Good morning. My name is Molly, and I will be your conference facilitator. At this time I would like to welcome everyone to the MDU Resources Group Third Quarter 2013 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 1 p.m. Eastern Time today through 11.59 p.m. Eastern Time on November 15th. The conference ID number for the replay is 74400416. Again, the conference ID number for the replay is 74400416. 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.

Thank you, and welcome to our 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, go to our website at www.mdu.com, and follow the link to our 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, refer to Item 1A Risk Factors in our most recent Form 10-K and Form 10-Q and the Risk Factors section in our most recent Form 8-K. Our format today will include formal remarks by Dave Goodin, President and CEO of MDU Resources 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 Dave Barney, President and CEO of Knife River Corporation; Steve Bietz, President and CEO of WBI Energy; Nicole Kivisto, Vice President, Controller and Chief Accounting Officer for MDU Resources; Frank Morehouse, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas; Jeff Thiede, President and CEO of MDU Construction Services Group; and Kent Wells, Vice Chairman of MDU Resources and President and CEO of Fidelity Exploration and Production. With that, I’ll turn the presentation over to Dave for his formal remarks. Dave?

Thank you, Doran, and good morning. Thank you for joining us today to discuss third quarter results. We are pleased with the momentum of the first half of the year that has carried us into the second half. Adjusted earnings for the quarter were $92.3 million or $0.49 per share, compared to $71.9 million or $0.38 per share last year, a 29% increase. Our business plans and strategic capital deployment are yielding desired results really across the Board. As I believe we are doing a better job of executing our growth plans. Our E&P segment achieved 37% oil production growth, which resulted in 83% earnings increase compared to last year. Our Construction Group continued its recovery with an 18% earnings increase and only 10% revenue growth. And our Electric segment of the Utility Group enjoyed its best quarter ever and in our Pipeline Midstream Group was able to boost its earnings by $2 million as well. Now moving on to our individual operations, I’d like to start with our Construction Materials and Service companies. On a combined basis, that group earned $61.4 million. This is the best quarter on record for the group since its peak back in 2007. The increase was primarily the result of higher equipment sales and rental margins, higher workloads and margins in a number of our markets and higher aggregate and asphalt margins and volumes as well. We are pleased with the positive momentum we are seeing at our Construction businesses. Backlogs are up at both Materials and Services, with combined backlog now at $958 million, $124 million higher than last year at this time. North Dakota continues to play an important role for the group with backlog of approximately $157 million, compared to only $65 million last year. Included in our current amount is…

(Operator Instructions) Your first question comes from the line of Matt Tucker with KeyBanc Capital Markets.

Good morning and congrats on a nice quarter.

Hey, good morning, Matt. Thank you very much.

First question is on the guidance. You’ve still got a $0.10 range and you started the year with $0.15, but you now just have one quarter to go. You pointed to commodity prices and weather as key variables, could you comment on how those factors have trended a month into the quarter here?

Thanks, Matt. Repeat the question. As you noted, we did start the year with a $0.15 range. And as we have upped it for a couple of quarters now and narrowed it to the current $1.35 to $1.45. You noted, whether, if we commented on that, certainly commodity prices. I would also comment that we still have some differentials particularly in the Bakken that’s part of our -- we need to think about that for the rest of the year. I would say, it’s somewhat varied when we think about October. We’ve got some weather that’s probably been favorable in the further northwest of us. It’s been somewhat normal I would say, from the utility perspective, maybe more in the Dakotas. We continue to see a fair amount of rain here in the Dakotas, which is kind of unusual. Yet, offsetting that, out in the Pacific Northwest, it’s been almost drier than normal. So, I would say it’s kind of varied one way or the other on the weather. Certainly, we can all see what the commodity prices are doing, and then differentials would be kind of one of the key elements I would have as a takeaway. But certainly, we do want to finish the year strong.

Thanks. And as a follow-up to that, just on the differentials. The differential you guys see seems to bounce around quite a bit quarter-to-quarter and seemed a bit wide this quarter. Could you comment on kind of the reason for that, differentiate between maybe the Paradox versus the Bakken, if you can? And talk about what your expectations are going forward?

Sure. Kent is going to take that one.

Yeah, Matt, good question. So let’s start with the Bakken, because I think that’s the one that’s known better. If you go back to fourth quarter a year ago and even first quarter this year, the differential was more like $5. And then we’ve seen it just gradually increase, and we’re seeing more pressure today than we even saw in the third quarter on that with that differential getting up in the $12 to $15 range. And I think there’s a number of factors driving it, but its all supply and demand. And with the difference in Brent and WTI, which makes rail more economic then it takes some of the pressure off. And we’re seeing, while WTI prices have come down, the spread between WTI and Brent is widening back again. So I think that’s helpful. So maybe there’s a top end on where we’re currently seeing differentials right now but I don’t know. I mean, it’s really hard to predict that. The Paradox, historically, has been much more stable than that number and we’ll see where that goes going forward.

