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MDU Resources Group Inc (NYSE:MDU)

Q4 2011 Earnings Call

February 2, 2012 9:30 am ET

Executives

Doran N. Schwartz – Vice President and Chief Financial Officer

Terry D. HildestadPresident and Chief Executive Officer

Steven L. BietzPresident and Chief Executive Officer,WBI Holdings

Dave GoodinPresident and Chief Executive Officer, Montana-Dakota Utilities, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas

John HarpChief Executive Officer, MDU Construction Services Group and Knife River Corporation

J. Kent WellsPresident and Chief Executive Officer, Fidelity Exploration and Production

Nicole KivistoVice President, Controller and Chief Accounting Officer, MDU Resources

Analysts

Paul Patterson – Glenrock Associates

Paul Ridzon – KeyBanc

Timm Schneider – Citigroup

James Bellessa – D.A. Davidson & Co

Rosemary Tevelow – Tevelow Associates

Operator

Good morning. My name is Tanisha and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group 2011 Year-End and 2012 Guidance 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 session. (Operator Instructions)

This call will be available for replay beginning at 2:00 PM Eastern today through 11:59 PM Eastern on February 16. The conference ID number for the replay is 40840208. Again, the conference ID number for the replay is 40840208. The number to dial for the replay is 1-855-859-2056 or 404-537-3406.

I would now like to turn the conference over to Doran Schwartz, Vice President and Chief Financial Officer of MDU Resources Group. Thank you. Mr. Schwartz, you may begin your conference.

Doran N. Schwartz

Thank you and welcome to our earnings release conference call. And before I turn the presentation over to Terry Hildestad, our President and Chief Executive Officer, I’d 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 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 Factor section of our most recent Form 8-K. Our format today will include formal remarks by Terry followed by a Q&A session.

Other members of our management team, who will be available to answer questions today during the Q&A session of the conference call, are Steve Bietz, President and CEO of WBI Holdings; Dave Goodin, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas; John Harp, CEO of MDU Construction Services and Knife River Corporation; Kent Wells, President and CEO of Fidelity Exploration & Production; Nicole Kivisto, Vice President, Controller and Chief Accounting Officer for MDU Resources.

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

Terry D. Hildestad

Thank you, Doran. Good morning. Thank you for joining us today to discuss the results for 2011 and our 2012 outlook. I’m pleased with our performance in 2011, earning $225.2 million or $1.19 per share from continuing operations. Our businesses finished the year strong. We made substantial progress in preparing the company for future growth. We successfully completed the first stage of a multi-year capital investment effort that we believe will increase our profitability. We also increased our dividend for the 21st consecutive year.

Moving on to our operating companies, I’ll start with our E&P operations. I’m excited about how this group has built up a solid momentum in its business. We increased our oil production 12% in the fourth quarter and 7% for the full-year compared to one year ago. This was largely the result of record production levels in our Bakken position, where we saw a 16% increase over the prior year.

We now have eight rigs drilling across our properties focused on oil rich plays. That’s up from two rigs one year ago. We have continued to focus on a more balanced commodity mix, with oil production now representing 32% of our overall production. This is double what oil represented five years ago. We’ve also continued to focus on pursuing additional leaseholds. Our Bakken position is now up to 95,000 net leasehold acres, that’s up from 66,000 net acres last year.

This includes our Mountrail and Stark Counties in North Dakota and Richland County in Montana Holdings. We have plans to drill nearly 30 operated wells in the Bakken this year. On our 65,000 net leasehold acres in the Niobrara, we have drilled our first test well and are awaiting results. We are finishing the drilling of our second well and expect to drill a total of four operated wells this year as well as participate on various non-operated wells. Additionally, we have recently spud a well in the Paradox basin where we expect to drill four wells this year on our 75,000 net acres.

We have continued our drilling efforts in Texas with 20 wells planned throughout the year. In addition, our first well was recently spud on our 90,000 net acres in the Heath Shale; we have plans to drill up to four wells on this acreage this year. By mid year we expect to have completed much of the appraisal process on our exploratory acreage, so we’ll be in better position to talk about initial results at that time.

