Doran N. Schwartz - Chief Financial Officer & Vice President David L. Goodin - President, Chief Executive Officer & Director Patrick L. O'Bryan - President and CEO, Fidelity Exploration & Production Company Jeffrey S. Thiede - President and Chief Executive Officer, MDU Construction Services Group, Inc. Nicole A.

Kivisto - President and CEO, Utility Group, MDU Resources Group, Inc..

Matt Tucker - KeyBanc Capital Markets, Inc. Paul Patterson - Glenrock Associates LLC Timm Schneider - Evercore ISI Christine Cho - Barclays Capital, Inc..

Good morning. My name is Nicole, and I will be your conference facilitator. At this time, I would like to welcome everyone to the MDU Resources Group Second Quarter 2015 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period.

This call will be available for replay beginning at 1:00 p.m. Eastern Time today through 11:59 p.m. Eastern Time on August 18. The conference ID number for the replay is 72660868. Again, the conference ID number for the replay is 72660868. The number to dial for the replay is 1-855-859-2056 or 404-537-3406.

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

Dave Barney, President and CEO of Knife River Corporation; Jeff Thiede, President and CEO of MDU Construction Services Group; Nicole Kivisto, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas and Intermountain Gas; Pat O'Bryan, President and CEO of Fidelity Exploration & 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, everyone. Thank you for joining us today. Before I begin with the discussion of our second quarter results, I would like to also introduce Martin Fritz.

He joined our Pipeline and Energy Services team two weeks ago as President and Chief Executive Officer, replacing Steve Bietz, who retired on July 17 after 34 years with the company. Martin has extensive industry experience and a strong track record of business growth.

We are confident he'll be able to lead our strong WBI Holdings team to accelerate our growth and transformation into a larger midstream business. We will provide you with opportunities to meet and visit with Martin at some point soon. Now, turning to our financial results.

Our consolidated adjusted earnings for the second quarter totaled $29.1 million or $0.15 per share compared to $34.1 million or $0.18 per share in 2014.

These results were highlighted by outstanding performance at our construction materials business, offset by delayed timing of backlog additions and lower margins at our Construction Services Group compared to the record pace that we had just a year ago, and by recent market dynamics related to the commodity prices that lowered margins at our refinery business as well as warmer winter weather at our utility.

We have lowered our 2015 guidance for adjusted earnings to a range of $0.85 to $1 per share, down from $1.05 to $1.20 per share previously reported.

Over the longer term, we remain confident that our assets and the underlying strengths of our businesses provide attractive growth opportunities and support our record capital investment in both our utility and our pipeline businesses. Turning to our individual business unit updates.

Our construction businesses reported combined earnings of $27.1 million, up from $24.9 million in 2014. Construction materials continues to perform very well and had their best second quarter since pre-recession 2007.

Here, we saw earnings for the quarter at (05:22-05:22) point 1 million (05:24), up 91% on just 12% revenue growth compared to last year. Margins increased across all product lines and volumes increased for all product lines with the exception of our aggregate.

Aggregate volumes were flat in the quarter, due to mainly wet weather we experienced in the Midwest. Construction materials backlog is at an all-time record, totaling now $833 million as of the end of the quarter compared to $764 million a year ago. We're also pleased to have higher backlogs in our markets that are driven by the energy industry.

Our North, Central and South regions are finding more work in spite of lower commodity prices and the resulting decline in drilling activity. States like North Dakota and Texas have both added significant incremental funding to their base transportation budgets as well.

Our construction materials has done a great job of maintaining an efficient cost structure and continue to build on their current momentum and focused on very profitable growth margin. We're excited for this group's momentum as they work through their peak construction season this coming third quarter.

And we have excellent long-term prospects, given our strong market position and increasingly valuable reserves that total 1.1 billion tons of aggregate in recovering construction markets. Now turning to construction service business.

Earnings here for the quarter were at $7 million, reflecting decreased workloads compared to last year's record pace, where results reflected stronger – several stronger, I'll say, large-margin projects that we completed in 2014. Although timing of new project awards did not allow us to offset or replace last year's workloads.

