Shale Daily / NGI All News Access

MDU to Quench North Dakota Diesel Thirst

As part of its proposed joint venture diesel refinery slated to process 20,000 b/d of Bakken crude oil by next year, Bismarck, ND-based MDU Resources Group has a strategy aimed at its exploration and production (E&P) and midstream infrastructure businesses sharing in the continuing boom in its home state.

North Dakota's current appetite for diesel is quite high up to 53,000 b/d, a 75% increase in the past four years. And the state's only refinery today produces about 22,000 b/d, so there is lots of room for more homegrown diesel, said Steve Bietz, MDU midstream business CEO.

"If you look at the Dickinson, ND, area [near the proposed new refinery] there are no pipelines for bringing in diesel for about 100 miles around," Bietz said. "So in about a 100-mile radius of our plant is where we will be looking to serve the diesel we produce," said Bietz, who said MDU's Fidelity E&P unit with nearly a million acres of potential production lands spread over seven states and Whiting Oil/Gas will be the two largest producers for the Bakken refinery.

Kent Wells, the Fidelity E&P CEO, stressed that his operations are going to concentrate on oil for the most part and in growing areas where the Denver-based E&P operator already has a proven success record. "Like most E&P companies, we are moving from what was predominantly a gas company to an oil company," Wells said. "We're about 18 months into that transition, and last year we really began to hit our stride."

Wells said 44% of MDU's E&P production was oil in 4Q2012, compared to natural gas liquids at about 8%, with the remainder (48%) natural gas. "We're now at 81 million bbl of proved reserves, 42% of which is oil, he said.

In the past year, Wells said that MDU has made one shift in strategy away from emphasizing growth in liquids production. That shift touted a year ago has now been pulled back, he said. "As we have all seen how NGLs have deviated from oil in terms of price and returns, we're focused on oil. We'll fall back into NGLs and gas when prices dictate us to do that."

With its niche in the onshore U.S. oil/gas plays, Fidelity for the near term plans to "stay in the areas we've gotten good at," including the Bakken, Wells said. "It is all about horizontal drilling techniques; that's what we have become good at. We've worked on it in the Bakken and now we are able to expand it to the Paradox. and we'll look to expand it to other places."

Wells said MDU is committed to investing $400 million in the oil E&P business this year, and it projects a 20-30% increase in oil growth for the year. "Last year we were projecting 20-30% in liquids, and we actually grew that by 29%."

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