Doran Schwartz – VP & CFO David Goodin – President & CEO Dave Barney – President & CEO, Knife River Corporation Steve Bietz – President & CEO, WBI Energy Frank Morehouse – President & CEO, Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas, and Intermountain Gas Jeff Thiede – President & CEO, MDU Construction Services Group Kent Wells – Vice Chairman & CEO, Fidelity Exploration and Production Nathan Ring – VP, Controller & CAO.

Paul Patterson – Glenrock Associates Christine Cho – Barclays Brent Thielman – D.A. Davidson Matthew Tucker – KeyBanc Capital Markets Timm Schneider – Evercore ISI Faisel Khan – Citigroup Sarah Akers – Wells Fargo Rosemarie Tevelow – Tevelow Associates.

Good morning. My name is Carmen, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group Third 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 November 18. The conference ID number for the replay is13274434. Again, the conference ID number for the replay is 13274434. 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..

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?.

Thank you Doran and good morning, thank you for your interest in MDU Resources. We appreciate you joining us today to discuss the results of our third quarter as well as our announcements yesterday related to the upcoming marketing of our fidelity EMP company and our evaluation of a second diesel refinery.

For the third quarter adjusted earnings were $84.9 million or $0.44 per share compared to $92.3 million or $0.49 per share last year. Our construction materials and services companies combined reported record quarterly earnings of $65.1 million up 6% compared to last year. The prior earnings record came pre-recession way back in 2007.

The combined group has now had 12 consecutive quarters of year-over-year improvements. Construction materials reported a record quarter with 12% increase in earnings and only 5% revenue growth.

They have clearly taken advantage of continuing improvements in the economy and are also benefiting from the favorable weather that is extending the final stages of the northern tire construction season. These conditions and outstanding performance turned into the best quarter ever for Knife River.

The group has substantially completed their largest construction job in their history as well which is the $55 million Watford City by-pass in the heart of the Bakken. This project included nine miles of four lanes with about 520,000 tons of total aggregates.

Our construction services group has had a strong year with year-to-date earnings at a near record phase. They continue to focus on optimizing their national presence as well as securing good quality projects. Looking forward we are seeing positive momentum at our construction businesses.

Material prices have been improving which is a good sign of an economic recovery. And we are seeing strong bidding opportunities and have added backlogs since the September 30 combined backlog of 824 million.

With our lower cost structure, improving economies, our interest in resuming acquisition activity in the construction space, we are optimistic that we will continue to see growth for our construction businesses. At our combined utility group, we reported a loss of $3.1 million for the quarter.

Our electric utility experienced 3% decline in sales to residential customers as cooler than normal weather affected our air conditioning load. Higher O&M expenses related to payroll and benefits were also a factor with rate recovery partially offsetting the earnings decline. And at our natural gas utility group, we experienced a normal seasonal loss.

With the plan record capital program, this group is focused on a number of major growth projects. In addition to bringing on the 88 megawatt of new gas fire generation this past August, a growing customer demand has us planning for our next generation projects which could include some wind generation.

Our $90 million upgrade to the Big Stone station is on track and anticipated to be completed next year. We also have the 345 TV transmission line that is a MISO multi-value project expected to be completed in 2019, as well as opportunities surrounding our initial investment in L&G for additional L&G development projects.

It is very exciting time for our utility business where we expect to grow rate based by approximately 9% compounded annually over the next five years. Next moving on to our pipeline and energy service group, here we reported earnings of $5.1 million for the quarter.

Our Pronghorn natural gas and oil midstream asset continued to produce good results with higher gathering and processing volumes. We also benefited from the implementation of higher rates effective May 1, related to a FERC rate case settlement. Our pipeline group is certainly positioned well to take advantage of a number of growth opportunities.

We are on track and approximately 90% complete under Dakota prior refinery. Today we have approximately 770 workers on the site on an ongoing daily basis and we are expecting it to go into service around the end of the year. We also like the team and the expertise we have developed on this project.

There continues to be high demand for diesel here in North Dakota, currently state wide diesel consumption is averaging about 59,000 barrels per day with only 22000 barrels refined within the state.

