MDU RESOURCES GROUP INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission file number 1-3480
MDU Resources Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-0423660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Schuchart Building
918 East Divide Avenue 58501
Bismarck, North Dakota (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (701) 222-7900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
Common Stock, par value $3.33 on which registered
and Preference Share Purchase Rights New York Stock Exchange
Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock, par value $100
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No
__.

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X

State the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 27, 1998: $901,622,000.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of February 27, 1998: 29,143,332 shares.

DOCUMENTS INCORPORATED BY REFERENCE.

1. Pages 25 through 51 of the Annual Report to Stockholders for 1997,
incorporated in Part II, Items 6 and 8 of this Report.
2. Proxy Statement, dated March 9, 1998, incorporated in Part III,
Items 10, 11, 12 and 13 of this Report.

CONTENTS

PART I

Items 1 and 2 -- Business and Properties
General
Montana-Dakota Utilities Co. --
Electric Generation, Transmission and Distribution
Retail Natural Gas and Propane Distribution
Williston Basin Interstate Pipeline Company
Knife River Corporation --
Construction Materials Operations
Coal Operations
Consolidated Construction Materials and Mining
Operations
Fidelity Oil Group

Item 3 -- Legal Proceedings

Item 4 -- Submission of Matters to a Vote of
Security Holders

PART II

Item 5 -- Market for the Registrant's Common Stock and
Related Stockholder Matters

Item 6 -- Selected Financial Data

Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of
Operations

Item 7A -- Quantitative and Qualitative Disclosures About
Market Risk

Item 8 -- Financial Statements and Supplementary Data

Item 9 -- Change in and Disagreements with Accountants
on Accounting and Financial Disclosure

PART III

Item 10 -- Directors and Executive Officers of the
Registrant

Item 11 -- Executive Compensation

Item 12 -- Security Ownership of Certain Beneficial
Owners and Management

Item 13 -- Certain Relationships and Related
Transactions

PART IV

Item 14 -- Exhibits, Financial Statement Schedules and
Reports on Form 8-K

PART I

This Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements should be read with the cautionary
statements and important factors included in this Form 10-K at Item
7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Safe Harbor for Forward-Looking
Statements." Forward-looking statements are all statements other
than statements of historical fact, including without limitation,
those statements that are identified by the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts" and similar
expressions.

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

General

MDU Resources Group, Inc. (Company) is a diversified natural
resource company which was incorporated under the laws of the State
of Delaware in 1924. Its principal executive offices are at
Schuchart Building, 918 East Divide Avenue, Bismarck, North Dakota
58501, telephone (701) 222-7900.

Montana-Dakota Utilities Co. (Montana-Dakota), the public
utility division of the Company, provides electric and/or natural
gas and propane distribution service at retail to 256 communities
in North Dakota, eastern Montana, northern and western South Dakota
and northern Wyoming, and owns and operates electric power
generation and transmission facilities.

The Company, through its wholly owned subsidiary, Centennial
Energy Holdings, Inc. (Centennial), owns Williston Basin Interstate
Pipeline Company (Williston Basin), Knife River Corporation (Knife
River), the Fidelity Oil Group (Fidelity Oil) and Utility Services,
Inc. (Utility Services).

Williston Basin produces natural gas and provides
underground storage, transportation and gathering services through
an interstate pipeline system serving Montana, North Dakota, South
Dakota and Wyoming and, through its wholly owned subsidiary,
Prairielands Energy Marketing, Inc. (Prairielands), seeks new
energy markets while continuing to expand present markets for
natural gas and propane.

Knife River, through its wholly owned subsidiary, KRC
Holdings, Inc. (KRC Holdings) and its subsidiaries, surface mines
and markets aggregates and related construction materials in
Alaska, California, Hawaii and Oregon. In addition, Knife River
surface mines and markets low sulfur lignite coal at mines located
in Montana and North Dakota.

Fidelity Oil is comprised of Fidelity Oil Co. and
Fidelity Oil Holdings, Inc., which own oil and natural gas
interests throughout the United States, the Gulf of Mexico and
Canada through investments with several oil and natural gas
producers.

Utility Services, through its wholly owned subsidiaries,
International Line Builders, Inc. and High Line Equipment, Inc.,
both acquired on July 1, 1997, installs and repairs electric
transmission and distribution power lines in the western United
States and Hawaii and provides related supplies and equipment.

The significant industries within the Company's retail utility
service area consist of agriculture and the related processing of
agricultural products and energy-related activities such as oil and
natural gas production, oil refining, coal mining and electric
power generation.

As of December 31, 1997, the Company had 2,218 full-time
employees with 84 employed at MDU Resources Group, Inc., including
Fidelity Oil, 1,011 at Montana-Dakota, 292 at Williston Basin,
including Prairielands, 522 at Knife River's construction materials
operations, 147 at Knife River's coal operations and 162 at Utility
Services. Approximately 501 and 83 of the Montana-Dakota and
Williston Basin employees, respectively, are represented by the
International Brotherhood of Electrical Workers (IBEW). Labor
contracts with such employees are in effect through May 1999, for
both Montana-Dakota and Williston Basin. Knife River has a labor
contract through August 1998, with the United Mine Workers of
America, which represents its coal operation's hourly workforce
aggregating 90 employees. In addition, Knife River has 14 labor
contracts which represent 243 of its construction materials
employees. Utility Services has 2 labor contracts representing the
majority of its employees.

The financial results and data applicable to each of the
Company's business segments as well as their financing requirements
are set forth in Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes to
Consolidated Financial Statements.

Any reference to the Company's Consolidated Financial
Statements and Notes thereto shall be to pages 25 through 49 in the
Company's Annual Report to Stockholders for 1997 (Annual Report),
which are incorporated by reference herein.

ENERGY DISTRIBUTION OPERATIONS AND PROPERTY (MONTANA-DAKOTA)

Electric Generation, Transmission and Distribution

General --

Montana-Dakota provides electric service at retail, serving
over 113,000 residential, commercial, industrial and municipal
customers located in 177 communities and adjacent rural areas as of
December 31, 1997. The principal properties owned by Montana-
Dakota for use in its electric operations include interests in
seven electric generating stations, as further described under
"System Supply and System Demand," and approximately 3,100 and
3,900 miles of transmission and distribution lines, respectively.
Montana-Dakota has obtained and holds valid and existing franchises
authorizing it to conduct its electric operations in all of the
municipalities it serves where such franchises are required. As of
December 31, 1997, Montana-Dakota's net electric plant investment
approximated $283.9 million.

All of Montana-Dakota's electric properties, with certain
exceptions, are subject to the lien of the Indenture of Mortgage
dated May 1, 1939, as supplemented, amended and restated, from the
Company to The Bank of New York and W. T. Cunningham, successor
trustees.

The electric operations of Montana-Dakota are subject to
regulation by the Federal Energy Regulatory Commission (FERC) under
provisions of the Federal Power Act with respect to the
transmission and sale of power at wholesale in interstate commerce,
interconnections with other utilities, the issuance of securities,
accounting and other matters. Retail rates, service, accounting
and, in certain cases, security issuances are also subject to
regulation by the North Dakota Public Service Commission (NDPSC),
Montana Public Service Commission (MPSC), South Dakota Public
Utilities Commission (SDPUC) and Wyoming Public Service Commission
(WPSC). The percentage of Montana-Dakota's 1997 electric utility
operating revenues by jurisdiction is as follows: North Dakota --
60 percent; Montana -- 22 percent; South Dakota -- 8 percent and
Wyoming -- 10 percent.

System Supply and System Demand --

Through an interconnected electric system, Montana-Dakota
serves markets in portions of the following states and major
communities -- western North Dakota, including Bismarck, Dickinson
and Williston; eastern Montana, including Glendive and Miles City;
and northern South Dakota, including Mobridge. The interconnected
system consists of seven on-line electric generating stations which
have an aggregate turbine nameplate rating attributable to Montana-
Dakota's interest of 393,488 Kilowatts (kW) and a total summer net
capability of 421,060 kW. Montana-Dakota's four principal
generating stations are steam-turbine generating units using coal
for fuel. The nameplate rating for Montana-Dakota's ownership
interest in these four stations (including interests in the Big
Stone Station and the Coyote Station aggregating 22.7 percent and
25.0 percent, respectively) is 327,758 kW. The balance of Montana-
Dakota's interconnected system electric generating capability is
supplied by three combustion turbine peaking stations.
Additionally, Montana-Dakota has contracted to purchase through
October 31, 2006, 66,400 kW of participation power from Basin
Electric Power Cooperative (Basin) for its interconnected system.
The following table sets forth details applicable to the Company's
electric generating stations:
1997 Net
Generation
Nameplate Summer (kilowatt-
Generating Rating Capability hours in
Station Type (kW) (kW) thousands)

North Dakota --
Coyote* Steam 103,647 106,750 507,714
Heskett Steam 86,000 102,000 369,791
Williston Combustion
Turbine 7,800 8,900 (62)**
South Dakota --
Big Stone* Steam 94,111 101,460 741,280

Montana --
Lewis & Clark Steam 44,000 49,150 184,408
Glendive Combustion
Turbine 34,780 31,200 13,484
Miles City Combustion
Turbine 23,150 21,600 10,155

393,488 421,060 1,826,770

* Reflects Montana-Dakota's ownership interest.
** Station use, to meet MAPP's accreditation requirements, exceeded
generation.

Virtually all of the current fuel requirements of the Coyote,
Heskett and Lewis & Clark stations are met with coal supplied by
Knife River under various long-term contracts. See "Construction
Materials and Mining Operations and Property (Knife River) -- Coal
Operations" for a discussion of a suit and arbitration filed by the
Co-owners of the Coyote Station against Knife River and the
Company. The majority of the Big Stone Station's fuel requirements
are currently being met with coal supplied by Westmoreland
Resources, Inc. under a contract which expires on December 31,
1999.

During the years ended December 31, 1993, through December 31,
1997, the average cost of coal consumed, including freight, per
million British thermal units (Btu) at Montana-Dakota's electric
generating stations (including the Big Stone and Coyote stations)
in the interconnected system and the average cost per ton,
including freight, of the coal so consumed was as follows:

Years Ended December 31,
1997 1996 1995 1994 1993
Average cost of
coal per
million Btu $.95 $.93 $.94 $.97 $.96
Average cost of
coal per ton $14.22 $13.64 $12.90 $12.88 $12.78

The maximum electric peak demand experienced to date
attributable to sales to retail customers on the interconnected
system was 412,700 kW in August 1995. Due to a cooler than normal
summer, the 1997 summer peak was only 404,566 kW. The 1997 summer
peak, assuming normal weather, was previously forecasted to have
been approximately 416,600 kW. Montana-Dakota's latest forecast
for its interconnected system indicates that its annual peak will
continue to occur during the summer and the peak demand growth rate
through 2003 will approximate 1.3 percent annually. Montana-
Dakota's latest forecast indicates that its kilowatt-hour (kWh)
sales growth rate, on a normalized basis, through 2003 will
approximate 1.0 percent annually. Montana-Dakota currently
estimates that it has adequate capacity available through existing
generating stations and long-term firm purchase contracts until the
year 2000. If additional capacity is needed in 2000 or after, it
will be met through the addition of combustion turbine peaking
stations and purchases from the Mid-Continent Area Power Pool
(MAPP) on an intermediate-term basis.

Montana-Dakota has major interconnections with its neighboring
utilities, all of which are MAPP members. Montana-Dakota considers
these interconnections adequate for coordinated planning, emergency
assistance, exchange of capacity and energy and power supply
reliability.

Through a separate electric system (Sheridan System), Montana-
Dakota serves Sheridan, Wyoming and neighboring communities. The
maximum peak demand experienced to date and attributable to
Montana-Dakota sales to retail consumers on that system was
approximately 46,600 kW and occurred in December 1983. Due to a
peak shaving load management system, Montana-Dakota estimates this
annual peak will not be exceeded through 1999.

The Sheridan System is supplied through an interconnection with
Black Hills Power and Light Company under a ten-year power supply
contract which allows for the purchase of up to 55,000 kW of
capacity.

