Executive Summary / Key Takeaways

• Pure-Play Transformation Complete: MDU Resources Group has successfully transitioned into a pure-play regulated energy delivery company, divesting its construction services and materials businesses to focus on its electric, natural gas distribution, and pipeline segments, aiming for enhanced stability and predictable growth.
• Strategic Growth Drivers: The company is capitalizing on robust demand from data centers in its electric segment, with 580 MW under agreement and a "capital-light" model, alongside significant organic expansion opportunities in its pipeline business, particularly in the Bakken region, exemplified by projects like the potential Bakken East Pipeline.
• Consistent Financial Targets: MDU projects a long-term EPS growth rate of 6% to 8%, supported by an anticipated \$3.1 billion in capital investments over the next five years, driving 7% to 8% compound annual utility rate base growth and 1% to 2% annual customer growth.
• Recent Performance and Outlook: Despite Q2 2025 impacts from unfavorable weather and increased operating costs leading to a narrowed 2025 EPS guidance of \$0.88 to \$0.95, the company's YTD performance remains solid, with strong cash flow from operations and strategic rate adjustments supporting future earnings.
• Disciplined Capital Allocation and Shareholder Returns: MDU maintains a strong balance sheet with investment-grade credit ratings and targets a 60% to 70% annual dividend payout ratio, recently increasing its quarterly dividend to \$0.14 per share, underscoring its commitment to long-term shareholder value.

A Century of Evolution: From Diversification to Pure-Play

MDU Resources Group, Inc. (NYSE:MDU) has undergone a profound transformation, culminating in its emergence as a focused, pure-play regulated energy delivery company. Founded in 1924 with the incorporation of Montana-Dakota, the company's journey has been marked by strategic evolution. A pivotal Holding Company Reorganization in 2019 laid the groundwork for a more streamlined structure. This strategic pivot accelerated in the early 2020s with the spin-off of Knife River (KNF) in May 2023, followed by the definitive separation of Everus Construction Group on October 31, 2024. This strategic divestiture reshaped MDU, allowing it to concentrate solely on its electric, natural gas distribution, and pipeline segments.

This strategic shift is underpinned by MDU's "CORE" strategy, which prioritizes customers and communities, operational excellence, returns-focused initiatives, and an employee-driven culture. The company's regional footprint spans eight states across the Pacific Northwest and Midwest, serving over 1.2 million customers. This focused approach positions MDU to leverage its core competencies in a stable, regulated environment, aiming to deliver consistent, long-term shareholder value.

The broader industry landscape is characterized by increasing electrification trends, driven by economy-wide carbon emission concerns and the burgeoning demand from data centers. Concurrently, the natural gas sector, particularly in regions like the Bakken, continues to see robust production growth, creating opportunities for transportation and storage infrastructure. MDU's strategy is designed to capitalize on these macro trends while navigating the complexities of evolving environmental regulations and grid modernization efforts.

Powering Progress: MDU's Operational and Infrastructure Technology

MDU's competitive edge in the regulated energy sector is not derived from proprietary hardware, but rather from its sophisticated application of operational and infrastructure technology, coupled with innovative business models. The company consistently invests in modernizing its utility infrastructure, enhancing system integrity, and strengthening cybersecurity protections across its electric and natural gas networks. This commitment to operational excellence ensures safe, reliable, and efficient energy delivery, a fundamental requirement in a regulated utility environment.

A prime example of MDU's innovative approach is its "capital-light business model" for serving large data center loads. The company currently has 580 megawatts (MW) of data center load under signed electric service agreements. Of this, 180 MW is already online, representing approximately 28% of MDU's generation portfolio, with an additional 100 MW expected online in late 2025, 150 MW in 2026, and the remaining 150 MW in 2027. This strategy leverages existing transmission capacity, providing immediate accretion to earnings and return on equity, while also delivering cost savings to other retail customers through shared transmission costs. This operational innovation allows MDU to capture significant growth opportunities without substantial upfront capital outlays, enhancing financial performance and capital efficiency.

In its energy mix, MDU is also embracing new technologies. The company entered into a definitive purchase and sale agreement in February 2025 to acquire a 49% ownership interest, equating to 122.5 MW, in the 250 MW Badger Wind Farm for \$294 million. This acquisition, contingent on North Dakota Public Service Commission (NDPSC) approval, will reduce MDU's reliance on existing power purchase agreements, integrating more renewable energy into its portfolio. Furthermore, MDU is pursuing a biogas property at the Knott Landfill site in Bend, Oregon, which may qualify for investment tax credits and clean fuel production credits under the Inflation Reduction Act (IRA), demonstrating a commitment to low-carbon fuel projects. These initiatives showcase MDU's strategic use of technology and innovative financing to meet evolving energy demands and regulatory requirements.

