Q2 2026 Earnings Conference Call

we will host a question and answer session. If you would like to ask a question, please raise your hand. If you've dialed in to today's call, please press star 1 to raise your hand. I will now hand the conference over to Brent Miller, treasurer of MDU Resources Group. Brent, please go ahead.

Thank you and welcome everyone to the MDU Resources Group second quarter 2026 earnings conference call. Our earnings release and supporting materials for this call are available on our website at mdu.com under the Investors section. Leading today's call are Nicole Cavisto, President and Chief Executive Officer, and Jason Vollmer, Chief Financial Officer of MDU Resources Group. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Please refer to our SEC filings for a discussion of risks and uncertainties that could cause actual results to differ. I will now turn the call over to Nicole for her prepared remarks. Nicole?

Thank you, Brent, and good afternoon, everyone. We appreciate you joining us today and for your continued interest in MD resources. This morning, we reported second quarter 2026 earnings of $21.3 million, or $0.10 per share. Our results reflected continued execution across our regulated utility and pipeline businesses. New rates, customer growth, investments such as Badger Wind Farm, and higher retail sales volumes helped drive the results. We delivered solid results while also continuing to advance strategic infrastructure opportunities that continue to support long-term growth. A key highlight for the quarter was certainly the continued advancement of the proposed Bakken East pipeline project. With recently signed precedent agreements, we now have executed agreements with all customers that submitted binding open season interest, totaling nearly 1.2 billion cubic feet per day of transportation capacity, with a negotiated option in place that may increase contracted volumes to nearly all of the original interest from our binding open season we continue to design the project for 1.4 billion cubic feet per day of transportation capacity overall project design is being finalized based on confirmed customer volumes and delivery locations before a final investment decision is made which is expected ahead of a FERC 7c filing this application is now anticipated to be filed in the fourth quarter of 2026. The proposed in-service dates of phase one in late 2029 and phase two in late 2030 remain unchanged. As development progresses, we continue to evaluate financing, partnership, and other commercial options to support the projected $2.7 billion to $3.2 billion project. The potential Bakken East investment remains incremental to our current capital program we also continue to see encouraging development activity across our service territory including data center opportunities and broader infrastructure demand our approach to serving data centers is grounded and protecting existing customers and ensuring that growth creates value for the communities we serve data center customers are responsible for paying the costs associated with connecting to and being served by the electric system, including infrastructure and energy-related expenses. At the same time, the additional revenue generated from serving these customers can help support the electric system and contribute to reducing certain fixed costs for existing retail customers by allocating them across a broader customer base. This current approach creates benefits for all customers during the quarter we did enter into an electric service agreement with applied digital to serve polaris forge 3 an ai factory near center north dakota at full capacity the campus would require 430 megawatts of electricity approval of the esa and other regulatory filings by the north dakota public service commission is pending we now have over one gigawatt of data center load under signed esa's with approximately 240 megawatts currently online with additional volumes expected over the next few years as additional buildings are constructed on the electric regulatory front we did file a north dakota general rate case on june 30th 2026 requesting an annual revenue increase of approximately 34.5 million with interim rates of approximately 26.3 million requested to begin on september 1st of this year the filing reflects electric infrastructure investments normal depreciation reliability improvements system safety and higher operation and maintenance expense in montana interim rates reflecting an annual increase of approximately 10.4 million remain in effect subject to refund and a settlement agreement of $10 million has been filed in its pending commission approval. In Wyoming, our general rate case settlement was approved for an annual increase of $5.8 million with rates effective April 1, 2026. Also in June, the North Dakota Public Service Commission approved the route permit for the Jamestown to Ellendale transmission project. This project is expected to enhance reliability, improve resiliency, reduce transmission congestion, and support access to lower-cost energy across the region. At our natural gas distribution segment, positive regulatory outcomes in Idaho, Washington, Montana, and Wyoming, as well as higher retail sales volumes and continued customer growth supported improved year-over-year results. in washington we did file a multi-year natural gas case requesting an annual revenue increase of 25.1 million in year one and 18.1 million in year two our oregon general rate case remains pending with a multi-party settlement agreement which was filed on july 31st 2026 with a requested annual increase of approximately $12.2 million. We also do anticipate filing a Minnesota general rate case later this year. At our pipeline segment, strategic growth initiatives continue to advance. The line section 32 expansion project remains on schedule following our FERC section 7C application filing in march of 2026 and continues to target at late 2028 in-service date subject to regulatory approvals development activities for the potential mine and industrial project also continue under agreements currently extended through late 2026. in addition our pipeline business filed a FERC rate case on may 29th of this year requesting a 30 million 31 million annual revenue increase. Approximately 30% of the requested revenue increase is due to proposed new depreciation and amortization rates. FERC accepted and suspended the proposed rates on June 30th, with rates to become effective December 1st, 2026, subject to refund and the outcome of hearing procedures if a settlement with our customers and FERC is not reached. looking ahead we are reaffirming our 2026 earnings per share guidance range of 93 cents to a dollar this guidance is based on assumptions including normal weather economic and operating conditions for the remainder of the year continued customer growth successful execution of approved capital investment programs and constructive regulatory outcomes our long-term earnings per share growth objective remains at 6 to 8 percent. Our capital program for 2026 through 2030 totals approximately 3.1 billion with planned investments of approximately 1.1 billion in our electric business, 1.4 billion at our natural gas distribution business, and 643 million at our pipeline. We remain focused on disciplined execution of this plan while advancing additional infrastructure opportunities that support customers, communities, and stockholders. As always, MD Resources is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering safe, reliable, cost-effective, and environmentally responsible energy services while positioning the company for compelling long-term growth. And with that, I will now turn the call over to Jason for the financial update.

