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February 13, 2001
NYSE:STR
Contact: R. Curtis Burnett
(801) 3245132
UNREGULATED ACTIVITIES BOOST QUESTAR 2000 NET INCOME
SALT LAKE CITY Boosted by record income from the continuing expansion of nonregulated businesses, Questar Corp. (NYSE:STR) reported 2000 net income of $156.7 million, or $1.94 per share, compared with $98.8 million, or $1.20 per share, for the prior year.
Excluding the impact of sales of company-owned securities, a write-down of pipeline assets in 1999 and other nonrecurring events, Questar earned $140.4 million, or $1.74 per share, in 2000 versus $95.0 million, or $1.15 per share, in 1999.
Significant Production, Reserve Increases
Questar's 48% increase in recurring 2000 earnings reflected a 137% gain from exploration and production operations and better performance from regulated interstate transmission and retail distribution businesses. Nonregulated natural gas production increased 10% to a record 69 billion cubic feet (Bcf) in 2000, while the average realized price rose 40% to $2.80 per thousand cubic feet (Mcf). Nonregulated reserves increased 22% after production.
Results for the regulated distribution utility were aided by a 3.8% general rate increase and cost-cutting programs. Interstate transmission benefited from higher transportation volumes, gas-processing activities, and reduced operating losses from a pipeline partnership.
Gains from nonrecurring security sales and other notable transactions amounted to $16.3 million, or $.20 per share, in 2000. Notable transactions in 1999 included $36.9 million in net income from securities sales and $33.1 million in after-tax losses from a pipeline write-down and early retirement costs in an information-technology subsidiary. The net earnings-per-share effect in 1999 was a $.05 per-share gain.
`Overdue Culmination' of Multi-Year Effort
R.D. Cash, Questar chairman and chief executive officer, attributed Questar's excellent 2000 results "to the overdue culmination of our multi-year effort to expand our natural gas reserve base and production capability as well as our gas-transmission and distribution systems.
"Since 1990, we have quadrupled our nonregulated natural gas reserves and production in anticipation of the strong gas-pricing and demand environment that finally emerged in 2000. Natural gas markets in the western U.S. have become increasingly dependent on supply from the Rockies, especially to meet the region's electricity demands. Questar is well positioned for this market opportunity, with rising gas production and reserves and strategically placed transmission, storage and distribution systems."
The Questar chairman noted that ongoing nonregulated activities, particularly oil and gas exploration and production, accounted for 59% of Questar's recurring 2000 earnings. "We have succeeded over the last decade in fundamentally changing Questar's investment profile toward nonregulated activities with higher return potentials. In 2000, our regulated gas-distribution business accounted for only 15% of our earnings."
There was an average of 80.9 million common shares outstanding in 2000 and 82.7 million in the prior year.
Fourth-Quarter Recurring Earnings Rise 75%
In the fourth quarter of 2000, Questar earned $53.0 million, or $.65 per share, compared with $17.3 million, or $.21 per share, in the year-earlier period. Before the nonrecurring events, the company earned $51.0 million, or $.62 per share, in fourth-quarter 2000 and $29.1 million, or $.35 per share, in the comparable 1999 period.
2000 Results/Market Resources
Questar Market Resources, comprising oil and gas exploration and production and gas development, gathering, processing and marketing, earned $85.0 million in 2000 compared with $45.9 million in the prior year. Questar Exploration and Production, which operates in 16 states and western Canada, earned $49.4 million in 2000, a 137% improvement over 1999.
Questar Market Resources' nonregulated reserves increased 22% after production to 730.1 Bcfe at year-end.
The company's 69 Bcf production level achieved a new record for the fifth consecutive year and 10th in the last 11. U.S. gas production increased 3% to 61.7 Bcf, while Canadian production rose 152% to 7.3 Bcf. Questar acquired additional Canadian reserves and producing properties in January 2000. Approximately 53% of Questar Exploration and Production's 2000 gas production was hedged at an average of $2.16 per Mcf, net back to the wellhead. Questar Market Resources sells its gas production on the open market and only makes minor sales to Questar's gas-distribution utility in emergency situations.
