Good day, ladies and gentlemen, and welcome to the Black Hills Corporation Fourth Quarter and Full-Year 2015 Earning Conference Call. My name is Kat and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

Thank you, Kat. Good morning, everyone. Welcome to Black Hills Corporation’s fourth quarter and full-year 2015 earnings conference call. Leading our quarterly earnings discussion today are David Emery, Chairman and Chief Executive Officer; and Rich Kinzley, Senior Vice President and Chief Financial Officer. During our earnings discussion today, some of the comments we make may contain forward-looking statements as defined by the Securities and Exchange Commission and there are a number of uncertainties inherent in such comments. Although we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially. We direct you to our earnings release, Slide 2 of the investor presentation on our website and our most recent Form 10-K, Form 10-Q, and other documents filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations. I will now turn the call over to David Emery.

Thank you, Jerome, and good morning, everyone. Thanks for participating in the call this morning. I will be following along here on the webcast presentation deck for those of you who have it. Starting on Page 3, we will follow a similar agenda to previous quarters. I’ll give a quick update on highlights of the quarter. Rich Kinzley will cover the financial update, and then I’ll jump back in for forward strategy before we take questions from all of you. Moving on to Slide 5, fourth quarter highlights, we had a real solid fourth quarter despite the fact that we had mild weather for our gas utility territories and a continued decline in crude oil and natural gas prices, which affected our oil and gas results. During the quarter, we made great progress on several key growth initiatives, including our pending acquisition of SourceGas. Related to SourceGas, we received regulatory approvals now in three states; Arkansas, Nebraska, and Wyoming. And our closing will occur as soon as we receive approval in the state of Colorado. We still expect to close sometime during the first quarter. We’ve also recently completed our permanent financing on both the debt and the equity needed to close the transaction, so we’re ready from our finance standpoint. We still have several teams working on detailed integration activity. We expect to be fully integrated all systems and processes by year-end 2016, assuming we get closed by the end of the first quarter. Moving on to Slide 6, utility highlights for the quarter, Black Hills Power received final approval from the Wyoming Public Service Commission to begin construction on the first segment of our new 144-mile transmission line that will go from northeastern Wyoming to Rapid City, South Dakota. We expect to start construction in February and have…

All right. Thanks, Dave, and good morning, everyone. We are encouraged to report another year of earnings growth in 2015, driven by strong results at the Electric Utilities, Power Generation, and Coal Mining businesses. As Dave mentioned, overall results were tempered by unfavorable weather and low crude and natural gas prices. Our gas utilities faced warmer than normal weather in the winter heating months in 2015, compared to colder than normal weather in 2014, which contributed to a decline in year-over-year performance, and low commodity prices impacted our oil and gas business. But despite those challenges, we again delivered earnings growth in 2015. On Slide 11, we reconciled GAAP earnings to earnings as adjusted, a non-GAAP measure. We do this to isolate special items and communicate earnings to better represent our ongoing performance. This slide displays the last five quarters, in each of the last two years. In each quarter of 2015, we incurred a non-cash ceiling test impairment charge at oil and gas business, due to the continued decline of crude oil and natural gas prices throughout 2015. In the second quarter of 2015, we also recorded a non-cash impairment of an equity investment at our oil and gas business, due to low commodity prices. In the fourth quarter, we divested this equity investment and realized the small gain above the impaired book value. We also incurred external acquisition-related expenses like financing and other third-party costs, in the second, third, and fourth quarters of 2015 associated with the pending SourceGas acquisition. These impairments in acquisition expenses are not reflective of our ongoing performance and accordingly we reflect them on an as adjusted basis. Our fourth quarter as adjusted EPS reflective of ongoing operations was $0.71 per share compared to $0.77 in the fourth quarter last year. Our full-year as…

All right. Thank you, Rich. Moving on to Slide 25, we’ve shown you this slide for quite sometime now. But we group our strategic goals into four major categories and really with the overall objective of being an industry leader in all we do. Those four key objectives are profitable growth, valued service, better everyday, and great workplace. In the profitable growth area on Slide 26, strong capital spending drives our earnings growth. And we forecast total of more than $1.1 billion in capital spending for 2016 through 2018. That projected spending far exceeds our depreciation driving the earnings growth. It’s important to note that this table on Slide 26 does not include any capital related to the SourceGas acquisition. Once that acquisitions close, we’ll provide some revisions to the forecasted capital spending. On Slide 27, we continue to make great progress constructing our new turbine at the Pueblo Airport Generating Station at $65 million simple cycle gas turbine is on schedule and we expect it to be in service by year end 2016. To-date, we’ve spent about $35 million of a total $65 million budget were projected to come in at or under budget. Construction is about 27% complete and notably, we’ve had no safety incidents to-date. On Slide 28, as I mentioned earlier, we received approval from the Colorado PUC in October to purchase the new Peak View Wind Project for our Colorado electric utility. The third-party developer expects to commence construction in the first quarter and achieve commercial operations by year end at which time we’ll take over the project. We have made almost $12 million in progress payments as of December 31. Moving on to Slide 29, as Rich mentioned, our electric utility has demonstrated solid earnings growth in 2015, and a big part of that…

