MDU Resources Group, Inc. (MDU)

MDU 
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MDU Resources (MDU)

Q3 2010 Earnings Call

October 28, 2010 11:00 a.m. ET

Executives

Doran Schwartz – VP & CFO

Terry D. Hildestad – President and CEO of MDU Resources

Steven L. Bietz – President and CEO, WBI Holdings, Inc.

William Schneider

John G. Harp – CEO

Analysts

Paul Patterson – Glenrock Associates

Tim Snyder - Citigroup

Jack Moore – [Inaudible] Capital

Paul Riser - KeyBanc

Presentation

Operator

Good afternoon. My name is Wes, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2010 third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions)

This call will be available for replay beginning at 2:00 p.m. Eastern Time today through 11:59 p.m. Eastern Time on November 11. The conference ID number for the replay is 13471172. Again, the conference ID number for the replay is 13471172. The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

I would now like to turn the conference over to Doran Schwartz, Vice President and Chief Financial Officer of MDU Resources Group. Thank you.

Mr. Schwartz, you may begin your conference.

Doran Schwartz

Thank you, and welcome to our earnings release conference call. Before I turn the presentation over to Terry Hildestad, our President and Chief Executive Officer, I would like to mention that this conference call is being broadcast live to the public over the internet and slides will accompany our remarks.

If you'd like to view the slides, go to our website at www.mdu.com and follow the link to the conference call. Our earnings release is also available on our website.

During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For a discussion of factors that may cause actual results to differ, refer to Item 1A Risk Factors in our most recent Form 10-K, as well as our Form 10-Q and the risk factor section in our most recent Form 8-K.

Our format today will include formal remarks by Terry, followed by a Q&A session. Other members of our management team who will be available to answer questions during the Q&A session of the call today are; Steve Bietz, President and CEO of WBI Holdings; Dave Goodin, President and CEO of Montana-Dakota Great Dakota Plains Natural Gas, Cascade Natural Gas, and Intermountain Gas; Bill Schneider, President, CEO of Knife River Corporation; John Harp, President and CEO of MDU Construction Services Group; and Nicole Kivisto, Vice President, Controller, and Chief Accounting Officer for MDU Resources.

With that, I'll turn the presentation to Terry for his formal remarks. Terry?

Terry Hildestad

Thank you, Doran, good morning. Thank you for joining us today to discuss our third quarter results and our outlook. For the third quarter we reported consolidated earnings of 77.3 million or $0.41 per common share absent an arbitration charge. Our results are strong considering that an economic recovery is not apparent in most parts of the country. Our diversified business strategy is one of our core strength and is especially valuable in helping offset the market conditions that are affecting the nation’s construction industry, including our construction businesses.

As a result, we continue to have very solid financial performance. We have a strong balance sheet in access to significant liquidity. We will generate good cash flow this year; this has given us the ability to reward our investors to a payment of a competitive dividend in addition to opportunities to grow our company through capital investments and strategic mergers and acquisitions.

I want to move on to a discussion of our operations beginning with the natural gas and oil businesses. They made a solid contribution to earnings for the quarter. We’re quite pleased with the performance of our Bakken acreage which is now our largest oil producing field and most significant cash flow contributor. Production in this field increased 24% for the third quarter; it’s increased 44% year-to-date over last year.

Our operated and non-operated Bakken wells produced approximately 3,700 net barrels per day for the quarter. This compares to production of about 3,300 net barrels per day that we reported earlier in August. With this team’s continued focus on adding acreage and prolific plays, we recently were successful in acquiring an additional 10,000 acres in the emerging Heart River area. That brings our total Bakken acreage to more than 67,000 net acres.

Earlier this month we spun the [inaudible] 31-6 well, this is our first well in the Heart River project, targeting the Three Forks Formation. We plan to drill a total of three wells on this acreage this year. We were pleased to see another producer in adjacent acreage report strong results from two recent wells, approximately 2,000 barrel of oil equivalence in the initial production, per day, per well.

We’re also excited about the opportunities in the Niobrara acreage. Since the acquisition of this acreage, early this year, interest and lease whole cost in the play have increased. To help manage our overall portfolio risk and our capital requirements, we recently signed an agreement to sell 25% working interest to a well-capitalized partner. The sale is expected to be complete in early December, and we expect to begin drilling in the Niobrara next year.

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