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Questar Net Income Grows 44% in First-Quarter 2006

Posted on: Wednesday, 26 April 2006, 18:00 CDT

SALT LAKE CITY, April 26 /PRNewswire-FirstCall/ -- Questar Corp. -- a natural gas-focused energy company -- grew net income 44% in the first quarter of 2006 to $137.2 million, or $1.57 per diluted share, compared to $95.2 million, or $1.10 per diluted share, for the first quarter of 2005. The increase was driven by higher natural gas production and higher realized prices for natural gas, oil and natural gas liquids (NGL), higher gas-processing volumes and margins, and higher contract volumes in the company's interstate pipeline business.

NET INCOME BY LINE OF BUSINESS ($ millions, except where noted) 3 Months Ended March 31, % 2006 2005 Change Market Resources Questar E&P $70.5 $36.3 94% Wexpro 12.0 10.2 18 Gas Management 9.7 8.8 10 Energy Trading and other 2.5 1.3 92 Market Resources Total 94.7 56.6 67 Questar Pipeline 11.4 8.3 37 Questar Gas 29.4 28.7 2 Corporate and other operations 1.7 1.6 6 QUESTAR CORPORATION TOTAL $137.2 $95.2 44% Diluted shares outstanding (average, in millions) 87.4 86.7 Earnings per diluted share $1.57 $1.10 43%

"We're off to a good start in 2006 -- all Questar segments are either on track or above plan," said Keith O. Rattie, Questar chairman, president and CEO. "Note that Questar E&P reported its third straight quarter of 15% or higher year-on-year production growth -- driven not just by Pinedale, but also solid growth elsewhere in the Rockies, and from the Midcontinent. Accordingly, we're raising our 2006 earnings and production guidance," Rattie said.

2006 EARNINGS AND PRODUCTION GUIDANCE UPDATE

Questar raised full-year 2006 net income guidance to $4.50-$4.80 per diluted share, compared to previous guidance of $4.30-$4.60 per diluted share. This guidance excludes one-time items, assumes hedges in place at the time of this release, and assumes natural gas and oil prices and basis differentials as summarized in the table below. The company also raised 2006 production guidance. Questar E&P now expects 2006 production to range from 124 to 126 billion cubic feet of gas equivalent (Bcfe), compared to previous guidance of 122 to 124 Bcfe. The revised 2006 production guidance -- which excludes Wexpro -- would result in 9-10% growth compared to Questar E&P 2005 production of 114.2 Bcfe.

Current Previous Earnings per share $4.50-$4.80 $4.30-$4.60 Average diluted shares (millions) 87.5 87.5 Questar E&P production -- Bcfe 124-126 122-124 Pinedale wells completed 45-48 45-48 NYMEX gas price per MMBtu* $8.00-$9.00 $8.00-$9.00 NYMEX/Rockies basis differential per MMBtu gas* $2.25 $2.25 NYMEX/Midcontinent basis differential per MMBtu gas* $1.50 $1.50 NYMEX crude oil price per barrel* $60.00-$70.00 $60.00-$70.00 * Average on unhedged volumes for the remainder of 2006

Questar E&P has hedged about 68% of its forecast 2006 natural gas and oil-equivalent production (see table at the end of this release). Accordingly, the company estimates that a $1.00 per MMBtu change in the average NYMEX price of natural gas for the remainder of 2006 would result in about a $0.12 change in earnings per diluted share. Similarly, a $10.00 per barrel change in the average NYMEX price of oil for the remainder of 2006 would result in about a $0.03 change in earnings per diluted share.

FIRST-QUARTER 2006 RESULTS Highlights * Questar E&P reported a 23% increase in natural gas, oil and NGL volumes to 32.3 Bcfe compared to 26.3 Bcfe for the 2005 period. The 2006 period included a 0.7 Bcfe gas-imbalance settlement. Excluding the settlement, production grew 20% year-over-year. Natural gas comprised 88% of reported volumes. * Questar E&P realized prices for natural gas rose 32%, while realized prices for crude oil and NGL rose 30%. Hedging reduced revenues by $19.7 million. * Wexpro's investment base increased 16% to $214.5 million on March 31, 2006, compared to a year earlier. Wexpro produced 10.8 Bcfe during the first quarter on behalf of its affiliate, Questar Gas. Wexpro net income also benefited from 26% higher realized oil and NGL prices. * Questar Gas Management total margin from processing, both fee-based and keep-whole, increased 75%. Fee-based processing volumes rose 252% and NGL sales volumes from keep-whole contracts grew 34% compared to the 2005 quarter. * Questar Gas Management gathering volumes rose 3% while total gathering margins decreased due to increased operating expenses. * Questar Energy Trading net income increased $1.2 million on higher resale volumes. * Questar Pipeline revenues grew 14% primarily from new transportation contracts on its southern system in central Utah and on Overthrust Pipeline. Questar Pipeline also benefited from higher NGL volumes and realized prices. * Questar Gas net income was up 2% compared to the first quarter of 2005. The 2006 results included the settlement of a long-standing regulatory dispute with the State of Utah. Average temperature- adjusted usage per customer declined 2% compared to the year-earlier period. * Questar ROA (Return on Assets, defined as earnings before interest and income taxes divided by average total assets) for the trailing 12-month period ended March 31, 2006, increased to 16.3%. Market Resources ROA was 21.7%, Questar Pipeline ROA was 8.6%, and Questar Gas ROA was 8.1%. Questar Market Resources Net Income Up 67%

