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MDU Resources Sells E&P Assets, Takes $224M Quarterly Impairment

Bismarck, ND-based MDU Resources confirmed Monday that it is selling its exploration and production (E&P) business in five separate deals, one of which closed last month. Proceeds and tax benefits add up to about $450 million.

The transactions has been previewed for the better part of the past year (see Shale DailyAug. 4). MDU executives talked about the E&P sale in conjunction with the company’s 3Q2015 earnings report. MDU reported a loss of $139.6 million (minus 72 cents/share) on a generally accepted accounting principles (GAAP) basis as well as earnings that were in the black on a non-GAAP basis.

The report made it clear that for this year, the E&P business was racking up some sizable operating losses, topping $1.2 billion for the first nine months of 2015. It was not divulged who the buyers are for the E&P assets, which are located in the Paradox Basin ( mostly natural gas and natural gas liquids), Powder River Basin, Bakken and East Texas and had been held by its indirect subsidiary, Fidelity Exploration & Production Co.

The four remaining sales are expected to close before the end of this year, a company spokesperson said. CEO David Goodin called the E&P transactions "nearly complete," adding that the sale prices "are in line with current and prospective market conditions."

On an earnings conference call Tuesday, Goodin said that the transactions include more than 90% of the Fidelity's year-to-date production assets, leaving only one small property, the Cedar Creek net profits asset, that it continues to market. Separately, Fidelity CEO Patrick O'Byran noted that confidentiality agreements prevent the disclosure of the buyers of the other assets, but he characterized them all as private E&P firms.

The losses on a GAAP reporting basis were tied to impairment charges taken for the E&P operations due to depressed commodity prices and other negative factors. Even before the oil commodity price crash in September 2014, MDU executives were citing mounting challenges to its making a go of the E&P unit's 140,000-acre stake in the Paradox Basin (see Shale DailySept. 17, 2014).

Goodin said selling the E&P assets will allow the company to focus on its remaining businesses, which reported higher earnings quarter over quarter. Red ink from the E&P operations now classified as "discontinued" was $202.6 million for 3Q2015 and $778.8 million for the first nine months this year, compared to net income of $38.5 million and $87.5 million for those two respective periods last year.

In contrast, the consolidated adjusted results for the continuing businesses showed earnings of $74.9 million (38 cents/share), compared to $68.2 million (35 cents) for the third quarter last year. For the nine months, the adjusted earnings were $131.4 million (67 cents), compared $137.7 million (72 cents) for the same period in 2014.

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