MDU Resources Reports First Quarter Earnings and Increases Earnings Guidance

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MDU Resources Reports First Quarter Earnings and Increases Earnings Guidance

  • Consolidated earnings of $56.3 million, or 30 cents per share; up from 19 cents per share.
  • Oil production grows 46 percent, achieves balance with natural gas production.
  • Natural gas distribution business sees 16 percent increase in sales; electric utility has 9 percent growth in retail sales.
  • Pipeline and energy services group begins construction of diesel topping plant.
  • Construction business improves earnings and reports higher backlog.
  • Increases 2013 earnings per share guidance to a range of $1.30 to $1.40.

BISMARCK, N.D.--(BUSINESS WIRE)-- MDU Resources Group, Inc. (NYS: MDU) today reported first quarter consolidated earnings of $56.3 million, or 30 cents per common share, compared to $35.6 million, or 19 cents per share for the first quarter of 2012.

"This is our strongest first quarter performance since 2008," said David L. Goodin, president and chief executive officer of MDU Resources. "All of our businesses are performing well and are executing their growth plans.


"Our exploration and production business increased oil production 46 percent from the same period last year," Goodin said. "Just as important, we have achieved an important goal of balancing our oil and natural gas production. Each contributed about 46 percent of production, with natural gas liquids making up the remainder."

The Bakken continues to be the largest oil play for Fidelity Exploration & Production Company, with first quarter oil production increasing 63 percent from the first quarter of 2012. Continuing success in the company's Paradox Basin asset, where production grew substantially from the same quarter a year previous, also was a significant contributor to the company's overall production growth.

Fidelity plans to invest about $400 million this year, about half of that in the Bakken, with a target of increasing year-over-year oil production by 25 to 30 percent, on top of the 36 percent increase achieved in 2012.

Earnings at the utility business increased 28 percent over the first quarter of 2012. Cold weather contributed to a 16 percent increase in natural gas sales. Compared to last year, temperatures during the quarter were 28 percent colder in Montana-Dakota Utilities Co.'s service territory and 22 percent colder at Intermountain Gas Company. Earnings also reflect a one-time net gain of $2.9 million from the sale of Montana-Dakota's nonregulated appliance service and repair business. Electric retail sales increased 9 percent over the same quarter in 2012 as economic growth in North Dakota's Bakken oil play continued to result in customer growth.

Transportation volumes at the pipeline and energy services business, WBI Energy, increased 15 percent from the same period in 2012, principally the result of volumes servicing natural gas processing facilities. Natural gas gathering volumes declined as producers continued to lower production in response to low natural gas prices.

In late March, WBI Energy and its partner, Calumet Specialty Products Partners, L.P., began construction of a diesel topping plant located in southwestern North Dakota. The diesel topping plant will process 20,000 barrels per day of Bakken crude oil to help supply a North Dakota market that currently imports more than half of its diesel demand. The facility is expected to be in-service late 2014.

The construction business continued to see improvements in several markets. The construction services segment experienced strong equipment sales and rental margins. The construction materials segment reduced its normal seasonal loss below levels experienced in the last two years. Backlogs have improved substantially at both construction segments compared to a year ago.

"Our solid first quarter results and substantially higher construction backlogs along with an increase in our natural gas price projection to a range of $3.75 to $4.25, has resulted in our decision to increase and narrow our earnings per share guidance range to $1.30 to $1.40," Goodin said. "Our prior guidance was $1.20 to $1.35.

"We are very pleased with the strong start to the year. Just as important, we see plenty of good opportunities ahead of us to continue growing. We plan to invest $860 million into our businesses this year, with a total capital budget of $3.9 billion between 2013 and 2017."

The company will host a webcast at 10 a.m. EDT Wednesday, May 1, to discuss earnings results and guidance. The event can be accessed at www.mdu.com. Webcast and audio replays will be available. The dial-in number for audio replay is (855) 859-2056, or (404) 537-3406 for international callers, conference ID 30760556.

About MDU Resources

MDU Resources Group, Inc., a member of the S&P MidCap 400 index, provides value-added natural resource products and related services that are essential to energy and transportation infrastructure, including regulated utilities and pipelines, exploration and production, and construction materials and services. For more information about MDU Resources, see the company's website atwww.mdu.comor contact the Investor Relations Department atinvestor@mduresources.com.

Performance Summary and Future Outlook

The following information highlights the key growth strategies, projections and certain assumptions for the company and its subsidiaries and other matters for each of the company's businesses. Many of these highlighted points are "forward-looking statements." There is no assurance that the company's projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed at the end of this document under the heading "Risk Factors and Cautionary Statements that May Affect Future Results." Changes in such assumptions and factors could cause actual future results to differ materially from growth and earnings projections.

