FORM 10-K

38

MDU RESOURCES G ROUP, INC.

PART I

System Supply Williston Basin's underground natural gas storage facilities have a certificated storage capacity of approximately

353 Bcf, including 193 Bcf of working gas capacity, 85 Bcf of cushion gas and 75 Bcf of native gas. The native gas includes an estimated

29 Bcf of recoverable gas. Williston Basin's storage facilities enable its customers to purchase natural gas at more uniform daily volumes

throughout the year and, thus, facilitate meeting winter peak requirements. For information regarding natural gas storage legal proceedings,

see Item 1A -- Risk Factors -- Other Risks and Item 8 -- Note 20.

Natural gas supplies emanate from traditional and nontraditional natural gas production activities in the region and from off-system supply

sources. While certain traditional regional supply sources are in various stages of decline, incremental supply from nontraditional sources

have been developed which have helped support Williston Basin's supply needs. This includes new natural gas supply associated with the

continued development of the Bakken play in Montana and North Dakota. The Powder River Basin, including the Company's CBNG assets,

also provides a nontraditional natural gas supply to the Williston Basin system. For additional information regarding CBNG legal proceedings,

see Item 1A -- Risk Factors -- Environmental and Regulatory Risks and Item 8 -- Note 20. In addition, off-system supply sources are available

through the Company's interconnections with other pipeline systems. Williston Basin expects to facilitate the movement of these supplies

by making available its transportation and storage services. Williston Basin will continue to look for opportunities to increase transportation,

gathering and storage services through system expansion and/or other pipeline interconnections or enhancements that could provide

substantial future benefits.

Regulatory Matters and Revenues Subject to Refund In December 1999, Williston Basin filed a general natural gas rate change

application with the FERC. For additional information, see Item 8 -- Note 19.

Environmental Matters WBI Holdings' pipeline and energy services operations are generally subject to federal, state and local environmental,

facility-siting, zoning and planning laws and regulations. WBI Holdings believes it is in substantial compliance with those regulations.

Ongoing operations are subject to the Clean Air Act and the Clean Water Act. Administration of many provisions of these laws has been

delegated to the states where Williston Basin and Bitter Creek operate, and permit terms vary. Some permits require annual renewal, some

have terms ranging from one to five years and others have no expiration date. Permits are renewed as necessary.

Detailed environmental assessments are included in the FERC's permitting processes for both the construction and abandonment of

Williston Basin's natural gas transmission pipelines and storage facilities.

WBI Holdings' pipeline and energy services operations did not incur any material environmental expenditures in 2007 and do not expect

to incur any material capital expenditures related to environmental compliance with current laws and regulations through 2010.

NATURAL GAS AND OIL PRODUCTION

General Fidelity is involved in the acquisition, exploration, development and production of natural gas and oil resources. Fidelity's

activities include the acquisition of producing properties and leaseholds with potential development opportunities, exploratory drilling and

the operation and development of natural gas and oil production properties. Fidelity continues to seek additional reserve and production

growth opportunities through these activities. Future growth is dependent upon its success in these endeavors. Fidelity shares revenues

and expenses from the development of specified properties in proportion to its ownership interests.

Fidelity's business is focused primarily in three core regions: Rocky Mountain, Mid-Continent/Gulf States and Offshore Gulf of Mexico.

Rocky Mountain

Fidelity's properties in this region are primarily located in the states of Colorado, Montana, North Dakota, Utah and Wyoming. Fidelity owns

in fee or holds natural gas and oil leases for the properties it operates that are in the Bonny Field located in eastern Colorado, the Baker

Field in southeastern Montana and southwestern North Dakota, the Bowdoin area located in north-central Montana, the Powder River Basin

of Montana and Wyoming, the Bakken formation in North Dakota, the Paradox Basin of Utah, and the Big Horn Basin of Wyoming. Fidelity

also owns nonoperated natural gas and oil interests and undeveloped acreage positions in this region.

Mid-Continent/Gulf States

This region includes properties in Alabama, Louisiana, New Mexico, Oklahoma and Texas. Fidelity owns in fee or holds natural gas

and oil leases for the properties it operates that are in the Tabasco and Texan Gardens fields of Texas. In addition, Fidelity owns several

nonoperated interests and undeveloped acreage positions in this region. On January 31, 2008, Fidelity completed the acquisition of

natural gas properties located in Rusk County in eastern Texas. For additional information, see Item 8 -- Note 21.

Offshore Gulf of Mexico

Fidelity has nonoperated interests throughout the Offshore Gulf of Mexico. These interests are primarily located in the shallow waters off

the coasts of Texas and Louisiana.