Nonregulated oil and natural-gas liquids production was 4% lower at 2.2 million barrels, while prices rose 47% to an average of $20.50 per barrel. Approximately 73% of the nonregulated oil production was hedged at an average price of $17.36 per barrel under contracts that expire at the end of 2001.
Another Market Resources subsidiary, Wexpro Co., earned $24.4 million in 2000, a $3.5 million increase. Wexpro manages and develops oil and natural gas properties owned by Questar Gas, Questar's gas utility, and receives a return on its investment in successful wells. Wexpro increased its investment base to a record $124.8 million at year-end in response to higher demand for utility-owned supplies. The Wexpro gas production is delivered to Questar Gas at cost-of-service prices, and is the lowest cost gas in the Questar mix.
Market Resources' energy-trading and gas-gathering subsidiaries reported combined 2000 net income of $11.2 million compared with $4.2 million in 1999. Higher gathering volumes and processing margins as well as a one-time benefit from capitalizing certain financing costs accounted for the improvement. A 13% increase in gathering volumes to 154.8 million decatherms (dth) offset lower gathering rates.
2000 Results/Regulated Services
Questar Regulated Services, which includes interstate gas-transmission and retail gas-distribution operations, earned $54.3 million in 2000 compared with $11.1 million a year earlier. The 1999 results included a $31.3 million after-tax write-down in the fourth quarter of a subsidiary's investment in the TransColorado Pipeline. Excluding the write-down, 1999 net income was $42.4 million.
Questar Pipeline, which operates transmission and storage systems in Wyoming, Utah and Colorado, earned $29.8 million in 2000 after an $8.4 million loss the prior year (after the pipeline write-down). Total transportation volumes rose 9% to 275.2 million dth. Questar Pipeline's core transmission system operated near capacity during the year. Increased demand for pipeline capacity resulted from colder winter temperatures and expanded usage for regional power generation. Additional revenues came from a full-year's operation of a new gas-processing facility, which removes excess carbon dioxide prior to use by residential customers.
As a result of the 1999 write-down, Questar Pipeline did not incur monthly operating losses from its share of the TransColorado Pipeline in 2000. A Questar Pipeline subsidiary is a 50% partner along with a Kinder Morgan Inc. subsidiary in TransColorado. Questar TransColorado and its partner in TransColorado, KN TransColorado, are involved in litigation regarding Questar TransColorado's contractual right to "put" its interest in TransColorado to KN TransColorado, effective March 31, 2001, and also involving other issues. Questar TransColorado and KN TransColorado entered into a standstill agreement regarding various issues in the litigation. Questar TransColorado provided notice to KN TransColorado that it elected to put its interest in TransColorado as of March 31, 2001, were it not for the provisions of the standstill agreement.
Net income for Questar Gas, which provides retail gas distribution to Utah and portions of Wyoming and Idaho, was $24.2 million in year 2000. After reaching $27.4 million in 1998, the utility's 1999 net income declined to $19.2 million due to higher costs related to rapid customer growth, lower usage per customer, and an adverse regulatory decision related to gas-processing costs.
The utility's 2000 financial performance was bolstered by a $13.5 million general rate increase in Utah and cost-cutting programs. A $7.1 million portion of the Utah rate increase went into effect on Jan. 1, 2000, with the remainder reflected in rates beginning in August. In the rate case, the company was authorized to earn up to an 11% return on equity, and the gas-processing cost issue was resolved favorably. The utility's return on equity improved to 9.2% in 2000.
Questar Gas, traditionally one of the nation's fastest growing utilities, added 18,312 customers to reach 704,629 on December 31, 2000 a 2.7% growth rate, which is significantly higher than the U.S. average. Population growth and residential construction in the core Utah market remain at historically strong levels.
