Natural gas prices may well go lower before they turn around, the head of MDU Resources Group Inc.’s exploration and production (E&P) business, Kent Wells, told a financial analysts’ conference in New York City on Thursday.

With the largest natural gas storage field in North America and the largest natural gas pipeline system in the Bakken Shale play, MDU’s Fidelity Exploration and Production won’t be drilling any dry gas plays for the foreseeable future, said Wells, noting in the near term the emphasis will be on oil in the Bakken and elsewhere.

“We fully expect to see our natural gas production decline, particularly if prices remain where they are now, or even go lower, which is a real possibility,” Wells said. “For example, in our coalbed [methane] operations, we’re shutting in production; it doesn’t make sense to continue to produce there at this time.”

The focus now is on oil, he said, noting that is where MDU is significantly hedged and that is the focus of the company’s major investments right now. “Do I wish a year ago I had decided to hedge more gas? The answer is yes, anyone would have wished that now,” he said.

“We expect to grow our oil production 20-30% this year. We have the rigs going; we have the acreage we need, and we continue to move into new plays, and as soon as we can talk about them, we will. We are all about accelerating oil growth.”

Wells is optimistic there will be a reasonable rebound in natural gas prices, but not to $5 to $7, more likely back to the $4 area, and it could happen quickly as he remembers it happened in both 2000 and 2002, two years when first quarter prices for gas were extremely low.

“We still may have a tough time in the second quarter [this year],” he said. “I can definitely see prices going even lower than they are today.”

More broadly, Wells said the United States needs to come to grips with how to better utilize gas as a plentiful, low-cost, domestic energy source. Gas use in transportation and power generation needs to be exploited. And MDU’s head of its utility group, Dave Goodin, has said the Bakken represents a substantial future utility gas load for use in heating water used in the hydraulic fracturing process.

“We have this very low-cost energy source that we are under-utilizing,” Wells said. “For the nation to be competitive on a global basis, we have gas at the equivalent of $36/bbl oil prices even if the gas prices go to $6/Mcf. Meanwhile, we’re importing $125/bbl crude. It makes no sense. All of North America needs to come to grips with how we make better use of a very extensive, low-cost energy source [natural gas].

“I think there are tremendous opportunities for us to use gas, and that is why long term, I am quite bullish on gas prices. But short-term, I think we are into some dynamics that I wouldn’t want to try to forecast.”

In response to more specific questions, Wells said there will be a 12-16% decrease in gas production this year for MDU’s E&P operations, but that percentage could grow if prices drop below $2, which he speculated could happen before the rebound begins.

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