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North Dakota Infrastructure Big Bet for MDU

While it has deemphasized natural gas production, Bismarck, ND-based MDU Resources Group is betting even bigger on oil/gas infrastructure centered in North Dakota's Bakken Shale play in addition to its stable of  four utilities spread over eight states.

The "all-in" bet is on a $650 million natural gas pipeline from the Bakken to northwest Minnesota to find a home for increased gas supplies in various Midwest markets.

On a 2013 year-end earnings conference call Tuesday, MDU CEO David Goodin said the company's pipeline and energy services unit, WBI Energy, had higher profits last year, primarily driven by its interest in the Pronghorn (part of the Bakken formation gas and oil) midstream assets that had higher volumes last year. Goodin added that WBI expects to complete a new 15-mile pipeline by this summer serving a new processing facility under construction in North Dakota, while also completing a 24-mile gathering system in the Paradox Basin in Utah.

But the largest capital project in MDU's 90-year history resides in the proposed 375-mile Dakota Pipeline, for which a 120-day open season was started last Thursday (see Shale Daily, Jan. 31). "Once the open season ends, we will analyze the results, and expect to launch plans for proceeding this summer; construction could start in 2016 with operations beginning in 2017," Goodin said.

WBI filed its first rate increase request with FERC in more than a decade for $28 million last October, and CEO Steve Bietz said he hoped for a settlement with Federal Energy Regulatory Commission staff later this year.

Separately and with a partner, WBI is building the $350 million Dakota Prairie Refinery, which is slated to begin operations later this year. Early in 2014, Bietz and other MDU executives characterized the project as being 40% complete. The diesel topping plant is built to refine 20,000 b/d of Bakken crude oil.

In response to a question about the Dakota Pipeline, for which he expects precedent agreements with potential shippers this summer and a two-year regulatory process including an

environmental impact statement by FERC, Bietz said WBI expects to build and operate the natural gas pipeline on its own.

"We don't anticipate any investments in it from third parties," he said.

While the gas pipeline is precedent-setting in its scope for the MDU unit, senior executives fielded a number of analyst questions about the diminishing gas E&P assets. MDU's Fidelity Exploration & Production is producing and processing high-Btu associated gas out of Utah with the help of WBI on new gathering pipelines and related infrastructure that is expected to open this summer.

Separately, MDU's utilities, including several natural gas distribution utilities, collectively passed 1 million customers last year and enjoyed substantial earnings gains, a lot of it driven by the robust growth in the Bakken area in North Dakota. MDU gas utility earnings were $37.7 million last year, compared to $29.9 million in 2012, driven by generally colder-than-normal weather across the eight states in which the various companies operate.

"Our utility group has substantial organic growth opportunities," said Goodin, adding that MDU is projecting cumulative earnings growth of about 9% over the next five years.

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