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TheStreet Open House

MDU Resources Reports First Quarter Earnings, Reaffirms 2012 Earnings Guidance

The following information highlights the key growth strategies, projections and certain assumptions for this segment:

  • The company expects to spend approximately $400 million in capital expenditures in 2012. The company continues its focus on returns by allocating the majority of its capital investment into the production of oil in the current commodity price environment. Its capital program reflects further exploitation of existing properties, acquisition of additional leasehold acreage, and exploratory drilling. The 2012 planned capital expenditure total does not include potential acquisitions of producing properties.
  • For 2012, the company expects a 20 percent to 30 percent increase in oil production and a 12 percent to 20 percent decrease in natural gas production. The projected decline in natural gas production is primarily the result of the divestment and/or curtailment of certain natural gas properties and the deferral of certain natural gas development activity because of sustained low natural gas prices.
  • The company has a total of 10 drilling rigs deployed on its acreage in the Bakken, Texas, Paradox, Heath Shale and other areas. Eight rigs were deployed at year end. Dependent upon results during 2012, further growth in rig activity could occur.
  • Bakken Area
    • The company owns a total of approximately 124,000 net acres of leaseholds.
    • Capital expenditures are expected to total approximately $160 million this year; approximately $60 million higher than the capital spent for 2011.
    • Mountrail County, North Dakota
      • The company owns approximately 16,000 net acres of leaseholds targeting the middle Bakken and Three Forks formations.
      • The drilling of 17 operated wells and participation in various non-operated wells is expected for this year with approximately $75 million of capital expenditures.
      • Over 50 future gross well sites have been identified. Estimated gross ultimate recovery per well is 250,000 to 500,000 Bbls.
    • Stark County, North Dakota
      • The company holds approximately 51,000 net exploratory leasehold acres, targeting the Three Forks formation.
      • The drilling of 7 operated wells and participation in various non-operated wells is expected for this year with approximately $60 million of capital expenditures.
      • Based on 640-acre spacing, approximately 140 potential gross well sites have been identified. Estimated gross ultimate recovery rates per well are 250,000 to 400,000 Bbls.
    • Richland County, Montana
      • The company has increased its acreage to approximately 57,000 net exploratory leasehold acres, targeting the Three Forks formation.
      • The drilling of 5 operated wells is planned for this year with approximately $25 million of capital expenditures.
      • Approximately 100 potential gross well sites have been identified. Estimated gross ultimate recovery rates per well are 250,000 to 400,000 Bbls.
  • Niobrara - southeastern Wyoming
    • The company holds approximately 65,000 net exploratory leasehold acres.
    • The drilling of 4 operated wells is expected for this year with approximately $25 million of capital expenditures.
    • Approximately 200 potential gross well sites are available based on 640-acre spacing.
  • Paradox Basin - Cane Creek Federal Unit, Utah
    • The company holds approximately 75,000 net exploratory leasehold acres.
    • The company is evaluating its potential in the area and anticipates increasing the number of wells to be drilled this year considering recently announced appraisal well results.
    • Approximately 70 potential gross well sites have been identified. Estimated gross ultimate recovery rates per well range from 250,000 to 1,000,000 Bbls.
  • Texas
    • The company is targeting areas that have the potential for higher liquids content with approximately $60 million of capital planned for this year.
    • Plans are to drill 20 operated wells in Texas this year.
    • Approximately 50 potential gross well sites have been identified. Estimated gross ultimate recovery rates per well are 250,000 to 400,000 Bbls.
  • Heath Shale
    • The company holds approximately 90,000 net exploratory leasehold acres in the Heath Shale oil prospect in Montana and expects to drill 4 wells this year with capital of approximately $20 million.
  • Other Opportunities
    • The company continues to pursue acquisitions of additional leaseholds. Approximately $25 million of capital has been allocated to leasehold acquisitions, focusing on expansion of existing positions and new opportunities.
    • The remaining forecasted 2012 capital has been allocated to other operated and non-operated opportunities.
  • Earnings guidance reflects estimated oil and natural gas prices for May through December as follows:
         

Crude Oil Index:

     

NYMEX

$95 to $105 per barrel

Natural Gas Index:

NYMEX       $2.25 to $2.75 per Mcf

Note: Estimated prices do not reflect potential basis differentials.