We have seen, though, a good level of backlog additions this quarter, with backlog now totaling $429 million, up $108 million from last quarter and also higher than what we had just a year ago. We're optimistic about several substantial bidding opportunities that we're pursuing that we believe will better position us for 2016.

We were awarded two substantial transmission projects here this past second quarter. We're also successful in securing a large government project in the Central Region where we were involved in the design-assist process. And in addition to these, we've also been awarded multiple pre-construction service phases on projects.

And the construction phase is expected to be awarded later this year. On our industrial side, the level of maintenance work has increased, and we are in the planning stage on several projects for upcoming turnarounds. We also continue to secure additional backlogs since June 30, including a large institutional project in our Northwest Region.

We have pending project opportunities in all of our regions and believe these projects and others that we are pursuing will have a significant positive impact to backlog as well as our margin.

Along with our lower cost structure, improving economies and our highly skilled operation teams and our construction group, we continue to be optimistic about the long-term growth for our construction businesses. Next, at our utility business. Here, we reported earnings of $500,000 for the quarter.

Electric sales volumes were 3% higher, while the natural gas business had a normal seasonal loss that was affected by weather that had up to 16% warmer than last year in parts of our service territory.

Higher operation and maintenance expense, largely payroll and benefit-related costs in contract services including storm repairs and a planned outage at our Big Stone Station as well as higher DD&A for plant additions were experienced in the quarter. Earnings were positively affected by our natural gas rate cases, though.

We do continue to experience good customer growth this quarter, with overall growth of 2.9% for electric and 1.9% for natural gas. In the Bakken area, electric customer counts continue to grow where we saw 4.5% higher on the electric side, and natural gas counts increased 3.3% when we compare them year-over-year.

We are pleased to report that we've received also approval from the North Dakota Public Service Commission for advance determination of prudence on the $220 million Thunder Spirit Wind project. As a reminder, this is a 107.5-megawatt project that is under construction with completion expected here later this year.

The Thunder Spirit Wind Farm will provide energy, capacity and renewable energy to customers in North Dakota, Montana as well as South Dakota. Our utility group continues its focus on regulatory recovery as well. We have obtained approval and implemented $18.9 million in annual revenue increases to this point in this year.

In addition, we have pending filings totaling $30.1 million, including four natural gas and two electric rate case filings in five jurisdictions and a pipeline replacement rider as well. We expect to file two more rate case requests as well as updates to a generation resource recovery rider and a transmission tracker yet this year.

Our utility has many line-of-sight investment opportunities. New electric generation and transmission and electric natural gas distribution investments are being made to serve a growing customer demand and to enhance both reliability and system integrity.

Rate base growth is projected at 11% compounded annually over the next five years, including plans for a record $1.7 billion gross capital investment program. The environmental update at the Big Stone generation plant is essentially complete at a cost of approximately $385 million, of which the company's share is at $90 million.

The Thunder Spirit Wind project I referenced earlier is expected to be completed in December. And we have a 19-megawatt natural gas-fired generation addition near our Lewis and Clark station in Sidney, Montana is underway with plans to be in service yet this year.

And we are moving forward on the 345-kV joint venture transmission line that is a MISO multi-value project, expected to complete in 2019. Our share of this project will be approximately now $205 million.

And we're also pursuing a potential partnership for a large-scale, combined-cycle electric generation resource targeted to be online by late 2020, with the company's share being approximately 200 megawatts.

Our utility is clearly focused on providing both reliable service to our customers at economical rates and obtaining timely rate recovery on our record capital program. We're excited about the long-term growth potential this group presents. Now I'd like to move on to our pipeline and energy services group.

Here, we had an adjusted earnings of $1.9 million.

This excludes a $1.9 million after-tax coalbed gathering asset impairment and additional refinery start-up costs, which were at $1.6 million, Transportation volumes continue to grow, and we were 33% higher than last year, driven by increased off-system volumes, along with new firm projects that were placed into service last year.

