Questar Net Income Up 25% in First-Quarter 2005 Driven by Higher Pined

SALT LAKE CITY, April 27 /PRNewswire-FirstCall/ -- Questar Corp. , a natural gas-focused energy company, reported a 25% increase in net income in first-quarter 2005 compared to the year-earlier period, driven by growing natural gas production, higher realized prices for natural gas and oil, and strong gas-processing margins.

Questar's net income was $95.2 million, or $1.10 per diluted share, in the 2005 quarter compared to $76.1 million, or $0.89 per diluted share, in the 2004 period. There was an average of 86.7 million diluted common shares outstanding in the current-year quarter versus 85.2 million a year earlier.

Questar Market Resources Net Income Rises 41%

Questar subsidiary Questar Market Resources (Market Resources) -- which engages in gas and oil exploration, development and production, gas gathering and processing, wholesale gas and oil marketing and gas storage -- earned $56.6 million in first-quarter 2005 compared with $40.3 million a year earlier, a 41% increase.

"We now estimate that 2005 earnings per share could range from $3.15 to $3.30 per share compared to our previous guidance of $3.10 to $3.30 per share," said Keith O. Rattie, Questar chairman, president and CEO. "First quarter production volumes were up about 4% from a year ago, but about one billion cubic feet of gas equivalent (bcfe) below our expectations because we drilled and completed fewer wells than planned due to bad weather, a shortage of rigs, and land access-related delays. We're working through these issues, and still expect 2005 production to be within the previous guidance range of 112 bcfe to 114 bcfe -- 8% to 10% higher than last year," Rattie added.

Rattie noted that the company's guidance excludes one-time items and assumes an average NYMEX price for gas of $7.10 per MMBtu for April through December 2005, and an average NYMEX prompt-month price of $53.50 per barrel for oil for April through December 2005. The company has hedged approximately 78% of its forecast full-year 2005 natural gas and oil-equivalent production. The company now estimates that a $0.10 change in the average NYMEX price of natural gas for the remainder of the year will result in about a $900,000 change in net income. Similarly, a $1 per barrel change in the average NYMEX prompt price of oil and natural gas liquids over the remainder of the year will result in about a $400,000 change in net income.

Market Resources' subsidiary Questar Exploration and Production (Questar E&P) reported net income of $36.3 million in first-quarter 2005 -- 44% higher than a year earlier. Questar E&P's production for the first three months of 2005 increased 4% to 26.3 bcfe compared to 25.4 bcfe for the 2004 period. Questar E&P's first-quarter 2005 production was impacted by weather-related well-completion and workover delays on properties in the Uinta Basin of Utah and in the western Midcontinent, delays caused by seasonal access restrictions on the company's Rockies "Legacy" properties, and delays in obtaining rigs to drill planned development wells in the western Midcontinent.

Production from the Pinedale Anticline in western Wyoming increased 24% in the 2005 quarter to 7.5 bcfe compared with the 2004 period and comprised about 29% of Questar E&P's total production. Pinedale production typically declines over the first three quarters of the year due to Bureau of Land Management (BLM) restrictions that limit access for drilling and well completions between mid-November and early May.

At the end of first-quarter 2005, Market Resources operated 106 producing wells at Pinedale compared to 76 a year earlier. Last November the BLM authorized Market Resources to drill with two rigs on one pad throughout the winter. Barring drilling problems, Market Resources expects to drill and complete, or be completing, eight wells on this pad by the end of the second quarter of 2005. At the end of the first quarter, the company also had two rigs active on state land. The company now has 12 drilling rigs under contract for the Pinedale summer drilling program, which will commence once the BLM authorizes access.

Uinta Basin production declined 9% to 5.7 bcfe in the 2005 quarter compared to 6.3 bcfe a year ago. Abnormal weather slowed completion and connection of new wells and routine workovers on existing wells. Weather- related conditions (mud) improved in mid-March, and Questar E&P has since reduced the backlog of well completions and workovers. In addition, high gathering-system pressures caused by a higher-pressure deep well continued to depress production from older lower-pressure wells. The company will install a separate gathering system for existing and new high-pressure wells, which should mitigate the impact on production from older wells.

Rockies Legacy production declined 9% in first-quarter 2005 to 4.1 bcfe compared to 4.4 bcfe during the 2004 period. Legacy properties include all of Questar E&P's Rocky Mountain producing properties except Pinedale and the Uinta Basin. Production was down in the first three months of 2005 due to normal field decline and seasonal restrictions that limit access to company leases during the winter.

