Black Hills Corporation
Q1 2016 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Black Hills Corporation First Quarter 2017 Earnings Conference Call. My name is Michelle and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

[Jerome Nichols:]

Thank you, Michelle. Good morning, everyone, welcome to Black Hills Corporation's first quarter 2017 earnings conference call. Leading our earnings discussion today are David Emery, Chairman and Chief Executive Officer; and Rich Kinzley, Senior Vice President and Chief Financial Officer. Before we begin today I would like to note that Black Hills will be attending the American Gas Association Financial Forum starting May 21st in Orlando, Florida. Our presentation materials and webcast information will be posted on our website at www.blackhillscorp.com under the investor relations heading. During our earnings discussion today, some of the comments we make may contain forward-looking statements as defined by the Securities and Exchange Commission, and there are a number of uncertainties inherent in such comments. Although we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially. We direct you to our earnings release, Slide 2 of the investor presentation on our website, and our most recent Form 10-K, Form 10-Q and other documents filed with the Securities and Exchange Commission, for a list of some of the factors that could cause future results to differ materially from our expectations. I will now turn the call over to David Emery.

[David Emery:]

Thank you Jerome, good morning everyone, thanks for joining us. We appreciate your attendance at our call this morning. On Slide 3 of the webcast that will be following us similar agenda to those of previous calls. I'll give a quick update on highlights of the first quarter. Rich Kinzley our CFO will provide a financial update and then I'll discuss forward strategy before we take questions. Moving on to Slide 5, we had an excellent first quarter. Earnings per share as adjusted were up almost 15% compared to the first quarter of last year. That improvement was largely driven by a full quarter earnings from a successful acquisition and integration of SourceGas, which we purchased on February 12th of last year. Highlights for utilities during the quarter, our South Dakota Electric utility continued its construction of 144 mile transmission line from Northeastern Wyoming in the rapids [Technical Difficulty] the final battle lines are expected to be placed in service later this quarter, the second quarter. Colorado Electric received approval from the Colorado PUC for its electric resource plan, which will provide for an additional 60 megawatts of renewal energy resources that will be in service by 2019. Colorado Electric plans to issue a request for proposals for those resources during the second quarter and present those results to the commission by year end for their approval. We continue to pursue reconsideration of the Colorado PUCs decision on last year's rate review, which was primarily related to the new $63 million 40 megawatt gas combustion turbine that we placed in service at year end. Our request for rehearing and reconsideration is still pending before the commission. Moving on to Slide 6, continuing with first quarter highlight. Our oil and gas subsidiary continued to reduce operating costs and sell non-core properties as it continues to reposition itself to assist our utilities with their Cost to Service Gas program in the future. On the corporate side last week our Board of Directors declared a quarterly dividend of $0.445 per share consistent with that last quarter, which is equivalent to an annual dividend rate of a $1.78 per share. In late March Fitch Ratings reaffirmed or affirmed their credit rating of Black Hills at BBB+ plus and with a stable outwork maintaining a solid investment grade credit rating for us. We also began issuing commercial paper during the quarter under a program that we implemented in 2016 at the end of the month we had $51 million outstanding with a weighted average interest rate of about 1.27%. Finally during the quarter we completed some officer and board member changes which were previously announced and we discussed during our February investor call. Slide 7 provides the reconciliation of first quarter net income from continuing operations as adjusted compared to the first quarter of 2016. Rich will elaborate on the specific variances during his discussion of our financial performance. But the largest positive variances in our gas utilities driven by our four quarter of operations for the acquired SourceGas territories. It's also worth noting that net income as adjusted as lower at our oil and gas subsidiary, largely due to a large tax benefit recognized in the first quarter of last year. Rich will discuss this, but oil and gas operating income has actually improved compared to last year on a quarter-over-quarter basis. I'll now turn it over to Rich for the financial updates. Rich?