The Competitive Arena: Regional Strength Amidst Giants

MDU operates within a competitive landscape characterized by large, established players. Its direct competitors include Xcel Energy (XEL), Dominion Energy (D), CenterPoint Energy (CNP), and Quanta Services (PWR), all of whom have overlapping business segments in electric transmission, natural gas distribution, and energy infrastructure. MDU's market positioning is defined by its strong regional presence in the Rocky Mountain and northern Great Plains, where its local expertise and established regulatory relationships provide a distinct advantage.

MDU's primary competitive moats are its regulatory licenses and regional expertise. These allow for stable, long-term contracts and foster strong customer loyalty, enabling faster adaptation to local infrastructure needs compared to larger, more geographically dispersed rivals. This regional focus translates into enhanced pricing power and potentially more robust growth in its specific service territories. For example, MDU's electric segment is actively pursuing and securing significant data center loads in North Dakota and South Dakota, leveraging its local grid capacity and regulatory relationships.

The company's diversified portfolio across electric, natural gas distribution, and pipeline segments also offers operational resilience. This allows MDU to bundle services and achieve greater efficiency in project delivery, a capability that can exploit potential weaknesses in more siloed competitors. While MDU has divested its construction services, its historical expertise in energy infrastructure construction likely provides an internal advantage in managing its own capital projects efficiently. The pipeline segment's strategic positioning within the Bakken play, with its access to growing natural gas production and storage, further reinforces MDU's competitive standing, allowing it to meet increasing demand for takeaway capacity.

However, MDU faces vulnerabilities due to its relatively smaller scale compared to industry giants like Xcel Energy or Dominion Energy. This can sometimes translate into slower innovation speed or challenges in achieving the same economies of scale in certain operational areas. Supply chain dependencies, particularly for raw materials and equipment, also pose a risk, potentially increasing costs and impacting margins. Despite these challenges, MDU's disciplined capital allocation and strategic focus on organic growth within its core regions allow it to compete effectively, emphasizing reliability and integrated service delivery.

Financial Currents: A Look at Recent Performance

MDU Resources delivered a mixed but overall solid financial performance for the second quarter and first half of 2025, reflecting its strategic focus amidst operational headwinds. For the three months ended June 30, 2025, income from continuing operations was \$14.1 million, or \$0.07 per diluted share, a decrease from \$20.2 million, or \$0.10 per share, in the prior-year quarter. This decline was primarily attributed to increased operating costs and unfavorable weather impacts on its natural gas distribution business.

The electric segment's earnings decreased to \$10.4 million in Q2 2025 from \$15.5 million in Q2 2024. This was largely due to higher operation and maintenance (O&M) expenses, including increased payroll, contract services for planned generation station outages, and rising software and insurance costs. These impacts were partially offset by rate relief in South Dakota and a notable increase in commercial retail sales volumes, driven by data center demand.

The natural gas distribution segment reported an increased seasonal loss of \$7.4 million in Q2 2025, compared to a \$5.0 million loss in Q2 2024. Higher O&M expenses, particularly payroll and software, combined with lower volumes due to warmer weather in Idaho, were the primary drivers. However, rate relief in Washington and Montana, along with higher transportation revenue, provided some offset.

The pipeline segment saw its earnings decrease to \$15.4 million in Q2 2025 from \$17.3 million in Q2 2024. This was mainly due to higher O&M expenses, increased depreciation from growth projects placed in service, and the absence of a \$1.5 million (net of tax) customer settlement received in 2024. These were partially mitigated by higher transportation revenue from growth projects and strong demand for short-term natural gas transportation contracts.

On a year-to-date basis (six months ended June 30, 2025), income from continuing operations remained stable at \$96.6 million, or \$0.47 per diluted share, compared to \$95.0 million, or \$0.47 per share, in the same period of 2024. Operating cash flow for the first half of 2025 was robust at \$334.9 million, an increase from \$301.6 million in the prior year, largely driven by the collection of purchased gas cost balances and higher accounts receivable. Cash used in investing activities decreased to \$174.4 million from \$236.0 million, primarily due to lower capital expenditures in the natural gas distribution and pipeline segments.

MDU maintains a strong balance sheet, with \$58.8 million in cash and cash equivalents as of June 30, 2025, and \$602.7 million in available borrowing capacity. The company's total equity as a percentage of total capitalization stood at 56% at June 30, 2025, reflecting sound financial health. MDU also continues its commitment to shareholder returns, recently increasing its quarterly dividend to \$0.14 per share, marking its 87th consecutive year of uninterrupted dividend payments.

Energizing the Future: Outlook and Strategic Growth Initiatives

MDU Resources is firmly focused on a future of sustained organic growth within its regulated energy delivery segments. The company has narrowed its 2025 earnings per share guidance to a range of \$0.88 to \$0.95, from its previous range of \$0.88 to \$0.98, primarily reflecting the impact of unfavorable Q2 weather and higher operating expenses. Despite this near-term adjustment, MDU reaffirms its long-term EPS growth rate of 6% to 8%, rebased off its 2025 performance to reflect its new pure-play structure.

