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 – July 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 July 26, 2006, Questar Corporation (the “Registrant”) issued a press release to report the Registrant’s financial results for the second quarter and six months ended June 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 July 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)




July 27, 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 July 26, 2006, by Questar Corporation.



QUESTAR NET INCOME UP 49% IN SECOND-QUARTER 2006

Company Updates Estimates of Probable, Possible Reserves


SALT LAKE CITY — Questar Corp. (NYSE:STR) – a natural gas-focused energy company – grew net income 49% in the second quarter of 2006 to $90.4 million, or $1.03 per diluted share, compared to $60.7 million, or $0.70 per diluted share, for the second 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. Second-quarter 2006 results included a $3.5 million or $0.04 per diluted share after-tax charge for unrealized mark-to-market losses on natural gas basis hedges and a $1.1 million or $0.01 per diluted share after-tax charge related to the redemption of $200 million of Questar Market Resources 7% Notes.


For the first half of 2006, Questar net income was $227.5 million, or $2.60 per diluted share, compared to $155.9 million or $1.79 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

June 30,



%

6 Months Ended

June 30,



%

  2006

2005

Change

 2006

    2005

Change

Market Resources

      

  Questar E&P

$56.1

$34.4

     63%

$126.6

$70.7

79%

  Wexpro

12.0

10.5

  14

23.9

20.7

15

  Gas Management

10.2

9.0

  13

19.9

17.8

12

  Energy Trading and other

1.0

0.9

  11

3.5

2.2

59

Market Resources Total

79.3

54.8

  45

173.9

111.4

56

 






 

Questar Pipeline

9.9

7.6

  30

21.3

15.9

34

Questar Gas

(0.7)

(3.4)

  79

28.7

25.3

13

Corporate and other operations

1.9

1.7

  12

3.6

3.3

9

QUESTAR CORPORATION TOTAL

$90.4

$60.7

     49%

$227.5

$155.9

46%

 



 



 

Earnings per diluted share

$1.03

$0.70

 

$2.60

$1.79

 

Average diluted shares

87.5

87.1

 

87.5

86.9

 


“All Questar operating units posted double-digit net income growth in the first half of 2006,” said Keith O. Rattie, Questar chairman, president and CEO. “But Questar E&P stands out. Questar E&P has now delivered year-on-year production growth of 15% or higher for four-straight quarters. Our veteran E&P team is getting the job done with the drill bit”.


SECOND-QUARTER HIGHLIGHTS


•

Questar E&P reported a 16% increase in natural gas, oil and NGL production volumes to 31.3 billion cubic feet of natural gas equivalent (Bcfe) compared to 26.9 Bcfe for the second quarter of 2005. Natural gas comprised 88% of reported volumes during the quarter.

•

Realized natural gas prices at Questar E&P rose 24% and realized crude oil and NGL prices rose 25%. Natural gas hedges increased reported revenues by $18.8 million while oil and NGL hedges reduced revenues by $6.7 million.

•

Unrealized mark-to-market losses on NYMEX/Rockies basis swaps reduced net income $3.5 million.

•

Wexpro’s investment base grew 17% to $220.1 million at June 30, 2006, compared to $188.0 million a year earlier. Wexpro produced 9.9 Bcfe during the second quarter on behalf of affiliate Questar Gas. Wexpro net income also benefited from 31% higher realized oil and NGL prices.

•

Questar Gas Management gas-processing volumes on a Btu basis increased 72% in the second quarter of 2006 to 26.5 million MMBtu compared to 15.4 million MMBtu for the year-earlier quarter. Gross gas-processing margin increased 53% to $10.3 million. Gas-gathering volumes and total gathering margin both rose 6% compared to the second quarter of 2005.

•

Questar Pipeline net income grew 30%, driven by new transportation contracts on its southern system in central Utah and on Overthrust Pipeline. Questar Pipeline also benefited from higher NGL volumes and realized NGL prices.

•

Questar ROA (Return on Assets, defined as earnings before interest and income taxes divided by average total assets) for the trailing 12-month period ended June 30, 2006, increased to 17.5%. Market Resources ROA was 23.0%, Questar Pipeline ROA was 9.0%, and Questar Gas ROA was 9.1%.