Given this substantially under supplied North Dakota market, we are excited to announce that we are seriously evaluating the building of a second refinery here. We have identified a potential site and have started permitting work right now. We would expect the spring 2015 construction start should we proceed with the project.

We also recently added an approximately $120 million project our wind ridge pipeline project that is designed to take natural gas off the northern border system and to deliberate near Spiritwood North Dakota where an announced fertilizer facility will be built.

The plan is for 95 mile pipeline to deliver some 90,000 MSF per day with potential for expansion opportunities. Here are projected in service date for the wind ridge project is in 2017. In addition we have opportunities to expand our midstream processing operations building upon our successful investment of the Pronghorn facility here in North Dakota.

We are encouraged about the growth potential we see for our pipeline group. Now moving on to our E&P where adjusted earnings were $16.6 million this past quarter. Oil prices have decreased by 12% since last year and we did experience higher DD&A as well.

We also had a natural gas production decline of 27% largely driven by the sale of non-strategic natural gas assets last year. Since we last updated you, we successfully closed on the sales of approximately 4,300 net acres for Montreal County and our operated acreage in south Texas. We closed these on September 30, and October 1, respectively.

And as we announced in our earnings news release yesterday, we plan to market our Fidelity expiration and production company.

Although we continue to see attractive investment opportunities at Fidelity, the capital required to effectively grow the business we feel would compromise our ability to fund this substantial opportunities we are seeing at our other lines of business.

We expect to grow our utility, pipeline and construction business units in a more meaningful way and peruse that growth with a lower overall business risk profile. Once we have finalized our latest five year capital expenditure projections we will make that information available as well.

For the balance of this year, we will be preparing some market fidelity with the expectation that a data room will be opening in early 2015. We plan to publicly disclose evaluation information once we have concluded the marketing process.

At this time we are not going to discuss further specifics about the sales process other than to say that we expect to peruse the sales process in a deliberate and thorough manner. During the marketing and sale process Fidelity intends to focus its operations on production.

We expect to continue to develop our acreage with three operated rigs one each in the Bakken, the Paradox and East Texas. In the Powder River basin there are two or three non-operative rigs producing good results. Overall we have reaffirmed our earnings guidance for the year in the range of $1.40 to $1.50 per share.

Weather will be a factor in our action results for the fourth quarter as well as commodity prices.

So to wrap up my former remarks today, MDU Resources will continue to focus on executing on both organic opportunities as well as acquisition related growth potential that exists in all of our remaining businesses we believe we are well positioned to succeed.

I certainly appreciate your interest and commitment to our MDU Resources organization and will be happy to open the lines to questions at this time.

Operator?.

[Operator Instructions] And your first question comes from the line of Paul Patterson with Glenrock Associates..

Good morning guys. .

Good morning, Paul..

Just to clarify few things.

You guys see a potential sale, should we pretty much think that this is, the business is pretty, very likely that you’ve tackled will actually sell this business, I mean how does that term potential sale mean, in other words is there, what are the chances that it won’t be so like a--?.

Well Paul, in the news release we note that we have retained the services of our financial advisers to assist us in this process. We do plan to market the company.

We talked about the timing for preparing for a data room starting in early 2015 and then Paul we are going to allow the process to continue at that point and we need to determine at the end of the process what exactly we will do, but we do believe that it will be a potential sale..

Okay.

With respect to I know you guys aren’t going to get very specific on evaluation stuff, is there any update we might hear about in terms of proving and probable or does the tax basis of the assets and what have you, how should we think about all that?.

Paul, I think you helped answer that one in your prefacing comments. I think we will be getting ahead of ourselves to talk about those details. At this point in time I think those will be certainly discussed at the appropriate time. .

Okay.

In terms of the company going forward, potentially without this business, how should we think as you mentioned you guys will be a lower risk entity, how should we think about what the potential capital structure amount of leveraging might have in that business in the company as a whole without Fidelity?.

Let me do a quick walk through at our business units as I see them Paul. Let me think about our pipeline and energy service business clearly with the first refinery nearing completion at about 90%.

