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MDU Resources Group Inc. (NYSE:MDU)

Q3 2009 Earnings Call

October 30, 2009; 01:00 pm ET

Executives

Terry Hildestad - President & Chief Executive Officer

Vernon Raile - Executive Vice President, Treasurer & Chief Financial Officer

Bill Schneider - President & Chief Executive Officer of Knife River Corporation

Steve Bietz - President & Chief Executive Officer of WBI Holdings

Dave Goodin - President & Chief Executive Officer of Montana Dakota Great Plains Natural Gas, Cascade Natural & Intermountain Gas

John Harp - President & Chief Executive Officer of MDU Construction Services Group

Doran Schwartz - Vice President & Chief Accounting Officer for MDU Resources

Analysts

Paul Ridzon - KeyBanc

Paul Paterson - Glenrock Associates

Becca Followill - Tudor Pickering Holt

David Parker - RW Baird

Chris Ellinghaus - Shields & Co.

Faisel Khan - Citigroup

Jim Harmon - Barclays Capital

Paul Ridzon - KeyBanc

Operator

Good afternoon. My name is Kerry, and I will be your conference facilitator. At this time I would like to welcome everyone to the MDU Resources Group 2009 third quarter 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 4:00 pm Eastern Time today through 11:59 pm Eastern Time on November 13. The conference ID number for the replay is 32816963. Again, the conference ID number for the replay is 32816963. The number to dial for the replay is 1-800-642-1687 or 706-645-9291.

I would now like to turn the conference over to Vernon Raile, Executive Vice President, Treasurer and Chief Financial Officer of MDU Resources Group. Thank you, Mr. Raile. You may begin your conference.

Vernon Raile

Welcome to our earnings release conference call. Before I turn the presentation over to Terry Hildestad, our President and Chief Executive Officer, I would like to mention that 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 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 and 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 as well as our Form 10-Q and the Risk Factors section in our most recent Form 8-K.

Our format today will include formal remarks by Terry followed by a Q-and-A session. Other members of our management team who will be available to answer questions during the Q-and-A session of the conference call today are Bill Schneider, President and CEO of Knife River Corporation; Steve Bietz, President and CEO of WBI Holdings; Dave Goodin, President and CEO of Montana Dakota Great Plans Natural Gas, Cascade Natural Gas and Intermountain Gas; John Harp, President and CEO of MDU Construction Services Group; and Doran Schwartz, Vice President and Chief Accounting Officer for MDU Resources.

With that, I’ll turn the presentation over to Terry for his formal remarks. Terry.

Terry Hildestad

Thank you, Vernon. Good afternoon, I would like to thank all of you on the call and on the webcast for joining us today. We appreciate your interest in MDU Resources. Pleased to report that we had a very good third quarter. Consolidated earnings were $92.4 million or $0.50 per common share compared to $118.2 million or $0.64 per common share for the third quarter of 2008.

Consolidated earnings for the nine month ended September 30, excluding the first quarter non-cash charge related to low natural gas and oil prices were $188 million or $1.02 per share. This compares to $304.4 million or $1.66 per share for the first nine months of 2008. Based on our year-to-date results and our outlook for the remainder of the year, we are increasing our 2009 earnings guidance.

We now project earnings per common share to be $1.25 to $1.40 for 2009, excluding the first quarter non-cash charge. In addition, considering the recent rebound in oil and natural gas prices, we’ve increased our estimated capital expenditures for the year by approximately $45 million; substantially all of this increase is allocated to our energy group.

Now moving our discussion to individual operating results, earnings at our construction materials and contracting business increased 42% to $47.5 million. The growth reflects higher volumes, end margins for asphalt and liquid asphalt oil, higher margins for aggregates, and higher realization of continued cost reduction strategies. We certainly have benefited from the stimulus spending, although through September, only about 8% of the $7.9 billion stimulus package funding available in our states for operations has been spent.

The bidding environment remains very competitive. However, we’re pleased with the projects included in our backlog. We continue to add energy related projects recently adding a wind project in North Dakota, and we have a number of airport projects. We’ve secured work this year on airport projects in nine of the states in which we operate. In addition, our liquid asphalt oil business strategy is continuing to pay off as this group experienced another strong quarter.

Our vertically integrated construction materials operation is well positioned to add long term value with its 1.1 billion tons of aggregate supply, and its construction expertise. America has a great need for additional infrastructure spending. In a recent study, the American Society of Civil Engineers has given our nation’s roadways and bridges a D Grade, indicating it will take 2.2 trillion over the next five years just to bring our infrastructure back to an acceptable level. We should see a new multi-year Surface Transportation Authorization bill sometime next year.