Regulation and Competition --

The electric utility industry can be expected to continue to
become increasingly competitive due to a variety of regulatory,
economic and technological changes. As a result of competition in
electric generation, wholesale power markets have become
increasingly competitive and evaluations are ongoing concerning
retail competition.

In April 1996, the FERC issued its final rules (Order No. 888
and 889) on wholesale electric transmission open access and
recovery of stranded costs. Montana-Dakota filed proposed tariffs
with the FERC in compliance with Order 888, which became effective
in July 1996. Montana-Dakota is awaiting final approval of the
proposed tariffs by the FERC. In December 1996, Montana-Dakota
filed a Request for Waiver of the requirements of FERC Order No.
889 as it relates to the Standards of Conduct. The Standards of
Conduct require companies to physically separate their transmission
operations/reliability functions from their marketing/merchant
functions. On May 29, 1997, Montana-Dakota's request was granted.

In a related matter, in March 1996, the MAPP, of which Montana-
Dakota is a member, filed a restated operating agreement with the
FERC. The FERC approved MAPP's restated agreement, excluding
MAPP's market-based rate proposal, effective November 1996. The
FERC has requested additional information from the MAPP on its
market-based rate proposal before it will take further action.

Three of the four states which regulate the Company's electric
operations continue to evaluate and/or implement utility
regulations with respect to retail competition (retail wheeling).
Additionally, federal legislation addressing this issue has been
introduced. In April 1997, the Montana legislature passed an
electric industry restructuring bill. The bill provides for full
customer choice of electric supplier by July 1, 2002, stranded cost
recovery and other provisions. Based on the provisions of such
restructuring bill, because the Company's utility division operates
in more than one state, the Company has the option of deferring its
transition to full customer choice until 2006. In its 1997
legislative session, the North Dakota legislature established an
Electric Industry Competition Committee to study over a six-year
period the impact of competition on the generation, transmission
and distribution of electric energy in the State. In 1997, the
WPSC selected a consultant to perform a study on the impact of
electric restructuring in Wyoming. The study found no material
economic benefits; however, the WPSC is continuing to evaluate the
economic impact of retail wheeling on the State of Wyoming. The
SDPUC has not initiated any proceedings to date concerning retail
competition or electric industry restructuring.

Although Montana-Dakota is unable to predict the outcome of
such regulatory proceedings or legislation, or the extent to which
retail competition may occur, Montana-Dakota is continuing to take
steps to effectively operate in an increasingly competitive
environment.

Fuel adjustment clauses contained in North Dakota and South
Dakota jurisdictional electric rate schedules allow Montana-Dakota
to reflect increases or decreases in fuel and purchased power costs
(excluding demand charges) on a timely basis. Expedited rate
filing procedures in Wyoming allow Montana-Dakota to timely reflect
increases or decreases in fuel and purchased power costs as well as
changes in load management costs. In Montana (22 percent of
electric revenues), such cost changes are includible in general
rate filings.

Capital Requirements --

The following schedule (in millions of dollars) summarizes the
1997 actual and 1998 through 2000 anticipated net capital
expenditures applicable to Montana-Dakota's electric operations:

Actual Estimated
1997 1998 1999 2000

Production $ 4.7 $ 5.8 $ 5.5 $ 5.9
Transmission 2.6 2.8 2.7 2.9
Distribution, General
and Common 11.4 9.0 8.2 8.2
$18.7 $17.6 $16.4 $17.0

Environmental Matters --

Montana-Dakota's electric operations, are subject to extensive
federal, state and local laws and regulations providing for air, water
and solid waste pollution control; state facility-siting regulations;
zoning and planning regulations of certain state and local
authorities; federal health and safety regulations and state hazard
communication standards. Montana-Dakota believes it is in substantial
compliance with all existing environmental regulations and permitting
requirements.

The U.S. Clean Air Act (Clean Air Act) requires electric
generating facilities to reduce sulfur dioxide emissions by the year
2000 to a level not exceeding 1.2 pounds per million Btu.
Montana-Dakota's baseload electric generating stations are coal fired.
All of these stations, with the exception of the Big Stone Station,
are either equipped with scrubbers or utilize an atmospheric fluidized
bed combustion boiler, which permits them to operate with emission
levels less than the 1.2 pounds per million Btu. The emissions
requirement at the Big Stone Station is expected to be met by
switching to competitively priced lower sulfur ("compliance") coal.

In addition, the Clean Air Act limits the amount of nitrous oxide
emissions. Montana-Dakota's generating stations, with the exception
of the Big Stone Station, are within the limitations set by the United
States Environmental Protection Agency (EPA). The co-owners of the
Big Stone Station have determined the modifications necessary at the
Big Stone Station. Montana-Dakota believes that the cost of such
modifications will not have a material effect on its results of
operations.

Governmental regulations establishing environmental protection
standards are continuously evolving and, therefore, the character,
scope, cost and availability of the measures which will permit
compliance with evolving laws or regulations, cannot now be accurately
predicted. Montana-Dakota did not incur any significant environmental
expenditures in 1997 and does not expect to incur any significant
capital expenditures related to environmental compliance through 2000.

Retail Natural Gas and Propane Distribution

General --

Montana-Dakota sells natural gas and propane at retail, serving
over 200,000 residential, commercial and industrial customers located
in 141 communities and adjacent rural areas as of December 31, 1997,
and provides natural gas transportation services to certain customers
on its system. These services are provided through a distribution
system aggregating over 4,200 miles. Montana-Dakota has obtained and
holds valid and existing franchises authorizing it to conduct natural
gas and propane distribution operations in all of the municipalities
it serves where such franchises are required. As of December 31,
1997, Montana-Dakota's net natural gas and propane distribution plant
investment approximated $79.5 million.

All of Montana-Dakota's natural gas distribution properties, with
certain exceptions, are subject to the lien of the Indenture of
Mortgage dated May 1, 1939, as supplemented, amended and restated,
from the Company to The Bank of New York and W. T. Cunningham,
successor trustees.

The natural gas and propane distribution operations of
Montana-Dakota are subject to regulation by the NDPSC, MPSC, SDPUC and
WPSC regarding retail rates, service, accounting and, in certain
instances, security issuances. The percentage of Montana-Dakota's
1997 natural gas and propane utility operating revenues by
jurisdiction is as follows: North Dakota -- 43 percent; Montana --
29 percent; South Dakota -- 21 percent and Wyoming -- 7 percent.

System Supply, System Demand and Competition --

Montana-Dakota serves retail natural gas markets, consisting
principally of residential and firm commercial space and water heating
users, in portions of the following states and major communities --
North Dakota, including Bismarck, Dickinson, Williston, Minot and
Jamestown; eastern Montana, including Billings, Glendive and Miles
City; western and north-central South Dakota, including Rapid City,
Pierre and Mobridge; and northern Wyoming, including Sheridan. These
markets are highly seasonal and sales volumes depend on the weather.

The following table reflects Montana-Dakota's natural gas and
propane sales and natural gas transportation volumes during the last
five years:

Years Ended December 31,
1997 1996 1995 1994 1993
Mdk (thousands of decatherms)

Sales:
Residential 20,126 22,682 20,135 19,039 19,565
Commercial 13,799 15,325 13,509 12,403 11,196
Industrial 395 276 295 398 386
Total 34,320 38,283 33,939 31,840 31,147
Transportation:
Commercial 1,612 1,677 1,742 2,011 3,461
Industrial 8,455 7,746 9,349 7,267 9,243
Total 10,067 9,423 11,091 9,278 12,704
Total Throughput 44,387 47,706 45,030 41,118 43,851

The restructuring of the natural gas industry, as described under
"Natural Gas Transmission Operations and Property (Williston Basin)",
has resulted in additional competition in retail natural gas markets.
In response to these changed market conditions Montana-Dakota has
established various natural gas transportation service rates for its
distribution business to retain interruptible commercial and
industrial load. Certain of these services include transportation
under flexible rate schedules and capacity release contracts whereby
Montana-Dakota's interruptible customers can avail themselves of the
advantages of open access transportation on the Williston Basin
system. These services have enhanced Montana-Dakota's competitive
posture with alternate fuels, although certain of Montana-Dakota's
customers have the potential of bypassing Montana-Dakota's
distribution system by directly accessing Williston Basin's
facilities.

Montana-Dakota acquires all of its system requirements directly
from producers, processors and marketers. Such natural gas is
supplied under firm contracts, specifying market-based pricing, and
is transported under firm transportation agreements by Williston Basin
and Northern Gas Company and, with respect to Montana-Dakota's north-
central South Dakota and south-central North Dakota markets, by South
Dakota Intrastate Pipeline Company and Northern Border Pipeline
Company, respectively. Montana-Dakota has also contracted with
Williston Basin to provide firm storage services which enable Montana-
Dakota to purchase natural gas at more uniform daily volumes
throughout the year and, thus, meet winter peak requirements as well
as allow it to better manage its natural gas costs. Montana-Dakota
estimates that, based on supplies of natural gas currently available
through its suppliers and expected to be available, it will have
adequate supplies of natural gas to meet its system requirements for
the next five years.

Regulatory Matters --

Montana-Dakota's retail natural gas rate schedules contain clauses
permitting monthly adjustments in rates based upon changes in natural
gas commodity, transportation and storage costs. Current regulatory
practices allow Montana-Dakota to recover increases or refund
decreases in such costs within 24 months from the time such changes
occur.

Capital Requirements --

Montana-Dakota's net capital expenditures aggregated $7.7 million
for natural gas and propane distribution facilities in 1997 and are
anticipated to be approximately $7.7 million, $8.8 million and $7.5
million in 1998, 1999 and 2000, respectively.

Environmental Matters --

Montana-Dakota's natural gas and propane distribution operations
are generally subject to extensive federal, state and local
environmental, facility siting, zoning and planning laws and
regulations. Except as set forth below, Montana-Dakota believes it
is in substantial compliance with those regulations.

Montana-Dakota and Williston Basin discovered polychlorinated
biphenyls (PCBs) in portions of their natural gas systems and
informed the EPA in January 1991. Montana-Dakota and Williston
Basin believe the PCBs entered the system from a valve sealant. In
January 1994, Montana-Dakota, Williston Basin and Rockwell
International Corporation (Rockwell), manufacturer of the valve
sealant, reached an agreement under which Rockwell has and will
continue to reimburse Montana-Dakota and Williston Basin for a
portion of certain remediation costs. On the basis of findings to
date, Montana-Dakota and Williston Basin estimate future
environmental assessment and remediation costs will aggregate $3
million to $15 million. Based on such estimated cost, the expected
recovery from Rockwell and the ability of Montana-Dakota and
Williston Basin to recover their portions of such costs from
ratepayers, Montana-Dakota and Williston Basin believe that the
ultimate costs related to these matters will not be material to each
of their respective financial positions or results of operations.

CENTENNIAL ENERGY HOLDINGS, INC.

NATURAL GAS TRANSMISSION OPERATIONS AND PROPERTY (WILLISTON BASIN)

General --

Williston Basin owns and operates over 3,600 miles of
transmission, gathering and storage lines and 22 compressor stations
located in the states of Montana, North Dakota, South Dakota and
Wyoming. Through three underground storage fields located in
Montana and Wyoming, storage services are provided to local
distribution companies, producers, suppliers and others, and serve
to enhance system deliverability. Williston Basin's system is
strategically located near five natural gas producing basins making
natural gas supplies available to Williston Basin's transportation
and storage customers. In addition, Williston Basin produces
natural gas from owned reserves which is sold to others or used by
Williston Basin for its operating needs. Williston Basin has
interconnections with seven pipelines in Wyoming, Montana and North
Dakota which provide for supply and market access.

Prairielands, a subsidiary of Williston Basin, seeks new energy
markets while continuing to expand present markets for natural gas.
Its activities include buying and selling natural gas and arranging
transportation services to end users, pipelines and local
distribution companies. In addition, Prairielands operates two
retail propane operations in north central and southeastern North
Dakota.

At December 31, 1997, the net natural gas transmission plant
investment, inclusive of its transmission, storage, gathering,
production, marketing and propane facilities, was approximately
$167.5 million.

Under the Natural Gas Act (NGA), as amended, Williston Basin is
subject to the jurisdiction of the FERC regarding certificate, rate
and accounting matters applicable to natural gas purchases, sales,
transportation, gathering and related storage operations.

