Questar Corp. "returned to its roots" in 2Q2010 as an integrated natural gas company after spinning off its volatile exploration and production (E&P) unit in May.

The Salt Lake City-based company reported an 8% jump in continuing operations, which included a $1.7 million (4 cents/share) charge for the spin-off in May of QEP Resources Inc., the E&P and midstream services unit (see Daily GPI, May 19). Quarterly net profits fell 13% to $28.7 million (16 cents/share), compared with $33 million (18 cents) a year earlier. However, minus the separation charges, Questar earned $35.8 million (20 cents/share).

"The new Questar has returned to its roots as a Rockies-based integrated...gas company," CEO Ron W. Jibson said during a conference call Wednesday. "All business units are performing in line with or ahead of our expectations."

Keith Rattie, the company's long-time CEO and chairman of the board, relinquished the CEO title once the spin-off was completed.

Questar now is comprised of three subsidiaries: Questar Gas, which provides retail gas distribution in Utah, Wyoming and Idaho; Wexpro, which develops and produces about half of the natural gas used by Questar Gas customers; and Questar Pipeline, which operates interstate gas pipelines and storage facilities in the western United States. QEP Resources' results were reported in 2Q2010 as discontinued operations.

CFO Martin Craven, who shared a microphone with Jibson, called it "a new era for Questar" following the E&P spin-off. "We now offer investors a more focused rate-based and investment-grade company, offering exceptional visual growth [and] returns on capital that we think are very competitive [with those of] our industry peers. If we do that, we believe we can grow the dividend at a compound annual rate of 5-10%."

Wexpro reported quarterly net income of $22 million, up 11% from the $19.8 million reported in the year-ago quarter. Between June 30, 2009 to the end of the second quarter, Wexpro produced 48.5 Bcf of cost-of-service gas for Questar Gas.

Questar Pipeline's net income also grew in the latest quarter, up 6% to $15.9 million from $15 million in the year-ago period. The gains in net income were driven by higher contracted transportation commitments and higher natural gas liquids (NGL) sales.

Questar's average NGL price in the first six months of this year was $1.37/gallon, up 96% from the first half 2009. NGL volumes also rose 35% in the half-year period from a year earlier after a processing plant was completed in Price, UT, late last year.

However, Jibson warned that NGL prices appear to be losing their early-year strength. "NGL prices have weakened since the end of the quarter, so this revenue trend may not continue for the rest of 2010."

Questar Gas, meanwhile, reported a seasonal loss of $2.2 million in 2Q2010, compared with a net loss of $2 million in 2Q2009. The utility earned a 10.4% return on equity for the 12-month period that ended June 30, and the subsidiary continues "to benefit from above-average customer growth in our service area," said Jibson. "We added over 15,000 customers over the past year, up 1.7%."

The CEO also told analysts that the company's interest in using compressed natural gas (CNG) to build the natural gas vehicle market remains strong. Utah has one of the largest CNG networks in the country.

"Questar Gas is nationally recognized for its natural gas vehicle infrastructure development here in Utah and we're extending our partnership with the state using a federal grant to further expand our CNG filling station network this year," Jibson said. "In total we plan to invest $129 million of capital in Questar Gas during 2010." About $51 million, or 38% of the utility's budget, was put into the state's CNG program so far this year, he said.

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