       
  Earnings First  Earnings First
Quarter 2013Quarter 2012
Business Line  (In Millions)  (In Millions)
Exploration and Production$20.3$12.9
Regulated
Electric and natural gas utilities42.333.0
Pipeline and energy services2.32.8
Construction Materials and Services(8.9)(13.5)
Other   .4    .5 
Earnings before discontinued operations56.435.7
Loss from discontinued operations, net of tax   (.1)   (.1)
Earnings on common stock  $56.3   $35.6 
 

On a consolidated basis, the following information highlights the key growth strategies, projections and certain assumptions for the company:

  • Earnings per common share for 2013, diluted, are projected in the range of $1.30 to $1.40. The company expects the approximate percentage of 2013 earnings per common share by quarter to be:
    • Second quarter - 20 percent.
    • Third quarter - 30 percent.
    • Fourth quarter - 25 percent.
  • The company's long-term compound annual growth goals on earnings per share from operations are in the range of 7 to 10 percent.
  • The company continually seeks opportunities to expand through organic growth and strategic acquisitions.
  • The company focuses on creating value through vertical integration between its business units. For example, the pipeline and energy services business' partially owned diesel topping plant under construction in the Bakken region, will have the construction materials and services business involved in constructing the facility, the exploration and production business supplying production to the plant, the pipeline transporting natural gas to the plant, and the utility supplying electricity.
  • Estimated capital expenditures for 2013 are approximately $860 million, excluding noncontrolling interest capital expenditures related to the Dakota Prairie Refining joint venture. This increase of approximately $53 million as compared to 10-K disclosure in February is largely related to acceleration of expenditures associated with the construction of the diesel topping plant and higher utility investments.
 
 

Exploration and Production

 
  Three Months Ended
   March 31,
   2013  2012

(Dollars in millions, where applicable)

Operating revenues:  
Oil$ 97.8$ 63.7
Natural gas liquids7.59.7
Natural gas    19.9    26.4
     125.2    99.8
Operating expenses:
Operation and maintenance:
Lease operating costs20.818.5
Gathering and transportation4.34.3
Other10.29.2
Depreciation, depletion and amortization43.136.8
Taxes, other than income:
Production and property taxes11.69.5
Other    .3    .4
     90.3    78.7
Operating income    34.9    21.1
Earnings  $ 20.3  $ 12.9
Production:
Oil (MBbls)1,118767
Natural gas liquids (MBbls)201190
Natural gas (MMcf)6,71310,047
Total production (MBOE)2,4382,632
Average realized prices (including hedges):
Oil (per barrel)$87.42$83.14
Natural gas liquids (per barrel)$37.33$50.85
Natural gas (per Mcf)$2.97$2.63
Average realized prices (excluding hedges):
Oil (per barrel)$89.44$93.01
Natural gas liquids (per barrel)$37.33$50.85
Natural gas (per Mcf)$2.86$1.94
Average depreciation, depletion and amortization rate, per BOE$16.90$13.32
Production costs, including taxes, per BOE:
Lease operating costs$8.54$7.02
Gathering and transportation1.761.63
Production and property taxes    4.74    3.62
   $ 15.04  $ 12.27
Notes:
• Oil includes crude oil and condensate; natural gas liquids are reflected separately.
• Results are reported in barrel of oil equivalents based on a 6:1 ratio.
 

Earnings at this segment were $20.3 million for the first quarter of 2013, compared to $12.9 million in 2012. This increase reflects increased oil production, now 46 percent of total production, and higher average realized natural gas and oil prices of 13 percent and 5 percent, respectively. Partially offsetting the earnings increase was decreased natural gas production of 33 percent, higher depreciation, depletion and amortization expense, lower average realized natural gas liquids prices of 27 percent, increased lease operating costs, and higher production taxes.

First quarter 2013 earnings and revenues were negatively affected by a noncash fair value change, primarily related to Rockies oil hedges that no longer qualified for hedge accounting. First quarter 2012 earnings and revenues were negatively affected by a noncash ineffectiveness loss also associated with Rockies oil hedges. Absent these non-cash adjustments, earnings for the quarters would have been $24.0 million for 2013, and $15.6 million for 2012. Effective April 1, the company has elected to discontinue hedge accounting for all of its commodity derivative instruments and, therefore, all prospective changes in the fair value of the company's commodity derivative instruments will be recorded in the income statement.