The company's strategic growth is underpinned by an anticipated capital investment of \$3.1 billion over the next five years. This substantial investment is expected to drive 7% to 8% compound annual utility rate base growth and 1% to 2% annual customer growth. These capital expenditures are directed towards modernizing utility infrastructure, expanding capacity to meet growing customer demand, and pursuing strategic projects across its segments.

Key growth initiatives include:

• Electric Segment: Beyond the 580 MW of data center load already under agreement, MDU is actively pursuing additional data center opportunities, considering investments in new generation and transmission assets for incremental load. The acquisition of a 49% interest in the Badger Wind Farm (122.5 MW) for \$294 million is pending NDPSC approval, with a hearing scheduled for September 9, 2025. This project is crucial for meeting MISO's revised resource adequacy requirements, which indicate a need for additional capacity by 2028.
• Natural Gas Distribution: MDU is proactively managing its regulatory schedule, having filed a general rate case in Idaho in Q2 2025, reached a settlement in Wyoming (rates effective August 1, 2025), and filed a settlement in Montana (interim rates effective February 1, 2025). These efforts aim to ensure timely recovery of investments and operating costs.
• Pipeline Segment: The Minot Expansion Project, adding approximately 7 MMcf/day of natural gas transportation capacity, began construction in May 2025 and is expected in service in late 2025. The larger Line Section 32 Expansion project, designed to add 190 MMcf/day of capacity to serve a new electric generation facility in Northwest North Dakota, is targeted for service in late 2028. MDU is also evaluating the results of a non-binding open season for the Bakken East Pipeline project, a potential 350-375 mile pipeline from Western to Eastern North Dakota, which would be incremental to the current five-year capital forecast and could significantly enhance takeaway capacity in the Bakken region.

MDU's commitment to shareholder returns is evident in its long-term dividend payout ratio target of 60% to 70% of regulated energy delivery earnings. While no equity needs are anticipated for 2025, the company plans to reestablish an ATM program to meet potential equity capital market needs starting in 2026, ensuring flexible financing for its ambitious growth plans.

Navigating the Headwinds: Key Risks and Regulatory Dynamics

Despite a clear growth trajectory, MDU operates within an environment subject to several material risks. Inflationary pressures, elevated interest rates, and supply chain disruptions continue to impact operating costs and capital project timelines. The company is proactively managing these challenges by working closely with suppliers and adjusting project plans, but these pressures are expected to persist. Tariffs on raw materials could further increase construction and maintenance costs, and if regulators do not deem these increased costs prudent, MDU's ability to recover them through rates could be affected.

Regulatory dynamics present another significant area of risk. The electric and natural gas distribution segments are subject to extensive state and federal oversight regarding costs, investment recovery, and authorized returns. While MDU actively engages in rate cases, the timing and outcomes of these proceedings are uncertain. Environmental regulations, particularly those from the EPA concerning greenhouse gas (GHG) and mercury emissions from power plants, could impose significant new costs on MDU's Coyote Station (25% owned), if proposed repeals of stricter standards do not materialize or are overturned. As a minority owner, MDU cannot unilaterally decide the plant's future, exposing it to decisions by other owners.

Weather variability remains a perennial risk, directly impacting customer demand and volumes, especially in jurisdictions without weather normalization or decoupling mechanisms, such as Idaho and Montana for natural gas. Cybersecurity threats to critical infrastructure are also a constant concern, requiring ongoing investment in protection and resilience. Furthermore, the pipeline segment is exposed to natural gas and oil price volatility, and new legislative or regulatory initiatives on pipeline safety and methane emissions could impact demand and operating costs.

Conclusion

MDU Resources Group has successfully executed a transformative strategy, emerging as a focused, pure-play regulated energy delivery company poised for consistent, long-term growth. Its strategic emphasis on regional strengths, disciplined capital allocation, and innovative operational models, such as the "capital-light" approach to data center electrification, positions it favorably within an evolving energy landscape. The company's robust pipeline of organic growth projects, particularly in the high-growth Bakken region, coupled with ongoing infrastructure modernization across its utility segments, underpins its ambitious financial targets of 6% to 8% long-term EPS growth and 7% to 8% utility rate base growth.

While MDU faces inherent challenges from inflationary pressures, regulatory complexities, and weather variability, its proactive management of these risks, coupled with a strong balance sheet and a commitment to shareholder returns through a growing dividend, reinforces its investment thesis. The company's ability to leverage its operational and infrastructure technology to meet increasing demand, particularly from data centers and Bakken natural gas production, will be critical to its continued success. For discerning investors, MDU offers a compelling narrative of strategic clarity, predictable growth, and resilient value creation in the essential energy delivery sector.