February 12, 2002
(N)
NYSE:STR
02-05

Contact: R. Curtis Burnett
Business: (801) 324-5647

SALT LAKE CITY — Questar Corp. (NYSE:STR) reported record net income of $158.2 million, or $1.94 per diluted share, in 2001 on the strength of a 53% increase in earnings from nonregulated oil and gas exploration and production operations.

In the prior year, the integrated natural gas company had net income of $149.5 million, or $1.85 per share.

In 2001, Questar's nonregulated oil and gas exploration and production operations — conducted by the Questar Market Resources group — earned $64.5 million versus $42.1 million for the prior year. Higher natural gas revenues and nonstrategic asset sales provided much of the improvement.

R.D. Cash, Questar chairman and CEO, said, "Questar's continuing expansion of exploration and production and other nonregulated activities over the past five years created the platform for our earnings growth in 2001." Cash said production for the nonregulated exploration and production subsidiaries rose to a record 85.6 billion cubic feet equivalent (Bcfe) in 2001 while proved nonregulated reserves grew 62% to nearly 1.2 trillion cubic feet equivalent.

Excluding securities transactions, Questar 2001 net income was $159.1 million, or $1.95 per share, versus $133.2 million, or $1.65 per share, for the prior year. Questar had a $905,000 after-tax loss from securities transactions in 2001 compared with a $16.3 million after-tax gain from similar transactions in 2000. Sales of nonstrategic properties resulted in a $13.5 million after-tax gain in 2001 compared with a $700,000 after-tax loss in 2000.

There were 81.7 million average diluted shares outstanding in 2001 compared with 80.9 million for the prior-year period.

For the fourth quarter of 2001, Questar earned $42.6 million, or $.52 per share, versus $50.3 million, or $.62 per share, a year earlier. The average realized natural gas selling price in the fourth quarter of 2001 was 26% lower than the year-earlier level and 37% below the highs earlier in the year. The quarter's results were affected by a $6.1 million after-tax gain from  nonstrategic property sales. The company estimates its exposure to potentially unrecoverable amounts from Enron Corp. is $1.4 million before taxes and was fully accrued in the fourth quarter.  Excluding securities sales, Questar's fourth-quarter 2001 earnings were $42.6 million, or $.52 per diluted share, compared with $48.4 million, or $.59 per share, a year earlier.

Full-Year 2001 Results/Questar Market Resources

Questar Market Resources earned $101.1 million in 2001 versus $77.8 million in the prior year.  The average annual realized sales price for natural gas was 15% higher at $3.21 per thousand cubic feet (Mcf), while production increased 2% to 70.6 billion cubic feet (Bcf). Oil and natural gas-liquids production was 12% higher at 2.5 million barrels, offsetting a 6% price decline to $19.22 per barrel. Production increases resulted from the acquisition of Shenandoah Energy on July 31, 2001. The Wexpro subsidiary, which develops and manages gas properties owned by Questar's gas-distribution utility, had net income of $28.2 million in 2001. This was 16% higher than a year earlier as a result of expanded investment in gas-development drilling.

Gas-gathering and energy-trading activities achieved combined earnings of $8.4 million in 2001 compared with $11.3 million in the prior year. The 2000 results included one-time benefits from securities transactions and capitalizing construction-financing costs on a gas-storage project.

Questar Regulated Services

Questar Gas, the company's  retail gas-distribution utility, had 2001 net income of $25.9 million, a $1.7 million year-to-year improvement. Gas deliveries totaled 149 million decatherms, virtually the same as prior-year volumes. The utility's customer base expanded 3.9% – almost twice the industry average – to 731,900 at year end. Approximately 10,500 customers were added through the mid-2001 acquisition of small distribution systems in eastern Utah and southwestern Wyoming.

Consistent with national industry trends, Questar Gas's financial performance was hampered by declining usage per customer and higher bad-debt expenses stemming from high natural gas prices in early 2001.  Approximately 45% of Questar Gas's supplies came from company-owned wells – traditionally the utility's lowestcost source. The company-owned supplies mitigated the impact of the higher market prices, and rates have declined significantly since January 2001 due to moderating purchased-gas costs.

Questar Pipeline – which conducts gas transmission and storage – had net income of $29.7 million, virtually the same as in 2001. Total transportation volumes rose 14% to a record 312.8 million decatherms.  The increase reflected strong natural gas-supply growth in producing basins served by the pipeline and higher demand in the company's core Utah market. Questar Pipeline placed its Main Line 104 pipeline into service in November 2001.  The pipeline's 275 million cubic feet of daily capacity was fully contracted. Questar Pipeline's Clay Basin underground storage facility – the largest in the region – also was fully contracted throughout the year.

