MDU Resources Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript

MDU Resources Group, Inc. (MDU)

Q2 2012 Earnings Call

August 2, 2012 11:00 am ET

Executives

Doran Schwartz - VP & CFO

Terry Hildestad - President & CEO

Steve Bietz - President & CEO, WBI Energy

Dave Goodin - President & CEO, Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas

John Harp - CEO, Knife River Corporation and MDU Construction Services

Kent Wells - President & CEO, Fidelity Exploration & Production

Bill Schneider - EVP, Bakken Development

Nicole Kivisto - VP, Controller & CAO, MDU Resources

Analysts

Paul Ridzon - KeyBanc

Holly Stewart - Howard Weil

Timm Schneider - Citigroup

John Hanson - Presidus

James Bellessa - D.A. Davidson & Co.

Presentation

Operator

Good morning. My name is Alisha and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group Second Quarter 2012 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 today through to 11:59 PM Eastern on August the 16th. The conference ID number for the replay is 93978182. Again, the conference ID number for the replay is 93978182. The number to dial for the replay is 1-855-859-2056 or 404-537-3406.

I would now like to turn the call 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 everyone. Welcome to our earnings release conference call. And 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.

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 it's 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 Energy; Dave Goodin, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas; John Harp, CEO of Knife River Corporation and MDU Construction Services; Kent Wells, President and CEO of Fidelity Exploration & Production; Bill Schneider, Executive Vice President of Bakken Development; 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 our second quarter results. Earnings for the quarter were $53.9 million or $0.29 a share. The results included $15 million after tax reversal of a natural gas gathering arbitration charge, as well as $5.1 million income from disposed operation.

We also took a charge relating to the gathering assets in our coal bed area of $1.7 million after tax. Well absent these items, we delivered recurring earnings at the upper range of our guidance for the quarter at $0.19.

The E&P segment has continued it's impressive expansion of oil production. In fact, oil represented 44% of total production for the quarter. This was up from 30% for the same period a year ago.

While the utility group was affected by unseasonably warm weather, primarily in April, and higher income taxes, they experienced significant customer growth primarily in Western North Dakota.

In May, we announced our $66 million initial investment in oil and natural gas midstream assets by our pipeline group, and the construction group had a solid quarter and continues to see signs of recovery.

On a year-to-date basis, lower oil and natural gas prices affected our E&P group earnings by approximately $20 million compared to last year. And the weather challenges that are utility totaled approximately $7 million.

The strength of our diversified business model and the strong execution of our business plans as the operating company has allowed us to partially offset the combined year-to-day $27 million earnings effect coming from these largely uncontrollable factors. Based on our performance to-date, and our outlook for the remainder of the year, we've reaffirmed our guidance of $1.00 to $1.25 per share.

Now I'll move on to our individual operations and I'll begin with the E&P business. We continue to see significant oil production growth as a result of our increased drilling activity. Oil production increased 32% over the same period last year, and increased 13% from the first quarter. The jump in oil production was led primarily by the Bakken, where we saw a 59% increase in production over last year. Our Paradox and our Texas properties also contributed to the increase.

With continued success developing the Bakken and promising initial results from exploratory areas such as the Paradox, we've raised the midpoint for our oil production growth for the year.

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