Record Demand Tested Questar's Operations in November

"Unprecedented demand" for gas pushed Questar's storage, transportation and distribution system to the limit in November, the company said last week. The Salt Lake City-based LDC was forced to curtail service to some industrial customers during the month to maintain deliveries to residential customers.

November was the coldest on record in Questar's Utah service area. Questar's interstate pipeline system had no excess transportation capacity.

"As one of the nation's most diversified natural gas companies, we are experiencing firsthand the unprecedented demand for gas from our wells, for capacity in our storage and transportation systems, and for supplies to serve a growing number of residential, commercial and industrial customers," said Questar CEO R.D. Cash.

With the significantly higher wellhead prices, Cash said Questar would meet or exceed the First Call earnings estimate of $1.67 per share for 2000.

Cash outlined an aggressive capital spending plan for 2001 to meet "the unprecedented demand we are seeing for natural gas supplies, transportation and retail-distribution services." Capital spending is expected to range between $368 million and $563 million, a potential record for the diversified natural gas company. The higher spending, Cash said, will occur if construction begins as scheduled on two major pipeline projects.

Regulated Services expenditures could exceed $235 million in 2001 if the 75-mile Main Line 104 in central Utah is built. FERC approved the project last week. The 24-inch-diameter line could carry a minimum of 272,000 Dth/d to Utah's main population centers and to pipelines serving other markets. The pipeline could be completed by late fall of 2001 if environmental impact statements are completed. Projected cost of the line is $80 million ($74 million to be spent in 2001). Construction work on a second major pipeline project --- the Southern Trails Pipeline --- also is scheduled to begin in 2001. Questar plans to convert an existing 700-mile, 16-inch-diameter pipeline to transport 120,000-130,000 Dth/d of gas to Southern California markets. The California State Lands Commission in November certified the environmental impact report for the pipeline, and the company is working on final right-of-way agreements.

Nick Rose, CEO of the Regulated Services area, said the two pipeline projects "are critically important to expanding the gas supply for Utah and other western markets. Main Line 104 and Southern Trails will provide new sources of gas to meet the region's growing demand."

Cash said the largest share of the projected 2001 base budget of $368 million would be designated for the company's Market Resources area, which conducts oil and gas exploration and production, gas gathering and processing, and energy trading. Market Resources plans expenditures of $194 million, including $76 million for development drilling, $32 million for reserve acquisitions, $28 million for gathering and processing, and $19 million for exploration drilling and related activities.

The base $368 million budget anticipates $117 million in capital expenditures by Regulated Services, which includes interstate transmission and storage and retail gas distribution. Questar Gas, the distribution affiliate, is expected to add 20-22,000 customers in 2001, continuing a decade-long pattern of growing at about twice the industry average.

Cash said Questar's 2001 capital budget will be funded primarily from growing internal cash flows and short-term debt. He expected the company to maintain a conservative balance sheet, with long-term debt representing about 45% of total capitalization.

Rocco Canonica

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