Thanks. And then just one on the construction side with respect to margins in the construction services business. I guess, in contrast to the materials side, where you’ve got kind of a lot of headroom versus prior peak margins. On the services side, you’ve kind of been at new highs over the past couple of years. Could you comment on the ability to continue to grow margins and services over the next couple of years?

Thanks for the question. This is Jeff. We don’t have any guidance for 2014, but I can tell you that we still anticipate pressure on margins. But we offset this pressure with our operational efficiencies. We utilize technology appropriately. Our planning and execution of our work is more diligent than it has in the past, had real good three quarters so far and we’ve put greater improvements in place. We look forward to finishing out this year and also look forward to next.

Thanks, guys. I’ve got some more questions, but I’ll hop back in the queue.

Okay. Thank you, Matt.

(Operator Instructions) Your next question comes from Holly Stewart with Howard Weil.

Good morning, gentlemen.

Good morning, Holly.

Maybe, a couple for Kent. Can you talk about the Paradox well? Is there anything you learned differently on this one? Just kind of give us some details and then maybe the plan as we look to add the second rig and over the remainder of the year?

Yeah, happy to do that, Holly. So obviously we continue to be very encouraged with the Paradox. I just want to keep reinforcing what a special well the 12-1 is. More than a year later and it’s still flowing 1,000 barrels a day. That’s pretty unique and talks a lot to the potential of this basin. The 36-1 well, which is flowing at 1,250 barrels a day at very high pressure, it was a challenging well to drill, very high pressure. It’s the longest lateral well we’ve drilled to date, but its early days on production. So we’ll see where that stacks up in the sort of hierarchy of exceptional wells that were there. Well, in terms of the second rig, sometime in the next two to three months, we expect to have a second rig working. We’ll use it to start to explore all the Uphole Clastics that we’ve talked about in the past as well as accelerate development drilling in the Cane Creek, further west into the West Fertilizer area. So we’ll sort of have a systematic approach of continuing to progress to this field. But I would say, we just get more and more and more encouraged, but since this play eluded our industry for four decades, we are just humbled to not say much.

Okay. Got it. Okay. And then maybe I think there was going to be a Three Forks well in Mountrail County? Do you have results on that one?

Yes, we do. We’ve done one well of our -- I think we’ve talked in the past that we’ve got this three-well pilot that we’re doing. We’ve got one done. We’ll do the next two in the back half of November. We are really encouraged what we’ve seen. We’ve only got three weeks of production on it, but it’s very encouraging compared to what we’ve done in the Three Forks before. So when we do the next two wells, if that all goes well, that sets us up for another 60-plus Three Forks locations in Mountrail County. But I think we need to wait until we see the next two wells. In terms of the technology, we’ve gone to cemented liners, very similar philosophically to what the rest of the industry is doing, increasing frack stages. There’s a few things that we’re doing a little different on the design in particular and how we execute it that we’re going to keep confidential at this time. But I think this is going to really help going forward.

Perfect. And then maybe moving on to the proposed pipeline project for Steve. I know you talked about new routes. I guess what’s been the feedback thus far? This is kind of the first time that you’ve thrown out there, looking at kind of redesigning the routes. So just kind of curious as to what you’re hearing and seeing out there.

Sure, Holly. This is Steve. As we’ve gone out to the marketplace with this project, we’ve gotten good feedback both from a producer perspective as well as from an end-user perspective. I think coupled that with all of the continued drilling in the Bakken and we’ve now reached, what, I think one Bcf of production coming from the Bakken. I think that all lends real credibility to this project. As we met with the marketplace and kind of considered various things, certainly diversity is important and so we are looking at ways of trying to provide some diversity in terms of the end-use markets. So we’re looking at tie in the Great Lakes and TransCanada as well as Viking, which has always been part of our plan. There is some growing industrial load in Eastern North Dakota that we’re taking into consideration there to kind of bring that all together. We’re kind of just stepping back and looking at some alternatives really to meet the needs of the marketplace, both producers as well as end-users. So we’re going to continue to work through that and work with our customers before we make our final determination on that route.

And still a, December open season timing?

Yeah, probably sometime in there, Holly. I think what’s important is that we get our route kind of laid out and have enough time to have vetted that further with our customers then we’d be prepared to take that out so.