We are expecting to be on service date at or about the first of the year and then announcing today that we are evaluating and have already started the permitting process of second refinery yet to officially proceed on that but I will say we are well under our way.

I think that helps you understand some of the growth opportunities that we have at the pipeline and energy service.

You combine that with the pipeline project in eastern, north Dakota, $120 million pipeline project that would be for the fertilizer plant and we do know north, eastern north Dakota is under serviced from a pipeline perspective and so we will need to determine the appropriate size and how we kind of help find the market over there.

When I turn to our utility group, we are already in a record capital program. We have announced previously 1.3 billion. We talked about some of the generation aids, some of the environmental upgrades keeping up with the growth that we are seeing in the Bakken. We don't see that going down. In fact we see that likely trending higher.

When I think of our both construction businesses, really for the past well since the great recession hit, we really ask those businesses to, I will say work on their cost structure, work on their organic growth but really from an M&A perspective, we haven’t consciously deployed capital there in a meaningful way and so this will be a change but it's more of resumption to our growth that we had from 1992 to 2008 where we required almost 130 companies largely construction companies that were part of a roll up strategy.

So we would see that the M&A activity to I will say resume in more meaningful way at our construction businesses.

Turning to your capital question, we would expect to provide more details into the market following board approval for our capital budgets and we would pledge that we will keep you updated as soon as we have that fully approved internally but I think that gives you some direction there notwithstanding as we see Fidelity as the part of the overall business mix..

Okay. I understand.

Okay but then in terms of the credit outlook, the credit rating outlook, has that changed in terms of your goal in that or should we think about potentially changing as well with respect to the sales or --?.

Yes. So our credit ratings are BBB+ at two of the agencies or both of the agencies. We would see that certainly continuing if not slightly strengthening based on this, but clear that’s up to the rating agencies and we have to demonstrate to them as well.

I don't believe this lessens are – I don't think this increases our risk any I think it actually potentially lessens it but that’s really up to the rating agencies ultimately..

Okay. Thank you very much. .

Thank you Paul..

Your next question comes from the line of Christine Cho with Barclays..

Good morning. .

Good morning Christine..

I guess let me start with the potential elimination of capital intensive E&P businesses like you mentioned your E&P businesses are much more stable, I might be getting a little ahead of myself but is a potential change in the dividend policy on the table meaning could you possibly take your payout ratio up and respecting that you don't want to talk about the marketing process but would you be able to kind of give us color on what the potential use of proceeds would be?.

Yes, Christine and I think we don't want to get ahead of ourselves today as we just announced the marketing and the potential sales for the business. I will pledge to you in the market that we would update you as appropriate through the process.

I do think dividend policy is always a conversation that we have with the board on an ongoing basis and that clearly would have to be decision made into the future as well that I don't want to speculate on today.

Our business mix would change a little bit as a result of the potential sale and outside of that I just don't want to get ahead of ourselves here today..

Okay.

And then it's probably no co-incident that we started to get a little bit of look into all the other projects you are contemplating, the second diesel plant and the wind ridge pipeline, some things at the utilities, kind of can you – which one are you most excited about and how should we think about where most of the opportunities are? I mean is it pretty much bleak between all of the segments or is it kind of skewed towards something else, kind of any color there?.

I would add some color on and maybe just a little more detail on my earlier comments when I think between the utility and the pipeline and midstream business, we have considerable line of sites for those types of investment and I noted those so I don't want to repeat myself but I think we highlighted some of the more specifics there.

I think the added emphasis here though beyond those which is very much line of site and we will commit to provide the market the capital allocation we see for the next five years going forward. We would anticipate doing that here in the not so distance future.

Is the change at our both, our construction businesses and the internal commitment to resume that acquisition activity that hereto for the last I’ll say about six to seven years has really been absent and that would be more of an added and that there is a necessary direct line of site there but clearly given our footprints we have in those business we think we are well positioned to start looking at whether it will bolt-on or other type of acquisitions..

Okay. And thank you and then I guess just at the diesel topping plant, it looks like the cost went up slightly while EBITDA expectations came down a bit.