System Demand and Competition --

The natural gas transmission industry, although regulated, is
very competitive. Beginning in the mid-1980s customers began
switching their natural gas service from a bundled merchant service
to transportation, and with the implementation of Order 636 which
unbundled pipelines' services, this transition was accelerated.
This change reflects most customers' willingness to purchase their
natural gas supply from producers, processors or marketers rather
than pipelines. Williston Basin competes with several pipelines for
its customers' transportation business and at times will have to
discount rates in an effort to retain market share. However, the
strategic location of Williston Basin's system near five natural gas
producing basins and the availability of underground storage and
gathering services provided by Williston Basin along with
interconnections with other pipelines serve to enhance Williston
Basin's competitive position.

Although a significant portion of Williston Basin's firm
customers, including Montana-Dakota, have relatively secure
residential and commercial end-users, virtually all have some price-
sensitive end-users that could switch to alternate fuels.

Williston Basin transports essentially all of Montana-Dakota's
natural gas under firm transportation agreements, which in 1997,
represented 87 percent of Williston Basin's currently subscribed
firm transportation capacity. In November 1996, Montana-Dakota
executed a new firm transportation agreement with Williston Basin
for a term of five years which began in July 1997. In addition, in
July 1995, Montana-Dakota entered a twenty-year contract with
Williston Basin to provide firm storage services to facilitate
meeting Montana-Dakota's winter peak requirements.

For additional information regarding Williston Basin's
transportation for 1995 through 1997, see Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."

System Supply --

Williston Basin's underground storage facilities have a
certificated storage capacity of approximately 353,300 million cubic
feet (MMcf), including 28,900 MMcf and 46,300 MMcf of recoverable
and nonrecoverable native gas, respectively. 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.

Natural gas supplies from traditional regional sources have
declined during the past several years and such declines are
anticipated to continue. As a result, Williston Basin anticipates
that a potentially significant amount of the future supply needed
to meet its customers' demands will come from non-traditional, off-
system sources. Williston Basin expects to facilitate the movement
of these supplies by making available its transportation and storage
services. Opportunities may exist to increase transportation and
storage services through system expansion or other pipeline
interconnections or enhancements which could provide substantial
future benefits to Williston Basin.

Natural Gas Production --

Williston Basin owns in fee or holds natural gas leases and
operating rights primarily applicable to the shallow rights (above
2,000 feet) in the Cedar Creek Anticline in southeastern Montana and
to all rights in the Bowdoin area located in north-central Montana.

Information on Williston Basin's natural gas production, average
sales prices and production costs per Mcf related to its natural gas
interests for 1997, 1996 and 1995 is as follows:

1997 1996 1995

Production (MMcf) 7,215 6,324 5,184
Average sales price $1.30 $1.11 $.91
Production costs, including taxes $.46 $.43 $.30

Williston Basin's gross and net productive well counts and gross
and net developed and undeveloped acreage for its natural gas
interests at December 31, 1997, are as follows:

Gross Net

Productive Wells 533 483
Developed Acreage (000's) 234 213
Undeveloped Acreage (000's) 45 40

The following table shows the results of natural gas development
wells drilled and tested during 1997, 1996 and 1995:

1997 1996 1995

Productive 20 32 17
Dry Holes --- --- ---
Total 20 32 17

At December 31, 1997, there were no wells in the process of
drilling.

Williston Basin's recoverable proved developed and undeveloped
natural gas reserves approximated 127.3 Bcf at December 31, 1997.
These amounts are supported by a report dated January 12, 1998,
prepared by Ralph E. Davis Associates, Inc., an independent firm of
petroleum and natural gas engineers.

Since 1993, Williston Basin has engaged in a long-term
developmental drilling program to enhance the performance of its
investment in natural gas reserves. As a result of this effort,
1997 production levels reached 6.9 MMdk, up 79 percent from 1993.
The production increases from these reserves are expected to provide
additional natural gas supplies for Prairielands to enable it to
enhance its marketing efforts.

For additional information related to Williston Basin's natural
gas interests, see Note 18 of Notes to Consolidated Financial
Statements.

Pending Litigation --

In November 1993, the estate of W. A. Moncrief (Moncrief), a
producer from whom Williston Basin purchased a portion of its
natural gas supply, filed suit in Federal District Court for the
District of Wyoming (Federal District Court) against Williston Basin
and the Company disputing certain price and volume issues under the
contract.

Through the course of this action Moncrief submitted damage
calculations which totaled approximately $19 million or, under its
alternative pricing theory, approximately $39 million.

On June 26, 1997, the Federal District Court issued its order
awarding Moncrief damages of approximately $15.6 million. On July
25, 1997, the Federal District Court issued an order limiting
Moncrief's reimbursable costs to post-judgment interest, instead of
both pre- and post-judgment interest as Moncrief had sought. On
August 25, 1997, Moncrief filed a notice of appeal with the United
States Court of Appeals for the Tenth Circuit related to the Federal
District Court's orders. On September 2, 1997, Williston Basin and
the Company filed a notice of cross-appeal.

Williston Basin believes that it is entitled to recover from
ratepayers virtually all of the costs ultimately incurred as a
result of these orders as gas supply realignment transition costs
pursuant to the provisions of the FERC's Order 636. However, the
amount of costs that can ultimately be recovered is subject to
approval by the FERC and market conditions.

In December 1993, Apache Corporation (Apache) and Snyder Oil
Corporation (Snyder) filed suit in North Dakota Northwest Judicial
District Court (North Dakota District Court), against Williston
Basin and the Company. Apache and Snyder are oil and natural gas
producers which had processing agreements with Koch Hydrocarbon
Company (Koch). Williston Basin and the Company had a natural gas
purchase contract with Koch. Apache and Snyder have alleged they
are entitled to damages for the breach of Williston Basin's and the
Company's contract with Koch. Williston Basin and the Company
believe that if Apache and Snyder have any legal claims, such claims
are with Koch, not with Williston Basin or the Company as Williston
Basin, the Company and Koch have settled their disputes. Apache and
Snyder have recently provided alleged damages under differing
theories ranging up to $4.8 million without interest. A motion to
intervene in the case by several other producers, all of which had
contracts with Koch but not with Williston Basin, was denied in
December 1996. The trial before the North Dakota District Court
was completed on November 6, 1997. Williston Basin and the Company
are awaiting a decision from the North Dakota District Court.

In a related matter, on March 14, 1997, a suit was filed by nine
other producers, several of which had unsuccessfully tried to
intervene in the Apache and Snyder litigation, against Koch,
Williston Basin and the Company. The parties to this suit are
making claims similar to those in the Apache and Snyder litigation,
although no specific damages have been specified.

In Williston Basin's opinion, the claims of Apache and Snyder
are without merit and overstated and the claims of the nine other
producers are without merit. If any amounts are ultimately found
to be due, Williston Basin plans to file with the FERC for recovery
from ratepayers.

Regulatory Matters and Revenues Subject to Refund --

Williston Basin has pending with the FERC two general natural
gas rate change applications implemented in 1992 and 1996. On
October 20, 1997, Williston Basin appealed to the U.S. District
Court of Appeals for the D.C. Circuit certain issues decided by the
FERC in prior orders concerning the 1992 proceeding. On December
10, 1997, the FERC issued an order accepting, subject to certain
conditions, Williston Basin's July 25, 1997 compliance filing. On
December 22, 1997, Williston Basin submitted a compliance filing
pursuant to the FERC's December 10, 1997 order. On December 31,
1997, Williston Basin refunded $33.8 million to its customers,
including $30.8 million to Montana-Dakota, in addition to the $6.1
million interim refund that it had previously made in November 1996.
All such amounts had been previously reserved. Williston Basin is
awaiting an order from the FERC on its December 22, 1997 compliance
filing.

In June 1995, Williston Basin filed a general rate increase
application with the FERC. As a result of FERC orders issued after
Williston Basin's application was filed, in December 1995, Williston
Basin filed revised base rates with the FERC resulting in an
increase of $8.9 million or 19.1 percent over the currently
effective rates. Williston Basin began collecting such increase
effective January 1, 1996, subject to refund and is awaiting a final
order from the FERC.

Reserves have been provided for a portion of the revenues that
have been collected subject to refund with respect to pending
regulatory proceedings and to reflect future resolution of certain
issues with the FERC. Williston Basin believes that such reserves
are adequate based on its assessment of the ultimate outcome of the
various proceedings.

Natural Gas Repurchase Commitment --

The Company has offered for sale since 1984 the inventoried
natural gas available under a repurchase commitment with Frontier
Gas Storage Company, as described in Note 3 of Notes to Consolidated
Financial Statements. As a part of the corporate realignment
effected January 1, 1985, the Company agreed, pursuant to the
settlement approved by the FERC, to remove from rates the financing
costs associated with this natural gas.

In January 1986, because of the uncertainty as to when a sale
would be made, Williston Basin began charging the financing costs
associated with this repurchase commitment to operations as
incurred. Such costs, consisting principally of interest and
related financing fees, approximated $5.7 million and $6.0 million
in 1996 and 1995, respectively. The costs incurred in 1997 were not
material and are included in "Other income -- net" on the
Consolidated Statements of Income.

The FERC has issued orders that have held that storage costs
should be allocated to this gas, prospectively beginning May 1992,
as opposed to being included in rates applicable to Williston
Basin's customers. These storage costs, as initially allocated to
the Frontier gas, approximated $2.1 million annually, for which
Williston Basin has provided reserves. Williston Basin appealed
these orders to the D.C. Circuit Court which in December 1996 issued
its order ruling that the FERC's actions in allocating costs to the
Frontier gas were appropriate. Williston Basin is awaiting a final
order from the FERC as to the appropriate costs to be allocated.

Williston Basin sells and transports natural gas held under the
repurchase commitment. In the third quarter of 1996, Williston
Basin, based on a number of factors including differences in
regional natural gas prices and natural gas sales occurring at that
time, wrote down 43.0 MMdk of this gas to its then current value.
The value of this gas was determined using the sum of discounted
cash flows of expected future sales occurring at then current
regional natural gas prices as adjusted for anticipated future price
increases. This resulted in a write-down aggregating $18.6 million
($11.4 million after tax). In addition, Williston Basin wrote off
certain other costs related to this natural gas of approximately
$2.5 million ($1.5 million after tax). The amounts related to this
write-down are included in "Costs on natural gas repurchase
commitment" in the Consolidated Statements of Income. At December
31, 1997 and 1996, natural gas held under a repurchase commitment
of $14.6 million and $37.2 million, respectively, is included in the
Company's Consolidated Balance Sheets under "Deferred charges and
other assets". The recognition of the then current market value of
this natural gas facilitated the sale by Williston Basin of 28.1
MMdk from the date of this write-down through December 31, 1997, and
should allow Williston Basin to market the remaining 14.9 MMdk on
a sustained basis enabling Williston Basin to liquidate this asset
over approximately the next three to four years.

Capital Requirements --

The following schedule (in millions of dollars) summarizes the
1997 actual and 1998 through 2000 anticipated net capital
expenditures, excluding potential acquisitions, applicable to
Williston Basin's consolidated operations:

Actual Estimated
1997 1998 1999 2000

Production and Gathering $ 4.8 $11.4 $14.2 $12.3
Underground Storage .3 .4 .3 .8
Transmission 3.6 3.2 11.4 4.6
General and Other 1.5 6.2 1.3 1.4
Energy Marketing .2 .3 .2 1.3
$10.4 $21.5 $27.4 $20.4

Environmental Matters --

Williston Basin's interstate natural gas transmission
operations are generally subject to federal, state and local
environmental, facility-siting, zoning and planning laws and
regulations. Except as may be found with regard to the issues
described below, Williston Basin believes it is in substantial
compliance with those regulations.

See "Environmental Matters" under "Montana-Dakota -- Retail
Natural Gas and Propane Distribution" for a discussion of PCBs
contained in Montana-Dakota's and Williston Basin's natural gas
systems.

