MDU Resources Analyst Day Review

By Eric Fox | September 01, 2011 AAA

MDU Resources (NYSE:MDU) held an analyst meeting in August 2011 to discuss the company's strategy and operations. The company plans to make considerable investments going forward to grow its exploration and production business.
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Summary
MDU Resources operates in a number of different businesses including pipelines, a regulated utility, and exploration and production operations. The company is also involved in the construction business providing services and materials here including asphalt, aggregates and cement.

Regulated Utilities
MDU Resources owns several regulated electric and natural gas utilities providing services in eight western states. These businesses represent a stable source of earnings for the company and provided $74.5 million in earnings for the twelve months ending June 30, 2011. MDU Resources estimates that the combined electric and natural gas rate base will grow by a 4.4% compound annual rate through 2012.

Pipeline
MDU Resources owns more than 5,000 miles of both regulated and non regulated pipelines in the United States, along with gathering and storage assets. The company's earnings here fell to $4.8 million in the second quarter of 2011, as gathering volumes and storage activity declined relative to last year.

MDU Resources has some growth projects planned in its service area with many of these targeting the growing level of activity in the Williston Basin where many operators are developing the Bakken formation. The company plans to invest $46 million in 2011 and 2012 on these growth areas.

Exploration and Production
The largest part of MDU Resources is the exploration and production business, which operates as Fidelity Exploration and Production Company. The company has approximately one million acres of leasehold and reported production of 178 million cubic feet of natural gas equivalents per day in the second quarter of 2011.

MDU Resources is still primarily a natural gas oriented company with approximately 70% of its reserves and production composed of this commodity. The company has adopted a goal of accelerating oil and liquids development to get the oil and natural gas production mix closer to 50% each.

MDU Resources is planning major investments in the Bakken, Niobrara and several other areas to achieve this goal. The company plans a total investment of $2.1 billion over the next five years.

Diversified Energy
MDU Resources is one of the dwindling numbers of hybrid companies that still operates a diversified set of energy businesses, as many others have recently reorganized through the spinoff of disparate segments.

Williams Companies (NYSE:WMB) announced in February 2011 that the company would separate into two entities. The company plans an initial public offering of part of its exploration and production business, which would operate as WPX Energy (NYSE:WPX).

El Paso (NYSE:EP) plans a similar reorganization move and has filed for an initial public offering of the company's exploration and production operations. This new company will be called El Paso Energy Corporation (NYSE:EPE).

Questar (NYSE:STR) was one of the first to announce a spinoff and completed the separation into two companies back in 2010. The company's exploration and production operations are now completely separate and operate as QEP Resources (NYSE:QEP).

The Bottom Line
MDU Resources has a well-defined strategy to grow the company's exploration and production business over the next few years while increasing oil and liquids production. The company will also come under considerable pressure from some investors to separate as many of its peers have done. (For additional reading, take a look at Unearth Profits In Oil Exploration And Production.)

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