The diversified natural gas company earned $64.9 million, or $.80 per share, in the current-year quarter compared with $50.2 million, or $.62 per share in the 2000 quarter. The prior-year quarterly results included $5.5 million ($.07 per share) from security sales.

A nonregulated subsidiary, Questar Exploration and Production, had net income of $23.7 million in the 2001 period versus $8.4 million a year earlier. Strong commodity prices and a declining full-cost amortization rate offset a 7% decline in natural gas production due primarily to an asset sale in the fourth quarter of 2000 and weather-related operational delays. The average realized natural gas price rose 92% to $4.17 per thousand cubic feet (Mcf) in the first quarter of 2001, while production totaled 15.8 billion cubic feet (Bcf).

Earnings Exceed Projections

Corporate earnings - which exceeded the First Call projections - also reflected improved results from regulated activities. Questar Pipeline Co., an interstate gas-transmission and storage subsidiary, and Questar Gas Co., which conducts retail gas distribution, reported combined net income of $31.6 million, $3.7 million higher than the 2000 period. Transmission volumes increased 24% in response to higher regional gas demand, and utility earnings improved because of a 3.9% general rate increase implemented in 2000 and efficiency programs.

There was an average 81.5 million diluted common shares outstanding in the 2001 quarter compared with 80.8 million in the prior-year period.

R.D. Cash, Questar chairman and chief executive officer, said: "We are capitalizing on the growing demand in the nation and the West for natural gas, especially for electricity generation. We are stepping up drilling activities, expanding transmission and storage capacity, and exploring new initiatives, such as power generation. We expect favorable natural gas price- and-supply fundamentals to remain strong for the foreseeable future, and see opportunities to accelerate our growth."

Continuing Nonregulated Emphasis

Questar's nonregulated Market Resources group -- including exploration and production -- accounted for 52% of corporate earnings in the first quarter of 2001. The group earned $33.9 million in first-quarter 2001 versus $15 million in the prior-year quarter. Wexpro, a contract- management subsidiary, earned $6.6 million during the period compared with $5.8 million a year earlier. Wexpro increased its investment in gas-development projects on behalf of Questar's distribution subsidiary, for which it receives a specified return.

Questar's energy-trading and midstream subsidiaries earned a combined $3.6 million in the current-year quarter, including a $700,000 after-tax gain from an asset sale. In the prior-year period, the two companies earned $800,000.

Improved Regulated Earnings

Questar Pipeline, which operates interstate natural gas-transmission and storage systems,

earned $7.7 million in first-quarter 2001, $600,000 higher than a year earlier. Transportation volumes rose 24% to 83 million decatherms (dth), with more than half of the total for nonQuestar-related customers. Deliveries for Questar Gas and other affiliates rose 8%, primarily attributable to the utility's growing customer base and heating demand.

Questar Gas reported first-quarter net income of $23.7 million, a $3 million increase over the 2000 period. The utility operates in Utah and portions of southwestern Wyoming and southeastern Idaho. Gas deliveries were 7% higher at 54.7 million dth, and the customer base expanded 2.4% to 706,000. A 3.8% general rate increase for Utah was implemented in August 2000, and the company also completed an early retirement program during the fourth quarter that reduced operating costs.

Corporate and Other Operations

Corporate and Other Operations incurred a $600,000 loss in first-quarter 2001 compared with a $7.3 million gain in 2000, primarily from the absence of security sales. During the 2000 period, Questar sold shares of Nextel Communications and XO Communications for an after-tax gain of $5.5 million ($.07 per share).

Questar posted a $1.7 million loss from its 84% interest in Consonus, an internet-services company, in first-quarter 2001 versus a $200,000 gain in the 2000 quarter. The loss resulted from lower revenues from web hosting and related services due to the economic slowdown in the internet sector, and from the amortization of goodwill associated with an acquisition in mid-2000.

Outlook

Questar updated full-year 2001 earnings guidance the company provided to the financial community in February. The company's first-quarter 2001 earnings of $.80 per share surpassed the $.67 per share First Call consensus estimate in February and the most recent $.77 per share estimate. Chairman Cash said: "We gave guidance in February that we thought first-quarter earnings would exceed the First Call estimate by 10% to 20%. Given our strong first quarter, we are confident that we can meet or exceed the current First Call estimate of $2.03 per share for full-year 2001, barring an unexpected plunge in gas prices or another unexpected event."

Cash reiterated various factors that could increase 2001 earnings for the Market Resources subsidiary, which conducts oil and gas exploration and production and other nonregulated activities:

• Hedged-gas volumes drop from about 63% in the first quarter of 2001 to about 52% for the remainder of the year. Hedges with ceilings are about $3 per Mcf, while hedges with floors are about $2.75. This compares with a 2000 average realized price of $2.80 per Mcf. Essentially all hedges expire at year-end 2001. If gas prices increase markedly, Questar will be evaluating possible 2001 and 2002 hedge positions.
• The current NYMEX gas-strip price would yield a price for the balance of the year of $3.65 per Mcf, net to the well. A $3.50 NYMEX price for the balance of the year would yield $2.90 per Mcf, net to the well, approximately $.10 above the year 2000 average realized price.
• Questar Market Resources' full-year earnings could increase 10% over a year earlier with flat production, a $3.50 NYMEX price for the remainder of the year, and no extraordinary events.
• Questar E&P's U.S. amortization rate for the second quarter of 2001 is $.81 per Mcfe, reflecting the increasing cost of future development activity.

Market Resources' 2000 earnings of $85 million included a one-time, $12 million pre-tax litigation expense.

Cash said Market Resources' production in first-quarter 2001 fell nominally below the fourth-quarter 2000 level because of operational and drilling-program delays due to adverse weather and other factors. He expects production to improve in the second half of the year, especially with the May resumption of the Pinedale drilling program. Cash said federal land-management agencies have recognized the nation's critical need to boost gas supplies, and have been cooperating with Questar to accelerate the program, in which 10-20 wells are expected to be drilled this year.

Beginning April 1, Questar Pipeline began recording its 50% share of losses from the TransColorado Pipeline partnership. These losses in 2000 ranged from $300,000 to $1.2 million per month before income taxes. The company expects to mitigate the impact of these losses with revenues from other projects, cost cutting and other measures in the Regulated Services area.

Questar is a $2.5 billion diversified natural gas company headquartered in Salt Lake City. Through subsidiaries, it engages in energy development and production; gas gathering and processing; wholesale gas, electricity and liquids trading; retail energy services; interstate gas transmission and storage; retail gas distribution; and information systems and technologies.

Forward-Looking Statements:

This release contains statements expressing expectations of future plans, objectives and performance that constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties that could cause actual results to differ materially from those anticipated. A discussion of risks and uncertainties, which could affect future results of Questar and its subsidiaries, is included in the company's periodic reports filed with the Securities and Exchange Commission.

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