Okay. So there is still ebbs and flows. Maybe one more, I guess, for Kent. Kent, the gas production has held up certainly a lot better than we were expecting. Is there anything in the Bakken wells or anything that maybe is causing? I know you had some curtailed production that you were going to bring on. But anything that’s maybe making that you -- the forecast for the decline is less than it was, so anything to point out there?

Yeah. So, Holly, we did bring some of the Baker and Bowdoin production that we had curtailed back on. We haven’t brought it all back on, but that is probably the primary reason why our production is a little better.

Okay. Okay. Great. Thanks.

Thank you, Holly.

Your next question comes from the line of Matt Tucker with KeyBanc Capital Markets.

Thanks. Most of my follow-ups were actually just asked and answered. But just on the FERC rate case, could you give us a little sense of the procedural timeline there and when you’d expect a decision?

Sure, we filed that case just yesterday. We requested the rates to go into effect December 1. I think our expectations there is the FERC will typically suspend that and by kind of the rules are able to suspend that for a five-month period. So that would move kind of on effective date to May 1 of 2014, at which time, if we’ve been able to resolve the case, those rates would go into effect. Otherwise, our as filed rates would likely go into effect subject to refund.

Great. Thank you. That’s all I had.

Thank you, Matt.

Your next question comes from the line of Vedula Murti with CDP Capital.

Good morning.

Good morning, Vedula.

I’d say a couple of things. One, just wondering if we try to look a little bit forward into 2014 without a formal capital program type of commitment or anything like that, given what you are seeing both in the Paradox as well as in the Bakken, can you give a sense as to what type of potential capital acceleration could be in the cards given kind of what you’re seeing and what you might be hoping for?

Vedula, I’ll take that one. I think, certainly, we’ve talked about we’ll provide a little more guidance, you might say about February 1st. As we think about 2014 I know you’re trying to kind of see where we’re headed here. I would guide your eyes to our five-year CapEx that we’ve talked about, which we’ve said about $820 million this year is our expected, and we’re looking at about around $4 billion over the next five years. So if you were to just kind of look at that on an even basis even it would seem that we continue our investment at or about where we’re at, and that doesn’t include certain specific big projects as we’ve noted, even with Steve’s Dakota pipeline project for otherwise, that’s not included in there. We’ve stated that otherwise too. So, I’d say stay tuned more for the February 1st call, but, clearly, when we think we’re adding a second rig in the Paradox here in the next couple of three months, we need to allow for that in our CapEx budget.

I mean, but are you -- are based on kind of the analysis that you are doing on the wells and kind of potential you’re seeing. I mean, is there any type of a probability for a true step function change going forward in terms of capital acceleration or not particularly?

Yeah. Vedula, it’s Kent. We are really encouraged by what we’re seeing in the Paradox. And so -- but we also think the systematic and strategic approach we put in place so far has served us very well, and we’re going to continue to do that. So we’re going to go to a second rig and we’re going to follow that plan and to the extent that that leads us to add a third rig, we’ll do that down the road. I think in the Bakken, the jury is still a little bit out. We’re very encouraged with what we’ve seen on the first well. If the next two wells give us similar, then it certainly gives us that opportunity to -- I don’t know if I’d want to call it a step change in capital but certainly we could increase the capital. But we will look across the entire corporation and see what makes sense.

When I mean with step change, I’m saying -- I’m suggesting that if the five-year -- the residual to five-year programs are earning more like $900 million to $1 billion a year roughly give or take, that whether you see the opportunity to maybe -- particularly given the flexibility on the balance sheet to move to like a one-two to one-four a year average, kind of. That type of step change function was what I was implying.

Vedula, this is Doran. How I respond to that, again -- I think, to Kent’s point, really across all of our business units, we see opportunities to invest, Dave mentioned too, within our existing capital budget. Looking forward five years organically, we don’t put M&A into our budget. That would be incremental to our CapEx forecast. But clearly we see the opportunities to grow going forward with our existing capital budget .We’re probably not in a position right now today to indicate whether or not that may change. That is our current five-year forecast and we’ll -- we’ll provide more detail, I think, on whether or not that’s changed with the February release. What I can say though is as we think about our financing plans for the year, as we’ve talked about through the year, I think one of the things we think about is how do we finance ourselves going forward. Certainly we’ve exceeded our original plans. We’ve increased our guidance twice this year, that’s generated some incremental cash flow. We’ve managed our working capital. Although we’re committed to a strong balance sheet, we have used some debt to the point that you made, Vedula. We’ve managed our CapEx. And we’ve sold some non-strategic assets such as $30 million that we put into the news release at our oil and gas business. And then, as we’ve said throughout the year, we are doing all we can to find other sources of capital before having to issue equity. Today, we haven’t issued any equity. So as we think about our capital going forward and as we think about the opportunities that we have, specifically identified within our capital budget, we are definitely in growth mode. As it relates to the financing of our capital, if we continue to see good organic or potentially even currently unidentified M&A growth opportunities that generate long-term value to the shareholders that are accretive and have potential to grow over time. If we needed to issue equity to fund a portion of those opportunities, we would issue the equity. But as it stands right now, we are standing by our five-year forecast at this time.