Can you talk about what drove those changes and then with respect to the second plant that you are thinking about, are you going to take on a partner for that as well?.

Christine, I will turn that over to Steve Bietz because Steve has been the team who has been working entirely to get the first unit to this point and they are right in the throes of this evaluating the second unit.

So Steve?.

Thanks Dave and yes we do have plan to work on here. As it relates to our capital cost, I guess a slight uptick from what we had disclosed previously, we had a very wet late summer early fall. We got about 7-8 inches of rain on the refinery site. That certainly had an effect on overall construction cost.

And then secondly we have added some additional cost just to give us more certainty on the commissioning side. We have added some additional resources there to help us on the commissioning. So that’s the biggest driver from the capital perspective.

As far as the EBITDA forecast, we lowered those slightly again, as we look today I think and you look across the industry, frac spreads have come down some so we have reflected some of that in our forecast.

And then secondly, as we have gotten more clarity on some of the cost as we look at some of our rail cost, they are a bit higher than what we had originally anticipated. So that drove us to drive that a bit downward. Relative to the second refinery, I think Dave has touched on it. We are certainly in a very good position to move forward with that.

We have got a team that demonstrates our ability to move forward with that. In terms of the partner, we have talked some with Calumet on the second refinery and exactly how are two companies participate in the second refinery, that's really to be determined down the road. .

Okay. Great. And then last question from me, with respect to the oil production guidance, I thought you had revised it earlier in the year down to 10% to 16% and that had already counted for the sale of the Montreal assets.

Am I mistaken just more curious if that wasn’t like the driver for the revision this quarter and then you talked about wanting to focus on operations at E&P this year but we noticed well I noticed that there were no hedges put on and I don't think the oil prices have started to deteriorate until after third quarter so just – is that something that you are not looking to do given your marketing process just more color there?.

Yes Christine, its Kent. The combination of the sales and also the production challenges we have had in the paradox have let to the 3% to 7% production growth. So it's the combination of those that at least is there.

In terms of the hedging yes, I certainly wish I had anticipate the big drop in the oil production but we didn’t and with the backward dated curve, we are fully hedged in the fourth quarter of this year. Limited hedges in the first quarter of next year and the curve was so backward dated obviously now I wish had done something different.

But that's what we have done in hedging. And then with our decision to market the company, we will probably be fairly passive in terms of our hedging particularly in light of what current prices are today..

Perfect. Thank you so much for the time. .

Thank you Christine..

Your next question is from the line of Brent Thielman with D.A. Davidson..

Hi good morning..

Good morning Brent..

Yes, actually most of my questions were just answered but the decline in backlog in both construction businesses is this more of timing issue and could you kind of discuss the overall pipeline and the degree of its ability you have right now?.

I am going to call both Dave Barney and Jeff Thiede to answer that but I will just preface that because Dave Barney isn’t very good at this about talking about turning that major backlog in the third quarter from backlog into net income into that record quarter but with that leading, Dave would you talk about our backlog going forward?.

Okay. Good morning Brent. We had – we worked quite a bit of backlog in the third quarter. Actually 288 million of backlog compared to 205 million backlog in the third quarter of 2013. So we worked up quite a bit of backlog. But this schedule looks very positive for almost all our areas Brent.

So it's just the matter of executing on what' out there and adding to our backlog. If you look at our backlog it's about $50 million off and that's about our Watford city job but we expect to add good backlog with good margins going forward Brent..

Jeff..

Good morning Brent. We have had few quarters of higher than typical backlog in our business. We have focused on those projects and the large significant projects that we completed has given us a proven track record on successfully executing those large projects. We have done that through our planning, our safety, our productivity of collaboration.

So we have seen good results as a result of that. Meanwhile, we have – we are looking for good opportunities to refill that backlog where we can be successful in all the areas of our business..

Okay. Thanks guys..

Thank you Brent..

Your next question is from the line of Matthew Tucker with KeyBanc..

Hey good morning Dave and team..

Good morning Matt..