Transportation rates were also higher due to a rate case settlement that we had last year, effective on May 1. These items were partially offset by an operating loss at our Dakota Prairie refinery, due to adverse market conditions. The refinery, though, has been running well operationally.

The facility began commercial operations in May, at a point in time in which pricing spreads for diesel and naphtha compared to WTI dropped, and regional Bakken to WTI crude differentials tightened significantly in May and June.

A significant narrowing of the local Bakken basis differential to near-historic lows in the $3 to $4 range increased the cost we had to pay for crude oil.

Along with this strong gasoline demand along with periodic disruptions in Canadian crude oil production and the slowdown of Bakken production growth has resulted in increased demand for crude oil, lowering the price differentials between Bakken crude and WTI.

In addition, diesel demand is lower in the Bakken area, affected by the decrease in oil field activity associated with the significant drop in crude oil prices. Along with lower demand, supplies of diesel have increased nationally.

Strong gasoline demand and gasoline pricing spreads have led to refiners increasing crude runs to supply more gasoline, which also increases diesel output. In addition, there have been several refinery projects and expansions in the U.S., adding to the diesel supply at a time when overall national diesel demand has been stagnant.

Over time, though, refinery-related market conditions are expected to fluctuate as we have seen recently. We expect market conditions to improve and expect meaningful EBITDA contributions from the refinery during 2016. We are proud to be a partner in the refinery and believe it will be a great asset for our company over the long term.

As we look forward, we have a number of growth opportunities at our pipeline group that are included in a five-year record capital expenditure program totaling $1.1 billion.

The $120 million Wind Ridge Pipeline project, which is expected to have an in-service date of 2017, is a 95-mile natural gas pipeline designed to deliver appropriate 90 million cubic feet per day off of the Northern Border system and to deliver it near Spiritwood, North Dakota, where an announced fertilizer facility is planned.

We are continuing to work on acquiring easements with over 80% in hand at this point and preparing for filings on the project. The potential does also exist for expansion of this pipeline to serve communities in growing markets in Eastern North Dakota.

The approximately $50 million to $60 million Demicks Lake Pipeline Project is planned to connect a natural gas processing plant to the Northern Border Pipeline.

We continue work on this project by doing preliminary preparatory work, particularly the surveying route and completing environmental reporting along with a FERC pre-filing which has been completed.

We are encourage by the growth potential we see for our pipeline group as it continues to pursue new opportunities and expansion of the existing facilities and services offered to customers. Now, at our exploration and production business.

We are in the marketing process and, for forecasting purposes, we have assumed a sale transaction by the end of this year. Due to the probable sale of the business, we are now reporting our exploration and production activity as discontinued operations. We will provide additional information once the sale occurs. So to wrap up.

While we've had a – while this year such far, we've had a soft first half of the year, longer term, MDU Resources is positioned well. We are optimistic about the strategic direction of the company and the growth opportunities ahead of us that underlie a record $3.8 billion, five-year capital program for our remaining lines of business.

We expect to fund our approximately $700 million in planned gross capital expenditures this year largely with cash flows from operations. We have a strong balance sheet, solid credit ratings and good liquidity position as well. And we continue to provide a competitive dividend to our shareholders.

We remain committed to operating with integrity and continue to focus on safety and creating superior shareholder value. We have valuable businesses and must-have, not nice-to-have industries.

And over the long-term, I remain confident that these businesses, their leaders and employees will deliver exceptional growth as we execute on our business plans and on the numerous opportunities we have in front of us for the benefit of our shareholders. I'd like to thank you for taking time out of your day to join us here this morning.

We'd be happy to open the lines to questions that you might have as well.

Operator?.

Your first question comes from the line of Matt Tucker..

Hi. Good morning..

Good morning, Matt..

Good morning, Matt..

First question. Good morning.

Can you hear me?.

Yes. I can. Good morning, Matt..

Okay. Great. Good morning. Thanks. Just first question on the refinery.

Was the operating loss in the quarter solely due to market conditions, or are there other issues there related to starting and ramping up the facility that contributed to the loss? And then could you comment on what the revised guidance assumes in terms of the refinery's contribution to the second half?.