Ladies and gentlemen, we are ready to open the lines for your questions. [Operator Instructions] And your first question comes from the line of Insoo Kim with RBC Capital Markets. Please go ahead.

Hey, good morning, everyone.

Hey, good morning, Insoo.

First question on the oil and gas strategy. I know you’ve talked about the low commodity price environment, and how the potential sale or divesting of the non – some of the assets would not result in the value that the asset that you don’t have. Just given the ongoing cost of service gas program, if that doesn’t go through, what are your thoughts regarding that business and the timing of such a strategic decision?

Well, I think we have a pretty degree of confidence that we will have our cost of service gas program, the specifics of the size and which states choose to participate and at which levels, I think is the primary question in our mind, we think it’s a program that makes tremendous sense for customers and shareholders alike. And I think we’re uniquely positioned for that program because of our oil and gas expertise. Strategically, we’ve talked about divesting our non-core properties there. We’ve made the statement that we don’t intend a fire sale those if you will. But we are taking our time and making sure we can divest of those in a way that makes sense for us, and really focusing almost all of our attention on cost of service gas, whether that’s our Manco’s program and the shale gas resource we have in the southern Piceance Basin, or whether that would be reserves that we could potentially go out and purchase or a combination of the two, that’s really what we’re working on right now. We can’t finalize any of those plans or decisions until we know what size program we will have going forward, which of course is dependent on the regulatory process.

Got it. And sticking to cost of service gas, the CapEx estimates that you guys have through 2018 for that program. Is that still more of a placeholder for now, until you know what the details of the program are and the level of investments that you’ll be needing?

Yes. Essentially, the way we came up with those numbers as we assume that we would commence a drilling program kind of late in 2016. We’ve talked about kind of our rough ongoing run rate for horizontal drilling program is around a $100 million for a rig running continuously for a full-year. And so that’s really where those numbers came from. We’ve got some wells, we have yet to complete in the Piceance and so the 2016 number is a little lower and then we basically assume a drilling rig year, if you will, for both 2017 and 2018, which I think is a pretty realistic assumption assuming we get the program off the ground.

Got it. And turning to the utilities business, for the legacy Black Hills utilities, ex-SourceGas, I guess beyond 2016 timeframe, what are some of the projects that you are looking for that could drive – further drive rate-based growth?

Well, we’ve got several things we’re working on. In our slide deck, we do list a list – listing of kind of major utility projects. We break those out back in the appendix. And there’s several transmission projects, natural gas pipeline project, and other things that we’re actively pursuing right now. The other thing that we’ve talked about is, we’re short resources on the generation side and we talked about that in our Analyst Day back in October. We’re just getting started really on revisiting our resource planning for our electric utilities and fully expect that out of that, we’re going to need some additional resources to meet the load growth that we’re experiencing.

Got it. And just last question on – for the electric utility or I guess the electric or gas utility rate load growth, how much of your load growth is dependent on oil and gas customers? I’m assuming it’s relatively small, but – and what kind of impact have you seen, if at all, due to the low commodity price environment?

Yes, essentially none of our load growth is dependent on oil and gas a very, very small percent. We don’t serve on the electric side direct oil and gas producing basins. So we get a small amount of kind of peripheral businesses that are located near the producing basins, but it really doesn’t drive a lot of growth a little bit and very light industrial and commercial load that we have – we do have one oil field that we serve at Black Hills Power had a little bit of load growth there it’s an enhanced oil recovery project. And I would say the prices there on a marginal cost basis are sufficient to keep producing. And so we really haven’t seen any cut backs in production, which would impact our load there. So a pretty minimal overall exposure to oil and gas prices on the electric utility side.

Got it. okay, thank you very much.

You bet. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Chris Ellinghaus with WillCap. Your line is open.

Hey, guys, how are you?

Good. Good morning, Chris.

You quoted a $0.13 drag from weather for the year, I assume that’s versus 2014?

No, that’s versus normal weather, Chris.

Okay, great.

And actually a little bigger than that compared to 2014, because 2014 was a little colder than normal.

Okay. And can you give us any kind of characterization of how January went for the service areas?