QUESTAR RAISES PRODUCTION GUIDANCE AND ADJUSTS FULL-YEAR EPS ESTIMATES TO REFLECT LOWER NATURAL GAS PRICES


The company now expects Questar E&P 2006 production to range from 126 to 128 Bcfe, up 2 Bcfe over the previous range. The revised production guidance – which excludes Wexpro – represents 10 to 12% growth over 2005 production of 114.2 Bcfe. Questar also adjusted its 2006 EPS guidance to reflect a significant decline in forward natural gas prices compared to the price levels assumed in previous guidance. The company now estimates that 2006 EPS will range from $4.50 - $4.70 per diluted share compared to previous guidance of $4.50 - $4.80 per diluted share. 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:


   EPS Guidance Assumptions

 

Current

Previous

   

Earnings per share

$4.50 - $4.70

$4.50 - $4.80

Average diluted shares (millions)

87.5

87.5

Questar E&P production – Bcfe

126 - 128

124 - 126

Pinedale wells completed in 2006

45 - 48

45 - 48

NYMEX gas price per MMBtu*

$7.00 - $8.00

$8.00 - $9.00

NYMEX/Rockies basis differential per MMBtu*

$2.25

$2.25

NYMEX/Midcontinent basis differential per MMBtu*

$1.50

$1.50

NYMEX crude oil price per barrel*

$65.00 - $75.00

$60.00 - $70.00


*On unhedged volumes for the remainder of 2006


•

Questar E&P has hedged about 69% of its forecast second-half 2006 natural gas and oil-equivalent production with fixed-price swaps. The company has hedged an additional 13% or 8.3 Bcf of forecast remaining 2006 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 $0.07 change in earnings 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 $0.02 change in earnings per diluted share.


Questar Market Resources Net Income Up 45% in Second Quarter, 56% for First-Half

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 $79.3 million in the second quarter of 2006, up 45% from $54.8 million in the second quarter of 2005. For the first half of 2006, Market Resources net income increased 56% to $173.9 million.


Questar E&P Net Income Increases 63% in Second Quarter, 79% for First-Half

Market Resources subsidiary Questar E&P benefited from growing production and higher realized prices for the second quarter and first half of 2006. Questar E&P reported net income of $56.1 million in the second quarter, up 63% from $34.4 million in the 2005 period. Questar E&P production increased 16% to 31.3 Bcfe compared to 26.9 Bcfe in the 2005 quarter. Natural gas comprised about 88% of Questar E&P production in the 2006 period. For the first half of 2006, Questar E&P net income rose 79% to $126.6 million compared to $70.7 million a year earlier, driven by a 19% increase in production and higher realized natural gas, oil and NGL prices compared to the year-earlier period.


Questar E&P – Production by Region


 

3 Months Ended

 

6 Months Ended

June 30,

 

June 30,

 

2006*

2005

% Change

 

2006**

2005

% Change

 

     (Bcfe)

  

  (Bcfe)

 

Pinedale Anticline

8.2

6.5

 26%


17.9

14.1

27%

Uinta Basin

6.2

6.9

(10)

 

12.4

12.6

(2)

Rockies Legacy

4.9

4.1

 20

 

10.0

8.1

23

     Subtotal – Rocky Mountains

19.3

17.5

 10

 

40.3

34.8

 

16

Midcontinent

12.0

9.4

 28

 

23.3

18.5

 

26

     Total Questar E&P

31.3

26.9

 16%

 

63.6

53.3

19%


*Includes 0.3 Bcfe related to a working interest adjustment in Rockies Legacy. Without the one-time adjustment, total Questar E&P production grew 15%.


**Includes 0.7 Bcfe related to settlement of an imbalance and 0.3 Bcfe related to a working interest adjustment in Rockies Legacy. Without the one-time adjustments, total Questar E&P production grew 17%.


Average realized net-to-the-well natural gas prices at Questar E&P increased 24% in the second quarter of 2006 to $6.00 per thousand cubic feet (Mcf) compared to $4.82 per Mcf in the 2005 period. As summarized below, the increase was due to the positive impact of hedging in the current period. Questar E&P average realized oil and NGL price was $50.11 per barrel compared with $40.02 a year earlier, a 25% increase. Oil hedges decreased realized oil and NGL prices $10.80 per bbl in the second quarter of 2006. Unrealized mark-to-market losses on Rockies basis hedges reduced net income $3.5 million in the 2006 quarter.