Dave could you first just talk a little bit more about the timing of decision to peruse sale of fidelity obviously commodity prices have come down quite a bit in the past few weeks and you just recently countered these operational issues in the paradox so I guess why now initiate the process versus waiting a few weeks or months to see how these things play out?.

Yes that's fair. I would characterize it Matt and we have had these conversations been on the various investor tours, etcetera.

We ongoing have a conversation with our board and evaluation of our business units and they determine what’s the right mix, where is the capital being allocated, how do we think about the businesses at a point in time and how we think about the go forward basis.

And I would say more recently we had a comprehensive internal review again with our board of directors along with some outside advisers looking at I will say all the growth potential at our business lines that we have and in essence it comes down to are we – would it be effectively compromising some of the gross opportunities we see at some businesses by continuing on the same path that we have been on.

So this comes down to somewhat of a capital allocation question as we think between growing centralized the business, different of business have different capital needs and (inaudible) ongoing for some time, Matt certainly time state is perfect but on a go forward basis, one can never could predict commodity prices but we can see the line of site for certain growth opportunities of projects that we highlighted here today and so that I think is the overall driver here.

It's ongoing. We continue to evaluate. We think right now this is the best strategic direction for the corporation..

Thanks Dave and a couple of follow-up from that.

Would you be – would you consider selling fidelity and pieces if you can't find the buyer for the whole entity and would you pull the trigger on sale if it would be diluted to earnings per share?.

Yes, so far as the business at Fidelity E&P it would be I will say our initial preference to look at it as a company or an entity type sale a collective sale, that being said, we will keep our options open as other possibilities and we will just have to see what the process holds in that regard.

And I guess I won't get ahead of ourselves, other question relates a little bit proceeds and use of proceed and what do we expect that to be and how that might affect the earnings per share and various tax advantages or not, I think those questions are better answered once we go through the process and determine what the process yields, we would be in much better shape rather than speculate at that today.

.

Okay. Fair enough.

And then, we discussed at length the operational issues that you encountered in the Paradox space and is there any update you can give us on the progress you have made there since the Analyst Day?.

Yes, Matt it's Kent. In terms of our artificial lift issues, specifically with the 12 one and the 18 one, we have had those consistently on production for the last month and a half or so ever since we last talked in September. And so that's been good.

Now what we need to do is go through the optimization phase combine the two of them that has been producing between 800 barrels a day and we need to look to increase that over the next month or so. So we have centered ourselves up to do that. In terms of the pressure trendy analysis work that we have done, we have looked at that.

It looks like the wells were not damaged and the issue there is the reservoir is just tight and this is where our work on tracking the wells we have been so fortunate to display to not have to frac wells and I think in some cases that will still be the case going forward in another cases we will need to look at fracing these wells and we will be doing our first fracs week.

These are not the big natural fracs that we have to do in other places like river basin or Bakken would be lot less stages, lot smaller and so we are looking forward to doing that. I am sure we will earn something in the first one and we will probably look to do the second one shortly after that kind of opens up that area that’s been tighter.

And then Matt, just back to your earlier question on the whole company, we kind of see Fidelity as the unique opportunity for the right investor.

We are pretty much completely focused on the Rockies down so it's kind of the unique Rockies platform where someone could come in with some really good cash flowing asset, a great organization in place and so put aside the oil price because obviously we like that higher but it could be a unique opportunity for someone to make a move into the U.S.

oil shale platform..

Thanks Kent that was helpful.

Last question, apologize if I missed this but there is an update on the Dakota pipeline and what's your level of optimism at this point that you will still be able to get commitments necessary to move forward with that project?.

Thank Matt. I will ask Steve, he is much closer that than I’m to talk about the Dakota pipe..

We are still pushing hard in terms of our marketing efforts of the pipeline. And I think we have seen some developments that we are continuing to pursue those and as long as we see interest associated with that project we continue to try to advance that project.

Nothing to report new today but working hard out at it, I think bottom-line we see, we really continue to believe there is a need for the pipeline with reduced flurrying increased gas production in the area. We think there is a need for it and we are going to keep pushing forward with the project..

Thanks a lot guys, I’ll jump back in the queue..

Okay, thanks Matt..

