluted $ 1.58 $ 0.53 $ 4.72 $ 2.37

Weighted average number

of common shares

outstanding (millions)

(note 8)

Basic 424.1 423.7 424.0 423.4

Diluted 424.1 423.7 424.0 424.3

-------------------------------------------------------------------------

-------------------------------------------------------------------------


Consolidated Statements of Retained Earnings

-------------------------------------------------------------------------

Three months Year ended

ended Dec. 31 Dec. 31

(millions of dollars) 2005 2004 2005 2004

-------------------------------------------------------------------------

(unaudited) (unaudited) (unaudited) (audited)

Beginning of period $ 3,858 $ 2,749 $ 2,694 $ 2,156

Net earnings 669 225 2,003 1,006

Dividends on common shares

- ordinary (106) (51) (276) (195)

- special (424) (229) (424) (229)

Stock-based compensation

- retroactive adoption - - - (44)

-------------------------------------------------------------------------

End of period $ 3,997 $ 2,694 $ 3,997 $ 2,694

-------------------------------------------------------------------------

-------------------------------------------------------------------------

The accompanying notes to the consolidated financial statements are an

integral part of these statements. 2004 amounts as restated (note 3).


Consolidated Statements of Cash Flows

-------------------------------------------------------------------------

Three months Year ended

ended Dec. 31 Dec. 31

(millions of dollars) 2005 2004 2005 2004

-------------------------------------------------------------------------

(unaudited) (unaudited) (unaudited) (audited)

Operating activities

Net earnings $ 669 $ 225 $ 2,003 $ 1,006

Items not affecting cash

Accretion (note 4) 8 6 33 27

Depletion,

depreciation and

amortization 343 302 1,256 1,179

Future income taxes 169 (5) 512 97

Foreign exchange 5 (69) (37) (124)

Other 3 10 18 12

Settlement of asset

retirement obligations (17) (16) (41) (40)

Change in non-cash

working capital (note 9) (113) 131 (72) 169

-------------------------------------------------------------------------

Cash flow - operating

activities 1,067 584 3,672 2,326

-------------------------------------------------------------------------

Financing activities

Bank operating loans

financing - net - 2 (49) (22)

Long-term debt issue 208 534 3,235 2,200

Long-term debt repayment (226) (442) (3,401) (1,937)

Debt issue costs - - - (5)

Proceeds from exercise

of stock options 1 1 6 18

Proceeds from

monetization of

financial instruments 9 8 39 8

Dividends on

common shares (530) (280) (700) (424)

Other (1) - (1) -

Change in non-cash

working capital (note 9) 466 326 255 337

-------------------------------------------------------------------------

Cash flow - financing

activities (73) 149 (616) 175

-------------------------------------------------------------------------

Available for investing 994 733 3,056 2,501

-------------------------------------------------------------------------

Investing activities

Capital expenditures (959) (752) (3,068) (2,349)

Corporate acquisitions - - - (102)

Asset sales 4 2 74 36

Other (8) (9) (31) (19)

Change in non-cash

working capital (note 9) 176 31 211 (63)

-------------------------------------------------------------------------

Cash flow - investing

activities (787) (728) (2,814) (2,497)

-------------------------------------------------------------------------

Increase in cash and

cash equivalents 207 5 242 4

Cash and cash equivalents

at beginning of period 42 2 7 3

-------------------------------------------------------------------------

Cash and cash equivalents

at end of period $ 249 $ 7 $ 249 $ 7

-------------------------------------------------------------------------

-------------------------------------------------------------------------

The accompanying notes to the consolidated financial statements are an

integral part of these statements. 2004 amounts as restated (note 3).


Notes to the Consolidated Financial Statements

Year ended December 31, 2005 (unaudited)

Except where indicated and per share amounts,

all dollar amounts are in millions.

