| MDU RESOURCES GROUP INC Item 1A Risk Factors ITEM 1A RISK FACTORS This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 |
| Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "e anticipates, "e "e estimates, "e "e expects, "e "e intends, "e "e plans, "e "e predicts "e and similar expressions |
| The Company is including the following factors and cautionary statements in this Form 10-K to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company |
| Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts |
| From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Item 7 - MD&A - Prospective Information |
| All these subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, also are expressly qualified by these factors and cautionary statements |
| Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed |
| The Companyapstas expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, managementapstas examination of historical operating trends, data contained in the Companyapstas records and other data available from third parties |
| Nonetheless, the Companyapstas expectations, beliefs or projections may not be achieved or accomplished |
| Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events |
| New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Companyapstas business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement |
| Following are some specific factors that should be considered for a better understanding of the Company’s financial condition |
| These factors and the other matters discussed herein are important factors that could cause actual results or outcomes for the Company to differ materially from those discussed in the forward-looking statements included elsewhere in this document |
| Economic Risks 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, that cannot be predicted or controlled |
| These factors include: fluctuations in natural gas and crude oil prices; fluctuations in commodity price basis differentials; availability of economic supplies of natural gas; drilling successes in natural gas and oil operations; the timely receipt of necessary permits and approvals; the ability to contract for or to secure necessary drilling rig contracts and to retain employees to drill for and develop reserves; the ability to acquire natural gas and oil properties; and other risks incidental to the operations of natural gas and oil wells |
| Significant changes in these factors could negatively affect the results of operations and financial condition of the Company’s natural gas and oil production and pipeline and energy services businesses |
| The 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 |
| The construction, startup and operation of power generation facilities involves many risks, including delays; breakdown or failure of equipment; competition; inability to obtain required governmental permits and approvals; inability to negotiate acceptable acquisition, construction, fuel supply, off-take, transmission or other material agreements; changes in market price for power; cost increases; as well as the risk of performance below expected levels of output or efficiency |
| Such unanticipated events could negatively impact the Company’s business and its results of operations |
| The Company’s 116-MW coal-fired electric generating facility near Hardin, Montana, is projected to be on line in early 2006 |
| Increases in the cost of construction, startup or operational expenses could negatively affect the independent power production business and its results of operations |
| Economic volatility affects the Company’s operations, as well as the demand for its products and services and, as a result, may have a negative impact on the Company’s future revenues |
| The global demand for natural resources, interest rates, governmental budget constraints and the ongoing threat of terrorism can create volatility in the financial markets |
| A soft economy could negatively affect the level of public and private expenditures on projects and the timing of these projects which, in turn, would negatively affect the demand for the Company’s products and services |
| The Company relies on financing sources and capital markets |
| 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 |
| The Company relies on access to both short-term borrowings, including the issuance of commercial paper, and long-term capital markets as sources of liquidity for capital requirements not satisfied by its cash flow from operations |
| If the Company is not able to access capital at competitive rates, the ability to implement its business plans may be adversely affected |
| Market disruptions or a downgrade of the Company’s credit ratings may increase the cost of borrowing or adversely affect its ability to access one or more financial markets |
| Such disruptions could include: · A severe prolonged economic downturn · The bankruptcy of unrelated industry leaders in the same line of business · A deterioration in capital market conditions · Volatility in commodity prices · Terrorist attacks Environmental and Regulatory Risks 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 is subject to extensive environmental laws and regulations affecting many aspects of its present and future operations including air quality, water quality, waste management and other environmental considerations |
| These laws and regulations can result in increased capital, operating and other costs, and delays as a result of ongoing litigation and administrative proceedings and compliance, remediation, containment and monitoring obligations, particularly with regard to laws relating to power plant emissions and coalbed natural gas development |
| These laws and regulations generally require the Company to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals |
| Public officials and entities, as well as private individuals and organizations, may seek injunctive relief or other remedies to enforce applicable environmental laws and regulations |
| The Company cannot predict the outcome (financial or operational) of any related litigation or administrative proceedings that may arise |
| Existing environmental regulations may be revised and new regulations seeking to protect the environment may be adopted or become applicable to the Company |
| Revised or additional regulations, which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material effect on the Company’s results of operations |
| One of the Company’s subsidiaries is subject to ongoing litigation and administrative proceedings in connection with its coalbed natural gas development activities |
| These proceedings have caused delays in coalbed natural gas drilling activity, and the ultimate outcome of the actions could have a material effect on existing coalbed natural gas operations and/or the future development of its coalbed natural gas properties |
| Fidelity has been named as a defendant in, and/or certain of its operations are or have been the subject of, more than a dozen lawsuits filed in connection with its coalbed natural gas development in the Powder River Basin in Montana and Wyoming |
| If the plaintiffs are successful in these lawsuits, the ultimate outcome of the actions could have a material effect on Fidelityapstas existing coalbed natural gas operations and/or the future development of its coalbed natural gas properties |
| Rulemaking proceedings to create rules related to the re-injection of water and water treatment and to amend the nondegradation policy in connection with coalbed natural gas development have been initiated by the BER If the rules are adopted as proposed, they could have a material effect on Fidelity’s existing coalbed natural gas operations |
| 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 |
| The Company is subject to regulation by federal, state and local regulatory agencies with respect to, among other things, allowed rates of return, financings, industry rate structures, and recovery of purchased power and purchased gas costs |
| These governmental regulations significantly influence the Company’s operating environment and may affect its ability to recover costs from its customers |
| The Company is unable to predict the impact on operating results from the future regulatory activities of any of these agencies |
| Changes in regulations or the imposition of additional regulations could have an adverse impact on the Company’s results of operations |
| Risks Relating to Foreign Operations The value of the Company’s investments in operations may diminish because of political, regulatory and economic conditions in countries where the Company does business |
| The Company is subject to political, regulatory and economic conditions in foreign countries where the Company does business |
| Significant changes in the political, regulatory or economic environment in these countries could negatively affect the value of the Company’s investments located in these countries |
| Other Risks Weather conditions can adversely affect the Company’s operations and revenues, as evidenced by the hurricanes in the Gulf Coast region in 2005 causing some reduction in natural gas and oil production |
| The Company’s results of operations can be affected by changes in the weather |
| Weather conditions directly influence the demand for electricity and natural gas, affect the wind-powered operation at the independent power production business, affect the price of energy commodities, affect the ability to perform services at the construction services and construction materials and mining businesses and affect ongoing operation and maintenance and construction and drilling activities for the pipeline and energy services and natural gas and oil production businesses |
| In addition, severe weather can be destructive, causing outages, reduced natural gas and oil production, and/or property damage, which could require additional costs to be incurred |
| As a result, adverse weather conditions could negatively affect the Company’s results of operations and financial condition |
| Competition is increasing in all of the Company’s businesses |
| All of the Company’s businesses are subject to increased competition |
| The independent power production industry has many competitors in the operation, acquisition and development of power generation facilities |
| Construction services’ competition is based primarily on price and reputation for quality, safety and reliability |
| The construction materials products are marketed under highly competitive conditions and are subject to such competitive forces as price, service, delivery time and proximity to the customer |
| The electric utility and natural gas industries are also experiencing increased competitive pressures as a result of consumer demands, technological advances, increased natural gas prices and other factors |
| Pipeline and energy services competes with several pipelines for access to natural gas supplies and gathering, transportation and storage business |
| The natural gas and oil production business is subject to competition in the acquisition and development of natural gas and oil properties |
| The increase in competition could negatively affect the Company’s results of operations and financial condition |
| Other factors that could impact the Company’s businesses |
| The following are other factors that should be considered for a better understanding of the financial condition of the Company |
| These other factors may impact the Company’s financial results in future periods |
| · 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 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 · 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 · 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 |