[Richard Kinzley:]

Great. Thanks Dave and good morning everyone. We're pleased with our first quarter financial performance. When you review our Q1 results for 2017 versus 2016 you'll see the earnings power of our gas utilities with the addition of a full quarter of SourceGas as Dave mentioned. Despite milder winter weather than normal our gas utilities earnings increased substantially year-over-year. Additionally we're pleased with the growth in our electric utilities from new generation investments and continued solid performance from our power generation and mining segments. On Slide 9, we reconcile GAAP earnings to earnings as adjusted in non-GAAP measure. We do this to isolate special items and communicate earnings to better represent our ongoing performance. This slide displays the last five quarters and trailing 12 months as of March 31st for 2017 and 2016. As detailed on the slide, we experience special items not reflective of our ongoing performance in each quarter of 2016 and Q1 of 2017. The first special item is non-cash asset impairments that are oil and gas business that occurred last year. The second special item is acquisition related expenses such as advisory fees, financing and other third party consulting costs, associated with the SourceGas acquisition and integration. We completed nearly all the integration work related to the acquisition in 2016 and are finishing the few remaining projects in 2017. These acquisition expenses and impairments are not indicative of our ongoing performance and accordingly we reflect them on an as adjusted basis. Our first quarter as adjusted EPS was a$1.41 per share compared to a $1.23 for the first quarter last year. The earnings uplift in Q1 this year compared to Q1 last year was driven mainly by the first full quarter ownership of the SourceGas utilities. As you recall we closed down the acquisition in mid-February last year. This quarter's results were strong despite milder weather than normal during the first quarter heating season at our gas and electric utilities. Warmer than normal weather impact that EPS by an estimated $0.09 in the first quarter, and I'll discuss the impact of weather in more detail later. And as I've mentioned on prior calls, we have seasonality in our earnings with the highest earnings in the heating season represented by the first and fourth quarters. For the trailing 12 months as adjusted EPS came in at $3.35 per share compared to $3.14 per share for last year by nearly 7% increase. Slide 10 displays our first quarter revenue and operating income. On the left side of the slide you'll note that 2017 revenues for Q1 exceeded those in 2016 by 23% mainly due to the addition of the SourceGas, natural gas utilities. On the right side of the slide you'll see that year-over-year operating income increased 33% driven by a $28 million increase at the gas utilities again due to the addition of SourceGas for the full quarter. We also benefited from improved operating performance in the first quarter at our electric utilities, oil and gas and corporate segments. The power generation and coal mine segments were essentially flat. I'll discuss each of the segments on the following slides. The improvement in the corporate segment relates to the reduction in 2017 of internal labor charges to acquisition and integration activities. As I noted on a previous slide with the integration substantially complete our employees have largely moved on to other projects and initiatives. Slide 11 displays our first quarter income statement. Gross margin operating expenses and DD&A all increased comparing Q1 2017 to in 2016 mainly as a result of the SourceGas acquisition. Given our successful execution of integration activities during 2016 the increase in operating expenses was moderated. As a result operating income before special items increased 33% year-over-year. For Q1 2017 the only special item was minimal acquisition related costs. Q1 2016 included special items for oil and gas impairments and more significant acquisition related costs. Interest expense increased year-over-year related to increased outstanding debt from the acquisition. The increase was mitigated through successful Q3 2016 refinancings of debt, we assumed from SourceGas and from favorable short term rates from our newly implemented commercial paper program that Dave mentioned. The effective tax rate for the quarter was just under 30% and benefited from a onetime $2 million interest reversal associated with a carry back claim plus $1.4 million in production tax credits from our Peak View Wind farm which went into service in late 2016. As you'll recall in Q1 last year, we had a settlement with the IRS as well as a tax depletion methodology change, which combined resulted in an effective rate well below normal for 2016. In the second quarter of 2016, we sold 49.9% interest in Colorado IPP the $3.6 million reduction in net income available for our shareholders represents the ownership interest in that facility by a third party. I'll talk more about this on the power generation side. Moving to the as adjusted net income line, we reported $77 million for the quarter compared to $64 million for Q1 2016 a 21% increase. Diluted shares increased in 2017 compared to 2016 due to nearly two million shares of equity issued in the last three quarters of 2016 on our at the market equity program. Also the application of the treasury stock method related to our unit mandatories added approximately 1.6 million shares to the Q1 2017 diluted share count compared to approximately 700,000 additional shares in Q1 of last year. Overall as adjusted EPS grew $0.18 or 15% from the same quarter last year. EBTIDA increased by $40 million or 26%. These strong results met our expectations despite the headwinds we face from milder than normal weather. Slide 12 displays or utilities gross margin and operating income. On the left side of the slide you see the electric utilities gross margin increased in the first quarter by $6.3 million over 2016. The gross margin increase has resulted from returns on the Peak View Wind and Colorado Gas Turbine Generation projects placed in service in late 2016 transmission investments and increased commercial and industrial load. Operating income increased by $3.2 million or nearly 