Market Resources -- which conducts natural gas and oil exploration, development and production, gas gathering and processing, wholesale gas and oil marketing and gas storage -- reported net income of $94.7 million in the first quarter of 2006, up 67% from $56.6 million in the first quarter of 2005.

Questar E&P Net Income Nearly Doubles

Market Resources subsidiary Questar E&P reported net income of $70.5 million in the first quarter, up 94% from $36.3 million in the 2005 period. Questar E&P reported production increased 23% to 32.3 Bcfe compared to 26.3 Bcfe in the 2005 quarter. The 2006 quarter included a 0.7 Bcfe gas-imbalance settlement. Excluding the imbalance settlement, Questar E&P production grew 20% compared to the year-earlier period. On an energy-equivalent basis, natural gas comprised about 88% of Questar E&P production in the 2006 period.

Questar E&P -- Production by Region 3 Months Ended March 31, % 2006 2005 Change (Bcfe) Pinedale Anticline 9.7 7.5 29% Uinta Basin 6.2 5.7 9 Rockies Legacy 5.1* 4.1 24 Rocky Mountains Total 21.0 17.3 21 Midcontinent 11.3 9.0 26 Questar E&P Total 32.3 26.3 23% * Includes 0.7 Bcfe gas-imbalance settlement

Questar E&P production from the Pinedale Anticline in western Wyoming grew 29% from the year-earlier quarter and comprised about 30% of Questar E&P total production for the period. The company operated and had an ownership interest in 144 producing wells at Pinedale at the end of the first quarter (unchanged from year-end 2005), compared to 106 wells a year ago. In the Uinta Basin of eastern Utah, Questar E&P grew production 9% compared to the first quarter of 2005. Uinta Basin production in the year-ago quarter was negatively affected by weather-related delays and other production constraints. Production from Questar E&P Rocky Mountain "Legacy" properties increased 24% in the 2006 quarter, including the 0.7 Bcfe gas-imbalance settlement. Excluding the imbalance settlement, Legacy production volumes grew 7% in the current quarter compared to the year-earlier period, driven by the company's emerging gas play in the Vermillion Basin. Legacy assets include all Questar E&P Rocky Mountain region producing properties except the Pinedale Anticline and the Uinta Basin. In the Midcontinent, Questar E&P grew production 26% to 11.3 Bcfe, driven by ongoing development drilling in the Elm Grove field in northwest Louisiana.

Questar E&P average realized natural gas price in the first quarter of 2006 increased 32% to $6.26 per thousand cubic feet (Mcf) compared to $4.76 per Mcf in the 2005 period. During the first quarter of 2006, Questar E&P average realized oil and NGL price was $50.42 per barrel compared with $38.74 a year earlier, a 30% increase. Hedging reduced gas revenues $16.0 million and oil revenues $3.7 million in the first quarter of 2006.

Questar may hedge up to 100% of its forecast production from proved reserves to lock in acceptable returns on invested capital and to protect returns, cash flow and net income from a decline in commodity prices. During the first quarter of 2006, Questar E&P continued to take advantage of higher natural gas and oil prices to hedge additional production in 2006, 2007 and 2008.

Questar E&P controllable production costs (the sum of depreciation, depletion and amortization expense, lease operating expense, general and administrative expense, and allocated interest expense) per unit of production increased 5% compared to the first quarter of 2005.

