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Executives

Terry Hildestad – President and Chief Executive Officer

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

Steve Bietz – President and Chief Executive Officer, WBI Holdings

Kent Wells – President and Chief Executive Officer, Fidelity Exploration & Production

John Harp – Chief Executive Officer, Knife River Corporation and MDU Construction Services Group

Doran Schwartz – Vice President and Chief Financial Officer

Analysts

Andy Levi – Caris & Company

MDU Resources Group, Inc. (MDU) Analyst Meeting Call March 15, 2012 8:30 AM ET

Terry Hildestad – President and Chief Executive Officer

Good morning everyone. Good morning. Fill your coffee up and grab a chair. We are going to start this right on time this morning, so we keep on schedule. I am Terry Hildestad, President and Chief Executive Officer of MDU Resources. It's a great pleasure to welcome you to the event and open it up. Today, we've really got a great morning plan for you. As you know, our format today will include presentations from each of our business unit Presidents and our CFO.

I'll start out with some introductions. Presenting today, Dave Goodin, Dave is President and CEO of our Utility Group; see Dave and the presenters are in the back of the room there. Dave, raise your hand. Steve Bietz, Steve is the President and CEO of our Pipeline Operation; John Harp, CEO of our Construction Materials and Construction Service Group; and Kent Wells, Kent is the CEO of our E&P business; and Doran Schwartz, you know Doran, Doran is our Chief Financial Officer. Also like to introduce Tom Knudson, Tom is in the front of the room up here, Tom is a four-year director of ours. In Tom's previous life, he was a 30-year ConocoPhillips Senior Vice President. He has number of other positions. Welcome Tom. In addition, we have Nicole Kivisto. Nicole is our Vice President, Controller, and Chief Accounting Officer with us today.

I want to draw your attention before I begin to the forward-looking remarks. We will be making forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes its expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For a discussion on factors that may cause results to differ referred to Item 1A risk factors of our most recent 10-K, our Form 10-Q and our most recent 8-K. With that behind us, I’d also like to say that following each of the presentations by the business unit Presidents, we'll have Q&A, and with the Q&A, we will make microphones available for you and that's to the benefit of all of you in this room and for those in the audience that are listening through webcast. So, again, we'll have a couple of mikes that will circle around as you need them.

I will be up at the end of the Doran's presentation to take additional questions. So, our format today will go through the presentations and the discussions of the business unit by the Presidents. We'll feel questions at the Presidents' level, and then following Doran, I will be back up here and then we'll continue with that process, Q&A.

So, let's take a quick look and many of you are familiar with our story, not all of you, but as you can see we are a diversified company that provides natural resource products and services essential to energy and infrastructure. We have a unique and balanced portfolio and our portfolio includes reserves of natural gas, oil. We've got 1.1 billion tons of aggregate reserves. We own coal-fired, natural gas-fired, wind, and generating facilities. We have distribution lines supplying that energy to our customers. Our pipeline is the most extensive natural gas transportation system in the Bakken play. We own the largest natural gas storage field in North America. If you know our company, you know we have very solid balance sheet. Our equity position is at 66% at year end and really the core of our company is based around our talented skilled employees.

Our vision statement is the guide to the way we do business at MDU Resources with integrity. We expand in areas, where we have operating expertise. Our goal is to exceed the expectations of our shareholders and our customers. All the while be in mindful of safety. This vision guides the way all of our business units do business.

Now, I mentioned earlier that the business unit Presidents will be talking about their operations. But I'd like to give you a glimpse of what you will hear from them today, some of the highlights. At the utility, Dave will show you how we've successfully grown this business over the years. We just completed our fifth record year, consecutive year of record earnings at utility.

As we look forward, the utility has the highest capital budget in their history, $900 million over the next five years, organic growth opportunities. This unit gives us a platform of stable earnings and cash flow for our corporation. And then we have the upside potential of the non-regulated businesses. Our pipeline has growth opportunities in the Midstream business. Their strategies certainly they have valuable assets related to dry gas. Dry gas right now is challenged as you know. They are looking for opportunities in the liquids-based area, and Steve will talk to you about those. Recently, we announced that we are investigating the possibility of a topping plant to serve the needs of Western North Dakota and the remainder of the Bakken.

Kent will talk to you about how is growing our E&P business. We have a very strong set of assets to exploit. Obviously, oil economics are robust today. We are adding oil assets. We announced early this week that we added to our position in the Bakken. Currently we have a 124,000 net acres in the Bakken. We substantially increased the capital into this line of business. Kent will update to you on that.

And we announced late last year that our construction business has been combined under the leadership John Harp. John is a proven leader. He has got a track record of success in the construction businesses. Restructure and the combination of these businesses will allow us to capture additional opportunities and streamline the cost structure in these businesses. We have a number of higher margin projects in the backlog. John will update to you on that.

I want to mention the Bakken and certainly that’s in the news. We believe the Bakken can be a needle mover for our company. It presents opportunities at each business unit. That reason we have assigned an Executive Vice President to coordinate our activities of our business in the Bakken, Bill Schneider many of you know Bill. Bill is taking that responsibility and he is doing a great job in that area. We think we can better leverage our capabilities in the region as we are a vertically integrated company.

As you know the utility have seen some significant growth in the Bakken. Our E&P business is exploiting their reserves in the Bakken. Our construction group has expanded organic opportunities in the Bakken in both materials and supply and our pipeline is looking again to develop more opportunities in the Bakken, again investigating this topping facility.

To give you a flavor of some of the drivers to why we are investigating a diesel topping plant, I think it will help you understand just how dramatic the growth in the Bakken is. By looking at the diesel consumption, it’s estimated that the oil patch is consuming 50,000 barrels of diesel daily. The Bakken related activities 50,000 barrels daily. Consumption has jumped over 50% in that part of the state in the last three years. Currently North Dakota has one refinery. It produces 17,000 barrels of diesel. So, you can see we import the remainder. You can see that this one of the reasons, why we are investigating growing in this area.

Now along with growth comes increased capital and you can see on the slide that our capital expenditure program over the next five years, $3.7 billion, that's up 37% from the previous five-year period. These are primarily organic growth opportunities.

Another important factor, remember is based on our forecast, we can do this. We can achieve this capital expenditure growth without having to issue equity based on our assumptions in here. We believe we can drive value to the shareholders by growing our base of accretive earnings while paying a competitive dividend. We certainly as we have in the past look for opportunities for acquisitions. If we find acquisitions, they would be incremental to this $3.7 billion. Our number one focus is creating value for the shareholder. We continue to provide our shareholders a competitive dividend and a solid long-term return. As you can see on the chart for 2011, the shareholder – total shareholder return was 9% significantly outperformed the S&P 400 and the S&P 500. Over the longer term, 10-year period, 9% compounded annually again outperforming the S&P 400, the S&P 500. And in fact if you followed our company for a longer period of time, the 20-year return, compounded annual return over 20 years, 12%.

So, finally before I turn this over to our business unit Presidents, I want to summarize a couple of highlights. The utility, we have a platform of growth. We have specific organic projects that are ongoing. This group again serves as a solid base of earnings for the corporation. The pipeline has growth opportunities associated with the midstream business surrounding the liquid area and we are adding pipeline into the Bakken. Steve will talk to you about that. At the E&P, strong group of assets, increased capital into this business forecasting significant liquids growth, and our construction group has opportunities in the Bakken region that we have talked about as well as other areas.

So, with that, I am going to turn the podium over to Dave Goodin, the Head of our Utility Group. I want to thank you again for taking time out of our schedules to join us. Following Dave, we will have Q&A following each of the business unit presentations, Q&A I'll be up here at the end of the program. Dave?

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

Well, thank you, Terry. The sound check, sound in the back, a little echo, maybe just little bit down, thank you. Well, good morning everybody. It's certainly a pleasure to be here this morning and also a pleasure to kind of get reacquainted with a few of you that I recalled from seeing some of the previous either be an onsite analyst visit or our previous March hitting that we have had here in this March as well. It's been my pleasure to help, I'll say lead the utility group for the last four years and I think we've got some continued good exciting news for everybody to share today, shouldn't be all new news here that I think we kind of provide a regular, I'll say ongoing dialog with projects that we are doing at the facility, but would like to talk specifically about some projects that we are doing and kind of highlighting what I say, what Terry just talked about the solid earnings contributor that we have to the overall MDU Resources Corporation.

Just by way of background, for those of you that may be aren't just familiar with our utility operations, we are a four-brand in utilities, operating in eight states from western Minnesota to the Pacific. You can get an idea of what our service territory is here. We don't serve all of that area, but we serve parts of those various eight states somewhat electric generation, transmission distributions along on the natural gas side, a little bit of transmission, but a lot of distributions throughout those various communities that we serve. If you take a look under the Montana, Dakota and Great Plains brand, you can see we are approaching almost 400,000 customers today, 278 communities that we serve really between Minnesota and North Dakota, South Dakota, and Montana and Wyoming.

Moving further to the west, we have Intermountain Gas, 315,000 customers there had evolved in the Snake River Plain in southern Idaho, a company we acquired actually October 1, 2008. Cascade Natural Gas has 262,000 gas customers between Oregon and Washington company that we acquired back on July 2, 2007. So, we internally we really kind of frame up our utility group is four brands working as one utility over eight-phase.

So, what’s the success then? Terry did mentioned I’ll just reinforce that we actually had our fifth year of record earnings last year kind of a ascending year-over-year gain whether it be through increased rate base, through acquisitions, or through internal organic projects that have increased rate base and we start recovery of that are now certainly in our customers' rate. Last year at $67.7 million, actually about 30% of our corporate earnings come from our regulated business between our electric and gas distribution businesses.

So, what are we going to do next step so far as future growth is concerned? Terry touched on this, but in 2012 specifically, we have the largest capital expenditure budget in our corporation, our utility group history, and we have been in business for about 88 years to-date. Though we have $218 million today targeted for reinvestment into our business and I’ll go through what we have specifically identified for some of the major moving parts of that investment. Carrying it beyond 2012 looking out for the next five years we’ve got little over $900 million targeted also for organic growth within our existing eight-phase footprint.

Overall, between the depreciation and deferred income taxes, this would have a net effect of an earnings or a rate based growth of $370 million over the five-year period. The major projects that we have I’ll say identified in that are either in different stages or that are already started or it's starting a preliminary regulatory processes. On our electric generation, we have identified today about three quarters of our generation is we own and about one-fourth of our generation we actually contract with third-party for basic capacity to meet our customers' needs on those hottest days and coldest of days. We are looking at replacing some of that purchase capacity with owned generation and the project that we have identified we have started a regulatory process already for an Advanced Determination of Prudence. And we’ve got situated and sighted already chosen just on our sister city across from Bismarck, which is our headquartered town in north of Mandan, where we already have coal-fired generation and very good transmission access.

So far as continued EPA and environmental compliance we have identified in our Big Stone power plant, we are through starting an Advanced Determination of Prudence process there with our North Dakota Commission. We have identified, we’ve provided to the EPA and we have got basically a state improvement plan for South Dakota. That alone is about $125 million of investments that we will need to put into the Big Stone unit to comply with regional haze rules.

Transmission wise, we’ve got our Merricourt project, which is allowing third-party wind farms to interconnect to our eastern part of our grids. We’ve got to contract with them. They are in the process of situating their side and we are upgrading our 230 facilities to really take care of that interconnect.

Turning ahead to some of the pipe projects that we have got on the natural gas side, we continue to see need for pipeline reinforcement, and this is because of customer growth that we are seeing in various parts of our areas. I think a very interesting project is the Hanford nuclear waste site came to us through the Cascade organization. We have now situated actually our Cascade headquarters from Seattle to the Tri-Cities. And just outside of the Tri Cities of Washington, there is a nuclear reservation that the government established there basically back to World War II as part of the nuclear development program. Well, that state does not have natural gas situated on it and the U.S. government is looking at a way to really convert millions of gallons, I’ll say nuclear waste from a liquid form put it into a glass form.

And part of the process they were looking at initially was say diesel fuel to the tune of about 45,000 gallons of diesel daily basically heat this up to what's called the vitrification process. Well, we have worked with the Department of Energy and the Department of Defense as to providing a concept to bring natural gas about a 30-mile gas lines to the site offsetting to sell that diesel with natural gas and providing substantial savings to the government and for all of us taxpayers really so far is converting this nuclear waste from a more liquid form to a very glass form as well. You've got a past order with the government for the Phase I of this and then we would expect Phase II to follow on the fields left after all deciding and permitting is completed. You've got marketing in here, so far as some of the kind I'll say some of the key areas that we see be given natural gas' place in the fossil fuel market today we see some very, very good opportunities kind of on the heels of what I just mentioned for the nuclear site here at Hanford, but not to kind of miss out on a lot of are the grain drying that occurs in the Upper Midwest that may have been propane before.

We are finding a lot of demand for major extensions to get to I'll say grain drying situations that we will see so far as displacing propane and other type fuels. We also have some military basis not unlike the Hanford site that are seeing kind of increased need for natural gas and some of our construction work we can do on those basis. And an area that we really explored, we do have an LNG manufacturing facility at our Nampa station, which is with Intermountain just on the west side of Boise.

We see LNG is kind of an emerging least cost fuel that I think down the road may find its way into some other I'll say remote applications or potentially some transportation operations as well. And then not to dismiss, but given our growth we have had and success I will say with our acquired companies that we have had over the last several years, we want to continue to look at how might we'll be able to kind of grow not only organically, but through acquisitions as well.

Let's talk specifically about Bakken. Terry mentioned about the Bakken, it situated right in our backyard. We serve many of those small communities in Western North Dakota and Eastern Montana. I mentioned this in previous presentations. Those communities are just busting at the seems right today, because of all the workers needed or the – whether it be the fracing or the drilling or the other activities that Kent will touch on, but we are seeing certainly electric growth from a customer perspective and some natural gas growth as well. And I think this will continue and probably actually accelerate into 2012. If we take a look at our capital dollars, we have got allocated to the Bakken. We show about $50 million, that’s bit of a moving target, because it is the hottest area of growth in our entire service territory.

To give you a little idea of one of kind of the unique type projects that we have got is because of the fracing fluid, the frac water needs to be heated and Kent could give you all the details with this, but typically it's heated with propane or some other fuel source at the site. But what we are seeing is the demand over the last several months to heat frac water at a using natural gas, which is far more economical. And so I think we are going to see a few more of these. We just hooked up our first frac water heating depot right around Christmas time and we are working on our sec one now. We think this could have some substantial, yes throughput on our system given there is over 200 rigs today operating within the Bakken, now requires 200 fracs in the tail end of every one of those wells that are being drilled.

