Good morning. My name is Brent, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group Second Quarter 2014 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will a question-and-answer period. (Operator Instructions). This call will be available for replay beginning at 1:00 p.m. Eastern Time today through 11:59 p.m. Eastern on August 19. The conference ID number for the replay is 66196294. Again, the conference ID number for the replay is 66196294. The number to dial for the replay is 1-855-859-2056 or 404-537-3406. I would now like to turn the call over to Doran Schwartz, Vice President and Chief Financial Officer of MDU Resources Group. Thank you. Mr. Schwartz, you may begin your conference.

Thank you, and welcome to our earnings release conference call. This conference is being broadcast live to the public over the Internet and slides will accompany our remarks. If you would like to view the slides, go to our website at www.mdu.com and follow the link to the conference call. Our earnings release is also available on our website. During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although, the company believes that its expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For a discussion of factors that may cause actual results to differ, refer to Item 1A Risk Factors in our most recent Form 10-K and Form 10-Quarter and the Risk Factors section in our most recent Form 8-K. Our format today will include formal remarks from Dave Goodin, President and CEO of MDU Resources followed by a Q&A session. Other members of our management team who will be available to answer questions during the Q&A session of the conference call today are: Dave Barney, President and CEO of Knife River Corporation; Steve Bietz, President and CEO of WBI Energy; Frank Morehouse, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas; Jeff Thiede, President and CEO of MDU Construction Services Group; Kent Wells, Vice Chairman of the Corporation and CEO of Fidelity Exploration and Production; and Nathan Ring, Vice President, Controller and Chief Accounting Officer for MDU Resources. And with that, I'll turn the presentation over to Dave for his formal remarks. Dave?

Well, thank you, Doran, and good morning, everyone. Thank you for your interest in MDU Resources and for taking the time to join us today to discuss our second quarter results. We are pleased to continue our strong 2014 performance with another good quarter. In fact, this is our strongest first half since 2008. It reflects the focus of our businesses that they have on both performance as well as execution on their strategic growth plans. Consolidated adjusted earnings for the quarter were $56.7 million or $0.29 per share, up from $47.2 million or $0.25 per share in the second quarter of last year. Our utility group improved earnings this quarter despite mild weather within our Electric Utility segment achieving a record second quarter as we continued to expand our investments in both customer growth opportunities along with various rate base opportunities. Our Pipeline business more than doubled its earnings driven by increases at our Pronghorn midstream gathering and processing facilities. Our Construction Services saw a record second quarter in earnings. And at Construction Materials, that group has a higher backlog heading in to our third and busiest quarter. At our E&P, the first quarter acquisition of our Powder River Basin acreage has delivered positive results boosting our production as well. Now moving on to our individual operations, our Combined Utility business reported earnings of $3.3 million up for the quarter. In fact, up $4.8 million compared to 2013. It was a record second quarter for our Electric group with retail sales margins growth related to environmental and cost recoveries along with 4% higher sales volumes driven by continued strong customer growth, despite the mild weather that we have had. Our Natural Gas Distribution business also benefited from rate recovery on retail rates that went into effect in late 2013.…

(Operator Instructions). Your first question comes from the line of Matt Tucker with KeyBanc Capital Markets. Please go ahead with your question.

First, I wanted to ask about the Dakota pipeline, if you could just give us a little more color on where you stand there in terms of commitments and your discussions with customers of the expressed interest?

Sure Matt. I am going to ask Steve Bietz, he has been on the ground with that project, add more color to that one.

Good morning, Matt. We have seen good interest in the Dakota pipeline. As you know, our open season ended in May, May 30. Responses were positive. Really where we are at we continue our discussion, most of those that have submitted responses, as well as others who did not submit bids but have shown a lot of interest in the pipe indicating some that they need as a bit more time. Early specifics around any other bids or responses that we have got are confidential at this time, so not able to provide much there. I would offer though that as we continue to have discussions with the various parties, the whole new gas flaring rules well in the State of North Dakota continue to be brought up. There are some rules that are being going to effect October 1st, some flaring limits on various producers. So that certainly got the attention of number of producers from what we have heard. We -- I guess as we look at the project, we still continue to believe it's a very good project. It does two things. One it provides another market for producers to move their product. Today, that's all kind of destined for the Chicago market. Secondly, it really helps deal with the flaring issues in terms of this new additional gas that can be captured, it's got a market, a place where to go and we think that capacity is needed. But to move forward the project obviously, we need to get commitments from those folks. So, we are going to continue to work with them. And we are hopeful our goal is to get commitments that would allow us to really begin our pre-filing work with the FERC later this year. So that's kind of where we are at as we indicated in the news release. We look at updating as things move forward later this fall.

