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MDU Resources Group Inc.

Mon, 1 Dec 2008|



Is ending next is in DU resources group. Accompanies a multi dimensional and -- -- comprised of regulated and unregulated businesses operating in domestic international locations. Hey good afternoon. We are excited be a part of the financial forum today. My name is Terry -- stand. Also with media days -- Riley. -- -- executive vice president treasurer and chief financial officer and -- written by actor director of investor relations. Wanna draw your attention to our forward looking statement included. In the presentation book. -- resources is celebrating its sixtieth. Year. Being traded on the New York Stock Exchange this year 7% of the companies listed on the exchange have been on exchange for sixty years. The year that we were listed -- our we had asset base about 59 million dollars. We operated in five states. We recently just pass the six point three billion dollar in asset base. -- we have created 44 states. Our company has evolved from a utility company to -- diversified natural resource company focused on three core lines of business. Energy which includes our fidelity. Group. And construction materials. In our utility resource group. All of these are core businesses they all -- long term value. We have a unique portfolio of businesses with a solid foundation of assets. These assets are valuable all the time but certainly in difficult. Economic times he's their products -- our country needs and uses. MDU resources returns over the long term reflect our focus on providing value to the shareholder as of September 30 -- one year return -- 6%. -- exceeded the performance of the indices we compare ourselves to the S&P 500 the S&P midcap 400 which were a member of in and seeds -- Returns of our peers. In if you look over the long term -- twenty year total shareholder return was 16%. Coinciding with the broader markets we've seen a substantial. However our fundamentals haven't changed. We hold increasingly valuable assets supported by a strong balance sheet. Were well positioned for continued growth. We've achieved this success by sticking to our principles. Our strategy is proven to be very effective. We apply expertise to an increase our market share profitability and build shareholder value. We also believe it's critical to align the interest of our employees. With the interest of our stockholders 10% of the stock of our company is held by directors and employees. And to further strengthen that program we tie compensation programs to both business unit in overall company performance. For the nine months ended September 30 earnings from continuing operations were 304 point four million dollars that's 34 -- -- increase. From the 227. Point four million dollars from the same period in 2007. Earnings per share from continuing operations were -- dollar 66. Compared to a dollar 24 cents reported one year ago. This these results certainly underscore the value of our diversified. Business part portfolio. Now moving into a discussion of our operations I'll begin with -- energy segment. We're engaged in natural gas and oil development. Production and exploration. And acquisition activities. Our business focuses in three core regions -- rocky mountain. The mid continent gulf state region in offshore in the -- from Mexico. We have both operated. And non operated property is that that balance and diversity to our portfolio. We take advantage of growth opportunities to develop an exploration as well as acquisition. Of similar assets to complement our current portfolio. We have a vertically integrated model. Our operations began with oil and gas -- the ground in hand with delivery of that to the end user. Let's talk about the rocky mountain region as you can see the majority of our reserves and production come from rocky mountain region. Includes five -- primary areas. The baker but going fields are legacy fields we purchased these assets in the 1930s. There were relatively. Shallow wells and have -- development costs their long -- -- assets. Our lease operating expenses in these fields are in the range of fifteen to 25 cents per -- In our called bad properties we recently received permits from the BLM to drill on our federal acreage in Montana. We will drill approximately 35 wells this year. In the bighorn basin we've expanded our -- -- position recently. 25000 net acres have added. Two -- of our core area this only enable us to continue to grow production through the future. Part of our rocky mountain region operations include -- prolific Bakken. Play in North Dakota. We began participating in this play by holding a very small interest in non operated wells. We built up our knowledge and expertise in the area. Relate -- in 2007. We began drilling our first well. We currently hold about 65000. Net acres in the box. This next slide gives you a better understanding of our acreage position. The yellow -- and -- we have interest in our in the preach. Serious but 23 wells to -- seventeen wells are on production. We have about a thousand barrels a day of our own operated production net barrels per day. We have an additional three to 400 net barrels of oil per day from our non operated. Properties. The average estimated ultimate recovery for the operated wells and our southern block. Is estimated to range between 250 and 450000. Barrels of oil. The wells in this southern block. Continued to be economic even at prices around fifty dollars per barrel. We expect to participate in a total of approximately fifty to sixty wells in 2008 through our acreage position. Currently we have three rigs under contract drilling in the Bakken. We begin our efforts to explore the three forks -- formation. Our first three forks and -- of formation well is in our southern block. Good to mask and eleven -- -- -- nine H. It had average production over the first five days following fracture stimuli is. Stimulation treatment of 634. Barrels per day. We have plans -- -- two additional wells. In the three forks and -- yet this year. If this three forks and each proves to be a separate Reza -- we will see a significant. Upside potential in a reserve position. In this region. We're assessing the three forks and -- potential in the northern acreage block Ian Burke county. We consider our interest in -- and be on long live long term play. Capable of generating solid earnings for years to come. Another exciting opportunity for us is in the paradox basin in southeast Utah. We've identified nineteen shales in this area providing numerous songs to exploit -- -- five wells to -- We have additional six producing wells in the area in total were producing approximately 525. Barrels of oil per day. On a net basis. Our total position in the basin is approximately. 