CONSTRUCTION MATERIALS AND MINING OPERATIONS AND PROPERTY
(KNIFE RIVER)

Construction Materials Operations:

General --

Knife River, through KRC Holdings, operates construction
materials and mining businesses in the Anchorage, Alaska area,
north and north-central California, southern Oregon and the
Hawaiian Islands. These operations mine, process and sell
construction aggregates (crushed rock, sand and gravel) and supply
ready-mixed concrete for use in most types of construction,
including homes, schools, shopping centers, office buildings and
industrial parks as well as roads, freeways and bridges.

In addition, the Alaskan, northern California and Oregon
operations produce and sell asphalt for various commercial and
roadway applications. Although not common to all locations, other
products include the manufacture and/or sale of cement, various
finished concrete products and other building materials and related
construction services.

On February 14, 1997, Baldwin Contracting Company, Inc.
(Baldwin), a subsidiary of KRC Holdings, purchased the physical
assets of Orland Asphalt located in Orland, California, including
a hot-mix plant and aggregate reserves. Orland Asphalt was
combined with and operates as part of Baldwin.

On July 31, 1997, Knife River purchased the 50 percent interest
in Hawaiian Cement, that it did not previously own, from Adelaide
Brighton Cement (Hawaii), Inc. of Adelaide, Australia. The
Company's initial 50 percent partnership interest in Hawaiian
Cement was acquired in September 1995.

On March 5, 1998, the Company acquired Morse Bros., Inc. and
S2 - F Corp., privately-held construction materials companies
located in Oregon's Willamette Valley. See Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for more information regarding these acquisitions.

Knife River's construction materials business has continued to
grow since its first acquisition in 1992 and now comprises the
majority of Knife River's business. Knife River continues to
investigate the acquisition of other surface mining properties,
particularly those relating to sand and gravel aggregates and
related products such as ready-mixed concrete, asphalt and various
finished aggregate products.

For information regarding sales volumes and revenues for the
construction materials operations for 1995 through 1997, see Item
7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Competition --

Knife River's construction materials products are marketed
under highly competitive conditions. Since there are generally no
measurable product differences in the market areas in which Knife
River conducts its construction materials businesses, price is the
principal competitive force these products are subject to, with
service, delivery time and proximity to the customer also being
significant factors. The number and size of competitors varies in
each of Knife River's principal market areas and product lines.

The demand for construction materials products is significantly
influenced by the cyclical nature of the construction industry in
general. The key economic factors affecting product demand are
changes in the level of local, state and federal governmental
spending, general economic conditions within the market area which
influence both the commercial and private sectors, and prevailing
interest rates.

Knife River is not dependent on any single customer or group of
customers for sales of its construction materials products, the
loss of which would have a materially adverse affect on its
construction materials businesses. During 1997, 1996 and 1995, no
single customer accounted for more than 10 percent of annual
construction materials revenues.

Coal Operations:

General --

Knife River is engaged in lignite coal mining operations.
Knife River's surface mining operations are located at Beulah,
North Dakota and Savage, Montana. The average annual production
from the Beulah and Savage mines approximates 2.6 million and
300,000 tons, respectively. Reserve estimates related to these
mine locations are discussed herein. During the last five years,
Knife River mined and sold the following amounts of lignite coal:

Years Ended December 31,
1997 1996 1995 1994 1993
(In thousands)
Tons sold:
Montana-Dakota generating stations 530 528 453 691 624
Jointly-owned generating stations --
Montana-Dakota's share 434 565 883 1,049 1,034
Others 1,303 1,695 2,767 3,358 3,299
Industrial and other sales 108 111 115 108 109
Total 2,375 2,899 4,218 5,206 5,066
Revenues $27,906 $32,696 $39,956 $45,634 $44,230

The decrease in total tons sold in 1997 compared to 1996,
reflected in the above table, is the result of lower tons sold to
the Coyote Station due to a ten-week maintenance outage. See Item
7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more information regarding the sales
volumes and revenues for the coal operations for 1995 through 1997.

In recent years, in response to competitive pressures from other
mines, Knife River has limited its coal price increases to less than
those allowed under its contracts. Although Knife River has
contracts in place specifying the selling price of coal, these price
concessions are being made in an effort to remain competitive and
maximize sales. Effective January 1, 1998, Montana-Dakota and Knife
River agreed to a new five year coal contract for Montana-Dakota's
Lewis & Clark generating station. In 1997, Knife River supplied
approximately 180,000 tons of coal to this station.

In November 1995, a suit was filed in District Court, County of
Burleigh, State of North Dakota (State District Court) by Minnkota
Power Cooperative, Inc., Otter Tail Power Company, Northwestern
Public Service Company and Northern Municipal Power Agency (Co-
owners), the owners of an aggregate 75 percent interest in the
Coyote electrical generating station (Coyote Station), against the
Company (an owner of a 25 percent interest in the Coyote Station)
and Knife River. In its complaint, the Co-owners have alleged a
breach of contract against Knife River of the long-term coal supply
agreement (Agreement) between the owners of the Coyote Station and
Knife River. The Co-owners have requested a determination by the
State District Court of the pricing mechanism to be applied to the
Agreement and have further requested damages during the term of such
alleged breach on the difference between the prices charged by Knife
River and the prices that may ultimately be determined by the State
District Court. The Co-owners also alleged a breach of fiduciary
duties by the Company as operating agent of the Coyote Station,
asserting essentially that the Company was unable to cause Knife
River to reduce its coal price sufficiently under the Agreement, and
the Co-owners are seeking damages in an unspecified amount. In
January 1996, the Company and Knife River filed separate motions
with the State District Court to dismiss or stay, pending
arbitration. In May 1996, the State District Court granted the
Company's and Knife River's motions and stayed the suit filed by the
Co-owners pending arbitration, as provided for in the Agreement.

In September 1996, the Co-owners notified the Company and Knife
River of their demand for arbitration of the pricing dispute that
had arisen under the Agreement. The demand for arbitration, filed
with the American Arbitration Association (AAA), did not make any
direct claim against the Company in its capacity as operator of the
Coyote Station. The Co-owners requested that the arbitrators make
a determination that the pricing dispute is not a proper subject for
arbitration. By order dated April 25, 1997, the arbitration panel
concluded that the claims raised by the Co-owners are arbitrable.
The Co-owners have requested the arbitrators to make a determination
that the prices charged by Knife River were excessive and that the
Co-owners should be awarded damages, based upon the difference
between the prices that Knife River charged and a "fair and
equitable" price, of approximately $50 million or more. Upon
application by the Company and Knife River, the AAA administratively
determined that the Company was not a proper party defendant to the
arbitration, and the arbitration is proceeding against Knife River.
By letter dated May 14, 1997, Knife River requested permission to
move for summary judgment which permission was granted by the
arbitration panel over objections of the Co-owners. Knife River
filed its summary judgment motion on July 21, 1997, which motion was
denied on October 29, 1997. Although unable to predict the outcome
of the arbitration, Knife River and the Company believe that the Co-
owners' claims are without merit and intend to vigorously defend the
prices charged pursuant to the Agreement.

Knife River does not anticipate any significant growth in its
lignite coal operations in the near future due to competition from
coal and other alternate fuel sources. Limited growth opportunities
may be available to Knife River's lignite coal operations through
the continued evaluation and pursuit of niche markets such as
agricultural products processing facilities.

Consolidated Construction Materials and Mining Operations:

Capital Requirements --

The following schedule (in millions of dollars) summarizes the
1997 actual net capital expenditures, including those expended for
the acquisitions of Orland Asphalt and the 50 percent interest in
Hawaiian Cement that Knife River did not previously own, and 1998
through 2000 anticipated net capital expenditures, excluding
potential acquisitions, applicable to Knife River's consolidated
construction materials and mining operations:

Actual Estimated
1997 1998 1999 2000

Construction Materials $38.0 $22.8 $10.2 $ 7.1
Coal 2.6 5.0 1.4 3.0
$40.6 $27.8 $11.6 $10.1

Environmental Matters --

Knife River's construction materials and mining operations are
subject to regulation customary for surface mining operations,
including federal, state and local environmental and reclamation
regulations. Except as may be found with regard to the issue
described below, Knife River believes it is in substantial
compliance with those regulations.

In September 1995, Unitek Environmental Services, Inc. and
Unitek Solvent Services, Inc. (Unitek) filed a complaint against
Hawaiian Cement in the U.S. District Court for the District of
Hawaii (District Court) alleging that dust emissions from Hawaiian
Cement's cement manufacturing plant at Kapolei, Hawaii (Plant)
violated the Hawaii State Implementation Plan (SIP) of the Clean Air
Act, constituted a continual nuisance and trespass on the
plaintiff's property, and that Hawaiian Cement's conduct warranted
the award of punitive damages. Hawaiian Cement is a Hawaiian
general partnership whose general partners are now Knife River
Hawaii, Inc. and Knife River Dakota, Inc., indirect wholly owned
subsidiaries of the Company. Knife River Dakota, Inc. purchased its
partnership interest from Adelaide Brighton Cement (Hawaii), Inc.
on July 31, 1997. Unitek sought civil penalties under the Clean Air
Act (as described below), and up to $20 million in damages for
various claims (as described above).

In August 1996, the District Court issued an order granting
Plaintiffs' motion for partial summary judgment relating to the
Clean Air Act, indicating that it would issue an injunction shortly.
The issue of civil penalties under the Clean Air Act was reserved
for further hearing at a later date, and Unitek's claims for damages
were not addressed by the District Court at such time.

In September 1996, Unitek and Hawaiian Cement reached a
settlement which resolved all claims except as to Clean Air Act
penalties. Based on a joint petition filed by Unitek and Hawaiian
Cement, the District Court stayed the proceeding and the issuance
of an injunction while the parties continued to negotiate the
remaining Clean Air Act claims.

In May 1996, the EPA issued a Notice of Violation (NOV) to
Hawaiian Cement. The NOV stated that dust emissions from the Plant
violated the SIP. Under the Clean Air Act, the EPA has the
authority to issue an order requiring compliance with the SIP, issue
an administrative order requiring the payment of penalties of up to
$25,000 per day per violation (not to exceed $200,000), or bring a
civil action for penalties of not more than $25,000 per day per
violation and/or bring a civil action for injunctive relief.

On April 7, 1997, a settlement resolving the remaining Clean Air
Act claims and the EPA's NOV issued in May 1996, was reached by
Hawaiian Cement, the EPA and Unitek.

On February 11, 1998, the District Court approved the April 1997
settlement. The costs relating to both the September 1996 and April
1997 settlements were not material and did not affect the Company's
results of operations since reserves had previously been provided.

Reserve Information --

As of December 31, 1997, the combined construction materials
operations had under ownership or lease approximately 169 million
tons of recoverable aggregate reserves.

As of December 31, 1997, Knife River had under ownership or
lease, reserves of approximately 227 million tons of recoverable
lignite coal, 87 million tons of which are at present mining
locations. Such reserve estimates were prepared by Weir
International Mining Consultants, independent mining engineers and
geologists, in a report dated May 9, 1994, and have been adjusted
for 1994 through 1997 production. Knife River estimates that
approximately 64 million tons of its reserves will be needed to
supply Montana-Dakota's Coyote, Heskett and Lewis & Clark stations
for the expected lives of those stations and to fulfill the existing
commitments of Knife River for sales to third parties.

OIL AND NATURAL GAS OPERATIONS AND PROPERTY (FIDELITY OIL)

General --

Fidelity Oil is involved in the acquisition, exploration,
development and production of oil and natural gas properties.
Fidelity Oil's operations vary from the acquisition of producing
properties with potential development opportunities to exploratory
drilling and are located throughout the United States, the Gulf of
Mexico and Canada. Fidelity Oil shares revenues and expenses from
the development of specified properties in proportion to its
interests.

Fidelity's oil and natural gas activities have continued to
expand since the mid-1980's. Fidelity continues to seek additional
reserve and production opportunities through the direct acquisition
of producing properties and through exploratory drilling
opportunities, as well as routine development of its existing
properties. Future growth is dependent upon continuing success in
these endeavors.