Yeah. So just playing that back a little bit, Matt. We announced back in early May that we produced our first amount of diesel out of the refinery. And about mid-May, we announced that we actually started making some sales on the refinery. So we're in the process of, I'll say, commissioning the plant as we go through a ramp-up period.

So part of the quarter would see a ramping up of the facility. We are pleased with the operation of the facility. At this point in time, we feel that – I'll say operationally, we've still got some acceptance testing to go through, as one might expect, major industrial facility like this.

But the primary reason to the economics really are the market conditions that we're currently experiencing. We saw Bakken differentials in the – oh, I'll say double digits early part of the year. That those have narrowed considerably, more in May and June, which is when we brought the plant online.

And we're also seeing price for the diesel and naphtha in particular, due to over-supply in the marketplace, is softer than what we've historically seen, too. So it's really commodity driven. That's a long way of answering your question, but I think it's important to understand that we're still commissioning the plant, ramping up.

We feel good about that. The facility's a great facility. We do plan to showcase it at our Analyst Day here in September. Yet, marketing conditions are such that they are.

Then one might ask, well why didn't you hedge for that? Well, until we could get the plant up and running along with I'll say a steady supply of inventory, it would've been imprudent to enter into any hedges where we could physically cover them on the production side.

So long answer but I think it needs a long answer, given the – I'll say the timing of it and the market that we have associated with it..

Thanks, Dave. That's helpful.

And I guess just to be more specific, if and when the plant is kind of fully ramped up, fully commissioned, would it still be generating an operating loss based on current market conditions? And are you assuming an operating profit contribution in the second half?.

Well, we do see – looking at the market, we believe it will slowly start to improve as we look through the remainder of 2015. We're not anticipating a sudden change in that market that would be in our favor. So that is all included as we put together our remaining-year guidance as we thought about the combined consolidated guidance..

Got it. Thanks.

And then moving on, have you given any thought to delaying the sale of Fidelity again, given the recent pull back in oil prices?.

I'll ask Pat O'Bryan to touch base with that..

Yeah, Matt. Obviously, the fall in crude prices, the timing of it's poor. I'm not going to get into whether we will or we won't here on the call, but I will say we will do what is best to maximize shareholder value as we go forward with it..

Thanks.

And then I guess rather than or in addition to arguably selling Fidelity, potentially, at a low, have you given any thought to selling a business like construction materials, which is performing very well, where the publicly-traded comps have pretty healthy multiples and arguably selling a business like that at what could be high?.

Yeah, Matt. This is Dave. I would say we need to continue with our Fidelity process, as Pat has outlined. And for competitive reasons, Pat didn't want to give you a long and detailed answer just for competitive reasons as we go through that process. We need to complete that.

As we've indicated, we believe – we anticipate that for planning purposes by the end of the year.

To your other question, I think it's an ongoing conversation we have with our Board of Directors as to our business mix, how we allocate capital, what businesses should we be in? What businesses should we expand and grow? Which businesses should we consider divestiture of? And clearly, we do that as an ongoing part of our meeting with our Board of Directors.

One of the outcomes last year was our oil and gas business. And so I would say conversation always needs to be around strategy, allocation of capital and how to maximize shareholder value. So I would say that's an ongoing conversation..

Great. Thanks. And just one last one. It's nice to see the healthy backlog build at construction services.

Are you having to sacrifice your bidding margins at all in this environment? Or would you say that the backlog margins are similar to what you've been seeing over the past several quarters?.

Hi, Matt. This is Jeff. Thanks for your question. A couple of years ago, we started to see some of our backlog decrease, and we sharpened our pencil and our pricing levels were less than desired. And we've offset that with some operational excellence initiatives. We have seen recently with projects we've been able to secure a slight increase in margins.

And in that increase of $108 million of backlog, we see that we're getting on board early with about six projects in pre-construction. And these projects, I think, will have a better impact to our financials. And we're looking forward to a better second half of the year than a first half..

Great. Thanks, Jeff, Dave and Pat. I'll jump back in the queue..

Okay. Thank you, Matt..