Now moving to our natural gas and oil production segment, third quarter earnings were $24.4 million, compared to $57.5 million in 2008. This reflects averaged realized natural gas prices that were 34% lower than last year, and average realized oil prices that were 47% lower than last year. The decrease also reflects expected lower natural gas production resulting from our reduced drilling activity.

Our lease operating costs continue to decline to $0.88 this quarter compared to $0.95 last quarter, partially offsetting the decline in earnings was an 11% increase in oil production, primarily related to the production in the Bakken. In September, we sold approximately 45,000 net acres in the Northern block of our Bakken acreage, located in Bakken Mountrail County. The leaseholds on a substantial portion of this acreage are set to expire next year.

Nine operated wells along with interest in various non-operated wells were included in the sale. Production attributable to the properties sold was about 250 barrels per day. As we look forward, we plan to concentrate our investment in the more prolific areas of the Bakken play. I’d also like to add that the sale of these properties did not have an effect on our third quarter earnings. Under the full cost accounting method, gains and losses on the sale of properties are not recognized rather proceeds go to reduce the cost basis on our remaining properties.

The fundamentals of our remaining acreage in the Bakken are strong our acreage position in the Bakken is approximately 16,000 net acres. We have one rig under contract for continued drilling of our operated acreage. Reduced drilling times on our operated properties are being realized with a new rig commissioned last May. We’re also increasing the number of frac stages, and that’s improving production rates.

Combined production from our operated and non-operated properties exceeds 2,000 barrels, net barrels, of oil per day. As we go forward in to 2010, we will further evaluate the upside potential of the three, four percentage formation that lies below the Bakken formation. We are planning a 2010 test well in close proximity to an existing Bakken well and order to evaluate what, if any communication there maybe between the two formations. Our fining is minimal or no communication between the two, it will provide additional value associated with our position.

Finally, we’re continually looking for additional acreage in this Bakken play. With recent strengthening and commodity prices, we made adjustments to our planned capital expenditures for the year. We are reinvesting an additional $30 million in our natural gas and oil properties, bringing our capital expenditure total to approximately $200 million for this business segment.

We’ve allocated this additional capital across a number of our fields, including drilling 30 wells in our Baker Field, completion work on several wells on our South and East Texas properties, along with drilling three new wells and participating in the increased non-operating drilling activity in the Bakken area. We have approximately 45% to 50% of our natural gas production hedged, along with 30% to 35% of our estimated oil production hedged for the remainder of the year.

For 2010, approximately 35% to 40% of our estimated natural gas and oil production is hedged as well. We hold natural gas and oil properties with substantial long term value. We will continue to examine viable drilling and exploration projects to produce the best short and long term value for the company and our shareholders.

Next our pipeline and energy service segment reported earnings of $10.6 million, nearly double the $5.7 million reported last year. The increase was largely driven by higher storage service revenue and increased volumes transported to storage. We have injected approximately $30 billion cubic feet of interruptible gas for customers this year, doubling our interruptible storage balance from one year ago and reaching a record balance on interruptible storage of 48 billion cubic feet.

We’re very pleased with the recent acquisition and organic growth experience at our pipeline operations. In early August, we acquired the assets of the Total Corrosion Solutions. ECS a full-service cathodic protection company operating out there the Pacific Northwest and the Rocky Mountain Region. This addition strengthens and broadens our portfolio of field energy services. Also in August, we completed a 75 million cubic feet per day expansion to our Grasslands Pipeline.

Grasslands are now at its ultimate capacity of 213 million cubic feet a day. We continue to have opportunities for growth. We’re looking to increase firm access to our current working gas capacity at our Baker storage facilities. We’re targeting an open season yet this year, with the target in service date of 2012. In addition, we’re continuing to pursue the development of a Bakken natural gas pipeline. We anticipate a strong finish to the year for our pipeline and energy service business.

Now turning to our electric natural gas utility business, the combined utility business reported earnings of $800,000 for the third quarter. Compared to earnings of $3.4 million for the same period in 2008, reduction in quarter-over-quarter earnings is the result of normal seasonal losses of $5.4 million associated with the acquisition of Intermountain Gas last October.

