MDU Resources Reports 2012 Results, Initiates Guidance for 2013

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MDU Resources Reports 2012 Results, Initiates Guidance for 2013

  • Construction businesses post 47 percent earnings growth year-over-year.
  • Grew total liquids production 29 percent in 2012 - oil production, excluding natural gas liquids, up 36 percent.
  • Oil reserve replacement ratio of 267 percent.
  • Utility electric customer counts grew 9 percent in Bakken.
  • Substantial progress made on proposed diesel topping plant.
  • Initial earnings guidance for 2013 of $1.20 to $1.35 per common share.

BISMARCK, N.D.--(BUSINESS WIRE)-- MDU Resources Group, Inc. (NYS: MDU) announced a consolidated loss for 2012 of $1.4 million, or 1 cent per common share, compared to 2011 earnings of $212.3 million, or $1.12 per share. Adjusted earnings were $216.8 million, or $1.15 per common share for 2012 compared to 2011 adjusted earnings of $225.2 million, or $1.19 per share. Refer to the Non-GAAP Financial Measures and Reconciliation of GAAP to Adjusted Earnings section beginning on page 15 of this press release.

The company reported a consolidated loss for the fourth quarter of $61.2 million, or 32 cents per share, compared to 2011 fourth quarter earnings of $60.8 million or 32 cents per share. Adjusted earnings were $76.0 million, or 40 cents per common share, compared to $73.9 million, or 39 cents per share in 2011.


"Our businesses are strong and our 2012 adjusted earnings reflect it," said David L. Goodin, president and CEO of MDU Resources. "Our construction businesses are seeing markets improve with earnings growth of 47 percent compared to last year."

The construction businesses reported their highest annual earnings since 2009 with 2012 earnings totaling $70.8 million, up $22.8 million from last year. The construction materials business saw an increase in the private construction market and a strengthening of markets in the Intermountain and North Central regions, as well as higher ready-mixed concrete and asphalt oil margins and volumes. The construction services business also saw strong growth, with record earnings at its inside electric business in Oregon and its specialty equipment manufacturing and rental business. The combined construction business backlog at year-end was approximately $731 million, $39 million higher than a year ago.

The exploration and production business, like many independent companies in the sector, uses the full-cost method of accounting. Under this method, the company is required to perform a quarterly ceiling test comparing its capitalized costs to the after-tax, discounted expected cash flow from its economic proved oil and natural gas reserves. The price used in the test is based on the average of the trailing 12 months. This test resulted in total after-tax write-downs for the year of $246.8 million. The write-downs were largely driven by the lower natural gas price environment in 2012. Other factors affecting the write-downs include certain capital associated with non-economic 2012 exploratory activity. The write-downs are noncash and do not affect cash flows.

"In the fourth quarter, net of the noncash write-down, our exploration and production business reported its highest quarterly earnings since 2009," Goodin said. "The group increased annual oil production by 36 percent over the prior year, outperforming its target."

Led by success with its Bakken and Paradox activity, company oil production for the fourth quarter was 1.1 million barrels of oil, a 59 percent increase from 2011. The company is continuing to rebalance its production portfolio, with total liquids accounting for approximately 52 percent of production in the fourth quarter, up from 34 percent a year ago. Oil alone represented 44 percent of production compared to 26 percent last year.

The company plans to invest approximately $400 million on the exploration and production business in 2013, with a significant portion of the capital allocated to development areas. The company currently has five rigs drilling in the Bakken, one in Paradox and one in Texas.

At the electric utility, earnings were $1.4 million higher driven by strong customer and sales growth largely in the North Dakota Bakken oil play. Electric retail sales increased 4 percent overall, and 6 percent in North Dakota. To help serve this growing customer load and meet other needs, the utility is entering 2013 with a record capital budget of $252 million. The electric utility expects to begin construction this year of an $86 million, 88-megawatt natural gas turbine to be completed in late 2014. The utility also will contribute about $125 million toward installation of a new emission control system at the Big Stone generating plant, which it co-owns. The system installation is expected to be complete in 2015.

