Item 5




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 – October 26, 2006

(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.)


180 East 100 South Street, P.O. Box 45433 Salt Lake City, Utah 84145-0433
(Address of principal executive offices)

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




Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):


[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17

       CFR 240.14d-2(b))


[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17

       CFR 240.13e-4(c))

#






Item 2.02   Results of Operations and Financial Condition


        On October 26, 2006, Questar Corporation (the “Registrant”) issued a press release to report the Registrant’s financial results for the third quarter and nine months ended September 30, 2006. A copy of the Registrant’s release is attached hereto as Exhibit 99.1, and the information contained therein is incorporated herein by reference. The information contained in Item 2.02 to this Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and the information shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.


Item 9.01   Financial Statements and Exhibits.


          (c)   Exhibits.


Exhibit No.

Exhibit


    99.1

Release issued October 26, 2006, by Questar Corporation.




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)




October 26, 2006

/s/S. E. Parks                        

S. E. Parks

Senior Vice President and

Chief Financial Officer


List of Exhibits:


Exhibit No.

Exhibit


    99.1

Release issued October 26, 2006, by Questar Corporation.


2





QUESTAR NET INCOME UP 45% IN THIRD QUARTER 2006

Company Raises 2006 Earnings Guidance, Provides Initial 2007 Outlook


SALT LAKE CITY ─ Questar Corp. (NYSE:STR) – a natural gas-focused energy company – grew net income 45% in the third quarter of 2006 to $95.1 million, or $1.08 per diluted share, compared to $65.8 million, or $0.75 per diluted share, for the third quarter of 2005. Net-income growth was driven by higher natural gas production and higher realized prices for natural gas, oil and natural gas liquids (NGL) in the company’s exploration and production businesses. Third-quarter 2006 results included a $15.8 million or $0.18 per diluted share after-tax gain from the sale of assets, an $8.7 million or $0.10 per diluted share after-tax charge related to unsuccessful exploratory wells in Wyoming and Utah, and a $3.2 million or $0.04 per diluted share after-tax charge for unrealized mark-to-market losses on natural gas basis swaps.


For the first nine months of 2006, Questar net income was $322.6 million, or $3.68 per diluted share, compared to $221.7 million, or $2.55 per diluted share for the 2005 period, a 46% increase.


NET INCOME (LOSS) BY LINE OF BUSINESS

(in millions, except per share)


 

3 Months Ended

 

9 Months Ended

September 30,

 

September 30,

 

2006

2005

%

Change

 

2006

2005

%

Change

Market Resources

     

    

  Questar E&P

$66.0

$44.8

47%

 

$192.6

$115.4

67%

  Wexpro

12.1

11.3

7

 

36.1

31.9

13

  Gas Management

11.0

7.3

51

 

30.9

25.1

23

  Energy Trading and other

2.9

1.9

53

 

6.4

4.3

49

Market Resources Total

92.0

65.3

41

 

266.0

176.7

51

 



  




Questar Pipeline

10.1

9.2

10

 

31.5

25.2

25

Questar Gas

(9.2)

(9.9)

7

 

19.5

15.4

27

Corporate and other operations

2.2

1.2

83

 

5.6

4.4

27

QUESTAR CORPORATION TOTAL

$95.1

$65.8

45%

 

$322.6

$221.7

46%

 


   



 

Earnings per diluted share

$1.08

$0.75

  

$3.68

$2.55

 

Average diluted shares

87.7

87.4

  

    87.6

87.0

 


“All Questar operating units posted double-digit net income growth in the first nine months of 2006,” said Keith O. Rattie, Questar chairman, president and CEO. “All are on track to deliver record net income this year. Note also that Questar E&P grew production 16% in the third quarter compared to a year ago. Questar E&P has now delivered 15% or higher production growth for five straight quarters.”


THIRD-QUARTER HIGHLIGHTS


•

Questar E&P reported a 16% increase in natural gas, oil and NGL production volumes to 33.8 billion cubic feet of natural gas equivalent (Bcfe) compared to 29.2 Bcfe for the third quarter of 2005. Natural gas comprised 87% of reported volumes during the quarter.


