The company expects to spend approximately $380 million in capital expenditures for 2010, approximately double the level of capital invested in 2009. This reflects further exploitation of existing properties, leasehold acquisitions in the Bakken and Niobrara oil shale plays and the acquisition of producing natural gas properties located in the Green River Basin. The capital expenditures forecasted reflect a shift from certain natural gas development activities to oil shale leasehold acquisitions, which will affect short-term production growth.

Earlier this year, the company acquired exploratory acreage of approximately 40,000 net acres in the North Dakota Bakken area, bringing its total acreage position in this oil play to more than 56,000 net acres. For the 40,000 net acres held in Stark County, the Heart River project, plans include drilling three exploratory wells this year to evaluate the acreage targeting the Three Forks formation. Lease terms extend up to five years including renewal options available to the company. A total of 60 potential drilling sites have been identified in this area based on 640-acre spacing.

The company also acquired approximately 80,000 net exploratory acres in the emerging Niobrara oil play in Laramie and Goshen Counties in southeastern Wyoming. The company plans to begin drilling exploratory wells in the area in 2011. Assuming 640-acre spacing, the company has 120 potential drilling sites available on this acreage. Lease terms are generally five years with most having five-year renewal options available to the company. Although this emerging play is still developing in terms of resource potential, early results by other producers in the play appear promising.

The company continues to pursue additional leasehold and reserve acquisitions which are not included in the current forecast.

Because of reduced capital spending in 2009 and the redirecting of forecasted 2010 capital expenditures, along with delays in obtaining well completion/frac services, primarily in Texas, the company expects its 2010 combined natural gas and oil production to be approximately 3 percent to 6 percent below 2009 levels.

Earnings guidance reflects estimated natural gas prices for August through December as follows:

Earnings guidance reflects estimated NYMEX crude oil prices for August through December in the range of $70 to $75 per barrel.

For the last six months of 2010, the company has hedged approximately 50 percent to 55 percent of its estimated natural gas production and 40 percent to 45 percent of its estimated oil production. For 2011, the company has hedged 15 percent to 20 percent of its estimated natural gas production and 30 percent to 35 percent of its estimated oil production. For 2012, the company has hedged 5 percent to 10 percent of its estimated natural gas production. The hedges that are in place as of August 2 are summarized in the following chart:

 

An incremental expansion to the Grasslands Pipeline of 75,000 Mcf per day went into service August 31, 2009. The firm capacity of the Grasslands Pipeline is at its ultimate full capacity of 213,000 Mcf per day.

The company continues to pursue expansion of facilities and services offered to customers. Energy development within its geographic region, which includes portions of Colorado, Wyoming, Montana and North Dakota, is expanding, most notably the Bakken Shale of North Dakota and eastern Montana. Ongoing energy development is expected to have many direct and indirect benefits to its business.

The company continues to pursue the expansion of its existing natural gas pipeline capacity by 30,000 Mcf per day in the Bakken production area in northwestern North Dakota. This expansion project is targeted for late 2011.

The company continues to see strong interest in its storage services. It has three natural gas storage fields, including the largest storage field in North America located near Baker, Montana. The company is pursuing a project to increase its firm deliverability from the Baker Storage field by 125,000 Mcf per day and related transportation capacity. The company has received commitment on approximately 30 percent of the total potential project and is moving forward on that phase, subject to regulatory approval, with a projected in-service date of November 2011.

The company continues to realize efficiencies and enhanced service levels through its efforts to standardize operations, share services and consolidate back-office functions among its four utility companies.

The company has a 25 MW ownership interest in the Wygen III power generation facility in Wyoming, which commenced commercial operation on April 1. The Wyoming Public Service Commission approved an increase, primarily related to the costs of Wygen III, in the amount of $2.7 million annually, or 13.1 percent, effective May 1.