8% for the first quarter compared to 2016. Despite the addition of generation of transmission projects our electric utilities did a great job controlling cost increases with O&M only increasing $1.5 million comparing this year to last year. I'll also note substantial component of the return on our Peak View Wind project is realized through production tax credits which come through reduced income taxes rather than through operating income. As I noted earlier, these credits amounted to $1.4 million in the first quarter. Moving to right side of slide the improved results at our gas utilities for the first quarter were almost entirely explained by the addition of SourceGas. We closed the acquisition on February 12th 2016. So we picked up 42 days of SourceGas operating results in Q1 2017. Also at our legacy Black Hills gas operations we've demonstrated improved operating income of $1.6 million a 3.7% growth rate year-over-year benefiting from strong cost management. As I mentioned earlier, we experienced warmer than normal weather during Q1 negatively impacting the EPS contribution from our electric and gas utilities by approximately $0.09. Heating degree days where 11% below normal that the electric utilities and more notably 13% below normal at the gas utilities. Comparing to normal weather at our utilities for the first quarter our gas utility gross margins were negatively impacted by an estimated $6.5 million while the electric utility gross margins were negatively impacted by an estimated $800,000. On Slide 13, you see the Power Gen operating income was effectively flat for the first quarter compared to 2016. The Power Generation business unit continues to realize strong contract availability with its generating units, and continued its cash flow contributions to Black Hills. Our Power Gen segment includes the Colorado IPP plant, which was contracted - which is contracted to our Colorado Electric utility plus 76.5% ownership of the Wygen I plant, which is contracted to our Wyoming Electric utility. Colorado IPP accounts for approximately 60% of the operating income in our Power Gen segment. These numbers include 100% ownership of Colorado IPP. In the second quarter of 2016 we sold to 49.9% interest in Colorado IPP, we consolidate 100% of that units results in our financial statements and then back out that 49.9% non-controlling interest at the bottom of the income statement. Moving to the right side of the slide our Mining segment operating income was also essentially flat compared to Q1 2016. For the quarter revenue was up slightly as ton sold increased by 5% compared to last year due primarily to a power plant outage last year. On the cost side, we enjoyed continuing mining efficiencies as we were able to move 19% more overburden in 2017 at a decreased per cubic yard cost. O&M was higher in 2017 than 2016 due primarily to a production tax valuation adjustment involving the prior year. Our mine continues to perform at a high level with sales almost entirely to onsite mine mouth plants and roughly half our sales based on a favorable cost plus mechanism. Moving to Slide 14, at oil and gas we reduced the operating loss in the first quarter to $3.7 million compared to an operating loss of $4.8 million in Q1 2016. The 2016 operating loss excludes asset impairment charges taken last year. First quarter volume sold decrease as an oil and gas production decline from the prior year due to divestitures and natural decline curves. The decrease in volume was offset by slightly higher average commodity prices received, lower DD&A resulting from previous impairments and diligent G&A cost management all of which have helped minimize the operating loss from the segment. We expect operating results to continue to improve at oil and gas as we move through 2017 focusing the segment on supporting our cost of service gas initiative. Also we made additional minor divestitures of non-core properties during 2017 bringing total sales proceeds to date up to approximately $12 million dollars. Slide 15 shows our capitalization, at March 31st our net debt to cap ratio was 66% a reduction of 330 basis points from the same quarter last year. As we move forward, we expect the ratio to continue to decline through growth in our stockholder's equity from earnings. We don't expect to add any significant debt in the near term, which I'll discuss on the next slide. And our internally generated cash flows will fund our CapEx and dividends for the next couple of years. Additionally we have $299 million of unit mandatories reported as debt on our balance sheet until those units convert in the second half of 2018. We're committed to maintaining our solid investment grade credit ratings and our forward - forecasted metrics support those ratings. Slide 16 demonstrates that we're in good shape relative to upcoming debt maturities. In the first quarter last year we executed significant debt financings, as we paid for the SourceGas acquisition. In the third quarter last year, we access the debt markets at a time when credit conditions were beneficial to successfully refinance debt we assume through the acquisition and term out other upcoming maturities. We also successfully implemented a commercial paper program in Q1, which will help minimize short term borrowing costs. I'll also mentioned that on the equity side, we issued nearly two million shares of stock through our aftermarket equity program and 2016 raising nearly $120 million through that program. While we'll keep the program active to provide financing flexibility as we move forward, we intend to issue very few if any shares through the program in the near term. Slide 17 demonstrates our track record of growing operating earnings and EPS. The midpoint of our 2017 as adjusted EPS guidance exhibits a full year of earnings contribution from the fully integrated SourceGas transaction taking the next step forward and continuing to build on our impressive track record of growing shareholder value as we serve our utility customers safely, reliably and efficiently. On Slide 18, we're reaffirming our as adjusted 2017 earnings guidance of $3.45 to $3.65 per share. We're pleased with our operational execution despite mild weather in Q1. With that I'll turn it back to Dave for his strategic overview.

