MDU Resources reports Q1 earnings, reaffirms 2012 earnings guidance

MDU Resources Group Inc. (NYSE:MDU) reported first quarter consolidated earnings of $35.6 million, or 19 cents per common share, compared to $42.8 million, or 23 cents per common share for the first quarter of 2011.

First quarter 2011 earnings include the effect of an approximate $4 million benefit related to the favorable resolution of certain tax matters.

“We achieved the upper range of our guidance for the quarter, even though we experienced some weather and pricing challenges,” said Terry D. Hildestad, president and chief executive officer of MDU Resources. “That is a good indication of the strength of our diversified business and a solid base on which to continue building our estimated $3.7 billion capital growth program over the next five years.

“Our exploration and production business is well on the way toward its 2012 target of increasing oil production by 20 percent to 30 percent over last year,” he said. “Led primarily by growth at Fidelity’s Bakken operations, overall oil production increased to approximately 10,500 barrels per day in the first quarter, a 19 percent increase from the same period a year earlier.”

Fidelity currently is operating 10 rigs, eight more than a year ago. Five are working in the Bakken, where the company holds approximately 124,000 net leasehold acres, including an additional 27,000 Richland County acres that were acquired earlier in the first quarter. The company plans to invest approximately 40 percent of its $400 million capital budget in its Bakken acreage this year.

Hildestad said that Fidelity is seeing some improvement in Bakken wellhead oil pricing spreads compared to WTI prices. The price spread widened in March and negatively affected first quarter earnings but narrowed in April, and forecasts indicate continued improvement throughout 2012. Fidelity also was affected by average realized natural gas prices that were 32 percent lower than the first quarter of 2011.

“In addition, we are excited about the recently announced significant appraisal well results in the Paradox Basin where we own 75,000 net leasehold acres,” Hildestad said. “The potential of this play appears substantial. The Cane Creek Unit No. 26-2H well was tested at a stabilized rate of 647 barrels of oil per day and 561 thousand cubic feet of natural gas per day following two weeks of production. These results are based on a significantly restricted flow allowing our team to properly manage production operations, gather performance data and minimize natural gas flaring.”

Natural gas prices are at a 10-year low and the company’s dry natural gas properties are held by production. The company believes it has been prudent in curtailing natural gas production in an over-supplied market and instead focusing on its substantial liquids-based opportunities.

Natural gas prices also had an effect on the pipeline and energy services business, which experienced decreased storage and gathering volumes. Total transportation volumes increased, principally related to completion of a new pipeline to move natural gas from a third-party processing plant that began operating in December. In addition to a proposed diesel topping facility, the pipeline business continues to explore opportunities in other liquid-based midstream projects.

Significantly warmer weather affected sales at the utility business segment. Natural gas sales volumes declined 12 percent, with temperatures nearly 31 percent warmer than the prior year in the Plains states service territory and 11 percent warmer in Idaho.

The North Dakota Public Service Commission recently approved a request for advance determination of prudence for an 88-MW, approximate $85 million natural gas generation facility that the company plans to build in North Dakota, part of the utility’s approximate $915 million five-year capital growth program.

The construction business continued to see signs of stabilization in the construction market. Earnings at the construction services business increased to $11.4 million compared to $4.6 million a year ago, driven by higher construction revenue and margins and higher equipment sales and rental. Although the construction materials segment experienced a normal seasonal loss, we are optimistic about the prospects for earnings from prior green fielded operations in Cheyenne and the Bakken region.

“Our businesses are making good progress in executing their 2012 plans,” Hildestad said. “We are off to a good start on the year.”

Based on the company’s projections for the remainder of 2012, annual earnings guidance is reaffirmed in the range of $1.00 to $1.25 per share.