I’m please to report that reductions in ongoing operating and maintenance expenses have more than offset incur cost incurred in our efforts to fully integrate the operations of our four utility companies. We’re focused on adding to our own generation we have plans to develop additional wind generation. This includes 19.5 megawatts of wind facilities in Southwestern North Dakota and 10.5 megawatts of generation expansion to our Diamond Willow facility near Baker, Montana. Both of these wind projects are expected to be online mid year 2010.

In August, we filed for a 31% increase in electric rates in the state of Wyoming. This is primarily to recover the cost of Wygen III power plant currently under construction. In April we purchased 25 megawatts of the plant and it is expected to begin commercial operation mid year 2010 are targeting an order commensurate with our plant going online.

With respect to Big Stone II project the decision to move forward with this project is pending the addition of potential new partners and is expected soon. In the event that Big Stone II was not constructed, we are reviewing alternatives to add generation, including the construction of natural gas-fired combustion generation. We do have capacity agreements to bridge our system requirements until generation is in place.

Our utility has a legacy of providing solid reliable earnings and cash flow we expect that to continue. Our intense focus on integration, cost containment and efficiencies are providing improving to be very valuable, operation costs are down and our efforts to integrate best practices from four brands in to one strong utility are growing well.

Next, our construction service segment continues to be impacted by the slow economy quarter earnings were $7.3 million compared to $16.3 million for the third quarter in 2008, construction work loads were lower partially offset by lower general and administrative expenses, largely payroll related. Our backlog of $264 million excludes $182 million related to the Fontainebleau project, which is proceeding through the bankruptcy process.

We have closely managed our exposure on this project and as a result, we minimized any potential negative earnings impact. We are hopeful less resort will soon find a new owner, begin the bidding process and resume construction. We’re pleased to have been selected as the EPC contractor for the Montana Alberta Tie Line, a large scale transmission project between Great Falls, Montana, and Left Bridge, Alberta.

Earlier this month the 214 mile transmission lines secured $161 million of financing. We will perform a substantial portion of the work associated with this project. As of last evening, we have been authorized to proceed. The mantle line is not included in our September 30 backlog. We’re seeing bidding opportunities for additional potential stimulus funding transmission projects and we are progressing with work on a large water treatment plant and an air force base human performance center.

Our construction service segment is maintaining its business discipline focusing on costs and efficiencies to enhance margins and securing solid projects. We continue to provide our shareholders with solid returns, including the competitive dividend. Our current yield is approximately 3% as of September 30, the combination of stock price appreciation and dividends has resulted in a five year compounded total return of 6% and a 20 year compounded annual total return of 13%.

Our performance exceeded that of the S&P500 return of a negative 1% over the five year basis, and 6% over a 20 year basis. While the current recession is said to be the toughest since the great depression MDU Resources is weathering the challenge well, our balance sheet is solid with 63% equity.

Cash flow from operations are at record levels totaling $629 million for the first nine months of this year and we have managed to grow our company both organically and through acquisition without the need to raise any substantial amounts of equity, but rather living within our means.

Looking forward, we believe that our valuable asset based businesses, our talented workforce, and our operations in key industries that are fundamental to our nation’s growth will continue to deliver long term shareholder value as we have in the past. Thank you for your time today. We’d be happy to open the lines for questions at this time. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Paul Ridzon - KeyBanc.

Paul Ridzon - KeyBanc

What impact on the DD&A rate will the Bakken sale have?

Steve Bietz

At this point our DD&A rate on a go forward basis is expected to be similar to what it was in the third quarter of this…

Paul Ridzon - KeyBanc

So, no big impact?

Steve Bietz

No.

Paul Ridzon - KeyBanc

Construction Materials, how much stimulus spending is related to the backlog? How much backlog is related to stimulus?

Vernon Raile

Right now I would say I don’t have the exact figures, but it would be in the neighborhood of 25% to 30%.

Paul Ridzon – KeyBanc

25% to 30%?

Vernon Raile

Yes.

Operator

Your next question comes from Paul Paterson - Glenrock Associates.

Paul Paterson - Glenrock Associates

The cost cutting that you guys have done is really quite impressive. How sustainable is it I guess. Is there any amount of that is being deferred in to future years and or could you just it elaborate a little bit on that, what the outlook is on that, I mean clarify a little bit on that?

Terry Hildestad

We have looked at cost cutting across, really all of the business units, including corporate and we have made cost reductions that we think are sustainable there that are going to position us very well as this economy turns around, so for the most part, the cost cutting, certainly in the SG&A area is sustainable. Bill, I don’t know if you want elaborate on that, we have some direct costs related to people out in the field as far as our overall employee count, but the SG&A costs are sustainable cuts.