The natural gas distribution business experienced lower natural gas deliveries with a warmer than normal heating season. Temperatures ranged from 6 percent warmer than last year in the Pacific Northwest to 16 percent warmer in the Plains with earnings down $9.0 million for the year.

Total transportation volumes at the pipeline and energy services business increased 22 percent year-over-year, largely because of agreements to build and operate takeaway pipelines serving several new natural gas processing facilities. Transportation to storage also grew by 30 percent. Dry natural gas gathering volumes declined 31 percent as low natural gas prices led customers to shift production strategies.

The pipeline and energy services business continued to focus on growing its midstream energy business. The company has made substantial progress in conjunction with Calumet Refining on the proposed building and operation of a diesel topping plant that would refine 20,000 barrels per day of Bakken crude oil. The permitting process has progressed with the public comment period related to the air quality permit concluding today. In addition, a certificate of convenience and public necessity has been signed by the North Dakota Public Service Commission approving the company's utility business to supply electric power to the proposed facility.

Last May, the pipeline and energy services business purchased a 50 percent interest in a new natural gas processing plant and related facilities. Production has been ramping up and the company will receive a full year of ownership and ensuing benefits in 2013.

"Our businesses have a strong foundation for growth, and we expect to build on the momentum that we experienced throughout 2012," Goodin said. "We are excited about the opportunities we are pursuing and are committed to continue growing our company with a capital budget of $3.8 billion between 2013 and 2017, including $807 million in 2013. Accordingly, building off of our 2012 adjusted earnings results of $1.15 per share, we are establishing our 2013 guidance in the range of $1.20 to $1.35 per common share."

The company will host a webcast at 11 a.m. EST Feb. 5 to discuss 2012 earnings results and 2013 guidance. The event can be accessed at www.mdu.com. A webcast replay and audio replay will be available. The dial-in number for audio replay is (855) 859-2056, or (404) 537-3406 for international callers, conference ID 85150168.

About MDU Resources

MDU Resources Group, Inc., a member of the S&P MidCap 400 index, provides value-added natural resource products and related services that are essential to energy and transportation infrastructure, including regulated utilities and pipelines, exploration and production, and construction materials and services. For more information about MDU Resources, see the company's website atwww.mdu.comor contact the Investor Relations Department atinvestor@mduresources.com.

Performance Summary and Future Outlook

The following information highlights the key growth strategies, projections and certain assumptions for the company and its subsidiaries and other matters for each of the company's businesses. Many of these highlighted points are "forward-looking statements." There is no assurance that the company's projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed at the end of this document under the heading "Risk Factors and Cautionary Statements that May Affect Future Results." Changes in such assumptions and factors could cause actual future results to differ materially from growth and earnings projections.

         
Business Line 

2012
Earnings
(In Millions)

 

2011
Earnings
(In Millions)

 

2012
Fourth
Quarter
Earnings
(In Millions)

 

2011
Fourth
Quarter
Earnings
(In Millions)

Exploration and Production $69.6 $80.3 $25.5 $20.2
Regulated
Electric and natural gas utilities60.067.626.727.8
Pipeline and energy services11.623.14.76.2
Construction Materials and Services70.848.016.215.5
Other 4.8  6.2  2.9  4.2 
Earnings before discontinued operations, noncash write-downs of oil and natural gas properties and net benefit related to natural gas gathering operations litigation216.8225.276.073.9
Income (loss) from discontinued operations, net of tax*13.6(12.9)8.7(13.1)
Effects of noncash write-downs of oil and natural gas properties(246.8)(145.9)
Net benefit related to natural gas gathering operations litigation 15.0       
Earnings (loss) on common stock ($1.4) $212.3  ($61.2) $60.8 
 
* Reflects a 2012 reversal of a 2011 arbitration charge of $13.0 million after tax related to a guarantee of a construction contract.
 

