MDU Resources Group, Inc.
Q3 2017 Earnings Call Transcript

Published: 5 Nov 2017

[Operator:]

Hello, my name is Shelby, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2017 Third Quarter Conference Call. [Operator Instructions] This call will be available for replay beginning at 5 PM Eastern Time today through 11

[Jason Vollmer:]

Thank you, Shelby. Welcome to our third quarter earnings release conference call. 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, please 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, please refer to Item 1A, Risk Factors, in our most recent Form 10-K. For our call today, I will discuss the key financial highlights for the quarter, and then turn the presentation over to Dave Goodin, President and CEO of MDU Resources, for his formal remarks. Members of our management team who will be available to answer questions during the Q&A session today are

[David Goodwin:]

Thank you, Jason, and good afternoon, everyone. Thank you for your interest in MDU Resources and for taking time to join us today to discuss our third quarter results. We released third quarter 2017 earnings yesterday after the market closed. We had a solid third quarter and reported a $0.01 increase in earnings per share from our continuing operations compared to 2016. Our third quarter results continue to show the strength of our two-platform business model as higher earnings at the utility and construction services businesses helped to offset the impacts of a shortened construction season at our construction materials business. Third quarter highlights for our utility companies include significantly higher earnings year-over-year due to implemented rate relief, higher electric and natural gas sales volumes as well as conservation adjustments and weather normalization. Our utility continues to seek regulatory recovery for costs associated with upgrading and expanding our facilities, so we can safely meet our growing customer demand. In the third quarter, our natural gas utility filed rate proceedings in Montana, North Dakota and Washington. On a combined basis, in January 1, our utility has received and implemented final rate increases totaling $37.3 million in revenue. In addition to these finalized rates, the utility has $15.4 million of rate relief in pending cases. Looking ahead, the utility expects its 1.1 million customer base to continue to grow by 1% to 2% annually. The natural gas utility will continue to focus on pipeline projects to enhance system reliability, safety as well as deliverability. The electric utility plans to finish construction in 2019 on our 160-mile FERC regulated 345 kv transmission line from Ellendale, North Dakota to Big Stone City, South Dakota. The electric utility is filed in 2017, our North Dakota Electric Integrated Resource Plan and its 2017 Montana IRP as well. These plans include the proposed purchase of the Thunder Spirit Wind farm expansion project, along with the development and design of a large combined cycle natural gas-fired facility expected in the 2025 time frame. With regard to the Thunder Spirit Wind farm expansion, in December of 2016, we signed a 25-year agreement to purchase the power from the project, which is being built by a third party and expands our existing Thunder Spirit Wind farm to approximately 150 megawatts. The agreement included an option to buy the project at the close of construction. The original Thunder Spirit Wind farm purchased in December of 2015 includes 43 turbines and this expansion will include 16 additional turbines. Near the end of the second quarter, we filed a request with the North Dakota Public Service Commission for an advance determination of prudence with regard to the purchase option. We are excited about moving forward with the purchase option if approved by the North Dakota PSC, as the expansion will continue to increase our renewable generation portfolio from currently 22% to then will be 27% of our nameplate capacity. At our pipeline business, we also had a solid quarter, with record transportation volumes helping to offset the absence of earnings from the Pronghorn assets that were sold in early January for approximately $100 million in proceeds. We recently announced that Trevor Hastings is now President and CEO of WBI Energy as well. Trevor is an outstanding leader who has been with the company for 21 years and has an excellent understanding of our corporation and is ideally suited to lead the pipeline group's continuing success. As you may recall, the Charbonneau and Line Section 25 expansion projects, which include a new compressor station as well as other compression additions and enhancements, were placed into service in the second quarter. It is organic growth projects like these that will allow the pipeline group to increase transportation volumes that will, over the long term, equate into earnings growth. Other long-term growth opportunities for the pipeline business include the Valley Expansion Project. In October of last year, WBI Energy received FERC approval on its prefiling for the Valley Expansion Project. As you'll recall, this pipeline project is approximately 38 miles and will deliver natural gas supply to Eastern North Dakota and far Western Minnesota. It will connect the Viking Gas Transmission Company pipeline near Felton, Minnesota to our existing pipeline near Mapleton, North Dakota. And it is designed to transport 40 million cubic feet of natural gas per day. The cost of the expansion project is estimated at $55 million to $60 million. WBI Energy filed its FERC certificate application for the Valley Expansion Project in the first quarter of this year. After we receive the necessary permits and regulatory approvals, construction on the project is expected to begin early next year with completion slated for late 2018. Also on June 29, WBI Energy announced plans to expand its Line Section 27 natural gas transportation system located in Northwestern North Dakota. This $27 million to $30 million project involves constructing approximately 13 miles of new pipeline and associated facilities. As designed, the expansion will increase the capacity of the Line Section by more than 200 million cubic feet per day, bringing the total capacity to over 600 million cubic feet per day. The company already has long-term commitment supporting this expansion, and we expect the project to be in line in 2018 as well. Now I'd like to turn over to our construction businesses and talk about them for a little bit. At MDU Construction Services Group, they continue to produce exceptional earnings growth with an 82% earnings increase quarter-over-quarter on record revenues. This business continues to see demand for its high-tech mission-critical work, and in the third quarter, we saw stronger equipment sales and performed emergency power line repair work in areas impacted by hurricane activity. After a second consecutive quarter of record revenues, we have increased our 2017 revenue guidance for the construction services business to a range now of $1.25 billion to $1.35 billion. Backlog now stands at $676 million at the end of the third quarter, and we are excited about the opportunities this business has on a go-forward basis. On the construction materials side, we continue to be optimistic about the opportunities in front of our business and believe that our 1 billion tons of aggregate reserves located in strong markets across the country makes us well positioned for any infrastructure upside we may see in the future. Knife River's operations are well positioned to benefit from those states such as

[Operator:]

[Operator Instructions] This call will be available for replay beginning at 5 PM Eastern Time today through 11

[David Goodwin:]

Thank you, Shelby. And as I said earlier, our continuing operations delivered strong results for the third quarter of 2017. At MDU Resources, we're committed to building a strong America and are optimistic about our opportunities for the rest of this year as well as beyond. We appreciate your participation on the call today, and thank you for your continued interest in MDU Resources. Shelby?

[Operator:]

This concludes today's MDU Resources Group conference call. Thank you for your participation. You may now disconnect.