Certainly, we look at our earnings is derived directly from our rate base. And if we take a look again at that five-year forecast between 2012 and 2016, net depreciation is about $370 million in rate base growth. If you take a look at it on compounded annual growth rate that’s about 6% and again that will in term through new customer connects and through the regulatory process should yield some earnings growth along the way.

When you take a look at our electric and gas business even though we acquired exclusively natural gas distribution business companies through Cascade, Intermountain and Great Plains. If you take a look over the five-year horizon, we are actually pretty balanced between our electric business and our gas business from a rate base perspective. And you can see how that mix changes, because again we are replacing some of that purchase generation through owned generation like the combustion turbine project and through some I'll say major environmental upgrades like our Big Stone Unit I for regional haze on EPA compliance.

On the electric side, again 127,000 customers are relatively kind of real part of America that's seeing some tremendous influx with worker and just overall business activity specifically here in Western North Dakota and the Bakken area. You can see where we've got out generating station situated and again about three quarters of our generation we owned, we've got a nice mix, a nice balance I believe between coal, natural gas and renewables on our system. And then this other 23% is purchase power, and again over time, we will see that percentage of purchase power be reduced as we bring online, for instance, to our Mandan CT that we have got targeted for late 2014.

On the natural gas side, we actually serve more communities over our entire footprint here, really a pretty diverse economic base. You know what's happening, in Western Minnesota maybe quite quiet. Certainly, the Bakken is very hot right now. If you take a look at Intermountain and Cascade saw tremendous customer growth in the mid 2000s. That has actually slowed down in certain parts of the service territory. Yet in Eastern Idaho, we are seeing some very nice growth and the Idaho falls to Rexburg area due to the college and university that's over there specifically. And we have had different drivers, what might be agri industries in Idaho or technology on the western side, certainly oil and gas here. And we have got I'll say some good agri businesses in the Billings and Sheridan area as well.

So, what's in summary? Why would be the takeaways that I would like this group to kind of be keyed in on? Take a look certainly at our capital expenditures that we have got planned for this year. They are identified projects. They are specific to both our electric and gas businesses. If you take a look over the next five years, we have actually are ramping up because of I'll say getting into some of the CT project and the EPA compliance work. Western North Dakota is really kind of a jewel for us from a customer growth perspective today. We've really experienced customer decline in many of those communities over the last 20 years since the last oil boom. Well, that certainly turned around and we take a look at our growing investment reinvesting into our business that will equal earnings growth at the same time. And that's all in an organic basis and not to dismiss, we continue to be interested and looking at what maybe a potential merger or acquisition with another party. Obviously, it takes both parties to be agreeable to that, but we are very interested in growing as we found success in our past acquisitions as well.

So, with that, I'd like to open it up for questions that you might have. I know there is a microphone that we will use to. Sure everybody in the room can hear the question along with those that maybe listening on the internet?

Question-and-Answer Session of Dave Goodin

Unidentified Analyst

How much of the CapEx for the five years is for environmental compliance?

Dave Goodin

Chris, it would be in the range of probably, well we have identified the 125 would be our portion of the Big Stone, that's our portion of Big Stone. Big Stone is about 489 until little the 125 is MDU's portion of that that we have identified. I would say it's in the range of about 160 to 170. Again, some of these rules are just came out at the end of December. They are going to need to go through several iterations, but it's going to be – that's going to be kind of the cornerstone will be Big Stone Unit I. From a regional haze perspective, (tie out) will not be until 2024 that will be out there always. We have got some upgrades needed at Heskett Unit 1 and Heskett Unit 2, which are right near Bismarck in the Mandan side. And our Lewis and Clark will have some upgrades, but not to the degree certainly what we have got targeted already for Big Stone.

Unidentified Analyst

And given the CapEx and rebased growth, can you give us a little flavor for what you expect your rate case cycle to look like?

Dave Goodin

Yeah, we review rate case cycles at a minimum on a quarterly basis doing a forecasting mechanism. I won't be precise today, because I think one of our major wildcards in this is the accelerated growth we are seeing in the Bakken. That's a little less predictable today than five years ago, I would have been much more certain at that. So, the best thing I can say there is stay tuned. We continue to monitor our returns to stay within our allowed range and really just stay tuned in that, because I think the wildcard is how much growth in the Bakken from a CapEx and revenue perspective, what's that balance look like? Certainly, absent growth in the Bakken would require upgrade rate cases, for instance, the environmental upgrades, because there is no new customers added with that, it's just shown to be a least cost alternative through our IRP process.

Unidentified Analyst

I wanted to just briefly go over the ROE that you earned in 2011 in your various jurisdictions and then I got a follow-up after that?

Dave Goodin

Okay.

Unidentified Analyst

Just the earned ROE that you had in your various jurisdictions what were they for 2011 – where are they roughly speaking in your various jurisdiction?

Dave Goodin

I’d say that is a general rule where in double-digits.

Unidentified Analyst

Okay. You are in the double-digit. Okay then.

Dave Goodin

I mean I’m looking from an operating company perspective and we are double-digits.

Unidentified Analyst

Okay.

Dave Goodin

It nearly -- what? Double digits, low double digits.

Unidentified Analyst

Okay. And then I guess average customer rate increase. I mean you talked about 6% CAGR for electric and gas. How should we think about the rate impact are going to happen in customers over that point of time?

Dave Goodin

I think that goes a little bit back to Chris’ question is to timing and so I -- the wild card here is the Bakken and we are seeing some again some accelerated growth there. We historically have it seen in that area and so I think that may mitigate some of the other rate activity. I’ll say stay tuned on that. It’s too early to tell exactly. We don’t have anything in the next 12 months specifically outside of what we have already got going from an Advanced Determination of Prudence both with our Heskett 3 Station the new CT along with the environmental upgrades at Big Stone. We’ve got both of those processes started with our North Dakota Commission through this advanced determination of prudence.

Unidentified Analyst

Okay. And then just on the potential merger opportunities, could you sort of elaborate a little bit of what kind of just sort of what’s you are looking at there and how we should think about perhaps the potential to eyes of something like that because in the past you guys have sometimes depending on the business breakout the business mix how should we think about, what potential opportunities you guys, you know, what the range of opportunities you guys might be interested in?

Dave Goodin

That’s a very open question Paul, designed that I’m sure I’d say stay tuned. I mean I think to look realistically I think when we look at cascade that was a step out for us. That was several states away. Yet I think the performance have shown, we are able to integrate a company that several states away. So, would something need to be contiguous with us, certainly that would be an option, but I think we have also shown that we can be step or branch out. I think it’s very critical how to find obviously a willing partner, a reasonable good culture match at the same time in a geographic area that makes good sense for us as well.

Unidentified Analyst

Okay, thanks.

Dave Goodin

Thank you.

Unidentified Analyst

Can you talk a little bit about on the $370 million of rate base growth, how does that break out between electric and gas? The chart here, but it is a little hard to eyeball it.

Dave Goodin

We will end up being about 50:50 on a net rate base. I will say, very close to that. Again that’s based on a five-year forecast. Things get obviously a little fussy, when we rolled out through every year and recast that. But we are going to move too much more of a I mean 50:50 blend based on and what our current projections are for current projects?

Unidentified Analyst

Okay. And of these, you know, the Big Stone project and the gas turbine, are those projects in your projection dollar per dollar have you here cut them for probability?

Dave Goodin

No, they would be in there essentially dollar per dollar at the value that what we’ve got in here. So far is the $86 million and the $125 million would be part of that $916 million over the next five years?

Unidentified Analyst

Okay. And then finally, as you think about the $370 million of rate base growth, how do we think about for just trying to build out your earnings and revenues, the customer growth layer that happened in depend of rate recovery?

Dave Goodin

Come back again on that please?

Unidentified Analyst

So, the piece of your revenues that are due to increased rates from -- increased rate base as a piece of your revenues there from volume increases from new customer penetration and demographic growth etcetera. How can you give a little more color on the latter piece?

Dave Goodin

Well, certainly I mean if we were to try to break it down by project, I can try to help you with that, but I think I’m not to go back to Chris’ question and say, some of its not as -- you can’t be as precise given this uncertainty in the Bakken area. Let me give you another a little color that combustion turbine we’re talking about, well that’s added rate base investment. That’s actually going to displace some purchase power contracts that are going to go away from an O&M and expense. We are going to replace that with some rate base. That will provide earnings, but may not be much. It will have some customer impact, but it might not have like the full effect because there is a net reduction on the purchase power side if you follow that.

Unidentified Analyst

Yeah.

Dave Goodin

Certainly with the Big Stone environmental upgrades that will have pressure on increasing rates with customers. Yeah, the Bakken growth is going to be primarily revenue driven and rate base will kind of stand on its own there. And maybe we’ve actually exceed it depending on the area in the community. So it’s hard to be precise with that, but it’s a combination of both.

Unidentified Analyst

Thank you.

Dave Goodin

Carl?

Unidentified Analyst

Dave, could you talk a little bit about the historic situation of the North Dokota Commission elected versus pointed when they’re up for reelection if they are elected what their history has been with you and what your, I mean, so we get some kind of a feel as to how are things going to go as you come to them asking now for advanced determination asking presumably for equipment rate base things like that, give us a little background.

Dave Goodin

Sure. The North Dakota Commission is a three-member commission. They are elected officials. All three of them today one is announced, one of the three is announced. They will not be seeking reelection. In fact that individual yesterday was before Congress and some proceedings because he has been nominated to be potentially a FERC replacement. And the other two are incumbents within the commission. We’ve got I think going to your question , you know, what’s the likelihood or where is it add with the Advanced Determination of Prudence process for both situations are combustion turbine and our Big Stone project. We started conversations through I’ll say periodic updates with our commissions. We do that on a -- we try to do it on a quarterly basis. I’m sure it happens more to three to four times year, but we started those conversations sometime ago. And so we’re not surprising a commission with oh, here is a project and here is the need for it at the time we file something.

Yet at the same time the two that we have today we’ve got all party settlements. That are in front of the commission. In fact there will be a work session with the North Dakota Commission if I remember my dates it will be March 26th. There will be another work session relative to each of those settlements. I don’t want to get ahead of ourselves here today, but given we have an all party settlement. We would looked that that’s would continue to move it ways through the process and state tuned. But again we’ve been doing hopefully enough education homework. We went through some days of hearing already entered into settlement negotiations with all parties after that came to an agreement and then that now we’re sitting before that commission.

Unidentified Analyst

Those settlement agreements have anything to do with base, they say they actually on the approval.

Dave Goodin

Yeah the question to be answered is do we all -- do we agree that the project chosen and this projects scope and the project estimates. Do we believe that to be the reasonable and prudent course of action?

Unidentified Analyst

Right.

Dave Goodin

And so far as rate recovery and another things now I’m not dismissing the fact there could be some mechanisms within the settlements for instance rather than AFUDC treatment on the project could involve CWIP versus -- but the cost of service discussion on how it will specifically effect rates will come at a later date. But the prudence has already been determined on the front end. That’s a very key point, those the prudence point. Are there any other questions?

Unidentified Analyst

Excuse me. Let’s assume that are in the more benign geopolitical situation the price of West Texas drops by $30 a barrel. Presumably this would affect activity in the Bakken. Have you done any studies as to how much such a development might affect your rate base growth and customer growth?

Dave Goodin

I am not going to totally point that to Mr. Wells, but why don’t you ask Kent that similar question. It’s my understanding that if $30 drop occurs that the Bakken activity would still be quite robust. It’s my understanding. And it depends on the producer, it depends on the acreage, and it depends on a whole lot other variables that Kent could better answer specifically, but from a electric providing and gas providing perspective, it still looks to be a very good play in that regards. And the activity there is so heated right now. Even if it tapered off a little bit, it would still be much, much greater than we have experienced for the last 20 years.

Unidentified Analyst

Couple of questions. First, if you go over the past five years, if you look at your growth in rate base, how was the growth in earnings track the growth in rate base, I mean, they basically over a five or a seven-year period is basically a function of the rate base?

Dave Goodin

I would say they step quite evenly together. If you went back to, I'll go to 2006 as a placeholder, before we acquired Cascade we earned from an earnings and I would almost like to Doran and I can't remember our rate base in '06, but I will say on an earnings growth, 2006 Montana, Dakota, and Great Plains had a reasonably good year at $20 million in earnings. Fast forward through the five years, a record earnings, here we are at 67.7 and you would find a very similar correlation between rate base and earnings.

Unidentified Analyst

It’s over. Maybe it's now 121 over a one or three-year period, but over longer period, it basically tracks?

Dave Goodin

It would track very close, because obviously we track our return on equity back to Paul's question by state, by area, or we are within our allowed range etcetera and that's certainly our goal, but the two track quite closely to each other.

Unidentified Analyst

Okay. And the other question was on the allowable ROEs, they vary by jurisdiction, but how are those interest rates? How the level of interest rates, whether it be 5 or 10-year interest rates get into the formulas for determining the ROEs and if you have the sustained low period of interest rates, would that negatively impact?

Dave Goodin

That all comes back to your basically cost of capital and what's perceived as at a reasonable rate to attract capital. And certainly nationally, we are seeing allowed ROEs continue to drift downward and we have seen that specifically in some of our areas, although I will say, our electric case that completed in North Dakota just completed mid 2011 was a 10.75 ROE. Now, when you look at that, you got to understand that there is various mechanisms within it and we are anywhere from 10% was the last case that we had in Wyoming going back, a little more than a year and certainly we have got some historic ROEs out there, but it's somewhere in that 10% to 11%ish range is a general rule.

Unidentified Analyst

Thank you.

Dave Goodin

Okay. Well, thank you very much. I am certainly going to be around here through lunch, look forward to chatting if you've got anything you'd like to catch and talk about offline or kind of in a more casual setting. With that, I am going to turn this over to Steve Bietz. Steve heads up Williston Basin holdings and the pipeline group and talk about some of the exciting things he has got going on.

Steve Bietz – President and Chief Executive Officer, WBI Holdings

Are we okay with the mike? Sounds like it. Good morning everyone and let me add my welcome to everyone that's with us today. Terry talked about some of the exciting activity that's going on within the corporation. I will spend my time talking about some of the activities that have gone on at the Pipeline & Energy Service Group as well as how we are looking to capitalize, capitalize on expanding our existing system, but also broadening some of our activities into the Midstream side.

Let's see here we go. For those of you that may be newer to our corporation, a quick summary of our group. We provide gathering, storage, and transportation of natural gas services kind of through high state area. We do that through both regulated and non-regulated activities. On the regulated side, we have got some 3700 miles of pipeline capable of moving about 860,000 Mcf per day.