Thank you, Nicole. As Nicole mentioned, we announced this morning second quarter earnings of $21.3 million, or $0.10 per share, compared to $13.7 million, or $0.07 per share, for the second quarter of 2025. On a year-to-date basis, earnings were $102.1 million, or $0.49 per share, compared to $95.7 million, or $0.47 per share, for the first six months of last year. turning to our individual businesses our electric utility reported second quarter earnings of 14.7 million compared to 10.4 million for the same period in 2025 results benefited from higher retail sales revenue including recovery mechanisms associated with renewable investments such as the badger wind farm which contributed 3.3 million in earnings during the quarter interim rates in montana and new rates in wyoming along with higher retail sales volumes across all major customer CLASSES ALSO CONTRIBUTED TO THE INCREASE. OUR NATURAL GAS DISTRIBUTION SEGMENT REPORTED A SEASONAL SECOND QUARTER LOSS OF 3.9 MILLION COMPARED TO A SEASONAL LOSS OF 7.4 MILLION IN THE SECOND QUARTER OF 2025. THE IMPROVED YEAR-OVER-YEAR RESULT WAS PRIMARILY DRIVEN BY NEW RATES IN IDAHO, WASHINGTON, MONTANA, AND WYOMING AS WELL AS HIGHER RETAIL SALES VOLUMES ACROSS ALL CUSTOMER CLASSES. RETAIL SALES VOLUMES INCREASED 6.7% AND CUSTOMER GROWTH was 1.6% year-over-year. These benefits were partially offset by higher interest expense resulting from higher long-term debt balances. The pipeline segment earned $14.4 million in the second quarter compared to $15.4 million in the same period in 2025. The decrease was driven by lower other income and higher depreciation amortization expense from a growth project placed in service. These impacts were partially offset by continued customer demand for short-term NATURAL GAS TRANSPORTATION CONTRACTS AND INTERRUPTIBLE STORAGE SERVICES, ALONG WITH CONTRIBUTIONS FROM PREVIOUSLY CONSTRUCTED GROWTH PROJECTS, INCLUDING A CONTRACTED VOLUME INCREASE. THE OTHER CATEGORY REPORTED A SECOND QUARTER NET LOSS OF $3.9 MILLION COMPARED TO A NET LOSS OF $4.7 MILLION IN THE SAME PERIOD LAST YEAR. THE YEAR-OVER-YEAR IMPROVEMENT WAS PRIMARILY DUE TO DISCONTINUED OPERATIONS AND ASSOCIATED with a 1.5 million dollar tax benefit related to strategic initiative costs we continue to maintain a strong balance sheet and ample access to working capital to finance operations through our peak periods that summarizes our financial highlights for the quarter we appreciate your interest in md your resources and ask now that we open the line for questions operator thank you we will now begin the question and answer session if you would like to ask a question please raise your hand now.

If you have dialed in to today's call, please press star one to raise your hand. Please stand by while we compile the Q&A roster. Your first question comes from the line of Konstantin Lednev with Wells Fargo. Your line is open. Please go ahead.

Hi, actually it's Andrew Kadavion from Konstantin right now. Maybe on the financing options for Bakken East, we've seen some peers use a variety instruments to finance these bigger projects. Are you seeing any favorable markets out there that could help you efficiently finance the project?