Note 1 Segmented Financial Information

-------------------------------------------------------------------------

Upstream Midstream

Infrastructure

Upgrading and Marketing

2005 2004 2005 2004 2005 2004

-------------------------------------------------------------------------

Three months ended

December 31(1)

Sales and operating

revenues, net of

royalties $ 1,327 $ 722 $ 414 $ 291 $ 2,512 $ 1,455

Costs and expenses

Operating, cost of

sales, selling

and general 299 247 291 222 2,427 1,404

Depletion,

depreciation and

amortization 313 283 6 5 5 5

Interest - net - - - - - -

Foreign exchange - - - - - -

-------------------------------------------------------------------------

612 530 297 227 2,432 1,409

-------------------------------------------------------------------------

Earnings (loss)

before income taxes 715 192 117 64 80 46

Current income

taxes 46 89 3 - - -

Future income

taxes 136 (9) 32 18 27 15

-------------------------------------------------------------------------

Net earnings (loss) $ 533 $ 112 $ 82 $ 46 $ 53 $ 31

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Capital expenditures

- Three months

ended December 31 $ 831 $ 664 $ 35 $ 24 $ 13 $ 19

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Year ended

December 31(1)

Sales and operating

revenues, net of

royalties $ 4,367 $ 3,120 $ 1,488 $ 1,058 $ 7,383 $ 6,126

Costs and expenses

Operating, cost of

sales, selling

and general 1,050 967 1,018 884 7,084 5,914

Depletion,

depreciation and

amortization 1,144 1,077 21 19 21 21

Interest - net - - - - - -

Foreign exchange - - - - - -

-------------------------------------------------------------------------

2,194 2,044 1,039 903 7,105 5,935

-------------------------------------------------------------------------

Earnings (loss)

before income taxes 2,173 1,076 449 155 278 191

Current income

taxes 215 211 16 - (14) 31

Future income

taxes 434 152 120 43 110 32

-------------------------------------------------------------------------

Net earnings (loss) $ 1,524 $ 713 $ 313 $ 112 $ 182 $ 128

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Capital employed

- As at

December 31 $ 8,697 $ 7,621 $ 510 $ 480 $ 359 $ 402

Capital expenditures

- Year ended

December 31 $ 2,730 $ 2,157 $ 120 $ 62 $ 37 $ 31

Total assets

- As at

December 31 $12,887 $11,046 $ 844 $ 708 $ 866 $ 746

-------------------------------------------------------------------------

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Corporate and

Refined Products Eliminations(2) Total

2005 2004 2005 2004 2005 2004

-------------------------------------------------------------------------

Three months ended

December 31(1)

Sales and operating

revenues, net of

royalties $ 632 $ 465 $(1,678) $ (915) $ 3,207 $ 2,018

Costs and expenses

Operating, cost of

sales, selling

and general 592 458 (1,681) (890) 1,928 1,441

Depletion,

depreciation and

amortization 13 11 6 (2) 343 302

Interest - net - - 16 13 16 13

Foreign exchange - - 5 (60) 5 (60)

-------------------------------------------------------------------------

605 469 (1,654) (939) 2,292 1,696

-------------------------------------------------------------------------

Earnings (loss)

before income taxes 27 (4) (24) 24 915 322

Current income

taxes - - 28 13 77 102

Future income

taxes 10 (1) (36) (28) 169 (5)

-------------------------------------------------------------------------

Net earnings (loss) $ 17 $ (3) $ (16) $ 39 $ 669 $ 225

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Capital expenditures

- Three months

ended December 31 $ 86 $ 53 $ 7 $ 4 $ 972 $ 764

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Year ended

December 31(1)

Sales and operating

revenues, net of

royalties $ 2,345 $ 1,797 $(5,338) $(3,661) $10,245 $ 8,440

Costs and expenses

Operating, cost of

sales, selling

and general 2,169 1,694 (5,145) (3,543) 6,176 5,916

Depletion,

depreciation and

amortization 47 38 23 24 1,256 1,179

Interest - net - - 32 60 32 60

Foreign exchange - - (31) (120) (31) (120)

-------------------------------------------------------------------------

2,216 1,732 (5,121) (3,579) 7,433 7,035

-------------------------------------------------------------------------

Earnings (loss)

before income taxes 129 65 (217) (82) 2,812 1,405

Current income

taxes (3) 11 83 49 297 302

Future income

taxes 50 13 (202) (143) 512 97

-------------------------------------------------------------------------

Net earnings (loss) $ 82 $ 41 $ (98) $ 12 $ 2,003 $ 1,006

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Capital employed

- As at

December 31 $ 475 $ 354 $ (635) $ (505) $ 9,406 $ 8,352

Capital expenditures

- Year ended

December 31 $ 191 $ 106 $ 21 $ 23 $ 3,099 $ 2,379

Total assets

- As at

December 31 $ 834 $ 625 $ 366 $ 115 $15,797 $13,240

-------------------------------------------------------------------------

-------------------------------------------------------------------------

(1) 2004 amounts as restated (note 3).

