As another indicator of what sub-$3 natural gas prices can produce, MDU Resources Group Inc. will be selling some of its gas assets this year -- albeit small ones -- and raising its proportional amount of oil production from its exploration and production (E&P) mix in the Bakken, Niobrara, Heath, Big Horn Basin and other shale plays, senior executives told analysts during the company's 4Q2011 earnings conference call.
"Our production will be led by what we do in the Bakken," said Kent Wells, CEO at MDU's Fidelity E&P unit, noting that 40% of the capital expenditures this year will go to Bakken drilling. "About 70% of our expected production growth this year will come from the Bakken area."
The company's "more oily" strategy has caused MDU to review all of its natural gas assets to determine which ones can help with the shift, Wells said.
One of those assets is the small Bonny gas field in Colorado, which Wells thinks should be more valuable to a new owner; the second is the company's coalbed methane operations, which last year represented about 15% of MDU's total gas production. The latter "wasn't significant at all in terms of our earnings," he said.
"We are going to look to move that out by mid-year. I think that is an asset that someone else can add more value to, so we'll look to [sell]. But, of course, if we don't get the price we think we deserve, we won't sell it," Wells said.
Steve Bietz, CEO of MDU's WBI Holdings, was asked what MDU is doing about gas produced in the Bakken in conjunction with oil and the general lack of pipeline and other infrastructure.
"Given where we are at with our investments on the gas side, we have seen a number of opportunities ranging from wet gas, oil, pipelining, etc.," Bietz said. "There are a number of advantages to pipelining some of that oil. The biggest one is helping get all those trucks off the road. We think that is very positive for the state.
"We're looking at what to do with some of the gas that is not being produced today. What are some options? Gathering it and taking it to a processing facility might be one. We could also participate in a processing facility, and we see that as a potential upside for us as we look at 2012."
Bietz said the processing facilities in the Bakken are "sufficient" today, but the "challenge is getting the gas from the wells to those facilities."
MDU CEO Terry Hildestad said the company has doubled its takeaway capacity of Bakken gas in the past year to 240 MMcf/d, "and we will nearly double that again in the next several months." Hildestad reiterated that MDU is pursuing both gas and oil infrastructure opportunities in the Bakken, noting the strategy is to take advantage of growing energy development-related opportunities in the broader Rockies region.