Questar E&P – Realized Prices and Hedging Impact

 

3 Months Ended

 

6 Months Ended

June 30,

 

June 30,

 

 2006

 2005

% Change

 

 2006

 2005

% Change

        

Realized natural gas price ($ per Mcf)

$6.00

$4.82

      24%

 

$6.13

$4.79

      28%

Natural gas hedge impact ($ per Mcf)

0.69

(0.92)

  

0.05

(0.67)


 



  



 

Realized oil and NGL price ($ per bbl)

50.11

40.02

25

 

50.27

39.38

       28

Oil and NGL hedge impact ($ per bbl)

(10.80)

(8.50)

      

 

(8.38)

(7.68)

         

 



  



 

Unrealized mark-to-market losses on basis hedges ($ millions – before tax)

(5.6)

0.0

  

(5.6)

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 second quarter of 2006, Questar E&P continued to take advantage of higher natural gas and oil prices to hedge additional future production. The company has and may continue to enter into basis-only hedges to protect cash flows and earnings from widening natural gas-price basis differentials that may result from capacity constraints on regional gas pipelines.


Questar E&P controllable production costs (the sum of depreciation, depletion and amortization expense, lease operating expense, general and administrative expense, and allocated interest expense) per unit of production increased 7% compared to the second quarter and the first half of 2005.


Questar E&P – Controllable Production Cost Structure

 

3 Months Ended

 

6 Months Ended

June 30,

 

June 30,

 

   2006

  2005

% Change

 

   2006

  2005

% Change

 

   (Per Mcfe)

  

   (Per Mcfe)

 

Depreciation, depletion and amortization

$1.38

$1.18

 17%

 

$1.33

$1.16

15%

Lease operating expense

0.54

0.58

 (7)

 

0.54

0.56

(4)

General and administrative expense

0.27

0.31

(13)

 

0.31

0.33

(6)

Allocated interest expense

0.26

0.21

 24

 

0.23

0.21

10

     Controllable production costs

$2.45

$2.28

  7%

 

$2.41

$2.26

  

  7%


•

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 decreased slightly as increased costs of materials and consumables were offset by higher production volumes.

•

Per-unit general and administrative expense decreased in the second quarter due primarily to reversal of an accrual related to a potential legal expense and higher production volumes. Absent the reversal, G&A would have been essentially flat with the year-earlier quarter.

•

Interest expense per unit increased in the 2006 quarter due to refinancing activities and a $50 million net increase in long-term debt during the quarter.


Questar E&P Updates Estimates of Probable, Possible Reserves


Questar E&P has recently completed an update of estimated probable and possible reserves associated with its Rocky Mountain and Midcontinent leaseholds. These estimates have been reviewed by the company’s independent reservoir engineers, having been prepared in accordance with the methodology and definitions detailed in the company’s March 8, 2005 news release, a copy of which can be obtained at:www.questar.com/news/2005_news/news_2005.html. Investors should note that these reserves are separate from and in addition to proved reserves included in our 2005 Annual Report and Form 10-K. The company cannot include information about unproved reserves in financial information filed with the Securities and Exchange Commission (SEC). In addition to Questar E&P year-end 2005 estimated proved reserves of 1,480 Bcfe, the company reported the following updated estimates of probable and possible reserves.


Questar E&P – Estimated Probable and Possible (Unproved) Reserves

    
 

Estimated Probable

 

Estimated Possible

Reserves

 

Reserves

 

June 30, 2006

December 31, 2004

% Change

 

June 30, 2006

December 31, 2004

% Change

 

              (Bcfe)

  

              (Bcfe)

 

Pinedale Anticline

819

285

     187%

 

715

         364

        96%

Uinta Basin

450

249

       81

 

955

         410

      133

Rockies Legacy

1,080

785

       38

 

1,815

         943

        92

Midcontinent

151

    49

     208

 

24

             8

      200

     Total Questar E&P

2,500

1,368

       83%

 

3,509

      1,725

      103%


•

Pinedale Anticline estimates include 575 10-acre Lance Pool locations classified as probable plus 664 Lance Pool 5-acre locations on the flanks of the field classified as possible.

•

Uinta Basin probable reserve estimates include 145 40-acre shallow gas (Wasatch/Upper Mesaverde) locations and 170 deep gas (Lower Mesaverde/Mancos/Dakota) locations. Estimated possible reserves include 451 40-acre and 20-acre shallow gas (Wasatch/ Upper Mesaverde) locations, and 269 deep gas (Lower Mesaverde/Mancos/Dakota) locations.

