MDU Resources Group, Inc. (MDU)

MDU 
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MDU Resources Group, Inc. (MDU)

Q1 2011 Earnings Call

May 3, 2011 11:00 AM ET

Executives

Doran Schwartz – VP and CFO

Terry Hildestad – President and CEO

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

William Schneider – President and CEO, Knife River Corporation

David Goodin – President, CEO of Montana-Dakota Utilities Co., Great Plains Natural Gas Co. & Cascade Natural Gas Corp.

John Harp – President and CEO, MDU Construction Services Group, Inc.

Analysts

Paul Ridzon – KeyBanc

Timm Schneider – Citigroup

Monroe Helm – Barrow, Hanley

James Bellessa – D.A. Davidson & Co

Presentation

Operator

Good morning. My name is Tiffany and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group First Quarter 2011 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 PM Eastern Time today through 11:59 PM Eastern Time on May 17th, 2011. The conference ID number for the replay is 55658893. Again, the conference ID number for the replay is 55658893. 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 good morning. Welcome to our earnings release conference call. Before I turn the presentation over to Terry Hildestad, our President and Chief Executive Officer, I’d 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.

Now during the course of this presentation, we will make certain forward-looking statements within the meaning of the 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, 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 conference call today are: Steve Bietz, President and CEO of WBI Holdings; Dave Goodin, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas; Bill Schneider, President and 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.

And with that, I’ll turn the presentation over to Terry for his formal remarks. Terry?

Terry Hildestad

Thank you, Doran good morning. Thank you for joining us today to discuss the first quarter results. We are off to a good start with earnings that were stronger than a year ago and exceeded our projections for the quarter. First quarter consolidated earnings were $42.8 million compared to $41.6 million reported in 2010. As we discussed in our earnings release, we were able to successfully close out an IRS audit for certain open tax years. Based on the results of that audit we were able to reduce previously established income tax accruals. We view this as part of our ongoing income tax process.

Other items that affected quarterly results included a non-cash loss of $1.1 million on one of our oil hedges that did not qualify for hedge accounting. Weather was also a factor for the quarter. Although, it’s difficult to quantify, it helped our utility but negatively affected our construction materials and natural gas and oil operations. Also, keep in mind that our current year results made up for the quarterly run rate of $1 million to $1.5 million in earnings from our Brazilin transmission assets, remember they were sold in the fourth quarter of 2010.

The diversity of our portfolio businesses allowed us to pull solid financial results in spite of low natural gas prices, inclement weather at some of our operations and a weak construction market.

In addition, we paid down $80 million in long-term debt while increasing our operating cash flow by $35 million over the prior year. And we distributed over $30 million in dividends to our shareholders. We have nearly a $140 million in cash on hand with access to $650 million in available credit and a strong balance sheet to fund future growth.

Now, I want to move on to our individual operations and their results. We’re pleased with the earnings reported at our natural gas and oil business. Oil production increased 5% over the same period last year that accounted for nearly 30% of our production. Oil production in the Bakken increased 21% over the first quarter of last year. However, harsh winter weather did affect production this quarter and continued in April.

Conditions were some of the worst in North Dakota’s 60 year oil history. It has caused a record number of idle wells in the area because of the inability of trucks and other equipment to access our well sites. Weather conditions including a snow storm this past weekend and weight restrictions during the spring thaw are continuing to temporarily interfere with oil shipments.

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