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MDU Resources Ties Growth to Bakken Boom

Bismarck, ND-based MDU Resources Group is aligning its utility, construction, midstream infrastructure and exploration/production (E&P) businesses so each one profits and grows with the continuing hydrocarbon boom in the Bakken, the MDU senior executives emphasized in a half-day financial analysts meeting Thursday in New York City.

Not holding back given its focal point, MDU executives reiterated a strategy of growing profits by 50% during the next five years.

For the longer term, MDU's E&P executives are touting prospects for the Eagle Ford and Paradox Basins in addition to the current strong focus on North Dakota. Much of the current talk, coming after reporting losses mostly due to depressed natural gas prices the end of last year, was similar to the diversified holding company's pitch a year earlier to analysts, citing a "home field advantage" with all its Bakken ties (see Shale Daily, Feb. 6, 2012).

CEO David Goodin repeated the company's strategy of "leveraging our strengths across our business lines," citing its current plans to build a refinery in North Dakota that will help the growth of all of its major business units, including the local utility that will pick up some substantial added industrial load.

While MDU reported consolidated losses for both 4Q2012 and the full year driven mostly by a $246.8 million writedown tied mostly to lower natural gas prices, the results from continuing operations were profitable with the construction business recording its highest annual earnings since 2009. Goodin emphasized the growth potential for all lines of business tied to Bakken oil, with the Dakota Prairie Refining topping diesel refinery being a prime example. It breaks ground March 26 and should be operational next year, Goodin told analysts.

"With the topping refinery we're going to have an internal hedge for the Bakken oil MDU's Fidelity E&P unit is producing, so if the Bakken [price] differential widens and that is not necessarily good for the E&P business it will be an internal hedge on our refining business," Goodin said. "So some of our crude will go through the plant, our utility group will supply electricity and the midstream group will supply about 5 MMcf/d of gas for the plant itself, which will be constructed by part of the MDU construction group."

MDU grew its oil production last year 36% compared to the previous year with the focus remaining this year on oil per se. "If we get some liquids and gas that's kind of a bonus," said Goodin, while predicting more oil growth this year in the range of 25-30%. Without giving specific percentage growth projections, Goodin said the combined construction and midstream infrastructure businesses are moving up after hitting a trough a couple of years ago in the midst of the recessionary economy.

"Leveraging across the business units expertise" remains the focus, for example the low gas prices are hurting the E&P unit, but the utilities are using it to expand into new industrial loads in a number of states, Goodin said.

Operating in nine states, MDU utilities saw 9% and 7% increases, respectively in electric and gas customers last year, and it, too, is all part of what Goodin called "red hot" growth in the Bakken area. Most of the existing electric generation is coal-fired, but MDU has planned to invest in a lot more gas-fired power generation in the region.

As for 50% earnings growth in the next five years, even before he was queried on the projection, Goodin said "I am pretty confident we are going to get that done," just simply because of the many Bakken-related projects. He stressed that it will be mostly "organic growth" as opposed to mergers and acquisitions.

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