•

Rockies Legacy reserves include 210 probable and 478 possible Baxter/Frontier/Dakota locations in the Vermillion Basin and 143 probable and 183 possible Almond Formation locations in the Wamsutter area.

•

Midcontinent reserves include 220 probable and 24 possible locations in the Elm Grove area of northwest Louisiana and 22 probable and 3 possible locations in the Granite Wash play of the Texas Panhandle.

•

Wexpro reserves are not included in these estimates. The company reported Wexpro reserves of 521 Bcfe at year-end 2005.


Wexpro Net Income Up 14% in Second-Quarter, 15% in First-Half 2006

Wexpro – a Market Resources subsidiary that develops and produces cost-of-service reserves for Questar Gas – reported net income of $12.0 million in the current quarter, up 14% from the second 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’s investment base at June 30, 2006, increased 17% to $220.1 million compared to $188.0 million a year earlier. Wexpro current-quarter net income also benefited from 31% higher realized oil and NGL prices. For the first half of 2006, Wexpro net income was $23.9 million compared to $20.7 million for the first half of 2005, a 15% increase. Wexpro first-half 2006 results benefited from 28% higher realized oil and NGL prices.


Gas Management Net Income Up 13% in Second-Quarter, 12% in First-Half 2006

Questar Gas Management (Gas Management) – Market Resources gas-gathering and processing-services business – grew net income 13% to $10.2 million in the second quarter of 2006. Gas Management results benefited from a 53% increase in gas-processing plant margin compared to the 2005 quarter. Gathering volumes were up 6% to 62.4 million MMBtu equivalent for the current quarter compared to 59.2 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 half of 2006, Gas Management net income increased 12% to $19.9 million compared to $17.8 million in the 2005 period, driven by higher volumes and improved margins in both gathering and processing.


Questar Pipeline Net Income Up 30% in Second-Quarter, 34% in First-Half 2006

Questar Pipeline – a subsidiary that provides interstate natural gas-transportation and storage services – reported net income of $9.9 million in the second quarter of 2006 compared to $7.6 million in the second quarter of 2005. Second-quarter results were driven by a $2.9 million increase in transportation revenues from recent system expansions and $1.7 million in higher NGL revenues. Questar Pipeline net income was $21.3 million in the first half of 2006 compared with $15.9 million a year ago. Net income rose 34%, driven by $6.4 million in higher transportation revenues from system expansions and $3.2 million higher NGL revenues. Operating, maintenance, general and administrative costs per decatherm transported decreased to $0.12 in the first half of 2006 from $0.14 in the first half of 2005.


Questar Gas Seasonal Net Loss Narrows in Second-Quarter, Net Income Up 13% in First-Half 2006

Questar Gas – which provides natural gas distribution services in Utah, Wyoming and Idaho – reported a seasonal loss of $0.7 million in the second quarter of 2006 compared with a loss of $3.4 million for the second quarter of 2005. Gross margin from natural gas sales increased $5.0 million over the prior year. The higher margin included an increase of $1.2 million from customer growth, $1.2 million from recovery of gas-processing costs, and $2.7 million from an adjustment to the estimate of unbilled revenues. In 2005, gas-processing costs of $1.2 million in the second quarter and $2.6 million in the first half were not recovered in rates until the fourth quarter pursuant to a Utah regulatory order. At June 30, 2006, Questar Gas served 836,000 customers, up 12,000 from the end of 2005. Temperature-adjusted usage per customer declined slightly from the year-earlier quarter. Questar Gas net income was $28.7 million in the first half of 2006 compared with $25.3 million during the same period of 2005, driven by customer growth and recovery of gas-processing costs.


Second-Quarter Teleconference

Questar management will discuss second quarter 2006 results and its outlook for the remainder of the year and beyond in a conference call with investors Thursday, July 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 over $7 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. Subject to the requirements of otherwise applicable law, the company cannot be expected to update the statements contained in this news release or take actions described herein or otherwise currently planned. For more information, visit Questar’s Internet site at: www.questar.com.


