MDU Resources Reports Second Quarter Earnings, Reaffirms 2013 Earnings Guidance
MDU Resources Reports Second Quarter Earnings, Reaffirms 2013 Earnings Guidance
Adjusted earnings per share of 25 cents compared to 17 cents last year, 47 percent increase; GAAP earnings per share of 24 cents compared to 29 cents last year.
E&P adjusted earnings improved 66 percent (84 percent on a GAAP basis) with oil production growth of 37 percent.
Construction business improves earnings 39 percent and reports higher backlog of $1.2 billion.
Natural gas utility sees 14 percent increase in sales; electric utility has 4 percent growth in retail sales.
Pipeline and energy services group diesel topping plant construction well underway.
BISMARCK, N.D.--(BUSINESS WIRE)-- MDU Resources Group, Inc. (NYS: MDU) today reported second quarter consolidated adjusted earnings of $47.2 million, or 25 cents per share, compared to $32.5 million, or 17 cents per share in the second quarter of 2012. Consolidated GAAP earnings were $46.3 million, or 24 cents per common share, compared to $53.9 million, or 29 cents per common share for the second quarter of 2012. For an explanation of non-GAAP earnings adjustments, see the Reconciliation of GAAP to Adjusted Earnings and the Use of Non-GAAP Financial Measures sections later in this press release.
"We had a strong quarter, led by another impressive increase in oil production and strong earnings growth from our construction business," said David L. Goodin, president and CEO of MDU Resources. "Our construction business had their most profitable second quarter since 2008. That and their growing backlog are encouraging signs that a sustained recovery is taking hold in the industry.
"Our exploration and production business has increased its 2013 target to 25 to 35 percent year-over-year growth in oil production," Goodin said. "At midyear, Fidelity has increased oil production 41 percent over the first six months of 2012."
Fidelity's oil production in the Bakken increased by 42 percent in the second quarter, compared to the same period a year ago. Oil production in the increasingly prolific Paradox Basin nearly quadrupled over the same time period.
Earnings at the company's construction business increased 39 percent despite a slow start to the construction season caused by record wet weather in parts of the Midwest. The construction materials and contracting business had improved earnings on lower revenues as a result of margin expansion driven in part by a lower cost structure. Earnings increased in all regions of the construction services business. The combined construction backlog has grown to $1.2 billion, compared to $980 million at the same time in 2012.
The utility business experienced a lower seasonal loss for the quarter compared to last year. Natural gas sales grew 14 percent primarily the result of colder weather along with 4 percent growth in electric retail sales. Customer growth continues strong particularly in the Bakken area with a 7 percent increase in electric customers and 6 percent increase in natural gas customers compared to last year. Earnings on a year-to-date basis are at a record pace totaling $40.8 million.
The pipeline and energy services business benefited from the addition of the Pronghorn natural gas and oil midstream assets acquired in May last year. Recently the business announced plans for a proposed 400-mile natural gas pipeline pending adequate contract commitments. The project would stretch from western North Dakota to western Minnesota to serve markets in eastern North Dakota, Minnesota and Wisconsin, increasing pipeline takeaway capacity out of the Bakken to accommodate rapidly growing natural gas production.
Outside of the Bakken, gathering volumes declined as producers adjusted operations because of low natural gas prices. As a result, the business recorded a $9.0 million (after tax) impairment of coalbed gathering assets.
Construction of the Dakota Prairie diesel topping plant continues on schedule for startup in the fourth quarter of 2014. The project is expected to generate EBITDA of $70 million to $90 million in the first year of operation, to be shared equally with Calumet Specialty Products.
Adjusted earnings for the six months ended June 30 were $107.3 million, or 57 cents per share, compared to $70.8 million, or 37 cents per share a year ago. Consolidated year-to-date GAAP earnings were $102.7 million, or 54 cents per share, compared to $89.6 million, or 47 cents per share for the six months ended June 30, 2012.
The company reaffirmed its 2013 adjusted earnings guidance of $1.30 to $1.40 per share excluding discontinued operations, the unrealized commodity derivatives gain and the natural gas gathering asset impairment. Including these adjustments, 2013 GAAP earnings guidance is in the same range.
