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MDU Ties Growth to Bakken 'Home Field' Advantage

Bismarck, ND-based MDU Resources Group Inc. senior executives on Thursday reiterated that they intend to exploit their home field advantage in all lines of their business by digging deeply into the Bakken Shale play's continuing robust growth. And they talked bullishly about prospects this year despite reporting earnings that were down slightly quarter over quarter and year over year in 2011.

Profits for 4Q2011 were $60.8 million (32 cents/share), compared with $88.8 million (47 cents/share), in the same 2010 period, and for all of last year earnings from continuing operations were $225.2 million ($1.19/share), compared to $243.3 million ($1.29/share) for all of 2010. On a conference call with financial analysts, however, CEO Terry Hildestad and his colleagues were undaunted, all focusing on Bakken growth prospects in MDU's four main lines of business: oil/gas exploration and production (E&P), utilities, pipelines and services, and construction.

Hildestad said all the businesses finished 2011 strong and "made substantial progress in preparing the company for future growth," particularly in the oil E&P unit and related businesses. In the future, MDU intends to get "more oily," he said, adding that some smaller natural gas-related production projects are going to be sold.

Estimating that oil production will increase 20-30% overall this year, Hildestad said MDU hopes to have more than 900 potential well sites identified on "oil and liquids-rich properties."

Last year marked the first year of a five-year, $3.7 billion capital expenditure program that will be led by investments in Bakken oil and liquids, said Hildestad, noting that the E&P unit -- Fidelity Exploration and Production Co. -- has built up "a solid momentum" in its operations. Oil production was up 12% and 7% overall quarter over quarter and year over year, respectively, he said. E&P will constitute the majority of the expenditures: $400 million this year and up to $2.2 billion over the five-year period (2011-2015).

"This was largely the result of record production levels in our Bakken position where we saw a 16% increase in production over the prior year," Hildestad said. MDU has increased its active rigs focused on oil-rich plays in the Bakken from two to eight during 2011, he added. "We have continued to focus on a more balanced commodity mix with oil production now representing 32% of our overall production, doubling what it represented five years ago."

MDU will continue to seek additional leases of acreage in the Bakken and in several other shale plays, Hildestad said. The company has more than 90,000 net acres, increased from 66,000 net acres in 2010, including both North Dakota and Montana holdings. It plans to drill at least 30 new wells in the Bakken this year.

Through Fidelity, MDU is in the top 20 of Bakken Shale leaseholders. The top five are Continental Resources (901,098 net acres), Hess Corp. (900,000), Whiting Petroleum (682,839), EOG Resources (600,000) amd ConocoPhillips (460,000).

In the Niobrara in Colorado, MDU has more than 60,000 net acres leased, has finished its first test well and plans to drill three more wells there this year. It also has 75,000 acres in the Paradox Basin in Colorado and Utah, and another 90,000 acres in the Heath Shale in Montana.

The MDU CEO was asked how he sees the shale boom area impacting company operations and profits during the next five years. Hildestad called the Bakken "the largest construction ongoing in the country; it's a significant undertaking."

He emphasized that all of MDU's business lines are working in the Bakken now. One unit started with no employees in the Bakken early last year now has 150 people on the ground and plans to double that this year, Hildestad said.

"We have a unique ability to provide a lot of services that are needed there," he said, noting that MDU is looking for strategic long-term projects as they become available. "There are a lot of midstream opportunities up there. We are attempting to quantify this, so I haven't put a number on it yet, but I can say they are significant."

 

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