If you look at our system, we've got 12 interconnects with other pipeline systems really gives our customers the opportunity to move gas from one pipeline system to the other kind of throughout the Midwest region. And we provide a very valuable storage service to our customers. We've got three storage fields, 193 Bcf of working gas capacity. Included in there is the largest storage facility in North America.

Moving to the non-regulated side, about 1900 miles of gathering lines, where we take gas from the wellhead with the central locations and deliver that into pipelines to be moved to the market. Along with that, we provide services. We'll do things like coldwater. We'll operate compression for third parties. We'll provide measurement services for third parties. And we do cathodic protection work for a number of parties. And then finally, we also market some of the natural gas produced by Fidelity at our Prairielands Organization. Our goal there basically get the best price we can for our own production.

If you look at kind of our strategy or what we are trying to do, we continue to be very growth focused. We are looking to continue to invest in infrastructure. You look at our history. We construct, we operate infrastructure, that's our expertise. So, we're looking to continue that investment, certainly focused on returns or focused on where we do business well, expertise in the Rockies, and we look to build upon our strength. Our strengths include how we deal with our customers, our integrity, our technical competency, and really our reputation for providing valuable services. Over the next five years, we are looking to invest some $330 million kind of in two areas, one to expand our dry gas systems and secondly to move into the midstream side, where there is a lot of opportunities and I'll talk more about that in a bit.

Looking back at 2011, certainly we have some headwinds if you will on the storage side. We saw less gas going to storage last year with some of the differentials that narrowed. And you can see how that compares back to 2010. Just to reminder, 2010 was a record level for us. So, probably to be down from that level is not unexpected, but we are a bit challenged today with the differentials. I'll tell you we view our storage assets are very valuable assets and over the long-term they will provide great returns for our shareholders. The other activity and we have touched on already and Terry has talked about it is in the Bakken area. (It's really) on our backyard, we have got an extensive transmission system throughout the Bakken area and this kind of shows over the last five years, the red line here is the oil production in the state of North Dakota and important as well is the blue line, which is the natural gas that's being produced. And you could see basically potentially on the exact same trend the last two to three years. So, that's where we see a lot of opportunity on the gas side and also on the midstream side. Thinking of forecast with 200 rigs working in plus in North Dakota today, production is going to continue to grow, well it’s the increased both oil production and gas production.

Now, I'll just touch a little bit on some of the activities in 2011, pretty busy year for us from a construction perspective. We spent some $45 million included in that or kind of four projects that went into service last year. I'll touch on each of those. The first one was the expansion of our Baker storage field. Here we look to increase our firm deliverability meaning how much gas we can put in or take out of storage on a given day. We designed a project to add about 125,000 Mcf per day, but doubled our existing firm deliverability out of that field. We went to the market. We sold about a third of it. The last year we drilled some storage wells. We added some gathering lines. We are putting some compression and that system came on and is performing just as we expected. As far as future enhancements and we got another $90 million a day that we can add here and while maybe the market isn't here today, we'll put that on the shelf and when the opportunity comes up, we get support for that project we'll be ready to go with that.

The Billings market, we're seeing a lot of growth in the Billings market, happens to be the largest area or city that we serve a lot of increase in industrial load in the Billings area. So, last year we replaced some 14 miles of 10-inch line with 12-inch line really positioned ourselves to increase deliverability into Billings. We have also got some compressor replacements that are planned for this year. And with a few other minor modifications, we can add probably $10 million to $15 million a day of firm deliverability into that market, a market that's going to need that increased deliverability.

Then some of our Bakken projects, the first one was really expansion of our, what we call our Charbonneau Compressor Station, that's our interconnect with – one of our interconnects with Northern Border. Here we added an additional unit, which added about $35 million a day of firm deliverability into Northern Border and with some minor modifications at that station we could add another 20 as demand rises. We also built the line for a new processing facility, the Garden Creek facility. We built a 12-mile 12-inch line to connect that facility to Northern Border. That went into service again last year. It's capable of moving in excess of 100,000 Mcf per day. Today, we are seeing probably 70,000 to 80,000 move through that pipeline. And then down in the southwestern part of the state near Belfield, North Dakota, another new processing facility was constructed last year that we did an interconnection with that facility – that gas gets delivered into our Grasslands Pipeline and that's we are also receiving gas there.

We will follow that work. We have doubled our takeaway capacity out of the Bakken in 2011. As we look at 2012, we have got another project untapped, even in yet another processing facility that's being constructed. We've got a contract in place to build 13 miles of 16-inch pipeline to tie into the Northern Border Pipeline again. This project is already kicked off. We are on the ground with our crews and some of our contractors building that pipeline. We've got an expected in service date of June 1 of this year. With this project alone, we expect to almost again double our takeaway capacity out of the Bakken.

And we'll move to the Midstream side. And here is the idea here is to really take our core expertise dealing with pipelines, dealing with infrastructure, and broaden it a bit into the Midstream side, into the liquids side, bolt-on from an oil, from the wet gas perspective as well as from a processing perspective.

How we're going about it? We've got a few different ways that were approaching this. First of all, we are looking at partnering with some existing companies really invest alongside with them to move us into this area. We have also added some additional personnel or continue in that process really to provide capacity for us. So, we've got enough people to work on it and bring in some a bit of additional expertise to allow us to be successful.

We have taken a look at a few Greenfield projects. Well, people are looking to pipeline some of their oil and so kind of smaller oil pipeline systems and one of the benefits there it takes a lot of the trucks off the road, certainly in the middle of winter, that's a very positive situation for the producer. So, those are some of the areas that we are kind of focused on, don’t have a lot of specifics for you there. I just ask you to stay tuned. It's certainly a focus of ours and we have got a number of different avenues that we are going to continue to find investments in this area.

Terry talked about our diesel topping plant facility. Again, it's kind of the extension of our business if you will. We are teaming up with a group by the name of Calumet Refineries – Refining. They are an experienced group and we've signed the letter of interest to look at the feasibility of building a topping plant facility. Terry touched about the market for the diesel field. Our goal here from the plant side, sizing the plant to around 20,000 barrels a day to convert that as much as that as we can into diesel field, then give you a ballpark probably 45% plus or minus of every barrel of oil would be converted into diesel field.

The balance will be naphtha. The idea here is to take the naphtha rail that up into Canada, where it's used to mix with some of the every year crudes up there for transportation purposes and also to take the remaining condensate or the remaining crude having that shipped to more of an integrated refine, where it will be further processed.

Activities going on, there is a lot of activities. We are spending quite a bit of time on site selections. We are looking now the permitting and what needs to be done to move this plant forward, procurement of crude oil, different pipelines in the area, trucking options looking at that, doing a market study on the diesel, demand side as well as the engineering work to design and construct the facility. So, we had a meeting here last week that spent quite a bit of time with an engineering firm relative to this. And one of the unique I think kind of interesting aspects of this project is the opportunity it provides for all of the companies within MDU Resources.

Certainly, we will be a co-owner of this facility, but along with that on the E&P side, some of the Bakken crude we produce can be brought to the refinery and be further processed. Plants get indeed significant amounts of natural gas and electricity that provides the opportunity for the utility and for the pipeline to provide both electric and natural gas. And then on the construction side in terms of site preparation, in terms of the construction work and some of the electrical work provides opportunities for various wells. So, a pretty unique opportunity, I think, a very exciting opportunity. One, we are putting a lot of time and effort on right now going through this feasibility study and should be working on that the next couple of months or so kind of bring us to a conclusion on that phase in presumably moving forward with that plant.

Just kind of in summary, if you look at the pipeline energy service group, have a small component if you will of the whole MDU Resources family, but there is a lot of exciting activity and a lot of potential growth here that we are pursuing. We are going to look to continue as I said to expand our existing systems really maximize our value add facilities where we can to move the dry gas. We are going to spend a lot of effort in kind of moving into the midstream side and just kind of expanding our expertise there broadening what we do a bit. And of course the plant itself, now we have talked and talked a lot about the Bakken and it's in our backyard, a lot of immediate opportunities there, but we can take this and go elsewhere to, whether it be the Heath Shale, whether it be other oil development plays in the area, they all provide opportunities for us as well kind of on a longer term basis. So, we have got an exciting future within the pipeline energy services group.

With that, I'll be happy to answer any question that you may have.

Question-and-Answer Session for Steve

Unidentified Analyst

Thank you. Between permitting and construction how long do you think that we take for the diesel topping plant to be in place?

Steve Bietz

Probably be up and operational sometime in 2014, so in the neighborhood of two years, permitting wise we are kind of estimating probably four or five months maybe a little bit less on the permitting side. As part of that we've got to get the plant design and so forth as part of our application for permits and get those filed and hopefully if things go well we could be turning late this fall.

Unidentified Analyst

Your partner Calumet is a master limited partnership. Does that present a problem for you in terms of working with them or is that an opportunity for you or makes no difference?

Steve Bietz

Actually, the Calumet Refining is an LLC kind of separate from Calumet Specialty, but there is a relationship there I think. We don’t see that as any challenge probably more as an opportunity down the road for us, so no concern from that perspective.

Unidentified Analyst

Relative to the Calumet, I don’t really understand, I thought you mentioned later after you had said that you were working with them on the potential of this plant, feasibility of the plant, that you said you are going to be a 100% owner what's their role?

Steve Bietz

No, we would be a co-owner. We would be a co-owner with them. So, if I said 100%, I missed full. We’re a co-owner with them we would be partners quite a long side of them.

Unidentified Analyst

Good, new subject. Has the recent emphasis on pipeline safety around the country, particularly spread by accidents that have happened particularly in PJ in this territory. Has that done anything to your outside opportunities that you able to helps people, where they have got to put millions of dollars into rebuilding their pipelines or whatever is that up off the tables for your concern?

Steve Bietz

Yeah, the opportunity it provides in some of the cathodic protection work that we do. We have a group that’s really design for that may provide those services to oil pipelines as well as gas pipelines throughout our pretty large region. So as more surveys are needed in those types of things it provide opportunity there. In terms of constructing, we don’t look to build facilities for other locations, so that really not our strategy. If there are no more questions, I guess I’m the one I guess announce we’re going to take about 10-minute break. So fresh up your coffee, be back in about 10 minutes. Thank you.

(Break)

Kent Wells – President and Chief Executive Officer, Fidelity Exploration & Production

Good morning. I am Kent Wells. I am the President and CEO for Fidelity Exploration & Production. I've been with the company since May. I have met some of you in August when we were together in Denver and talked to few of you on the phone. And I think those of you that get to know me, you find out I have a real passion by the oil and gas business, particularly about growing this business and I'll share with you today what we are trying to do. It's an exciting time in the oil and gas business. Of course, there is two emotions whether you are in oil or gas feels very different, but that's been our history. I have been in business for 32, 33 years and there has been years when you definitely wanted to be in oil and there is years you definitely wanted to be in gas. And I think that will continue on in the future and it's the reason we have the strategy that we do.

So, in August, we shared with you what our new strategy was and what we were planning to do. And today what I want to share with you is what we have done and what we are focused on in terms of accelerating our oil growth, because clearly that's what we need to be doing.

So, let me talk a little bit about this. And I think in a snapshot what I say is it took us a little longer to get started, getting our rig activity up than what we thought we could do in August, but where they are now and there is some pretty exciting things happened and hopefully you all had a chance to read our announcement that we put out on Monday, one of our areas we have been a little longer, the Bakken. We are getting some very encouraging results and we are continuing to expand our operations there and we'll be doing that in a number of different areas.

So, if I were to summarize this, we have got a solid set of assets to grow from. We are going to continue to pickup new assets like we talked about in our announcement, where we have expanded into Richland County. Montana is a part of the Bakken. Our oil production for last year was about 32% of our total. Production is 34% in the fourth quarter. You could all imagine what it's going to be this year as we continue to focus on growing that to 50 plus percent as we continue to ramp up productivity.

We have significantly enhanced our organizational capability, one of the things that we needed to do to make sure we could profitably and sustainably grow the business is to make sure we have the right technical people to make sure we are in the right locations drilling, make sure we have the ability to drill our wells and we have successfully done that. Being headquartered in Denver helps, we are not competing with everyone in Houston and Denver is a much nicer city to live in and that has really helped us probably more than we even expected.

I think in terms of increasing our drilling activity, you can see the rig chart if you go back a year ago, we are running two rigs. Today, we are running 9 and shortly that number will continue to increase and we'll keep you informed as we go along, which you can see we have expanded from where we used to be the South Texas and Bakken play that we are now at a number of basins and so we have the ability to grow much faster than we were in the past.

And if you can see the bar chart on the top, it kind of shows that over a number of years, we are growing our oil production about 15% per year relative to our total production is what we are showing there, but really what really drove that was the acquisitions that we did back in the 2007 and '08 timeframe and the initiation of the Bakken is actually was slower, but we are looking at going on a very different trajectory on a point forward basis, which I think is quite exciting. And all of our activity on a point forward basis will be at least for some period of time, we are focused on oil or what I call rich gas properties, which also have some oil, but then you have NGLs and some gas. So, we are not actively out drilling any dry gas fields and haven't been for quite some period of time.

So, just a little reminder of who Fidelity is? We are headquartered in Denver as I mentioned to you. We are primarily a Rocky Mountain and Texas player with three quarters of our production coming from the Rocky Mountain region. Well, we produced about 30,000 barrels a day and we have got about $100 million barrels of reserves and we have got just under a million acres of leasehold, and so that pretty much to describe who we are, but we are trying to go to a very different trajectory on a way forward.

Now, if you look at our assets in a little more detail and I'll put them in three buckets. Those that will look to exit, those that will look to sustain and provide cash flow to help our growth, and those assets that we really want to grow, and we think we have great earnings potential. And they are in the three different colors red, blue, and green. So, I think if we start with the red, we have already exited our Bonny Field in Colorado. We did that at the end of February. We are actively looking to get out of the non-operated assets that we have in the Gulf of Mexico shallow water, and that's a mix of oil and gas assets. So, I think that's – that will be quite heavily looked at by others. And then the more challenging asset is our coal bed assets that we'll look to market in Wyoming and Montana, but they will only exit the company if we get the right price form. As we know, it's certainly a difficult time to be exiting the dry gas business.

And then we have a number of assets that are sustaining, continue to generate cash flow for us, most notably is the Cedar Creek Anticline, where we have a net profit interest, it's – it’s a mature oil field. It's operated by (Den Berry). The contractual arrangement we have there is complicated, but it's a great cash flow machine for us. And (Den Berry) has just taken over an operatorship last year, very experienced operator, and from our perspective doing a very good job of sustaining and improving that asset, and of course, we are just in a net profits interest, so it puts us in an enviable position.