Thanks, Steve. That's helpful. I guess can you give us any more precise timing on when we should expect an update? And also, have you given any thought to I guess changing the size of the project? And I guess just finally, when we get an update at this point, would you expect it to be kind of a final decision one way or another this fall?

I think as we look at it we kind of left it this fall. There is a lot of moving parts in. If you will, it's kind of a fluid process as we go through it. So, no specifics on a time in terms of the update. As far as the project itself, we are looking at some slight modifications. The basic route remains the same. If you look at that pipe kind of on the west end of it there is kind of a horseshoe, if you will, potential to adjust that a little bit may be a little straighter pipe cut off a little bit of that pipe size or length I should say. But that's going to depend in part and kind of the commitments we received we think the original design is probably ideal for the various processing plants and activity in that area and let me think here. Did I miss one of your questions?

Well, I guess well I guess I was just wondering if you think this fall you will get to the point where there is either a kind of go or no go?

We are going to continue to look at the project. Hopefully we are working with FIRC later this year. If not, I think we believe the project still makes a lot of sense. So even if we're not to the point of being ready to move forward, we're going to continue our activity to get parties to commit on a go-forward basis but our anticipation here is to provide the additional update later this call.

And just one more on the pipeline, in your discussions with parties have expressed interest, but who you haven't come to terms yet with. Is there a comment sticking point in terms of tariff or length of commitment or they just kind of still grappling with these new regulations?

I don't want to get into any details on that. I hope you can appreciate that. I don't think there is any one specific thing just kind of continue work with each of them and each have their different things that they're looking for if you will.

Okay. Thanks and just one last one I guess for Doran, could you let us know I guess how much equity you've done in the first half and should that guidance be further reduced by the planned sales of dry gas assets that you've indicated?

Yes, Matt, so where are at, first half of this year as we talked about earlier utilizing the ATM program. We have utilized that so far this year we've issued approximately $130 million. So the low-end of the revised range is really where we're at on a year-to-date basis through the ATM program. So what I would say is we've also updated our asset sale range which is $200 million to $300 million that includes to David's point the sale of 4,300 net acres in the Bakken. Also effective today we have signed a purchasing sale agreement with our sole Texas asset so that will also become a part of the asset sale range of $200 million, $300 million. And so assets sales have definitely become a key part of our funding strategy in 2014 to fund our capital investment needs still at $1.1 billion, while offsetting the need for equity basically cutting our range in roughly half. So $130 million to $175 million is our estimate for the rest. For the rest of the year with a $130 million issued through June 30.

Your next question comes from the line of Christine Cho with Barclays. Please go ahead with your question.

Good morning. Can you provide some more color on operational issues and the downtime that you experienced during the quarter?

Yes, hi, Christine, it's Kent. To be honest with the kind of a frustrating quarter for us operationally in the Paradox, from the positive side, we are really glad we've been able to continue to move the well costs down; we're seeing our best wells EURs even look better as we go forward. So that's very encouraging. But we've found is on our high rig wells that have been on plateau for a long period of time the 12-1 flowing 1,500 barrels a day, the 18-1 flowing 1,000 barrels a day. We need to put them on artificial lift. In a typical field you put those on because it's still high rates and ESP but that doesn't work in the Paradox because of the paraffin and salt issue. And so we've been -- we're going to use progressive cavity pumps and we just had a lot of operational issues with that. So when you have a well like the 12-1 and the 18-1 that have experienced a lot downtime, it really enhances your production. So that was what the operational issues were. Additionally, because we weren't able to secure federal permits which is kind of in the sweet spot we looked at drilling on the west flanks of the ply because on the east flank where we drill the 36-1 well which is our second best well in the field, we thought perhaps that same structure and production characteristics might exist on the west flank and we drilled two wells on same locations over there and we didn't get the same results. So the combination of those two things, well the Paradox is still not so potential it was a disappointing result for us in the second quarter from our production and earnings perspective, but we are still very excited about Paradox.

I guess just two follow-ups on the stuff that you just said. Are we going to see like potentially more of these operational issues as some of your other wells are going to have to go in our official lists?

No, I hope we learn the lessons once and apply it to the rest. So I think what we have -- we just had some learning curve with these high rate progressive cavity pumps. We are working with two different vendors to provide that to try to get the best service on it. I mean it's not like you say you need technology, it's about getting that technology to work in the Paradox. I think we will get that behind us soon.

Okay. And then the other follow-up was, what exactly is going on with the permitting situation that you weren't able to secure it in the sweet spot, are you going to be able to get it as a matter of when not if just may be some more color on that?