Revenues for the utility increased substantially in 2000 because of higher purchased-gas costs in customer rates. Questar Gas, however, does not profit from the higher purchasedgas costs. These costs are passed on to customers without any markup during periodic gas-cost rate filings. About 50% of Questar Gas's supplies in 2000 came from lower-cost company-owned production, helping to keep customer rates among the most moderate in the nation.
2000 Results/Corporate and Other Operations
Corporate and other activities produced net income of $17.4 million versus $41.8 million in 1999. Net income from securities sales was $13.8 million in 2000. During the prior year, such sales resulted in a $36.9 million after-tax gain. Questar currently owns 803,000 shares of Nextel Communication stock and 237,000 shares of XO Communications stock at a cost basis below current market prices.
Consonus Inc., an internet infrastructure and Web-hosting subsidiary, generated a $1.9 million loss during 2000 versus a $321,000 profit in the prior year. Questar has an 82% interest in the new concern, which recently opened its third ultra-secure data center for managed-Web hosting in the Salt Lake City area. Consonus generated $27.4 million in revenues during 2000.
Fourth-Quarter 2000 Recurring Earnings Rise 75%
Questar Corp.'s net income from recurring sources increased 75% in fourth quarter 2000 to $51.0 million, or $.62 per share, compared with $29.1 million, or $.35 per share, a year earlier. The key factor was a 72% increase in recurring Market Resources earnings due primarily to higher natural gas prices. The average realized price increased 67% to $3.59 per Mcf. Gas production increased 1% in the fourth quarter of 2000 after the sale of nonstrategic properties with estimated production of 4 million cubic feet per day. Combined oil and natural gas-liquids prices also rose 26% to $20.58 per barrel equivalent.
Net income from recurring sources for Questar Regulated Services was $23.8 million in fourth-quarter 2000 and $12.3 million in the year-earlier period. Questar Pipeline earned $9.1 million versus the $4.4 million in year-earlier recurring earnings. The increase resulted primarily from higher transportation volumes, a $3.2 million pipeline-construction tax credit, and the absence of TransColorado Pipeline operating losses.
Questar Gas's earnings for the 2000 quarter were $14.7 million compared with $7.7 million in the comparable year-earlier period. A 3.8% general rate increase for Utah was fully implemented beginning Aug. 11, and the company also completed an early retirement program during the fourth quarter that reduced labor costs. The company's 1999 quarter was impacted by a regulatory decision denying recovery of approximately $3.6 million of gas-processing costs incurred from June to December 1999.
2001 Guidance
On the issue of pricing, gas and oil hedges expire at the end of 2001. If 2002 NYMEX prices are $3.50 per Mcf, Questar's average price will improve over what the company experienced in 2000.
For fiscal 2001, Questar has hedged approximately 55% of the existing gas production estimated from year-end reserves at an average net-to-the-well price of $2.90 per Mcf. The $2.90 price assumes the floor price on collar hedges. The averaged hedged price increases to $3.15 per Mcf (net to the wellhead) if collar ceiling prices are assumed. Monthly hedged gas percentages range between 49% and 66% of production. The company also has hedged approximately 62% of the 2001 oil production estimated from year-end reserves at an average net-to-the-well price of $17.20 per barrel. Monthly hedged oil percentages range between 56% and 70%.
Questar Exploration and Production's U.S. amortization rate for the first quarter of 2001 is $.76 per Mcfe.
Beginning April 1, 2001, Questar Pipeline will begin recording its 50% share of monthly losses for the TransColorado Pipeline partnership. These monthly losses for 2000 ranged from $300,000 to $1.2 million before income taxes. The company expects to mitigate the impact of these losses through 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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Attachment 1: Income
Attachment 2: Statistics
VISIT QUESTAR'S INTERNET SITE at: http://www.questar.com. For more information, see Company News OnCall: http://www.prnewswire.com or fax 8007585804, ext. 728887
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