Hedge Positions – July 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

       

Second half

27.5

12.2

39.7

 

$5.93

$6.81

$6.20

         

2007

        

First half

19.8

13.6

33.4

 

$7.02

$7.90

$7.38

Second half

20.1

13.9

34.0

 

7.02

7.90

7.38

12 months

39.9

27.5

67.4

 

7.02

7.90

7.38

         

2008

        

First half

15.2

10.4

25.6

 

$7.26

$8.09

$7.59

Second half

15.4

10.5

25.9

 

7.26

8.09

7.59

12 months

30.6

20.9

51.5

 

7.26

8.09

7.59

         

2009

        

First half

1.7

1.7

3.4

 

$7.77

$7.98

$7.88

Second half

1.7

1.8

3.5

 

7.77

7.98

7.88

12 months

3.4

3.5

6.9

 

7.77

7.98

7.88

         
      

Estimated

  

Gas (Bcf)  Basis-Only Swaps

 

average basis per Mcf vs. NYMEX

2006

       

Second half

8.3

 

8.3

 

$2.07

 

$2.07

         

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

         
      

Estimated

  

Oil (Mbbl)  Fixed-Price Swaps

 

average price per bbl, net to the well

         

2006

       

Second half

626

202

828

 

$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


QUESTAR CORPORATION

     

CONSOLIDATED STATEMENTS OF INCOME

     

(Unaudited)

     
      
 

3 Months Ended

 

6 Months Ended

 

June 30,

 

June 30,

 

2006

2005

 

2006

2005

 

(in thousands, except per share amounts)

REVENUES

     

  Market Resources

$384,110

$344,896

 

$799,187

$659,234

  Questar Pipeline

24,912

19,087

 

50,354

36,999

  Questar Gas

181,853

151,043

 

648,792

494,733

  Corporate and other operations

5,355

5,183

 

9,270

9,567

    TOTAL REVENUES

596,230

520,209

 

1,507,603

1,200,533

      

OPERATING EXPENSES

     

  Cost of natural gas and other products sold

220,854

225,577

 

683,634

564,382

  Operating and maintenance

68,244

63,312

 

142,353

120,059

  General and administrative

30,292

29,647

 

62,610

62,730

  Production and other taxes

25,864

26,250

 

59,336

52,635

  Depreciation, depletion and amortization

73,269

59,807

 

146,023

118,632

  Exploration

10,101

5,476

 

13,400

6,849

  Abandonment and impairment of gas,

     

     oil and other properties

1,843

1,493

 

3,542

2,898

    TOTAL OPERATING EXPENSES

430,467

411,562

 

1,110,898

928,185

      

    OPERATING INCOME

165,763

108,647

 

396,705

272,348

      

Interest and other income

3,710

2,922

 

6,157

5,573

Income from unconsolidated affiliates

1,701

1,675

 

3,532

3,221

Unrealized mark-to-market loss on basis swaps

(5,614)

  

(5,614)

 

Loss from early extinguishment of debt

(1,746)

  

(1,746)

 

Interest expense

(19,762)

(16,643)

 

(37,192)

(33,365)

    INCOME BEFORE INCOME TAXES

144,052

96,601

 

361,842

247,777

Income taxes

53,690

35,874

 

134,324

91,879

            NET INCOME

$90,362

$60,727

 

$227,518

$155,898

      

EARNINGS PER COMMON SHARE

     

    Basic

$1.06

$0.71

 

$2.67

$1.84

    Diluted

1.03

0.70

 

2.60

1.79

Weighted average common shares outstanding

     

    Used in basic calculation

85,352

84,679

 

85,301

84,546

    Used in diluted calculation

87,492

87,051

 

87,475

86,888

      

Dividends per common share

$0.235

$0.225

 

$0.46

$0.44


QUESTAR CORPORATION

     

OPERATIONS BY LINE OF BUSINESS

     

(Unaudited)

     
 

3 Months Ended

 

6 Months Ended

 

June 30,

 

June 30,

 

2006

2005

 

2006

2005

 

(in thousands)

      

REVENUES FROM UNAFFILIATED CUSTOMERS

    

   Questar E&P

$198,385

$137,350

 

$409,172

$269,847

   Wexpro

3,669

3,425

 

9,972

8,551

   Gas Management

40,485

33,148

 

81,733

62,182

   Energy Trading and other

141,571

170,973

 

298,310

318,654

       Market Resources total

384,110

344,896

 

799,187

659,234

   Questar Pipeline

24,912

19,087

 