3



•

Realized natural gas prices at Questar E&P rose 12% and realized crude oil and NGL prices rose 16%. Natural gas hedges increased reported revenues by $18.3 million while oil hedges reduced revenues by $6.7 million.

•

Market Resources sold non-core properties, primarily in western Colorado, and recognized an after-tax gain of $15.8 million in the quarter.

•

Questar E&P plugged and abandoned the deep exploratory portion of the Stewart Point 15-29 well on the Pinedale Anticline after failing to establish commercial production in the Hilliard and Rock Springs formations. The company recorded an after-tax charge of $6.3 million related to abandonment of the deep portion of the well, which was subsequently re-completed as a commercial well in the Lance Pool.

•

Unrealized mark-to-market losses on NYMEX/Rockies basis swaps reduced net income $3.2 million.

•

Wexpro’s investment base grew 14% to $224.8 million at September 30, 2006, compared to $197.6 million a year earlier. Wexpro produced 10.2 Bcfe during the third quarter on behalf of affiliate Questar Gas. Wexpro net income also benefited from 15% higher realized oil and NGL prices.

•

Questar Gas Management gas-gathering volumes increased 13% and total gathering margin rose 22% compared to the third quarter of 2005. Gas-processing volumes increased 56% in the third quarter of 2006 to 30.6 million MMBtu compared to 19.5 million MMBtu for the year-earlier quarter. Gross gas-processing margin increased 127% to $9.8 million.

•

Questar Pipeline net income grew 10%, driven by new transportation contracts on its southern system in central Utah and on Overthrust Pipeline.

•

Questar earned a 16.6% return on assets (ROA - defined as earnings before interest and income taxes divided by average total assets) for the trailing 12-month period ended September 30, 2006. Market Resources ROA was 21.0%, Questar Pipeline ROA was 9.1%, and Questar Gas ROA was 9.1%.


QUESTAR RAISES 2006 GUIDANCE AND PROVIDES INITIAL 2007 EARNINGS OUTLOOK


Questar now expects full-year 2006 EPS to range from $4.65 to $4.75 per diluted share. The increased guidance reflects increased production and better than previously forecast Rockies and Midcontinent natural gas prices in Questar E&P. The company now expects Questar E&P 2006 production to range from 127 to 129 Bcfe. Current forward NYMEX/Rockies and NYMEX/Midcontinent basis differentials for the remainder of 2006 are about $1.00 per thousand cubic feet (Mcf) less than those incorporated in previous earnings guidance on July 26, 2006. The narrower basis differentials more than offset the $0.50 per Mcf decrease in assumed NYMEX prices incorporated in current guidance.


Questar also provided initial 2007 net income and production estimates. The company estimates that 2007 net income could range from $5.20 to $5.50 per diluted share. The lower end of the estimate is based on an assumed average NYMEX price of $7.25 per Mcf for currently unhedged 2007 natural gas production and an average prompt-month NYMEX oil price of $60.00 per barrel applied to unhedged volumes. The upper end of the range is based on an average NYMEX gas price of $8.25 per Mcf and an average prompt-month NYMEX oil price of $65.00 per barrel applied to unhedged 2007 production. The company’s guidance excludes one-time items, assumes hedges in place on the date of this release, and assumes natural gas and oil prices and basis differentials as summarized in the following table:


4



EPS Guidance Assumptions


 

2006

2006

2007  

 

Current

Previous

Initial Outlook

Earnings per share*

$4.65-$4.75

$4.50-$4.70

$5.20-$5.50

Average diluted shares (millions)

87.7

87.5

88.1

Questar E&P production – Bcfe

127-129

126-128

132-135

Pinedale wells completed

48-51

45-48

45-48

NYMEX gas price per MMBtu**

$6.50-$7.50

$7.00-$8.00

$7.25-$8.25

NYMEX/Rockies basis differential per MMBtu**

$1.25

$2.25


$2.00

NYMEX/Midcontinent basis differential per MMBtu**

$0.70

$1.50


$1.00

NYMEX crude oil price per barrel**

$60.00-$65.00

$65.00-$75.00

$60.00-$65.00


*   Excludes $15.8 million of after-tax gain on asset sales in the third quarter of 2006

** On unhedged volumes for the remainder of 2006 and full year of 2007


•

Questar E&P has hedged about 76% of forecast fourth-quarter 2006 and 65% of forecast 2007 natural gas and oil-equivalent production with fixed-price swaps. The company has hedged an additional 8%, or 2.6 Bcf of forecast remaining 2006 production and 13%, or 17.0 Bcf of forecast 2007 production with NYMEX/Rockies basis-only swaps (see table at the end of this release).