Questar E&P - Controllable Production Cost Structure 3 Months Ended March 31, % 2006 2005 Change (Per Mcfe) Depreciation, depletion and amortization $1.28 $1.13 13% Lease operating expense 0.54 0.55 (2) General and administrative expense 0.34 0.34 - Allocated interest expense 0.19 0.21 (10) Controllable costs (excludes taxes) $2.35 $2.23 5%

Depreciation, depletion and amortization expense rose 13% due to higher costs for drilling, completion and related services, increased cost of steel casing, other tubulars and wellhead equipment, and the ongoing depletion of older, lower-cost reserves. Per-unit lease operating expense decreased slightly as increased costs of materials and consumables were offset by higher production volumes. Similarly, interest expense per unit decreased in the current quarter as total interest expense remained about constant.

Wexpro Net Income Up 18% in First-Quarter 2006

Wexpro -- a Market Resources subsidiary that develops and produces cost-of-service reserves for Questar Gas -- reported net income of $12.0 million in the current quarter, up 18% from the first quarter of 2005. Under a long-standing agreement with the states of Utah and Wyoming, Wexpro recovers its costs and earns an unlevered after-tax return of approximately 19 to 20% on its investment base -- the investment in commercial wells and related facilities, adjusted for working capital and reduced for deferred income taxes and accumulated depreciation. Wexpro's investment base at March 31, 2006, increased 16% to $214.5 million versus $185.7 million a year earlier. Wexpro current-quarter net income also benefited from 26% higher realized oil and NGL prices versus the first quarter of 2005.

Gas Management Net Income Up 10% in First-Quarter 2006

Questar Gas Management (Gas Management) -- Market Resources' gas-gathering and processing-services business -- grew net income 10% to $9.7 million in the first quarter of 2006. Gas Management results benefited from favorable gas-processing margins and a 34% increase in NGL sales volumes compared to the 2005 quarter. Gathering volumes were up 3% to 61.2 million MMBtu for the current quarter compared to the 2005 quarter due primarily to growing Questar E&P and third-party Pinedale production and new gathering and processing projects serving third parties in the Uinta Basin. Total gathering margins decreased primarily due to start-up costs associated with the Pinedale liquids-gathering and transportation facilities.

Questar Energy Trading Net Income Nearly Doubles in First-Quarter 2006

Questar Energy Trading (Energy Trading) -- which sells Market Resources equity gas and oil, provides risk-management services, and operates a natural gas-storage facility in the Rockies -- reported net income of $2.5 million in the 2006 quarter versus $1.3 million a year earlier. Energy Trading benefited from increased marketing volumes, increased storage activity and improved margins.

Questar Pipeline Net Income Up 37% in First-Quarter 2006

Questar Pipeline -- a subsidiary that provides interstate natural gas-transportation and storage services -- reported net income of $11.4 million in the first quarter of 2006 compared to $8.3 million in the first quarter of 2005. Questar Pipeline first-quarter 2006 net income was driven by a 14% increase in revenues primarily related to the expansion of its southern system completed in November 2005 and the December 2005 completion of an interconnect between Overthrust Pipeline and the Kern River Pipeline. Questar Pipeline benefited from 63% higher NGL volumes and a 43% increase in the realized price of NGL compared to the first quarter of 2005. Questar Pipeline 2006 net income also included a $1.0 million increase in park-and-loan revenues at its Clay Basin storage facility in northeast Utah.

Questar Gas Net Income Up 2% in First-Quarter 2006

Questar Gas, the company's retail gas-distribution utility, reported net income of $29.4 million in the first quarter 2006, up 2% from the year-ago quarter, driven by a 4.2% year-on-year increase in customers to about 834,000 on March 31, 2006. First quarter results also benefited from the settlement of a long-standing regulatory dispute with the state of Utah. Excluding the settlement, Questar Gas net income was about flat with first-quarter 2005. These positive factors were partially offset by higher bad-debt expense and a 2% decline in weather-normalized usage per customer. Questar Gas earned a 10.9% return on equity for the 12 months ended March 31, 2006.

First-Quarter Teleconference

Questar management will discuss first quarter 2006 results and its outlook for the remainder of the year and beyond in a conference call with investors Thursday, April 27, beginning at 9:30 a.m. ET. The call can be accessed on the company Internet site at http://www.questar.com/.

About Questar

Questar Corp. is a natural gas-focused energy company with an enterprise value of about $7.4 billion. Questar finds, develops, produces, gathers, processes, transports, stores and distributes natural gas.

Forward-Looking Statements

This release includes forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended. Such statements are based on management's current expectations, estimates and projections, which are subject to a wide range of uncertainties and business risks. Factors that could cause actual results to differ from those anticipated are discussed in the company's periodic filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2005. Subject to the requirements of otherwise applicable law, the company cannot be expected to update the statements contained in this news release or take actions described herein or otherwise currently planned.