That are pretty close, but normal weather maybe slightly warmer than normal depending on the territory.

Okay. And can you give us a little more detail on where the industrial strength is coming from?

Yes, we’ve got several things, I mean, a lot of it is related to data center load growth in Cheyenne and Wyoming and then that’s the over warming portion of it. Colorado, some of our industrial businesses there have been growing at a steady clip, particularly gold mining has been real strong. There’s also an old munitions depot down in Pueblo, where they’ve ramped up load as they dispose of old weapons, and expect to keep that higher load for multiple years as they go through that process. Black Hills Power, we’ve just seen some of our industrial customers, whether that’s crude oil refining, I mentioned the oilfield earlier a combination of several of those things have helped expand load at Black Hills Power as well.

Okay. And can you give us some ideas about when your next IRPs will get filed?

Probably going to be late this year, or early next year.

For all?

Yes.

Okay.

We typically do our research planning for Cheyenne Light and Black Hills Power jointly. We manage that as essentially a single load, they’re interconnected systems, and we combine our resource planning efforts for those two. Colorado Electric, of course, we do separately.

Okay. And do you have any planned major outages for this year or next year?

We don’t have anything, I don’t think there’s any real lengthy outages. The ones we do have planned are incorporated into our earnings guidance.

Okay. And do you have any updated thoughts on the Colorado SourceGas approval situation?

No, I think we’re pretty well positioned there. We were successful in reaching a settlement. Colorado has a process, where your settlement is reviewed by an Administrative Law Judge and then the Commission requires a little time to review the recommendation of the ALJ and issue its order. We don’t foresee any real problems there. We are just kind of going through the motions, if you will, waiting for the process to play itself out.

Okay. Thanks for the color, guys.

You bet. Thank you.

Thank you. And our next question comes from the line of Andy Levi with Avon Capital Advisors. Your line is open.

Hi. Good morning.

Good morning.

How are you?

Great. Thanks.

Just two questions, maybe three. But just the first one just on the IPP sale process. Can you just give us a little more color on that kind of I guess, it’s taking a little bit longer than you thought, so just kind of what’s going on there, and when we may hear something from you on that?

Yes, I don’t know if it’s really taking a whole lot longer than we thought it would. We knew announcing kind of pre-holidays is not an ideal time to get things done expeditiously. The process is going well, obviously, we’ve engaged an investment banker. We’re going through the bidding process. We’ve had very strong indication of interest from multiple bidders. When you we are kind of working our way through the process. And I didn’t say earlier, we still expect to make a decision sometime before the end of the first quarter.

Okay. And any reason to think that a sale wouldn’t happen, or that’s probably unlikely?

Yes, I think it just really comes down to value. As I said, so far, indications have been pretty strong. But when you get down into negotiating real specifics and details and selecting final bids, you never know until you’re done. But we’re certainly encouraged by what we see so far.

Okay. And then on the oil and gas segment, I just wanted to kind of understand what we got left on the books. I mean, I guess you showed $209 million of book value right at the end of December. Is that correct on page 20, I think it is?

Correct.

Okay.

Yes, so…

Can you give us a breakdown on the $209 million kind of…

Sure.

…how much is commodity related and how much is kind of, I don’t know hardware or kind of steel and the ground type stuff?

Yes, as I pointed out in the comments earlier $94 million of that’s our full cost pool. So it’s the wells that are in our pool. $68 million is in unevaluated properties, which includes some infrastructure. And then wells – Dave mentioned that we drilled for wells in the Piceance, but didn’t complete them. So they are in that pool. And then you’ve got the balance, which is roughly $40 million which is the other assets of the business.

Okay. So just to understand the commodity exposure piece is, what would you estimate? So if you kind of take out the pipeline stuff and trucks and things like that, what do you…?

Say $150 million or $160 million is what’s left on the books, roughly exposed.

Okay, okay. And then I know you commented on it, but I don’t think I was listening too closely. How much of that $150 million are you trying to get into rate-based gas? Or is that – is it not that defined?

Really not defined at this point as Dave, mentioned a bit ago we’re evaluating whether a purchase of a third-party property or our existing gas assets make sense for that Cost Of Service Gas program, and working through that with regulators.

Okay. What was the thing on the third-party? I’m sorry?

Well one of the things we’ve evaluated in a way to potentially jumpstart our program if you will is assuming we get approval for Cost Of Service Gas if we could find a gas producing property perhaps with a distressed buyer or distressed seller. We might have an opportunity to buy a property in addition to looking at some of our properties primarily just the Mancos property is the one of our own really is a good viable long-term gas resource in at least the couple of trillion cubic foot resource potentially as much as 8 and that’s the one property. We have, we think would be a great fit for Cost Of Service Gas. But we’re also looking and if we can opportunistically purchase reserves from other parties we would like to do that to contribute to the program as well.