•

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 $0.02 change in earnings per diluted share. A $1.00 per MMBtu change in the 2007 price would change 2007 earnings $0.22 per diluted share.

•

A $10.00 per barrel change in the average NYMEX price of oil for the remainder of 2006 would result in about a $0.01 change in earnings per diluted share. A $10.00 per barrel change in the 2007 price would change 2007 earnings $0.05 per diluted share.


Questar Market Resources Net Income Up 41% in Third Quarter, 51% for First Nine

Months of 2006

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 $92.0 million in the third quarter of 2006, up 41% from $65.3 million in the third quarter of 2005. For the first nine months of 2006, Market Resources net income increased 51% to $266.0 million.


Questar E&P Net Income Increases 47% in Third Quarter, 67% for First Nine Months of 2006

Questar E&P – a Market Resources subsidiary which conducts natural gas and oil exploration, development and production – benefited from growing production and higher realized prices for the third quarter and first nine months of 2006. Questar E&P reported net income of $66.0 million in the third quarter, up 47% from $44.8 million in the 2005 period. Questar E&P production increased 16% to 33.8 Bcfe compared to 29.2 Bcfe in the 2005 quarter. Natural gas comprised about 87% of Questar E&P production in the 2006 period. For the first nine months of 2006, Questar E&P net income rose 67% to $192.6 million compared to $115.4 million a year earlier, driven by an 18% increase in production and higher realized natural gas, oil and NGL prices compared to the year-earlier period.


5



Questar E&P – Production by Region


 

3 Months Ended

 

9 Months Ended

September 30,

 

September 30,

 

2006

2005

%

Change

 

2006*

2005

%

Change

 

     (Bcfe)

  

  (Bcfe)

 

Pinedale Anticline

10.9

8.7

25%


28.8

22.8

26%

Uinta Basin

6.5

6.6

(2)

 

18.9

19.2

(2)

Rockies Legacy

4.5

4.3

5

 

14.5

12.3

18

     Subtotal – Rocky Mountains

21.9

19.6

12

 

62.2

54.3

15

Midcontinent

11.9

9.6

24

 

35.2

28.2

25

     Total Questar E&P

33.8

29.2

16%

 

97.4

82.5

18%


*Includes 0.7 Bcfe related to settlement of an imbalance in Rockies Legacy. Without the one-time adjustment, total nine-month Questar E&P production grew 17%.


Average realized net-to-the-well natural gas prices at Questar E&P increased 12% in the third quarter of 2006 to $5.73 per Mcf compared to $5.12 per Mcf in the 2005 period. Gas hedges increased revenues $18.3 million in the third quarter of 2006. Questar E&P average realized oil and NGL price was $49.81 per barrel compared with $43.04 a year earlier, a 16% increase. Oil hedges decreased revenues $6.7 million in the third quarter of 2006. Unrealized mark-to-market losses on Rockies basis swaps reduced net income $3.2 million in the 2006 quarter.


Questar E&P – Realized Prices and Hedging Impact


 

3 Months Ended

 

9 Months Ended

September 30,

 

September 30,

 

2006

2005

%

Change

 

2006

2005

%

Change

        

Realized natural gas price (per Mcf)

$ 5.73

$ 5.12

12%

 

$ 5.99

$ 4.91

22%

Hedge impact on realized price (per Mcf)

0.62

(1.54)

(140)

 

0.24

(0.98)

(124)

 




 




Realized oil and NGL price (per bbl)

$49.81

$43.04

16

 

$50.10

$40.61

23

Hedge impact on realized price (per bbl)

(9.20)

(14.61)

(37)

 

(8.68)

(10.01)

(13)

 




 



 

Unrealized mark-to-market losses on basis swaps, net (millions – before tax)

($5.1)

$0.0


 

($10.8)

$0.0



Questar may hedge sales prices on up to 100% of 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 third quarter of 2006, Questar E&P continued to take advantage of higher natural gas and oil prices to hedge additional future production. The company uses basis-only swaps to protect cash flows and net income from widening natural gas-price basis differentials that may result from capacity constraints on regional gas pipelines.


