Increased Production and Reserves Boost Returns
Fidelity Exploration & Production Company is proving that its unprecedented success is based on its solid growth strategies. Those strategies are to increase production through the drill bit and to grow and diversify reserves by developing key properties and acquiring new properties. Even though natural gas and oil prices have moved up and down, Fidelity remains MDU Resources' largest contributor to record earnings.

Employee expertise and new technology helped to achieve a production increase of 7 percent in 2006. Fidelity is the largest producer of natural gas in Montana. Its long-lived fields in that state continue to produce more natural gas each year through innovative drilling and completion technologies.

In 2005, Fidelity completed a major acquisition in Texas that added to its portfolio and geographically broadened its operations. The company is developing these properties and pursuing previously bypassed hydrocarbons in the areas using a casing drilling rig built to company specifications. In addition, three-dimensional seismic technology is helping to identify viable formations in developing areas.

Fidelity has developed several ways to manage the water produced during coalbed natural gas production. Some techniques include managed irrigation, livestock watering, industrial uses at nearby coal mines and a new water treatment plant that uses advanced ion-exchange technology to treat water.


Strategic acquisitions, drilling grow reserves
In 2006, the company acquired new properties in the Big Horn Basin of Wyoming, complementing its existing Rocky Mountain properties. The acquisition included 51 billion cubic feet equivalent of proven reserves. More than 75 Bcfe of estimated probable and possible reserves are associated with the acquired properties. The reserve base acquired was 45 percent oil, 44 percent natural gas and 11 percent natural gas liquids.

Fidelity has had a successful drilling program. During the past three years, its drilling success ratio has averaged 94 percent. Drilling and acquisitions have increased the company's total reserves to a record 701 Bcfe.


Current leaseholds solid; new plays promising
In all, Fidelity has between 1,500 and 2,000 drilling locations in its existing producing fields - more than five years of potential drilling. The company has been exploring new areas in Texas, South Dakota and western North Dakota, including the Bakken play. In Wyoming, it also is building a leasehold position in the Green River Basin and expanding its position in the Big Horn Basin.

The company hedges up to 50 percent of its natural gas and oil production to minimize price volatility. Fidelity produces the fuels that help America satisfy its own energy needs and build a solid foundation for its future.

Darwin Subart
President
April 2007