Your next question is from the line of Timm Schneider with Evercore ISI..

Hey guys, just a couple of quick ones.

In terms of the proposed E&P sale, Dave would you say this was something you guys looked at the couple of years out in the curve and you said $80 or so and that was main driver, was it really you didn’t think you, you have to write acreage in the right places?.

I would say Timm when you think about the capital deployment, we touched on there already some today but when we fast forward even our own internal review of our business opportunities whether it’s be the pipeline or midstream the utility and then thinking about acquisition activity at the construction businesses that is the major driver right now as to how we effectively grow those businesses without compromising them and that really is the driver as we see it today..

What’s the legacy decline rate at the EMP business if you were to stop drilling, just overall?.

Timm, I don’t have a good because it’s really very – we have very low decline rates in our Baker and Bowdoin, Anterior Creek fields and of course higher in the Bakken, Paradox the wells stay flat for quite some time. I don’t have a good number for you.

We don’t intend to completely stop drilling unless oil prices continue to cause this to want to do that.

Now, I think we are clearly looking to slow down a bit because one thing we’ve always learned is oil prices decline it takes, there’s a delay till the cost structure comes down and we won't let that play, there is no reason to continue to drill in a high $70 oil world if you are still affording costs that are supportive of a $100 well.

So we will hesitate but we won't stop drilling..

And you guys have to tax spaces on the E&P business?.

Hey Timm, this is Doran. We haven’t publicly disclosed that I think what we would want to do is may be give you a little bit more color commentary once we have more specifics around how the process plays out..

Got it.

Last one from me, the size of the potential other stopping plans, should we think about that kind of the same size as the one you already have that $20,000 because I think that way you don’t need to get the EPA parameters if I remember correctly?.

Timm, I would say if you think about number 1, likely number 2 would look very similar if not a twin..

Got it. Thank you..

Your next question is from the line of Faisel Khan with Citigroup..

Thanks. Good morning. It’s Faisel from Citigroup. Just a few questions..

Good morning Faisel..

Good morning David. Would you consider also spinning off the E&P business..

Faisel, I think the process that we’ve set up and have a number of outcomes and I think we need to just go through that process before marketing a bit and determine what we best do at the end of the process.

So I don’t want to get ahead of ourselves again and I have said that more than once today but I think that’s as transparent as I can be as to not predicting the future with total certainty..

Okay and then how the pro-reserves change very much as at the end of the year your last year report..

Yes, we haven’t disclosed what are our reserves is, we only do that once a year but there is nothing to be concerned about if that’s what your question is..

Okay. Got you. And then you said you won't stop drilling but you are looking to slowdown.

Can you sort of provide little more angularity on it, how many rigs are you running or you running how many rigs do you plan to sort of ranch it down to?.

Yes.

So we currently have one rig running in the Bakken and we would expect that to continue we have one rig running in the Paradox and depending upon permitting and how our track works etcetera we could either continue with that or take a slight positive in that program and then we have one rig in East Texas and when it finishes well, it’s on it was always set to come down for a few months period till we complete the first two wells and then decide how to continue on with the program..

Okay. As you think about sort of the sale process here, how does that factor in and also into you are the build out of you’re the refinery in North Dakota, I mean in theory you are sort of someone integrated between production and refining.

So is there, I guess by sort of selling the E&P business do you lose some of that integration?.

Faisel, this is Kent I will just say something and then maybe turn it over to Steve as well.

And let me just finish I didn’t want to forget our non-operated rigs in the Powder River basin as Dave talked about before we’ve got two to three rigs running in the Powder River Basin as well and we would expect that to continue on but those are non operated rigs and we will just have to see what happens there.

In terms of the refinery and our production in the Stark County, I mean whether we looked at it as a natural hedge but whether we are operating that production or someone else’s the decision on whether that production goes to the refinery was always going to be a third party arrangement between the two and so I think that won't change.

Steve?.

We would need to pay a market price for that. So it does create as you mentioned an internal hedge for us but from an operational prospect and integration there really not much effect..

Okay, got it.

Do you guys have any well reserves in the Powder River to report of, any IP rates?.