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


6



Questar E&P – Production Cost Structure


 

3 Months Ended

 

9 Months Ended

September 30,

 

September 30,

 

2006

2005

%

Change

 

2006

2005

%

Change

 

   (Per Mcfe)

  

   (Per Mcfe)

 

Depreciation, depletion and amortization

$1.43

$1.19

20%

 

$1.37

$1.17

17%

Lease operating expense

0.56

0.52

8

 

0.55

0.55


General and administrative expense

0.34

0.29

17

 

0.32

0.31

3

Allocated interest expense

0.19

0.21

(10)

 

0.21

0.21


Production taxes

0.45

0.61

(26)

 

0.45

0.53

(15)

     Production costs

$2.97

$2.82

5%

 

$2.90

$2.77

5%


•

Depreciation, depletion and amortization expense increased 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 increased in the third quarter due to increased costs of materials and consumables and higher well workover costs.

•

Per-unit general and administrative expense increased in the third quarter due primarily to an increase in the estimate of uncollectible accounts receivable.

•

Interest expense per unit decreased in the 2006 quarter due to refinancing of long-term debt at a lower interest rate.

•

Production taxes per unit decreased due to lower natural gas sales prices during the 2006 periods and from adjustments to prior estimates.


Wexpro Net Income Up 7% in Third Quarter, 13% for First Nine Months of 2006

Wexpro – a Market Resources subsidiary that develops and produces cost-of-service reserves for Questar Gas – reported net income of $12.1 million in the current quarter, up 7% from the third 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 about 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 investment base at September 30, 2006, increased 14% to $224.8 million compared to $197.6 million a year earlier. Wexpro current-quarter net income also benefited from 15% higher realized oil and NGL prices. For the first nine months of 2006, Wexpro net income was $36.1 million compared to $31.9 million for the first nine months of 2005, a 13% increase. Wexpro first nine-months 2006 results benefited from 23% higher realized oil and NGL prices.


Gas Management Net Income Up 51% in Third Quarter, 23% for First Nine Months of 2006

Questar Gas Management (Gas Management) – Market Resources’ gas-gathering and processing-services business – grew net income 51% to $11.0 million in the third quarter of 2006. Gas Management results benefited from a 127% increase in gas-processing plant margin compared to the 2005 quarter. Gathering volumes were up 13% to 72.1 million MMBtu equivalent for the current quarter compared to 63.8 million MMBtu for the 2005 quarter, driven by growing Questar E&P and third-party Pinedale production and new gathering and processing projects serving third parties in the Uinta Basin. For the first nine months of 2006, Gas Management net income increased 23% to $30.9 million compared to $25.1 million in the 2005 period, driven by higher volumes and improved margins in both gathering and processing.


7



Questar Pipeline Net Income Up 10% in Third Quarter, 25% for First Nine Months of 2006

Questar Pipeline – a subsidiary that provides interstate natural gas-transportation and storage services – reported net income of $10.1 million in the third quarter of 2006 compared to $9.2 million in the third quarter of 2005. Third-quarter results were driven by a $3.1 million increase in transportation revenues from recent system expansions. NGL revenues were $1.5 million lower in the third quarter of 2006 compared to the prior-year quarter. Third quarter 2005 results included $2.7 million of revenues related to the settlement of allocation of NGL sales with shippers. Questar Pipeline net income was $31.5 million in the first nine months of 2006 compared with $25.2 million a year ago. Net income rose 25%, driven by $9.5 million in higher transportation revenues from system expansions and $1.7 million higher NGL revenues. Operating, maintenance, general and administrative costs per decatherm transported decreased to $0.12 in the first nine months of 2006 from $0.14 in the first nine months of 2005 due to a 13% increase in transportation volumes and a 5% decrease in expenses.