Operating Information --

Information on Fidelity Oil's oil and natural gas production,
average sales prices and production costs per net equivalent barrel
related to its oil and natural gas interests for 1997, 1996 and
1995, are as follows:

1997 1996 1995
Oil:
Production (000's of barrels) 2,088 2,149 1,973
Average sales price $17.50 $17.91 $15.07
Natural Gas:
Production (MMcf) 13,192 14,067 12,319
Average sales price $2.41 $2.09 $1.51
Production costs, including taxes,
per net equivalent barrel $3.65 $3.31 $3.18

Well and Acreage Information --

Fidelity Oil's gross and net productive well counts and gross and
net developed and undeveloped acreage related to its interests at
December 31, 1997, are as follows:

Gross Net
Productive Wells:
Oil 2,279 138
Natural Gas 462 26
Total 2,741 164
Developed Acreage (000's) 614 56
Undeveloped Acreage (000's) 1,085 83

Exploratory and Development Wells --

The following table shows the results of oil and natural gas
wells drilled and tested during 1997, 1996 and 1995:

Net Exploratory Net Development
Productive Dry Holes Total Productive Dry Holes Total Total
1997 1 2 3 3 1 4 7
1996 1 2 3 4 --- 4 7
1995 3 2 5 8 1 9 14

At December 31, 1997, there were six gross wells in the process
of drilling, four of which were exploratory wells and two of which
were development wells.

Capital Requirements --

The following summary (in millions of dollars) reflects net
capital expenditures, including those not subject to amortization,
related to oil and natural gas activities for the years 1997, 1996
and 1995:

1997 1996 1995

Acquisitions $ --- $23.2 $ 9.1
Exploration 13.4 8.1 7.7
Development 15.4 15.9 22.2
$28.8 $47.2 $39.0

Fidelity Oil's net capital expenditures are anticipated to be
approximately $50 million for 1998 and $60 million for both 1999 and
2000.

Reserve Information --

Fidelity Oil's recoverable proved developed and undeveloped oil
and natural gas reserves approximated 14.9 million barrels and 57.6
Bcf, respectively, at December 31, 1997. Of these amounts, 10.2
million barrels and 2.8 Bcf, as supported by a report dated January
12, 1998, prepared by Ralph E. Davis Associates, Inc., an
independent firm of petroleum and natural gas engineers, were
related to its properties located in southeastern Montana and
southcentral Alabama.

For additional information related to Fidelity Oil's oil and
natural gas interests, see Note 18 of Notes to Consolidated
Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

Williston Basin --

Williston Basin has been named as a defendant in a legal action
primarily related to certain natural gas price and volume issues.
Such suit was filed by Moncrief.

In addition, Williston Basin has been named as a defendant in
a legal action related to a natural gas purchase contract. Such
suit was filed by Apache and Snyder. In a related matter, Williston
Basin has been named in a suit filed by nine other producers related
to a natural gas purchase contract.
The above legal actions are described under Items 1 and 2 --
"Business and Properties -- Natural Gas Transmission Operations and
Property (Williston Basin)." The Company's assessment of the
proceedings are included in the respective descriptions of the
litigation.

Knife River --

The Company and Knife River have been named as defendants in a
legal action primarily related to coal pricing issues at the Coyote
Station. The suit has been stayed by the State District Court
pending arbitration. Such suit was filed by the Co-owners of the
Coyote Station.

Hawaiian Cement has been named as a defendant in a legal action
primarily related to dust emissions from Hawaiian Cement's cement
manufacturing plant at Kapolei, Hawaii. Such suit was filed by
Unitek. In addition, the EPA has issued a NOV to Hawaiian Cement.
On February 11, 1998, the District Court approved the April 1997
settlement which was reached by Hawaiian Cement, the EPA and Unitek.

The above legal actions are described under Items 1 and 2 --
"Business and Properties -- Construction Materials and Mining
Operations and Property (Knife River)." The Company's assessment
of the proceedings is included in the respective descriptions of the
litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during
the fourth quarter of 1997.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

The Company's common stock is listed on the New York Stock
Exchange and the Pacific Stock Exchange under the symbol "MDU". The
price range of the Company's common stock as reported by The Wall
Street Journal composite tape during 1997 and 1996 and dividends
declared thereon were as follows:

Common
Common Common Stock
Stock Price Stock Price Dividends
(High) (Low) Per Share

1997
First Quarter $23.00 $21.00 $ .2775
Second Quarter 25.25 21.38 .2775
Third Quarter 27.69 22.25 .2875
Fourth Quarter 33.50 26.63 .2875
$1.1300
1996
First Quarter $23.00 $19.88 $ .2725
Second Quarter 23.50 20.13 .2725
Third Quarter 22.38 20.75 .2775
Fourth Quarter 23.38 21.25 .2775
$1.1000

As of December 31, 1997, the Company's common stock was held by
approximately 13,600 stockholders of record.

ITEM 6. SELECTED FINANCIAL DATA

Reference is made to Selected Financial Data on pages 50 and 51
of the Company's Annual Report which is incorporated herein by
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

For purposes of segment financial reporting and discussion of
results of operations, Electric includes the electric operations of
Montana-Dakota, as well as the operations of Utility Services.
Natural Gas Distribution includes Montana-Dakota's natural gas
distribution operations. Natural Gas Transmission includes Williston
Basin's storage, transportation, gathering and natural gas production
operations, and the energy marketing operations of its subsidiary,
Prairielands. Construction Materials and Mining includes the results
of Knife River's operations, while Oil and Natural Gas Production
includes the operations of Fidelity Oil.

Overview

The following table (in millions of dollars) summarizes the
contribution to consolidated earnings by each of the Company's
businesses.

Years ended December 31,
Business 1997 1996 1995
Electric $ 13.4 $ 11.4 $ 12.0
Natural gas distribution 4.5 4.9 1.6
Natural gas transmission 11.3 2.5 8.4
Construction materials and
mining 10.1 11.5 10.8
Oil and natural gas production 14.5 14.4 8.0
Earnings on common stock $ 53.8 $ 44.7 $ 40.8

Earnings per common share -- basic $ 1.86 $ 1.57 $ 1.43
Earnings per common share -- diluted $ 1.86 $ 1.57 $ 1.43

Return on average common equity 14.6% 13.0% 12.3%

1997 compared to 1996

Consolidated earnings for 1997 increased $9.1 million when
compared to 1996. This increase includes the effect of the one-time
adjustment in the third quarter of 1996 of $3.7 million or 13 cents
per common share, reflecting the write-down to market value of
natural gas being held under a repurchase commitment and certain
reserve adjustments. The improvement is attributable to increased
earnings from the natural gas transmission, electric and oil and
natural gas production businesses, partially offset by a decrease in
construction materials and mining and natural gas distribution
earnings.

1996 compared to 1995

Consolidated earnings for 1996 were up $3.9 million when
compared to 1995 including the effect of the $3.7 million net charge,
previously described. The increase was the result of higher earnings
at the oil and natural gas production, natural gas distribution and
construction materials and mining businesses. Decreased earnings at
the electric and natural gas transmission businesses somewhat offset
the earnings improvement.

________________________________

Reference should be made to Items 1 and 2 -- "Business and
Properties" and Notes to Consolidated Financial Statements for
information pertinent to various commitments and contingencies.

Financial and operating data

The following tables (in millions, where applicable) are key
financial and operating statistics for each of the Company's business
units.

Electric Operations

Years ended December 31,
1997* 1996 1995
Operating revenues:
Retail sales $ 130.3 $ 128.8 $ 124.4
Sales for resale and other 11.3 10.0 10.2
Utility services 22.8 --- ---
164.4 138.8 134.6
Operating expenses:
Fuel and purchased power 45.6 44.0 41.8
Operation and maintenance 60.1 41.4 40.1
Depreciation, depletion and
amortization 17.8 17.1 16.3
Taxes, other than income 7.8 6.8 6.5
131.3 109.3 104.7

Operating income $ 33.1 $ 29.5 $ 29.9

Retail sales (kWh) 2,041.2 2,067.9 1,993.7
Sales for resale (kWh) 361.9 374.6 408.0
Cost of fuel and purchased
power per kWh $ .018 $ .017 $ .016

* Includes International Line Builders, Inc. and High Line Equipment, Inc.
which were acquired on July 1, 1997.

Natural Gas Distribution Operations

Years ended December 31,
1997 1996 1995
Operating revenues:
Sales $ 153.6 $ 151.5 $ 146.8
Transportation and other 3.4 3.5 3.7
157.0 155.0 150.5
Operating expenses:
Purchased natural gas sold 107.2 102.7 102.6
Operation and maintenance 28.5 30.0 30.4
Depreciation, depletion and
amortization 7.0 6.9 6.7
Taxes, other than income 3.9 3.9 3.9
146.6 143.5 143.6

Operating income $ 10.4 $ 11.5 $ 6.9

Volumes (dk):
Sales 34.3 38.3 33.9
Transportation 10.1 9.4 11.1
Total throughput 44.4 47.7 45.0

Degree days (% of normal) 99.3% 116.2% 101.6%
Average cost of natural gas,
including transportation,
per dk $ 3.12 $ 2.67 $ 3.02

Natural Gas Transmission Operations

Years ended December 31,
1997* 1996 1995
Operating revenues:
Transportation $ 51.4** $ 60.4** $ 54.1**
Storage 10.9 10.7 12.6
Natural gas production and
other 4.5 7.5 5.2
Energy marketing 26.6 --- ---
93.4 78.6 71.9
Operating expenses:
Purchased gas sold 17.9 --- ---
Operation and maintenance 35.5** 37.2** 35.7**
Depreciation, depletion and
amortization 5.5 6.7 7.0
Taxes, other than income 5.3 4.5 3.8
64.2 48.4 46.5

Operating income $ 29.2 $ 30.2 $ 25.4

Volumes (dk):
Transportation --
Montana-Dakota 35.5 43.4 35.4
Other 50.0 38.8 32.6
85.5 82.2 68.0
Produced (000's of dk) 6,949 6,073 4,981

* Effective January 1, 1997, Prairielands became a wholly owned subsidiary of
Williston Basin. Consolidated financial results are presented for 1997.
In 1996 and 1995, Prairielands' financial results were included with the
natural gas distribution business.

** Includes amortization and
related recovery of deferred
natural gas contract buy-out/
buy-down and gas supply
realignment costs $ 5.5 $ 10.6 $ 11.4

Construction Materials and Mining Operations***

Years ended December 31,
1997 1996 1995
Operating revenues:
Construction materials $ 146.2 $ 99.5 $ 73.1
Coal 27.9 32.7 39.9
174.1 132.2 113.0
Operating expenses:
Operation and maintenance 145.6 105.8 87.8
Depreciation, depletion and
amortization 11.0 7.0 6.2
Taxes, other than income 2.9 3.3 4.5
159.5 116.1 98.5

Operating income $ 14.6 $ 16.1 $ 14.5

Sales (000's):
Aggregates (tons) 5,113 3,374 2,904
Asphalt (tons) 758 694 373
Ready-mixed concrete
(cubic yards) 516 340 307
Coal (tons) 2,375 2,899 4,218

*** Prior to August 1, 1997, financial results did not include information
related to Knife River's ownership interest in Hawaiian Cement,
50 percent of which was acquired in September 1995, and was accounted
for under the equity method. On July 31, 1997, Knife River acquired the
50 percent interest in Hawaiian Cement that it did not previously own, and
subsequent to that date financial results are consolidated into
Knife River's financial statements.

Oil and Natural Gas Production Operations

Years ended December 31,
1997 1996 1995
Operating revenues:
Oil $ 36.6 $ 39.0 $ 30.1
Natural gas 31.8 29.3 18.7
68.4 68.3 48.8
Operating expenses:
Operation and maintenance 15.8 15.6 13.7
Depreciation, depletion and
amortization 24.4 25.0 18.6
Taxes, other than income 3.9 3.5 2.6
44.1 44.1 34.9

Operating income $ 24.3 $ 24.2 $ 13.9

Production (000's):
Oil (barrels) 2,088 2,149 1,973
Natural gas (Mcf) 13,192 14,067 12,319

Average sales price:
Oil (per barrel) $ 17.50 $ 17.91 $ 15.07
Natural gas (per Mcf) 2.41 2.09 1.51

Amounts presented in the above tables for natural gas operating
revenues, purchased natural gas sold and operation and maintenance
expenses will not agree with the Consolidated Statements of Income
due to the elimination of intercompany transactions between Montana-
Dakota's natural gas distribution business and Williston Basin's
natural gas transmission business. The amounts relating to the
elimination of intercompany transactions for natural gas operating
revenues, purchased natural gas sold and operation and maintenance
expenses were $49.6 million, $48.0 million and $1.6 million,
respectively, for 1997, $58.2 million, $53.8 million and $4.4
million, respectively, for 1996, and $54.6 million, $49.2 million
and $5.4 million, respectively, for 1995.