And your next question comes from the line of Paul Patterson with Glenrock Associates..

Good morning..

Good morning, Paul..

Just to follow up on the refining.

If we look to 2016 and you look at the Ford – the price for Ford products, how much of a uplift are you expecting, I guess, in 2016 based on what you're seeing in the markets locally there?.

Well, when we think about the – we've provided previously our EBITDA projections for the plant between $60 million and $80 million, which we've characterized in the past – and I'll reinforce that today – we believe that's over the long term from a pricing perspective. So clearly, it will be dependent on what the markets do.

But it would be – we'll update you into the future as we see that more near term. But over the long term, I'd just like to reinforce that we believe that $60 million to $80 million is a valid number. But that is obviously based on current market conditions that we'll need to update as we get closer to 2016..

Okay. But I mean I guess what I'm wondering is, is that because it's sort of a localized market and you've got some very specific characteristics associated with it.

I mean I'm just wondering if you could give us a little bit of a flavor as to what you see the difference in – if you could just give us some sort of sense as to sort of where – how much of an improvement you see in 2016, given just where the markets are.

Do you see what I'm saying? I mean in other words, you seem to suggest that you guys could do hedging when you guys were operationally further along and what have you. That would suggest that you have some visibility as to where margins are to a certain degree, I would assume, going out to 2016.

And I guess what I'm trying to get a sense is, how much are we – should we be thinking about as being potentially happening in 2016 in terms of spreads or in terms of margin or anything you can tell us?.

Sure. So let me try to give you some thoughts in that regard. We do see that the markets, I believe, will, I'll say, slowly recover. Part of this is going through – even from a national perspective, from a diesel supply that's being produced – co-produced from gasoline at the moment. So that's more from a national perspective.

So when I say slowly recovering, I think that diesel inventory will get worked down. To the other part of your question, though, Paul, is on a local market, we still see oil activity. There're 70 some rigs operating out in the Bakken. Clearly, we're going to have full harvest here that will help from a diesel – I'll say consumption perspective.

Working with some experts, we believe that there'll probably be a demand off on diesel in the States, so maybe 10,000 to 15,000 barrels per day. That's from a peak of 60-some thousand. But that still points us very much in an under-supplied local market position.

Again, there's only one other refinery in North Dakota, produces about 22,000 barrels a day. Our plant will be 7,000 to 8,000 a day, so that's 30,000 in total. So we're probably 20,000 to 25,000 barrels a day under-supplied in North Dakota, which is very much a local market for us. So we still see that bearing fruit.

Yet at the same time, just with the local differential that's narrowed to near-historic lows because a variety of, I'll say demand factors for Bakken crude, we believe that will widen some to more, I'll say traditional or our past run rates we've seen back in 2013 and 2014..

Okay. When do you think you'll feel comfortable in hedging, and how might that take place? Just what are your thoughts? If you could just expand a little bit more on that..

Yeah. I'd say....

And you say that you couldn't do it up to date.

But I'm just wondering going forward, when do you think you might begin to get into that?.

Yeah. So a combination of things there as we continue to go through our – say, our acceptance testing for the plants, we want to have assurance there that we've got a steady supply of product day in and day out. And we're doing that today, again, going through the final acceptance plans from the ramp up period. That will be one component.

The other component will be as we look into the forward markets at that point in time. And so it's a combination of what's naphtha doing? What's diesel doing along? Along with crude acquisition. And so we're putting that together, and we'll share that with you in the future as we put that together..

Okay. And then just on this – to put this to bed – the weather discussion I believe about expanding or doing an expansion of the refinery.

And just what are your thoughts about that today, given the results and what have you? Has that changed?.

When you say expansion, are you talking about de-bottlenecking this plant, or are you talking about considering a second refinery?.

I'm talking about considering a second refinery..

Yeah. I would say right now, our WBI team is very focused on working on the final acceptance testing for the first unit and looking to optimize that asset along with de-bottlenecking it or finding ways to improve actually the throughput on it.

And we certainly haven't dismissed the idea of a second refinery at this point; yet, I'll say our efforts and focus right now near term are very much on the first refinery..