Questar Gas Seasonal Net Loss Narrows in Third Quarter, Net Income Up 27% for First Nine

Months of 2006

Questar Gas – which provides natural gas distribution services in Utah, Wyoming and Idaho – reported a seasonal loss of $9.2 million in the third quarter of 2006 compared with a loss of $9.9 million for the third quarter of 2005. Third-quarter 2006 results reflect continued customer growth and lower bad debt and depreciation expenses. In June 2006 Questar Gas implemented lower customer rates, primarily from reduced depreciation rates. Due to typically low customer usage in the third quarter, the effect of the reduced tariff had little impact on revenues; however, lower depreciation rates caused expenses to decline and resulted in a $1.0 million increase in net income. This effect is expected to reverse with higher usage in the fourth quarter, as the revenue impact of lower customer rates more than offsets decreased depreciation expense. In October 2006 Questar Gas received Public Service Commission of Utah approval for a pilot conservation enabling tariff which decouples gas margin from volumes of gas sold per customer. Questar Gas net income was $19.5 million in the first nine months of 2006 compared with $15.4 million during the same period of 2005, driven by customer growth and recovery of gas-processing costs. In 2005, gas-processing costs of $1.0 million in the third quarter and $3.6 million in the first nine months were not recovered in rates until the fourth quarter pursuant to a Utah regulatory order. At September 30, 2006, Questar Gas served 835,000 customers, up 10,000 from the end of 2005.


Third-Quarter Teleconference

Questar management will discuss third-quarter 2006 results and its outlook for the remainder of the year and beyond in a conference call with investors Friday, October 27, beginning at 9:30 a.m. EDT. The call can be accessed on the company Internet site at www.questar.com .


About Questar

Questar Corp. (NYSE:STR) is a natural gas-focused energy company with an enterprise value of about $8.2 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. Questar undertakes no obligation to publicly correct or update the forward-looking statements in this news release, in other documents, or on the website to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.


8


For more information, visit Questar’s Internet site at: www.questar.com.


Hedge Positions – October 26, 2006


Time Periods


Rocky

Mountains

Midcontinent

Total

 

Rocky

Mountains

Midcontinent

Total

      

Estimated

  

Gas (Bcf)  Fixed-Price Swaps

 

Average Price Per Mcf, Net to the Well

2006

       

Fourth quarter

15.6

6.1

21.7

 

$6.04

$6.81

$6.26

         

2007

        

First half

23.1

15.4

38.5

 

$6.88

$7.81

$7.25

Second half

23.5

15.6

39.1

 

6.88

7.81

7.25

12 months

46.6

31.0

77.6

 

6.88

7.81

7.25

         

2008

        

First half

16.9

12.2

29.1

 

$7.19

$7.98

$7.52

Second half

17.9

12.3

30.2

 

7.16

7.98

7.49

12 months

34.8

24.5

59.3

 

7.18

7.98

7.51


2009

        

First half

11.7

8.7

20.4

 

$7.05

$7.55

$7.26

Second half

12.0

8.8

20.8

 

7.05

7.55

7.26

12 months

23.7

17.5

41.2

 

7.05

7.55

7.26



      

Estimated

  

Gas (Bcf)  Basis-Only Swaps

 

Average Basis Per Mcf vs. NYMEX

2006

       

Fourth quarter

2.6

 

2.6

 

$2.13

 

$2.13

         

2007

        

First half

8.4

 

8.4

 

$1.92

 

$1.92

Second half

8.6

 

8.6

 

1.92

 

1.92

12 months

17.0

 

17.0

 

1.92

 

1.92

         

2008

        

First half

13.6

 

13.6

 

$1.60

 

$1.60

Second half

13.7

 

13.7

 

1.60

 

1.60

12 months

27.3

 

27.3

 

1.60

 

1.60

         

2009

       

First half

1.7

 

1.7

 

$0.95

 

$0.95

Second half

1.7

 

1.7

 

0.95

 

0.95

12 months

3.4

 

3.4

 

0.95

 

0.95


9

      

Estimated

  

Oil (Mbbl)  Fixed-Price Swaps

 

Average Price Per Bbl, Net to the Well

         

2006

       

Fourth quarter

313

101

414

 

$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



10



QUESTAR CORPORATION

     