For more information, visit Questar's Internet site at: http://www.questar.com/ Current Hedge Positions -- April 26, 2006 Time Rocky Mid- Rocky Mid- Periods Mountains continent Total Mountains continent Total Estimated Gas (Bcf) Average price per Mcf, net to the well 2006 Second quarter 12.9 6.0 18.9 $5.93 $6.81 $6.21 Second half 26.1 12.2 38.3 5.93 6.81 6.21 9 months 39.0 18.2 57.2 5.93 6.81 6.21 2007 First half 19.8 10.1 29.9 $7.02 $7.82 $7.29 Second half 20.1 10.3 30.4 7.02 7.82 7.29 12 months 39.9 20.4 60.3 7.02 7.82 7.29 2008 First half 8.5 5.1 13.6 $6.88 $7.87 $7.25 Second half 8.6 5.1 13.7 6.88 7.87 7.25 12 months 17.1 10.2 27.3 6.88 7.87 7.25 Estimated Oil (Mbbl) Average price per bbl, net to the well 2006 Second quarter 310 100 410 $47.77 $59.89 $50.73 Second half 626 202 828 47.77 59.89 50.73 9 months 936 302 1,238 47.77 59.89 50.73 2007 First half 525 199 724 $56.85 $57.83 $57.12 Second half 534 202 736 56.85 57.83 57.12 12 months 1,059 401 1,460 56.85 57.83 57.12 2008 First half 109 73 182 $64.23 $65.30 $64.66 Second half 111 73 184 64.23 65.30 64.66 12 months 220 146 366 64.23 65.30 64.66 QUESTAR CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) 3 Months Ended March 31, 2006 2005 (in thousands, except per share amounts) REVENUES Market Resources $415,077 $314,338 Questar Pipeline 25,442 17,912 Questar Gas 466,939 343,690 Corporate and other operations 3,915 4,384 TOTAL REVENUES 911,373 680,324 OPERATING EXPENSES Cost of natural gas and other products sold 462,780 338,805 Operating and maintenance 74,109 56,747 General and administrative 32,318 33,083 Production and other taxes 33,472 26,385 Depreciation, depletion and amortization 72,754 58,825 Exploration 3,299 1,373 Abandonment and impairment of gas, oil and other properties 1,699 1,405 TOTAL OPERATING EXPENSES 680,431 516,623 OPERATING INCOME 230,942 163,701 Interest and other income 2,447 2,651 Income from unconsolidated affiliates 1,831 1,546 Interest expense (17,430) (16,722) INCOME BEFORE INCOME TAXES 217,790 151,176 Income taxes 80,634 56,005 NET INCOME $137,156 $95,171 EARNINGS PER COMMON SHARE Basic $1.61 $1.13 Diluted 1.57 1.10 Weighted average common shares outstanding Used in basic calculation 85,240 84,417 Used in diluted calculation 87,449 86,728 Dividends per common share $0.225 $0.215 QUESTAR CORPORATION OPERATIONS BY LINE OF BUSINESS (Unaudited) 3 Months Ended March 31, 2006 2005 (in thousands, except per share amounts) REVENUES FROM UNAFFILIATED CUSTOMERS Questar E&P $210,787 $132,497 Wexpro 6,303 5,126 Questar Gas Management 41,248 29,034 Questar Energy Trading and Other 156,739 147,681 Market Resources Total 415,077 314,338 Questar Pipeline 25,442 17,912 Questar Gas 466,939 343,690 Corporate and other operations 3,915 4,384 $911,373 $680,324 REVENUES FROM AFFILIATED COMPANIES Wexpro $38,726 $32,984 Questar Gas Management 3,846 3,188 Questar Energy Trading and Other 250,230 142,214 Market Resources Total 292,802 178,386 Questar Pipeline 20,566 22,425 Questar Gas 1,577 1,261 Corporate and other operations 428 602 $315,373 $202,674 OPERATING INCOME Questar E&P $118,687 $63,442 Wexpro 18,217 15,878 Questar Gas Management 14,668 12,943 Questar Energy Trading and Other 3,311 2,455 Market Resources Total 154,883 94,718 Questar Pipeline 23,930 18,357 Questar Gas 51,507 49,951 Corporate and other operations 622 675 $230,942 $163,701 NET INCOME Questar E&P $70,490 $36,251 Wexpro 11,985 10,182 Questar Gas Management 9,738 8,808 Questar Energy Trading and Other 2,452 1,380 Market Resources Total 94,665 56,621 Questar Pipeline 11,439 8,339 Questar Gas 29,364 28,712 Corporate and other operations 1,688 1,499 $137,156 $95,171 QUESTAR CORPORATION SELECTED OPERATING STATISTICS (Unaudited) 3 Months Ended March 31, 2006 2005 MARKET RESOURCES Questar E&P production volumes Natural gas (MMcf) 28,556 22,839 Oil and natural gas liquids (Mbbl) 623 583 Total production (Bcfe) 32.3 26.3 Average daily production (MMcfe) 359 293 