QUESTAR CORPORATION AND SUBSIDIARIES


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 8-K


CURRENT REPORT




Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934




Date of Report - February 10, 2004

(Date of earliest event reported)




QUESTAR CORPORATION

(Exact name of registrant as specified in charter)




STATE OF UTAH

1-8796

87-0407509

(State of other jurisdiction of                 (Commission File No.)

(I.R.S. Employer

incorporation or organization)

Identification No.)


P. O. Box 45433, 180 East 100 South Street, Salt Lake City, Utah 84145-0433

(Address of principal executive offices)


Registrant's telephone number, including area code (801) 324-5000



_______________Not Applicable_____________

(Former name or former address, if changed since last report)







#






Item 7.   Financial Statements and Exhibits.


          (c)   Exhibits.


Exhibit No.

Exhibit


         99.1

Release issued February 10, 2004, by Questar Corporation.



     Item 12.   Results of Operations and Financial Condition.


          On February 10, 2004, Questar Corporation issued a press release announcing its earnings for the year ended December 31, 2003.  A copy of this press release is furnished as Exhibit 99.1 and is incorporated by reference.



SIGNATURE


          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





QUESTAR CORPORATION

   (Registrant)




February 10, 2004

/s/S.E. Parks                                 

S. E. Parks

Senior Vice President, Treasurer, and

Chief Financial Officer




#






List of Exhibits:


Exhibit No.

Exhibit


        99.1

Release issued February 10, 2004 by Questar Corporation.






#






QUESTAR 2003 EARNINGS RISE WITH STRONG GAS PRICES, PRODUCTION


Company’s Nonregulated Rocky Mountain Production Up 15%


SALT LAKE CITY — Integrated natural gas company Questar Corp. (NYSE:STR) reported 2003 earnings of $173.6 million, or $2.06 per diluted share, compared to $155.6 million, or $1.88 per share, for the prior year.


The company’s 2003 net income was reduced by noncash charges totaling $.25 per share. The charges included a $13.6 million, or $.16-per-diluted-share, after-tax charge in the second quarter related to a gas-processing issue involving Questar’s gas-distribution utility, Questar Gas. The gas-processing issue resulted in an additional accrual of $1.9 million after tax, or $.02 per diluted share, in the second half of 2003. In the first quarter of 2003, the company took noncash charges totaling $5.6 million, or $.07 per diluted share, for the cumulative effect of a new accounting rule, SFAS 143, “Accounting for Asset Retirement Obligations.”


 Questar’s 2002 results included a net $.14-per-share gain from nonrecurring events. In the first quarter of 2002, the company recorded an after-tax write-down of $15.3 million, or $.19 per diluted share, related to new accounting standards for goodwill. Questar’s 2002 results also included a $.33-per-share after-tax gain from asset sales.



Excluding charges, write-downs and asset sales, Questar earned $2.31 per diluted share in 2003, 33% higher than 2002 net income of $1.74 per share.


For the fourth quarter of 2003, Questar’s net income was $60.0 million, or $.71 per diluted share, compared with $68.0 million, or $.82 per diluted share, a year earlier. The 2002 quarterly figure included a $.28-per-share gain from the sale of noncore energy-producing properties. Excluding asset sales, Questar’s fourth-quarter 2002 earnings were $.54 per diluted share. The 2003 period results were reduced by an ongoing $.01-per-share quarterly accrual related to the gas-processing issue.


There was an average of 84.2 million diluted shares outstanding in 2003 versus 82.6 million in the prior year.


Keith O. Rattie, Questar chairman, president and chief executive officer, said: “A 40% increase in realized gas prices and growth of Rockies nonregulated production drove a rebound in earnings in our E&P business, offsetting disappointing earnings for our regulated companies.”


