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MDU Eyes Refinery, Fertilizer Development in North Dakota

An MDU Resources Group diesel refinery in North Dakota is on schedule to begin operations before the end of this year, and a separate fertilizer plant that its midstream unit will supply with natural gas feedstock now looks like its development will move forward, MDU executives told an analysts conference in Las Vegas, NV, Wednesday.

"We're making good inroads on the midstream side of the business," said Steve Bietz, CEO of MDU pipeline/storage unit WBI Holdings Inc. He said the company plans to stay where it is in North Dakota and Colorado and expand its assets in those states. "We plan to leverage what we do well."

Construction is about 80% complete on Bismarck-based MDU's joint venture diesel refinery slated to process 20,000 b/d of Bakken crude oil (see Shale Daily, March 21, 2013), Bietz said. It was introduced last year as part of a broader strategy aimed at MDU's exploration and production (E&P) and midstream infrastructure businesses sharing in North Dakota's continuing boom.

In showing analysts an aerial view of the construction site, Bietz said there are now 18 different tanks erected to store diesel, crude oil, naphtha, processed water and other liquids, along with the processing infrastructure for converting Bakken crude into its various constituents. Bietz said WBI has spent $285 million to date of the estimated $350 million project.

There is an adjacent rail facility and 36 miles of above-ground pipeline and eight miles below ground that are associated with the refinery in the Dickinson, ND, area. "We've made a lot of progress, and we're still on track to be completed by the end of the year."

North Dakota's appetite for diesel is quite high -- up to 55,000 b/d, a more than 75% increase in the past four years. Projections are calling for a 75,000 b/d diesel fuel demand by 2025. And the state's only refinery today produces about 22,000 b/d, so there is lots of room for more homegrown diesel, Bietz said.

"We're situated very well from both a transportation and market perspective," he said.

CEO David Goodin said MDU plans to continue to shift its focus to a more balanced gas and oil emphasis. In 2008, the company's E&P operations were 80% gas and 16% oil, compared to the current mix of 38% gas and 55% oil.

"Our strategy is in place, and we'll continue to move that way," Goodin said. "As we look out over the next few years, we continue to see better economic returns in the oil prices than on the gas side."

MDU also has a stake in the revitalized plans for a major new fertilizer plant near Spiritwood, ND, by St. Paul, MN-based global farm cooperative CHS Inc. (see Shale Daily, Sept. 9). WBI plans to build its 95-mile, 16-inch diameter Wind Ridge pipeline project to transport natural gas off the Northern Border interstate line to the $3 billion project, which bids to soak up some of the wellhead gas being flared as part of the Bakken shale boom.

"The plan is to deliver about 90 MMcf/d, and our total investment would be around $120 million for an in-service date in 2017," said Bietz, adding that there is room for expansion on this project based on interest the company has received from surrounding areas needing additional firm gas pipeline capacity. CHS's latest estimate for the start up of its fertilizer plant is 2018.

"We plan to solicit the market to see if there is interest," he said. "If there is, that could increase our 90 MMcf/d capacity. But for now it is really a single-source pipeline designed to take gas to the fertilizer processing facility."

Federal regulators have approved the project on a pre-filing basis, Bietz said. He said WBI plans a filing in February next year to the Federal Energy Regulatory Commission.

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