50,354

36,999

   Questar Gas

181,853

151,043

 

648,792

494,733

   Corporate and other operations

5,355

5,183

 

9,270

9,567

 

$596,230

$520,209

 

$1,507,603

$1,200,533

      

REVENUES FROM AFFILIATED CUSTOMERS

    

   Wexpro

$36,517

$33,204

 

$75,243

$66,188

   Gas Management

3,632

3,400

 

7,478

6,588

   Energy Trading and other

158,948

131,541

 

409,178

273,755

       Market Resources total

199,097

168,145

 

491,899

346,531

   Questar Pipeline

19,827

21,517

 

40,393

43,942

   Questar Gas

1,237

1,370

 

2,814

2,631

   Corporate and other operations

408

473

 

836

1,075

 

$220,569

$191,505

 

$535,942

$394,179

      

OPERATING INCOME (LOSS)

     

   Questar E&P

$104,206

$60,518

 

$222,893

$123,960

   Wexpro

18,294

15,871

 

36,511

31,749

   Gas Management

15,104

13,115

 

29,772

26,058

   Energy Trading and other

784

1,559

 

4,095

4,014

       Market Resources total

138,388

91,063

 

293,271

185,781

   Questar Pipeline

21,729

17,346

 

45,659

35,703

   Questar Gas

2,735

(2,122)

 

54,242

47,829

   Corporate and other operations

2,911

2,360

 

3,533

3,035

 

$165,763

$108,647

 

$396,705

$272,348

      

NET INCOME (LOSS)

     

   Questar E&P

$56,100

$34,426

 

$126,590

$70,677

   Wexpro

11,957

10,495

 

23,942

20,677

   Gas Management

10,186

8,962

 

19,924

17,770

   Energy Trading and other

1,042

878

 

3,494

2,258

       Market Resources total

79,285

54,761

 

173,950

111,382

   Questar Pipeline

9,884

7,593

 

21,323

15,932

   Questar Gas

(693)

(3,446)

 

28,671

25,266

   Corporate and other operations

1,886

1,819

 

3,574

3,318

 

$90,362

$60,727

 

$227,518

$155,898


QUESTAR CORPORATION

    

SELECTED OPERATING STATISTICS

    

(Unaudited)

    
 

3 Months Ended

6 Months Ended

 

June 30,

June 30,

 

2006

2005

2006

2005

     

MARKET RESOURCES

    

  Questar E&P production volumes

    

    Natural gas (MMcf)

27,561

23,410

56,117

46,249

    Oil and natural gas liquids (Mbbl)

620

586

1,243

1,169

    Total production (Bcfe)

31.3

26.9

63.6

53.3

    Average daily production (MMcfe)

344

296

351

294

  Questar E&P average commodity price,

    

    net to the well

    

  Average realized price (including hedges)

    

    Natural gas (per Mcf)

$6.00

$4.82

$6.13

$4.79

    Oil and natural gas liquids (per bbl)

$50.11

$40.02

$50.27

$39.38

  Wexpro net investment base at June 30,

    

     (millions)

$220.1

$188.0

  

  Natural gas gathering volumes (in thousands

    

    of MMBtu) (1)

    

    For unaffiliated customers

35,784

33,539

68,434

66,074

    For Questar Gas

9,679

11,226

20,242

22,482

    For other affiliated customers

16,977

14,416

34,993

30,262

      Total gathering

62,440

59,181

123,669

118,818

    Gathering revenue (per MMBtu)

$0.29

$0.25

$0.29

$0.25

  Natural gas and oil marketing volumes (Mdthe)

    

    For unaffiliated customers

25,755

26,347

55,287

55,256

    For affiliated customers

24,316

22,095

49,878

44,647

      Total marketing

50,071

48,442

105,165

99,903

     

QUESTAR PIPELINE

    

  Natural gas transportation volumes (Mdth)

    

      For unaffiliated customers

78,159

61,393

140,876

116,995

      For Questar Gas

27,281

26,212

68,138

69,951

      For other affiliated customers

5,828

6,505

9,574

8,481

        Total transportation

111,268

94,110

218,588

195,427

    Transportation revenue (per dth)

$0.27

$0.28

$0.27

$0.27

    Firm-daily transportation demand (Mdth)

2,135

1,815

  
     

QUESTAR GAS

    

  Natural gas volumes (Mdth)