1997 compared to 1996

Electric Operations

Operating income at the electric business increased primarily
due to increased retail sales and sales for resale revenues. Retail
sales revenue increased due to increased rates in Wyoming reflecting
recovery of costs associated with the new power supply contract with
Black Hills Power and Light Company beginning January 1, 1997.
Higher average realized rates in the remaining service territory and
decreased net refunding due to timing of fuel costs to customers
also added to the retail sales revenue improvement. Decreased
weather-related sales primarily to residential customers in the
fourth quarter somewhat offset the increase in retail sales revenue.
Sales for resale revenue increased due to higher average realized
rates caused by favorable market conditions in the third and fourth
quarters. Increases in utility services revenue and related
increases in operation and maintenance expense, depreciation,
depletion, and amortization and taxes other than income resulted
from International Line Builders, Inc. and High Line Equipment,
Inc., which were acquired on July 1, 1997. Exclusive of the above-
mentioned acquisitions, operation expenses decreased due to lower
payroll and benefit-related expenses, which also added to the
operating income improvement. Increased maintenance expense
partially offset the increase in operating income. Power generation
maintenance expense increased due to $1.9 million in costs resulting
from a ten-week maintenance outage at the Coyote Station in 1997;
this was somewhat offset by 1996 costs resulting from maintenance
work at both the Lewis and Clark Station and the Big Stone Station.
Higher transmission and distribution maintenance expense, due to the
repair of damages associated with the April 1997 blizzard, also
added to the increase in maintenance expense. Increased fuel and
purchased power costs, largely resulting from increased purchase
power demand charges and changes in generation mix, partially offset
the operating income increase. The increase in demand charges is
related to the power supply contract with Black Hills Power and
Light Company.

Earnings for the electric business improved due to the operating
income increase but were slightly offset by increased interest
expense due to higher average short-term debt balances. Earnings
attributable to the electric services companies acquired on July 1,
1997, were $947,000.

Natural Gas Distribution Operations

Operating income decreased at the natural gas distribution
business as a result of reduced sales of 3.9 million decatherms, the
result of 15% warmer weather. The pass through of higher average
gas costs more than offset the revenue decline that resulted from
the reduced sales volumes. A general rate increase placed into
effect in Montana in May 1996, which added to the revenue
improvement, partially offset the operating income decline.
Decreased operations expense due to lower payroll and benefit-
related costs also partially offset the decrease in operating
income. The effects of higher volumes transported, primarily to
large industrial customers, were offset by lower average
transportation rates.

Natural gas distribution earnings declined largely due to the
decrease in operating income. Decreased net interest expense and
increased return on gas in storage and prepaid demand balances
(included in Other income -- net) slightly offset the earnings
decline. The decrease in net interest expense resulted from reduced
carrying costs on natural gas costs refundable through rate
adjustments due to lower refundable balances.

Natural Gas Transmission Operations

Operating income at the natural gas transmission business
decreased primarily due to a decline in transportation revenues.
Transportation revenues were lower due to the reversal of certain
reserves for regulatory contingencies which added $4.2 million ($2.6
million after tax) to revenue in 1996. In addition, reduced
recovery of deferred natural gas contract buy-out/buy-down and gas
supply realignment costs and lower average transportation rates
contributed to the decrease in transportation revenue.
Transportation revenues also decreased due to additional reserved
revenues provided, with a corresponding reduction in depreciation
expense, as a result of FERC orders relating to a 1992 general rate
proceeding. Increased volumes transported to off-system markets,
due to sales of natural gas held under the repurchase commitment,
were partially offset by lower on-system transportation, somewhat
reducing the transportation revenue decline. Sales of natural gas
held under the repurchase commitment were 17.9 MMdk, primarily
volumes sold to off-system markets and volumes sold in place. Taxes
other than income increased due primarily to increased property and
production taxes which also contributed to the operating income
decline. Natural gas production revenues for 1997, excluding the
effect of intercompany eliminations of $5.6 million, improved as a
result of both higher volumes produced and increased prices which
partially offset the decrease in operating income. The increases in
energy marketing revenue, purchased gas sold and the related
increase in operation and maintenance expense resulted from
Prairielands becoming a wholly owned subsidiary effective January 1,
1997. Operation expenses, excluding Prairielands, decreased due to
reduced amortization of deferred natural gas contract buy-out/buy-
down and gas supply realignment costs offset in part by higher
royalties due to both a royalty settlement with the United States
Minerals Management Service and increased production and prices.

Earnings for this business increased due to the September 1996
$21.1 million ($12.9 million after tax) write-down of the natural
gas available under the repurchase commitment to the then current
market price. Gains realized on the sale of natural gas held under
the repurchase commitment and decreased carrying costs on this gas
stemming from lower average borrowings also added to the earnings
increase. Increased income taxes due to the reversal of certain
income tax reserves aggregating $4.8 million in September 1996 and
decreased operating income both partially offset the earnings
improvement.

Construction Materials and Mining Operations

Construction Materials Operations --

Construction materials operating income increased $3.3 million
due to higher revenues primarily resulting from the acquisitions of
Baldwin in April 1996, Medford Ready Mix, Inc. (Medford) in June
1996, Orland Asphalt in February 1997, and the 50% interest in
Hawaiian Cement that Knife River did not previously own in July
1997. Revenues at other construction materials operations increased
as a result of higher aggregate and ready-mixed concrete sales
volumes, increased construction revenues, and higher asphalt prices.
The increase in operation and maintenance and depreciation expenses
was largely due to expenses associated with such acquisitions.
Operation and maintenance expenses also increased at the other
construction materials operations due to higher aggregate and ready-
mixed concrete volumes sold.

Coal Operations --

Operating income for the coal operations decreased $4.8 million,
largely due to decreased revenues resulting from lower sales of
524,000 tons to the Coyote Station, the result of the ten-week
maintenance outage. Higher average sales prices at the Beulah Mine
partially offset the reduced coal revenues. Increased operation and
maintenance expense due to higher stripping costs at the Beulah
Mine, partially offset by lower volume-related costs and decreased
taxes other than income, also added to the operating income decline.

Consolidated --

Earnings declined due to decreased operating income at the coal
business and decreased Other income -- net. The decrease in Other
income -- net was due to the purchase of the 50% interest in
Hawaiian Cement that Knife River did not previously own. Prior to
August 1997, Knife River's original 50 percent ownership interest in
Hawaiian Cement was accounted for under the equity method. However,
on July 31, 1997, Knife River acquired the 50 percent interest in
Hawaiian Cement that it did not previously own and Knife River in
August 1997 began consolidating Hawaiian Cement into its financial
statements. In addition, higher interest expense resulting mainly
from increased long-term debt due to the aforementioned acquisitions
also added to the decrease in earnings. Increased construction
materials operating income and gains realized from the sale of
equipment, partially offset the earnings decline.

Oil and Natural Gas Production Operations

Operating income for the oil and natural gas production business
at Fidelity Oil increased slightly as a result of higher natural gas
revenues. The increase in natural gas revenue resulted from a $4.6
million improvement due to higher average prices somewhat offset by
a $2.1 million decrease due to lower production. Decreased oil
revenue largely offset the natural gas revenue increase. The
decline in oil revenue was due to a $1.3 million decrease resulting
from lower average oil prices and a $1.1 million decline due to
lower production. Decreased depreciation, depletion and
amortization, largely the result of lower production, also added to
the increase in operating income. Increased taxes other than income
partially offset the increase in operating income.

Earnings for this business unit increased due to the operating
income improvement and decreased interest expense due to lower
average long-term debt balances. Increased income taxes somewhat
offset the earnings improvement. The increase in income taxes
resulted from the reversal of certain tax reserves aggregating $1.8
million in September 1996 somewhat offset by higher tax credits in
1997.

1996 compared to 1995

Electric Operations

Operating income at the electric business decreased primarily
due to increased fuel and purchased power costs, resulting primarily
from both higher purchased power demand charges and increased net
sales. The increase in demand charges, related to a participation
power contract, was the result of the pass-through of periodic
maintenance costs as well as the purchase of an additional five
megawatts of capacity beginning in May 1996, which brought the total
level of capacity available under this contract to 66 megawatts.
Also contributing to the operating income decline were higher
operation expenses, primarily resulting from higher transmission and
payroll-related costs due to establishing certain contingency
reserves, and higher depreciation expense, due to an increase in
average depreciable plant. Increased revenues, primarily higher
retail sales due to increased weather-related demand from
residential and commercial customers in the first and fourth
quarters of 1996, largely offset the operating income decline.
Lower sales for resale volumes due to line capacity restrictions
within the regional power pool were more than offset by higher
average realized rates also partially offsetting the operating
revenue increase.

Earnings for the electric business decreased due to the
operating income decline, and decreased service and repair income
and lower investment income, both included in Other income -- net.

Natural Gas Distribution Operations

Operating income at the natural gas distribution business
improved largely as a result of increased sales revenue. The sales
revenue improvement resulted primarily from a 3.6 million decatherm
increase in volumes sold due to 14% colder weather and increased
sales resulting from the addition of over 3,600 customers. Also
contributing to the sales revenue improvement were the effects of a
general rate increase placed into effect in Montana in May 1996.
However, the pass-through of lower average natural gas costs
partially offset the sales revenue improvement. Decreased
operations expense due to lower payroll-related costs also added to
the operating income improvement. Lower transportation revenues,
primarily decreased volumes transported to large industrial
customers, somewhat offset the operating income improvement.
Industrial transportation declined due to lower volumes transported
to two agricultural processing facilities, one of which closed in
September 1995, and one of which experienced lower production, and
to a cement manufacturing facility due to its use of an alternate
fuel.

Natural gas distribution earnings increased due to the operating
income improvement, decreased interest expense and higher service
and repair income. The decline in interest expense resulted from
lower average long-term debt and natural gas costs refundable
through rate adjustment balances.

Natural Gas Transmission Operations

Operating income at the natural gas transmission business
increased primarily due to an improvement in transportation revenues
resulting from increased transportation of natural gas held under
the repurchase commitment, increased volumes transported to storage
and the reversal of certain reserves for regulatory contingencies of
$3.9 million ($2.4 million after tax). The benefits derived from a
favorable rate change implemented in January 1996, also added to the
revenue improvement. The nonrecurring effect of a favorable FERC
order received in April 1995, on a rehearing request relating to a
1989 general rate proceeding partially offset the transportation
revenue improvement. The order allowed for the one-time billing of
customers for approximately $2.7 million ($1.7 million after tax) to
recover a portion of the amount previously refunded in July 1994.
In addition, reduced recovery of deferred natural gas contract buy-
out/buy-down and gas supply realignment costs partially offset the
increase in transportation revenue. An increase in natural gas
production revenue, due to both higher volumes and prices, also
contributed to the operating income improvement. Decreased storage
revenues, due primarily to the implementation of lower rates in
January 1996, partially offset the increase in operating income.
Operation expenses increased primarily due to higher payroll-related
costs and production royalties but were slightly offset by reduced
amortization of deferred natural gas contract buy-out/buy-down
costs.

Earnings for this business decreased due to the write-down to
the then current market price of the natural gas available under the
repurchase commitment. The effect of the write-down, which was
$21.1 million, or $12.9 million after tax, was significantly offset
by the reversal of certain income tax reserves aggregating $4.8
million. Decreased interest income, largely related to $583,000
(after tax) of interest on the previously discussed 1995 refund
recovery combined with higher company production refunds (both
included in Other income -- net), also added to the earnings
decline. Increased net interest expense ($366,000 after tax),
largely resulting from higher average reserved revenue balances
partially offset by decreased long-term debt expense due to lower
average borrowings, further reduced earnings. The earnings decrease
was somewhat offset by the increase in operating income.