Our E&P business has a well defined strategy for long-term growth. We expect to invest approximately $400 million in this business this year and a total of $2.2 billion over the next five years with acquisitions of producing properties incremental to these amounts. We are pursuing additional lease holds with approximately $25 million in capital reserve for this purpose this year. We continue to accelerate oil development and exploratory activities. We are projecting oil production to increase 20% to 30% this year over last year. And as we look further out, we are excited to have as many as 900 future potential well sites identified on our oil and liquids rich properties.

Next, our utility had another solid year reporting record earnings of $67.6 million. We experienced overall electric customer growth of 2% in 2011 and that was driven by a 5% increase in electric customers in the booming Bakken region. We now have over 970,000 electric and natural gas customers. This business continues to focus on opportunities for rate based growth. We are planning to invest $915 million in this business over the next five years. And we are projecting a corresponding rate base growth of 6% compounded annually through 2016.

We have two substantial growth projects for – in for advance determination of prudence, settlement agreements have been filed, the $125 million Big Stone environmental upgrade and the $85 million combustion turbine to be constructed in Mandan, North Dakota. Final orders are expected on both these projects this quarter.

Other growth opportunities range from the potential large natural gas lines projects to large grain drying customers. We are engaged in a project to build a natural gas line to the Hanford nuclear site, north of Richland, Washington. This is a 30 mile line that would travel under the Columbia River to the center of the nuclear reservation.

Of course the Bakken activity continues to spur significant growth development in both natural gas and electric for traditional and non-traditional customers. One major opportunity we’re currently working on is supplying natural gas to heat water for use in well fracking processes. We have one water deep hole hooked up. At this point, there are others in the development stages. And lastly, this group is three-fourths of the way complete on a 30-mile transmission line project in southeastern North Dakota associated with the proposed wind farm. We’re very pleased with the growth potential of our utility.

Now turning to our pipeline and energy service operations; earnings for 2011 were affected by storage levels and we’re 39% lower by year-end than the prior year’s record levels. This was driven by considerably narrowed natural gas pricing spreads. In spite of the storage situation; our position in the Bakken region is presenting substantial growth opportunities. We’re seeing higher natural gas transportation levels in this area with associated gas produced in the region at record highs and continuing to escalate.

We recently completed two significant projects to serve the needs of the Bakken development. The 12-mile Garden Creek high pressure transmission pipeline and an interconnect to a new processing facility near Belfield. In addition, we continue to progress toward a mid-year in service state for a 13-mile pipeline that will deliver processed gas from the Stateline processing facilities into the Northern Border Pipeline.

We have doubled our take-away capacity in the Bakken in the last 12-months to about 240 million cubic feet a day and we’ll nearly double that again in the next several months. In addition, we’re also pursuing additional oil and natural gas opportunities including gathering and processing. We’re in a great position to continue to take advantage of our energy development related opportunities in the Mountain region.

Now, moving on to our construction materials and service companies. We recently announced the combination of these businesses under the leadership of John Harp. We’re confident the reorganization will better position us to take advantage of growth opportunities in the industry. On a combined basis, construction earnings for the year were $48 million; that’s slightly higher than the 2010 earnings level. Earnings for the fourth quarter improved by 22% compared to a year-ago.

Some other factors contributing to this increase were the extended construction material season, which ran late into the forth quarter, (inaudible) working by our southern California operations, we had electrical and transmission equipment sales and rental work, additional refinery work, and utility transmission work.

Our work backlog has dipped year-over-year however; we’re seeing good opportunities to bid quality projects in these business lines. As we look ahead, there are a number of projects and areas that have us enthused; particularly our new construction operations surrounding the Bakken activity. Employees and equipment are being added as the work demand continues to grow. We’re busy with sub-division site work and are also performing utility underground and hook-up work in conjunction with Montana-Dakota; our utility company.

With the record level of the funding allocated to the North Dakota’s DoT budget, there are significant opportunities for roadwork as well. We have $31 million of backlog in the Bakken area and clearly, there are opportunities for that to grow. We’ve also established a new electrical supply distribution office in Williston; that should be in operation this month.

With respect to our other geographic locations, work continues on the ports of Long Beach and LA. We believe our unique rock quarry on Catalina Island positions us very well for future port enhancements, as well as other marine construction projects.

Our new Cheyenne, Wyoming asphalt terminal is now receiving oil. Having an asphalt oil supply is strategically important. With the plant addition, our asphalt oil storage capacity is now twice of what it was when we entered that business about 5 years ago.