FULL-YEAR 2003 RESULTS -- NONREGULATED ACTIVITIES


Questar Market Resources (QMR) – which conducts the company’s nonregulated exploration, production, gathering and processing, and marketing activities – earned $116.0 million in 2003 compared to $97.9 million a year earlier. Excluding the first-quarter charge of $5.1 million for the cumulative effect of implementing SFAS 143, QMR earned $121.1 million in 2003. Sales of nonstrategic properties produced an after-tax gain of $26.8 million in 2002. Excluding asset sales, QMR’s net income was $71.1 million in 2002.


QMR’s 2003 total nonregulated oil and gas production was 92.8 billion cubic feet equivalent (bcfe) compared to 96.3 bcfe for 2002. The company sold nonstrategic properties in Canada, the Midcontinent and the San Juan Basin in 2002 comprising approximately 12.3 bcfe of production. QMR’s 2003 production was about 10% higher than the sale-adjusted 2002 production of about 84 bcfe.

QMR’s Rocky Mountain region nonregulated (exclusive of Wexpro) production increased about 15%, after adjusting for 2002 asset sales, to 60.9 bcfe in 2003. The production growth was driven by two major Questar projects – the Pinedale Anticline in western Wyoming and the Uinta Basin in eastern Utah. QMR drilled 25 wells (17.1 net) on the Pinedale Anticline 2003, 10 more than the average for the prior three years. Net nonregulated production from the Pinedale field increased 76% from 8.6 bcfe in 2002 to 15.2 bcfe in 2003. The company’s production from the Uinta Basin increased 8% from 26.8 bcfe in 2002 to 29.0 bcfe in 2003.


QMR’s average realized sales price for natural gas was $3.62 per thousand cubic feet (Mcf), 40% higher than the 2002 average price of $2.58. Prices for Rockies gas – which accounts for two-thirds of Questar production – benefited from the mid-year start-up of the expanded Kern River Pipeline. Kern River reduced the oversupply of gas in the Rockies, bringing regional prices closer to the historical relationship with national indices. QMR hedged approximately 70% of its 2003 production at an average price of $3.38 per Mcf. The company may hedge up to 100% of its proved-developed production when prices are attractive to lock-in acceptable returns and protect against price declines.


QMR’s cost of production – depreciation, depletion & amortization, lease-operating expenses, production taxes, general & administrative expenses and allocated interest – increased from $2.17 per thousand cubic feet equivalent (Mcfe) before income taxes in 2002 to $2.29 per Mcfe in 2003. The increase resulted from higher production taxes that are a function of increased prices.  Excluding production taxes, QMR’s controllable production costs declined from $2 per Mcfe in 2002 to $1.96 per Mcfe in 2003.


Nonregulated proved oil and gas-equivalent reserves increased to 1,159 bcfe at year-end 2003 compared to 1,113 bcfe at the end of the prior year, a 4% increase. QMR replaced 149% of its 2003 production.


QMR subsidiary Wexpro – which develops gas properties on behalf of Questar’s gas-distribution utility – earned $32.6 million in 2003 compared to $30.8 million in the prior year. The higher net income resulted from expanded investment in gas-development projects. Wexpro’s investment base was $172.8 million at year-end 2003, 5% higher than a year earlier. Wexpro supplied approximately 50% of Questar Gas’s 2003 deliveries to residential and commercial customers at a cost of service well below market prices. Wexpro’s reserves and production are not included in reported nonregulated reserves and production. Wexpro’s expanding investment base resulted in large part from development of its working interest acreage at Pinedale.

QMR’s gas-gathering, processing, blending, marketing and transportation-services subsidiaries reported 2003 earnings of $13.0 million compared to $10.9 million in the prior year.  Gathering volumes grew 6% to 202.5 million dth in 2003, while processing-plant liquid volumes rose 64% to 60.8 million gallons. QMR’s 50% ownership in Rendezvous Gas Services generated $2.9 million in net income in 2003 compared to $1.4 million in 2002. Rendezvous provides gas-gathering, blending, and transportation services to producers in the prolific Jonah-Pinedale producing area of Wyoming’s Green River Basin. Rendezvous gathering volumes rose 72% in 2003.