Yes, absolutely it's just a matter of timing. It's not a matter of if we will get it, at least I don't believe that the federal permits are just much slower coming in than we would like for the development we would like to do there. But we continue to work with the BLM office and we will continue to do that when we have sufficient permits we will go back to operating to it.

You have a sense of time of when that could potentially be. Like is it going to be like year-end or is it probably a 2015 event?

Yes, it's really difficult for us to forecast that. But I think it's sometime in one of those two timeframes either by the end of the year or 2015.

And I mean, how easy was it to put down the second rig and how easy is it going to be to pick one up later on?

Yes, unlike areas like the Bakken where that's really difficult to do the size of rig et cetera, in the location of the Paradox that's much easier. So we knew this was a potential risk. So we had structured our contracts accordingly. So there is no costs and I mean it's always hard to predict the future but we believe we can get a rig back when we needed.

And then last one on the EMP. You gave oil production for the second quarter at 3,290 barrels per day, can you tell us what production is today and then I know you've given some color for production in 3Q if new wells coming on but will you continue to give us quarterly guidance with the multi wells pads that you are doing that might cost some lumpiness in production growth.

I think we will continue to have some lumpiness and I think we should anticipate that. I would say August is going to be an important month for us. We've got three wells that from the drilling look really encouraging and that could add significantly to our production. But rather than forecasted I think I will just wait. When we have either -- we'll give you an update when we announce our third quarter earnings or if it's something significant that we feel we need to announce, we will do that at that point.

But I guess since second quarter until now, you haven't put on anything new. Is that right on the oil side?

Yes, that's correct.

Okay. And then last one from me. I saw that in the press release the North Dakota's Minnesota pipeline, the potential to interconnect with Alliance would this be a repeat or delivery point for your pipeline?

I think, probably Chris, this is Steve. We could probably do either; we would anticipate it would be a delivery point into Alliance.

Your next question comes from the line of Holly Stewart with Howard Weil. Please go ahead with your question.

A couple of questions Steve not to continue to kill the pipeline but just another question, could you may be remind us of what the rules are that have been proposed I guess are into effect in October on the gas flowing rules and then I guess how that is playing into your discussions?

Sure, I can try, Holly. I am not the expert on those rules but the basics of them are that the state has set a target for gas flaring kind of the amount that needs to be captured, if not meeting that target as an individual company, there could potentially be shutting in some of that production to meet the target. They would then look at that kind of on a more granular basis by field or by area as I understand it. They've got that target set I believe it's to capture 70 -- I think it's 3% but don't quote me on that. The rules are out there, by October and then as time goes forward those percentages, the amount of capture increased and the amount of flaring decreased. So as those targets or as we move forward those targets get less and less ability that flare gas and so there is kind of a continuing movement down on that so more and more gas would be captured or there would be wells that are shut in, I say shut in, I think they would allow in most cases 100 barrels a day to be produced.

On the gas side?

No, on the oil side 100 barrels a day.

Okay. And then may be just the last one on the pipeline it would be. Is there any producer pushback from an end market perspective, it seems like there are a lot of ablation pipelines right now targeting the Chicago market?

I'm sorry any pushback from whom Holly?

On just the producer side trying to get a route elsewhere than Chicago?

Really that's what our pipeline trying to offer them a route to somewhere other than Chicago. Where this would kind of serve eastern North Dakota through the Viking pipeline as well as the Minneapolis market through Great Lakes, we would move into dilute Minnesota under Wisconsin and into Michigan. So that's really I think what our pipeline is designed to do.

Perfect, okay. And then may be one question on construction you pointed to a potential weather for the rest of the guidance. Just thinking we've had one month of your kind of peak quarter for construction now behind us as the weather cooperated thus for and that first month?

Holly, I'm going to ask Dave Barney to address that given he has got this $764 million of backlog that's accumulated. So Dave you want to take that one.

Sure, good morning Holly. Yes, the weather as for June obviously affected us but we had great weather in July, we got a good backlog, our margins are picking up somewhat on our construction backlog. We've seen increases on aggregate ready mix and we expect those to continue throughout the year. We just need good weather for the rest of the year to finish the work we have out there.

Got it. And then may be one for Kent on the Paradox. I think there is a lot of moving pieces here with the dropping the rig, the federal versus state, can you just tell us how were these three wells are and then I guess what the progression is as we move toward year-end and in terms of where we're going to be drilling how many wells et cetera?

