Questar Corp. raised its earnings guidance for the year and reported a 23% increase in net income to $28.7 million, or 34/cents per diluted share, for third-quarter on much higher realized gas prices.

“Higher natural gas prices and better-than-forecast natural gas production growth in the Rockies have driven Questar earnings in 2003,” said CEO Keith O. Rattie. “We now expect 2003 nonregulated natural gas and oil production to slightly exceed 92 Bcfe, up about 10% from 2002 after adjusting for asset sales in the second half of last year.

“Moreover, we have taken advantage of recent strength in natural gas prices to significantly increase our equity-production hedges for the remainder of 2003, as well as 2004 and 2005. As a result, our 2004 earnings will be significantly less sensitive to commodity price volatility than in the recent past.”

Rattie said that Questar now estimates that 2003 earnings, excluding special charges, will range from $2.20 to $2.30 per share, compared to previous guidance of $2.15-2.25/share. The guidance assumes gas prices consistent with the forward-price curves at the close of business Tuesday.

The company also provided initial earnings guidance for 2004 with estimates of $2.25-2.40/share. The 2004 guidance is based on a production forecast of 95-100 billion Bcfe, and assumes gas prices for unhedged volumes at or near levels reflected in the current forward curves. The company said its 2004 guidance also takes into account declining production and a higher depreciation, depletion and amortization rates in the company’s Uinta Basin operations in eastern Utah.

The company’s total gas production was basically flat in the third quarter at 212.2 MMcf/d. Gas production for the first nine months of the year was down 3% to and average of 210.9 MMcf/d. Total gas and oil production fell 4% in the quarter and 6.4% for the first nine months of the year.

However, realized gas prices soared to $4.18/MMBtu for the quarter from $1.90 in 3Q2002. For the first nine months of the year, realized gas prices averaged $4.24 compared to $1.97 last year. Oil prices were up $2.53 for the quarter to $27.39 and $6.26 for the nine month period to $28.38.

Questar also reported that it has taken advantage of recent strong natural gas prices to hedge additional volumes of expected natural gas production for the remainder of 2003, as well as 2004 and 2005. Questar has hedged 15.1 Bcf of fourth quarter 2003 gas production (about 72% of forecast) at an average net-to-the-well price of $3.71/Mcf.

For 2004, it has hedged 67.6 Bcf (about 80% of production) at an average net-to-the-well price of $4.02/Mcf. The company’s hedges are more heavily weighted to the Rockies, to reduce basis risk. The company has also hedged 18 Bcf of 2005 gas production at an average net-to-the-well price of $3.94/Mcf. The company said it intends to add hedges in both 2004 and 2005 over the next 12-18 months.

For the fourth quarter of 2003, the company has hedged 276,000 barrels of oil production at a net-to-the-well price of $21.80 per barrel. The company has not hedged 2004 or 2005 oil production. Oil production accounts for about 13-14% of the company’s total production on a gas-equivalent basis.

Gas deliveries from Questar’s distribution system fell 15% in the quarter and 11.7% for the nine-month period. Gas transportation volumes on its interstate pipeline system rose 9% for the quarter and 8.5% for the first nine months of the year.

For the first nine months of 2003, Questar’s net income was $113.6 million, or $1.35 per share, compared with $87.6 million, or $1.06 per share, for the prior-year period.

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