Questar E&P produced 9.0 bcfe in the Midcontinent in first-quarter 2005 compared to 8.6 bcfe for the same period of 2004, a 5% increase. During the quarter the company continued one-rig development programs in both the Hartshorne coalbed-methane project in the Arkoma Basin of eastern Oklahoma and its infill-development drilling on the Elm Grove properties in northwestern Louisiana. Delays in obtaining rigs and weather-related downtime negatively impacted production volumes and workover activity in the western Midcontinent region.

On an energy-equivalent basis, natural gas comprised about 87% of production in the 2005 quarter. A table at the end of this release details Questar E&P production by region.

Questar E&P's average realized natural gas price (including hedges) increased 18% in first-quarter 2005 to $4.76 per thousand cubic feet (Mcf) compared to $4.05 per Mcf for the same period in 2004. Approximately 88% of gas production in the current-year quarter was hedged or pre-sold at an average price of $4.98 per Mcf net to the well (which reflects adjustments for regional basis, gathering and processing and gas quality). Hedging reduced gas revenues $9.6 million during the quarter.

For the 2005 quarter, realized oil and natural gas liquids (NGL) prices averaged $38.74 per barrel compared with $29.46 for first-quarter 2004, a 32% increase. Questar E&P hedged approximately 56% of its oil production during the current-year quarter at an average net-to-the-well price of $34.64 per barrel. Hedging reduced oil revenues $4.0 million during the 2005 period.

Questar may hedge up to 100% of its forecasted production from proved developed reserves to lock in acceptable returns on invested capital and to protect returns, cash flow and earnings from a decline in commodity prices. During the 2005 quarter, Questar E&P continued to take advantage of higher natural gas and oil prices to hedge additional production in 2005, 2006 and 2007. Natural gas and oil hedges as of the date of this release are summarized in a table at the end of the release.

Questar E&P's pre-income-tax cost structure per unit of production (the sum of depreciation, depletion and amortization expense, lifting costs, general and administrative expense, and allocated interest expense) increased 13% to $2.67 per thousand cubic feet of gas equivalent (Mcfe) in first-quarter 2005 compared to $2.37 in the year-earlier period.

Depreciation, depletion and amortization expense rose 13% over the past year to $1.11 per Mcfe due to the normal decline in production from older, lower-cost successful-efforts pools, negative reserve revisions over the past 12 months in the Uinta Basin and higher reserve-replacement (finding and development) costs. Higher day-rates for rigs and other services, along with sharply higher steel prices, resulted in higher drilling and completion costs.

Lifting costs in the 2005 period increased 12% versus the 2004 quarter due to a $.04 per Mcfe increase in production taxes and a $0.07 per Mcfe increase in lease-operating expenses. Most production taxes are based on a fixed percentage of commodity sales prices. Higher lease-operating expenses reflect a general increase in well-service costs, including increased costs of contracted services and production-related supplies, increased workover and production enhancement projects, and additional weather-related costs in the current quarter.

General and administrative expenses increased $0.07 per Mcfe, or 26%, to $0.34 per Mcfe in the first quarter of 2005. The company continued to adjust employee compensation in response to industry competition for skilled professionals. Higher allocated corporate overhead (primarily employee benefits and compliance costs) also contributed to the increase.

A table at the end of this release details Questar E&P's pre-income-tax cost structure.

Wexpro -- a Market Resources subsidiary that develops and produces cost- of-service reserves for Questar Gas -- earned $10.2 million in first-quarter 2005, 13% more than in the year-earlier period. Wexpro's activities are governed by a long-standing agreement with the states of Utah and Wyoming. Pursuant to the agreement, Wexpro recovers its costs and receives an unlevered after-tax return of approximately 19% on its investment in commercial wells and related facilities, adjusted for working capital and reduced for deferred taxes and depreciation (the investment base). Wexpro's investment base increased $16.7 million to $185.7 million at March 31, 2005. Wexpro's net income also benefited from higher oil and NGL prices in 2005.

Questar Gas Management -- Market Resources' gas-gathering and processing- services business -- increased net income 65% to $8.8 million in the current- year quarter compared to a year earlier. Gross keepwhole processing margins grew 97% from $3.5 million in the first quarter of 2004 to $6.8 million in the 2005 quarter, driven by the difference between the market value of natural gas and the market value of NGL extracted from the gas stream (commonly referred to as the "frac spread") and a 15% increase in NGL volumes. Gathering volumes increased 1.0 million MMBtu to 59.6 million MMBtu in the 2005 quarter due primarily to expanding Pinedale production and new projects serving third parties in the Uinta Basin.