90000. Net acres. -- looks we expect to drill one more well in that area this year. In our mid continent -- gulf state region we have our Texas properties. These properties reported lost production in the third quarter because of -- here hurricane activity in September. We -- outages and flooding issues. They've been resolved on our proper are operated properties but we're estimating the impact this year is one point five billion. Cubic feet of lost production. In south Texas we believe there's long term value -- the on exploited non book potential from the multi zone nature. That is predominant in this area of Texas. And we acquired east Texas assets in January and this provides us another growth engine. We're having good success drilling -- -- east Texas properties. At December 31. We had 707. Billion cubic feet of proved reserves. In addition we acquired 97 billion cubic feet of proved reserves with the east Texas acquisition. That it occurred in January. We updated -- possible and probable reserves this -- -- We grew those at 19%. Ford currently at 950 billion cubic feet -- possible probable. About half of those are classified as probable. 85%. Of the possible and probable reserves are in the rocky mountain region. Overall this group is achieved at 9% compound annual growth rate production over the last ten years. They hit record -- and -- production -- 77 billion cubic feet equivalents in 2007. We work hard to replace our production. Our ten year reserve growth rate equates to 10% compounded annually. We have fifty to 55%. Of our 2008 estimated natural gas heads. And attractive prices. -- -- oil side we have less than 5% of our 2008 production -- Because of the lack of correlation with the indices. For 200935. To 40% -- -- estimated natural gas production is -- As of October we've included in our earnings guidance estimated natural gas prices of 550 to six for -- prices. Six to 650 for nymex prices in 325. To 375 C energy prices. And again remember about 80% of our production is gas related production. Should point out that less than 15% of our natural gas is sold on the CIG. And the majority of that. The majority of our gas sold in the -- markets in a significant portion of our CIT. Gases here just. For nymex oil prices we included in our guide. And sixty to 65 dollars and today is a little bit high. We're certainly excited about the future outlook for this segment we expect production increases of seven to 9% in 2008 over last year's record levels. Over the long term we believe we're very well position we have one point eight million gross acres under lease. That's over five years -- drilling potential already identified we have a good mix of both development properties. And exploration opportunities. Next I want to focus on our pipeline system. Our pipeline business is a critical link to -- vertical integration model if provides natural gas transportation. Underground storage. And gathering systems primarily in the rocky mountain region in the great plains. We offer customers access to three natural gas storage fields. We have a total working gas capacity of -- hundred in 93 billion cubic feet. That's integrated with our pipeline system that includes. The largest natural gas field storage field in North America. We own and operate over 3700 miles -- regulated pipeline in 19100 miles. Gathering lines. The pipeline has a number of growth opportunities that were lucky man. America pipeline capacity in eastern North Dakota is scheduled to increase by about ten million cubic feet per day that'll -- -- this year. We expected it to be done next week there's a little delay on it but it will be completed this year. We're currently adding compression and he -- we interconnect. With northern border in the -- area of northwestern North Dakota -- at 32 million cubic feet -- -- Ultimate expansion capacity of about sixty million cubic feet -- -- And because of the strong customer demand we've announced the grasslands pipeline will expand next year to its full capacity. That'll be a 75 million cubic cubic feet a day expansion. We believe it'll be in service by August of 2009. Another opportunity that we're exploring -- as development of -- Bakken pipeline has a significant amount of natural gas in the Bakken field. We're looking -- opportunities to transport this high BTU gas. Out of the box and fields in North Dakota we're exploring -- currently. I'm moving -- the construction materials and contract in segment. We this business offers a diverse portfolio products and services. In various geographic locations. We have one point two billion tons of strategically -- located aggregate reserves at 225 year supply ever reserves. We operate in fifteen states where the number one or number two supplier. In generally all of them are markets. We've grown to be a substantial industry leader were the fifth largest sand and gravel producer in the United States. We're in the tap handle overall -- -- producer where one of three US companies that are in the tapped him. It gives us an advantage in some cases over competitors certainly in the acquisition front. We've grown over the years by being very disciplined. In our acquisitions. And we've grown organically. All of our products revolve around Acre Acre it's. Anger gets of course are depleting resource. -- increasingly difficult Superman. Makes it a very valuable resource for our shareholders. In addition -- gets we have a liquid asphalt operation has contributed significantly. To adding value the corporation. Consistent with the broader industry we are experiencing an economic slowdown -- this business as it relates primarily to the residential market. In response to that we have explored several opportunities for infrastructure projects