(2) Eliminations relate to sales and operating revenues between segments

recorded at transfer prices based on current market prices, and to

unrealized intersegment profits in inventories.

 


Note 2 Significant Accounting Policies

The interim consolidated financial statements of Husky Energy Inc.

("Husky" or "the Company") have been prepared by management in accordance

with accounting principles generally accepted in Canada. The interim

consolidated financial statements have been prepared following the same

accounting policies and methods of computation as the consolidated

financial statements for the fiscal year ended December 31, 2004, except

as noted below. The interim consolidated financial statements should be

read in conjunction with the consolidated financial statements and the

notes thereto in the Company's annual report for the year ended

December 31, 2004. Certain prior years' amounts have been reclassified to

conform with current presentation.

Note 3 Change in Accounting Policies

Financial Instruments

Effective January 1, 2005, the Company retroactively adopted the revised

recommendations of the Canadian Institute of Chartered Accountants

("CICA") section 3860, "Financial Instruments - Disclosure and

Presentation", on the classification of obligations that must or could be

settled with an entity's own equity instruments. The new recommendations

resulted in the Company's capital securities being classified as

liabilities instead of equity. The accrued return on the capital

securities and the issue costs are classified outside of shareholders'

equity. The return on the capital securities is a charge to earnings.

Note 5 discloses the impact of the adoption of the revised

recommendations of CICA section 3860 on the consolidated financial

statements.

Note 4 Other Long-term Liabilities

Asset Retirement Obligations

Changes to asset retirement obligations were as follows:



-------------------------------------------------------------------------

Year ended December 31

2005 2004

-------------------------------------------------------------------------

Asset retirement obligations at

beginning of year $ 509 $ 432

Liabilities incurred 63 13

Liabilities disposed (7) -

Liabilities settled (41) (40)

Revisions - 77

Accretion 33 27

-------------------------------------------------------------------------

Asset retirement obligations at

end of year $ 557 $ 509

-------------------------------------------------------------------------

-------------------------------------------------------------------------

 


At December 31, 2005, the estimated total undiscounted inflation adjusted

amount required to settle the asset retirement obligations was

$3.3 billion. These obligations will be settled based on the useful lives

of the underlying assets, which currently extend up to 50 years into the

future. This amount has been discounted using credit adjusted risk free

rates ranging from 6.2 to 6.4 percent.



Note 5 Long-term Debt

-------------------------------------------------------------------------

December 31

Maturity 2005 2004 2005 2004

-------------------------------------------------------------------------

Cdn $ Amount U.S. $ Denominated

Long-term debt

Syndicated

credit

facility $ - $ 70 $ - $ -

Bilateral

credit

facilities - 40 - -

7.125% notes 2006 175 181 150 150

6.25% notes 2012 467 481 400 400

7.55% debentures 2016 233 241 200 200

6.15% notes 2019 350 361 300 300

Private placement

notes - 18 - 15

8.45% senior

secured bonds 2006 99 140 85 117

Medium-term

notes 2007-9 300 300 - -

8.90% capital

securities 2028 262 271 225 225

-------------------------------------------------------------------------

Total long-term

debt 1,886 2,103 $ 1,360 $ 1,407

----------------------

----------------------

Amount due within

one year (274) (56)

-------------------------------------------------

$ 1,612 $ 2,047

-------------------------------------------------

-------------------------------------------------

Interest - net consisted of:

-------------------------------------------------------------------------

Three months Year ended

ended Dec. 31 Dec. 31

2005 2004 2005 2004

-------------------------------------------------------------------------

Long-term debt $ 39 $ 33 $ 144 $ 133

Short-term debt 1 1 4 3

-------------------------------------------------------------------------

40 34 148 136

Amount capitalized (23) (21) (114) (75)

-------------------------------------------------------------------------

17 13 34 61

Interest income (1) - (2) (1)

-------------------------------------------------------------------------

$ 16 $ 13 $ 32 $ 60

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Foreign exchange consisted of:

-------------------------------------------------------------------------

Three months Year ended

ended Dec. 31 Dec. 31

2005 2004 2005 2004

-------------------------------------------------------------------------

(Gain) loss on translation

of U.S. dollar denominated

long-term debt $ 7 $ (87) $ (51) $ (150)

Cross currency swaps (2) 19 14 27

Other losses - 8 6 3

-------------------------------------------------------------------------

$ 5 $ (60) $ (31) $ (120)

-------------------------------------------------------------------------

-------------------------------------------------------------------------

 


Credit Facilities

In March 2005, Husky increased its revolving syndicated credit facility

from $950 million to $1 billion.