We recently opened an electrical and transmission equipment sales and rental office in Atlanta, Georgia. This will better provide coverage to our customers in the Southeast. Our service group has had as many as 20 line crews dispatched to Seattle to help with the storm work in that area.

Our refinery group is a growth area for us. Also we’ve recently completed a refinery turnaround project for ConocoPhillips in Ponca City Oklahoma. This group has done an outstanding job just completing a record level a record year for our refinery business. We are seeing stabilization in some of our markets. We had our best quarter ever in the construction business in North Dakota. Ohio, Kansas and Las Vegas markets are improving. We are applying our casino expertise in other markets like Ohio with a couple of projects currently underway.

We’ve also been awarded projects at the Eaton World headquarters and the Wright-Patterson Air Force Base both of those are in Ohio. And finally we’ve been able to engage on some profitable niche projects utilizing the unique skills and expertise of our employees, one example involves a higher margin $20 million multi-year project near Billings, Montana, where we’re cleaning up a gold mine site. Our construction group will continue to focus on disciplined project bidding, cost control and profitability.

We’re proving initial guidance for the year in the range of $1.00 to $1.25. We factored into our earnings guidance lower natural gas prices, the uncertainties related to the construction spending levels, as well as lower gathering volumes and continued narrowed pricing spreads at our pipeline businesses.

That being said, we’re cautiously optimistic about 2012. We’re excited about the substantial oil production increase; we’re targeting a 20% to 30% this year. Our utility group continues to be a solid and reliable provider of earnings and cash flows. In addition to the currently identified investment opportunities to the five year plan, not factored in our guidance, is the upside opportunities for 2012 and beyond stemming from for example, the growth being experienced in the Bakken region.

Additional upside to our earnings guidance includes of course, higher natural gas prices, more favorable pricing spreads at our pipeline business and higher than expected construction spending levels. As I said before, we’re optimistic about 2012 as well as the long-term future.

We want to grow; we’re focused on executing our multi-year capital program, which we believe will significantly enhance the value of our company overtime. We’re in excellent financial position to take advantage of our growth opportunities as they arrive. Our business are operating efficiently and produce cash flows from operations at levels that were 14% higher than a year ago.

On the balance sheet, equity stands at 66% of our total capitalization. We have access to approximately $600 million in available liquidity from our credit lines in addition to the $163 million in cash we had on hand at year-end. With this financial strength, coupled with being in the right asset-based industries, we’re focused on capital expenditures of $3.7 billion over five years. Based on our forecast, we can do this without having to issue equity, delivering value to our shareholders through a combination of growth based on accretive earnings and a competitive dividend.

Last year, we delivered shareholder return, total shareholder return of 9% compared to a total return of 2% for the S&P 500, and our dividend yield currently exceeds 3%. We have valuable assets, our people are highly skilled, and we have the opportunities to invest in growing each of our business lines. As I said before, we’re optimistic about the future of MDU Resources.

I want to thank you for taking time today. We’d be happy to open the line up at this time for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions)

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

Paul Patterson – Glenrock Associates

Good morning, guys.

Terry D. Hildestad

Good morning, Paul.

Paul Patterson – Glenrock Associates

Just wanted to touch basically in terms of financing and equity needs with this new CapEx, how should we think about that?

Terry D. Hildestad

Go ahead, Doran.

Doran N. Schwartz

Hi, Paul, good morning.

Paul Patterson – Glenrock Associates

Good morning.

Doran N. Schwartz

How I think about is as we laid out in the press release we got about $3.7 billion of CapEx worth $700 million in 2012 of that $3.7 billion, I think this really gets to the benefit of being a diversified group of companies. We are forecasting that throughout the five year time frame we are going to average per year on average about 800 million in operating cash flows. Now in addition to that we are going to fund some of the long-term projects that we’ve talked about at the utility for example with some moderate issuances of long-term debt to fund those projects as well as maintain our capital ratios and then as Terry mentioned, we got $163 million of cash on the balance sheet.

As we take a look at the diversified groups of businesses, obviously we are growing at the oil and gas business that’s requiring some capital, but again the value of the diversified group of businesses at our construction companies over the five year forecast were generating free cash flow in excess of $400 million so that’s going to help us avoid having to go to the external markets for equity issuance throughout the time frame we are going to maintain a strong balance sheet and fund primarily our CapEx program with operating cash flows.

