MDU Resources Group Inc. Earnings Call Nuggets: Decrease in Storage, Paradox

On Tuesday, MDU Resources Group Inc. (NYSE:MDU) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Decrease in Storage

Paul Patterson – Glenrock Associates: The pipeline in energy services business, when we look at these lower storage services and what have you, how much of this is weather? I guess when we look at the projects and everything that you have going on, how much do you think you’ll be able to offset that going forward this year I guess?

Steven L. Bietz – President and CEO, WBI Holdings Inc.: If you look at the decrease in storage that’s been driven largely by differentials between summer and winter prices. It just wasn’t a financial incentive for companies to put gas in storage last year. So, we saw a little activity and we’re seeing the effects of that going forward. On the positive side, as we gotten in here into April and now the first day of May, we’ve seen pretty good tick-up in terms of interest in storage. I think for the month of April, we’ve moved over 4 Bcf a gas to storage, so that’s very encouraging and we’ll kind of see how that continues as we go forward for the rest of year.

Paul Patterson – Glenrock Associates: On the electric side of the utility side, it looks fuel and purchased power went up a lot more than revenues. I was just wondering, would you call it just sort of anomaly or is that an anomaly, what caused that?

David L. Goodin – President and CEO, Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas: Basically, it was a function of the MISO market is what we were seeing there. Again, we’re more of a buyer today than we were a several years ago, so far as a net buyer of energy and that is really largely recovered through our fuel cost adjustments throughout our electric service territories, so that’s why the revenues are correspondingly up, because some of the wholesale prices were also up.

Paul Patterson – Glenrock Associates: With respect to the construction services, it looks like a major improvement there. Anything in particular, any specific area that’s doing better there or is that just operating leverage. I mean how should we think about that?

Doran N. Schwartz – Vice President and CFO: Paul the interesting about our quarter if you look at all of our groups, inside or outside our industrial and our equipment side, all of our lines of businesses were up across the board for the quarter.

Paul Patterson – Glenrock Associates: So, you’re just seeing a better economy, right? I guess is that how to think about it or…

Doran N. Schwartz – Vice President and CFO: Well again, I have always said this that we have the best people in the industry and we really think that’s the difference with our group if you look at some of our peers they are obviously still dealing with a tough economy, but we had some projects that finished well in the first quarter and I think we’ve got very good managers operating our companies out there, and we continue to look for opportunities and we hope that we’re bouncing off the bottom here with the construction market and time will tell.

Paul Patterson – Glenrock Associates: Finally, the Cane Creek just in just in general, are you guys reappraising Paradox in terms of CapEx as I recall it was only about 10% of E&P CapEx for this year. Has that changed, you guys thought about concentrating on it more with this development or how should we think of that?

J. Kent Wells – President and CEO, Fidelity Exploration & Production Co.: Paul, it’s Kent. Obviously the 26-2 wells are very exciting and encouraging well for us. We put together an appraisal program of drilling four well and we will continue on with doing that, but we are looking to expand upon that. Obviously, we cracked a few concerns that we’ve had the past that make this look more appealing than. It’s a little early to say but, I think there is a lot of good things to come in this area.


Timm Schneider – Citigroup: First question is kind of follow-up also on the Paradox, you guys increased the, I guess, upper bend of the EUR guidance pretty substantially to a 1 million barrels. I was just wondering what was driving that?

J. Kent Wells – President and CEO, Fidelity Exploration & Production Co.: Timm, it’s Kent. Once again that you can tell from our announcement, it was a very prolific well that we see in the 26-2 and the I think the subtleties that are there, we only proliferated 116 feet in the 1,000 foot lateral and it’s got enormous pressure behind it. There is a well 5 miles way that (teamed) actually 1.1 million barrel. It was actually drilled in 1962, and don’t quote me on this, but I think it came on at a very similar rate to what our well’s is. We just felt that the capping it at 500,000 barrels a day with that well plus a couple of other wells that have (teamed) in 600,000 barrels a day was being a little too conservative. So we have upped that because we have learned a lot in the last six months here. We are going to learn some more and we think there is even additional upside as we better understand this reservoir through our 3D seismic and our ability to drill and complete these wells efficiently.

Timm Schneider – Citigroup: Can you (hear minus) what the completed well costs are in the Paradox?

J. Kent Wells – President and CEO, Fidelity Exploration & Production Co.: They are in the range of $6 million and I think as we get into the development mode, we can improve upon that. One of the things we are actually learning is the 1.1 million barrel well was actually a vertical well, not a horizontal well, and we believe that we will probably end up fully developing our 75,000 acres out here through a combination of vertical and horizontal wells. So, obviously, the vertical wells would be significantly cheaper than that $6 million that I mentioned here.

Timm Schneider – Citigroup: What’s the oil quality out there?

J. Kent Wells – President and CEO, Fidelity Exploration & Production Co.: It’s good quality oil. The production issue we have to manage is paraffin and that was one of the issues that we’ve resolved. We’ve got an injection string and we are pumping a paraffin inhibitor and it’s kind of the reason we are holding production down around the 600 barrels a day just to make sure we are really good at that, as well as, until we get pipelines in to collect the associated gas we don’t want to have an overabundance of flaring in that area. So, good quality oil, just need to manage the paraffin associated with it.

Timm Schneider – Citigroup: Got it. I assuming the end market is kind Utah Refining Complex at this point?

J. Kent Wells – President and CEO, Fidelity Exploration & Production Co.: Yes, we are trucking at Salt Lake right now.

Timm Schneider – Citigroup: Just switching real quick over to the Bakken. Sorry I jumped on a couple of minutes late. You guys said there was some operational issues in Stark County, is that correct, is that why you don’t have the results on those two other Stark County wells?

William E. Schneider – EVP of Bakken Development: Yes. So, on the Parker and the Kostelecky, which are both very good wells, the Parker well, we were about half way through the 28-stage horizontal fracing of it and we screened out and so we had to switch from sliding sleeve to plug and perf and that did two things. One, it delayed it a month of us getting it completed and then because we had an obstruction that we are currently in the process of cleaning it out to get the full well on production. So, we have had some production from the later stages that we did during the plug and perf and it was a good rate, but we haven’t really got the whole well on production. The Kostelecky was slightly different and that frac job went perfectly. As we were just starting to flow it back we got an obstruction in our frac liner, but it’s a high pressure well. So, we have been flowing it up the backside just to depressurize it, so we can get rid of the obstruction and put it on production properly, but during that phase, the well was flowing well over 1,000 barrels a day initially. So, these are going to be good wells. It’s just we’ve had some operational challenges getting in on proper production.