Capital Securities

The Company retroactively adopted CICA recommendations resulting in the

Company's capital securities being classified as liabilities instead of

equity. The revision was effective January 1, 2005 and resulted in the

following changes to the Company's consolidated financial statements:



-------------------------------------------------------------------------

Consolidated Balance Sheet

- As at December 31, 2004

As As

Reported Change Restated

-------------------------------------------------------------------------

Assets

Other assets $ 106 $ 2 $ 108

Liabilities and Shareholders' Equity

Accounts payable and accrued

liabilities 1,489 9 1,498

Long-term debt 1,776 271 2,047

Capital securities and accrued

return 278 (278) -

-------------------------------------------------------------------------

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Consolidated Statement of Earnings

- Year ended December 31, 2004

As As

Reported Change Restated

-------------------------------------------------------------------------

Interest - net $ 33 $ 27 $ 60

Foreign exchange (99) (21) (120)

Future income taxes 103 (6) 97

Net earnings 1,006 - 1,006

-------------------------------------------------------------------------

-------------------------------------------------------------------------

 


Note 6 Commitments and Contingencies

The Company is involved in various claims and litigation arising in the

normal course of business. While the outcome of these matters is

uncertain and there can be no assurance that such matters will be

resolved in the Company's favour, the Company does not currently believe

that the outcome of adverse decisions in any pending or threatened

proceedings related to these and other matters or any amount which it may

be required to pay by reason thereof would have a material adverse impact

on its financial position, results of operations or liquidity. In the

third quarter of 2005, a lawsuit was settled with proceeds received and

the resulting gain was recognized in earnings and recorded in other -

net.

Note 7 Share Capital

The Company's authorized share capital consists of an unlimited number of

no par value common and preferred shares.

Common Shares

Changes to issued common shares were as follows:



-------------------------------------------------------------------------

Year ended December 31

2005 2004

-------------------------------------------------------------------------

Number of Number of

Shares Amount Shares Amount

-------------------------------------------------------------------------

Balance at beginning of year 423,736,414 $ 3,506 422,175,742 $ 3,457

Stock-based compensation

- adoption - - - 23

Exercised - options

and warrants 388,664 17 1,560,672 26

-------------------------------------------------------------------------

Balance at December 31 424,125,078 $ 3,523 423,736,414 $ 3,506

-------------------------------------------------------------------------

-------------------------------------------------------------------------

Stock Options

A summary of the status of the Company's stock option plan is presented

below:

-------------------------------------------------------------------------

Year ended December 31

2005 2004

-------------------------------------------------------------------------

Weighted Weighted

Number of Average Number of Average

Options Exercise Options Exercise

(thousands) Prices (thousands) Prices

-------------------------------------------------------------------------

Outstanding, beginning

of year 9,964 $ 22.61 4,597 $ 13.88

Granted 670 $ 48.14 8,200 $ 25.10

Exercised for common shares (359) $ 15.84 (1,350) $ 13.11

Surrendered for cash (2,443) $ 19.05 (1,269) $ 13.32

Forfeited (547) $ 24.10 (214) $ 22.73

-------------------------------------------------------------------------

Outstanding, December 31 7,285 $ 25.81 9,964 $ 22.61

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Options exercisable at

December 31 1,533 $ 22.72 1,417 $ 13.04

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December 31, 2005

Outstanding Options Options Exercisable

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Weighted

Weighted Average Weighted

Number of Average Contractual Number of Average

Range of Options Exercise Life Options Exercise

Exercise Price (thousands) Prices (years) (thousands) Prices

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$13.67 - $14.99 187 $ 14.32 2 144 $ 14.17

$15.00 - $22.99 234 $ 19.44 3 116 $ 19.98

$23.00 - $23.99 5,977 $ 23.83 3 1,252 $ 23.83

$24.00 - $39.99 392 $ 32.11 4 21 $ 30.60

$40.00 - $55.14 495 $ 52.12 5 - $ -

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7,285 $ 25.81 3 1,533 $ 22.72

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A downward adjustment of $0.55 was made to the exercise price of all

outstanding stock options effective December 1, 2005, pursuant to the

terms of the stock option plan under which the options were issued as a

result of the special $1.00 per share dividend that was declared in

November 2005.