Paul Patterson – Glenrock Associates

Okay, great. And then in terms of like the CapEx, I’m sorry, not the CapEx, in terms of the environment, the market environment for construction, how should we think about sort of the margin issues that you are seeing there and how things might look year after next, I mean year after next, I mean do you – I mean in 2013, I guess. What sort of the trends that you’re seeing out there with respect to that area?

John Harp

Paul, this is John. Actually we see 2012 and particularly 2013, I think we’ve hit the bottom of the market and we’re starting to see improvements. You can see that Knife River had an outstanding fourth quarter and if you look at CSG’s earnings over this past year were up 20% over 2010. I think we’re positioned well in the future and the things that we’ve got is we’ve got access to capital, access to bond capacity because of the environment that we’ve been in, a lot of our competitors quite frankly are not in the position to take advantage of this up-tick. And we’re optimistic that we’re going to see improvements and I think we’ve got the people and the resources to respond to that.

Paul Patterson – Glenrock Associates

Okay. Okay, thank you very much.

Unidentified Company Representative

Thanks, Paul.

Operator

Your next question comes from the line of Paul Ridzon of KeyBanc.

Paul Ridzon – KeyBanc

Good morning, guys.

Unidentified Company Representative

Good morning, Paul.

Paul Ridzon – KeyBanc

I have a quick question at the electric utility, O&M and depreciation were up pretty markedly and I guess a lot of the O&M is pension, but can you just address those issues?

Dave Goodin

Sure, Paul. This is Dave Goodin. I’ll touch on the operational sides. I think we need to consider that in 2010 we only had three fourths of a year of [Y-gen] in there and 2011 we actually had a full year of [Y-gen]. And so while we had a rate case that coincided with that going into service, there is an offsetting some O&M expenses there as well. We also had some transmission expenses because we’re part of with a neighboring [western area] power, there was some offsets in there too. As it relates to some of the benefit related things I will turn that over to Nicole here and she can touch on those as well because that was probably more major than even some of the operational issues.

Nicole Kivisto

Yeah, Paul during the current year the utility had froze one of their pension plans and that results in a one time curtailment expense and then in addition to that we have certain non-qualified benefit plans that are backed by assets and those asset returns due to the market volatility we saw some volatility in those returns this year. As the market would recover in the coming years we would expect that that would turnaround.

Paul Ridzon – KeyBanc

Thank you. Out of curiosity where are you working at Ohio?

Unidentified Company Representative

Actually we’re building two casinos one in Cleveland and one in Cincinnati. And we’re awarded the world headquarters. So, we work for Eaton Corporation in Cleveland, and actually we actually see Cleveland and Ohio’s economy returning. And we’re very optimistic of that market. And I think we got the people in place to take advantage of that opportunity.

Paul Ridzon – KeyBanc

Well, I hope you’re right about that. Thank you.

Unidentified Company Representative

Thanks Paul.

Operator

The next question is from the line of Timm Schneider of Citigroup.

Timm Schneider – Citigroup

Hey guys, how is it going?

Unidentified Company Representative

Good Tim. Good morning.

Timm Schneider – Citigroup

Good morning. First question is on the E&P side. In the last call you said you spud a well in the Eastern most block of our acreage in Stark and also in Niobrara I was just wondering if you got any incremental data points on these yet.

J. Kent Wells

Yeah, Tim. It’s Kent. Yes we’ve in the Stark County we’ve drilled our first well on the Eastern block. In fact we have drilled our second well in the Central block. On the Eastern block we frac it we got it on production. Its producing we don’t have enough yet to have any rates to share with you. If you remember, we sort of said that was the more iffy area and there is a couple other industry wells that we’re paying attention to [what they’re in] that block.

As we came to the central block, we’ve drilled our Parker well, which was – let’s just say, very encouraging from the drilling and we should be fracking that later in the month and have it on production in March. So we’re quite encouraged about that. In the Niobrara, we drilled our first – two wells; the first well, we’ve just put on production. We don’t have any rates there yet. And the second well, literally we’ve just finished drilling it and we’ll be moving to our third well there. So, more to come on those [places].

Timm Schneider – Citigroup

Got it. And with respect to your production guidance on the oil side, are you assuming actual production contribution from kind of your exploration [place here which I deem] I guess the Niobrara and the Heath in ’12?