#






FULL-YEAR 2003 RESULTSREGULATED BUSINESSES

Questar Pipeline – an interstate gas-transmission and storage subsidiary – reported 2003 net income of $30.2 million compared to $32.6 million in 2002. Total transportation volumes rose 7% to 388.0 million dth in 2003 compared to 362.9 million dth in the prior year. Volume growth on the pipeline’s core transportation system reflected expanding natural gas production in the Rocky Mountain region. In addition, the eastern section of the company’s Southern Trails Pipeline was in service for its first full year in 2003, with daily average throughput of 80,000 dth. The eastern section extends 488 miles from New Mexico’s San Juan Basin to delivery points inside the California state line.


Questar Pipeline’s 2003 results were adversely affected by lower capitalized costs related to new projects and increased operating and maintenance costs from expanded operations.


Net income for Questar Gas – a retail gas-distribution subsidiary – declined from $32.4 million in 2002 to $20.2 million in 2003 due to after-tax charges totaling $15.5 million for the unresolved gas-processing issue. The 2002 results benefited from the one-time recovery of $2.4 million in after-tax gas-processing costs incurred in 1999 and 2000.


Excluding the $15.5 million after-tax potential-refund accruals, Questar Gas’s 2003 net income would be $35.7 million. The pro-forma increase was the result of the Dec. 30, 2002, rate increase, slightly higher temperature-adjusted usage per customer and lower operating expenses.


Questar Gas’s 2003 deliveries fell 11% to 132.3 million dth, including a 7% decline in residential and commercial volumes due to warmer-than-normal weather in the utility’s

service area. Annual customer growth remained strong at 2.7%, about twice the industry average. Questar Gas had approximately 770,000 customers at year-end 2003.


FULL-YEAR RESULTSCORPORATE AND OTHER OPERATIONS


Corporate and Other Operations reported net income of $7.2 million in 2003 versus a $7.3 million loss for the prior year. In the first quarter of 2002 the company recorded a $15.3 million after tax write-down of its data-hosting operations.


FOURTH-QUARTER 2003 RESULTS


Questar Market Resources earned $31.9 million in fourth-quarter 2003 compared with $41.5 million in the year-earlier period. Sales of nonstrategic assets produced an after-tax gain of $23.3 million in the 2002 quarter. Excluding asset sales, QMR earned $18.2 million in fourth-quarter 2002. The average realized natural gas sales price improved 30% year over year to $3.73 per Mcf in the 2003 quarter.

Wexpro earned $8.8 million in the 2003 quarter versus $7.4 million a year earlier. Gas gathering, processing and marketing produced earnings of $3.5 million compared with $6.5 million for the 2002 quarter. The 2002 quarter’s results included a $1.7 million after-tax gain from the sale of a noncore gathering system.  Gathering volumes increased 6% to 56.4 million dth in the 2003 quarter.  


Questar Pipeline reported net income of $7.1 million in fourth-quarter 2003 versus $8.5 million for the year-earlier period. A 6% rise in firm-transportation volumes was offset by higher operating costs.


Questar Gas earned $19.2 million in the 2003 quarter compared with $16.4 million a year earlier. The 2003 quarterly result included a $900,000 after-tax accrual for potential refund liability. Total deliveries were 8% lower at 41.2 million dth in the 2003 quarter due primarily to warmer-than-normal weather. The utility’s fourth-quarter 2003 net income benefited from a shift of revenues to the first and fourth quarters under the new general rates.


REVISED 2004 EARNINGS GUIDANCE


Questar Chairman Rattie said 2004 earnings could range from $2.30 to $2.45 per diluted share. The company’s previous 2004 guidance was $2.25 to $2.40. The revised guidance is based on the company’s current hedge positions as outlined below and anticipated prices for the company’s unhedged production based on forward oil and gas price curves at the close of business on Feb. 6, 2004. The guidance also excludes gains and losses on asset sales and the favorable resolution of the Questar Gas gas-processing issue.