[David Emery:]

Thank you, Rich. Moving on to Slide 20, we group our strategic goals into four major categories with the overall objective of being an industry leader in all we do. Those four categories are profitable growth, valued service, better every day and a great workplace. Slide 21, during the past few quarters we've discussed at length our earnings growth strategy for the next several years now that we've completed the acquisition and integration of SourceGas. We have a great opportunity to provide earnings growth by improving the efficiency and reducing the cost of the combined Black Hills and SourceGas company through focus on best practices, standardization and continuous improvement. We will also focus our capital spending to reduce or eliminate regulatory lag to the extent possible. Moving on to Slide 22. Strong capital spending has and we'll continue to drive much of our earnings growth. Even with an increased focus over the next few years of reducing regulatory lag and optimizing our capital spending, we still expect to spend approximately $1 billion between 2017 and 2019, which is well in excess of our depreciation. On Slide 23, we continue to make excellent progress on our Colorado Electric resource plan. That plan will enable us to meet the states renewable energy standards those requirements provide that we have to supply 30% of our energy consumed by customers from renewable sources by 2020. We have Colorado PUC approval to add approximately 60 megawatts of renewable energy resources by 2019. As I mentioned earlier, we'll issue a request for proposals for those 60 megawatts of renewable resources during this upcoming quarter, the second quarter, and we expect to present the results of those RFPs to the commission by year end for their approval, which would allow us to ensure that the project the resources are in serviced by 2019. On Slide 24, we continue to believe strongly that the utility cost of service gas program will provide long term price stability and a reasonable expectation of lower long term costs for customers, while providing opportunities for increased earnings for shareholders truly a win-win situation. We're in the process of evaluating options on how best to proceed with that program including the possibility of having utility joint venture partners and then filing new applications for approval of specific gas reserve property. We expect to file those applications in the second or maybe the third quarters of 2017. That may be a little bit later than we originally anticipated largely due to the time delays and just the extra time required to working with partners and further assessing reserve properties. Moving on to Slide 25, we're extremely proud of our dividend track record having increased the annual dividend for shareholders for now 47 consecutive years, last year or this year with the effective rate of a $1.78 on an annual basis that's a $0.10 increase over the prior year pretty good indication of our confidence in our ability to continue to pay dividend. Slide 26, summarizes our solid investment grade credit ratings. I mentioned earlier the recent action by Fitch that all three agencies have a set of solid investment grade credit rating with stable outlook. On Slide 27, we focus every day on operational excellence. As an example all three of our electric utilities are in the top quartile of the industry for reliability, in addition after a year of focus on the integration of SourceGas we're back on track related to our aggressive safety goals. Finally on Slide 28, this is our scorecard, this is something we've done for several years it's our way of holding ourselves accountable to you our shareholders. Set on our goals at the beginning of the year and track their progress throughout the year as we continue to focus on long term strategic objectives for the benefit of the employees, customers and shareholders. That concludes our comments today. We'd now be happy to answer questions.

[Operator:]

Ladies and gentlemen we are ready to open the lines for your questions. [Operator Instructions] Our first question comes from the line of Mike Weinstein with Credit Suisse. Your line is open. Please go ahead.

[Mike Weinstein:]

Hi good morning guys.

[David Emery:]

Good morning, Mike.

[Richard Kinzley:]

Good morning, Mike.

[Mike Weinstein:]

Do you have any kind of indication is to when you'd be able to provide additional details around the CapEx forecast going forward beyond perhaps the 2019 that your forecast now goes through?

[Richard Kinzley:]

Yeah, we're working on them, Mike, it's one of those things that we've talked a lot about how to optimize our CapEx. We've had a lot of discussions internally and are continuing to look at that forecast. We'd hope that sometime during the years here we can come out with at least an indication of what those post 2019 spending levels will look like, may not be as detailed as a year-by-year forecast, but probably at least provide some indication of what we expect the average CapEx to be in those first couple years subsequent to 2019.