Terry D. Hildestad

The biggest – our production will be led by what we’re doing in the Bakken. If you look at our capital, we’ll be spending about 40% of our capital in the Bakken and about 70% of that production growth will actually come from the Bakken area. Then, of course, we’ve got our Big Horn Basin in South Texas, which are also in the development phase, which will contribute. And then if you look at the Paradox, the Heath, the Niobrara, and a couple other opportunities that we have going, I think there’s lots of coverage for that additional 20%.

Timm Schneider – Citigroup

Got it. Then real quick on the cost side in the Bakken; what are you guys seeing there kind of directionally and also the availability of pumping services?

Terry D. Hildestad

In terms of cost, like if you look at our LOE for the Bakken, it moved up as with our production. On a unit basis, it was about 10% higher than a year ago. So we are seeing some inflation there. Although we expect as we continue to grow volumes, we’ll be able to push that back down because there is a fair amount of fixed cost. In terms of getting services, we’ve been kind of working through the chain. We now have the drilling rigs we need. We’ve made the changes we need to make with fracking companies so we’ve got more consistent there.

We did suffer from not having enough service rigs or workover rigs and I think we resolved that this week. We had been running two. We picked up our third one this week, so that’s a 50% improvement. And we should be able to get some of our down wells back on production. We may even look to pick up a fourth a little later as we continue to grow. So I think we’re looking at that whole chain so that we don’t have disruptions like we saw in December a bit in the Bakken.

Timm Schneider – Citigroup

All right. Thank you. And last question on E&P I guess, how should we think about the size and scope of this asset sale you potentially outlined? And then my next question is, from a timing perspective why now I guess with kind of gas price just where they are, should we just assume that longer-term your view on that is negative? And also with respect to the asset, what’s kind of – have you – do you have any sense as yet whether what the mix is between kind of producing assets versus spuds anything like that?

Unidentified Company Representative

As we talked about our strategy in moving to more oily strategy and we’ve been looked at all of our gas assets and which ones can help us sustain that. And there was two assets that we’ve signaled out. One is a very small gas field we have in Colorado Bonny Field and we’re well down in the path in moving that onto some one else so that will be more valuable to than it is to us.

Then the second asset we have is our coal-bed operation, which in 2011 was about 15% of our gas production. But it wasn’t significant at all in terms of our earnings. And so, we’re going to look to move that out by mid-year. I think that’s an asset that someone else can add more value than we will add there, and so, we’ll look to do that. Of course, if we don’t get the price that we think we deserve for it, we won’t sell it.

Timm Schneider – Citigroup

Okay, got it. Then just real quick onto construction side; I know your revenue guidance kind of down in both segments year-over-year, but you’re I mean, expecting an increase in margins. I was just wondering what is driving that. Is that just continued efficiencies on the cost side?

Doran N. Schwartz

Yes, both cost side and our mix of work that we have. As Terry mentioned in his remarks, we’re obviously looking at niche markets and places where it take some more specialized workforce and we think we’ve got the people both on the aggregate side and on the services side to take a benefit. That – so, we’re looking at work that’s got better margins and recognizing the – maybe our revenues might be down, but we hope to offset that with better returns on the work that we’re doing.

Timm Schneider – Citigroup

Got it and with respect to the $31 million you have in backlog from the Bakken, how do you kind of see that progressing over next couple of years and what type of projects are in that $31 million backlog at this point?

Doran N. Schwartz

Well, it’s a mixture of work. It’s interesting if you look at our mix right now; 92% of our work is public work and the rest is private and we’re actually having an opportunity in the Bakken to get into the residential market again and doing sub-divisions. And quite frankly, that’s our sweet spot with (inaudible) we’re able to drive our margins and have better opportunity to be profitable. But it’s a mixture of things; it’s also public works finishing a huge highway project up there for the DoT here in North Dakota that we landed last year. And on doing work – [pad] work for the oil patch and then also obviously doing things on the construction services side as electrical hook ups that Terry mentioned in his comments and nice thing is that we’re opening up a distribution center this month in Williston from our electrical supply business and we think we can benefit from.