Note 8 Earnings per Common Share

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Three months Year ended

ended Dec. 31 Dec. 31

2005 2004 2005 2004

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Net earnings and net

earnings available to

common shareholders $ 669 $ 225 $ 2,003 $ 1,006

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Weighted average number of

common shares outstanding

Basic (millions) 424.1 423.7 424.0 423.4

Effect of dilutive stock

options and warrants - - - 0.9

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Weighted average number of

common shares outstanding

Diluted (millions) 424.1 423.7 424.0 424.3

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Earnings per share

Basic $ 1.58 $ 0.53 $ 4.72 $ 2.37

Diluted $ 1.58 $ 0.53 $ 4.72 $ 2.37

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Note 9 Cash Flows - Change in Non-cash Working Capital

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Three months Year ended

ended Dec. 31 Dec. 31

2005 2004 2005 2004

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a) Change in non-cash

working capital was

as follows:

Decrease (increase) in

non-cash working

capital

Accounts receivable $ (297) $ 176 $ (410) $ 209

Inventories (21) 12 (197) (77)

Prepaid expenses 20 - 17 (12)

Accounts payable and

accrued liabilities 827 300 984 323

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Change in non-cash

working capital 529 488 394 443

Relating to:

Financing activities 466 326 255 337

Investing activities 176 31 211 (63)

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Operating activities $ (113) $ 131 $ (72) $ 169

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b) Other cash flow

information:

Cash taxes paid $ 9 $ 26 $ 154 $ 213

Cash interest paid $ 44 $ 39 $ 147 $ 143

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Note 10 Employee Future Benefits

Total benefit costs recognized were as follows:

-------------------------------------------------------------------------

Three months Year ended

ended Dec. 31 Dec. 31

2005 2004 2005 2004

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Employer current

service cost $ 5 $ 4 $ 18 $ 16

Interest cost 1 2 8 8

Expected return on

plan assets (1) (1) (7) (7)

Amortization of net

actuarial losses 1 1 3 2

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$ 6 $ 6 $ 22 $ 19

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Note 11 Financial Instruments and Risk Management

Unrecognized gains (losses) on derivative instruments were as follows:

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December 31

2005 2004

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Commodity price risk management

Natural gas $ - $ (9)

Power consumption - (1)

Interest rate risk management

Interest rate swaps 7 52

Foreign currency risk management

Foreign exchange contracts (32) (30)

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Commodity Price Risk Management

- Natural Gas Production

During 2005, the impact of hedging was a loss of $17 million.

- Power Consumption

During 2005, the impact of the hedge program was a gain of $4 million.

- Natural Gas Contracts

At December 31, 2005, the unrecognized gains (losses) on external

offsetting physical purchase and sale natural gas contracts were as

follows:



-------------------------------------------------------------------------

Volumes Unrecognized

(mmcf) Gain (Loss)

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Physical purchase contracts 35,261 $ 29

Physical sale contracts (35,261) $ (28)

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Interest Rate Risk Management

In 2005, the Company unwound the following interest rate swaps:

-------------------------------------------------------------------------

Settlement Swap Swap Swap Rate

Date Debt Amount Maturity (percent) Proceeds

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May 2005 6.15% notes U.S. $300 June 15, U.S. LIBOR + $ 30

2019 63 bps

Nov. 2005 7.55% debentures U.S. $200 November 15, U.S. LIBOR + $ 7

2011 194 bps

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The proceeds have been deferred and are being amortized to income over

the remaining term of the underlying debt.

During 2005, the Company realized a gain of $13 million from interest

rate risk management activities.

