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MDU Still Focused on Oil/Gas E&P Despite Eventual Sale, Execs Say

While it plans to exit the oil/natural gas exploration/production (E&P) sector, MDU Resources Group Inc. is still focused on ongoing drilling programs and will begin hydraulically fracturing (fracking) wells in the Paradox Basin, executives said.

There is no set timetable for the sale of the E&P business, which executives said they would like to offer as a complete package, or company, Fidelity E&P.

"We kind of see Fidelity as a unique opportunity for the right investor," said Kent Wells, CEO of the MDU E&P unit. "We are completely focused on the Rockies now, and it is a somewhat unique Rockies platform.

"We don't intend to completely stop drilling unless oil prices continue to cause us to want to do that," Wells said. "We are clearly looking to slow down a bit because we have learned that there is a delay when oil prices decline until the cost structure comes down, so there is no reason to continue to drill in a high-$70/bbl oil well when your costs support a $100/bbl well. But we won't stop drilling."

Fidelity currently has one rig operating in the Bakken that it will continue; one rig in the Paradox, and depending on permitting and upcoming fracking work, it could either continue or "take a slight pause," said Wells, noting there also are two to three nonoperated rigs it has in the Powder River Basin. "Then we have one well operating in East Texas and it was always slated to come down for a few months when we complete the first two wells and decide on how to continue with the program."

Earlier this year MDU revised its earnings estimates downward in the face of "challenges" in its drilling in the Paradox Basin (see Shale Daily, Sept. 17). At the time, Wells said that his company was doing an analysis aimed to turn things around in the 140,000 acres Fidelity holds in the Paradox in southwest Colorado and southeast Utah.

Last Tuesday, Wells said two of the troubled wells have been "consistently producing" for more than a month, and now the wells need to go through the "optimization phase." Combined, the two wells have been producing 600-800 b/d, he said, "and we need to increase that over the next month or so."

The troubled wells were not damaged, Wells told analysts; they are just "tight" and need some fracking work. "We have been fortunate in this play to not have to frack any wells, and I think that will still be the case on some wells going forward. In other cases, we now will have to look at fracking wells," Wells said

The first fracking in the play is set for next week (Nov. 10-14), but these are not "big massive fracks that we have to do in other places like the Powder River Basin or the Bakken," Wells said. "We're looking forward to doing that, and I am sure we'll learn something on the first one, and we'll probably look to do a second one shortly after that."

In response to the much-anticipated $650 million, 24-inch diameter Dakota Pipeline proposal, MDU's Steve Bietz, CEO of the WBI pipeline and midstream businesses, said as long as there is interest in the project, the company will continue to pursue it. "We are working hard on it, and continue to believe there is a need for the project," Bietz said. "We're going to continue to push forward with the [375-mile pipeline] project." 

An open season earlier this year failed to generate enough interest to move forward by now. Even amid setbacks, Bietz has maintained that he sees the Dakota Pipeline eventually coming to fruition, connecting plentiful Bakken Shale supplies to markets in the Great Lakes (see Shale Daily, Jan. 31).

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