So there is a lot of activity coming from the Bakken and we’re trying to capitalize on all those opportunities and we’re kind of in the unique position now with both Knife River and CSG basically under one house, and we’re going to be able to coordinate that work. And the other thing is, with the amount of economic development in North Dakota, the DoT in North Dakota has announced the largest construction season ever. So again we’re benefiting from that, from being in our home town and our home state. So we see some very positive things there.

Timm Schneider – Citigroup

Who is your primary competitor, as a follow-up, in the Bakken, is it just a bunch of smaller mom and pops? Are you kind of the biggest (inaudible) there?

Unidentified Company Representative

You know what I never talk about my competitors.

Timm Schneider – Citigroup

Got it. All right, that’s it.

Unidentified Company Representative

All right, thank you.

Operator

(Operator Instructions) Your next question is from James Bellessa of D.A. Davidson

James Bellessa – D.A. Davidson & Co

Good morning.

Unidentified Company Representative

Good morning, James.

James Bellessa – D.A. Davidson & Co

The formal remarks outside the E&P business, the name of Bakken was mentioned maybe a dozen times and you have appointed an Executive Vice President in Bakken development, how big is this for you? What’s your potential that you are seeing? And what kind of revenues might be added to in the next five years?

Unidentified Company Representative

Jim, that’s a great question. As you know the Bakken all taken together is probably the largest construction effort taken on in the country right now. It’s a significant undertaking and all of our business lines are actually up there working. We’re all aware of the E&P side, but our pipeline business and John just addressed some of the opportunities on construction, construction materials companies. We’re seeing just to put this in perspective, at Knife River last year they started at zero about this time. They have got mid-year they had a 150 employees up there. We could double that this year. So what Bill Schneider is doing, he is doing a great job on that, is we have a unique ability to provide a lot of services that are needed there in those communities. And so he is looking at it from a short-term, make sure that we get hooked with our short-term projects that are currently ongoing and then take a look strategically at longer term projects that may become available. And then just coordinate those back to our existing business lines. There is midstream opportunities up there. They’re just a number of them. So, Jim we’re in the process of trying to put quantify those, but they are significant. They are significant.

James Bellessa – D.A. Davidson & Co

John Harp is quite positive about the construction business. But the press release talks about uncertainties and the guidance talks about 11%, 12% type of revenue decrease from this last year’s revenues. What’s happening? Why the revenue decrease? Are the margin improvements large enough to maintain profits at the last year’s level or are we going to see a dip down in construction earnings?

Unidentified Company Representative

Well, Jim obviously our backlog is off a little bit, but when you really look at it, its not huge, a lot of that is timing. The other thing as I mentioned before, we think particularly some of the work that we got in the construction material side, we think we’ve got better margins because of some unique opportunities that we’re pursuing back to the niche type of work and the opportunities that we have in the Bakken we think is going to help us.

The other thing is we’re opening up a new terminal in Cheyenne 35,000 ton asphalt facility that we think is going to benefit us adding a new supply house in Williston for our electric supply business, and then our equipment and sales business we’re opening up a new office in Atlanta. So we’re trying to grow. Some of these are greenfields and these are just in their beginning. But we think we’re poised to benefit from that. The one issue that we’ve got out here to is the federal funding of highways. As you note mentioned – we mentioned in our I think our press release the house republican came out with a plan of $260 billion in the next 4.5 years.

The Senate has got plan $109 billion for two years and we’re under safety lieu. And quite frankly, there is some concern about that funding and right now that funding is good through the end of March. So obviously, when you look at particularly the construction material side, 92% of our revenues are coming from public works. So, that has a big impact on what we can project. But we’re trying to offset those things and in the construction business, if you’re not an optimist you can’t be in this business.

Unidentified Company Representative

Jim, I’d just add to that, as I stated in our formal comments, really the uncertainties related to the construction spending we factored in our plan, but they – that would clearly be an upside we will update you as the year progresses there.

James Bellessa – D.A. Davidson & Co

At one time both the constructions had their eye on being able to service wind farm construction activity called Rim Rock in Montana, but I saw recently the bids that were led out in some Minneapolis company, it was the E&C contractor. What happened there is sort of some thing that you backed away from or they outbid you or what?

Unidentified Company Representative

To be honest with you, Jim, I kind of lost interest because of the let’s say the trouble we had with the [Mandan] project and just didn’t feel like I had the appetitive to get involved with the project that may or may not get built and quite frankly we’re going to focus on energies on things that we think we can be successful with.