We had alluded earlier that we drilled a first really good first frontier well which we have and because there is still acreage to be picked up, our partners there are do not want to release that information so we won't be but we are very encouraged in both the first and the second frontier in the Powder..

Okay. Thanks guys, appreciate the time..

Yes, thank you Faisel..

(Operator Instructions) Your next question comes from the line of Matt Tucker with KeyBanc..

Hey guys, just a few follow ups.

On the requirement of Prairie refinery the new, guidance you provided for the first year of operations, is that kind of a good run rate to you is it beyond the first year or is there any reason that the run rate would revert back up to your previous guidance?.

Matt, that’s really based on a full one year kind of run rate.

So and as you go forward it would be similar with the same assumptions as we look at the refinery and think about 2015, I think there we would just need to see what challenges and how well we bring up and commission the plant well, it will be up and running on day one or it may take us a little while to work out a few bugs but the rate that we have disclosed is kind of a full 12 months run rate..

Got it. Thanks.

And then as you are evaluating the second refinery, I guess where the key considerations what would prevent you from moving forward with that second refinery and also would you plan on that being developed in another 50:50 partnership with Calumet or someone else or would you be going it alone?.

I guess in terms of the economics of the plant obviously on the onset I would expect them to be somewhere to the first refinery, how are we are going through a market stay both and kind of the input of crude in a specific location as well as the products that are produced to diesel so forth and our ability to market those and what value received for those, so that’s part of it.

We certainly have learned a lot through the first refinery and how does that knowledge and that all play into our construction cost and so forth and how do we kind of look at that in a different location, so we are going to work through the economics but I think as we said here today I would expect them to be similar.

As far as Calumet, I mentioned earlier we certainly talked to them about this potential second refinery and really how Calumet has to participate in the second refinery will determine that down the road. So not going to get ahead of ourselves to use in Dave’s term..

Okay, thanks Steve and then last question on construction services do you like the margins there were lighter than they have been in the past several quarters.

In contrast with the construction materials business where they’re much stronger but could you just comment on what the reason was for the decline in margins there and is that kind of some one-off or is there some kind of changes in your pricing backlog or market conditions that implies, you could continue to see some margin erosion going forward?.

Yes Matt, there are lot of forces that contribute to the margins especially the competitive pressure that we are seeing on the margins , we have some projects that have finished in the past that were just phenomenal and they closed very strongly.

So when you comparing it going forward our margins are good or continuing emphasis on execution along the lines of safety and productivity we are seeing benefits and we are seeing good returns.

Additional bidding activities I have a good mix for us coming forward with a combination of negotiated work this is going to help improve our margins and our continued focus on operational excellence is going to help out. So we have good margins. We have come up some excellent projects in the past and we are looking forward to bright future..

Thanks guys. That's it from me..

Okay. Thank you, Matt..

Your next question comes from the line of Sarah Akers with Wells Fargo..

Hey good morning. .

Good morning Sarah..

I have seen the press release, it still states that the EPS growth expectation is in the 7% to 10% range and I am curious if that holds with and without the sale of the E&P segment and whether that reflects the current oil price environment?.

I think Sarah when you think about all the disclosures in there that's based on as we see the company today and as we evolve overtime whether through this potential sale process and other investments, we will be providing a full update certainly if not before but certainly at our end of the year call on or about the 1st of February there.

And we would update that along with all the other parameters of our business at that time as well..

Okay.

And then with the likely sale of fidelity do you still a natural fit between the regulated segments and the construction business and can you determine us of the thought process and keeping those under the same umbrella?.

Yes, thank you for that one. I think when you think of the businesses under MDU resources as we currently have, certainly there is some synergies among the business units and some of them is probably some greater ties in synergies between certain parts of the units than others.

So clearly the pipeline and utility have some very close operating synergies between them.

When you think of the construction businesses, they really respond from our regulated businesses in a sense from building power lines for ourselves to building power lines for others for instance or extracting coal from the ground to moving, extracting minerals and sand and gravel and aggregates from the ground.

