MDU Resources Group, Inc. (MDU Resources) has reported operating revenues of $5 billion for the year-end 2008, compared with the operating revenues of $4.25 billion in the previous year-end. It has also reported a net income of $293.7 million, or $1.59 per diluted share, for the year-end 2008, compared with the net income of $432.1 million, or $2.36 per diluted share, in the previous year-end.


Consolidated earnings from continuing operations of $293.0 million.

Excluding the effect of a noncash charge, consolidated earnings from continuing operations of $377.2 million, up 17% from $322.1 million in 2007.

Record operating cash flows of around $785 million.

Initial earnings guidance for 2009 of $1.05 to $1.30 per common share.

In the fourth quarter of 2008 the company had a consolidated loss of $11.4 million, or 6 cents per common share, which includes the effect of the $84.2 million after-tax noncash charge as previously mentioned. Absent the charge, fourth quarter 2008 earnings totaled $72.8 million, or 40 cents per common share, compared to earnings of $94.6 million, or 52 cents per common share, for 2007.

The company is initiating guidance for 2009 in the range of $1.05 to $1.30 per common share. This reflects significantly lower natural gas and oil prices, which have retreated to about one-third of the historically high prices experienced mid-year 2008.

The company, like many independent exploration and production companies, uses the full-cost method of accounting for its natural gas and oil production activities. Under this method, the company is required to perform quarterly “ceiling tests” to compare the present value of future net cash flow from proved reserves based on spot market prices that exist on the last day of the period (cost ceiling) to the book value of those reserves at the balance sheet date. If the book value of the reserves exceeds the cost ceiling, a

permanent noncash charge must be recorded. The significant decline in natural gas and oil prices as of December 31, 2008 resulted in the charge.

The Securities and Exchange Commission has recently issued new rules regarding ceiling test pricing, which implement the use of 12-month-average pricing rather than single point-in-time period end pricing. The new rules are effective for reports filed on or after Jan. 1, 2010. Under the new rules, the company’s future net cash flows from proved reserves would have greatly exceeded the book value of the reserves and a noncash charge would not have been recorded.

MDU Resources’ natural gas and oil production business increased production by 7% to a record level during 2008. The increase was driven by the acquisition of producing properties and reserves in East Texas, and exploration activities in the Bakken and Paradox Basin areas. This business also grew natural gas and oil proved reserves to record levels. The East Texas acquisition, coupled with development of the company’s existing properties resulted in growth of proved reserves to 810 Bcfe at December 31, 2008 a 15% increase in reserves compared to proved reserves of 707 Bcfe at December 31, 2007. Although capital expenditures in 2009 will be reduced to reflect lower natural gas and oil prices, production is expected to be comparable to 2008.

The pipeline and energy services segment had record throughput and recently completed two pipeline expansions. The expansions included an increase of 32 million cubic feet per day in northwestern North Dakota to serve demand associated with the developing Bakken area. In 2009, the company is expanding its Grasslands Pipeline by 75,000 Mcf per day to ultimate full capacity.

The utility business had record earnings in 2008. The acquisitions of Cascade Natural Gas Corp. in 2007, and Intermountain Gas Company in 2008, have nearly tripled the size of MDU Resources’ utility business. That segment now operates a geographically continuous, regional utility business that stretches across eight states, from Minnesota to the West Coast, and serves more than 930,000 natural gas and electric customers. This business expects to further expand its rate-based generation in the next couple of years including the addition of 30 MW of wind generation in 2009.

The construction services group increased earnings 14% to a record level. Increased construction workloads and equipment sales and rentals contributed to the growth. To offset softening in some markets, the business continues to focus on costs and efficiencies that enhance margins and shifting of resources to take advantage of profitable opportunities.

The economy’s impact on construction continued to affect the construction materials and contracting business with decreased earnings, workloads and product volumes. However, an increase in public works projects combined with reduced operating costs and lower diesel costs is expected to result in higher earnings in 2009.

“The noncash charge recorded in 2008 had no significant effect on our strong financial position,” said Terry D. Hildestad, president and chief executive officer of MDU Resources. “We had a strong year, particularly considering the state of the nation’s economy.”

“We are well positioned financially,” Hildestad said. “We have a strong balance sheet where debt represents 39% of our capital structure, and we have access to capital. Record operating cash flows allowed us to continue our growth by investing $1.3 billion into our diversified group of companies, without needing to raise equity in the public markets. We nearly tripled our utility rate base over the past two years leading to record earnings at this business of $53.5 million, and we grew our proved natural gas and oil reserves by 15% in 2008. We are well positioned to take advantage of proposed government sponsored stimulus plans with our 1.1 billion tons of strategic aggregate reserves and are further expanding our natural gas pipeline system in 2009. We believe that these factors, coupled with the dynamic workforce at our construction services business, position us to continue delivering long-term value to our shareholders.”

“We expect to continue to benefit from our diversified business strategy and prudent financial management,” Hildestad said. “We have adjusted our 2009 capital budget, all of which is expected to be funded by cash generated by operations. We provide products and services that are essential to our nation’s economy and we anticipate there will be growth opportunities for well-positioned companies such as ours during the current economic environment. Our long-term outlook continues to be strong considering our solid asset base including substantial natural gas, oil and aggregate reserves, generating facilities and pipelines, and the advantages our utility companies provide through reliable and predictable earnings and cash flows.”