Average realized price, net to the well (including hedges) Natural gas (per Mcf) $6.26 $4.76 Oil and natural gas liquids (per bbl) $50.42 $38.74 Wexpro net investment base at March 31, (millions) $214.5 $185.7 Natural gas gathering volumes (in thousands of MMBtu) (1) For unaffiliated customers 32,650 32,535 For Questar Gas 10,563 11,256 For other affiliated customers 18,016 15,846 Total gathering 61,229 59,637 Gathering revenue (per MMBtu) $0.29 $0.26 Natural gas and oil marketing volumes (Mdthe) For unaffiliated customers 29,532 28,910 For affiliated customers 25,562 22,551 Total marketing 55,094 51,461 QUESTAR PIPELINE Natural gas transportation volumes (Mdth) For unaffiliated customers 62,717 55,602 For Questar Gas 40,857 43,739 For other affiliated customers 3,746 1,976 Total transportation 107,320 101,317 Transportation revenue (per dth) $0.28 $0.26 Firm-daily transportation demand (Mdth) 2,155 1,625 QUESTAR GAS Natural gas volumes (Mdth) Residential and commercial sales 42,265 39,919 Industrial sales 1,151 1,703 Transportation for industrial customers 8,485 8,655 Total deliveries 51,901 50,277 Natural gas revenue (per dth) Residential and commercial sales $10.45 $8.07 Industrial sales $8.37 $6.11 Transportation for industrial customers $0.19 $0.19 Heating degree days - warmer than normal 2% 5% Temperature-adjusted usage per customer (dth) 48.9 49.9 Customers at March 31, 834,252 800,523 (1) one dth = one MMBtu QUESTAR CORPORATION PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2006 2005 (Unaudited) (in thousands) ASSETS Current assets Cash and cash equivalents $29,147 $13,360 Accounts and notes receivable, net 345,108 458,395 Fair value of hedging contracts 3,525 1,972 Inventories 68,920 125,417 Other current assets 66,575 156,696 Total current assets 513,275 755,840 Property, plant and equipment 5,703,127 5,527,997 Less accumulated depreciation 2,168,171 2,100,455 Net property, plant and equipment 3,534,956 3,427,542 Investment in unconsolidated affiliates 32,322 30,681 Other assets, net 139,678 143,010 $4,220,231 $4,357,073 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt $94,500 Accounts payable and accrued expenses $424,228 557,011 Fair value of hedging contracts 51,217 222,049 Current portion of long-term debt 200,014 14 Total current liabilities 675,459 873,574 Long-term debt, less current portion 783,202 983,200 Deferred income taxes 669,937 624,187 Fair value of hedging contracts 32,575 99,044 Other long-term liabilities 238,722 227,265 Common shareholders' equity 1,820,336 1,549,803 $4,220,231 $4,357,073 QUESTAR CORPORATION PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 3 Months Ended March 31, 2006 2005 (in thousands) Operating activities Net income $137,156 $95,171 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, depletion and amortization 73,977 60,167 Deferred income taxes 7,597 2,105 Abandonment and impairment of gas, oil and other properties 1,699 1,405 Share-based compensation 2,220 865 Income from unconsolidated affiliates, net of cash distributions (1,641) 568 Net (gain) loss from asset sales 105 (59) Hedge contract ineffectiveness 22 180 Change in operating assets and liabilities 100,131 5,139 Net cash provided from operating activities 321,266 165,541 Investing activities Capital expenditures (196,905) (129,344) Proceeds from asset dispositions 3,151 1,427 Net cash used in investing activities (193,754) (127,917) Financing activities Common stock (53) 3,545 Short-term debt (94,500) (31,000) Other financing 2,063 4,346 Dividends paid (19,235) (18,196) Net cash used in financing activities (111,725) (41,305) Change in cash and cash equivalents 15,787 (3,681) Beginning cash and cash equivalents 13,360 3,681 Ending cash and cash equivalents $29,147 $ -

Questar Corp.

CONTACT: Martin H. Craven, +1-801-324-5077, for Questar Corp.

Web site: http://www.questar.com/

Source: PRNewswire-FirstCall

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