Construction Materials and Mining Operations

Construction Materials Operations --

Construction materials operating income increased $3.3 million
due to higher revenues. The revenue improvement is largely due to
revenues realized as a result of the Baldwin and Medford
acquisitions. Revenues at most other construction materials
operations decreased as a result of lower aggregate and asphalt
sales due to lower demand, and lower construction sales due to the
nature of work being performed this year as compared to last year,
offset in part by increased building materials sales and aggregate
and ready-mixed concrete prices. Operation and maintenance expenses
increased due to the above acquisitions but were somewhat offset by
a reduction at other construction materials operations resulting
from lower volumes sold and less work involving the use of
subcontractors.

Coal Operations --

Operating income for coal operations decreased $1.7 million
primarily due to decreased revenues, largely the result of the
expiration of the coal contract with the Big Stone Station in August
1995, and the resulting closure of the Gascoyne Mine. Higher
average sales prices due to price increases at the Beulah Mine
partially offset the decreased coal revenues. Decreased operation
and maintenance expenses, depreciation expense and taxes other than
income, largely due to the mine closure, partially offset the
decline in operating income.

Consolidated --

Earnings increased due to the increase in construction materials
operating income and income from a 50 percent interest in Hawaiian
Cement acquired in September 1995 of $1.7 million as compared to
$1.0 million in 1995 (included in Other income -- net). Higher
interest expense ($1.4 million after tax), resulting mainly from
increased long-term debt due to the acquisition of Hawaiian Cement,
Baldwin and Medford, and the decline in coal operating income
somewhat offset the increase in earnings.

Oil and Natural Gas Production Operations

Operating income for the oil and natural gas production business
increased primarily as a result of higher oil and natural gas
revenues. Higher oil revenue resulted from a $5.6 million increase
due to higher average prices and a $3.2 million increase due to
improved production. The increase in natural gas revenue was due to
a $7.0 million increase arising from higher prices and a $3.6
million improvement resulting from higher production. Increased
operation and maintenance expenses, largely due to higher
production, and higher taxes other than income, primarily the result
of higher prices, both partially offset the operating income
improvement. Also reducing operating income was increased
depreciation, depletion and amortization expense resulting from
increased average rates and higher production. Depreciation,
depletion and amortization rates increased in part due to the
accrual of estimated future well abandonment costs ($515,000 after
tax).

Earnings for this business unit increased due to the operating
income improvement and lower income taxes due to the reversal of
certain tax reserves aggregating $1.8 million. Increased interest
expense ($815,000 after tax), resulting mainly from higher average
borrowings, and lower tax benefits somewhat offset the earnings
improvement.

Safe Harbor for Forward-Looking Statements

The Company is including the following cautionary statement in
this Form 10-K to make applicable and to take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statements made by, or on behalf of,
the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions (many of which are based, in
turn, upon further assumptions) and other statements which are other
than statements of historical facts. From time to time, the Company
may publish or otherwise make available forward-looking statements
of this nature. All such subsequent forward-looking statements,
whether written or oral and whether made by or on behalf of the
Company, are also expressly qualified by these cautionary
statements.

Forward-looking statements involve risks and uncertainties which
could cause actual results or outcomes to differ materially from
those expressed. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the
Company to have a reasonable basis, including without limitation
management's examination of historical operating trends, data
contained in the Company's records and other data available from
third parties, but there can be no assurance that the Company's
expectations, beliefs or projections will be achieved or
accomplished. Furthermore, any forward-looking statement speaks
only as of the date on which such statement is made, and the Company
undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances that occur after the
date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all of such factors, nor
can it assess the effect of each such factor on the Company's
business or the extent to which any such factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statement.

Regulated Operations --

In addition to other factors and matters discussed elsewhere
herein, some important factors that could cause actual results or
outcomes for the Company and its regulated operations to differ
materially from those discussed in forward-looking statements
include prevailing governmental policies and regulatory actions with
respect to allowed rates of return, financings, or industry and rate
structures, weather conditions, acquisition and disposal of assets
or facilities, operation and construction of plant facilities,
recovery of purchased power and purchased gas costs, present or
prospective generation, wholesale and retail competition (including
but not limited to electric retail wheeling and transmission costs),
availability of economic supplies of natural gas, and present or
prospective natural gas distribution or transmission competition
(including but not limited to prices of alternate fuels and system
deliverability costs).

Non-Regulated Operations --

Certain important factors which could cause actual results or
outcomes for the Company and all or certain of its non-regulated
operations to differ materially from those discussed in forward-
looking statements include the level of governmental expenditures on
public projects and project schedules, changes in anticipated
tourism levels, competition from other suppliers, oil and natural
gas commodity prices, drilling successes in oil and natural gas
operations, ability to acquire oil and natural gas properties, and
the availability of economic expansion or development opportunities.

Factors Common to Regulated and Non-Regulated Operations --

The business and profitability of the Company are also
influenced by economic and geographic factors, including political
and economic risks, changes in and compliance with environmental and
safety laws and policies, weather conditions, population growth
rates and demographic patterns, market demand for energy from plants
or facilities, changes in tax rates or policies, unanticipated
project delays or changes in project costs, unanticipated changes in
operating expenses or capital expenditures, labor negotiations or
disputes, changes in credit ratings or capital market conditions,
inflation rates, inability of the various counterparties to meet
their obligations with respect to the Company's financial
instruments, changes in accounting principles and/or the application
of such principles to the Company, changes in technology and legal
proceedings, and compliance with the year 2000 issue as discussed
later.

Year 2000 Compliance

The year 2000 issue is the result of computer programs having
been written using two digits rather than four digits to define the
applicable year. The Company has recently completed an assessment
of its operations to determine the costs expected to be incurred
specifically related to modifications necessary for year 2000
compatibility. While the Company will continue to evaluate the
potential effects of the year 2000 issue, based on its recent
assessment, the Company believes that these costs will not be
material to its results of operations. The Company's operations
with respect to the year 2000 issue may also be affected by other
entities with which the Company transacts business. The Company is
currently unable to determine the potential adverse consequences, if
any, that could result from such entities' failure to effectively
address this issue.

Liquidity and Capital Commitments

The Company's net capital expenditures (in millions of dollars)
for 1995 through 1997 and as anticipated for 1998 through 2000 are
summarized in the following table, which also includes the Company's
capital needs for the retirement of maturing long-term securities.

Actual Estimated*
1995 1996 1997 Capital Expenditures -- 1998 1999 2000
Montana-Dakota:
$ 19.7 $ 18.7 $ 18.4 Electric $ 17.0 $ 15.9 $ 17.0
8.9 6.3 8.8 Natural Gas Distribution 7.9 9.4 7.5
28.6 25.0 27.2 24.9 25.3 24.5
12.3 10.9 11.4 Williston Basin 21.4 26.9 20.0
36.8 25.0 41.5 Knife River 27.8 11.6 10.1
39.9 51.8 30.6 Fidelity 50.0 62.0 62.0
--- --- 11.4 Other 2.8 1.1 1.1
117.6 112.7 122.1 126.9 126.9 117.7
Net proceeds from sale or
(2.8) (11.8) (4.5) disposition of property .5 (1.5) (1.6)
114.8 100.9 117.6 Net capital expenditures 127.4 125.4 116.1

Retirement of Long-term
Debt/Preferred Stock --
10.4 35.4 42.4 Montana-Dakota 5.4 5.4 5.4
10.1 8.0 .5 Williston Basin .5 .5 .8
--- --- --- Knife River 1.3 1.3 36.8
--- --- 4.8 Fidelity --- 7.9 10.8
--- --- .3 Other .7 .2 .1
20.5 43.4 48.0 7.9 15.3 53.9
$135.3 $144.3 $165.6 Total $135.3 $140.7 $170.0

* The anticipated 1998 through 2000 net capital expenditures reflected in the
above table do not include potential acquisitions. To the extent that
acquisitions occur, such acquisitions would be financed with existing credit
facilities and the issuance of long-term debt and the Company's equity
securities.

In reconciling total net capital expenditures to investing
activities per the Consolidated Statements of Cash Flows, the net
capital expenditures for Prairielands of $800,000 and $2.6 million
in 1996 and 1995, respectively, included with Williston Basin above
and not considered a major business segment, are not reflected in
investing activities in the Consolidated Statements of Cash Flows.
In addition, the total 1997 net capital expenditures, related to
acquisitions, in the above table include assumed debt and the
issuance of the Company's equity securities, which were $9.9 million
in total.

In 1997 Montana-Dakota provided all the funds needed for its net
capital expenditures and securities retirements, excluding the $20
million discussed below, from internal sources. Net capital
expenditures for the years 1998 through 2000 include those for
system upgrades, routine replacements and service extensions.
Montana-Dakota expects to provide all of the funds required for
these net capital expenditures and securities retirements for the
years 1998 through 2000 from internal sources, through the use of
the Company's $40 million revolving credit and term loan agreement,
$18 million of which was outstanding at December 31, 1997, and
through the issuance of long-term debt, the amount and timing of
which will depend upon the Company's needs, internal cash generation
and market conditions. In October 1997, the Company redeemed $20
million of its 9 1/8% Series first mortgage bonds, due October 1,
2016. The funds required to retire the 9 1/8% Series first mortgage
bonds were provided by the issuance of $30 million in Secured
Medium-Term Notes on September 30, 1997. In addition, in November
1997, the Company redeemed $5 million of its 9 1/8% Series first
mortgage bonds, due May 15, 2006. On December 19, 1997, amounts
available under the revolving credit and term loan agreement
increased from $30 million to $40 million.

Williston Basin's 1997 net capital expenditures and securities
retirements were met through internally generated funds. Williston
Basin's net capital expenditures for the years 1998 through 2000,
excluding potential acquisitions, include those for pipeline
expansion projects, routine system improvements and continued
development of natural gas reserves. These expenditures are
expected to be met with a combination of internally generated funds,
short-term lines of credit aggregating $40.6 million, $350,000 of
which was outstanding at December 31, 1997, and through the issuance
of long-term debt, the amount and timing of which will depend upon
Williston Basin's needs, internal cash generation and market
conditions.

Knife River's 1997 net capital expenditures including the
acquisitions of Orland Asphalt and the 50 percent interest in
Hawaiian Cement that it did not previously own were met through
funds generated from internal sources and a revolving credit
agreement. Knife River's 1998 through 2000 net capital
expenditures, excluding potential acquisitions, include routine
equipment rebuilding and replacement and the construction of
aggregate materials handling facilities. It is anticipated that
funds generated from internal sources, short-term lines of credit
aggregating $26 million, $2 million of which was outstanding at
December 31, 1997, a revolving credit agreement of $85 million, $33
million of which was outstanding at December 31, 1997, and the
issuance of long-term debt and the Company's equity securities will
meet the needs of this business unit for 1998 through 2000. In June
1997, amounts available under the revolving credit agreement were
increased from $55 million to $85 million. In addition, in July
1997, amounts available under the short-term lines of credit
increased from $11 million to $26 million. In November 1997, Knife
River privately placed $35 million of notes with the proceeds used
to replace other long-term debt.

Fidelity Oil's 1997 net capital expenditures related to its oil
and natural gas acquisition, development and exploration program
were met through funds generated from internal sources. Fidelity's
borrowing base, which is based on total proved reserves, is
currently $65 million. This consists of $20 million of issued
notes, $10 million in an uncommitted note shelf facility, and a $35
million revolving line of credit, $13 million of which was
outstanding at December 31, 1997. It is anticipated that Fidelity's
1998 through 2000 net capital expenditures and debt retirements will
be met from internal sources and existing long-term credit
facilities. Fidelity's net capital expenditures for 1998 through
2000 will be used to further enhance production and reserve growth.

Other corporate 1997 net capital expenditures, largely those
expended for the acquisitions of International Line Builders, Inc.
and High Line Equipment, Inc., were met through short-term lines of
credit and the issuance of long-term debt and the Company's equity
securities. It is anticipated that 1998 through 2000 other net
capital expenditures, excluding potential acquisitions, used for
routine equipment maintenance and replacements will be met from
internal sources and existing short-term lines of credit aggregating
$3.8 million, $997,000 of which was outstanding at December 31,
1997.