[Mike Weinstein:]

Okay, great. And on the Cost of Service Gas program. Is there any - can you discuss what kinds of partners you're working with, if not their actual identities at this point, is there a reason for the secrecy I guess?

[David Emery:]

Yeah, certainly not prepared to discuss who they are, I think really it's a matter of until we're certain that we're going to have partners both Black Hills and the potential partners would prefer not to disclose that. But they would be other utilities that would serve in and service territories that are outside of the ones that we serve at least those of the people we're talking to currently.

[Mike Weinstein:]

It's mostly utilities.

[David Emery:]

Yeah absolutely, exclusively utilities.

[Mike Weinstein:]

And on the Colorado RFP approval, is that any indication at all of any improvement in Colorado's investment climate versus the pueblo CT treatment?

[David Emery:]

Well we're obligated to pursue the renewable portfolio standard there in the 30% and certainly as we go through the RFP process and look at investments in Colorado part of the process is especially if it involves an investment by it shareholders it can involve establishing some degree of comfort that the commissions comfortable with any investment that we would make, if one of our projects is selected as the winning project RFP. I do feel optimistic that in time will reach a reasonable solution to the gas turbine investment and the rate review process there with the change in commissioners it's just taken a little longer than we would have preferred for that process to play out, but we feel pretty good about that overhaul and that in time that will work itself out, as we work through the RFP for the renewables and we'll see if a project that we would invest and is the winning project at the end of the day, but if it is certainly we would want to have a pretty good feeling of comfort that we would be allowed to recover a fair return on that investment before we would choose to invest additional dollars there.

[Mike Weinstein:]

Great, thank you very much.

[David Emery:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Insoo Kim with RBC Capital Markets. Your line is open. Please go ahead.

[Insoo Kim:]

Hey good morning everyone.

[David Emery:]

Good morning, Insoo.

[Richard Kinzley:]

Good morning, Insoo.

[Insoo Kim:]

First regarding your 2017 guidance retiring the guidance, is that how much when you originally gave the guidance, how much rate increase at the Colorado rate case did you embed and is it safe it's in those somewhat higher than where you ended up receiving?

[David Emery:]

We have revised the guidance. So I guess you know put it this way we're comfortable with the number that's in there and what we would expect ultimately and maintaining that guidance number.

[Insoo Kim:]

Right. Next time I get to hearing doesn't yield anything more than what you guys originally received you would still be comfortable within that range?

[David Emery:]

Correct.

[Insoo Kim:]

Got it. And then regarding the non-core assets sales, is it still your expectation to be divested of all the non-Mancos properties by the end of this year?

[Richard Kinzley:]

Yeah, that's our target. What we really would like to do is kind of match up the two concepts where by the time we're ready to focus on cost of service gas exclusively. We will essentially have divested all the rest of the non-core assets, and we expect that to be around year end.

[Insoo Kim:]

Got it. And then despite the moderate delay and the potential filing for Cost of Service gas, is your timeline for being out of the unregulated E&P business as we know it is still on track to happen by the end of 2018 whether it will make us goes into this regulated model or you end up divesting it?

[Richard Kinzley:]

Yeah I understand your question correctly. I think our intent is really to have divested all the non-core things by the end of 2017 or shortly thereafter and then hopefully if we're fortunate in obtain approval for Cost of Service Gas program we would finish the transition kind of in 2018. So yeah we're very much still on schedule to meet that as the plan.

[Insoo Kim:]

Right. And then just the tail end of that question was I guess it's a Cost of Service Gas isn't approved or the Mancos properties are in ultimately put into the program then you would look to divest that also you know by the end of 2018, is that…

[Richard Kinzley:]

Yeah, certainly we would - yeah we would have to have a discussion with our board as far as future alternatives there, but we've said kind of repeatedly that we would not intend to stay and kind of that non-regulated E&P business.

[Insoo Kim:]

I understood. All right, thank you very much on that and I see you guys at AGA.

[Richard Kinzley:]

Sounds good, thanks.

[Operator:]

Thank you. And our next question comes from line of Joe Zhou with Avon Capital Advisors. Your line is open. Please go ahead.

[Joe Zhou:]

Hey good morning. Thank you for taking my question.