Yeah, certainly. This is Jason. I can field that one. I think, again, as we have stated before, at this point, we're very excited to have reached executing all of the precedent agreements we have in place as we've been working towards that progress. We continue to look at all options as we think about financing a project of this size and scope. And I think, as you mentioned, we've seen others out there, too. We've been very focused on getting these pressing agreements signed and getting to the point of a decision and of course need to get in front of our board to look at a final investment decision on this project so i think it's safe to say we'll look at all options out there but feel very confident in the ability to finance a project like this and certainly some good appetite out there for these types of assets today and would that i guess the financing options would be that would that be part of the board's fid decision and is that selling schedule for third quarter or is that were we looking at fourth quarter for that now yeah so right now what we've uh stated a little bit of a new update in our release this quarter we are looking to make our 7c filing in the fourth quarter i think we would have previously looked at third quarter based on the schedule certainly some of the precedent agreement negotiations took a little bit longer as nicole mentioned these have been some of these recently signed here um so we will continue to bring our board up to speed on where we're at with the project they've been certainly involved all the way along work is continuing on this project and has continued from the beginning uh since started looking at this so i'm not going to be specific on a timeline date yet i think we need to go through the process of now you're getting the right information in front of our board and make a decision in the right manner but certainly what happened ahead of of the 7c filing which we are now expecting to happen in the fourth quarter good thank you i'll leave it there your next question comes from the line of julian

dillamula smith with jeffries your line is open please go ahead hi team it's actually tanner on for julian good afternoon good afternoon thank you um yeah and thanks for the new buccanees disclosures here could you maybe provide a little more information on the negotiated option in place the strategic rationality behind it and how you would classify the commercial alternatives and not taking the option? Thanks.

Yeah, I can take that. So appreciate the question. And I guess I just want to start by echoing what Jason said. I really want to give a shout out to the WBI team, extremely proud of the milestone here that we announced today with the recently signed precedent agreements that get us to all customers really that were in the non-binding open season showed up here. So that's real positive news. We did reference the option, as you mentioned, and essentially what we've done with that customer is, you know, they're working all customers are working on you know timing with their applicable customers and so we worked an arrangement out where they have an option to essentially add more volumes at an already negotiated agreement and so essentially if that happens what we alluded to in the release is that gets us very close to that open season amount now saying that i will say you know a key data point that we disclosed here also would be that we still are designing the project at 1.4 bcf a day so feel good about that and then you know just highlighting a couple of the other key updates which jason jason alluded to too which is with the precedent agreements being recently signed we did allude to moving that 7c filing back to the fourth quarter and note that we would make final investment decision ahead of that in service states as we mentioned they'll remain on on changed understood great thanks um is the state's backstop a portion of the executed agreements or have they or have you found an off taker to stand in their place yes that the the state is part of the precedent agreements that we have signed understood thanks uh and then maybe just

following up on the polaris forge three esa uh you're in front of the commission requesting approval. Can you speak to the magnitude of margin uplift here relative to what we're seeing at the Ellendale campus and maybe zooming out since you've also recently just filed your electric rate case in the state? Does this give you confidence to be able to elongate the period between filings given the support to earned ROEs from the Capital Light ESA?

Yeah absolutely we certainly are excited about the ESA that we signed as we disclosed it's 430 megawatts. As you mentioned rightfully so we do have this in front of the state of North Dakota for approval and so as you can imagine we would be waiting to get the appropriate approvals before we'd contemplate including that in any of our numbers or providing any financial guidance so right now that would not be contemplated in what we're talking about from a long-term growth rate perspective certainly the way we are working through these negotiations with data center customers you've heard us talk about this in the past. We are working under a capital light model as of today. And so incremental margin on data center load is a benefit to the company, but I would say it's also a benefit to our customers. So we really do feel like it's a win-win. So yes, there is a benefit to the company, but as we've talked about with investors in the past, we are sharing a piece of that margin with our retail customers. So they are getting a credit on their bill as well. And then in addition to that the data center takes on more of that transmission expense that otherwise would have been allocated to our retail customers so we're also seeing bill impacts bill reductions to retail customers because of that so that kind of gives you here's the company side of it and here's the customer side of it but the bottom line is the center esa right now we are still waiting for approval and final move forward on that with the state before we would incorporate something like that in our guidance.

Great. I'll leave it there. Thank you.

Your next question comes from the line of Aidan Kelly with JP Morgan. Your line is open. Please go ahead.

Hey, guys. Thanks for the time today.

Absolutely. Thank you for joining.

Yeah, of course. So, just want to hone in on Bakken East again. You know, clearly strong commercial momentum to date with, you know, 1.2 BCF secured, you mentioned, and you're still kind of designing for 1.4 BCF. I guess my question is, are there any factors that would cause you to expand the Bakkenese pipe? I know in the past, you've kind of spoken to an overbuild scenario as a consideration. So just curious if you could comment on the potential there and your thoughts in general.

Yeah. So as we mentioned in the news release, and I also reiterated as part of my talking points here today, we are still currently working through that overall design so with these recently signed precedent agreements you know we will look at um what makes sense um in terms of designing the project so that we can have expandability but also designing the the project so that it meets the financial hurdles we need from a board as well as a shareholder perspective so it's a balancing act but certainly we will be looking at that and contemplating that as we move to a final investment decision great understood So it makes sense.