Okay. And then – and I lied about the three questions. But in your guidance that you gave for 2016, the temporary guidance without SourceGas, what’s the – how much is oil and gas? What’s the drag?

Well we haven’t broken out segment guidance like that yet when we get the SourceGas deal closed we intend to issue updated 2016 guidance and preliminary 2017 guidance and we may provide a little more color at that point around. Well certainly we’re going to provide updated assumptions on all our forward-looking activity including oil and gas, but we may provide a little more color at that time.

I mean I guess the kind of way I looked at it is – and I think we’ve probably discussed this in the past – is that you have this really good story at the utility; the IPP is good and stable, you sell a portion of that. And the coal – mine math coal obviously is stable as well. So you have this really good kind of growth story at the utilities, especially with SourceGas. And then you have this distraction of this oil and gas business, which I understand you’re trying to get into rate base, for no better way to put it. But if, for some reason, a majority of those assets or the rate-basing of gas doesn’t materialize for whatever reason, what’s the longer-term strategy on this? Is it just to kind of sell it, or to kind of continue on? Again, this is assuming that commodity prices stay where they are, which I have no idea where they are going. But just kind of what your thinking is on that, because you have written down the majority of it, but it is a distraction and is a drag on earnings, and then ultimately valuation. So, without that drag, let’s just say it’s $0.25 to $0.40. You can kind of do the dumb math on a P/E basis, and you’ll come up with a higher valuation for the stock?

Yes, I talked about this a little bit earlier, but I mean I think we fully expect to have a Cost Of Service Gas program going forward. The size of that and which states choose to participate at what level of production every year is really the question that we think it makes great sense to have a program. We think that we’ll be able to convince the regulators of the benefits to customer of having a program. There are tremendous benefits for customers in implementing a program, so we’re pretty confident we will have a program. And as we’ve said our strategy is to utilize that business to support Cost Of Service Gas. We’ve essentially eliminated any capital spending related to non-cost of service gas oil and gas investment. We’ve cut our staff, we’ve cut our ongoing operating expenses, we have the professional staff focused on Cost Of Service Gas. And as far as the other non-core properties we’ll continue to look for opportunities to divest those. We’re not just throwing our hands up and dumping them, but we’re going to sell them as prudent carefully review properties and sell them to people who it make sense to sell them to and gradually clean up the non-core properties, if you will. As far as ongoing earnings and the impact of ongoing earnings, when you look at the amount we impaired in 2015, the drag on earnings is going to be dramatically less than 2016 than it was in 2015. Just because we wrote off almost $250 million of our pool, and we’re not spending additional capital. So a depletion will be lower and then as we mentioned the cost structure is lower, so the drag will not be anywhere near what it was in 2015 and 2016.

So on a clean basis, absent the write-downs, how much was the drag in 2015?

Well, operating loss you can see in a press release was $27 million.

Okay. So $27 million. We’ll use, I don’t know, 51 million shares to try and keep it kind of where it’s at. That was about $0.53 a share, or something like that on the new share count, absent the dilution from the converts, right? Is that right? So is there any type of guidance you can kind of give us?

We’ll give updated guidance when we get the SourceGas deal closed. But basically 240 to 260 incorporates the assumptions we put out on November 23 guidance, incorporates the full drag of the equity, converts, and interest associated with the debt we just placed, and it doesn’t count any income contribution from SourceGas. So it’s a temporary number. Certainly, when we get SourceGas closed, I would expect 2016 to be higher than that, and then we’ll issue updated assumptions at that time.

Thank you. Our next question comes from the line of Tim Winter with Gabelli & Co. Your line is open.

Good morning and thanks for taking my question. I wondered on the 2016 guidance, I have two questions. One is, what are you guys assuming for the IPP plant? Is there any earnings in there? And then the second part is, can you give us any updated metrics on SourceGas, maybe rate-based, ROE, earnings, anything like that that maybe just ballpark ranges?

Repeat the first part again, Tim, on the IPP? You repeat the first question on IPP.

What’s the assumption in the 2016 guidance for the…?

Right now I assume that we own it for the full- year.

Okay.

And then on the metrics for SourceGas, again, we’ll put some color on that when we get the deal closed.

Okay, okay. Thank you.

Thank you. Our next question comes from the line of Tom Nowak with Advent Capital. Your line is open. And I’m showing no further questions at this time. I’d like to turn the call back to David Emery for any closing remarks.

All right. Well, thank you, everyone, for your participation this morning. We appreciate your continued interest in Black Hills. Have a great rest of your day.