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Bakken Well Spacing Key, Says MDU CEO

How to space wells in the Bakken Shale remains the "question of the day" for exploration production (E&P) operators working in the play, according to the CEO of Bismarck, ND-based MDU Resources Group Inc.

CEO David Goodin discussed the Bakken and his company's performance during a first quarter earnings conference call.

MDU's first quarter oil output jumped 46% year/year in 1Q2013, creating a balance between liquids and natural gas output, he said. Fidelity E&P Co., MDU's exploration unit, reported that output increased 63% from the same period last year in the Bakken, the company's largest play. The company also is more bullish about prospects in the Paradox Basin in Utah and Colorado, he said.

"We achieved an important goal of balancing our oil/gas production," Goodin said. "Each contributed about 46% of the total production, with natural gas liquids making up the remainder." But that balance won't last since the company expects its natural gas production will drop along with gas-directed drilling.

Figuring out how best to develop the Bakken is a question that "I think all of industry is trying to grapple with," said the CEO. "There are others that are more aggressive than we are on testing this, and we're watching carefully what they are doing, and at this point we are not sure where that will lead. History has shown that every field goes through different phases, and we are arguably still in the first phase in the Bakken."

He said a case can be made that if operators down space wells, they may double the number of wells to be drilled. "That is the sort of potential that is out there," but he declined to put any specific numbers or what it might mean to Fidelity.

While there is a lot of potential for MDU in North Dakota's Mountrail County, Goodin said another "big opportunity" is in Richland County. "We just recently tried a new hydraulic fracturing [fracking] technique, and we don't have production results yet, but that would really open up the amount of investment opportunity we have in the Bakken for ourselves."

In Richland County, ND< MDU is trying to get over two hurdles, he said. One is getting the ability to drill two-mile long lateral wells as it is doing in the rest of the Bakken, and it is still looking to resolve that. Second is the "biggest lever" -- what fracking technique to deploy.

"We've tried a new technique that some others have been trying as well, and we think it has good potential, but we are just in the early flow-back phase of the well," he said. "The [test] well is flowing back incredibly strong, but in the early phase you are just getting a lot of water, so we don't have a good result yet, but we will have at the end of the second quarter."

In response to another question of whether MDU's "excitement" has shifted from the Bakken to the Paradox Basin in parts of Utah and Colorado, Goodin said the Paradox is "very exciting for us," but it hasn't shifted MDU's attention.

"We see enormous potential in the Paradox and we look forward to continuing development in the play, however, we are not going to rush things there [because] the Paradox is complex, and we are going to assure we know exactly what we are doing before going into full development mode."

MDU earned $56.3 million (30 cents/share) in 1Q2013, compared with $35.6 million (19 cents) for the same period last year.

MDU plans to invest $400 million in exploration and production this year, with half of it slated for the Bakken. The company is projecting a 25-30% increase in oil production for the year, following a 36% increase in 2012. However, Fidelity CEO Kent Wells said MDU is projecting a continuing decline in gas production by as much as 15-25%. The drop includes plans begun last year to turn back on some of the production that was shut in last May because of low prices.

"While prices have improved significantly, they are still not at the point where we are looking to invest in natural gas preferential to our oil," Wells said. "So we are staying with our strategy of investing in oil, and therefore, we will see more declines in gas production."

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