Questar Energy Trading -- which sells Market Resources' equity gas and oil, provides risk-management services, and operates a natural gas storage facility in the Rockies -- earned $1.4 million in first-quarter 2005 versus $0.7 million in the year-earlier period. Gross margins for gas and oil marketing increased to $3.1 million in the 2005 quarter versus $2.3 million a year ago, a 34% increase.

Pipeline, Utility Improve Earnings

Questar Pipeline -- which operates a natural gas-transportation and storage network in Wyoming, Utah and Colorado -- earned $8.3 million in first-quarter 2005 versus $8.1 million in the year-earlier period. Revenues were essentially flat while operating and maintenance expenses were slightly lower. Questar Pipeline has continued to accrue for the potential refund of liquids revenue from the Kastler processing plant as required by a November 2004 order from the Federal Energy Regulatory Commission (FERC). The company has asked the FERC for a rehearing.

Questar Gas -- a retail gas-distribution subsidiary -- earned $28.7 million in first-quarter 2005, $2.4 million or 9% higher than a year ago. The utility served 800,523 customers on March 31, 2005, a 24,257 or 3.1% year-to-year increase. Average temperature-adjusted usage per customer rose 1% during the 2005 quarter compared with the year-earlier period. Customer growth and higher usage per customer more than offset a nominal rise in operating and maintenance expenses. Earnings in both periods were reduced for certain processing costs not included in rates, which totaled $1.7 million in first-quarters of both 2004 and 2005. The company has filed for ongoing recovery of these costs with the Public Service Commission of Utah, but a decision is not expected until the fourth quarter of 2005.

Current Hedge Positions Rocky Mid- Rocky Mid- Time Periods Mountains continent Total Mountains continent Total Gas (in bcf) Average price per Mcf, net to the well Second quarter of 2005 12.9 6.4 19.3 $4.70 $5.23 $4.88 Second half of 2005 26.6 13.0 39.6 4.74 5.23 4.90 Remainder of 2005 39.5 19.4 58.9 4.73 5.23 4.89 First half of 2006 19.0 9.4 28.4 $5.18 $5.95 $5.43 Second half of 2006 19.2 9.6 28.8 5.18 5.95 5.43 12 months of 2006 38.2 19.0 57.2 5.18 5.95 5.43 First half of 2007 5.5 3.3 8.8 $5.61 $6.72 $6.03 Second half of 2007 5.5 3.4 8.9 5.61 6.72 6.03 12 months of 2007 11.0 6.7 17.7 5.61 6.72 6.03 Average price per bbl, Oil (in Mbbl) net to the well Second quarter of 2005 273 91 364 $39.03 $34.70 $37.95 Second half of 2005 550 184 734 39.01 34.70 37.93 Remainder of 2005 823 275 1,098 39.02 34.70 37.94 First half of 2006 471 72 543 $46.15 $53.44 $47.12 Second half of 2006 478 74 552 46.15 53.44 47.12 12 months of 2006 949 146 1,095 46.15 53.44 47.12 First half of 2007 109 72 181 $50.49 $50.87 $50.64 Second half of 2007 110 74 184 50.49 50.87 50.64 12 months of 2007 219 146 365 50.49 50.87 50.64 Questar E&P -- Production by Region 3 Months Ended March 31, 2005 2004 (in bcfe) Rocky Mountains Pinedale Anticline 7.5 6.1 Uinta Basin 5.7 6.3 Rockies Legacy 4.1 4.4 Subtotal - Rocky Mountains 17.3 16.8 Midcontinent Tulsa 5.1 4.3 Oklahoma City 3.9 4.3 Subtotal - Midcontinent 9.0 8.6 Total - Questar E&P 26.3 25.4 Questar E&P -- Pre-Income-Tax Cost Structure 3 Months Ended March 31, 2005 2004 (Per Mcfe) Lease-operating expense $0.55 $0.48 Production taxes 0.46 0.42 Lifting costs 1.01 0.90 Depreciation, depletion and amortization 1.11 0.98 General and administrative expense 0.34 0.27 Allocated-interest expense 0.21 0.22 Total $2.67 $2.37

Questar Corp. is a natural-gas focused energy company with an enterprise value of $6.0 billion. Headquartered in Salt Lake City, Questar finds, develops, produces, gathers, processes, transports and distributes natural gas. For more information, visit Questar's internet site at: http://www.questar.com/

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws. 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 as amended for the year ended December 31, 2004. 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.