The areas, that I want to focus with you on is our real growth areas. Growth is clearly going to be led by the Bakken, it's our backyard. We have actually doubled our position there in the last year. We are now up to 124,000 acres. I'll talk to you both the Heath Shale and the middle of Montana, very new, but exciting area Paradox in Utah and the Niobrara in Wyoming. And then in Texas, I won't going to too much detail there, but we have similar to the Bakken. We have the South Texas, which has been an area we continue to develop in the very profitable business for us. Then we have some new and exciting areas that we're expanding and less able to talk to you about it today because we're still actively involved in gaining leaseholds there.

You all know this is well as I do. But it's always good to look a little bit about what the business environment, just the graph on the left shows where the oil prices and gas prices have done over the last couple of years and we all know those trends are just continued, oil price going up, gas price going down. And I've also showed you the rig count on the right and of course gas rigs going down, oil rigs going up. I think the thing to make note of sort of the delay. So, as the price of oil went up, it's taken a longtime for the rigs to catch up to the price. And then I think on the gas, which everybody is wondering what's going to happen with gas. I think we're seeing a really dramatic drop in rigs drilling for gas now.

And I think what we need to remember is that when gas prices due start to rebound and they will. Rigs aren't going to immediately go back at the drilling gas once they switched over to oil because that's what happened there. And I think there will be a time where we will see supply and demand change quite dramatically because of that delay factor. So, I think it's always something to keep in mind. It always feels like this that oh my gosh, gas price will never increase. Well, it will, it's when and how, how that will happen?

In terms of our strategy, it's all about growing our earnings and growing our asset value and we think we put together a strategy and a plan and the execution capability to do that in a very significant way. We're very focused on getting to 50 plus percent of our production coming from oil and we will – we will go beyond 50% at the environment supports it. But what we don't want to do is go so far the other way that at some point when all the sudden gas is very economic to be and we're not in a position to actually take advantage of that. So, we want to have the flexibility to do both on a going forward basis.

We're in the Rockies today and Texas today and we're going to look to continue to expand that and focus on that. We want to use what our strengths are and expand upon those. But I will tell you that we are doing our homework in a couple of other areas and when the right opportunity presents itself, we will be able to further expand, but it will be leveraging the things we are good at today not losing track of what our strategy is. But we don’t want to limit ourselves to just the Rockies in Texas.

I think we become quite good at focusing on areas that we are in development mode and how do we do that very cost effectively and how do we -- in areas that we are exploring make sure we are doing the right amount of science, getting the right amount of datas. So that we can setup that development and I think when I talked to you about the Bakken you will see we are in really concentrated development mode in Mountrail County and very much in the exploration mode in Richland County and being good at being able to do those phases is really important.

We have gotten quite good at drilling horizontally and completing those wells. That’s clearly where the future is right now, whether its oil or gas in the shale plays, and being good at that, that’s what’s going to drive the return. So, getting in the right acreage and then having really focused execution, where you’re not only driving cost, but you have also got the right tactical capability to maximize the recovery and accelerate the production that comes from the wells and we are trying to do all three of those.

Now, before I move on, I think there is something we need to explain and I want to talk about our reserves from last year. So, in our business we are going to grow the business, we better being increasing the reserves and our reserves went down from year end 2010 to 2011. The question is got to be, what’s that all about.

So, I think what’s if you remember the rig count I showed you, we won’t running, doing many rigs last year through the first three quarters of the year. We clearly made a decision that we needed to quit investing in dry gas. We did that and we did that quite early in the game, which was good. What we didn’t do is, we didn’t get around to getting our oil rigs going to really pretty close to the end of the fourth quarter in any big way.

Now we were able to replace our production so if you are a company that’s looking to sustain your production or reserves we added replaced our production, but we are interested in growing. We did on the oil side have a 175% reserve replacement so that was good. But what we did is, we took a negative revision of 60 Bcf of reserves and what that was is we had what we called proved undeveloped reserves on the book. All companies do and these are reserves that’s you know are there, which you haven’t drilled the well to developing yet.

Ours where almost all gas and in our plane going forward, I just didn’t see us drilling those right now. And by SEC rules you can only have them on your books for five years and so we took those reserves off the books. What I wants you to know is, those reserves are still there, those can be drilled at some point in the future, when the business and buyers support it. So, we are now down to where our PUD reserves are only 19% of our total proved reserves. You go and look at other companies; you will see much higher numbers. So long we hold other might needs to do something like that in the future too. I’m not still prepared to drill all the gas reserves So, just want you to understand what that was. I think you are going to see a very different picture going forward, where you are going to see significant increases in the amount of oil reserves we had going forward.

In terms of where we putting the capital, our plan right now is to invest $400 million in this business, 40% of that is going to go into the Bakken and I’m going to talk to you about where it’s going. We have got three areas in the Bakken. Mountrail County, where we have 16,000 acres and really proven area and then we have got 50,000 acres in Stark County, which the rest of the industry is pretty much proved up our acreage, when we drilled a few wells that we are feeling good about going in to development mode there. That we are really excited about the almost 60,000 acres we have in Richland County, Montana.

Also in Texas we will continue in South Texas and some other areas we are investing there. And then the Paradox, the Heath and the Niobrara, I talked to you about those place, because those are going to backup what we are doing in the Bakken. We have significant potential in those areas and I will tell you about what we are excited about and what we have some challenges and concerns about there.

So, if I move on to the Bakken. Mountrail County we have been there for a while. We have got 16,000 acres, if you read the announcement, we put out on Monday. We really improved the quality of the wells that we are drilling. 44% improvement for the last set of wells versus the wells we drilled previously and it’s a number of different factors that come in to that. We recently had -- on February 25, we had a new field production record, which was a great tribute to the team. Although, they no longer have that record, because it's now the third best day we have had. So since that time, we have continued to grow production and it's quite an exciting story. We have drilled about half the wells, we’ll ultimately drill there. And so there is still a significant opportunity to continue to grow production here.

One of the things we did quite frankly stumble on is we have increased our drilling rig activity. The other thing you need to do is you need to be able to make sure you have the ability to get the completions done on time and keep your existing wells on production. And we weren’t able to get sufficient work over rigs and we actually had about 1000 barrels a day offline for the last week or so of December and most of January, which was really frustrating, but we have successfully got the work over rigs and we have got them contracted, so we’ll have them, so we can keep our production on and we are able to get that backup in February. And that’s why we continue to hit field production records as we go forward, but that was a learning for us. You got to get all of the services lined up and I think we are in good shape now on a point going forward, but we did have a really slow start of the year in January, but the trajectory is very, very strong at this point.

The other thing I am sure you all have a question, I am sure you've all heard about the differentials that the Bakken crude is getting versus West Texas Intermediate to Brent, which is the world crude price. It’s really bad for March. It's $25 a barrel roughly and it's – but I think it’s going to be quite short-lived. I've met with the people that I'd like to spend a couple of hours with them on, what’s all going on in terms of pipelines, rail, different ability to export. And I think what we are going to see over the next few months that go back to more historical numbers.

So, what happened was there was refinery turnarounds, which typically happened this time of the year. There was a pipeline issue. And then as we continued to grow production, it got ahead of the projects to increase rail and pipeline capacity. I think we are going to see that change. I think we will see an improvement from March to April and then I think we’ll see a bigger improvement come the end of the second quarter as some more pipeline capacity becomes available. So, we’ll stay tuned to that and that’s an important part.

In Stark County, which is just directly south of Mountrail County, we’ve got 50,000 acres here. It's an area that was a little later getting started by the industry than Mountrail County, but we are having seen some very good well results we have recently drilled two wells there that we are just waiting on get them completed. They should be completed within the next month and we'll have results probably a month after that. So, by the time we announce our first quarter earnings I think we’ll have some a couple of very interesting wells to talk about. And we’ve got a core acreage block, which has about 75% of our acreage in it, and that’s where we’re going to focus going forward running two drilling rigs there.

We did drill a well on the far side, the (linear) well on the far eastern extent of the field. We knew we needed – we didn’t expect much from that well and we didn’t get a lot from that well, but actually it was probably even better than we thought it might be. So, there might still be some potential on that side of the field. We are going to continue to monitor that well, but in the short term, we are going to focus on our bigger acreage block in the middle, where there is some very significant wells that have been drilled by others and our first two wells look very encouraging as well.

A note in Richland County which is sort of North and West of Stark County, but very much on that same trend. So, we’re playing that same trend and we have amassed almost 60,000 acres here and it’s in a very concentrated block, which is very good, because when we get into development mode we can be extremely effective and efficient with how we develop this area and not doing in a sort of in competition with a number of different competitors which tends to lead to inefficiencies and how the field actually gets developed. There has been some competitors of our drilling to the Northwest into the Southeast and they have had some encouraging results, although I don’t know to the full extent, so I can’t announce it, but it made us a very interest. We are drilling our first well there. And so sometime during the second quarter, we’ll probably have some more things to talk about here, but this could be a significant place.

So, if you think about MDU and Fidelity in the Bakken we go from smallest in Mountrail County to bigger in Stark County to bigger in Richland. So, our future is expanding, and I think we can have some really excellent growth results from the Bakken.

In the Niobrara play, you probably heard. This is a tougher play, very mixed results in the Niobrara play. We have three blocks of acreage in the Niobrara play. In the North, we are watching what the industries doing? We're not doing anything on that. We are just sitting there. The industries having mixed results from good stuff a little further north and not so good in some other parts. In the middle we’re kind of unique there. We've now drilled two wells. Our first well was good. It was disappointment, but we won’t surprise by it. We expected that.

And our second well we have just completed it. We expect it to be better, but I don’t have any results to say. The more promising acreages just after the south were clearly a lot of the drilling in that area has been attractive and we've just started down there. So, more to come in the Niobrara. What I will remind you of is, we got end to the Niobrara play very early. We formed a joint venture and from a financial perspective I feel very good about our position. As acreage prices had run up, we were able to take advantage of that, take some of the risk off the table for us.

The Paradox Basin, which is in Utah here we have 75,000 acres, very different than the Niobrara. Clearly, the oil is there and significant quantities. Clearly the oil will flow. We just drilled the recent well and there is a lot of pressure here, a lot of productive capability. The challenge with the Paradox is actually it's very difficult to drill and then there is some complications in production operations. We brought in the technical capability. We drilled our first well flawlessly. We’re drilling our second well. It’s going extremely well for us. I think we have made great progress there. We’ve learned some things about seismic imaging. I have great hopes for this. I think these are wells that don’t need to be fraced at all. We are going to look at both drilling just straight conventional vertical wells and also some short later horizontals, tremendous resource potential here. But its also in a very rugged area, we've got canyons and the stuff. So, we're thinking carefully through the development. You will hear more from us on the Paradox. Its one area that I think will be significant for Fidelity at MDU going forward.

In the Heath Shale in Montana, so this is directly west, the Bakken field. We've got 90,000 acres here. We've drilled and completed our first well and our testing not now and I’ll just say we’re encouraged and I think you'll hear from us on this. We're drilling our second well. And there is a couple other players that are active in this area that are very interest in our acreage. So, I think this is a play that’s involving. It's very, very early days, but it could be an exciting area. We have a wonderful position here. Once again I think you'll hear more significant results from us as we have them.

In terms of the outlook going forward. We expect to grow our production, our oil production 20% to 30% this year. I can say that with some degree of confidence and that we have the rigs going. We have the acreage that we need. We're continuing to move into new place and I think in our announcement you saw we doubled our acreage in Richland County and there is some other activities going on as soon as I can talk to you about them, we will.

We should expect to see our natural gas production decline. Particularly prices remain where they are now or even go lower, which is real possibility. It just doesn’t make sense to be I’ll call it monetizing those reserves under these prices. And so particularly like in our coalbed operations we're shutting in production. It just doesn’t make sense to continue to produce that at this time.

You can see our hedge positions. We really focused on our oil, where we are significantly hedged that we're making our investments. We want to manage the risk properly, feel good about that. Do I wish I decided to here go to hedge more gas of course anyone would now. I just encourage you to look at if you go -- I remember back to 2000 and 2002 and those were two years that gas price was extremely low in the first quarter of the year. And I remember being shocked on how quickly it rebound because we all thought it was a multiyear affect and actually by the third quarter it started to comeback in the fourth quarter it was much, much stronger. So, it's interesting how that can happen and I think we just had an extremely warm winter coupled with a lot of drilling activity to hold acreage etcetera and you are seeing the gas rigs drop dramatically. And so I think the opportunity who knows what the future will be, but I think the opportunity for a reasonable rebound to not necessarily $5, $6, $7, but back up into the $4 range I think is some reasonable, but we may have a tough time in the second quarter. I could definitely see prices even going lower than they are today.

We are in an enviable position right now, that's becoming quite obvious too and I know I haven't shared everything with you, but we now have more opportunities to invest in than we actually are planning to invest in, and that's a great place, because it allows us to optimize where we put our money and it also gives us the option to further expand if that’s what we choose to do as a company.

So, I'll leave you where I started. We are all about accelerating oil growth. We have got the people in place to do it. We have got the assets in place to do it. We have got the equipment in place to do it and we are actually out there doing it. Hopefully, the announcement we put our money gave you some real encouragement about what we are doing in the Bakken. And I think you will see we'll be doing that in several other areas. They are just slightly behind in the sort of the time curve.

With that, any questions?

Question-and-Answer Session of Kent Wells

Unidentified Analyst

Yeah. I am just curious since everybody's focus on oil which is the right thing to do right now, what is happening on the expense side or equipment, people, we hear in your area, there is a lot of inflation. So, I am just curious what the impact is if you have some locked in or what the rate of increase might be this year?

Kent Wells

Okay. Well, I think there is a number of dynamics going on. So clearly, what we have done is where we felt we needed, I'll call it security and supply we have locked in some things contractually, for instance, on our rigs. I like to think about it as a lot like a bond ladder, where we have contracted with rigs on different timeframes. So, we'll always have the flexibility to let rigs go if we need to or we don't have a mall coming up on contract at the same time if you happen to hit a bad time. So, we have tried to manage our cost on our drilling rigs that way. In some areas, we are actually able to particularly if it's a gas-proned area as activities really drop we have actually seen some costs either flatten or go down. And then on the oil areas, it's really – there is a lot of pressure, but it’s not so much on cost as it is, that's the ability to get services. So, while there has been some inflation, it's – I am not seeing it accelerating or changing at all and clearly where we have been able to lock in contractually has a real – proved to be a benefit for us.

Unidentified Analyst

I have several questions if I may. Are you in the position of having to drill for your leaseholds in any natural gas, where you would rather not?

