MDU Resources Group, Inc. (MDU)

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MDU Resources Group, Inc. (MDU)

Q3 2011 Earnings Call

November 1, 2011 11:00 AM ET

Executives

Doran Schwartz – VP and CFO

Terry Hildestad – President and CEO

Bill Schneider – Co-Founder, Schneider & Schneider Mechanical, Inc.

Kent Wells – SVP, BP Plc

Analysts

Timm Schneider – Citigroup

Paul Ridzon – KeyBanc

Stephen Maresca – Morgan Stanley

Monroe Helm – Barrow

Presentation

Operator

Good morning. My name is Kristin and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group Third 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 November 15. The conference ID number for the replay is 12946239. Again, the conference ID number for the replay is 12946239. 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

Good morning and welcome to the 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 of 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; John Harp, President and CEO of MDU Construction Services Group; Bill Schneider, President and CEO of Knife River Corporation; Kent Wells, President and CEO of Fidelity Exploration and Production; and Nicole Kivisto, Vice President, Controller and Chief Accounting Officer of MDU Resources Group.

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

Terry Hildestad

Thank you, Doran, and good morning. Thank you for joining us today to discuss third quarter results.

MDU Resources performed well this quarter demonstrating the value of our diversified business strategy. Business as continued to focus on operating economically and efficiently to offset the effects of the challenging economy. Our company has focused on growth. We’ve identified a number of projects we believe will generate earnings cash flow and additional value for our shareholders. We’re increasing liquids as a percentage of overall production at our natural gas and oil production business.

Our utility has several investment opportunities in natural gas distribution as well as electric generation and transmission that will lead to rate based growth. Pipeline is working on a number of capacity expansion projects centered on rising levels of associated natural gas produced by development and exploration activity in the Bakken area and our construction companies are green fielding operations in areas where growth and demand exist as well as adapting their skills to the needs of the market.

Over the next five years, we plan to invest approximately $3.5 billion into our company; this reflects a 27% increase over the five years prior. At MDU Resources, we are positioned to grow now and expect to be in a very competitive position as this economy strengthens.

Now I’ll move on to our operating companies and their results. We’re pleased to report that our E&P group showed a nice earnings improvement this quarter. Earnings improved 20% with oil production up 13% that was driven by our South Texas and Bakken areas. Our South Texas liquids production more than doubled from a year ago and we saw a 15% increase in our Bakken liquids production.

These improved results caused us to raise our forecasted liquids production increase to a range of 4% to 7% this year. On our Mountrail County acreage, record gross production of approximately 7,700 barrels of oil per day was achieved in August. During October, we spud a well in our Stark County acreage to test the eastern most block of our acreage. Additionally, we spud our first appraisal well on our Niobrara acreage. Location work is underway in the Paradox Basin, we anticipate spudding a well by yearend there.

In South Texas, new wells targeting liquids on our operated properties have met or exceeded our expectation. We are up to five rigs across our properties currently. We expect to be at six rigs by yearend and plan to have 10 rigs deployed by yearend 2012. All rigs are focused on oil or liquid rich plays. Our E&P business has a well defined strategy for long term growth. Our current strategic growth projects include an approximate 400,000 net acres of leaseholds with an estimated potential of up to 900 net well locations. We expect to continue to accelerate oil exploration activities to produce a more balanced portfolio while maximizing cash flow from existing properties. We are also focused on pursuing additional leaseholds. We intend to invest over $2 billion for exploration and development in the next five years, acquisition of producing properties would be incremental to this amount.

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