Bill Schneider

I would add to what Terry said is structurally our cost cut structure is going to maintain itself on a go forward basis. The vast majority we have cut about $102 million of worth cost out of in the first nine months compared to last year and we expect that number to grow. The vast majority of that, Paul, will continue to one area we’ll have some exposure on a go forward basis on cost cutting will be on diesel prices going in to next year, but we have at least half of our consumption on track, so right now we’re thinking this is very sustainable in terms of what our cost cuts have been thus far.

Paul Paterson - Glenrock Associates

With respect to the E&P business. What were the actual proceeds that the gain that you guys got. I know that if earnings, but what was the benefit from selling those 45,000 acres?

Vernon Raile

We have not disclosed the financial terms of the transaction.

Paul Paterson - Glenrock Associates

I think there was a little bit of an upward track in terms of the CapEx in the business. Do we have any favor for what you are seeing, or what your expectation now is for 2010 production, vis-à-vis 2009?

Terry Hildestad

We’re working on that right now. All of the business units are putting their plans together, and we’ll come out with that guidance when we release earnings in January.

Paul Paterson - Glenrock Associates

The depreciation decrease in the construction materials business what with out come, the DD&A decrease?

Terry Hildestad

The decrease we sold a substantial amount of assets in the last quarter of last year.

Paul Paterson - Glenrock Associates

The Sanish communication issue, what if you find there is some communication. What does that mean, then and does that mean basically that you don’t see much of an opportunity there?

Terry Hildestad

I think realistically that formation of there is going to very from area-to-area. I think we have drilled three Sanish wells to date and two of those have been very solid wells. We like the results from those wells and we plan to continue to test next year and kind of as we go forward, we’ll keep working on that.

Operator

Your next question comes from Becca Followill - Tudor Pickering Holt.

Becca Followill - Tudor Pickering Holt

Two questions for you. One on the stimulus spend, we’ve heard this consistently that only a fraction of it has been spent so far. What will it take to get that moving?

Vernon Raile

We think that these states are going to increase their stimulus significantly. There was a lot of jockeying around last yea, or excuse me, earlier this year in terms of which projects should get out the gate, but I think the states, the DOTs have hit stride, and as you know, they also have a deadline, two years for this money to be spent, so we think that clock is going to move things along rapidly for next year.

Becca Followill - Tudor Pickering Holt

What’s the hard debt line, Bill?

Bill Schneider

It was three years for the total stimulus bill, and we’re I think at leased nine months into it, so it will be towards the end of ‘11, first part of ‘12. So ‘10 and ‘11 are going to be the big years.

Becca Followill - Tudor Pickering Holt

So that’s the deadline for all funds to be spent or all projects to be let?

Bill Schneider

For the projects to be let there will probably be some work that will tail into ‘12 and maybe some ‘13, but keep in kind, Becca, most of these projects are overlay projects. At least two-thirds of the stimulus money is going to worth overly, and that work can be done fairly rapidly.

Becca Followill - Tudor Pickering Holt

So if I had to, like put your feet to the fire, and say how much was going to be spent in 2010, what would you say?

Bill Schneider

Well, the total spent for transportation and infrastructure is $46 billion, and that’s nationwide. As Terry indicated in his opening remarks, in our states that we operate in, there’s $7 billion to $8 billion of that $45 billion, $56 billion. We’ve only seen 8% of that money has been spent is this year. So if you just evenly split it up between ‘10 and the ‘11, we’d see roughly about 45% of that money being spent over the next two years.

Becca Followill - Tudor Pickering Holt

You think it’s realistic that could happen?

Bill Schneider

We absolutely do. Yes.

Becca Followill - Tudor Pickering Holt

On the E&P side, big pull back in CapEx this year, understandably giving commodity prices a little bit of ramp up now, but your productions declining by 7% to 10% this year. What level of CapEx do you need in order to keep production flat?

Bill Schneider

Becca, I think it somewhat depends on when you’re drilling, and when the wells come on line, but kind of maybe as a rule of thumb, I’d say in the neighborhood of $300 million a year would keep production flat.

Becca Followill - Tudor Pickering Holt

You’re 200 this year?

Bill Schneider

Yes.

Becca Followill - Tudor Pickering Holt

You’ll end up being at 200, although some of this is kind of at the end of the year.