Kent Wells

No.

Unidentified Analyst

Okay.

Kent Wells

We are not doing any drilling for dry gas. So, if it's got oil, NGLs condensate along with the gas, yes we are drilling, but it’s (infinitesimal) to hold acreage.

Unidentified Analyst

Okay. Now, the next one is about the plaque that you are going to be building for diesel and we had discussed before you said you were going to mention the idea of having compressed natural gas instead. So, could you – I mean that maybe I heard anyway that there are two – the two major trucking companies are building engines that are designed to use compressed natural gas and you have a fleet arrangement with a common goal on the same brand. So, it seems that they are natural.

Kent Wells

Yeah. So, I would sort of disconnect the two, because I didn’t mean to connect before, again, sorry if I did. So, I think what Steve talked about in the topping plant to me it makes tremendous sense where you are producing crude that has a differential price and you are going to export it to some refinery and then bring it back for diesel. I mean, the topping plant makes absolutely perfect sense for North Dakota. So, I think that's good. On the compressed natural gas or use of natural gas, I think as a country we need to come to groups with, we have this very low cost energy source that we are underutilizing. And for us to be competitive on a global basis and we are importing if you think about or importing a $125 Brent oil when we have got even if the price of gas goes to $6 in Mcf, that's $36 a barrel. It makes no sense for us. So, we have got come to grips as, well actually, grips is North America on how were we going to make better use of that very expensive low cost energy source to help us be competitively globally. And I think compressed natural gas will be a part of that for transportation. That's one way to ease the amount of foreign imports. I think there is other opportunities as well for us to continue to use that tremendous supply. And that's why I think long-term I think I am quite bullish on gas prices. I think short-term we are into some dynamics that I wouldn't even want to try to forecast where gas price is going.

Unidentified Analyst

Just a few quick questions, the 12% to 16% decrease in natural gas, how much is that due to property sales?

Kent Wells

Probably about two-thirds of it and it really lot depends upon the timing etcetera when it happens.

Unidentified Analyst

Okay. And then how sensitive is that, you mentioned how that prices to get. Could we see that change, it's – we get the sub $2 gas and what have you or…

Kent Wells

Well, I think that happens, there is no value being created by the production anyway. So, it's not an impact on earnings. But yes, that we could have if prices went into the less than $2 and who knows where they go at that point. And I think we'll take a look at whether it makes sense to share any more production at that point.

Unidentified Analyst

Okay. And then with respect to the $400 million that what you guys have currently plan would serve on your table right now. It sounds like that could be higher, my understanding is that correct?

Kent Wells

What I was saying was we have the opportunity sitting in front of us if as management along with our board, we decide we want to do something, what I was trying to point out it's a great position to be in, to have more optionality either to improve whatever you're going to do or actually do more of it and that will be a decision we'll make later in the year.

Unidentified Analyst

But would that be more than $400 million, I mean, I'm just trying to understand its $400 million, what you got the currently identified or is there amount above $400 million?

Kent Wells

Today, we have a plan for $400 million until such time as we agree with the board to spend more of that's what we'll do.

Unidentified Analyst

If you see more opportunity, that could be as higher.

Kent Wells

We clearly have more opportunities. The real question is do we want to investing now.

Unidentified Analyst

Okay. Do you have any idea about how much more of that could be?

Kent Wells

Yes.

Unidentified Analyst

Can you show that?

Kent Wells

Yep, okay.

Unidentified Analyst

Okay, okay. So then, also with respect to like it sounds like there is a lot of stuff that you guys might be announcing later. Could you give us a little bit more of flavor through what the timing might be in terms of Heath and Paradox. I mean and also just we've got the first quarter conference call coming up. We're going to get more information on Niobrara being or is it really more of a second quarter conference call or how should we think about the release of the information.

Kent Wells

Yeah.

Unidentified Analyst

On these key opportunities?

Kent Wells

I would think for the Heath and the Paradox, but at the time we do our first quarter earnings, we should have some early indications that we can share there. The Niobrara other than what I shared with you now, I think that's going to be just beyond that. So, sometime by the end of second quarter, we should have a more definitive picture on what the Niobrara looks like and then we'll of course at that point be able to further expand upon a Richland County and we'll have more results on the Heath and Paradox and perhaps somebody talk about in Texas.

Unidentified Analyst

And then just finally, I'm sorry, just in terms of the basic differential that you saw. Could you just remind us, I mean, you said $25 of the basic differential between West Texas if I understood it correctly and talking right now on March. And so – and then you saw that improving and gave you a couple of months, I'm just wondering how much more of an improvement of basis, do you expect those to be again if you just quantify a little bit first.

Kent Wells

If you look historically, it's been anywhere from I'm talking recent history, a $5 differential to sort of $12 that sort of been in the range of the norm, $25 million is way out there on the end, so, I could see if moving back towards the normal to the next few months. What I don't know is how much it will move in April, May, and June, but I think those months will see at moving back towards that norm.

Unidentified Analyst

Good question back here.

Kent Wells

Okay.

Unidentified Analyst

With respect to the Stark County asset there, how much of that in the eastern portion, I think it's the…

Kent Wells

It's about 25% of our acreage is on that eastern block, 75% in the core block.

Unidentified Analyst

Next question, could you just give us a bit more color on the Niobrara? I said that you drilled and kind of what happened there with the result there, if you can give a bit more color?

Kent Wells

Well, I think I have shared with you pretty much everything I can. We have only got results on one well. It's not going to be an economic well unless something dramatic. We are still actually recovering the load water along with some oil. So, it might get better, but I think it’s a discipline when we drilled and when we did our technical work on it, it just looks like the oil is clearly there as to whether it’s the ability to rock to give it up. And we see slightly different in the second well we’ve drilled there and then I think we’ll have better results when we get down at the southern acreage, but we’ll share more in the second quarter. There is really not a lot more I can share with you at this point.

Unidentified Analyst

Kent, could you talk a little bit about what’s your view as Fidelity’s competitive advantage and niche in terms of Bakken and the Rockies oil production. There is a lot of companies also going after properties. Is it that you are looking for a little bit of smaller properties than larger companies? Is it that because of your location and being headquarters there you guys have insights other people don’t or is it due to your team and the sub people?

Kent Wells

I think it’s a number of those things. So, first of all, you do need to have really good people that understand where the oil can be produced from and why and do you have the capability to then do it. So, definitely well, it’s kind of that and we have done a lot to we were good to begin with, but we have added a lot of capability to the company over the last year. And I think we are very strong that way now. There is a lot about relationships again people that own the leasehold can choose to sell it to whoever they want. And so we've been in that area for a long time. We are well known. If you ask people who Fidelity is and say Houston, they won’t know, but they know us in Montana and North Dakota. And I think that’s helpful.

Being associated with the MDU that we are also well known, and so I think we – that helped us there. In Richland County, what we did was we had a real strategy on how we went about it. When you are going after a resource play, you need to have significant acreage or it’s very inefficient and ineffective to drill. We would have and got a piece and then just built around it. So, if you remember it was about nine months ago and we picked up our first 20,000 acres. And we have subsequently went around and very cost effectively picked up some other chunks, where people just didn’t have enough. Now, we put together a 60,000-acre block, which if you want to buy it straight up you'd pay a lot more money for it. So, I think that is our ability. So, our size where we are not so big that if we don’t get a 100,000 acres right at the beginning, we just can’t do it, we’ve figured out what our niche is and that’s what we are doing.

Unidentified Analyst

And your oil production is accelerating in '12 versus '11 at $400 million of CapEx, is '13 a further acceleration year or is it more or like you can keep that growth rate or is it slowly declining?

Kent Wells

No, I would look for us to continue to grow and I don’t want to make any predictions on '13 yet. I need to understand a few of these plays before I can start predicting what they are. I am very encouraged with what I am seeing upfront, but I need some production and to have finished our appraisal programs to know what the full asset is and then we can make some forecast on what we are going to do, but not looking to have a one year wonder if that’s what your question is.

Unidentified Analyst

Is it fair to say that you are expecting an acceleration of production throughout 2012?

Kent Wells

Yes. Yeah, we’ll see production grow the whole year.

Unidentified Analyst

And lastly as you exit some of these gas plays that are non-core or is there a chance that by exiting them the EPS will benefit as given it's a low gas price or actually losing money on our earnings basis?

Kent Wells

Well, clearly when gas price is down at $2.25 and you can look at our DD&A cost, it definitely makes earnings tough. What I will say is the gas properties that we are keeping are very low cost. So, they are positive on a cash flow. The coal beds are a little more challenge, it has higher cost. So, yes, that is the case, but we are not about to give anything away. Gas prices will come back and we are not looking to sell based on what prices are today.

Unidentified Analyst

Just a couple of questions. First, what's your cost structure in the Bakken and as you ramp up production will the marginal cost fall below the average – the average cost. And second of all, you seemed to be very optimistic that the basis differential in the Bakken will decline over the next couple of months to more normalized levels. I mean, what's your rationale, I mean, where do you see the changes to the infrastructure that will help that? And finally when you hedge, do you hedge away the Bakken differential too or is it just at WTI less differential?

Kent Wells

Okay. So, let me – you may have to repeat one other questions on there. So, on the cost structure absolutely as we grow scale, we get efficiencies on our cost structure that will allow us to drive our – what I call unit cost, what the cost is to produce a barrel down. So, obviously as we grow we have some economies of scale that will take advantage of. So, yes, I don’t know what you call material, but we should be able to more than offset any inflation there we go, but lot depends upon how quickly we can grow it. In terms of the – I'm not aware of any way to hedge the differential. So, we don’t do that. And then your third question was…

Unidentified Analyst

Differentials to define?

Kent Wells

Good point.

Unidentified Analyst

And what's behind your action and why do you expect that to happen?

Kent Wells

Okay.

Unidentified Analyst

And what sort of infrastructure will be built to reduce that difference?

Kent Wells

Right. So, I am no expert on that. So, that’s why I sat down with the people that actually handle all the logistic side of it. And there is a few things that are happening. So, one of the – so there is definitely pipeline is the most efficient way to move crude, but that comes in big chunks. So, what's happening to offset that is we are railing oil from North Dakota down to Saint James, Louisiana, in that way you get all the way from whatever it is there to essentially Louisiana suite, which is very close to Brent price. That rail capacity is going up. It's going to go up in April for the people that handled our crude. And so there will be more of the crude that will get a much higher price and it gets spread amongst, our crude gets differentiated out from that. So, we are seeing more and more rail capacity come up.

And then I think by the end of the second quarter and don’t cope me on this, but there is a line that goes from Cushing to the coast that used to flow from the coast of Cushing they are going to flip around two-way pipeline. So, that – and I think that’s about a couple of 100,000 barrels a day. So, that will further be of some relief to it. So, if those sort of things that I know are already happening, plus there is the pipeline projects that are planned that come on later. So, I think we are going see this differential go back down to more historical levels.

Unidentified Analyst

You put on an interesting report on Safe Management of Hydraulic Fracturing and I wondered if you could comment on the whole concept of fracing and the regulation and you bring any special expertise to that process or are your service companies and who do you work with mostly on the service drilling side?

Kent Wells

Okay. So, I think the – there is a lot of misinformation and perceptions around the whole fracing process. So, it is important, I am a big believer we need to absolutely protect our groundwater. Groundwater is important. I lived in the Middle East for a few years and I know what its like to live in the desert and groundwater is important. And our industry has focused on it and we in particular at Fidelity make sure and we call it our well construction process. So, how we actually drill our well, we drill in a way that we absolutely protect the groundwater. Okay, so that’s number one.

You frac so far away from where the groundwater actually is and there is all source of different analysis would be done and I haven't done one. But I have certainly read last month. Well, groundwater has been contaminated, I'm not sure there is any place where it's actually been contaminated from fracing. And so I think people just need to do their own research on that. But I know we do what we need to do to make sure we protected the groundwater. Fracing is fundamental to the energy boom it's going on in this country. And I think we're doing it safety. I think the state regulating it is absolutely the right way to do that. They do a wonderful job on that. I believe the transparency that people want on the chemicals being used is the right thing. If you are a land owner not knowing what’s being pumped below your surface, I would want to know if I was a landowner. So, I think the transparency that we are moving forward there is really good. And I think we just need to be really careful that we don’t put regulation on top of regulation, which kind of gets in the way of us doing the right thing.

Unidentified Analyst

You talked a little bit about the opportunity in the Paradox, I recall reading that one of the key constraints there were environmental limitations. Can you comment on that?

Kent Wells

Yes, it’s a beautiful area and what we have done is we have worked with Bureau of Land Management. We have come up with the locations we are going to drill from. We are going to drill numerous wells from the same locations to reduce the impact to the extent that this turns out like we are pretty confident it will. We are already working with our pipeline company on how we would move the oil and gas out of the region to avoid lot of trucks and flaring and those sort of things. So, we are very conscious about doing in MDUs the right thing. What’s the right thing for us to do in that area? And I think we are very focused on doing that.

Unidentified Analyst

But there aren't set limits on off-take or any sort of hard volume limits due to environmental regulations?

Kent Wells

There is always flaring limits in any place. And we will certainly make sure we stay within those restrictions. Okay. I think one more question or we -- I probably gone over my time, I am notorious for that. Let's take one more question and then…

Unidentified Analyst

Mine is a continuation of the water issue, one of the things that stays is that the level at which the oil is well below the level of the groundwater. However, it comes up to the surface, then I recently read in an article – I've read so many articles recently in the press and other areas about, they say that the reason there is a problem is because the wells for the water are not properly constructed, in another words it something wrong with the concrete or something like that. I read that as a reason today. There could be problem, if that what you reflect also is that, why there is a problem or when there is one?

Kent Wells

Well, I think what’s been talked about is just all misperception. So, I believe that across the country there has been areas, where ground water has been contaminated, but it has been contaminated by poor maintenance of surface facility. So, we have all heard of gas stations for instances, whose had buried tank and they had leakage from those. I think we come up with new designs and regulations for that to make sure, that doesn’t happen. I think that’s where it comes from. I don’t claim to be an expert on this. But I do know the way we construct our wells for the drilling completion, which includes fracking and production, we probably design we can have integrity throughout the entire life of the well. Alright, thank you very much. And I think John is up next.

John Harp – Chief Executive Officer, Knife River Corporation and MDU Construction Services Group

Quite fair this year with the weather, so I am not going to be able to make it this year, but Rosemary you tell me how it turns out would you? You tell me how it turns out?

Rosemary Tevelow – Investor Relations

I don't know.

John Harp – Chief Executive Officer, Knife River Corporation and MDU Construction Services Group

You don’t know either, okay.