In April, the company filed an application with the North Dakota Public Service Commission for an electric rate increase of $15.4 million annually, or 14 percent. The requested increase includes the investment in infrastructure upgrades, recovery of the investment in renewable generation and the costs associated with the Big Stone II plant. The NDPSC approved an interim increase of $7.6 million annually effective June 18. On July 6, the company filed an amendment to its application to exclude the costs associated with Big Stone II because of a settlement agreement approved by the Commission, which provides for recovery of such development costs over a three year period. The amended request is an increase of $13.3 million annually, or 12 percent. A hearing on the case is scheduled for November 8.

The company plans to file an application with the Montana Public Service Commission for an electric rate increase in the third quarter. The request will include an increase related to the investment in infrastructure upgrades, recovery of the investment in renewable generation and the costs associated with the Big Stone II plant.

The company is developing a landfill methane gas recovery project in Billings, Montana to supplement the company’s gas supply portfolio. The project is expected to begin production in the fourth quarter, and upon total phase-in to recover up to 2,500 dekatherms per day.

The company is analyzing potential projects for accommodating load growth and replacing purchased power contracts with company-owned generation. The company is reviewing the construction of natural gas-fired combustion and wind generation.

The company is pursuing opportunities associated with the potential development of high voltage transmission lines and system enhancements targeted towards delivery of renewable energy from the wind rich regions that lie within its traditional electric service territory to major metropolitan areas. The company has signed a contract to develop a 30-mile high-voltage power line in southeast North Dakota to move power to the electric grid from a proposed 150-megawatt wind farm being built by enXco for Xcel Energy. The $25 million project also will include substation upgrades. Pending regulatory approval, construction is expected to begin in 2011. Customers will not bear any of the costs associated with the project as costs will be recovered through an approved interconnect tariff.

Work backlog as of June 30 was approximately $677 million, $109 million higher than the March 31 backlog of $568 million. Backlog a year ago was $707 million. Private project backlog has decreased, however public work has increased over prior year levels.

Examples of new large projects included in work backlog are several highway paving projects, a reclamation project, and an L.A. harbor deepening project.

All of the markets served by the construction materials segment are seeing positive impacts related to the federal stimulus spending and the company is well positioned to take advantage of this funding in the asphalt paving and liquid asphalt oil product lines. Federal transportation stimulus of $7.9 billion was directed to states where the company operates. Of that amount, 41 percent was spent as of late July, with the remaining $4.7 billion to be spent during the remainder of 2010 and 2011.

The company continues to pursue work related to energy projects, such as wind towers, transmission projects, geothermal and refineries. It is also pursuing opportunities for expansion of its existing business lines including initiatives aimed at capturing additional market share and expansion into new markets.

The company has a strong emphasis on operational efficiencies and cost reduction. SG&A expenses are down 35 percent for the trailing 12 months through June 30, compared to the annual expenses in 2006, the peak earnings year for this segment.

The company expects volumes and margins to be lower in 2010 compared to 2009 as a result of the economic downturn. Liquid asphalt volumes were at record levels in 2009.

The company has planned green field expansions for the liquid asphalt oil business this year.

As the country’s 6th largest sand and gravel producer, the company will continue to strategically manage its 1.1 billion tons of aggregate reserves in all its markets, as well as take further advantage of being vertically integrated.

Work backlog as of June 30 was approximately $389 million, compared to $507 million at June 30, 2009, which included backlog related to the Fontainebleau project of $182 million. The Fontainebleau project was removed from backlog in the third quarter of 2009 after Fontainebleau’s bankruptcy filing. Absent the Fontainebleau-related backlog, levels are $64 million higher than one year ago. Backlog at March 31 was $400 million.

Examples of new projects included in work backlog are solar projects in the Las Vegas area and substation related work.

The company anticipates margins in 2010 to be lower than 2009 levels.

The company is aggressively pursuing expansion in high voltage transmission and substation construction, renewable resource construction and military installation services. In late 2009, the company was awarded the engineering, procurement and construction contract to build the 214-mile Montana Alberta Tie Line between Lethbridge, Alberta and Great Falls, Montana. In late June, the company received a notice to proceed with construction on the project.