Okay. And just finally on the – you mentioned that because of – there might be some sort of change or some sort of – with respect to the 11% utility compound annual rate base growth that, that could be somewhat altered associated with what's been happening in the Bakken.

Could you elaborate a little bit on that? And also, could you give us just a sense as to what the rate impact we might see customers impacting – what some customers or I guess the most – the highest rate increases that we might see across the system associated with your plans?.

Sure. I'll ask Nicole Kivisto to talk about both CapEx and rate impacts..

Sure. Yeah. I'll take that question, Paul. When you look at the news release, we did disclose in 2015 approximately $60 million of expenditures related to the Bakken area. That number has stayed static as a lot of those projects were committed and underway for things such as transmission upgrades for reliability and such.

So don't see any near-term impact in 2015. Now as you look beyond 2015, we've got about $20 million per year in the forecast related to customer additions in the Bakken area on an annual basis. So $20 million relative to the $1.7 billion we're disclosing, pretty small piece of the overall growth there.

In terms of rate increases, those are ranging across the board. You see each of the filings in our news release, and so kind of hard to give a general statement there. In South Dakota, in Montana, they're around 20%..

Okay.

Over the five-year period you're projecting? Is that right?.

No. That's the current case we have on file..

That's the (32:40) that you have on file. But I guess....

Correct..

Okay.

And that obviously could increase as well as more capital's deployed in those areas? Is that correct?.

Yeah. As we look ahead, we'll have to balance what we do in terms of growth additions on the customer side with the incremental investment..

Okay. Thanks so much..

So, it's (32:56) – yep..

Okay. And your next question comes from the line of Timm Schneider with Evercore..

Hey. Good morning. On the new guidance, I was wondering if you guys can just walk us through which or how much of an impact each of these moving pieces had. So you got a benefit, I believe, from construction materials and then some headwinds from the refinery and construction services and warmer weather. Just wondered if you could quantify that..

Timm, this is Doran. Good morning. Yeah. Let me walk you through as our guidance change and we laid out in the press release, I think, at a higher level, some the reasons behind that by business unit. From a lowering guidance perspective, you start with the utility. We did talk a bit about the weather in the first quarter.

We quantified there was about $6.6 million of delta year-over-year in the first quarter. Second quarter, we had some additional weather impact. That's probably the primary driving reason that we're behind last year's results. You can see year-over-year where we're at. So the utility then, I guess, would be largely described by that $7 million.

Then you move onto the pipeline. You go to the income statement at the back, Timm, there's a line item there for non-controlling interest, essentially what that is. Remember, we consolidate the pipeline. That represents Calumet's share of the economics of the refinery plus the interest that they pay on the debt at the JV level.

And so on a flipside of that, that would be our share of the economics. Probably a little bit smaller number because we're not paying the interest on the JV. We had originally forecasted based on our assumptions, operating income and net income at the plant.

So that would be, probably directionally, give you an idea of the impact from the refinery for the year. Although to Dave's point, we are forecasting based on third-party information, a slow recovery here as we go through the rest of the year. So probably a moderated run rate there as we get towards the end of 2015.

The Construction Services Group, you saw we updated our revenue guidance. We just didn't see the backlog come in as quickly as we had originally planned. The revenue guidance now is $850 million to $950 million as opposed to the original guidance of $1.1 billion to $1.3 billion.

And so – but to Jeff's point, some of those projects are in – either have landed in the second quarter with backlog increases or we are working on pre-construction on other contracts that we believe later in the year will be added to backlog as the construction contracts come in behind pre-construction.

And you could see the delta there year-over-year at the Construction Services Group is $30 million last year and about $13 million on an adjusted basis this year. So that gives you a feel for some of the effects of the timing that we saw from last year to this year.

And then that was partially offset by what we're seeing at the construction materials group where you've got record backlog; you've got revenues that are up; you got margins that are up; you've got volumes that are up on a year-to-date basis for all product lines doing very, very well and it's really broad based.

And so you can see that they're up about $20 million, so – on a year-to-date basis, six months.