CONSOLIDATED STATEMENTS OF INCOME

     

(Unaudited)

     
      
 

3 Months Ended

 

9 Months Ended

 

September 30,

 

September 30,

 

2006

2005

 

2006

2005

 

(in thousands, except per share amounts)

REVENUES

     

  Market Resources

$427,907

$446,746

 

$1,227,094

$1,105,980

  Questar Pipeline

25,793

22,584

 

76,147

59,583

  Questar Gas

98,975

109,575

 

747,767

604,308

  Corporate and other operations

2,468

4,005

 

11,738

13,572

    TOTAL REVENUES

555,143

582,910

 

2,062,746

1,783,443

      

OPERATING EXPENSES

     

  Cost of natural gas and other products sold

183,684

271,724

 

867,318

836,106

  Operating and maintenance

69,514

67,057

 

211,867

187,116

  General and administrative

34,083

31,112

 

96,693

93,842

  Production and other taxes

27,832

30,864

 

87,168

83,499

  Depreciation, depletion and amortization

78,808

63,542

 

224,831

182,174

  Exploration

16,847

2,574

 

30,247

9,423

  Abandonment and impairment of gas,

     

     oil and other properties

1,955

1,712

 

5,497

4,610

    TOTAL OPERATING EXPENSES

412,723

468,585

 

1,523,621

1,396,770

      

    OPERATING INCOME

142,420

114,325

 

539,125

386,673

      

Net gain from asset sales

25,328

1,128

 

25,509

4,722

Interest and other income

3,709

3,935

 

9,685

5,914

Income from unconsolidated affiliates

1,801

1,910

 

5,333

5,131

Net unrealized mark-to-market loss on basis swaps

(5,140)

  

(10,754)

 

Loss on early extinguishment of debt

   

(1,746)

 

Interest expense

(17,814)

(17,869)

 

(55,006)

(51,234)

    INCOME BEFORE INCOME TAXES

150,304

103,429

 

512,146

351,206

Income taxes

55,248

37,672

 

189,572

129,551

            NET INCOME

$95,056

$65,757

 

$322,574

$221,655

      

EARNINGS PER COMMON SHARE

     

    Basic

$1.11

$0.78

 

$3.78

$2.62

    Diluted

1.08

0.75

 

3.68

2.55

Weighted average common shares outstanding

     

    Used in basic calculation

85,544

84,930

 

85,388

84,674

    Used in diluted calculation

87,706

87,353

 

87,558

87,043

      

Dividends per common share

$0.235

$0.225

 

$0.695

$0.665



11



QUESTAR CORPORATION

     

OPERATIONS BY LINE OF BUSINESS

     

(Unaudited)

     
 

3 Months Ended

 

9 Months Ended

 

September 30,

September 30,

 

2006

2005

 

2006

2005

 

(in thousands)

      

REVENUES FROM UNAFFILIATED CUSTOMERS

    

   Questar E&P

$206,033

$158,269

 

$615,205

$428,116

   Wexpro

6,104

6,228

 

16,076

14,779

   Gas Management

41,518

35,561

 

123,251

97,743

   Energy Trading and other

174,252

246,688

 

472,562

565,342

       Market Resources total

427,907

446,746

 

1,227,094

1,105,980

   Questar Pipeline

25,793

22,584

 

76,147

59,583

   Questar Gas

98,975

109,575

 

747,767

604,308

   Corporate and other operations

2,468

4,005

 

11,738

13,572

 

$555,143

$582,910

 

$2,062,746

$1,783,443

      

REVENUES FROM AFFILIATED CUSTOMERS

    

   Wexpro

$36,384

$31,657

 

$111,627

$97,845

   Gas Management

3,884

3,110

 

11,362

9,698

   Energy Trading and other

148,180

139,170

 

557,358

412,925

       Market Resources total

188,448

173,937

 

680,347

520,468

   Questar Pipeline

19,100

20,182

 

59,493

64,124

   Questar Gas

1,728

1,769

 

4,542

4,400

   Corporate and other operations

399

384

 

1,235

1,459

 

$209,675

$196,272

 

$745,617

$590,451

      

OPERATING INCOME (LOSS)

     

   Questar E&P

$92,592

$76,405

 