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 2013. With improving well cost efficiencies and having essentially completed the extensive 2012 exploration program, the capital program will focus on growth projects where the company expects higher returns, namely the Bakken, Paradox Basin and Texas, as described below. Follow-up on development activity of the 2012 exploration program (beyond the activity in the Paradox) could take place in late 2013 or early 2014 depending upon the economic competitiveness of those plays once they are fully appraised. The 2013 planned capital expenditure total does not include potential acquisitions.
  • For 2013, the company expects a 25 to 30 percent increase in oil production, a flat to slight increase in natural gas liquids production, and a 15 to 25 percent decrease in natural gas production. The majority of the capital program is focused on growing oil production considering current relative commodity prices. The company expects to return to some natural gas development when the commodity prices make it more profitable to do so.
  • The company has a total of five drilling rigs deployed on its acreage in the Bakken, Paradox and Texas areas.
  • Bakken areas
    • The company owns a total of approximately 127,000 net acres of leaseholds in Mountrail, Stark and Richland counties.
    • Capital expenditures are expected to total approximately $200 million in 2013. The company is currently operating three rigs in the play; with improving drilling efficiencies and other factors that number could vary across the year from two to three rigs.
  • Paradox Basin, Utah
    • The company has increased its holding to approximately 92,000 net acres and also has an option to lease another 20,000 acres.
    • The Cane Creek 18-1 well was brought on line in April and is currently flowing at approximately 1,000 BOPD with a flowing tube pressure of approximately 2,000 psi.
    • The company is continuing to proceed systematically in this play, and anticipates spending $70 million of capital expenditures in 2013. As the play is fully understood, the opportunity to ramp up to full-scale development could increase the planned investment. At this point, the potential appears very significant.
    • Approximately 50 to 75 future net locations have been identified. Estimated gross ultimate recovery rates per well range from 250,000 to 1 million barrels.
  • Texas
    • The company is targeting areas that have the potential for higher liquids content with approximately $40 million of capital planned for this year.
  • Other opportunities
    • The company completed drilling a horizontal well during April in Sioux County, Neb. Completion operations will be conducted during the second quarter. Upon evaluation of this well, the company may exercise an option to purchase a 65 percent working interest in approximately 79,000 gross acres.
    • The remaining forecasted 2013 capital has been allocated to other operated and non-operated opportunities.
  • Earnings guidance reflects estimated average NYMEX index prices for May through December in the ranges of $85 to $95 per barrel of crude oil, and $3.75 to $4.25 per Mcf of natural gas. Estimated prices for natural gas liquids are in the range of $30 to $45 per barrel.
  • For the last nine months of 2013, the company has hedged 9,000 BOPD utilizing swaps and costless collars with a weighted average price of $98.67 and $92.50/$107.03 (floor/ceiling) respectively, and 50,000 MMBtu of natural gas per day, with an additional 10,000 MMBtu per day for September through December, utilizing swaps at a weighted average price of $3.76.
  • For the first six months of 2014, the company has hedged 2,000 BOPD utilizing swaps with a weighted average price of $95.075, and for 2014 the company has hedged 20,000 MMBtu of natural gas per day utilizing swaps at a weighted average price of $4.13.
  • For 2015, the company has hedged 10,000 MMBtu of natural gas per day utilizing a swap at $4.2825.
  • The hedges that are in place as of April 30 are summarized in the following chart:
                
        Forward  
Notional
PeriodVolumePrice
Commodity  Type  Index  Outstanding  (Bbl/MMBtu)  (Per Bbl/MMBtu)
Crude OilCollarNYMEX4/13 - 12/13275,000$95.00-$117.00
Crude OilCollarNYMEX4/13 - 12/13275,000$90.00-$97.05
Crude OilSwapNYMEX4/13 - 12/13137,500$95.00
Crude OilSwapNYMEX4/13 - 12/13137,500$95.30
Crude OilSwapNYMEX4/13 - 12/13137,500$100.00
Crude OilSwapNYMEX4/13 - 12/13137,500$100.02
Crude OilSwapNYMEX4/13 - 12/13275,000$102.00
Crude OilSwapNYMEX4/13 - 12/13275,000$104.00
Crude OilSwapNYMEX4/13 - 12/13275,000$98.00
Crude OilSwapNYMEX4/13 - 12/13137,500$94.15
Crude OilSwapNYMEX4/13 - 12/13137,500$94.00
Crude OilSwapNYMEX4/13 - 12/13275,000$97.45
Crude OilSwapNYMEX1/14 - 6/14181,000$95.15
Crude OilSwapNYMEX1/14 - 6/14181,000$95.00
Natural GasSwapNYMEX4/13 - 12/132,750,000$3.76
Natural GasSwapNYMEX4/13 - 12/132,750,000$3.90
Natural GasSwapNYMEX4/13 - 12/132,750,000$4.00
Natural GasSwapNYMEX4/13 - 12/135,500,000$3.50
Natural GasSwapNYMEX9/13 - 12/144,870,000$4.13
Natural GasSwapNYMEX1/14 - 12/143,650,000$4.13
Natural Gas  Swap  NYMEX  1/15 - 12/15  3,650,000  $4.2825
 
 

Regulated

Electric and Natural Gas Utilities

 
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