    

    Residential and commercial sales

16,692

16,843

58,957

56,762

    Industrial sales

1,126

1,394

2,277

3,097

    Transportation for industrial customers

7,384

7,068

15,869

15,723

      Total deliveries

25,202

25,305

77,103

75,582

     

  Natural gas revenue (per dth)

    

    Residential and commercial sales

$9.73

$7.82

$10.24

$7.99

    Industrial sales

7.44

6.24

7.91

6.17

    Transportation for industrial customers

$0.19

$0.18

$0.19

$0.18

  Heating degree days

    

    colder (warmer) than normal

(25%)

6%

(7%)

(3%)

  Temperature-adjusted usage per

    

    customer (dth)

18.1

18.2

68.5

68.1

  Customers at June 30,

835,511

798,277

  
     

(1)  one dth = one MMBtu

    



QUESTAR CORPORATION

    

PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

    
  

June 30,

 

December 31,

  

2006

 

2005

  

(in thousands)

ASSETS

    

Current assets

    

  Cash and cash equivalents

 

$73,760

 

$13,360

  Accounts and notes receivable, net

 

              240,019

 

              458,395

  Fair value of hedging contracts

 

                  4,482

 

                  1,972

  Inventories

 

                94,585

 

              125,417

  Deferred income taxes - current

 

                36,901

 

                86,734

  Other current assets

 

                24,076

 

                69,962

    Total current assets

 

473,823

 

755,840

Property, plant and equipment

 

           5,822,528

 

           5,527,997

Less accumulated depreciation,

    

    depletion and amortization

 

           2,183,778

 

           2,100,455

      Net property, plant and equipment

 

           3,638,750

 

           3,427,542

Investment in unconsolidated affiliates

 

                33,915

 

                30,681

Goodwill

 

                71,260

 

                71,260

Other assets, net

 

                72,273

 

                71,750

  

$4,290,021

 

$4,357,073

     

LIABILITIES AND SHAREHOLDERS' EQUITY

    

Current liabilities

    

  Short-term debt

   

$94,500

  Accounts payable and accrued expenses

 

$350,649

 

              557,025

  Fair value of hedging contracts

 

                28,548

 

              222,049

    Total current liabilities

 

379,197

 

873,574

Long-term debt

 

           1,032,374

 

              983,200

Deferred income taxes

 

              699,515

 

              624,187

Fair value of hedging contracts

 

                17,270

 

                99,044

Other long-term liabilities

 

              237,676

 

              227,265

Common shareholders' equity

 

           1,923,989

 

           1,549,803

  

$4,290,021

 

$4,357,073

     



QUESTAR CORPORATION

   

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  

(Unaudited)

   
 

6 Months Ended

 

June 30,

 

2006

 

2005

 

(in thousands)

Operating activities

   

  Net income

$227,518

 

$155,898

  Adjustments to reconcile net income to net cash

   

           provided from operating activities:

   

    Depreciation, depletion and amortization

150,432

 

122,445

    Deferred income taxes

17,813

 

20,555

    Share-based compensation

4,444

 

2,026

    Abandonment and impairment of gas, oil and other properties

3,542

 

2,898

    Income from unconsolidated affiliates, net of cash distributions

(709)

 

(1,004)

    Net gain from asset sales

(181)

 

(3,594)

    Loss from early extinguishment of debt

1,746

  

    Unrealized mark-to-market loss on basis swaps

5,614

  

    Ineffective portion of fixed-price swaps

(259)

 

328

    Change in operating assets and liabilities

93,129

 

26,794

       Net cash provided from operating activities

503,089

 

326,346

    

Investing activities

   

  Capital expenditures

(362,451)

 

(283,120)

  Proceeds from asset dispositions

2,771

 

16,380

       Net cash used in investing activities

(359,680)

 

(266,740)

    

Financing activities

   

  Common stock

1,394

 

5,664

  Short-term debt

(94,500)

 

(31,000)

  Long-term debt

45,201

 

(5)

  Dividends paid

(39,354)

 

(37,289)

  Excess tax benefits from share-based compensation

4,250

  

       Net cash used in financing activities

(83,009)

 

(62,630)

    

  Change in cash and cash equivalents

60,400

 

(3,024)

  Beginning cash and cash equivalents

13,360

 

3,681

  Ending cash and cash equivalents

$73,760

 

$657