MDU Resources Group is in no hurry to break ground on its second refinery in North Dakota.
In a Feb. 3 conference call discussing 2014 fourth quarter earnings and a 2015 outlook, President and CEO David Goodin said capital expenditures associated with a potential second diesel-topping refinery have been delayed. Its first refinery built near Dickinson, a joint project with Calumet Specialty Products Partners, is scheduled to be operational in June, six months later than expected due to weather-related delays. The company has proposed to build a similar 20,000 barrel per day refinery near Minot but a decision is not likely to be made until 2016.
“We’ve identified a potential site and have started some of the preliminary permitting work,” Goodin said.
MDU updated its 2015 capital expenditures forecast to $692 million, reflecting the delay of a sale of its Fidelity Exploration and Production Co. and a shift of construction dollars, including pushing plans to build a second refinery into 2016.
“Our focus today is to get the refinery up and operational and we want that completed before we really dive deep into our second refinery,” said Steve Bietz, president and CEO of MDU subsidiary WBI Energy. “We plan to take some time to think about things that went well and things that were challenged with our first refinery and use those lessons learned to put together our plan for the second refinery,” he continued. “Some changes in the oil market give us some breathing room to do that.”
Midstream development
WBI Energy, MDU’s pipeline and energy business, has agreed to connect to the Demicks Lake natural gas processing plant in northwestern North Dakota to deliver natural gas into a new interconnect with the Northern Border pipeline. Project costs are estimated to be about $50 million. In addition, the pipeline group has continued with permitting and acquisition of easements on the $120 million Wind Ridge Pipeline project to provide 90 million cubic feet per day of natural gas to a fertilizer manufacturing plant to be built at Spiritwood near Jamestown, North Dakota. The company said there is also an opportunity to expand this pipeline’s capacity to serve other customers in the eastern half of the state.
WBI increased earnings substantially to $22.6 million due in part to higher transportation rates but also to strong results of its 50 percent ownership with Whiting Petroleum in the Pronghorn natural gas and oil gathering facility near Belfield in northwestern Stark County, North Dakota. Total transportation volumes reached a record level, increasing 31 percent.
Fidelity off the market
As previously reported by Petroleum News Bakken, too much instability in commodity prices forced MDU to take Fidelity off the market after initial plans were to sell it in 2015.
Instead of selling, the company plans to spend $111 million in gross capital expenditures on the exploration and production company this year while minimizing investments to lower its cost structure. Goodin said Fidelity will be operated with estimated cash flow, focusing on completing the wells it drilled in 2014. It does not intend to run any rigs until the end of 2015, and only then if oil prices rebound.
“There was quite a bit of instability and volatility in the world market for oil and we just feel it wasn’t an appropriate time to put what we feel is a very valued business up for sale,” Goodin said.
Fidelity’s oil production increased slightly in 2014 to 4.919 million barrels or approximately 13,500 barrels per day, a 2 percent increase over 2013. Leading that increase was 25 percent growth in the company’s Paradox Basin production along with an acquisition of non-operated assets in the Powder River Basin. But production growth was partially offset by the sale of some North Dakota Bakken assets.
For the year, Fidelity’s average realized price per barrel of crude, including realized commodity derivatives, was $85.96, down from the 2013 average of $89.35. In the fourth quarter, the realized price averaged $87.80, up from $84.23 in the fourth quarter 2013. However, excluding realized and unrealized commodity derivatives, the fourth quarter 2014 realized price averaged $61.37 per barrel, down from $84.18 in the fourth quarter 2013.
Fidelity CEO Kent Wells told analysts that commodity prices made it easy to delay the marketing process, and the challenge will be to know when to start again. In the meantime, Fidelity will aim for reduced operating costs and a solid capital structure in order to make profitable investments in the future, he said. “We’ll take advantage of this time to position us better.”
Wells has announced he will retire on Feb. 28, leaving the reins to Pat O’Bryan, current Fidelity president (see story, page 6).
Overall 2014 earnings
In addition to WBI Energy and Fidelity, Bismarck-based MDU Resources Group also owns companies offering construction services and electric utilities.
During the fourth quarter, MDU earned $84.1 million which was a decrease from 2013’s fourth quarter total of $91.3 million, but for the year, the company reported 2014 consolidated earnings of $297.5 million, up from $278.2 million in 2013.
“As we look forward, we are focused on execution of our business plans and investment opportunities at our utility, pipeline and energy services and construction operations, while also determining the appropriate timing of when to begin the marketing of our exploration and production business,” Goodin said.
