Led by an 18% increase in nonregulated gas, oil and natural gas liquids production, a 14% rise in realized natural gas prices, and an 18% increase in nonregulated gas gathering volumes, Questar Corp. posted 2Q2004 net income of $42.6 million, or $0.50 per diluted share, compared with $20.3 million, or $0.24 per diluted share, in the comparable 2003 period.

“Both our Rockies and Midcontinent E&P businesses are generating strong growth with the drill bit,” said Keith O. Rattie, Questar’s CEO. “We’re on track to grow nonregulated production 10% again this year — in fact, first-half production of 50.6 Bcfe was 13% higher than a year ago. We doubled Pinedale production — despite winter-drilling restrictions — and Midcontinent production jumped 16%.”

The Salt Lake City, UT-based company said its non-regulated businesses were responsible for most of the quarter’s strong showing, while its regulated pipeline stayed flat and its regulated utility was hurt by accruals in a Utah regulatory dispute.

The company’s Questar Market Resources (QMR) — a subsidiary that conducts gas and oil development and production, gas gathering and processing and other nonregulated activities — increased net income 37% to $38.2 million in the second quarter of 2004 versus $27.8 million a year earlier. Questar Exploration and Production (QEP) — a QMR subsidiary that acquires, explores for, develops and produces natural gas and oil — earned $25.4 million, 46% higher than the prior-year period. QEP reported that non-regulated production rose 18% to 25.2 Bcfe, driven by accelerated development drilling on the Pinedale Anticline in western Wyoming and higher Midcontinent production.

Pinedale volumes grew to 4.9 Bcfe from 2.5 Bcfe a year earlier. The increase was partially attributable to the fact that QMR operated 76 Pinedale producing wells at the end of the 2004 period, 25 more than on Jan. 1, 2003. With the company’s newly approved 20-acre spacing, QMR has up to 354 wells yet to drill on its Pinedale acreage, 30 of which will be drilled in the second half of 2004.

QEP’s average realized price for natural gas was $4.17/Mcf in 2Q2004, 14% higher than the $3.66/Mcf in the year-earlier period. The subsidiary reported that about 80% of its 2Q2004 gas production was hedged at an average price of $4.00 per Mcf, net to the well.

On the regulated side, Questar Pipeline — which provides gas-transmission and storage services in several western states — earned $7.2 million in the current-year quarter compared with $7.3 million in the 2003 period. Questar Gas — which conducts retail gas-distribution in Utah and portions of Wyoming and Idaho — reported a seasonal loss of $4 million in the current-year quarter compared with a $16.5 million loss in the comparable 2003 period. Questar noted that both periods included after-tax charges for potential refund liability — $900,000 in 2004 and $13.6 million in 2003 — in the unresolved gas-processing dispute in Utah. As of July 1, Questar Gas was serving about 772,000 customers, 2.9% more than a year earlier.

Assuming natural gas prices remain at or near levels in the current forward-price curve, Rattie said “we now expect 2004 earnings to range from $2.45 to $2.60 per diluted share, compared to our previous guidance of $2.40 to $2.55 per diluted share.”

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