Okay. I guess one last thing following up on your last comment there. Clearly, you’ve got a very strong currency. I’m wondering, as you evaluate things going forward in terms of financing, given where we see other valuations within the capital markets. Any -- has the opportunity for any type of a corporate restructuring possibly become more attractive or more likely going forward? Because in the past, the integrated model has -- one that has served you quite well. But you felt that, if I’m paraphrasing properly, that you didn’t see any particular advantage to any type of restructuring versus the integrated model as of now.

Vedula, this is Dave. I would say as we think about our diversified model and I’ve been in this new role just not quite a year now. And I’ve conveyed to others in the marketplace that I think we’ve got real potential to kind of leverage across our business units probably to a greater extent than maybe what has historically happened. I think we are seeing more and more of that. The team that you’re hearing from today is very engaged in leveraging those expertise contacts, customer needs information, ways in which we can really further, I guess, enhance the business of each of our lines of business. So that being said, we have in the past made some specific restructuring. I mean, we once upon a time had a merchant business that we sold in mid-2000s. We were in coal. We’ve transferred that to really aggregate lines of business. So I think we’ve got to be open to those ideas, but the long and short of that is I think we’re just starting to hit a little bit of our stride on working across our business units. And I see more leverage there that we can gain then by spinning or doing something else, I think maybe is what you’re referring to.

Okay. I appreciate that. Thank you very much.

Thank you, Vedula.

Your next question comes from the line of Paul Patterson with Glenrock Associates.

Good morning.

Good morning, Paul.

Vedula actually hit most of my questions. But just since I have got you, there’s been this lawsuit associated with gas flaring in the Bakken. And I don’t think you guys were named in it, but I was wondering if you could discuss what the -- if there’s any potential issues there with respect to you guys. I mean, are you flaring a considerable amount of gas, and have you guys been approached or has there been any issue there with respect to you guys?

Yes, Paul, this is Kent. We are not named in that lawsuit. We look to gather all the gas we can. It’s good quality gas and it has value. And we’re gathering almost all of our gas. It’s just a couple of very isolated wells that we aren’t able -- there’s no pipelines in the area to get to it. So we don’t expect to be a part of that.

Okay. And then with respect to Holly’s question on the, I guess, technology, this new technology that you guys are deploying with respect to your wells. Could you give us a little bit of a flavor as to just quantitatively what the impact might be that you’re seeing with respect to this technology in terms of production or cost?

Yes, I mean, it’s a very good question. We’re three weeks in on one well, and I’m really reluctant to say because it’s really encouraging. But I want to hold off until I’ve got a little more data. My reservoir engineers would really be unhappy with me to say too much on that. So I think let’s wait until we’ve got more than one well and we’ve got more data on it. And then I think we can say, look this is really a significant difference and it justifies aggressive development in the Three Forks.

Okay. Well, thanks so much, and congratulations.

Thanks, Paul.

Your next question comes from the line of Brent Thielman with DA Davidson.

Hi, Good morning.

Good morning, Brent.

Yes, on the construction materials side, if I back out the big project in North Dakota from backlog, would the private sector have represented a larger percentage of the business? And I guess what I’m getting at is kind of what the momentum you’re seeing on the private side of that business right now?

So Paul, sorry, Brent, if I got your question right, you’re saying of $157 million or so, the $55 million, if we back that out of the remaining, I’ll say, $102 million, what’s our split in public -- I’m trying to get your question a little more.

Yes, if I backed out the -- I guess, the large order out of backlog from North Dakota, would the private sector have been a bigger percentage of, I guess, the business here in the quarter?

If I’m getting what you’re saying right, Brent, we’re still trending about that 13% private work. Obviously, we’re picking up a larger portion of public work when you have a $55 million project you pick up and put on the backlog. But we’re still trending about that 13% private right now.

Okay, perfect. That’s what I was getting at. And then on the concrete portion of the business has been growing slower than some of the other product areas, any reason behind that?