James Bellessa – D.A. Davidson & Co

Thank you very much

Unidentified Company Representative

Thanks, Jim.

Operator

Your next question is from Paul Ridzon of KeyBanc.

Paul Ridzon – KeyBanc

I was just going to ask for an update on the [Mandan] project. And then my other question is, you mentioned that the coal bed assets maybe up for sale, is that still a tax credit driven business or is that tax credit expired?

John Harp

Well, this is John. I’ll tackle the [Mandan] project, we actually with roof on that project late in the fourth quarter of last year and have no impact with this going forward either positive or negative and actually they’ve assigned another contractor. And again with all the write away issues and the environmental issues and different things we decided the best thing we could do was withdraw from the project. We did that and were successful in that and I wish them nothing but the best.

Paul Ridzon – KeyBanc

Thank you

Unidentified Company Representative

And on the coal bed I do not believe there are any tax credits left on our assets

Paul Ridzon – KeyBanc

Thank you

Operator

The next question is from Timm Schneider of Citigroup

Timm Schneider – Citigroup

Hey, guys. Just real quick follow-up on the construction what’s in the Bakken? What percentage is public there? What’s private there? I’m assuming I mean you said you could do a lot of subdivision work stuff like that but I’m assuming there is also lot of road work in there?

Unidentified Company Representative

Good point, yeah, like I said, right now if you look at our overall mix its 92, 8 public versus private. But up in the Bakken it’s about a 50-50 between private and public. So again obviously it gives us an opportunity to have better margins and stay competitive out there.

Timm Schneider – Citigroup

All right thank you.

Operator

This marks the last question for today. (Operator Instructions) This call will be available for replay beginning at 2 PM Eastern today through 11:59 PM Eastern on February 16. The conference ID number for the replay is 40840208. Again the conference ID number for the replay is 40840208. The next question is from Rosemary Tevelow of Tevelow Associates.

Rosemary Tevelow – Tevelow Associates

Good morning

Unidentified Company Representative

Good morning Rosemary

Rosemary Tevelow – Tevelow Associates

I have a question with regard to the movement of the gas that’s being produced in the Bakken. For some time there was a problem with – and also for the oil, because sometime there was a problem; there were lot of trucks moving, I’ve heard stories about railroad movements of gas. I don't know if that’s happening in the Bakken. But are you finding opportunities to put in gathering for other drillers and what is the situation about movement within the Bakken getting into pipeline?

Steven L. Bietz

Rosemary, this is Steve. I would say that we are seeing a number of opportunities. In a given world where we are at and some of our gas – the investments going on the gas side, we have spent a lot of time pursuing opportunities, whether it would be wet gas, whether it would be oil, pipelining. There’s a number of advantages to pipeline some of that oil basically; the biggest one is getting the trucks off the road.

We think that’s very positive for the state and so, we’re in contact with a number of parties in that area. We’re also looking at some of the gas, that’s not being processed today and how do we bring a solution to some of that, whether it would be gathering it and bring it to a processing facility and also participating in a processing facility. So we really see that as some upside for us as we look at 2012.

Rosemary Tevelow – Tevelow Associates

Are the processing facilities at the Bakken adequate to deal with the production there?

Steven L. Bietz

I think if you look at the processing capabilities that exist today, I think the answer would be, there is sufficient capacity. There’s been a number of new facilities that have been brought on-line and that has helped to meet their needs. Probably the challenge today is getting the gas from the well to those facilities.

Rosemary Tevelow – Tevelow Associates

And also, I’ve heard that there are now trucks that are using LNG in the Bakken. Is that a big thing? I mean are there many of those? Is that changing the utilizations still using diesel for the truck?

Steven L. Bietz

I think the answer would be no. There’s been a little bit of work to compress some of the gas and hall it via truck. That’s been more on a very small kind of test situation right now that as far as I’m aware of.

Rosemary Tevelow – Tevelow Associates

Thank you.

Operator

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

Terry D. Hildestad

Okay, thank you. We’re excited about 2012. We think we’re well-positioned. We have a number of opportunities out there. We’ll certainly keep you updated as we move through the year. We, again, lots going on in all of our business lines and we’ll update you as we make progress in those areas. We appreciate you being on the call today and we hope to speak with you soon. Thank you, for your interest.

Operator

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

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