Right, we continue in terms of number of wells we can drill, we continue to improve the speed at which we drove it. So between 45 to 60 days, spud to spud and kind of -- and may be even a little bit better than that. So that's encouraging. So you can punch through the number of wells you drill based on the one rig schedule say through the end of the year. In terms of the three wells, two were on the eastern side of the Cane Creek unit, and one is I believe it's our further south location that we've drilled which is encouraging because we just moved the rig down to the newly acquired acreage that we picked up. If you remember we announced for the first quarter we picked up 35,000 acres. We've added another 11,000 acres to that. So we've got 45,000, 46,000 acres down there and we're about to spot our first well down on that. So it's encouraging on where the supply is going. And then even on where we drilled on the northwest flank, well that was disappointing those wells didn't quite turn out. There is still lots of prospectivity that what we believe the sweet spot is continues well out into that area, we were just hopeful that the northwest flank would be as encouraging as the east flank. So I think at the end of third quarter we will have some hopefully interesting results to talk about.

(Operator Instructions). Your next question comes from the line of Timm Schneider with ISI Group.

First of all on the pipeline would you guys ever be willing to take on a partner here is something that's 100% MDU?

Timm, I think, as we've looked at the project we've looked at it in terms of building it ourselves but certainly wouldn't preclude the idea of having a partner if they brought the appropriate things to the table.

And I guess what would that be, would that be capital, would that just be an activity, other systems or is it just too early to tell right now?

I think certainly some commitment on the pipe potentially might be something we would be looking for or may be other benefits that I don't really want to get into Timm that would make sense and help the project itself.

Got it, thank you. And then just shifting to Paradox for a second. Can you just tell us how much of your (inaudible) State versus Federal?

That's a good question; I don't know the exact number. I'm going to say we probably got about 10% state 90% federal.

Got it. And then I guess kind of longer-term dropping that one rig what does that do to if you also kind of give us a sense for longer-term production growth rates out of that base. I'm assuming 2014 won't be affected too much as you kind of complete some wells and inventory but what could be the impact be on 2015 year-over-year?

Yes, obviously it's got to have some impact I think more importantly though as if we continue to drill good wells with the one rig, we will continue to see strong growth from the Paradox. Hopefully it's just I call it a speed bump pause where may be we are down with one rig for six months and then we're back up with the second rig. And so it's not a big impact. But I think there is a lot more variability in the quality of well we drill that will impact the growth versus one rig and two rigs.

What's at the heart of the BLM issue that's just because they don't have enough people or is it just because it's more strict in the environmental front, what's going on there?

Timm I wish I knew. And it's never a good thing to speculate or pass negative comments about your regulator. So I'm just going to pass.

Got it. Last one from me is on the Powder River basin for some of the gating factors in terms of ramping up little quicker there that's just completely contingent on your partner there?

I'm sorry Timm, could you say that again?

I'm just wondering what the -- what's some of the factor are in terms of ramping up in the Powder River basin or is that just completely up to your partner?

Yes, so we are in a non-operative position and I have to tell you we're pleased with the quality of the work that our operator is doing. We're seeing improvements and the well costs come down. We're seeing improvements in how we're completing the well. They've very much engaged us in helping with that. So from that part it's very positive. I think they are committed to, at this moment, a two rig program. We would like to go to a three rig program. But we're still in the acreage capture delineation and I think they're being wise too about not trying to go faster than they believe it's prudent. So it's more just a little bit of a philosophy difference and but we're still seeing good production growth out there. In March, we were at 1600 BOEs and now we're at 2000 BOEs. We don't have any new completions thus for but they will start coming as the new wells start to be completed over the next couple of months. So hopefully that will continue to grow through the rest of the year.

And last one from me is how are the flaring regulations affecting your or going to affect you guys on the E&P side in the Bakken at all?

We feel really good about what we're doing. So right now we are only flaring 6% for gas we produce which is very good. And if you kind of look at what the flaring rules are that's kind of the close to the target and I think 2020 or something they hope to get it down to 5%. So we're in a good place. So I don't see this as a big impact for us, we've always been focused on trying to capture our natural gas and it's only when we drill real outline areas that we aren't able to do that. I think those rules though, as Steve tried to allude, those are very positive for the pipeline. In some areas of the Bakken which we are not in, it's the economics are really marginal to collect the gas and these rules are going to make that a higher priority, which means there is going to be more gas collected, which is a positive thing. And Steve and his team is trying to be a part of the solution here for what's good for North Dakota and good for the country. So I think, as Steve sort of alluded, it's going to maybe take a little time getting everybody on board, but we need that pipeline to actually follow through on the rule.

Your next question comes from the line of Sarah Akers with Wells Fargo. Please go ahead with your question.

Just a clarification on oil production. Does the 10% to 15% range assume the three new wells in the Paradox are successful or would that represent upside?