revolving around energy industry. It provides some opportunities in some niche markets. Examples of this would be wind farms refineries. Geothermal plants and power plants. Historically even though the GDP -- -- very volatile over the last twenty years a target production in the US trans has trended upwards. -- need to keep in mind that the largest user of an aggregate in the country is public infrastructure highway spending. On the federal funds for on the six year tooth out. 286. Billion dollar. Highway program is set to expire next September and we're certainly looking forward to renewal of that program we think it'll be. Yet another strong program. -- typically during recession periods of federal government -- -- -- inject more dollars in two highway public relations public. Infrastructure. Projects. And right now they're talking about as you been reading in the paper there are several stimulus bills that are being discussed. So we certainly see that as an opportunity for this business unit. -- let's move on to the construction service segment -- about 57. Hundred employees in this business unit that. Provides the services -- niche markets. The markets the customers and geographic locations of this business provide diversity and help mitigate the risk. We do work in the following general areas inside work -- electrical mechanical and fire per -- protection. We do this and a number of niche markets. We do outside work primarily for utility companies. Our business. Model we've provided services. In the hurricane impacted area the Houston gear during this past fall. We also do industrial work from power plants refineries. Automotive plants. And we provide specialty equipment. For. That -- we provide data services manufacture and sell and -- specialty equipment to the utility. Related. Businesses. The business mix along with a strong emphasis on strategy has been very effective for us. Since 2005. Grown earnings in this business unit on -- 53%. Compound an annual basis. This is on revenue growth of 23%. Year to date earnings that trend is continuing earnings have improved -- 1%. Over the comparable period last year. Should also add our backlog is strong with this group -- 8608. Million dollars that was the end of the third quarter. -- moving on our electric and natural gas distribution segment is our low risk legacy business it's provided reliable earnings and cash flow for over eighty years. Are regulated utility generates transmits and distributes. Electricity. And distributes natural gas in eight states. We have 900 in 30000 customers provides geographic. Diversity and regulatory risk mitigation. We send out 46000. Meals a day to our customers. Provides great cash flow. We have a couple of significant acquisitions that occurred over the last two years expanding our natural gas distribution business. We closed on acquisition of cascade natural gas in July of 2007. This six expanded our utility into the higher growth population in Washington and Oregon. It doubled our natural gas customer base. Immigration is going very well. More recently we completed the acquisition of intermountain gas company. It was an enterprise value of approximately 320 million dollars -- -- inner mountain added another 300000. Customers. -- high growth areas to our family. -- -- -- very well run company with good working relationships with the Idaho public service commission. We continue to look for growth opportunities to grow our electric business as well. Our newest generation come on line is a twenty megawatt wind farm located in Montana. We are partners. In a participant in big stone to project that's located in South Dakota were waiting assertive certificate of need. In a route permit from the Minnesota public utilities commission we expect that decision to occur early in 2009. Our utilities have a solid -- run we expect our road. Our rate base to more than triple from 2006. To 2009 and -- Nearly quad triple by 2010 you can -- one point four billion. From a 2006 rate base -- 386 million dollars this certainly will provide. A reliable and predictable flow of earnings and cash flows. Over the long term earnings and revenue growth for the past ten years have been strong. We've grown both top line and bottom line earnings at nearly the same compound -- annually. From a financial perspective as a result of our strategies in our conservative culture our balance sheet is strong. We target consolidated debt not to exceed 40% over the long term. Our total debt to cap at the end of the third quarter was 36%. We're -- an excellent position to continue to pursue growth both organically. And through acquisitions. And to continue to return value to our shareholders who cast to cash. Dividends. Over the long term we believe we can produce growth in earnings per share of seven. To 10% in that range should point out historically over the last ten years we've grown earnings at a compound -- of 12%. Demonstrating our commitment to our shareholders -- we have a long history of pain consecutive quarterly dividends -- dates all the way back to 1937. In August our dividend was increased by six point 9%. Mark. Marking the eighteenth consecutive year of dividend increases. Over the long term our dividends and grown and -- about six point 6% over the past five years. So where growth and an income story. We're excited about the future -- do you resources we have you know unique portfolio of assets. These businesses all have growth opportunities. Our balance sheet is strong puts us into an excellent position to capitalize on opportunities. That -- -- rise during this period of time. And then in my last slide it like to point out that employees of resources are important they've stepped up year after year accepted the challenge of growth and change. They're kind contributions are key to our success we've known that. We're very aware that companies and adapt to change and maintain -- business principles are the ones it. -- long term success. That's wire vision statement is important to us with integrity create superior shareholder value. So with that and thank you for your attention. And we have a break out room and where is that located. -- room we have a breakup. Thank you.

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