Unidentified Company Speaker

(Speaker Inaudible)

John Harp – Chief Executive Officer, Knife River Corporation and MDU Construction Services Group

Drinking a hot beer, there we go. Anyway John Harp and I am with the Construction Service Group and now Knife River Corporation. As you know in December I think around the 20, 21st MDU made the decision to combine both the construction companies under one leadership and that structure is kind of is what we see here today. Jeff Thiede, who is actually was the first hire I put in place in October of '04 ran our Oregon Electric Group in Portland, Oregon, also our capital construction business out of Kansas City, very successful entrepreneur who has done a very good job for us in the last seven years. And Jeff sits at natural fit for Construction Services Group and becoming the President. And primarily what we are trying to do with both Dave and Jeff is they are running the day-to-day operations into the details. I am kind of the sounding bored and obviously trying to any place where we can direct both of our businesses in the same location or the same strategy or in the same market if we see some benefits from combining those companies together something that we want to look at from a strategic standpoint and something we think makes sense.

Dave Barney was a guy who actually ran the Pacific region for Knife River out of stocked in California, one of the better operators within Knife River over the last 10 to 15 years. So, you got two gentlemen here both Jeff and Dave are a little over 50 years old, lot of energy, understand the construction business, both people have very good people skills, as I have always told you before. We are in the people business and the construction business.

When you combine both of these companies, you have at some point say in August when we're peaked out around 7,000 employees, that's a lot of people, a lot to manage, and you got to understand that the key to your success is going to be with those 7,000 people and how you manage them, how you motivate them, and educate them, and train them, and obviously construction is a very competitive business, and as I said before it's a context board, it's not for the weak and hard. But I think what we have got here we've got a very good executive group here that I look forward to working with. And I think we've got a bright future.

Here is our core line of businesses and we are going to basically talk about both companies as we go through. So, I won't talk through the Construction Materials Group and then go construct service will kind of go back and forth. So, on the left side you will see our construction materials group or aggregate or asphalt or ready mix construction, liquid asphalt, cement sales. And of course, in our Construction Services Group, we do the inside the electrical work like in here the fire protections in here, the power lines, the transmission lines, or high voltage. We do that type of work, industrial work, we do power plants, we do turnaround services group.

One of the things I want to tell you I talked to you in the last couple of two, three years ago that we started a Greenfield operation, a turnaround service group, very small, hired six key people, very excited, what's going on with that company. We continue to grow that business recently. We have picked up a sizable job for us in Ponca City with Conoco and really kind of moves our turnaround service group with cokers and crackers and different things we do with exchangers to another level, dollar wise, and the margins in that business are very good.

And quite frankly, we are getting a very good reputation. It takes you long time to break into that market, because it's all about people and if the person is running that refinery likes the type of the people that are operating there. And one of the key things is you can't have an accident in the refinery. It just – it's just not allowed. And if you have a problem with safety and the quality of work and goodwill and those kinds of things, your reputation is ruined and we have been doing this since 2005, and I am knocking on a piece of wood here but we have never had a recordable.

And the idea of our turnaround group we'll go from the zero employees up to 250 in a matter of couple of days. And then we'll work 40 to 45 days, 712s. So, it's a very intense type of turnaround, very specialized people, a very mobile workforce, but we really think that this is one of our bright spots within our group. And again, we've got a gentleman who is running that Mike Murphy out of (indiscernible), Louisiana, a very strong boilermaker that really understands the business. So, we are very excited about that.

Couple of other quick things on our specialty equipment group, our manufacturing group which has really been one of our big winners in the CSG Group for the last couple of years. We just opened up a new facility in Atlanta, Georgia and the next place we are looking to potentially open is in Phoenix in that (indiscernible) area. And as you know, we got manufacturing and sales operations in Burleson, Texas and also in Portland, Oregon. I mentioned this before we are the largest owner of Travelers in the United States. Those are the devices that hang on the transmission poles from strings to wire, so the conductor can reinstall after you build your transmission of distribution systems. We also manufactured those and designed those ourselves, become very, very proficient on that, and we are really the go-to person when you look at that type of work.

And then the other thing we just recently did we expanded our electrical supply business. Remember we bought a very small supply company in Las Vegas in 2008. We just opened up an office in Williston, North Dakota. We are going to move into that area with the oil play. And quite frankly, we do work in the Odessa and Hobbs area with some oil companies that had moved into the Bakken and they assess if we could come over and expand to that area. So, we just recently opened that business here in the last couple of weeks. We look for some big opportunities there and some additional market share and growing that business and we are excited about that.

Here is this some volumes both when they are aggregate or asphalt and then in our construction, one of the things that I have noticed just briefly with Knife River for the first couple of months that I have been involved with Knife River. One thing that we really need to concentrate on is we've got to do something to improve our margins in the construction side. A little bit what's been going on is we are a vertically integrated company and there will be a slide that will show that here in a minute or two. One of the things we need to do, we need to be disciplined enough to make money off of all of our different, our products, be the asphalt, be it concrete, be it ready mix and not give those materials away. So, our construction side of the business can win work. In fact one of our strategies going forward is this we need to be able to sell to third-parties. Let's say we don’t end up getting that highway project that's bid in Billings, Montana, but we are in a position where we've got the best aggregate and we are in a very good location as far as that aggregate have been used to make asphalt.

We got to be in a position where some of our competitors are willing to buy from us. So, we take every opportunity to benefit from that construction project being built in that area rather than just saying well, we are going to be a prime contractor, and if we don't get the construction itself, we can't supply any of the materials. Somehow we've got to work and develop a relationship with some of our competitors and we are starting to do some of that in the Portland area and we need to expand that in other markets, where if we can provide you the ready mix or the concrete or the asphalt and yeah, we maybe competitors a bid day, but after the bids let the possibly come at back in and at least supplying those materials, particularly if we are in a good location. Hospitalized, we are in a better location because of the distance from the pit to the job site is something we really need to look at. Somehow, we have got to move these margins up and we just got to look at more opportunities to take a bite at the apple so to speak.

This is the pie chart for Construction Services Group, hasn’t changed much. We are starting to grow that blue piece a little bit, the equipment and supply business. And I think with what I just told you with the new store in Atlanta and our new store in Williston, I think that piece should grow somewhat. The 7% on the industrial, I think with the recent gains that we had in the refinery business, that is sort of pipe it grows somewhat and then obviously the other our outside operations and then our inside operations, which is a big part of our business. In our inside part of the business just so we remember what that is it’s the electrical, it's the mechanical, the plumbing and the fire protection. Those are the things we do which falls under the inside part of our business.

Here is our earnings pretty flat for year-over-year. CSG actually had a fairly good increase in earnings. We were $18 million last in 2010 and we finished at $21.6 million this year. Knife was off a little bit I think around $29 million in '10 and $26 million in '11. So, obviously we are going try to improve those going forward.

A couple of things we'd like to focus on to safety being a big one. I mentioned that to you just a minute ago, how important that is to have a safe operation for us, our customers be the utility or be the refinery are really expecting to have a quality workforce that's safe and we spent a lot of money in training and through our apprenticeship programs to just make sure that our people can go home at night. And we really emphasized safety in taking the ownership in it, one of our slogans within the CSG Group is I am safety meaning everybody at the job site really needs to take a strong effort and a part of the value of our people and then really what we are trying to sell to our customers. And more and more that becomes an entry point to pickup work with other customers. If you haven't got a safe workforce and you are not dedicated to it from the management level, it shows through and it can definitely impact your business and your abilities to expand in the other areas. So, we are – something, we are certainly looking at. We’d like to go out and inspect our work and we do that with our management. We go out – we expect our Presidents and our Operating Managers to go out and look at these job sites to make sure that things are being done correctly, and we really want to write the tone at the top so to speak.

Okay. Let's just talk about some opportunities. Everybody has talked about the North Dakota and there is a lot of exciting things going on in North Dakota. When you think of the unemployment, I think right now is at 3%. And I know a guy in Stanley, North Dakota, that's selling pizzas out of a gas station, and I think he did over $1 million. So, when I those kind of numbers I get kind of excited, because there is somebody making a buck somewhere. And that’s what we are all about making money.

So, couple of things we're trying to do in the Bakken. Knife River moved their ready mix and asphalt and acquired 150 some acres of property and aggregate and have got themselves positioned in that market now. We really started that last June, so we've had a construction season that we went through that period. So, we are really in a very good position starting this spring to benefit from that, and there is a lot of opportunities there both be it residential, be it subdivisions, be it refinery, be it gasification plants, be it topping facilities, and the things that both Steve and Kent talked about and you heard with Dave has a say about his increased budget in the Bakken. And we are working for Dave right now helping him hook up both gas and electric services within the Bakken area because of the influx of people. So, we really think if we play it right, there is a very good opportunity for us in North Dakota.

One of the things we are doing is we are going to establish some key people that are going to manage that force. Knife River is already in that position, but our construction services group we are going bring a key manager that will overlook all of our work, because not only do we think we can get into the electrical and transmission business, which we already are completed a couple of transmission jobs up there in the last year. But we think we can get into the gas business, to the gathering systems, the pipeline business, we have a company in Portland, Oregon, and if it come over and work in that area, so we are excited about that.

And the other thing particularly with the Knife River Group, we are really looking for projects that are higher margin, maybe more of a niche market, be it's gold tailings or be it different types of mining that we can make a bigger margin rather than slugging it out in the public works arena, where as you know at one-time Knife River was doing 67% of their work was in the private sector and whether the residential market completely changed, it reversed and now we were almost 90% public, 10% private. We’re hoping to do in North Dakota is have the ability to take some of that private work and capitalize on that, so we can move our margins up and try to get that private work back up to maybe 25% or 30% of our market rather than the 90:10 that we have right now today, because that’s really a thing that's depressing our margins is just the competition. At some point with this economy is being as tough as it's been in the last few years in construction, you would think most of the outliers, the people who are not financially strong and got good backing and good bonding and good assurance would get out of the market, you would think.

And I keep waking up every morning is like grown how to take, and I might look up the whole and see if there is still anybody around or should I go, just go back in the hole, but eventually I am going to pop out of that hole and some of those people who can’t put a number on the piece of paper, because they are just trying to cash flow and trying to get through the next quarter, they are going to be gone, where we are going to have an opportunity to start to raise our prices. We are not there yet, but I got to believe we've got to be around the corner, something we are certainly looking at.

Energy services business is really when the oil business for asphalt, we opened a new terminal in Cheyenne. It's constructed to taken I think from 35,000 tons of oil that we’ve taken in that terminal, it’s another market for us. We have done very well with that part of the business. It's kind of a niche. We’ve got a very good guy running that business, so we are optimistic about that. And then obviously we have talked about the equipment and supply business that we feel good about. Transmission, substation work looks solid. We are also are concentrating a lot on wastewater. If you look throughout the country, lot of the biggest cities are really facing some serious considerations as far as the water and the quality of water and what to do with that. So, we see that’s an area that we have been very good at and had some sizable projects that we have been very successful with. So, we like that opportunity for us going forward.

And then back to North Dakota, the Bakken these are some other locations that Knife River has got operations right now then we feel very strong about and I mentioned CSG and the transmission, the substations, our new supply house that we recently opened. Again, we think there is a real opportunity for us to capitalize on this. Actually, it's phenomenal. I think the growth in that area has just been unbelievable.

Business strategies, obviously I have always tried to maintain a very high cost structure, I mentioned – we mentioned you guys before that I am a (indiscernible) together hoping to get a quarter. And you got to be really very sensitive to people’s dollars and we try to spend those dollars like they are our own. We try to have people running our businesses. They take a sense of ownership and look at their cost structure and spend the money like it's their own. And I think we do a pretty good job of that and we are going to see a benefit from that when the construction market improves and I think it’s going to improve. It’s the matter of just the matter of time.

One of the things we really try to emphasize within our group is we try to really try to be an operational company that everything we do is kind of centered around the operations and we know, where the money is made. The money is made in the field with our people, and again making sure that we’ve got a strong workforce that’s engaged that we are compensating them well. They have got the proper equipment and proper tools to work with and it’s a good place to come to work at. Geographic, we are in good locations, nice thing about Knife River you are in Alaska and you are in Hawaii, and some of those locations we really have strong markets where we dominate in certain segments of our business be it Siemens and really is a very good position to be in.

And if you look at our construction companies, they kick off some very strong cash flow projections. And I am looking forward to being able to bring both groups together for some unique opportunities and we're negotiating on some of those as we speak right now potential of a nice project in Bakken where we're bringing both Knife River and CSG together and that could have some great upside for us.

And with that kind of tells you just briefly about the construction business and what we're trying to do, any questions?

Question-and-Answer Session of John Harp

Unidentified Analyst

If I remember correctly, you are the third largest holder of aggregates in the company and I wondered if there is a way of valuing that asset and have you done that and also is there a way of monetizing that.

John Harp

I think we're the fifth largest owner of sand and gravel, I don't know how to really answered your question. But what we can see the value of that or you got any idea with on the books whether its work. I don't know be honest with you. Do we ever show with that way or?

Unidentified Company Speaker

We're looking to see the value on the books, but certainly we know yes the depleting resource, we know it is extremely difficult to get a new aggregate permit. Many of the areas in the country where we hold the number one position or a significant position in our market, many of the reserves in that area have been mind out or have been depleted. So, we know it's only growing in value and what we have on the books is probably what understate that value like many assets that are on the books of corporations. So, you can use different numbers, people have used different numbers, yet depends upon specific market. So, it's a good asset, it's growing in value.

John Harp

We'd rather say it's not going anywhere, right?

Unidentified Analyst

Quick question, like with the Fed statement and everything we see with the economy seems like the economies not gained more as may be gain a little better and if I'm hearing you correctly from your presentation is you guys really aren't seeing the pricing yet because there is too much competition.

John Harp

The competition I guess, say, it's – I think we're at that point where I think the competition is can't hang on forever. And there were some good news yesterday The Senate finally passed the Transportation Bill out of the Senate. I think it was $109 billion over the next two years, which is better than what they have been doing. They have been doing quarter-to-quarter. There is some optimism there and the housing starts are really going to be a key indicator for us to see some improvements in those margins. But do I think we choose the worst of it, I do and I think one thing about both our construction companies were positioned very well to take advantage of that because of our cost structure and managing through some very difficult times.

When you look at rather the publicly traded companies, construction companies, and comparing with Knife River and CSG, we've actually done a very good job when you do comparisons with our operations. So, we're in the construction business. You got to be an internal optimism. So, I think things are going to get better. I think I answer your question.