$315,485

$200,365

   Wexpro

18,657

16,850

 

55,168

48,599

   Gas Management

15,972

10,281

 

45,744

36,339

   Energy Trading and other

3,730

2,878

 

7,825

6,892

       Market Resources total

130,951

106,414

 

424,222

292,195

   Questar Pipeline

21,938

20,218

 

67,597

55,921

   Questar Gas

(11,273)

(12,519)

 

42,969

35,310

   Corporate and other operations

804

212

 

4,337

3,247

 

$142,420

$114,325

 

$539,125

$386,673

      

NET INCOME (LOSS)

     

   Questar E&P

$66,045

$44,753

 

$192,635

$115,430

   Wexpro

12,130

11,251

 

36,072

31,928

   Gas Management

10,999

7,299

 

30,923

25,069

   Energy Trading and other

2,828

1,976

 

6,322

4,234

       Market Resources total

92,002

65,279

 

265,952

176,661

   Questar Pipeline

10,147

9,223

 

31,470

25,155

   Questar Gas

(9,157)

(9,905)

 

19,514

15,361

   Corporate and other operations

2,064

1,160

 

5,638

4,478

 

$95,056

$65,757

 

$322,574

$221,655




12


QUESTAR CORPORATION

    

SELECTED OPERATING STATISTICS

    

(Unaudited)

    
 

3 Months Ended

9 Months Ended

 

September 30

September 30

 

2006

2005

2006

2005

MARKET RESOURCES

    

  Questar E&P production volumes

    

    Natural gas (MMcf)

29,424

25,681

85,541

71,930

    Oil and natural gas liquids (Mbbl)

729

593

1,972

1,762

    Total production (Bcfe)

33.8

29.2

97.4

82.5

    Average daily production (MMcfe)

367

318

357

302

  Questar E&P average commodity price,

    

    net to the well

    

  Average realized price (including hedges)

    

    Natural gas (per Mcf)

$5.73

$5.12

$5.99

$4.91

    Oil and natural gas liquids (per bbl)

$49.81

$43.04

$50.10

$40.61

  Wexpro net investment base at September 30,

    

     (millions)

$224.8

$197.6

  

  Natural gas processing volumes

    

     NGL sales volumes (Mgal)

20,778

24,562

65,322

64,846

     Processing fee based (in thousands

    

     of MMBtu)

30,552

19,546

87,108

43,476

  Natural gas processing revenue

    

     NGL sales price (per gal)

$0.89

$0.73

$0.89

$0.71

     Processing fee based (per MMBtu)

$0.13

$0.16

$0.14

$0.16

  Natural gas gathering volumes (in thousands

    

    of MMBtu) (1)

    

    For unaffiliated customers

41,341

35,619

109,775

101,693

    For Questar Gas

9,970

10,252

30,212

32,734

    For other affiliated customers

20,831

17,895

55,824

48,157

      Total gathering

72,142

63,766

195,811

182,584

    Gathering revenue (per MMBtu)

$0.28

$0.25

$0.29

$0.25

  Natural gas and oil marketing volumes (Mdthe)

    

    For unaffiliated customers

29,320

32,064

84,607

87,320

    For affiliated customers

24,938

22,455

74,816

67,102

      Total marketing

54,258

54,519

159,423

154,422

     

QUESTAR PIPELINE

    

  Natural gas transportation volumes (Mdth)

    

      For unaffiliated customers

88,115

71,257

228,991

188,252

      For Questar Gas

14,936

16,594

83,074

86,545

      For other affiliated customers

7,255

9,072

16,829

17,553

        Total transportation

110,306

96,923

328,894

292,350

    Transportation revenue (per dth)

$0.27

$0.27

$0.27

$0.27

    Firm-daily transportation demand (Mdth)

2,151

1,832

  
     

QUESTAR GAS

    

  Natural gas volumes (Mdth)

    

    Residential and commercial sales

8,751

9,081

67,708

65,843

    Industrial sales

362

1,348

2,639

4,445

    Transportation for industrial customers

9,560

7,218

25,429

22,941

      Total deliveries

18,673

17,647

95,776

93,229

  Natural gas revenue (per dth)

    