Rattie said the company expects base nonregulated gas and oil-equivalent production to grow 5 to 10% to 97-102 bcfe in 2004, excluding asset sales or purchases.


CURRENT HEDGE POSITIONS


Gas Hedges 2004

Bcf

 

Price

 
      

(per Mcf)  

(net to well)

 
 

Rocky Mountains

    
  

1st half

 

22.8

 

$3.79

 
  

2nd half

 

21.0

 

$3.69

 
  

Year

 

43.8

 

$3.74

 
        
 

Midcontinent

    
  

1st half

 

12.0

 

$4.53

 
  

2nd half

 

12.1

 

$4.53

 
  

Year

 

24.1

 

$4.53

 
        
 

Total

     
  

1st half

 

34.8

 

$4.05

 
  

2nd half

 

33.1

 

$3.99

 
  

Year

 

67.9

 

$4.02

 
        
        
        
        

Gas Hedges 2005

Bcf

 

Price

 
      

(per Mcf)  

(net to well)

 
 

Rocky Mountains

    
  

1st half

 

13.1

 

$3.84

 
  

2nd half

 

13.3

 

$3.84

 
  

Year

 

26.4

 

$3.84

 
        
 

Midcontinent

    
  

1st half

 

7.7

 

$4.44

 
  

2nd half

 

7.9

 

$4.44

 
  

Year

 

15.6

 

$4.44

 
        
 

Total

     
  

1st half

 

20.8

 

$4.06

 
  

2nd half

 

21.2

 

$4.06

 
  

Year

 

42.0

 

$4.06

 
        
        
        

Oil Hedges 2004

Mbbls

 

Price

 
      

(per bbl)

 (net to well)

 
 

Rocky Mountains

    
  

1st half

 

76

 

$30.99

 
  

2nd half

 

92

 

$30.99

 
  

Year

 

168

 

$30.99

 
        
 

Midcontinent

    
  

1st half

 

75

 

$31.39

 
  

2nd half

 

92

 

$31.39

 
  

Year

 

167

 

$31.39

 
        
 

Total

     
  

1st half

 

151

 

$31.19

 
  

2nd half

 

184

 

$31.19

 
  

Year

 

335

 

$31.19

 


Questar is an integrated natural gas company with $4 billion in enterprise value. Headquartered in Salt Lake City, Questar engages in gas and oil development and production; gas gathering, processing and marketing; interstate gas transmission and storage; and retail gas distribution.


Forward-looking Statements


This release contains certain 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 for the year ended Dec. 31, 2002. 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: www.questar.com.




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QUESTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

3 Months Ended

12 Months Ended

December 31,

December 31,

2003

2002

2003

2002

    (In Thousands, Except Per Share Amounts)

REVENUES

    

  Questar Market Resources

 $ 202,349

 $ 164,896

 $ 751,502

 $ 522,476

  Natural gas distribution

222,629

191,526

618,791

593,835

  Natural gas transmission

19,564

21,420

74,981

66,275

  Corporate and other operations

4,670

5,008

17,914

18,081

     

    TOTAL REVENUES

449,212

382,850

1,463,188

1,200,667

     

OPERATING EXPENSES

    

  Cost of natural gas and other products

      sold


191,718


152,328


542,441


395,742

  Operating and maintenance

75,911

77,794

284,266

284,317

  Depreciation, depletion and amortization

51,210

48,229

192,382

184,952

  Distribution rate-refund obligation

1,477

 

24,939

 

  Exploration

1,324

1,103

4,498

6,086

  Abandonment and impairment of gas,

    

     oil and other properties

2,089

8,717

4,151

11,183

  Production and other taxes

18,268

10,259

70,681

44,192

     