The company continues to focus on costs and efficiencies to enhance margins. SG&A expenses are down 32 percent for the second quarter compared to one year ago.

With its highly skilled technical workforce, this group is prepared to take advantage of government stimulus spending on transmission infrastructure.

The company’s natural gas and oil production and pipeline and energy services businesses are dependent on factors, including commodity prices and commodity price basis differentials, which are subject to various external influences that cannot be controlled.

The regulatory approval, permitting, construction, startup and operation of power generation facilities may involve unanticipated changes or delays that could negatively impact the company’s business and its results of operations and cash flows.

Economic volatility affects the company’s operations, as well as the demand for its products and services and the value of its investments and investment returns and, as a result, may have a negative impact on the company’s future revenues and cash flows.

The company relies on financing sources and capital markets. Access to these markets may be adversely affected by factors beyond the company’s control. If the company is unable to obtain economic financing in the future, the company’s ability to execute its business plans, make capital expenditures or pursue acquisitions that the company may otherwise rely on for future growth could be impaired. As a result, the market value of the company’s common stock may be adversely affected. If the company issues a substantial amount of common stock it could have a dilutive effect on its existing shareholders.

The company is exposed to credit risk and the risk of loss resulting from the nonpayment and/or nonperformance by the company’s customers and counterparties.

The backlogs at the company’s construction services and construction materials and contracting businesses are subject to delay or cancellation and may not be realized.

Actual quantities of recoverable natural gas and oil reserves and discounted future net cash flows from those reserves may vary significantly from estimated amounts.

Some of the company’s operations are subject to extensive environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose the company to environmental liabilities.

The company’s electric generation operations could be adversely impacted by global climate change initiatives to reduce greenhouse gas emissions.

One of the company’s subsidiaries is subject to ongoing litigation and administrative proceedings in connection with its coalbed natural gas development. These proceedings have caused delays in coalbed natural gas drilling activity, and the ultimate outcome of the actions could have a material negative effect on existing coalbed natural gas operations and/or the future development of its coalbed natural gas properties.

The company is subject to extensive government regulations that may delay and/or have a negative impact on its business and its results of operations and cash flows. Statutory and regulatory requirements also may limit another party’s ability to acquire the company.

The value of the company’s investments in foreign operations may diminish due to political, regulatory and economic conditions and changes in currency exchange rates in countries where the company does business.

Weather conditions can adversely affect the company’s operations and revenues and cash flows.

Competition is increasing in all of the company’s businesses.

The company could be subject to limitations on its ability to pay dividends.

An increase in costs related to obligations under multi-employer pension plans could have a material negative effect on the company’s results of operations and cash flows.

Other factors that could cause actual results or outcomes for the company to differ materially from those discussed in forward-looking statements include:

Acquisition, disposal and impairments of assets or facilities.

Changes in operation, performance and construction of plant facilities or other assets.

Changes in present or prospective generation.

The ability to obtain adequate and timely cost recovery for the company’s regulated operations through regulatory proceedings.

The availability of economic expansion or development opportunities.

Population growth rates and demographic patterns.

Market demand for, and/or available supplies of, energy- and construction-related products and services.

The cyclical nature of large construction projects at certain operations.

Changes in tax rates or policies.

Unanticipated project delays or changes in project costs, including related energy costs.

Unanticipated changes in operating expenses or capital expenditures.

Labor negotiations or disputes.

o  

Inability of the various contract counterparties to meet their contractual obligations.

Changes in accounting principles and/or the application of such principles to the company.

Changes in technology.

Changes in legal or regulatory proceedings.

The ability to effectively integrate the operations and the internal controls of acquired companies.

The ability to attract and retain skilled labor and key personnel.

Increases in employee and retiree benefit costs and funding requirements.