Foreign Currency Risk Management

During 2005, the Company entered into the following cross currency debt

swaps:



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Canadian Interest Rate

Debt Swap Amount Equivalent Swap Maturity (percent)

-------------------------------------------------------------------------

6.25% notes U.S. $75 $90 June 15, 2012 5.65

6.25% notes U.S. $50 $59 June 15, 2012 5.67

6.25% notes U.S. $75 $88 June 15, 2012 5.61

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During 2005, the Company realized a $1 million gain from all foreign

currency risk management activities.

During 2005, Husky recognized a gain of $8 million from its long-dated

forwards, which fixed the exchange rate on U.S. dollar sales and were

unwound in November 2004.

Sale of Accounts Receivable

The Company has a securitization program to sell, on a revolving basis,

accounts receivable to a third party up to $350 million. As at

December 31, 2005, $350 million in outstanding accounts receivable had

been sold under the program.



TERMS AND ABBREVIATIONS

bbls barrels

bps basis points

mbbls thousand barrels

mbbls/day thousand barrels per day

mmbbls million barrels

mcf thousand cubic feet

mmcf million cubic feet

mmcf/day million cubic feet per day

bcf billion cubic feet

tcf trillion cubic feet

boe barrels of oil equivalent

mboe thousand barrels of oil equivalent

mboe/day thousand barrels of oil equivalent per day

mmboe million barrels of oil equivalent

mcfge thousand cubic feet of gas equivalent

GJ gigajoule

mmbtu million British Thermal Units

mmlt million long tons

MW megawatt

MWh megawatt hour

NGL natural gas liquids

WTI West Texas Intermediate

NYMEX New York Mercantile Exchange

NIT NOVA Inventory Transfer(1)

LIBOR London Interbank Offered Rate

CDOR Certificate of Deposit Offered Rate

SEDAR System for Electronic Document Analysis and

Retrieval

FPSO Floating production, storage and offloading vessel

OPEC Organization of Petroleum Exporting Countries

WCSB Western Canada Sedimentary Basin

SAGD Steam-assisted gravity drainage

Capital Employed Short- and long-term debt and shareholders' equity

Capital Expenditures Includes capitalized administrative expenses and

capitalized interest but does not include proceeds

or other assets

Cash Flow from Earnings from operations plus non-cash charges

Operations before settlement of asset retirement obligations

and change in non-cash working capital

Equity Shares and retained earnings

Total Debt Long-term debt including current portion and bank

operating loans

hectare 1 hectare is equal to 2.47 acres

wildcat well Exploratory well drilled in an area where no

production exists

feedstock Raw materials which are processed into petroleum

products

(1) NOVA Inventory Transfer is an exchange or transfer of title of gas

that has been received into the NOVA pipeline system but not yet

delivered to a connecting pipeline.

 


Natural gas converted on the basis that six mcf equals one barrel of oil.

In this report, the terms "Husky Energy Inc.", "Husky", "we", "our" or

"the Company" mean Husky Energy Inc. and its subsidiaries and partnership

interests on a consolidated basis.

Husky Energy Inc. will host a conference call for analysts and investors on Tuesday, February 7, 2006 at 4:15 p.m. Eastern time to discuss Husky's fourth quarter results which will be released after market close on February 6, 2006. To participate, please dial 1-800-289-6406 beginning at 4:05 p.m. Eastern time. Mr. John C.S. Lau, President & Chief Executive Officer and other officers will be participating in the call.

We appreciate your interest in Husky Energy and look forward to your participation in our conference call.

Those who are unable to listen to the call live may listen to a recording by dialing 1-800-558-5253 one hour after the completion of the call, approximately 6:15 p.m. Eastern time, then dialing reservation number 21280635. The PostView will be available until Tuesday, March 7, 2006.

Media are invited to participate in the call on a listen-only basis by dialing 1-800-377-5794 beginning at 4:05 p.m. Eastern time.



FOR FURTHER INFORMATION PLEASE CONTACT:

Husky Energy Inc.
Investor Relations
Mr. Colin Luciuk
Manager, Investor Relations
(403) 750-4938

or

Husky Energy Inc.
707 - 8th Avenue S.W., Box 6525, Station D
Calgary, Alberta, Canada, T2P 3G7
(403) 298-6111
(403) 298-6515 (FAX)
Email: Investor.Relations@huskyenergy.ca
Website: www.huskyenergy.ca