Our concrete is up in the quarter, ready mix by 10%.

Is it? Okay. And then I guess in construction overall…

Excuse me, that’s 2.5%, Brent, not 10%.

Okay. Any reason behind that? It looks like your aggregates and asphalt volumes a little stronger.

Well, we had a little bit of weather in September, as far as pretty wet weather in the Northwest region, one of the wettest Septembers on record. And that’s obviously going to have something to do with that downturn.

Got you. And then, I guess construction overall between materials and services. I know we have to wait on 2014 guidance here, but how are you thinking about next year, kind of given the funnel of work you’re seeing today. Obviously, you kind of had some certainty out in Washington. Are you getting more confidence that we see some acceleration in both of the businesses next year or do we kind of think about it at the run rate of growth that we’re seeing?

Well, I don’t think we’re going to talk about next year today, Brent, but stay tuned. That’s all I can tell you.

I guess I would add to that, Brent, we reported. Look at our 12 trailing, we continue to gain on that on an earnings basis. I think we’re up almost $10 million, 12 trailing months earnings between the two construction businesses just this past quarter, and we saw about that same type of increase in earnings from the previous quarter. So, to me, that gives me a little bit of at least trajectory here, you might say. Yet, I mean, there’s a lot to be still -- when we think about 2014, we just really don’t want to go there yet today on this call. We’ll get back to you on that one.

Okay. Fair enough. Thank you.

Okay. Thank you, Brent.

(Operator Instructions) This call will be available for replay beginning at 1 p.m. Eastern time today through 11.59 p.m. Eastern time on November 15th. The conference ID number for the replay is 74400416. Again the conference ID number for the replay is 74400416. Your next question comes from the line of Rosemarie Tevelow with Tevelow Associates.

Good morning.

Hello. Good morning, Rosemarie.

My question went along the lines of Vedula’s. Starting with the five-year plan that you have for capital spending and realizing that a lot of things will change in between now and then. I was wondering, in the overall outlook, what is the split? Do you have a split with how much outside debt you might need? How much internal generation, that kind of thing. I mean, even just rule of -- I shouldn’t say rule of thumb, we don’t go by rules of thumb. But general outlook for what’s your plan is as you think about this level of construction and financing. How are you going to pay for it?

Yes, Rosemary, this is Doran. I would say our first goal to pay for our CapEx plans as we go forward, based on the five-year forecast as it stands today, is to pay for as much of that with internally generated cash flows as possible. And as we put capital into place, for example put capital in for the refinery today, that’s capital today. But the cash flows start -- and, again, that $79 million of EBITDA is pretty significant. Those start in 2015 as that plant comes online. So as we deploy capital, utility -- the same thing there, we deploy capital, get that into our rate base, it starts generating earnings and cash flows. As we look to the five-year forecast, we have an increasing stream of operating cash flows that essentially takes up the vast portion of our CapEx needs.

That’s good.

In addition to that, we do -- we are committed to a strong balance sheet, but we are forecasting we would use leverage in that forecast. We have already sold some assets as a part of an ongoing review of our strategic and non-strategic asset portfolio. Kent in his business has sold $30 million, as we announced. This year, we continue to do that on an ongoing basis. That’s a source of proceeds. Rosemary, we have talked about -- again, I alluded to earlier, we’ve taken a hard look at issuing equity only as a method of last resort after we’ve exhausted all other options. As we go forward, we take a look at our forecast. Obviously, again, operating cash flows covers a lot but we maintain a strong balance sheet. We issue some debt. But we are in growth mode, and we’re seeing good growth opportunities going forward. Now, we’re not in a position to update our five-year capital forecast, but, as we go forward, we’ll maintain the strength of our balance sheet. And if we see good projects out there that are accretive to you as the shareholder, they generate incremental EPS, they generate incremental cash flow, and they’re good value over the long term. We would look absent in an opportunity to fund it from another source, to issue equity to fund those types of opportunities going forward. So it would be a mix of potential levers that we would pull, equity being the last lever, to fund ourselves going forward. But it’s a great position to be in right now at a BBB+ rating and a strong balance sheet to think about going back into growth mode here as we take a look at the next five years.

Thank you, Doran.

At this time, there are no further questions. I would now like to turn the conference back over to management for closing remarks.

Well thank you, and certainly we’re pleased with our performance on a year-to-date basis. And we do continue to focus on execution of the growth opportunities that are really right in front of us. Our business units are working together to add shareholder value. And we do appreciate your participation on the call today. And we will keep you updated as we move throughout the rest of the year. Again, thank you for your interest in MDU Resources. Operator?

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