MDU Resources Group, Inc. (MDU)

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MDU Resources Group, Inc. (MDU)

Edison Electric Institute Financial Conference Call

November 8, 2011 11:15 am ET


Terry D. Hildestad – President and Chief Executive Officer

Doran N. Schwartz – Chief Financial Officer and Vice President


Terry D. Hildestad

Good morning and thank you for coming to our presentation and hearing the MDU Resources story. I’m Terry Hildestad, I'm the President, Chief Executive Officer of MDU Resources and with me at the podium are Phyllis Rittenbach, our Director of Investor Relations and Doran Schwartz, our Vice President and Chief Financial Officer. Doran will join me at the podium in a little bit and cover the financials.

First of all, I would like to draw your attention to the forward-looking statements in your books and on the screen.

MDU Resources legacy dates back to 1924. We are a natural resource based company. We provide products and services that are essential to the infrastructure and energy sectors of America. Our company is asset based, and we focus on providing long-term value. When you take a look at our business mix, we have a foundation of regulated businesses that provide a predictable earnings and cash flow stream, and we combine that with our non-regulated businesses that provide for a more upside potential. On the slide you can see the breakout of earnings last year regulated 44%, E&P 36%, and our construction 20% of the earnings contribution.

Our strategy through the years has been very effective. We apply our expertise to grow our market share profitability and build shareholder value. We’re very opportunistic on growth. We grow both organically and through acquisitions. We expand in businesses where we have operating expertise; you won’t find us in a business line that we don’t have the operating expertise.

We’ve been very disciplined through the years. We have low access to capital and low cost capital, I should say, and we have the financing flexibility to take advantage of growth opportunities. Through the long-term, we provided our shareholders a very competitive dividend and good returns although, the one year returns have been impacted by the volatility in the market when you look over the 10-year period, our shareholder compounded annual return was 9%. That exceeded the performance of both the S&P 500 and the S&P 400.

Now I’ll move through a discussion on each of our business units and I’ll start with our regulated businesses. First segments here we have a regulated natural gas and electric utility and we have a FERC regulated pipeline and Energy Service Group.

And I’ll start off with electric and natural gas utility group. This is a strong foundation of earnings and cash flow for the corporation. It’s performing very well. Year-to-date our earnings are up 12% trailing 12 months earnings are running at $70 million; this has been a consistent growth engine for the corporation. We serve approximately 965,000 natural gas and liquid customers. We’re seeing growth in both electric and natural gas customer base. Of course electric customer base growth is related to the Bakken development in Western North Dakota, which is part of our service territory we own 564 megawatts of rate base generation it’s coal, gas, fired and renewable power. Our renewable is wind and also we have some lengthy generation.

So good base of regulated assets, we’re optimistic about the future of this business, it’s grown substantially over the last two years, we’re excited about the opportunities to grow our rate base going forward.

We expect an order in the first quarter of 2012 on our advanced determination of prudence filing in North Dakota that’s for an 88 megawatt gas fired generating station that will replace purchase power with own generation.

We’re also in the process of building a $20 million power line to move wind power out of South Eastern North Dakota that will be a FERC based return. In fact if you take a look at our capital investments in this business unit over the next five years we’re averaging $150 million a year, we have a depreciation rate of about 80. So we will continue to add to our rate based earnings, if you take look at our rate base historically since 2006 we have tripled our rate base.

Now that was driven in a number of areas but two significant areas is a natural gas, Cascade Natural Gas was purchased in 2007, in 2008 we purchased Intermountain Gas we’ve expanded our customer base with both of those purchases.

We continue to expect rate based growth going forward. The integration of those businesses has gone very well. So when you take a look at the outlook regulator electric and natural gas utility we’re excited about the future, I had mentioned power plant 88 megawatt power plant that’s about $85 million investment, we are seeing higher demand for natural gas certainly in agricultural side of the business, we’re adding industrial customers. We are looking forward to pursuing additional growth opportunities in this business line.

I will move on to the pipeline and energy service group, our FERC regulated pipeline consist of 3700 miles of pipeline capable of moving 750 million cubic feet a day. We offer our customers access to three natural gas storage fields actually one of them is the largest natural gas storage field in North America. In total we have a 193 building cubic feet in natural gas storage capacity.

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