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MDU Resources Puts Out 'For Sale' Sign on E&P Business

Bismarck, ND-based MDU Resources Group said it expects to sell its exploration and production (E&P) business by the end of this year. CEO David Goodin previously had said that Fidelity E&P Co. was going to be sold, but the sharp crude oil price drop late last year caused him to postpone putting it on the market at the time (see Shale DailyFeb. 5).

During a quarterly earnings conference call, Goodin said Fidelity will be treated as discontinued operations until the unit is sold, while reporting 2Q2015 consolidated adjusted profits of $29.1 million (15 cents/share), compared to $34.1 million (18 cents) for the same period last year. On a GAAP basis, however, the quarter showed a loss of $229.8 million (minus $1.18/share), compared to $53.9 million (28 cents) for the second quarter in 2014.

"We are in the marketing process, and for forecasting purposes we have assumed a sale [of the E&P unit] by the end of this year," Goodin said. "Due to the probable sale of the business, we are now reporting our exploration and production activity as 'discontinued' operations."

Goodin called MDU's overall results for the first half of this year "soft" but said there are better days ahead with growth opportunities embodied in a record $3.8 billion, five-year capital investment budget for its other lines of business, including utilities, construction materials/services, and the pipeline/storage unit, including a new joint venture diesel refinery in North Dakota (see Shale DailyJuly 23).

Last year, Fidelity saw a slight increase in oil production, led by a 25% jump in Paradox Basin production, mostly natural gas and natural gas liquids. It also owns assets in the Powder River Basin, Bakken and East Texas.

In response to an analyst question about delaying further the E&P sale until crude prices improve, Goodin and Fidelity CEO Pat O'Bryan declined to respond "for competitive reasons."

Contributing to the quarterly loss was the continuing start-up of MDU's much-anticipated diesel Dakota Prairie Refinery, in which MDU holds a 50% interest. It was commissioned May 4 and is now ramped up to about 95% capacity, but the diesel market is very soft right now, according to Goodin. The facility is expected to contribute "meaningful EBITDA" next year, he said.

There are still start-up hurdles to get through in the operations, but the primary reason for the 2Q2015 loss related to poor market conditions. "We saw Bakken differentials that were in double-digits the early part of the year that narrowed considerably in May and June when we brought the plant online," Goodin said.

An oversupply of diesel and naphtha has kept prices historically lower than what had been seen before, he said. "We're still ramping up and feel good about the plant. Some might ask, 'why didn't we hedge?' Going through commissioning and start-up "was not the prudent time" for hedging, Goodin said.

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