And I guess just teeing it all up, you kind of laid out, you know, potential, you know, FID coming before the 7C filing and 4Q and you kind of need to go to the board for some considerations there. I guess just like for the investment community, when should we kind of expect you to refresh the capital plan and kind of roll in this Bakken East estimate? Is that like kind of, you know, on the tails of 4Q or just any kind of color on the timing there as you kind of see it today?

Okay, and I can take that one. So our normal process for updating capital would really be kind of that late November timeframe. So typically after our third quarter board meeting, meeting with our board, updating along the way. Now that said, you know, something the size of a Bakken East project here would be incrementally, you know, large increase to that. So I think when we get to a board, we've got an FID decision, a little more, you know, clarity around exactly what impacts this could have should we decide to proceed here, then I think we would update the market at that point with some sort of maybe revised range. As you know, right now, we've put a range out there in the neighborhood of 2.7 to 3.2 billion of the capital range. Sorry on that one. So that is something that we will continue to refine as we go along, as we get closer to the ultimate decision here. But I think, you know, we'll probably narrow that in. And certainly by the time we get to our November normal capital increase cycle, we would have a kind of a working assumption built into our capital plan again if our board decides to uh you know move forward with this project and certainly again at this point we're excited about the progress we've made to date great thanks i'm sorry just one follow-up question on on my first question actually it's just is it so it is possible upsize and then like i guess when would that decision be made if if so yeah and i can maybe just uh comment on that so again we're designing for 1.4 bcf and it's really going to support the demand that we are getting here throughout the contracting process where we've got to at this point in time. To Nicole's point, there would be the ability for us to expand on that in the future should we see additional demand arise in the future. That would probably take some additional capital, maybe in the form of additional compression, things like that. So those are things we'll make decisions on as we go.

But right now we are designing to the demand that we have today, but we would have the ability to potentially upsize this in the future if more demand showed up in the in future periods great appreciate all the time today i'll leave it there thanks thank you thank you a reminder if you would like to ask a question please press star one to raise your hand your next question comes from the line of chris ellenhouse with siebert williams shank your line is open please go ahead hey everybody how are you today doing good chris could you just

give a little color.

Chris, are you still there? We can't hear you right now.

A gentle reminder to unmute locally. Your next question comes from the line of Ryan Levine with Citi. Your line is open. Please go ahead.

Hi, everybody. I wanted to start off on the North Dakota Data Center front. Given that we're seeing broad calls and at least publicly around increasing community engagement, from on some of the concerns around data centers in the state how's mdu approaching the engagement on those potential issues and trying to advance projects that may support club growth in the region yeah so uh as it relates to where we are currently serving i'm assuming you're talking about the the data center load and conversations around that balancing act i just want to make sure I'm answering your question.

Correct. Yes. Yeah. So I think as we think about where we're at today in the communities that we've got signed ESAs, we feel pretty good about how that community conversation is moving forward. That being said, we do believe that we need to continue to tell our story in terms of how we are serving data centers and what the potential benefit is not only to our existing retail customers, but to the communities at large. So we have been engaged with the communities. We've been engaged in other discussions locally in terms of getting that message out, highlighting that information on our website, visiting with our employees about it, et cetera, just to make sure that it's understood in terms of how we are serving data center loads. But specifically as it relates to those conversations in the areas where we have signed ESAs, we feel good about where we're at today.

Thanks. And then just to clarify, given all the momentum around the pipeline expansion and you indicating that no FID until the fourth quarter, just to confirm there's no meaningful milestones that need to be achieved between now and then to move forward with the project or any clarification you're able to make around that particular show.

Yeah, I guess I would just clarify your question with a response that is making sure you understand what we said is we would intend to have an FID before the 7c filing and the 7c filing is scheduled for the fourth quarter so just want to clarify we didn't technically say for sure that's when we would move forward with an FID would be the fourth we said it would be before the filing of that 7c so just want to clarify that in terms of other major milestones as you can imagine we have continued work on this project all the way through this as we were negotiating precedent agreements we have been doing numerous things whether it's boots on the ground activity whether it's continuing to think about how we might finance a project of this size so throughout that whole process we have certainly been engaged with our board in this discussion as well and so we'll continue to do that as we head into a final investment decision appreciate the disclosure thank you thank you there are no further questions at this time i will now turn the call back to Nicole Cavisto for closing remarks. All right. I want to thank everyone again for joining us today and for your thoughtful questions. We certainly appreciate your continued interest in and support of MDU resources. As we move through the remainder of 2026, we remain focused on disciplined execution of our capital program, constructive regulatory engagement, and advancing infrastructure opportunities that support safe, reliable, and affordable energy for our customers. Finally, I want to close by thanking all of our employees for their ongoing commitment to safety, reliability, operational excellence, and customer service. And with that, we look forward to staying engaged with all of you throughout the year. Operator, you may conclude the call.

This concludes today's call. Thank you for attending. You may now disconnect.