Black Hills Corporation (BKH)

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Black Hills Corporation (BKH)

Q4 2008 Earnings Call Transcript

February 3, 2009 at 10:00 am ET


David Emery - Chairman, President and Chief Executive Officer

Tony Cleberg - Executive Vice President and Chief Financial Officer

Jason Ketchum - Director, Investor Relations


Eric Beaumont - Copia Capital

Gordon Howald - Calyon Securities

Christopher Ellinghaus - Shields & Company

John Hanson - Praesidis Asset Management

James Bellessa - D.A. Davidson & Co.

Michael Worms - BMO Capital Markets



Ladies and gentlemen thank you for standing by and welcome to the Black Hills Corporation quarterly earnings and 2008 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer period. Instructions will be given at that time. (Operator instructions) As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to your host Mr. Jason Ketchum with Investor Relations. Please go ahead.

Jason Ketchum

Thank you, Operator. Good morning and welcome to our 2008 full year and fourth quarter conference call. During the course of this call some of the comments we make may contain forward-looking statements as defined by the Securities and Exchange Commission, and there are a number of uncertainties inherent in such comments. Although we believe that our expectations and beliefs are based on reasonable assumptions actual results may differ materially.

We direct you to our earnings release, Slide 2 of investor presentation on our website and our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations.

I will now turn the call over to David Emery, Chairman and CEO of Black Hills Corporation.

David Emery

Thank you, Jason. Good morning everyone. Thank you for joining us this morning. For those of you following along on the webcast presentation that we posted last night, I will try to at least mention page numbers as we go. If you do not have I think you will still be fine as far as keeping up for the information but I will try to reference at least some points to the slide numbers so you can follow along.

Today, we will talk about several things. First, I will give an overview of the year. Tony Cleberg, our CFO will give an overview of the financial results both for the fourth quarter and for the year of 2008 and then I will get back on and talk more about future and future growth plans and things like that before we open it up for question and answer.

Year 2008 was 125th anniversary of our corporation and it was truly a transformational year for the Company. We closed the two largest transactions in our Company’s history on consecutive business days in the middle of July. Those deals included the sale of seven of our IPP plants for $840 million and the purchase of five utility properties from Aquila for $940 million. The result of those two deals was a significant increased in the Company’s utility assets and that resulted in a more defined growth plan and a lower overall corporate risk profile as we go into the future.

Operational performance in most of our units was very strong in 2008 and the utilities in addition to the acquisition and integration of the Aquila utilities, we continued construction of mine-mouth coal fired power plants at our Wyodak mine site in Wyoming. We completed the 95 MW Wygen II plant and placed it in service January 1st of 2008 to serve Cheyenne Light, Fuel & Power customers. We also commenced construction on the 100 MW Wygen III plant in early spring and that will be completed in mid-2010 and will serve the customers of Black Hills Power.

Despite the economic times we have been in and particularly even in light of the last quarter, quarter and a half year we have had very minimal past due accounts in our utility companies, very, very remarkable numbers, I really have not seen any significant increase there. We continue to work very diligently to make sure that our customers are paying their bills.

On the non-regulated energy front, our energy marketing unit finished 2008 with a strong year and excellent quarter and really one of our better years that we have had with that unit despite a pretty slow start early in the year. We aggressively managed our counterparty credit risk and energy marketing through some of the most tumultuous times in the credit market that we have ever seen and had no credit losses to speak of which is truly a remarkable accomplishment given the economic times we were in and marketing continues to be a well performing unit for us and they are off to a good start in 2009.

Generation and coal mining units also had a good year in 2008. Earnings at our coal mine from a net income standpoint were down somewhat despite a record of 6 million tons of production and the reason for the income decline was primarily due to a huge increase in overburden removal and some other expenses there which were anticipated.

The oil and gas side, we posted declines in both production and reserves compared to 2007. Permit delays and weather early in the year and then reduced drilling activity and even production shut-ins in the third quarter basically due to low oil and gas prices impacted our performance in the oil and gas unit. We took the position as the year went on and prices continued to fall that we are better off spending less money and not focusing on production growth and reserved growth as much as really focusing on the true economics of our investments which led us to spend less in the second half of the year.

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