  • For the last nine months of 2012, the company has hedged approximately 60 percent to 65 percent of its estimated oil production and 35 percent to 40 percent of its estimated natural gas production. For 2013, the company has hedged 30 percent to 35 percent of its estimated oil production. The hedges that are in place as of April 30 are summarized in the following chart:
        Forward  
Notional
Period Volume Price
Commodity   Type   Index   Outstanding   (Bbl/MMBtu)   (Per Bbl/MMBtu)
Crude Oil Collar NYMEX 4/12 - 12/12 275,000 $80.00-$87.80
Crude Oil Collar NYMEX 4/12 - 12/12 275,000 $80.00-$94.50
Crude Oil Collar NYMEX 4/12 - 12/12 275,000 $80.00-$98.36
Crude Oil Collar NYMEX 4/12 - 12/12 137,500 $85.00-$102.75
Crude Oil Collar NYMEX 4/12 - 12/12 137,500 $85.00-$103.00
Crude Oil Swap NYMEX 4/12 - 12/12 137,500 $100.10
Crude Oil Swap NYMEX 4/12 - 12/12 137,500 $100.00
Crude Oil Swap NYMEX 4/12 - 12/12 275,000 $110.30
Crude Oil Swap NYMEX 4/12 - 12/12 275,000 $96.00
Crude Oil Swap NYMEX 4/12 - 12/12 275,000 $99.00
Natural Gas Swap NYMEX 4/12 - 12/12 2,612,500 $6.27
Natural Gas Swap NYMEX 4/12 - 12/12 1,375,000 $5.005
Natural Gas Swap NYMEX 4/12 - 12/12 687,500 $5.005
Natural Gas Swap NYMEX 4/12 - 12/12 687,500 $5.0125
Natural Gas Swap NYMEX 4/12 - 12/12 2,750,000 $3.05
Natural Gas Swap Ventura 4/12 - 12/12 2,750,000 $4.87
Crude Oil Collar NYMEX 1/13 - 12/13 182,500 $95.00-$117.00
Crude Oil Collar NYMEX 1/13 - 12/13 182,500 $95.00-$117.00
Crude Oil Collar NYMEX 1/13 - 12/13 365,000 $90.00-$97.05
Crude Oil Swap NYMEX 1/13 - 12/13 182,500 $95.00
Crude Oil Swap NYMEX 1/13 - 12/13 182,500 $95.30
Crude Oil Swap NYMEX 1/13 - 12/13 182,500 $100.00
Crude Oil Swap NYMEX 1/13 - 12/13 182,500 $100.02
Crude Oil Swap NYMEX 1/13 - 12/13 182,500 $102.00
Crude Oil Swap NYMEX 1/13 - 12/13 182,500 $102.00
Natural Gas Basis Swap CIG 4/12 - 12/12 2,062,500 $0.405
Natural Gas   Basis Swap   CIG   4/12 - 12/12   550,000   $0.41
Notes:
• Ventura is an index pricing point related to Northern Natural Gas Co.'s system; CIG is an index pricing point related to Colorado Interstate Gas Co.'s system.
• For all basis swaps, index prices are below NYMEX prices and are reported as a positive amount in the price column.
 

Regulated

 

Electric and Natural Gas Utilities

 
Electric
Three Months Ended
    March 31,
    2012   2011

 

(Dollars in millions, where applicable)

Operating revenues   $ 58.0     $ 57.8  
Operating expenses:  
Fuel and purchased power 18.4 16.9
Operation and maintenance 16.2 16.0
Depreciation, depletion and amortization 8.1 8.2
Taxes, other than income   2.7     2.5  
    45.4     43.6  
Operating income   12.6     14.2  
Earnings   $ 7.5     $ 8.5  
Retail sales (million kWh) 769.7 794.7
Sales for resale (million kWh) 1.9 6.7
Average cost of fuel and purchased power per kWh   $ .022     $ .020  
 
Natural Gas Distribution
Three Months Ended
    March 31,
    2012   2011
(Dollars in millions)
Operating revenues   $ 307.9     $ 370.4  
Operating expenses:
Purchased natural gas sold 199.3 257.5
Operation and maintenance 35.3 34.4
Depreciation, depletion and amortization 11.2 11.1
Taxes, other than income   16.1     17.7  
    261.9     320.7  
Operating income   46.0     49.7  
Earnings   $ 25.5     $ 27.5  
Volumes (MMdk):
Sales 38.7 43.9
Transportation   37.9     34.1  
Total throughput   76.6     78.0  
Degree days (% of normal)*
Montana-Dakota 77 % 111 %
Cascade 101 % 103 %
Intermountain   93 %   105 %
* Degree days are a measure of the daily temperature-related demand for energy for heating.
 

The combined utility businesses reported earnings of $33.0 million in the first quarter of 2012, compared to earnings of $36.0 million for the same period in 2011. This decrease reflects decreased natural gas retail sales volumes with an approximate earnings affect of $2.6 million, resulting from warmer weather than last year, lower electric retail sales volumes as well as higher income taxes, primarily related to the absence of an income tax benefit of $1.1 million related to favorable resolution of certain income tax matters in 2011.

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