    Residential and commercial sales

$9.88

$9.67

$10.20

$8.23

    Industrial sales

7.23

7.32

7.82

6.52

    Transportation for industrial customers

$0.16

$0.18

$0.18

$0.18

  Heating degree days

    

    colder (warmer) than normal

69%

16%

(5%)

(2%)

  Temperature-adjusted usage per

    

    customer (dth)

7.9

8.8

76.4

76.9

  Customers at September 30,

835,025

803,196

  
     

(1)  one dth = one MMBtu

    


13



QUESTAR CORPORATION

    

PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

    
  

September 30,

 

December 31,

  

2006

 

2005

  

(in thousands)

ASSETS

    

Current assets

    

  Cash and cash equivalents

 

$77,707

 

$13,360

  Accounts and notes receivable, net

 

              256,394

 

              458,395

  Fair value of derivative contracts

 

              104,709

 

                  1,972

  Inventories

 

              145,927

 

              125,417

  Deferred income taxes – current

   

                86,734

  Other current assets

 

                24,045

 

                69,962

    Total current assets

 

608,782

 

755,840

Property, plant and equipment

 

           6,086,099

 

           5,527,997

Less accumulated depreciation,

    

    depletion and amortization

 

           2,251,751

 

           2,100,455

      Net property, plant and equipment

 

           3,834,348

 

           3,427,542

Investment in unconsolidated affiliates

 

                37,437

 

                30,681

Goodwill

 

                70,719

 

                71,260

Fair value of derivative contracts

 

                51,990

  

Other assets, net

 

                73,869

 

                71,750

  

$4,677,145

 

$4,357,073

     

LIABILITIES AND SHAREHOLDERS' EQUITY

    

Current liabilities

    

  Short-term debt

   

$94,500

  Accounts payable and accrued expenses

 

$405,867

 

              557,025

  Fair value of derivative contracts

 

                13,201

 

              222,049

  Other current liabilities

 

                49,738

  

    Total current liabilities

 

468,806

 

873,574

Long-term debt, less current portion

 

           1,032,394

 

              983,200

Deferred income taxes

 

              763,888

 

              624,187

Fair value of derivative contracts

 

                     176

 

                99,044

Other long-term liabilities

 

              280,205

 

              227,265

Common shareholders' equity

 

           2,131,676

 

           1,549,803

  

$4,677,145

 

$4,357,073

     




14




QUESTAR CORPORATION

   

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  

(Unaudited)

   
 

9 Months Ended

 

September 30,

 

2006

 

2005

 

(in thousands)

Operating activities

   

  Net income

$322,574

 

$221,655

  Adjustments to reconcile net income to net cash

   

           provided from operating activities:

   

    Depreciation, depletion and amortization

230,895

 

187,293

    Deferred income taxes

65,166

 

72,997

    Share-based compensation

6,907

 

2,990

    Abandonment and impairment of gas, oil and other properties

5,497

 

4,610

    Income from unconsolidated affiliates

(5,333)

 

(5,131)

    Distributed income from unconsolidated affiliates

4,902

 

4,342

    Net gain from asset sales

(25,509)

 

(4,722)

    Loss from early extinguishment of debt

1,746

  

    Net unrealized mark-to-market loss on basis swaps

10,754

  

    Ineffective portion of fixed-price swaps

(106)

 

390

    Change in operating assets and liabilities

116,499

 

(179,313)

       Net cash provided from operating activities

733,992

 

305,111

    

Investing activities

   

  Capital expenditures

(604,041)

 

(487,911)

  Proceeds from asset dispositions

29,489

 

15,960

       Net cash used in investing activities

(574,552)

 

(471,951)

    

Financing activities

   

  Common stock

3,803

 

6,563

  Long-term debt

45,195

 

199,992

  Short-term debt

(94,500)

 

24,000

  Dividends paid

(59,525)

 

(56,432)

  Excess tax benefits from share-based compensation

9,934

  

    Net cash (used in) provided from financing activities

(95,093)

 

174,123

    

  Change in cash and cash equivalents

64,347

 

7,283

  Beginning cash and cash equivalents

13,360

 

3,681

  Ending cash and cash equivalents

$77,707

 

$10,964


15