Husky Energy Inc., Canada's No. 3 integrated oil company, reported a smaller-than-expected 2016 quarterly loss as the focus on fewer, more efficient resource plays helped reduce production costs.

Production operating costs fell about 12% to CA$10.79 per barrel (bbl) in the second quarter from a year earlier, as the company benefits from its six-year-long effort to transform its business by investing in projects with lower costs.

More than 40% of the company's production is expected to come from low-breakeven projects by the end of this year, up from just 8% in 2010, when it began the turnaround, the company said in June.

Husky has also sold noncore assets, including royalty interests in Western Canada, for about CA$1.2 billion.

Overall earnings breakeven is expected to be sub-$40 WTI by the end of 2016, as several key projects are up and running, including the 30 Mbbl/d Sunrise project in Alberta and the Edam East thermal project in Saskatchewan, the company said on July 22.

U.S. benchmark crude closed at $44.75/bbl on July 21.

Total production fell about 6% to 316 Mboe/d in the three months ended in June due to planned maintenance and the Fort McMurray wildfire in Alberta, the company said.

Several oil producers and pipeline operators curbed activities due to the wildfires that began on May 1, forcing more than 1 MMbbl of capacity offline.

However, Calgary, Alberta-based Husky said it expected annual production at the low end of its previous forecast of 315 Mboe/d to 345 Mboe/d.

The company's cash flow from operations was more than halved, to CA$488 million, in the latest quarter.

Husky reported a loss of CA$196 million (US$149.4 million), or 20 Canadian cents per share, in the three months ended in June, compared with a profit of CA$120 million, or 10 Canadian cents per share, a year earlier.

Excluding items, the company's loss was 9 Canadian cents per share, according to Thomson Reuters I/B/E/S. Analysts, on average, had estimated a loss of 21 Canadian cents per share.

(US$1 = 1.31 Canadian dollars)