Operator

Your next question comes from David Parker - R.W. Baird.

David Parker - R.W. Baird

Maybe a follow onto point she was drilling down on in the stimulus funds. Thinking about this lay down work we’re going to talk about, understanding that the Construction Material is somewhat seasonal. Does this change that in any way, the kind of work that you’re going to be doing in the next couple of years?

Bill Schneider

If you look at our volumes for the first nine months of the year, I mean, generally, the acreage in ready-mix have been down, but our asphalts and construction has been up very nicely, and we expect that’s going to continue as the stimulus ramps up next year and in the following year, but it won’t allow us, because of the conditions on the temperatures of the asphalt when it’s laid down, we’re not going to really be able to stretch out the season.

David Parker - R.W. Baird

A question about an alternative to Big Stone, and Terry you talked about maybe a natural gas fire plant or something anyways that could be replaced. So it looks like we’ll get a decision soon, but assuming we went with natural gas, remind me when you need have new generation online to meet customer needs.

Dave Goodin

Currently, we have capacity agreements in place to take us through 2015, so we’re covered through that period of time, Dave. In addition to that, we’ve also got some ongoing projects that we’ve noted so far as Diamond Willow expansion, the Cedar Hills, and then our recent format addition. So we’re really covered to 2015, but we’ll see incremental generation added between now then as well.

David Parker - R.W. Baird

As you add more wind, does that then accelerate that need to have more natural gas in our system, or how would you think of that, Dave?

Dave Goodin

Well, the wind is really an energy resource, and only about 20% of the nameplate is really a capacity resource. So we need both energy and capacity so it’s really a combination of, the renewable resources, gas would need to back that, and then until the next base load resource is added, we’ll have those capacity agreement that’s noted earlier are already in place.

David Parker - R.W. Baird

One last question, since you got the last night to go-ahead the work on the Montana Alberta line, does that mean fourth quarter that project rolls in to backlog?

John Harp

Yes, it will be in the fourth quarter numbers.

David Parker - R.W. Baird

Your timing on Terry mentioned in his comments about a water treatment facility. Is that something we may hear about in the next three months or six months, or what’s the timing on some of these new projects these projects?

John Harp

That work is actually under construction right now.

Operator

Your next question comes from Chris Ellinghaus - Shields & Co.

Chris Ellinghaus - Shields & Co.

It’s pretty obvious, where earnings were headed for the year. Is there a reason for the still fairly wide guidance range?

Vernon Raile

Chris, we did narrow it up significantly. I think it was previously $1.05 to $1.13 we narrowed it to $0.15. I think just a matter of allowing ourselves some room there are some variables in there. I mean, weather, economy, oil and gas prices and the like probably as in a whole lot of variability, but we’re comfortable with that $0.15 range.

Chris Ellinghaus - Shields & Co.

Have you got any comments about the impact of weather in the fourth quarter, or in the third quarter, I’m sorry?

Vernon Raile

The third quarter actually it impacted us negatively in some of the businesses, Construction Materials; we had some wet weather that hurt us down in some of Bill’s markets. I’d have to say that it was cooler than normal, and it really was a negative impact to some of the regulated business as well. Now the fourth quarter is starting out cool, so that benefits one of our businesses, and would hurt the other, so we’ve got a nice diversity there.

Chris Ellinghaus - Shields & Co.

Given where it looks like the year is going to come out, you’re going to maybe all get pretty close to doubling on earnings. Do you feel like that trend, given the stimulus spending and what you see in your backlog is going to continue into ‘10?

Bill Schneider

We think that the stimulus as stated earlier, Chris, is going to really be a nice boost. The other thing that we’re watching I wish I could give you a real clearer today, but I can’t, but as we’re watching the reauthorization of the highway Bill, there’s some recent momentum, of course, Congressmen over start shares that the House Transportation Committee wants to take the old bill of $286 billion and raises up to $500 billion for the next six year bill.

We’re actually starting to see more and more support for that. Funding issue was the challenge, but we’ve seen a few ideas pop up actually here in the last week or so, so Chris, we think if there’s traction between the House and the Senate on a bigger Highway Bill along with the stimulus, we think the next couple of years could be pretty strong for us.

Chris Ellinghaus - Shields & Co.

You said you were kind of approaching maybe a half hedging your diesel for next year. What kind of costs you’re looking at next year versus this year?