    TOTAL OPERATING EXPENSES

341,997

298,430

1,123,358

926,472

     

    OPERATING INCOME

107,215

84,420

339,830

274,195

     

Interest and other income

872

38,973

7,657

57,168

Earnings from unconsolidated affiliates

1,321

1,687

5,008

11,777

Debt expense

(17,002)

(20,235)

(70,736)

(81,121)

     

   INCOME BEFORE INCOME TAXES

    

       AND CUMULATIVE EFFECTS

92,406

104,845

281,759

262,019

Income taxes

32,375

36,832

102,563

91,126

     

INCOME BEFORE CUMULATIVE     

       EFFECTS

60,031

68,013

179,196

170,893

     

Cumulative effect of accounting change

    

for asset retirement obligations, net of

    

income taxes of $3,331

  

(5,580)

 
     

Cumulative effect of accounting change

    

for goodwill, net of $2,010 attributed to

    

minority interest

   

(15,297)

     

           NET INCOME

 $   60,031

 $   68,013

 $ 173,616

 $ 155,596

     

BASIC EARNINGS PER COMMON SHARE

    

Income before cumulative effects

 $      0.72

 $      0.83

 $      2.17

 $      2.09

Cumulative effects

  

(0.07)

(0.19)

Net income

 $      0.72

 $      0.83

 $      2.10

 $      1.90

     

DILUTED EARNINGS PER COMMON SHARE

    

Income before cumulative effects

 $      0.71

 $      0.82

 $      2.13

 $      2.07

Cumulative effects

  

(0.07)

(0.19)

Net income

 $      0.71

 $      0.82

 $      2.06

 $      1.88

Weighted average common shares outstanding

    

Used in basic calculation

83,019

81,950

82,697

81,782

Used in diluted calculation

84,658

82,838

84,190

82,573

     

Dividends per common share

 $    0.205

 $    0.185

 $      0.78

 $    0.725











QUESTAR CORPORATION AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING RESULTS

(Unaudited)

 

3 Months Ended

12 Months Ended

December 31,

December 31,

2003

2002

2003

2002

(In Thousands, Except Per Share Amounts)

FINANCIAL RESULTS

    
     

REVENUES FROM UNAFFILIATED CUSTOMERS

    

  Questar Market Resources

 $   202,349

 $   164,896

 $   751,502

 $   522,476

  Natural gas distribution

222,629

191,526

618,791

593,835

  Natural gas transmission

19,564

21,420

74,981

66,275

  Corporate and other operations

4,670

5,008

17,914

18,081

 

 $   449,212

 $   382,850

 $1,463,188

 $1,200,667

     

REVENUES FROM AFFILIATED COMPANIES

    

  Questar Market Resources

 $    31,818

 $    24,930

 $   117,506

 $   106,647

  Natural gas distribution

303

433

2,204

1,676

  Natural gas transmission

22,107

18,402

81,857

76,600

  Corporate and other operations

7,508

8,105

30,199

32,144

 

 $    61,736

 $    51,870

 $   231,766

 $   217,067

     

OPERATING INCOME

    

  Questar Market Resources

 $    54,016

 $    33,218

 $   210,345

 $   130,444

  Natural gas distribution

34,581

31,145

51,385

70,354

  Natural gas transmission

17,175

18,301

71,096

66,185

  Corporate and other operations

1,443

1,756

7,004

7,212

 

 $   107,215

 $    84,420

 $   339,830

 $   274,195

     

INCOME BEFORE CUMULATIVE EFFECT

  

OF ACCOUNTING CHANGES

   

  Questar Market Resources

 $    31,926

 $    41,510

 $   121,103

 $    97,929

  Natural gas distribution

19,229

16,409

20,516

32,399

  Natural gas transmission

7,050

8,480

30,302

32,608

  Corporate and other operations

1,826

1,614

7,275

7,957

 

 $    60,031

 $    68,013

 $   179,196

 $   170,893

     

