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MDU: Permit Approvals in Powder River Basin Could Raise Output 6-10%

With sustained higher natural gas and oil prices, and with expected permit approval for Powder River Basin exploration -- which could lift natural gas and oil production 6-10% this year -- MDU Resources Inc. on Tuesday raised its full-year 2005 earnings guidance.

The Bismarck, ND-based company reported its 1Q2005 earnings results on Tuesday, and said net income rose to $34.4 million (29 cents/share), from $23.6 million (20 cents) in 1Q2004. Full-year earnings are now expected to range between $1.80-2.00, up from a previous forecast of $1.70-1.90/share.

MDU posted better results in all of its business units except for its electric utility and independent power production businesses.

Earnings in the natural gas and oil production unit stood at $28.8 million, compared with $25.3 million for the same period last year. Higher prices were partially offset by natural gas and oil production volumes that were 4% lower than in 1Q2004. The decline, said MDU, resulted primarily from normal declines in both oil and gas production and "timing-related" delays affecting drilling activity in the Powder River Basin.

If its permits are approved, MDU expects to drill up to 500 wells in 2005. "Delays in receipt of drilling permits are affecting producers throughout the Rocky Mountain region." It also expects to see gas and oil output increase 6-10% over 2004 levels based on anticipated production in the Rockies.

Electric segment earnings were $3.1 million for 1Q2005, compared with $3.4 million a year ago. Lower retail margins were offset by lower operation and maintenance expense, primarily payroll-related costs. Expected earnings in 2005 are anticipated to be "slightly lower" than 2004. This segment is reviewing potential power projects to replace capacity associated with expiring purchased power contracts and to provide for future growth, MDU said.

Earnings in natural gas distribution increased to $4.8 million, compared with $2.3 million in 1Q2004. The increase was attributed to lower operation and maintenance expenses, primarily payroll-related costs, and rate relief approved by various public service commissions.

In its pipeline and energy services unit, MDU reported earnings of $3.2 million, compared with $2.7 million for the same period last year. Higher gathering rates and lower operation and maintenance expenses were offset by decreased transportation and storage rates. This year, "total natural gas gathering and transportation throughput is expected to remain at the record levels achieved in 2004."

The utility services segment had earnings of $2.0 million, compared with a $1.9 million loss in 1Q2004. for the same period last year. Earnings reflected increased workloads and margins from outside electrical line operations, higher equipment sales and rentals and lower general and administrative expenses.

In its independent power production unit, earnings were down, to stand at $756,000, compared with $3.2 million for the same period last year. "Investments made in electric-generating facilities since the comparable period a year ago added to earnings, but positive results were more than offset by the effects of the pending sale of the Brazilian electric-generating facility owned by MPX Termoceara Ltda," MDU said. Earnings this year also are expected to be lower than in 2004.

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