Bill Schneider

Right now, as you know the current prices on diesel is right around depending on the part of the country, but between $2.70 to maybe $2.85 a gallon, and although that’s up from earlier in the year, that’s probably a number that will be fairly steady, we think going into next year.

Chris Ellinghaus - Shields & Co.

One last thing, last year in the fourth quarter, you had a pretty high corporate and other number. What was in there, versus sort of the run rate you’ve had this year?

Vernon Raile

You’re talking and the earnings segment?

Chris Ellinghaus - Shields & Co.

Yes, in the fourth quarter it was like triple normal.

Vernon Raile

Basically, the most significant portion of that relates to our Brazilian transmission line, the earnings there from, and let me just, you’re talking in terms of the earnings on that, Chris?

Chris Ellinghaus - Shields & Co.

Yeah, I’m just trying to think is that a number that is non-recurring?

Vernon Raile

For the nine months, it’s pretty much the same. I mean…

Chris Ellinghaus - Shields & Co.

Yes, this year you’re kind of running at like $1.8 million a quarter, but in the fourth quarter it was closer to six. I’m assuming that’s a non-recurring benefit in the fourth quarter last year.

Vernon Raile

Well, we had some savings on some safety. We had some lower costs in connection with safety, so we were able to reverse some accruals in connection with that.

Operator

Your next question comes from Faisel Khan - Citigroup.

Faisel Khan - Citigroup

Quick question on the E&P side, the realized price excluding your hedges of 234, it seems kind of low given the way basis is coming in the quarter. I was just wondering if there is anything else that impacted that.

Vernon Raile

No, there was nothing abnormal there for the quarter.

Faisel Khan - Citigroup

Specifically, on the higher asphalt volumes, what was the driver behind that?

Dave Goodin

The stimulus spending.

Faisel Khan - Citigroup

Just stimulus spending?

Dave Goodin

Yes.

Operator

Your next question comes from Paul Ridzon - KeyBanc.

Paul Ridzon - KeyBanc

Just for clarification, is the 8% on the stimulus funds, what’s been actually, checks cut, or is that what has been contracted?

Vernon Raile

That’s actually what’s been spent, Paul, thus far by the states.

Paul Ridzon - KeyBanc

Do you have a sense of how much has been contracted?

Vernon Raile

The obligation level is the term that the Federal government uses, and that’s substantially greater than that. Do you remember the specific number; 70-some percent has actually been obligated.

Paul Ridzon - KeyBanc

70% of the 45?

Vernon Raile

Yes.

Operator

Your next question comes from Jim Harmon - Barclays Capital.

Jim Harmon - Barclays Capital

Two quick questions, when you talk about stimulus spending and the $7 billion to $8 billion range, what percentage of that are you exposed to? What percentage do you hope to get?

Bill Schneider

Jim, the $7 billion, $8 billion are all in the states that we operate in, and so we’ll be exposed to every bit of that. Our hit rate right now is what we call our success rate on the jobs that we bid, it depends, market-to-market, but it’s somewhere in the 20% to 25% range.

Jim Harmon - Barclays Capital

Are you bidding against much larger players, or are you the number one or number two player, so you have a better chance of getting more of that business under your belt?

Bill Schneider

Jim, here again it varies from market-to-market, but in many of the states that we operate in, we are definitely in the top one or two category.

Jim Harmon - Barclays Capital

The second question is related to the asphalt business. It seems profitable. It looks profitable. Can you give us some idea as to what percentage of profits came from asphalt this year, and maybe what percentage came from last year, either in the percentage or preferably absolute dollar amount.

Bill Schneider

Jim, nice try, but it’s not working, my friend. I’m not going to tell you that.

Operator

This marks the last call for questions. (Operator instructions) This call will be available for replay beginning at 4:00 PM Eastern Time through 11:59 pm Eastern Time until November, 13. The conference ID number for the replay is 32816963 again the conference ID number for the replay is 32816963.

Your final question comes from Paul Ridzon - KeyBanc.

Paul Ridzon - KeyBanc

Just on that hit rate, does that imply we could see $1.4 billion to $2 billion flow in to backlog?

Bill Schneider

That’s a possibility over the next couple of years.

Operator

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

Terry Hildestad

Thank you all for participating on the call. As you can see our business model is working well, and we have opportunities in each of the business segments. Our balance sheet is very strong. We’re well positioned for growth. We think there are good opportunities going forward. We will provide our 2010 guidance with our year end report made in January, again, thanks for listening in. Good bye.

Operator

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

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