Questar Pipeline began recognizing losses in April 2001 from a subsidiary's 50% investment in the TransColorado   Pipeline. The nine months of losses in 2001 totaled $1.3 million after taxes.

Other Operations

Other Operations include Web-hosting and information-technology subsidiaries, as well as corporate administrative and financing activities. Other Operations lost $1.4 million after taxes in 2001, primarily due to a $6.1 million loss by the Consonus subsidiary. Questar has an 82% interest in Consonus, which operates three Web-hosting facilities in Salt Lake City. In 2000, Consonus incurred $1.9 million in losses. The larger 2001 loss included a $1.2 million after-tax restructuring charge, which corresponded with a steep decline in the electronic-business and Internet sectors. In the year-earlier period, Other Operations' net income of $17.4 million benefited from a $13.8 million after-tax gain from the sale of company-owned securities.

FourthQuarter Financial Results

Questar Market Resources' fourth-quarter 2001 earnings were $19.1 million versus $26.1 million for the comparable year-earlier period. Natural gas production rose 21% in the quarter but the average price was 26% lower at $2.64 per Mcf. A 40% increase in oil and natural gas-liquids production from the exploration and production subsidiaries was partially offset by a 22% decline in realized prices compared with the year-earlier period.  Wexpro earnings grew by $1.3 million over the year-earlier period, bolstered by expanded investment in gas-development drilling. Gains from asset sales were $2.5 million after taxes in the 2001 period, compared with a $1.4 million loss in the corresponding year-earlier quarter.

Questar Regulated Services' fourth-quarter 2001 earnings were $1.5 million lower than the prior-year period. For the 2001 quarter, Questar Gas earned $12.5 million compared with $14.7 million a year earlier. Primary factors were higher bad-debt expense and a 3% decline in usage per customer. Questar Pipeline earned $8 million in the fourth quarter of 2001, including the TransColorado losses, compared with $9.1 million in the prior-year period.

Outlook

Questar provided the following guidance concerning its expected 2002 performance:

•  Based on current forward-pricing expectations for natural gas in 2002, Questar's 2002 earnings could range between $1.70 and $1.90 per share. Since the company's previous guidance in October 2001, the Henry Hub benchmark price, adjusted for regional price differences, has fallen nearly $1 per Mcf.

•  For the first half of 2002, Questar has hedged approximately 34% of equity gas production at an average net-to-the-well price of $3.51 per Mcf. In the second half of 2002, approximately 28% of equity gas production is hedged at an average net-to-the-well price of $3.40 per Mcf.

•  Approximately 41% of 2002 equity oil production is hedged at an average net-to-the-well price of $24.45 per barrel.

•  For 2003, Questar has hedged approximately 25% of equity natural gas production at an average net-to-the-well price of $3.39 per Mcf. The company's 2003 oil production currently is not hedged.

•  The company intends to continue selling nonstrategic oil and gas properties while focusing on core operations in the Rockies, Midcontinent and Canada.

•  The eastern segment of Questar's Southern Trails Pipeline should begin operation in summer 2002. The eastern leg runs from northwestern New Mexico to the California state line. Long-term contracts are in place for 100% of the eastern segment's 80 million cubic feet per day (MMcf/day) capacity.

•  Questar Pipeline is preparing to file applications with the Federal Energy Regulatory Commission (FERC) to add new "hub" services. Assuming timely FERC approval, the services could generate some $1 million in incremental revenues in 2002 and support the company's planned development of a major new salt-cavern storage facility in southwest Wyoming.

•  Under a new accounting rule, Questar anticipates up to an $18.2 million after-tax impairment of goodwill in the first quarter of 2002. The company adopted SFAS No. 142, Goodwill and Other Intangible Assets, on Jan. 1.  The change affects Questar's 82% ownership of its Web-hosting and services subsidiary, Consonus. The new rule requires an impairment if the current market value of goodwill is less than the carrying value.  Assets acquired by Consonus have declined in value because of the sharp downturn in the electronic-business and Internet sectors.

•  Regulatory and legal decisions could impact Questar's 2002 earnings performance. The Utah Supreme Court ruled that the Public Service Commission of Utah erred in denying pass-through rate coverage for the costs of removing carbon dioxide from the gas stream. The company is pursuing recovery of up to $5.8 million of denied processing costs. In addition, the TransColorado Pipeline dispute is scheduled for trial in April. At issue is the validity of an agreement allowing a Questar Pipeline subsidiary to put its 50% interest in the pipeline partnership to a Kinder Morgan subsidiary.

Questar is a $2.9 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.

                             2001           2000

Earnings per common share
Basic                       $1.95          $1.86
Diluted                      1.94           1.85

Average common shares outstanding
Basic                      81,097         80,412
Diluted                    81,658         80,915

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.

Click here for detailed financial and operating statements. 
Attachment 1: Income
Attachment 2: Statistics

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