Unidentified Analyst

Hey, John. What was the impetus for the Atlanta office?

John Harp

Actually one of our strategies is with the hurricane season that hits that area fairly often and seems like more than used too. We see an opportunity to take that equipment and to utilize that for some storm work or and if you look at the lanner in that area, you look at the utilities, the REAs, the IOUs municipalities,. There is like 200 some utilities within like 300-mile radius that we really think that's the market that we really have a touch. The nearest location we're at right now is in Burleson, Texas so we get – this really gets us into the southeast market in area that we've always wanted to be in. So, we really feel good about that, we got a good manager, a good location, so we see that as a very positive thing going down the road for us.

Unidentified Analyst

And can you tell us what did you learned so far about Knife River. You've done a really good job the last couple of years working on margins. Is there anything that Knife River wasn't doing that you might be thinking about applying there?

John Harp

Oh, it was Chris again, okay. Well, I would say that the difference gets back to the people. I think one of the things that Knife River needs to do is recruit contractors and recruit people, who have the mindset of someone who wants to compete in the construction side of our business. I think Knife River does a very good job on the aggregate side and on the ready mix and on the selling side of our materials, where I think we need to improve is we need to bring people who fully understand the construction side of the business to try to move those large, because if you look at the revenues of Knife River, you take almost $850 million of the $1.3 billion to $1.5 billion in revenues comes from construction, so where can you make the biggest improvement risk and it’s got to be in that mindset.

And I think if you look at the CSG people that's all we do is construction. We don't have the aggregate side, which believe me it's to have the aggregate and if you manage your construction right, you get the best of both worlds, because you get obviously I think your margins should be better with the aggregate, you've got larger investment, but if you can make that construction side of that arm, move that 1% or 2% on an $800 million in revenue, although, so that really matters. So, that's the same that we think that we need to do is get better at recruiting better people who are in the construction business, more importantly identifying our good people and retaining them and making sure that they are engaged and want to continue to work for Knife River. So, I mean, it's a little bit of a culture issue that I think we are going to try to work through. I know what Dave Barney, the guy that I showed you on that slide. Dave Barney is really a construction guy. And he is very good with people skills. He gets it. And I think with a couple of people that we are looking at and then we are going to try to go out and find a couple of rainmakers, that's what I call them, guys know how to get the work done and make a buck.

Unidentified Analyst

To that end, your areas are primarily low unemployment rates relative to national. There are also primarily work that's done in good weather as opposed to bad weather and you have a lot of bad weather in the winter time. So, how do you balance all of this in terms of getting people to work for you? A) If there are other jobs, other places, it's a movable fees as far as the worker is concerned and B) if it’s bad weather, there is no work, so why would you be hiring people?

John Harp

Right.

Unidentified Analyst

How do you balance all of that and then look to improve your margins?

John Harp

Yeah, actually you know what I love nothing but a bad weather. If I get a good storm some place knocked out a bunch of power lines, I put a bunch of people at work. We make great (Largent's) life is good. I mean, some of the best money ever made in the utility business is because of storms. So, a crisis to you is actually a benefit to me. So, I look at that is actually I've kind of been in business and generally speak to where there is really problems, there is always opportunities. As far as retaining of good people in good times and bad times is that really what you are asking one of the main questions?

Unidentified Analyst

(Question Inaudible).

John Harp

Yeah. Well, I think one thing, there is nothing like paying people well and respecting them. And I think as a leer of a construction group, we could be a very good listener to what the people are trying to tell you, what needs to happen in the field, because that people who understand that business better than anybody is not some groups sitting on the board table, it's the people out in the field work on it everyday dealing with the customers, dealing with the employees making sure everybody is safe, making sure that customer being taken offer. Those are the kind of people you want and you got to make sure that you support them, they know you support them, you understand it. My introduction in the construction business, when I worked for my own man there was a five foot shovel I get it and people in the construction business understand that, when you get it and they could also read you if you don’t. So, you understand what I’m saying? Okay, yeah.

Unidentified Analyst

(Indiscernible).

John Harp

Well, I’ll add you on some day and you will find out.

Unidentified Analyst

The turnaround business, can you just discuss a little more the opportunity there. I mean it seems like it is your first day job there.

John Harp

Yeah.

Unidentified Analyst

But just a little more what the opportunity potential is there in terms of the people side it seems like there might be some strike going up and down, how you go about securing those people?

John Harp

Yeah.

Unidentified Analyst

What that could mean from a revenue margin perspective?

John Harp

I’m probably excited about that is anything I have been in the long time, which is amazing. We put 5 or 6 people together, 7, 8 years to go and all of the sudden you really starting to -- starting to make an impact. And if you got the right 1 or 2 individuals people follow good leaders, people follow people, who are known in the industry, their icons. I mean the guys who walk on the job and Mike Murphy is on the job, and everybody says, here goes Mike Murphy. He is the best turnaround guy in the business and everybody wants to work with somebody like that. I mean it just, it contagious and Mike Murphy is one of those type of guys, he has the reputation.

I give you an example. We did a job for Bolero it was like two or three years ago. It was a 45-day turnaround. I can’t remember how many millions of dollars this refinery supposed to be kicking off. It was 45 days. We turned it back in 38 days. So, you do the math. How many million of barrels? Whatever it was, but the dollar signs were huge. What you think the chances of, ask any more who work for Bolero is, very good. And I’d say we have been working in Parker City. We had a very good turnaround there with the good customer. We are working in Billings, Montana as we speak and we are starting to move into other markets and the reason why we are is because of our good safety record, our good quality of work and good people. Mike Murphy is the President of our company, but he is on the job site everyday and very dedicated guy.

Unidentified Analyst

Any sense in terms of size-wise where this can go?

John Harp

Well, you know, when you start at zero, when you start, you know, you move past $15 million, $20 million maybe you go to $25 million, $30 million, you know, with good margins. I guess that I’m a singles guy. I’m a Pete Rose. I’m going to get you sing. I’m not trying to hit your home run. I’m going to be conservative. I’m not going to overstate what we are going to do, but we are going to try to make bucks. And I think people will tell you, you can do it. And if you look at our company, we have got similar people like, it sells our equipment business (James Space) the guys, who sells our transmission and distribution equipment. (indiscernible) that’s casino builder in the United States finishing a very good project by the way in Cleveland, wrapping it up with the new casino in Cleveland. We got one going in Cincinnati, we are working on. We brought our expertise from Las Vegas in the Cleveland, in the Cincinnati, which is a good thing when you can move out your workforce around. I love my people. They are just very good at what they do.

Unidentified Analyst

To discuss further the issue of margins around aggregates and Knife River generally, can you talk a little more about how much of the aggregates are sold as an integrated product and how much are sold on a standalone basis, just a proportional senses there?

John Harp

I think its way more internal. I think that’s what worth of materials being sold. It’s not being sold to like to a third-party or competitor, what I just talked about.

Unidentified Analyst

Right.

John Harp

And I think that’s one of our strategies going forward is we wanted to do more that. I can’t give you that answer.

Unidentified Analyst

Right.

John Harp

But I know one thing is we’ve got to take more opportunities. We got to take more bites at the apples to sell that product at that time rather than lose the whole thing. If we don’t get that be on a DOT job.

Unidentified Analyst

And unrelated point, you gave some sense of the margins on the equipment business?

John Harper

Really good.

Unidentified Analyst

Double-digit?

John Harper

Very good, that’s it.

Unidentified Analyst

In the past Knife River has been involved in the lot of industry consolidation by up smaller players with the slowdown do you see any opportunities to do further consolidations or no one really selling in this market or how do you see things going?

John Harper

Well, I think we’re always going be inquisitive if we see an opportunity. Right now, I think we're going to concentrate on improving our operations as much as we can and probably not spending much time on acquisitions unless where the really unique opportunity came by it, somebody had some fracing sand that we could pickup with some good prices, some place like we get a niche and I can drive those margins and I saw something like a (furline) or something else. We could do to make some additional dollars, but it has to be something unique. We got good assets. We got good reserves. We are in a lot of good locations throughout the country and we’ll get those opportunities by those companies. There is still a lot small of mount pass out there. They had not been consolidated yet. But we've -- right now we're just kind of hold tight I think we see a unique opportunity. Alright, any other questions? Doran is going to, our CFO is going to give us financial update and again thank you for your questions.

Doran Schwartz – Vice President and Chief Financial Officer

Thanks John. I want to follow-up on Terry's comment and say thank you to all of you for spending some time with us here today. I want to say thank you to our business unit Presidents for making the trip and Tom Knudson for making the trip with us from our Board of Directors. So, when we take a look at our year in 2011 just to wrap it up. We earned $1.19. Now, are we satisfied with $1.19 and answer to that is no. We wanted to do better. We earned $1.76 at our pick and we want to get back to $1.76 and why stop there. But I think in 2011, we accomplished something it positions us that we can build on as we looked to the future throughout our five-year forecast. But we head into 2012 with the bit of tailwind and some of those items are listed on the slide here. We grew oil production up 7% for the year. It was up 12% for the fourth quarter. We increased our rig counts up to 8 at the end of the year, that’s up from two at the beginning year. So clearly, some momentum there behind our oil production business, in the Bakken, significant growth area in the Bakken really for all of our business units you have heard it’s a common theme in all of the presentation you heard so far today.

Utility certainly is benefiting 5% customer growth in the Bakken area in the pipeline business just being in proximity to the Bakken as we need opportunities for Steve's Group. Like we talked about with the topping plant, our construction businesses you just heard from John. We saw some stabilization in those businesses last year compared to 2010 we’re excited to see where John’s going to be able to do with a proven leadership that he has had at CSG and apply that over the combined construction and it is from a financial perspective we generated a lot of cash flow last year. We ended up year with a lot of cash in the balance sheet, balance sheet is strong, a lot of liquidity. So, from the financial perspective, we strengthened our position throughout 2011 and we increased our dividend. Terry talked about the fact that we delivered 9% total shareholder returns better than the S&P 500, better than the S&P 400 MidCap last year.

Obviously the dividend was a piece of that TSR. So, another thing that we build on as we take a look at 2012 and beyond so, that the electric and natural gas distribution business, you heard from Dave earlier today, fifth year of record earnings at this business unit. We talked about what our allowed ROEs relative to earned ROEs. Dave's eight-state jurisdiction is pretty tight against allowed ROEs in all jurisdictions. He is performing at a very high level. It's good to be in those broad based jurisdictions extending all the way from Minnesota to the West Coast. We saw some cooler weather in Washington and Oregon certainly helped our results. But I think also the effective integration of our various acquisitions over the few years has also helped as we put those together and manage cost and the like. But then as we take a look at the future really a bright future for this business, a $915 million CapEx budget for the next five years. When we are here a year ago, when we talked to you about our five-year CapEx budget, it was $750 million. So, it’s up 22% for the next five-year period. We found 22% more CapEx investment opportunities in the business over the last year.

So, this business is growing 6% on average per year. It’s a rate base that will lead to earnings growth as we look to the future. This business is looking very bright operating in the high level in the pipeline energy services. You heard from Steve certainly we've been impacted by the narrowed natural gas basis differential that reduced our storage balances, that’s reflected in the results in 2011 versus 2010. But as we take a look at the future again opportunities to invest whether that be in our pipes or storage assets we are going to have opportunities in the Bakken to continue to invest and expand our pipeline system. As you heard from Steve earlier today, our storage systems as you heard from Steve, but also the strategic move also into the liquid side.

The topping plant there was going to be a need for more natural gas liquid processing facilities in the Bakken area. Those are going to lead to additional opportunities that are in our forecast right now as we look to the future for this business. So, nice to be in the Bakken there and exploration of production you heard from Kent today. I mean, we have got some momentum at the E&P business. Certainly, in 2011, natural gas prices were lower. It affected us, but what a time to increase your oil production when oil prices were up 21%. 32% of our production with oil, that's double what it was five years ago. So, we are pursuing the strategy with a more balanced commodity production profile and well on our way to getting that done and we are a returns based company. We are going to put our capital where we are going to earn you as an investor, the highest rate of return possible.

So, also nice two years ago, three years ago, we sit down and talk to you. We did not have the same level of liquid-based opportunities that we have today. So as I sit and listen to Kent, we are well positioned going forward with higher levels of activity to take advantage of higher returns on the liquid side. We are in a good position there with a good team.

Construction materials and services saw some stabilization. John talked about some stabilization that we’ve seen from 2010 into 2011, well-positioned in our cost structure on the SG&A side is down 40% from the peak. And we think lot of that is permanent, so as we grow our revenues in the future by definition we grow margins and we grow earnings. Quicker, we earned at the peak $120 million out of these two businesses, so we did $48 million last year. We think we can get back to $120 million without having to get back to peak level volumes, because our cost structure is better today than it was when we are at the peak.

Strong financial position, again we don't have to fix the balance sheet as we think about growth opportunities going forward. Three years ago in 2008, our consolidated debt to capital is 39%. So, through the depths of the recession we have strengthened our balance sheet down to just under 34% from a consolidated standpoint. So, we are well positioned financially to take advantage of growth opportunities and we have got liquidity too, almost $600 million of available liquidity of our various lines of credit. We’ve got a strength cash position and very manageable maturities in long-term debt, well-positioned financially.

Dividend, what I would say about the dividend is it's obviously been an important piece of how we have returned value to shareholders over time. Our recipe in terms of delivering TSR has historically been a combination of earnings and earnings per share growth, which drives share price appreciation coupled with a competitive dividend. That recipe was very effective from 2000 to 2008 leading up to the recession we grew our earnings by on average 17% per year. We are investing heavily into our businesses. We are growing earnings, earnings per share, and share price went up along with it. At the same trajectory and all along, we invested in and increased our dividend throughout that timeframe. We have proven that recipe in the past while we are in growth loan and as we go back to growth loan that is our recipe as we go forward as well a dividend, an importance piece of how we deliver value back to you as shareholders, our yield right now around 3%. We have increased our dividend for 21 straight years and paid the dividend for 74 straight years. So, the dividend will remain important, important to board, important to management, important to you as investors.

So our roadmap is excess, I guess to summarize everything that you've heard today. I think it's an exciting story myself the opportunity that we have we are well-positioned financially from a liquidity standpoint above our balance sheet standpoint from a cash standpoint to take advantage of the investment opportunities that we have and the company, $700 million of CapEx plan for 2012. Terry talked about over the five-year timeframe of our forecast, $3.7 billion of CapEx. We're going to fund that with internally generated cash flows and we're going to maintain a strong balance sheet.