No, that includes those.

It does. Okay. And then, shifting to WBI, in the past you talked about doubling invested capital in earnings and obviously, Dakota Prairie is a big part of that. But given that were already seeing a doubling of earnings in the first half of this year seems like there is a lot of upside to that target once Dakota comes online, is that fair or am I missing something there?

Well, certainly, the Dakota pipeline but more double are invested capital and our results (inaudible).

Oh, I'm sorry. I missed the refine. The Dakota Prairie refinery?

Okay. Dakota Prairie refinery, that is part of our investment activity and we built that into our targets so we look at doubling our invested capital over this period. Dakota Prairie is part of that doubling and I think may be what you are alluding to. We would expect that to provide a very good return from that investment and so, certainly helping our earnings on a go forward basis.

Okay. And then, last one. I know you've done some pre-filling activity on the Wind Ridge pipeline. Can you talk about the status and size of that opportunity and when that might its way into the base plan?

Sure. Just a little bit of background on the Wind Ridge project. This is something that we have been working with CHS. And CHS has announced a proposed plant, a fertilizer plant to be built near Spiritwood, North Dakota. These fertilizer plants are large consumers of natural gas; it's really the feedstock for their process is natural gas. So we work with them closely. The project would anticipate a 95 mile, 16 inch pipeline running from the northern border system up to the location of that facility. Certainly, it would be a significant investment for us with the positive returns for us. As far as where we are at in the process, we recently just initiated and requested a pre-filing process with the FERC to begin work on that pipeline. At the end of the day, this pipeline is really tied to CHS as decision to move forward or not. So if they were to move forward to plant, we would move forward with building this pipe and really that rests with CHS right now.

Great. And are you seeing any additional opportunities similar to this?

We are out in the market every day. And certainly, having discussions with various parties, nothing I am prepared to discuss today though.

This marks the last call for questions. (Operator Instructions). Your next question comes from the line of Matt Tucker with KeyBanc Capital Markets. Please go ahead.

Hey, guys. Just a couple follow-ups. You mentioned that you've been encouraged by the coil tubing with cemented liners technique in the Bakken. Are there any numbers that you can share to help put that into context?

Yes, sure, Matt, this is Kent. So we don't have a large data set because we are only running two rigs. So we have to take this a little bit of a grain of salt. But in terms of middle Bakken, we actually saw when we compared it to our 30-stage sliding sleeve and this is when we used our coil with much higher states count. We actually got about a 60% improvement in EUR and rate, and so that was really encouraged. But to be honest with you, we don't have a lot of middle Bakken drilling left to do. So what's more important is what we saw in the Three Forks and there we saw a 38% improvement. And so, that's still pretty encouraging. Now, that comes at a cost of about $1.50 million more per well. And what we are finding is there is not one solution that applies of all of our acreage. We have to look at where we are, how many wells we have already drilled in that section etc. And so, it's a small data set but at least it gives us encouragement. And we are going to look to continue to go with the coil tubing, the higher stage count. We are experimenting with slick water and the amount of proppant we put in there, particularly in the areas where we have a low number of wells in this basin unit that's where we see the biggest increase. The flip side is where there is more wells in the spacing unit. It's more difficult to justify the additional cost.

Thanks Kent. That was helpful. And then, just one on the utility side. You mentioned customer growth has remained pretty strong. Apologies, I missed this. But could you quantify how much your customer counts were year-over-year at the end of second quarter?

Thanks Matt. Frank here. We are seeing customer count across our eight states at about 2%. We also see an increase customer count rate up in the Bakken area about 3% on gas and about 5% on electric up there. So again, fabulous growth across our entire utilities segment.

Thanks a lot. And one last question on refinery. It's been a quite a while since you first came out with the guidance on the refinery and crack spreads and commodity prices tend to move around. Like I don't expect that you run the numbers every day. But could you give us a sense based on current market conditions, how the returns would compare to your guidance at the plant we are operating today?

I think your point is on there is a lot of moving parts in that EBITDA targets that we provided. And we provide a range of $70 million to $90 million of which we would participate half of that. I guess, as we look at it today that's still in appropriate range for our facility. And I guess as time goes on, we feel kind of outside that range. We'll look to provide some additional information.

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

Well, as you heard, we are undoubtedly excited and focused on executing our substantial growth opportunities that are right in front of us along with identifying new opportunities. We do continue to push forward and better leveraging our expertise across our business units, for instance, our Dakota Prairie Refinery project. We appreciate all of you participating on the call today. And will continue to pledge to keep you updated as we move throughout the year. Thanks again for your interest in MDU Resources. Operator?