I think they are all very good businesses. I think when you think about us resuming the M&A activity or our construction businesses that gets me a bit excited as we think about growing in scale there.

And then the line of site, both the pipeline, midstream, and utility is very much line of site and of course execution will be the key on our businesses to perform but I think it makes good sense as we see it today. That being said, we always got to review what our portfolio is and how we view it in the best interest of our shareholders..

Got it. Thanks Dave..

Thank you Sarah..

This marks the last call for questions. [Operator Instructions] This call will be available for replay beginning at 1:00 p.m. Eastern Time today through 11:59 p.m. Eastern Time on November 18. The conference ID number for the replay is 13274434. Again, the conference ID number for the replay is 13274434.

Your next question comes from the line of Rosemarie Tevelow with Tevelow Associates..

Good morning..

Morning Rosemarie..

I have a question regarding the environment in the Bakken in general.

Have we had since this decline in the price of gas and oil particularly? Has there been a reduction in production overall in the Bakken and what is the environment there right now for production there and also additional initiation of production because some people have sold their acreage and I would like to know what the environment is..

Rosemarie just so I captured your question is it more related to the environment around the oil production and sale over or the overall business environment whether it be midstream, pipeline, utility, construction activity?.

Both of those would be helpful..

Okay. I will touch on maybe the broader view that see given the spread in backyard here and then I will call in Kent to maybe add some color if there is more to be added. The production continues to increase by both oil and natural gas.

We see that month over month and you can catch that up in North Dakota industrial commission website, Lynn Helms is a Director of that. They publish that information on a monthly basis. That continues to grow. Clearly there is more gas that's being captured now and so that will require more midstream processing and more pipeline takeaway.

When we think about our utility business, we are in the throes of our fall rush right now meaning before things freeze up to get as many service lines and main extensions and primary electric extensions in before the thunder gets frozen, you might say that is not necessarily slowing down. It's on a very consistent pace you might say.

When we think about the oil and gas in particular I think the drilling rigs add about 190 or so today plus or minus 1 and 2 and that's held I will say pretty constant. Again with increase spud release time on the rigs, they can drill them in it varies but we are in the mid to lower tens actually.

So the overall activity is still quite brisk I would say. At the same time we haven’t seem to sustain oil prices in the $80 range for an extended period of time to see if that makes a major effect but clearly in the short term we haven’t seen it from an overall business perspective.

We just had ribbon cutting day, Barney was with the governor of North Dakota here little about ten days ago or so or last week cutting the by-pass on Watford City, $55 million the town is enthusiastically and the truck by-pass around the community and we envisioned the North Dakota DOT budget probably going up not going down.

So I think it's in a bit of a trying to catch up to the growth that we have seen. Jeff has got I will say 200 plus electricians out of our refinery today working on the refinery project. So overall business is very strong as we see it across our business lines and I am just turning to Kent here.

Is there anything more to add in particular that I missed on the oil and gas side?.

No Dave, I think you said it well. I mean Rosemarie the Bakken is one of the great oil basins in this country and we will continue to be for some time clearly as the price of the oil come down most oil and gas companies essentially reinvest all of their cash flow.

Cash flow is reduced so over time we probably will see some slow down at investment but we typically see then is cost come down too. So it's sort of mitigated somewhat.

On the environment side, and I don't know if you are asking that as well, we are as an industry bringing gas flaring down which has been an issue, we are especially proud of what we have been able to do and MDU and fidelity we are on any given day our flaring varies a little bit but it's in the low single-digit as a percentage which is extremely good.

And we have made a conscious effort to collect all of our gas for years and clearly everybody is headed in that direction. We are just proud of where we are today..

Thank you. .

Thank you Rosemarie..

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

Well thank you. And as noted earlier, we will peruse the marketing and potential sale of fidelity with the thoughtful and deliberate approach. We believe our utility, pipeline and construction businesses are well positioned for growth for example our evaluation of second refinery and we intend to continue develop them to their full potential.

We expect to create greater long term value for MDU resources shareholders by focusing on the successful growth businesses and we also appreciate your participation on our call today. Thank you again for your interest in MDU resources group..

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