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MDU Narrows Focus, Prepares to Shed E&P Business

MDU Resources Group will continue to narrow its focus to utilities, midstream and construction businesses while preparing to sell its exploration and production (E&P) unit, CEO Dave Goodin said earlier this month.

During a first quarter earnings conference call reporting a $315.3 million after-tax noncash writedown of its oil and natural gas properties, Goodin said MDU plans to invest nearly $4 billion over the next five years ($1.8 billion for its utilities) in its three continuing business lines.

"We continue to believe that our utility, pipeline/refinery and construction businesses are well positioned for future growth, and we intend to create greater value on these businesses," Goodin said, adding that the recently opened Dakota Prairie diesel refinery in North Dakota is the first new refinery to come online in the United States in nearly 40 years.

"We will pursue the marketing and sale of Fidelity E&P when we believe the time is appropriate." Earlier this year, Goodin said that was unlikely to be this year, and he did not change that outlook in his remarks and answers to questions during the May 5 conference call (see Shale Daily, Feb. 5).

Goodin said MDU management is "encouraged" by today's "stabilized oil pricing environment" and the company is looking at other industry-wide statistics, such as rig counts and supply-demand curves. "We'll make the decision at the appropriate time, and we are encouraged by some more recent indicators."

With development of the Bakken diesel refinery (see Shale Daily, Sept. 22, 2014), Goodin said MDU is looking at pursuing a second refinery in the area, although there is no specific timetable at this time. He said Dakota Prairie is very "transportation advantaged," given its location. It is operating at 10,000 b/d production now and will ramp up to the plant's maximum 20,000 b/d at the end of this month, according to Steve Bietz, CEO of MDU's WBI Energy.

Although noting that the second facility is "somewhat on the back burner," Bietz said the company continues to do some siting and engineering work on a preliminary basis, and there are meetings upcoming in the next few months related to the equipment for a second refinery.

"We want to understand better the crude oil acquisition market when we would be buying crude and the market for diesel and the potential refinery location," said Bietz, who added that his unit can spend more time on the potential second facility now that the first one is operating.

Currently, nearly two-thirds of the diesel fuel consumed in North Dakota comes from out of state, Goodin said. He broke down the refinery's projected output as 7,000 b/d of diesel, 6,500 b/d of naphtha (used to transport heavy oil by pipeline or as a feedstock in natural gas production), and 6,000 b/d of ATBs (feedstock for lubricating oils and other refined products).

Looking ahead, Goodin said there are a number of other growth opportunities for the pipeline group, including the second diesel refinery. Those include the proposed $125 million, 95-mile natural gas pipeline that would supply a proposed fertilizer plant in North Dakota (see Shale Daily, Aug. 29, 2014).

On a consolidated adjusted earnings basis not including Fidelity E&P, MDU reported 1Q2015 profits of $22.8 million (12 cents/share), compared to $35.6 million (19 cents) for the same period in 2014. On a GAAP basis, it showed a $306.1 million loss (negative $1.57/share), compared with profits of $56.5 million (30 cents) for the same period last year.

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