The Company utilizes its short-term lines of credit aggregating
$50 million, none of which was outstanding on December 31, 1997, and
its $40 million revolving credit and term loan agreement, $18
million of which was outstanding at December 31, 1997, as previously
described, to meet its short-term financing needs and to take
advantage of market conditions when timing the placement of long-
term or permanent financing. On July 31, 1997, amounts available
under the short-term lines of credit were increased from $40 million
to $50 million.

The Company's issuance of first mortgage debt is subject to
certain restrictions imposed under the terms and conditions of its
Indenture of Mortgage. Generally, those restrictions require the
Company to pledge $1.43 of unfunded property to the Trustee for each
dollar of indebtedness incurred under the Indenture and that annual
earnings (pretax and before interest charges), as defined in the
Indenture, equal at least two times its annualized first mortgage
bond interest costs. Under the more restrictive of the two tests,
as of December 31, 1997, the Company could have issued approximately
$259 million of additional first mortgage bonds.

The Company's coverage of fixed charges including preferred
dividends was 3.4 and 2.7 times for 1997 and 1996, respectively.
Additionally, the Company's first mortgage bond interest coverage
was 6.0 times in 1997 compared to 5.4 times in 1996. Common
stockholders' equity as a percent of total capitalization was 55
percent and 54 percent at December 31, 1997 and 1996, respectively.

Recent Development

On March 5, 1998, the Company acquired Morse Bros., Inc. (MBI),
and S2 - F Corp. (S2-F), privately-held construction materials
companies located in Oregon's Willamette Valley. The purchase
consideration for such companies consisted of approximately $96
million of the Company's common stock and cash, the assumption of
certain liabilities and an adjustment based on working capital. The
common stock of the Company, issued in exchange for all of the
issued and outstanding stock of MBI and S2-F was unregistered and is
subject to certain restrictions. The acquisition will be accounted
for under the purchase method of accounting. Under this method, the
consideration for the stock of MBI and S2-F will be allocated to the
underlying assets acquired and liabilities assumed, based on their
estimated fair market values. The Company anticipates that the
effect of such acquisitions will be accretive to earnings.
Financial statements of the acquired companies and proforma
financial statements have not been presented as such information is
not required in accordance with the rules and regulations of the
Securities and Exchange Commission.

MBI, the largest construction materials supplier in Oregon,
sells aggregate, ready-mixed concrete, asphaltic concrete, prestress
concrete and construction services in the Willamette Valley from
Portland to Eugene. The products of MBI are used in the
construction of streets, roads, and highways and in both building
and bridge structures. Assets owned by MBI include aggregate
reserves and construction materials plant and equipment. S2-F sells
aggregate and construction services and their properties consist
primarily of construction and aggregate mining equipment and leased
aggregate reserves. In 1997, MBI and S2-F had combined net sales of
$107 million and have approximately 370 million tons of aggregate
reserves, of which 270 million tons are permitted. It is the intent
of the Company that MBI and S2-F continue their operations and
businesses.

Effects of Inflation

Inflation did not have a significant effect on the Company's
operations in 1997, 1996 or 1995.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for fiscal 1997 because the Company's market
capitalization was less than $2.5 billion as of January 28, 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to Pages 25 through 49 of the Annual Report.

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to Pages 2 through 6 and 12 and 13 of the
Company's Proxy Statement dated March 9, 1998 (Proxy Statement)
which is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to Pages 7 through 12 of the Proxy
Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Reference is made to Page 14 of the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(a) Financial Statements, Financial Statement Schedules and
Exhibits.

Index to Financial Statements and Financial Statement
Schedules.
Page
1. Financial Statements:

Report of Independent Public Accountants *
Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1997 *
Consolidated Balance Sheets at December 31,
1997 and 1996 *
Consolidated Statements of Common Stockholders'
Equity for each of the three years in the
period ended December 31, 1997 *
Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 1997 *
Notes to Consolidated Financial Statements *

2. Financial Statement Schedules (Schedules are
omitted because of the absence of the
conditions under which they are required, or
because the information required is included
in the Company's Consolidated Financial
Statements and Notes thereto.)

____________________

* The Consolidated Financial Statements listed in the above index
which are included in the Company's Annual Report to Stockholders
for 1997 are hereby incorporated by reference. With the
exception of the pages referred to in Items 6 and 8, the
Company's Annual Report to Stockholders for 1997 is not to be
deemed filed as part of this report.

3. Exhibits:
3(a) Composite Certificate of Incorporation of
the Company, as amended to date, filed as
Exhibit 3(a) to Form 10-K for the year
ended December 31, 1994, in File No. 1-3480 *
3(b) By-laws of the Company, as amended to date **
4(a) Indenture of Mortgage, dated as of May 1,
1939, as restated in the Forty-Fifth
Supplemental Indenture, dated as of
April 21, 1992, and the Forty-Sixth
through Forty-Eighth Supplements thereto
between the Company and the New York
Trust Company (The Bank of New York,
successor Corporate Trustee) and A. C.
Downing (W. T. Cunningham, successor
Co-Trustee), filed as Exhibit 4(a)
in Registration No. 33-66682; and
Exhibits 4(e), 4(f) and 4(g)
in Registration No. 33-53896 *
4(b) Rights Agreement, dated as of
November 3, 1988, between the Company
and Norwest Bank Minnesota, N.A.,
Rights Agent, filed as Exhibit 4(c)
in Registration No. 33-66682 *
+ 10(a) Executive Incentive Compensation Plan,
filed as Exhibit 10 (a) to Form 10-K
for the year ended December 31, 1996, in
File No. 1-3480 *
+ 10(b) 1992 Key Employee Stock Option Plan,
filed as Exhibit 10(f) in Registration
No. 33-66682 *
+ 10(c) Restricted Stock Bonus Plan, filed as
Exhibit 10(b) in Registration No. 33-66682 *
+ 10(d) Supplemental Income Security Plan, filed
as Exhibit 10 (d) to Form 10-K for the
year ended December 31, 1996, in
File No. 1-3480 *
+ 10(e) Directors' Compensation Policy, filed as
Exhibit 10(d) in Registration No. 33-66682 *
+ 10(f) Deferred Compensation Plan for Directors,
filed as Exhibit 10(e) in Registration
No. 33-66682 *
+ 10(g) Non-Employee Director Stock Compensation
Plan, filed as Exhibit 10(g) to Form 10-K
for the year ended December 31, 1995, in
File No. 1-3480 *
+ 10(h) Non-Employee Director Long-Term Incentive
Plan, filed as Exhibit 10 (h) to Form 10-Q
for the quarterly period ended June 30, 1997,
in File No. 1-3480 *
+ 10(i) Executive Long-Term Incentive Plan, filed as
Exhibit 10 (i) to Form 10-Q for the quarterly
period ended June 30, 1997, in
File No. 1-3480 *
12 Computation of Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and
Preferred Stock Dividends **
13 Selected financial data, financial
statements and supplementary data as
contained in the Annual Report to
Stockholders for 1997 **
21 Subsidiaries of MDU Resources Group, Inc. **
23(a) Consent of Independent Public Accountants **
23(b) Consent of Engineer **
23(c) Consent of Engineer **
27 Financial Data Schedule **
____________________
* Incorporated herein by reference as indicated.
** Filed herewith.
+ Management contract, compensatory plan or arrangement required
to be filed as an exhibit to this form pursuant to Item 14(c)
of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

MDU RESOURCES GROUP, INC.

Date: March 6, 1998 By: /s/ Harold J. Mellen, Jr.
Harold J. Mellen, Jr. (President
and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.

Signature Title Date

/s/ Harold J. Mellen, Jr. Chief Executive March 6, 1998
Harold J. Mellen, Jr. Officer
(President and Chief Executive Officer) and Director

/s/ Douglas C. Kane Chief March 6, 1998
Douglas C. Kane (Executive Vice President, Administrative &
Chief Administrative & Corporate Corporate
Development Officer) Development Officer
and Director

/s/ Warren L. Robinson Chief Financial March 6, 1998
Warren L. Robinson (Vice President, Officer
Treasurer and Chief Financial Officer)

/s/ Vernon A. Raile Chief Accounting March 6, 1998
Vernon A. Raile (Vice President, Officer
Controller and Chief Accounting Officer)

/s/ John A. Schuchart Director March 6, 1998
John A. Schuchart (Chairman of the Board)

/s/ San W. Orr, Jr. Director March 6, 1998
San W. Orr, Jr. (Vice Chairman of the Board)

/s/ Thomas Everist Director March 6, 1998
Thomas Everist

/s/ Richard L. Muus Director March 6, 1998
Richard L. Muus

/s/ Robert L. Nance Director March 6, 1998
Robert L. Nance

/s/ John L. Olson Director March 6, 1998
John L. Olson

/s/ Harry J. Pearce Director March 6, 1998
Harry J. Pearce

/s/ Homer A. Scott, Jr. Director March 6, 1998
Homer A. Scott, Jr.

/s/ Joseph T. Simmons Director March 6, 1998
Joseph T. Simmons

/s/ Sister Thomas Welder Director March 6, 1998
Sister Thomas Welder

EXHIBIT INDEX

Exhibit No.
3(a) Composite Certificate of Incorporation of
the Company, as amended to date, filed as
Exhibit 3(a) to Form 10-K for the year
ended December 31, 1994, in File No. 1-3480 *
3(b) By-laws of the Company, as amended to date **
4(a) Indenture of Mortgage, dated as of May 1,
1939, as restated in the Forty-Fifth
Supplemental Indenture, dated as of
April 21, 1992, and the Forty-Sixth
through Forty-Eighth Supplements thereto
between the Company and the New York
Trust Company (The Bank of New York,
successor Corporate Trustee) and A. C.
Downing (W. T. Cunningham, successor
Co-Trustee), filed as Exhibit 4(a)
in Registration No. 33-66682; and
Exhibits 4(e), 4(f) and 4(g)
in Registration No. 33-53896 *
4(b) Rights Agreement, dated as of
November 3, 1988, between the Company
and Norwest Bank Minnesota, N.A.,
Rights Agent, filed as Exhibit 4(c)
in Registration No. 33-66682 *
+ 10(a) Executive Incentive Compensation Plan,
filed as Exhibit 10 (a) to Form 10-K
for the year ended December 31, 1996, in
File No. 1-3480 *
+ 10(b) 1992 Key Employee Stock Option Plan,
filed as Exhibit 10(f) in Registration
No. 33-66682 *
+ 10(c) Restricted Stock Bonus Plan, filed as
Exhibit 10(b) in Registration No. 33-66682 *
+ 10(d) Supplemental Income Security Plan, filed
as Exhibit 10 (d) to Form 10-K for the
year ended December 31, 1996, in
File No. 1-3480 *
+ 10(e) Directors' Compensation Policy, filed as
Exhibit 10(d) in Registration No. 33-66682 *
+ 10(f) Deferred Compensation Plan for Directors,
filed as Exhibit 10(e) in Registration
No. 33-66682 *
+ 10(g) Non-Employee Director Stock Compensation
Plan, filed as Exhibit 10(g) to Form 10-K
for the year ended December 31, 1995, in
File No. 1-3480 *
+ 10(h) Non-Employee Director Long-Term Incentive
Plan, filed as Exhibit 10 (h) to Form 10-Q
for the quarterly period ended June 30, 1997,
in File No. 1-3480 *
+ 10(i) Executive Long-Term Incentive Plan, filed as
Exhibit 10 (i) to Form 10-Q for the quarterly
period ended June 30, 1997, in
File No. 1-3480 *
12 Computation of Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and
Preferred Stock Dividends **
13 Selected financial data, financial
statements and supplementary data as
contained in the Annual Report to
Stockholders for 1997 **
21 Subsidiaries of MDU Resources Group, Inc. **
23(a) Consent of Independent Public Accountants **
23(b) Consent of Engineer **
23(c) Consent of Engineer **
27 Financial Data Schedule **
____________________
* Incorporated herein by reference as indicated.
** Filed herewith.
+ Management contract, compensatory plan or arrangement required
to be filed as an exhibit to this form pursuant to Item 14(c)
of this report.