NET INCOME (LOSS)

    

  Questar Market Resources

 $    31,926

 $    41,510

 $   115,990

 $    97,929

  Natural gas distribution

19,229

16,409

20,182

32,399

  Natural gas transmission

7,050

8,480

30,169

32,608

  Corporate and other operations

1,826

1,614

7,275

(7,340)

 

 $    60,031

 $    68,013

 $   173,616

 $   155,596

     

EARNINGS PER COMMON SHARE - DILUTED

    

Income before cumulative effect

 $        0.71

 $        0.82

 $        2.13

 $        2.07

Net income

0.71

0.82

2.06

1.88

     

Weighted avg. diluted common shares

84,658

82,838

84,190

82,573

     

Dividends per common share

 $      0.205

 $      0.185

 $        0.78

 $      0.725









QUESTAR CORPORATION AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING RESULTS

(Unaudited)

    

3 Months Ended

12 Months Ended

December 31,

December 31,

OPERATING STATISTICS  

2003

2002

2003

2002

                                                                                       (D = 10, M = 1,000)

QUESTAR MARKET RESOURCES

    

  Production volumes - nonregulated

    

    Natural gas (in MMcf)

21,226

20,217

78,811

79,674

    Oil and natural gas liquids (in

        Mbbl)


598


564


2,324


2,764

    Total production (Bcfe)

24.8

23.6

92.8

96.3

    Average daily production (MMcfe)

270

257

254

264

     

  Average selling price, net to the well

    

  Average realized selling price (including hedges)

    Natural gas (per Mcf)

$3.73

$2.86

$3.62

$2.58

    Oil and natural gas liquids (per bbl)

$23.70

$21.32

$23.39

$20.39

     

  Average selling price (without hedges)

    Natural gas (per Mcf)

$3.96

$2.77

$4.17

$2.17

    Oil and natural gas liquids (per bbl)

$28.74

$26.11

$28.47

$22.93

     

  Marketing volumes (Mdthe)

22,197

24,236

80,196

83,816

     

  Natural gas gathering volumes (in MDth)

    For unaffiliated customers

29,610

29,797

114,774

112,205

    For Questar Gas

12,366

10,800

41,568

40,685

    For other affiliated customers

14,406

12,656

46,150

38,136

      Total gathering

56,382

53,253

202,492

191,026

    Gathering revenue (per Dth)

$0.20

$0.16

$0.20

$0.16

     

NATURAL GAS DISTRIBUTION

    

  Natural gas volumes (in MDth)

    

    Residential and commercial sales

29,207

29,697

84,393

90,796

    Industrial sales

2,475

3,051

9,613

10,729

    Transportation for industrial

         customers


9,495


11,994


38,341


46,459

      Total deliveries

41,177

44,742

132,347

147,984

     

  Natural gas revenue (per Dth)

    

    Residential and commercial

$7.00

$5.77

$6.55

$5.75

    Industrial sales

$5.27

$3.67

$4.71

$4.15

    Transportation for industrial

       customers


$0.17


$0.16


$0.19


$0.16

  Heating degree days

    

       colder (warmer) than normal

(5%)

2%

(7%)

8%

  Temperature-adjusted average usage

    

       per customer (Dth)

40.5

40.4

118.9

117.4

  Number of customers at December 31,

 

      Residential and commercial

769,256

748,842

  

      Industrial

1,238

1,286

  

           Total

770,494

750,128

  
     

NATURAL GAS TRANSMISSION

    

  Natural gas transportation volumes (in MDth)

 

      For unaffiliated customers

60,146

71,420

256,099

245,119

      For Questar Gas

26,588

19,721

105,720

111,692

      For other affiliated customers

10,235

3,519

26,224

6,044

        Total transportation

96,969

94,660

388,043

362,855

    Transportation revenue (per Dth)

$0.29

$0.28

$0.27

$0.26