Undiscovered Bakken Play – MDU Resources

Posted by Cary

This article provided by Guest Contributor Cary:

MDU resources, ticker MDU may not look like the typical Bakken E&P play. A quick look at their profile tells you the company is in the transmission and distribution of electricity, electric line construction, and natural gas distribution to residental neighborhoods in North Dakota, South Dakota, Montana, Wyoming etc. as well as construction. Seems like a good reason for the stock to be trading at a current PE of 13.50.

If you read carefully, however, MDU has a wholly owned subsidiary in Fidelity Exploration and Production Company. The company earned 70.9m last quarter with over 50m or 71% of earnings coming from Fidelity. MDU also upped guidence to 1.85 – 2.10 a share for 2008 up from 1.65 – 1.90. MDU owns 75,000 acres in the Bakken and plans to participate in 50 – 60 wells in 2008 alone. The company is actively redeploying rigs originally planned for other parts of the USA to the Bakken to speed up their drilling in the area.

Better yet, MDU states in their earnings that their latest guidence is based on around 8.00 per Mcf NG and – oil. Given current prices, we are looking at a further 30-40% upside surprise in earnings.

Lastly, the company has only 45-50% of its natural gas production hedged and only 5% of its oil hedged. This leaves signiicant upside ot any Bakken discoveries. Fidelity currently has 26 permits to drill in the Bakken and 9 rigs actively drilling, well on their way to their target.

MDU is not a fly-by-night company. They are experienced drillers with the resources to succeed. I do not expect this overlooked Bakken stock to be this cheap for long. While this will not have some of the instant gratification of some of the riskier low prices stocks, this has the potential to be a double by year end.

Below is a 3 month chart of MDU

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Tags: E&P Fidelity MDU