"I am encouraged by the growth that is occurring within all of our businesses," Goodin said. "Our year-to-date consolidated earnings per share is substantially higher compared to a year ago. We are in a good position to achieve our earnings target. More importantly, our $850 million investment this year along with our planned future investments, has us well positioned for long-term growth."
The company will host a webcast at 10 a.m. EDT Thursday, Aug. 1 to discuss earnings results. The event can be accessed at www.mdu.com. Webcast and audio replays will be available. The dial-in number for audio replay is (855) 859-2056, or (404) 537-3406 for international callers, conference ID 13007081.
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.
Earnings by Segment | |||||||||||
Second Quarter | Second Quarter | ||||||||||
2013 | 2012 | ||||||||||
Adjusted Earnings | Adjusted Earnings | ||||||||||
Business Line | (In Millions) | (In Millions) | |||||||||
Exploration and Production | $ | 24.8 | $ | 15.0 | |||||||
Regulated | |||||||||||
Electric and natural gas utilities | (1.5 | ) | (2.0 | ) | |||||||
Pipeline and energy services | 2.6 | 2.5 | |||||||||
Construction Materials and Services | 22.9 | 16.5 | |||||||||
Other and eliminations | (1.6 | ) | .5 | ||||||||
Adjusted earnings | $ | 47.2 | $ | 32.5 | |||||||
Reconciliation of GAAP to Adjusted Earnings | ||||||||||||||||
Second | Second | YTD | YTD | |||||||||||||
Quarter | Quarter | June 30, | June 30, | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Earnings | Earnings | Earnings | Earnings | |||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
Earnings on common stock | $ | 46.3 | $ | 53.9 | $ | 102.7 | $ | 89.6 | ||||||||
Adjustments net of tax: | ||||||||||||||||
Discontinued operations | .1 | (5.1 | ) | .2 | (5.0 | ) | ||||||||||
Unrealized commodity derivatives gain | (8.2 | ) | (3.0 | ) | (4.6 | ) | (.5 | ) | ||||||||
Natural gas gathering asset impairment | 9.0 | 1.7 | 9.0 | 1.7 | ||||||||||||
Net benefit related to natural gas gathering operations litigation | — | (15.0 | ) | — | (15.0 | ) | ||||||||||
Adjusted earnings | $ | 47.2 | $ | 32.5 | $ | 107.3 | $ | 70.8 | ||||||||
Adjusted earnings per share | $ | .25 | $ | .17 | $ | .57 | $ | .37 | ||||||||
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 $1.30 to $1.40 on an adjusted basis excluding discontinued operations, the unrealized commodity derivatives gain and the natural gas gathering asset impairment. Including these adjustments, 2013 GAAP earnings guidance is in the same range. The unrealized commodity derivatives fair value is likely to fluctuate on a quarterly basis, which could cause the GAAP guidance range to change accordingly.
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 and strategic acquisitions.
The company focuses on creating value through vertical integration between its business units. For example, the pipeline and energy services business' partially owned diesel topping plant under construction in the Bakken region will 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.
Estimated capital expenditures for 2013 are approximately $850 million, excluding noncontrolling interest capital expenditures related to Dakota Prairie Refining.