On a consolidated basis, the following information highlights the key growth strategies, projections and certain assumptions for the company:

  • Earnings per common share for 2013, diluted, are projected in the range of $1.20 to $1.35. The company expects the approximate percentage of 2013 earnings per common share by quarter to be:
    • First quarter - 15 percent.
    • Second quarter - 20 percent.
    • Third quarter - 35 percent.
    • Fourth quarter - 30 percent.
  • The company's long-term compound annual growth goals on earnings per share from operations are in the range of 7 to 10 percent.
  • The company continually seeks opportunities to expand through organic growth opportunities and strategic acquisitions.
  • The company focuses on creating value through vertical integration between its business units. For example, the pipeline and energy services business' proposed partially owned diesel topping plant located in the Bakken region, expects to have the construction materials and services business involved in constructing the facility, the exploration and production business supplying production to the plant, the pipeline transporting natural gas to the plant, and the utility supplying electricity.
  • Capital expenditures for 2012 and estimated capital expenditures for 2013 through 2017 are noted in the following table.
   Capital
CapitalCapitalExpenditures
ExpendituresExpenditures2013 - 2017
2012 Actual2013 Estimated*Total Estimated*
Business Line (In Millions) (In Millions) (In Millions)
Exploration and Production$554$400$2,127
Regulated
Electric112154496
Natural gas distribution13098498
Pipeline and energy services**134105435
Construction
Construction materials and contracting4543241
Construction services151367
Other 1  2  10 
Net proceeds and other (57) (8) (26)
Total Capital Expenditures $934  $807  $3,848 

 

* Capital expenditures relative to potential acquisitions of businesses would be incremental to these estimates.
**2012 includes the Pronghorn acquisition. 2013 includes the company's estimated share of certain capital related to the proposed diesel topping plant project.
 

Exploration and Production

  
Three Months EndedTwelve Months Ended
  December 31, December 31,
  2012 2011 2012 2011
(Dollars in millions, where applicable)
Operating revenues:  
Oil$100.6$63.7$319.6$236.1
Natural gas liquids8.412.433.041.9
Natural gas 25.4  40.0  96.0  175.6
  134.4  116.1  448.6  453.6
Operating expenses:
Operation and maintenance:
Lease operating costs19.619.877.775.6
Gathering and transportation4.66.217.424.3
Other8.69.237.036.5
Depreciation, depletion and amortization48.036.6160.7142.6
Taxes, other than income:
Production and property taxes11.810.339.740.8
Other.2.11.0
Write-downs of oil and natural gas properties 231.7    391.8  
  324.5  82.2  725.3  319.8
Operating income (loss) (190.1) 33.9  (276.7) 133.8
Earnings (loss) $(120.4) $20.2  $(177.2) $80.3
Production:
Oil (MBbls)1,1397183,6942,724
Natural gas liquids (MBbls)218215828776
Natural gas (MMcf)7,53810,93133,21445,598
Total production (MBOE)2,6142,75410,05811,099
Average realized prices (including hedges):
Oil (per barrel)$88.29$88.81$86.52$86.66
Natural gas liquids (per barrel)$38.39$57.62$39.81$54.06
Natural gas (per Mcf)$3.37$3.66$2.89$3.85
Average realized prices (excluding hedges):
Oil (per barrel)$84.27$91.84$84.84$91.62
Natural gas liquids (per barrel)$38.39$57.62$39.81$54.06
Natural gas (per Mcf)$2.80$2.86$2.08$3.30
Average depreciation, depletion and amortization rate, per BOE$17.70$12.72$15.28$12.25
Production costs, including taxes, per BOE:
Lease operating costs$7.50$7.18$7.73$6.81
Gathering and transportation1.762.251.732.19
Production and property taxes 4.53  3.72  3.94  3.67
  $13.79  $13.15  $13.40  $12.67
Notes:

-- Oil includes crude oil and condensate; natural gas liquids are reflected separately.

-- Results are reported in barrel of oil equivalents based on a 6:1 ratio.

 
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