So again, just trying to give you some feel, Timm, on the impact there that we saw from the utility, from the refinery, from Construction Services Group and then partially offset, year-to-date, which should give you kind of an indicator, I guess, for how we're thinking about the year, at least directionally, as it's reflected in the adjusted guidance..

Okay. Perfect. No, that's really helpful.

The other question I had, I know you didn't explicitly disclose it in the release, but do you guys have a gross margin per barrel on the refinery?.

Yeah. We don't, Timm. What I would tell you, though, just directionally, as we think about margins at the refinery, again to Dave's point.

There's a variety of different factors which he described in the press release as to the changes in the recent market dynamics we've seen around not only the oil prices in terms of our purchases but then the sales prices of the products we produce.

And so we have definitely seen margins come in as a result of the shrinking differentials that we saw on the second quarter, much lower than what we saw for the first part of the year.

And again, based on third-party information, we would anticipate that those basis differentials would widen out to more normalized levels slowly throughout the second half of the year. And then again, the margins from the diesel certainly came in, in the second quarter from what we had seen historically but certainly in the first quarter.

And we'd – again, third-party information, expect those to recover. But we'll have to update you I think on those key assumptions here as we go through the year. To Dave's point, he indicated in his script that these conditions have been fluctuating.

And so I think as we go through the remainder of 2015, we'll be in a better position to – Paul Patterson asked earlier about 2016 guidance – be able to give some 2016 guidance as some of these markets normalize from what we've seen over the last couple months..

Got it. And then last one for me is just real quick on E&P.

I'm assuming it's still your goal to sell this as the Fidelity business and not piecemeal it at this point?.

Timm. This is Pat. That is correct..

Okay, guys. Thank you..

Thank you, Timm..

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

Hi. So most of my questions have been answered. But while I have you guys on the line, I was wondering if you could quantify what the operating loss from the refinery was during the quarter..

Yep. Christine, this is Doran. What I would recommend is going to page 20 of the press release. And there's a line item on the income statement and it's net loss attributable to non-controlling interest. And essentially, what that represent again is the 50%....

50%..

Ownership of the economics on the Calumet side plus the interest that they pay on the $75 million of JV debt at the JV level. They service that debt. So our share of the net loss year-to-date would be slightly less than 50% of the amount that you see in the income statement year-to-date..

Okay. And then just on your – the comments that you gave to Timm about – I know you guys rely on third-party data for this.

But I guess in the data, what was their rationale for margins widening out the second half of this year?.

Well I think you have a lot of factors there again that will play out here in the second half of the year. But some of the things that we heard about would be, for example, some seasonal factors as you think about diesel demand. For example, in the summer season, a lot of demand right now for gasoline.

And gasoline margins have been quite strong and so refiners are producing a lot of gasoline. And then there's associated diesel with gasoline runs, and so that's in the driving season here as we see the summer season.

And then obviously, in locally here, we get in at agricultural season for harvest later in the year, which should drive up demand as it relates to diesel here locally. I think other factors that were perhaps maybe more seasonal when you take a look at some of the forest fires that we read so much about in the second quarter in Canada.

That disrupted production of Canadian crude; that affected the prices and demand for key commodities coming out of the plant like naphtha. It also, in part, increased – along with gasoline demand by refiners to produce gasoline – increased the demand for Bakken crude.

That decreased the differential in part, which, also affected the price that we pay for crude. So a lot of those factors I think we view as certainly need probably a little bit more time as we go through 2015 to get a better feel for how they normalize out. But they were framed up as perhaps being a bit more seasonal or temporary in nature..

Okay. Great. Thank you..

Thank you, Christine..

There are no further questions at this time. I would like to turn the call over to Dave Goodin for final thoughts..

Thank you. Our utility pipeline and construction businesses are positioned for growth, and we are focused on creating long-term value for MDU Resources shareholders by focusing on opportunities at these businesses. We will inform you when a sale of the exploration and production business is finalized.

And we do appreciate your participation on our call today. And thank you for your continued interest in MDU Resources. Thank you very much..