[David Emery:]

Good morning.

[Richard Kinzley:]

Good morning, Joe.

[Joe Zhou:]

I'm sorry if has been asked before about there has been a while since your acquisition of SourceGas. When do you think you will be open to continue to grow through another merger acquisition if that's still part of your strategy?

[Richard Kinzley:]

Yeah Joe, this is Rich. Certainly we're always looking at acquisition opportunities right now. The balance sheet as we've discussed is pretty levered from intentionally from the totally paid gas, but we're working through that deleveraging process and as you look out say toward the end of 2018, we're going to be in a pretty good position in terms of our balance sheet. So in the meantime we'll continue to evaluate opportunities, but it's probably anything material, say over $0.5 billion it's probably a little ways down the road before we can compete for one of those.

[Joe Zhou:]

Great, thank you.

[Operator:]

[Operator Instructions] Our next question comes from the line of Lasan Johong with Auvila Research Consulting. Please go ahead.

[Lasan Johong:]

Thanks, I've been called worse. Anyway…

[David Emery:]

Good morning, Lasan.

[Lasan Johong:]

Good morning, how are you?

[David Emery:]

I'm good.

[Lasan Johong:]

Anyway, first of all your commercial paper program, I assume you bought the revolver backstopping that commercial paper issue.

[David Emery:]

That's correct.

[Lasan Johong:]

Okay, good. Second the Mancos Shell, it is a dry gas or doesn't have any liquids in it?

[David Emery:]

It depends on the area you're in, Lasan, a little of both. Certainly I think economics would be better in the short term if we focused on the liquids rich areas, which we've done it some up. We've done a little drilling in both areas, but our plan for Cost of Service Gas would be to focus a little more attention on the liquids rich areas early just because the economics are better. And then as gas prices rise over time that we can focus more on the drier areas, but we have a fairly good handle on where we think the liquids rich areas of play are.

[Lasan Johong:]

Okay. Then obviously the next question is, how we go thinking or methodology in terms of how you would share the profits from the liquids with utilities that you would serve or is that going to be completely Black Hills account only and the gas that do you already think that the commission will care about?

[David Emery:]

If you look at the way we at least the initial proposal, which of course we would drill on, we're not differentiating those so any liquids benefit would essentially reduce the cost of gas for customers. We're not proposing some complicated sharing mechanism or anything like that. Our plan would be to basically drill the wells and all the benefits of both gas and liquids production would benefit customers.

[Lasan Johong:]

While that's an element with customers then assuming that the liquids portion is pretty healthy. My next question begets is do you have enough processing capacity for the liquids?

[David Emery:]

Yes we do. If you read or 10-K in - you'll see that we have so many processing agreement, but we also have an arrangement with another entity where we're working on finalizing now where any excess capacity we could take them for processing and actually at a significantly less cost to them.

[Richard Kinzley:]

And they had substantial available capacity.

[David Emery:]

There is a lot of capacity available there. So yeah we've got more than adequate capacity.

[Lasan Johong:]

Excellent. The other question that I had was something that by you comment David, if you partners are mostly or if not or utilities, does that mean they are coming in on the drilling program as well as being the ships of Cost of Service Gas or is it going to be just going to be customer.

[David Emery:]

No to the extent we're successful in partnering with another utility they would be full participants in the program. For successful in the..

[Lasan Johong:]

Up and down the line including the….

[David Emery:]

That would be the partners entire range, yeah.

[Lasan Johong:]

So including the drilling risks and there is no like super exclusive and you take the risk on the first five wells or something like that.

[David Emery:]

No we would assume of partnership all the way through.

[Lasan Johong:]

Okay the next question is I assume that you have enough pipeline capacity into service for these parts of utilities that you're talking to, correctly?

[David Emery:]

Absolutely, yes.

[Lasan Johong:]

So there's no need for new builds?

[David Emery:]

No. You know there might be some need for some minor gathering in-field gathering, which we operate, but otherwise no.

[Lasan Johong:]

Excellent, great. Thank you very much for your help.

[David Emery:]

Thank you. Have a good day.

[Lasan Johong:]

You too.

[Operator:]

Thank you. And I'm showing no further questions. I'd like to turn the conference back over to Mr. David Emery. Sir please proceed with your closing remarks.

[David Emery:]

So thank you for your attendance on this morning. We appreciate your continued interest in Black Hills. Have a great rest of your day.

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.