Exploration and Production
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in millions, where applicable) | ||||||||||||||||
Operating revenues: | ||||||||||||||||
Oil | $ | 105.9 | $ | 70.9 | $ | 205.9 | $ | 142.2 | ||||||||
Natural gas liquids | 6.2 | 7.1 | 13.7 | 16.8 | ||||||||||||
Natural gas | 23.2 | 12.0 | 42.4 | 31.5 | ||||||||||||
Realized commodity derivatives gain | 1.3 | 11.1 | 5.6 | 14.6 | ||||||||||||
Unrealized commodity derivatives gain | 13.0 | 4.8 | 7.2 | .7 | ||||||||||||
149.6 | 105.9 | 274.8 | 205.8 | |||||||||||||
Operating expenses: | ||||||||||||||||
Operation and maintenance: | ||||||||||||||||
Lease operating costs | 22.0 | 19.0 | 42.8 | 37.5 | ||||||||||||
Gathering and transportation | 4.2 | 4.2 | 8.5 | 8.5 | ||||||||||||
Other | 10.3 | 9.5 | 20.4 | 18.7 | ||||||||||||
Depreciation, depletion and amortization | 45.1 | 34.4 | 88.3 | 71.2 | ||||||||||||
Taxes, other than income: | ||||||||||||||||
Production and property taxes | 12.3 | 8.7 | 23.9 | 18.3 | ||||||||||||
Other | .3 | .3 | .6 | .6 | ||||||||||||
94.2 | 76.1 | 184.5 | 154.8 | |||||||||||||
Operating income | 55.4 | 29.8 | 90.3 | 51.0 | ||||||||||||
Earnings | $ | 33.0 | $ | 18.0 | $ | 53.3 | $ | 30.9 | ||||||||
Unrealized commodity derivatives gain | (8.2 | ) | (3.0 | ) | (4.6 | ) | (.5 | ) | ||||||||
Adjusted earnings | $ | 24.8 | $ | 15.0 | $ | 48.7 | $ | 30.4 | ||||||||
Production: | ||||||||||||||||
Oil (MBbls) | 1,201 | 876 | 2,319 | 1,643 | ||||||||||||
Natural gas liquids (MBbls) | 191 | 209 | 392 | 399 | ||||||||||||
Natural gas (MMcf) | 6,987 | 8,239 | 13,700 | 18,286 | ||||||||||||
Total production (MBOE) | 2,557 | 2,458 | 4,995 | 5,090 | ||||||||||||
Average realized prices (excluding realized and unrealized commodity derivatives gain): | ||||||||||||||||
Oil (per barrel) | $ | 88.12 | $ | 80.99 | $ | 88.75 | $ | 86.60 | ||||||||
Natural gas liquids (per barrel) | $ | 32.26 | $ | 33.77 | $ | 34.86 | $ | 41.91 | ||||||||
Natural gas (per Mcf) | $ | 3.33 | $ | 1.46 | $ | 3.10 | $ | 1.72 | ||||||||
Average realized prices (including realized commodity derivatives gain): | ||||||||||||||||
Oil (per barrel) | $ | 90.55 | $ | 83.06 | $ | 91.18 | $ | 85.73 | ||||||||
Natural gas liquids (per barrel) | $ | 32.26 | $ | 33.77 | $ | 34.86 | $ | 41.91 | ||||||||
Natural gas (per Mcf) | $ | 3.09 | $ | 2.59 | $ | 3.09 | $ | 2.60 | ||||||||
Average depreciation, depletion and amortization rate, per BOE | $ | 16.90 | $ | 13.32 | $ | 16.90 | $ | 13.32 | ||||||||
Production costs, including taxes, per BOE: | ||||||||||||||||
Lease operating costs | $ | 8.59 | $ | 7.74 | $ | 8.57 | $ | 7.37 | ||||||||
Gathering and transportation | 1.66 | 1.70 | 1.71 | 1.66 | ||||||||||||
Production and property taxes | 4.81 | 3.54 | 4.78 | 3.58 | ||||||||||||
$ | 15.06 | $ | 12.98 | $ | 15.06 | $ | 12.61 | |||||||||
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. | ||||||||||||||||
Second quarter adjusted earnings at this segment were $24.8 million in 2013, compared to $15.0 million in 2012. This increase reflects increased oil production of 37 percent and higher average realized natural gas and oil prices (excluding commodity derivatives gain) of 128 percent and 9 percent, respectively. Partially offsetting the earnings increase was higher depreciation, depletion and amortization expense, a lower realized commodity derivatives gain, decreased natural gas production of 15 percent, higher production taxes and higher lease operating expenses. GAAP earnings were $33.0 million in second quarter 2013 compared to $18.0 million in the same period last year.
Effective April 1, the company elected to discontinue hedge accounting for all of its commodity derivative instruments and, therefore, all prospective changes in the fair value of the company's commodity derivative instruments are recorded in the income statement.
The following information highlights the key growth strategies, projections and certain assumptions for this segment:
The company expects to spend approximately $400 million in capital expenditures in 2013. With improving well cost efficiencies and having essentially completed the extensive 2012 exploration program, the capital program will focus on growth projects where the company expects higher returns, namely the Bakken, Paradox Basin and Texas, as described below. The 2013 planned capital expenditure total does not include potential acquisitions.
For 2013, the company expects a 25 to 35 percent increase in oil production, a flat to slight decrease in natural gas liquids production, and a 15 to 25 percent decrease in natural gas production. The majority of the capital program is focused on growing oil production considering current relative commodity prices. The company expects to return to some