We've got significant growth opportunities that are utility and pipeline businesses, really all businesses because of our proximities of Bakken, we're going to take advantage of those opportunities and presume aggressively. We're also well-positioned on our oil and gas business to take advantage of again looking to increase in 2012 oil production by 20% to 30%. And to Kent point earlier around the question of 2012 going into 2013, what do we expect, I mean the goal here really is Kent put together his team with additional technical expertise as we add additionally acres like we announced earlier this week is goal to enhance value of long-term and put ourselves in a position where we have sustainable growth going forward. I think we're well on our way to that.

Construction markets again, we've got opportunities in the Bakken and niche market, in niche products like asphalt oil. We open a new terminal in Cheyenne earlier this year that basically doubled our capacity, our storage capacity with asphalt oil since we got into that business just a few years ago. And really acquisitions which are not reflected in our five-year forecast, we don't put identified acquisitions in have historically been a strong piece or significant piece of how we've been able to grow.

Now, we used financial discipline obviously as we think about buying businesses or merging with willing partners and we will use that same financial discipline going forward. But clearly that would be another opportunity that we would look to as a potential growth opportunity going forward in addition to the organic growth opportunities that are included in the five-year forecast. So, I think really as we take a look at our future, we're optimistic about the future of MDU Resources Group and look forward to again the team that we have in place, which we think is the right team and the right spots and the right industries that will deliver value to you shareholders over time.

So, with that that completes my remarks. I think Terry if you want to stop up, we’ll open it up for Q&A.

Question-and-Answer Session

Andy Levi – Caris & Company

Hi, it's Andy Levi from Caris & Company. Just two questions, just on the acquisition front on the utility. You passed acquisitions have been more on the natural gas side obviously not looking give more specific, but again if there were some opportunities on the utility side what we think more natural gas and electricity or…

Unidentified Company Speaker

I think we'll be opportunistic. We've had success both on electric side and the natural gas side and we really don't have a preference on either one at the good cultural fit and with the geography that we'll be interested in a regulatory environment that would work. We certainly this right size for us, we go either way on that.

Andy Levi – Caris & Company

And with the size of the acquisitions be somewhat comparable to what you done in the past or would you go bigger or?

Unidentified Company Speaker

We're a little larger company now so maybe it can be a little bit bigger certainly we kind of we’ll look on that a quarter in the size of our corporation as ballpark. But there are lot of things that would enter into that being upon with kind of fit it would be.

Andy Levi – Caris & Company

Okay. And then just on the CapEx of $3.7 million. How much of that is growth CapEx?

Doran Schwartz

Well, we've got pretty significant growth of the utility for example, the depreciation. I think we're adding to Dave the $445 million roughly over the next five years. So, fair amount of it is growth CapEx at the utility. And then I would say at the oil and gas, again I don't know what would we say in terms of what your maintenance CapEx would be clearly a lot of that is going to go to growth at the oil and gas business as well.

Andy Levi – Caris & Company

If you add kind of the ballpark percent of the 3.7, how much is growth, how much is I know like you said maintenance CapEx.

Doran Schwartz

If we use depreciation, I guess is kind of a measure of what you might have at some sort of the maintenance, call it's our consolidated depreciation last year is $300 million to $350 million. So, if you extrapolate that you are about $1.5 billion to $1.75 billion.

Unidentified Analyst

And what type of return do you hope to earn on that, whether it's an equity return or blended return or whatever it is?

Doran Schwatz

Yeah, I think it depends on the industry. I think it's a great question. I mean, obviously the utility CapEx, we would look to seek the allowed rate of return on equity in the jurisdiction that we are deploying the capital. Oil and gas business, I think those opportunities depends on the price of oil. It depends on the field, it depends on the particular well that you are drilling, but clearly in today's environment, the returns on that are pretty significantly above our cost of capital. And we think about deploying capital on our business. We want to earn more than our cost of capital. We have a risk adjusted cost of capital in each of our lines of business. And so that's how we think about, if we are earning our allowed ROE at the utility, that's well north of its cost of capital. We are deploying capital at the oil and gas business. The incremental spend there is well above its cost of capital in today's commodity price environment. So, those are the types of factors we take a look at.

Unidentified Analyst

Both of you in your presentations emphasized – I shouldn't say emphasized mentioned a possibility of acquisitions, and Andy just asked you a couple of questions. I'd like to follow through on that and say if I was in the mode of saying I'd like to make acquisitions or acquisitions can always help me, I think I'd have a list some place. I have done some work. I have done some background. Do you have anything in your that you can’t reveal obviously, but you have things that you think are relative near-term possibilities, where they meet your targets though comparable this, that and the other thing, so that it's a matter of making that first call sitting down with somebody, talking to them on the phone whatever it is or is this just the pie on the sky, if I find somebody, if I wake up and stumble over somebody who is there, then I will do it.

Terry Hildestad

Carl, that's a good question. We have corporate development people at all the business lines. They are putting their plans and strategies together all the time. We sit down with our Board of Directors and we talk about our five-year strategy and long-term strategy. Certainly, we look at opportunities out there and talk about would they be a good fit or not. But as Dave mentioned in his presentation, it takes – you need a willing seller and a willing buyer and with all these other criteria, so no, we don't wait for things to just drop by. We look – we are aggressively looking to grow the business. You take a look at our corporation, we have acquired 125 companies since early 1990s, many of them are small bolt-on mom and pop, they made good sense. We have good teams. We know how to do it. So, we are looking to grow.

Unidentified Analyst

With fair interpretation, I ask this question, but so many companies like thinking of the Williams Companies and SandRidge etcetera, within the energy fields have looked to split up and setup MLPs or whatever, and I am sure if somebody came along and made a suggestion like that to you, I just explained it, where you thought you were, maybe nowhere, but…

Terry Hildestad

Yeah, we have – I don’t know if we have any investment bankers in the room, but we have a suggestion to split our company up or do some creative all the time. We'd say right now is a great time for growth for our corporation and it would probably be a poor time to split off some of these unregulated growth engines that we have in place here and you heard some good presentations and good opportunities. So, we think value can really be added to the shareholder. We tend to run on the businesses that we have. Good question.

Unidentified Analyst

Terry, I just wanted to ask you, do you have enough weather protection or coupling mechanisms whatever at the utility to offset the warm winter or we are looking at pretty weak first quarter comparisons or has the growth been enough to offset that?

Terry Hildestad

I think we have purchase staff adjustments and weather normalization in every jurisdiction, Dave's in the back here, certainly he likes brutally cold winters. So, we have some impact here, but we do have. Dave, you want to add to that?

Dave Goodin

Thank you. We've had weather normalization in North Dakota, South Dakota as well as Oregon currently, where we have decoupling in Oregon as well. We did have decoupling in Washington State on a three-year trial basis that timed out and we sort to extend that, but there were some things that kind of got in this way and so that really timed out. So, we have a combination of both some normalization in some areas. So, the states, where would not have normalization would be Minnesota, Montana, Wyoming or Idaho or Washington State. And so, we've kind to get a mixture of both certainly the degree days follow our retail load. Although, I will say when you have a mild winter as we have with little snowfall. Sometimes, the industrial sides through the electric generation, another means in the Pacific Northwest and to help to offset that as oppose to last year when we had a lot of moisture and cold weather, we saw very little electric generation on our system is either. So, there is a little bit of diversity both ways to it.

Unidentified Analyst

Thank you. I'd like to ask a question that I ask at the beginning and ask to defer, all morning you heard about the Bakken and what this is doing for your company. Yet, depending on whom you talk to anywhere from $25 to $40 on the price of West Texas is geopolitical. Suppose for the same of argument, the geopolitical concern would diminish and $25 or $30 would come out of the price of WTI. What is that due to the economics in the Bakken and to how might impact your business generally?

Dave Goodin

We'll, I think as far as the price of oil in the Bakken, number of times hearing is $55 to $60 is still a very economic well, again $55 to $60 very economic. Well, the infrastructure that is all the way is behind in the Bakken now, I mean the pipelines are from gathering this flare natural gas, there is yellow iron in every ditch. There is a significant need for housing. And I mean, there will behind, I think there was – I know there was an article in the paper where they moved all campus out of the Wal-Mart parking lot in Williston. There is literally campus all over there. So there is a lot of catch up work that has to be done in this Bakken. We certainly see that this is a very significant oil and gas play it's – we expect would be around for a longtime.

There will be play – price fluctuations, but again the economics in that Bakken area are very strong now, even if were the slowdown, there is still some growth opportunities in that area. After remember for the last 20 years in our company, we were having no growth in Western North Dakota. Our aggregate business didn't get involved in the Bakken until last year. We were on the West Coast, Alaska, and Hawaii, Texas. We were in North Dakota until the last probably five years and then that was in the Bismarck biz mark and probably is the growth areas.

Now we're in Minot, we're in Williston. We're looking to grow in other areas there. So, I mean, this is a bright future for us. And then take a look at our construction companies. Historically in 2007, this construction business earned $120 million across and we didn’t have Bakken with those businesses. Our cost structure is in better shape now. I think we have a bright future. I don’t know. Does that answer your question?

Unidentified Analyst

All right. Based on your capital spending projections going up for how many years, three, four, five years, my guess is that your dividend growth rate probably goes down from the historical levels. So we’re going to be looking at the necessity for EPS growth and given the multiple now and I think you’ve talked about record earnings of the $1.76. I think the current year given the construction business and price of natural gas is not the year for $1.76. But can you give us some idea what are the drivers might be to get back to that level of earnings we’ll go beyond that and when we might get that part of goals.

Doran Schwatz

Let’s start with the dividend. So what I’d tell you is again going back to 2000 and 2008 that was a similar timeframe in terms of what we’re thinking about over the next five years in our forecast in terms of a balanceable growth and appreciation in the dividend. And I think in part this gets back to and ultimately the board really decides where the dividend is going to go. But I think they have certainly got some flexibility in terms of the levers that they can push and I say that because the value of diversified group of companies. It is clear and I think you have a good point that as we take a look at our oil and gas operation, for the near-term next couple of years they’re going to spend more than they generating cash flow that’s no secret.

But on the other side of that you’ve got the construction companies that are going to spend a lot less than they’re generating cash flow that’s redeployable throughout the cooperation or redeployable back into the dividend. So again I’d say there is probably flexibility in terms of the levers that the board can push in terms of delivering TSR as it relates to the dividend.

As I think about and Terry feel free to provide color commentary. I don’t want to steal your time here. But I think we have growth potential at the company that could get us back to have significant meaningful growth somewhat dependent upon what pricing does from a commodity profile, commodity risk profile, where the prices go. It’s difficult to say with certainty, where or what timeframe we will get to $1.76 there is a lot -- there is a -- I think there it’s difficult to say exactly, when that would happen. But what I’d say, we’re in the right industry improve when we get there. We’re in the right industries around energy and infrastructure.

We’re growing the keys that we have control over and that is production in particular as it relates to oil right now. There are significant opportunities to invest in our utility business from an organic perspective. Our pipeline business certainly as expecting significant or strong I should say returns as it relates to some of its potential investments like the topping plant. I mean we’ve got growth, topping plant right not in our forecast. So that would be incremental and we been acquisitive and those aren’t in our forecast either. So all of those I can’t tell you exactly, when all those might land, but they’ve certainly worked for us in the past and we proven that it’s resulted in good growth. So, I feel like we can get there and we are well position with the right team and the right industries to do it.

Unidentified Company Speaker

I just add to that remember when this economy turned around here in 2007, 2008. We made a conscious decision protect the balance sheet. We’ve strengthened the balance sheet during this period. We ended the year with 34% less than 34% debt at the end of last year. We had good cash position, good liquidity. That was a conscious decision. We lived within the cash we generated at the business. That’s the way our company operate. We think now is the time to invest in the future and our capital expenditure programs up 37% over the next five years.

Unidentified Analyst

Probably won’t get invited back but. In article in business, Bloomberg Businessweek about a month ago referred to Mr. Hamm, it was Alabama owning the State of North Dakota, across the State of North Dakota and I don’t remember the exact figures, but I think based on your acreage ownership in the Bakken if nowhere else maybe a one-sixth size he has got in that article 24 rigs going, you’re moving that number up. It seems to me you don’t get a lot for what you have there and given that a market cap somewhere around $4 billion relative to kind of resources, market cap something helps me that you somewhat valued on an asset base or his company is somewhat valued I just want to -- I hope that you at that base on valuation basis and what you’re think about that?

Terry Hildestad

Well, we are certainly growing in the Bakken. We are much smaller than Continental I think you are talking about here. But we have great assets there and I think we have got the strategy in place now to drill those assets. We take a look at value. Certainly we think and all that we have room to run on value stock price value and you can do that a number of ways. You take piece by industry and calculate it out. We have some good assets. You’d had ask the question earlier about what are these aggregate reserves, we have got them on the book for $400 million. We have got them on the book. We wouldn’t sell them for that. I mean they are valuable assets. So, certainly I think it’s, you know, it’s a good solid assets for our shareholders. We think they are growing in value.

Unidentified Analyst

During this five year period, starting with 36% debt ratio now, where do you think it could be maximize on this period. I mean what’s the upside for how much debt you are willing to put on the balance sheet?

Doran Schwartz

That’s great question. Technically we are at a little bit south of 34% right now. And I think really what our boils down is, when you think about our utility and when you think about what I’ll call the other side of the house we finance separately on the utility side for the centennial side. We have different targets and clearly we are below those targets right now. We are pretty equity rich and what I’d say is if you think about our capital structure really depends upon where we invest. I mean we could end up we invest heavily at the utility, which is the 50:50 target structure based on regulated allowable cap structures, invest heavily on the utility, you can end up with something north of 40%. So, that really balance sheet because it tied to regulated operations if you invest heavily there. So, I think in part it depends on where we invest and the relative debt cap targets that we have it either side of the house.

Unidentified Analyst

I would like to ask another one. With regard to the -- with the discussion of taking the production out and its being done by train, which is not the most economically effective. Have you given any consideration yourself to putting in some pipe to take it to the next pipeline moving along?

Terry Hildestad

I think Steve mentioned on a very small scale. We are starting to look at some liquids gathering, but no. That’s not our business line. They are other people that are in the process of expanding, Enbridge being one of them. So, we haven’t look at that.

Unidentified Analyst

Okay.

Terry Hildestad – President and Chief Executive Officer

I would like to just we say thank you for your interest in our company. We had a good turnout this morning. Thank the Presidents. You can see why we feel good about our company. This is an important meeting for us. We get our Presidents in front of your folks. It’s a great opportunity for us to show off our business unit leaders and we are proud of them and thanks again. We have a lunch right across the hall. I think it setup and ready to go and we all will be over there and we will answer more questions for you. Thanks Tom for coming. Thank you.

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