QUESTAR CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) 3 Months Ended March 31, 2005 2004 (in thousands, except per share amounts) REVENUES Market Resources $314,338 $234,054 Questar Pipeline 17,912 18,013 Questar Gas 343,690 306,879 Corporate and other operations 4,384 4,670 TOTAL REVENUES 680,324 563,616 OPERATING EXPENSES Cost of natural gas and other products sold 342,786 266,259 Operating and maintenance 85,849 78,429 Depreciation, depletion and amortization 58,825 52,269 Questar Gas rate-refund obligation 1,490 Exploration 1,373 1,087 Abandonment and impairment of gas, oil and other properties 1,405 4,406 Production and other taxes 26,385 22,886 TOTAL OPERATING EXPENSES 516,623 426,826 OPERATING INCOME 163,701 136,790 Interest and other income 2,651 1,824 Earnings from unconsolidated affiliates 1,546 1,310 Minority interest (270) Debt expense (16,722) (17,516) INCOME BEFORE INCOME TAXES 151,176 122,138 Income taxes 56,005 46,005 NET INCOME $95,171 $76,133 EARNINGS PER COMMON SHARE Basic $1.13 $0.91 Diluted 1.10 0.89 Weighted average common shares outstanding Used in basic calculation 84,417 83,374 Used in diluted calculation 86,728 85,168 Dividends per common share $0.215 $0.205 QUESTAR CORPORATION OPERATIONS BY LINE OF BUSINESS (Unaudited) 3 Months Ended March 31, 2005 2004 (in thousands, except per share amounts) REVENUES FROM UNAFFILIATED CUSTOMERS Market Resources $314,338 $234,054 Questar Pipeline 17,912 18,013 Questar Gas 343,690 306,879 Corporate and other operations 4,384 4,670 $680,324 $563,616 REVENUES FROM AFFILIATED COMPANIES Market Resources $38,084 $34,357 Questar Pipeline 22,425 22,293 Questar Gas 1,261 1,137 Corporate and other operations 602 6,527 $62,372 $64,314 OPERATING INCOME Market Resources $94,718 $69,323 Questar Pipeline 18,357 18,287 Questar Gas 49,951 47,899 Corporate and other operations 675 1,281 $163,701 $136,790 NET INCOME Market Resources $56,621 $40,255 Questar Pipeline 8,339 8,113 Questar Gas 28,712 26,311 Corporate and other operations 1,499 1,454 $95,171 $76,133 EARNINGS PER COMMON SHARE - DILUTED Net income $1.10 $0.89 Weighted avg. diluted common shares 86,728 85,168 Dividends per common share $0.215 $0.205 QUESTAR CORPORATION SELECTED OPERATING STATISTICS (Unaudited) 3 Months Ended March 31, 2005 2004 (d = 10, M = 1,000) MARKET RESOURCES Questar E&P production volumes Natural gas (MMcf) 22,839 21,888 Oil and natural gas liquids (Mbbl) 583 587 Total production (bcfe) 26.3 25.4 Average daily production (MMcfe) 293 279 Questar E&P average commodity price, net to the well Average realized price (including hedges) Natural gas (per Mcf) $4.76 $4.05 Oil and natural gas liquids (per bbl) $38.74 $29.46 Average sales price (excluding hedges) Natural gas (per Mcf) $5.18 $4.72 Oil and natural gas liquids (per bbl) $45.59 $31.85 Wexpro net investment base at March 31, (millions) $185.7 $169.0 Natural gas gathering volumes (in hundreds of thousands of MMBtu) For unaffiliated customers 32,535 34,294 For Questar Gas 11,256 9,757 For other affiliated customers 15,846 14,558 Total gathering 59,637 58,609 Gathering revenue (per MMBtu) $0.26 $0.21 Natural gas and oil marketing volumes (Mdthe) For unaffiliated customers 29,600 21,855 For affiliated customers 21,861 20,350 Total marketing 51,461 42,205 QUESTAR PIPELINE Natural gas transportation volumes (Mdth) For unaffiliated customers 55,592 53,734 For Questar Gas 43,739 49,876 For other affiliated customers 1,976 4,260 Total transportation 101,307 107,870 Transportation revenue (per dth) $0.26 $0.25 Firm-daily transportation demand (Mdth) 1,625 1,646 QUESTAR GAS Natural gas volumes (Mdth) Residential and commercial sales 39,919 41,684 Industrial sales 1,703 3,014 Transportation for industrial customers 8,655 9,938 Total deliveries 50,277 54,636 Natural gas revenue (per dth) Residential and commercial $8.07 $6.79 Industrial sales $6.11 $5.52 Transportation for industrial customers $0.19 $0.19 Heating degree days colder (warmer) than normal (5%) 12% Temperature-adjusted usage per customer (dth) 49.9 49.3 Customers at March 31, 800,523 776,266