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<SEC-DOCUMENT>0000751652-01-000004.txt : 20010327
<SEC-HEADER>0000751652-01-000004.hdr.sgml : 20010327
ACCESSION NUMBER: 0000751652-01-000004
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010326
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: QUESTAR CORP
CENTRAL INDEX KEY: 0000751652
STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923]
IRS NUMBER: 870407509
STATE OF INCORPORATION: UT
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-08796
FILM NUMBER: 1579425
BUSINESS ADDRESS:
STREET 1: 180 E FIRST SOUTH ST
STREET 2: PO BOX 45433
CITY: SALT LAKE CITY
STATE: UT
ZIP: 84145
BUSINESS PHONE: 8015345000
MAIL ADDRESS:
STREET 1: 180 E FIRST SOUTH ST
STREET 2: P O BOX 45433
CITY: SALT LAKE CITY
STATE: UT
ZIP: 84145
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO _____.
Commission File No. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
State of Utah 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East 100 South, P.O. Box 45433, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801) 324-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common Stock, Without Par Value, with New York Stock Exchange
Common Stock Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of registrants' knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. x
The aggregate market value of the registrant's common stock,
without par value, held by nonaffiliates on March 1, 2001, was
$2,167,204,320 (based on the closing price of such stock).
On March 1, 2001, 80,647,952 shares of the registrant's common
stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive
Proxy Statement for the 2001 Annual Meeting of Stockholders are
incorporated by reference into Part III. The sections of the Proxy
Statement labelled "Committee Report on Executive Compensation" and
"Cumulative Total Shareholder Return" are expressly not incorporated
into this document.
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . 1
Market Resources, General. . . . . . . . . . . . . . . . 3
Market Resources, Exploration and Production . . . . . . 3
Market Resources, Gathering and Processing . . . . . . . 6
Market Resources, Wholesale Marketing. . . . . . . . . . 7
Market Resources, Regulation . . . . . . . . . . . . . . 8
Market Resources, Competition and Customers. . . . . . . 9
Regulated Services, Introduction . . . . . . . . . . . . 9
Regulated Services, Retail Distribution. . . . . . . . . 9
Regulated Services, Transmission and Storage . . . . . .14
Regulated Services, Other Services . . . . . . . . . . .18
Other Operations . . . . . . . . . . . . . . . . . . . .18
Employees. . . . . . . . . . . . . . . . . . . . . . . .19
Environmental Matters. . . . . . . . . . . . . . . . . .20
Research and Development . . . . . . . . . . . . . . . .20
Oil and Gas Operations . . . . . . . . . . . . . . . . .20
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . .22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . .24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . .24
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . .25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION . . . . . . . . . . . . . . . . . . . . . . . .26
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK. . . . . . . . . . . . . . . . . . . . . . . . . . .37
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . .40
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . .40
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . .40
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . .41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . .42
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . .42
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . .42
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
FORM 10-K
ANNUAL REPORT, 2000
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
General
Registrant Questar Corporation ("Questar" or "the Company")
is a diversified energy services holding company that is involved in
the full spectrum of natural gas activities through two divisions
Market Resources and Regulated Services. Market Resources engages
in energy development and production; gas gathering and processing;
and wholesale gas, electricity and hydrocarbon liquids marketing and
trading. Regulated Services conducts interstate gas transmission
and storage activities and retail gas distribution services. The
Company is also involved in information and communication systems
that were built to serve its own needs and are being expanded in
size and scope to meet the needs of other customers.
Questar was organized in 1984 and became a publicly held
entity when the shareholders of Questar Gas Company (then known as
Mountain Fuel Supply Company, "Questar Gas") approved a corporate
reorganization. Questar was created to provide organizational and
financial flexibility and to achieve a more clearly defined
separation of utility and nonutility activities. Questar is a
"holding company," as that term is defined in the Public Utility
Holding Company Act of 1935, because Questar Gas is a natural gas
utility. The Company, however, qualifies for and claims an
exemption from provisions of such act applicable to registered
holding companies.
As is noted in the following chart, Questar's Market
Resources unit includes a subholding company, Questar Market
Resources, Inc. ("QMR"), which owns Wexpro Company ("Wexpro"),
Questar Exploration and Production Company ("Questar E&P") and its
Canadian affiliates, Celsius Energy Resources Ltd. ("Celsius") and
Canor Energy, Ltd. ("Canor"), Questar Gas Management Company
("Questar Gas Management"), and Questar Energy Trading Company
("Questar Energy Trading"). Questar's Regulated Services unit also
includes a subholding entity--Questar Regulated Services Company
("QRS")--in addition to Questar Gas, Questar Pipeline Company
("Questar Pipeline") and Questar Energy Services, Inc. ("QES").
The Company's information and communication activities are
conducted by Questar InfoComm, Inc. ("Questar InfoComm") which, in
turn, owns approximately 82 percent of Consonus, Inc. (Consonus,"
formerly known as Questar MetroNet Services).
<PAGE>
QUESTAR
CORPORATION
Questar InfoComm, Inc.
(Information, Communication, and
Electronic Measurement Services)
Consonus, Inc.
(Networking, Website, and Data Security Services)
Questar Market Resources, Inc.
(Subholding Company)
Wexpro Company
(Manages and Develops Cost-of-Service Properties for Questar
Gas)
Questar Exploration and Production Company, Celsius Energy
Resources, Ltd., and Canor Energy, Ltd.
(Exploration and Production)
Questar Energy Trading Company
(Wholesale Marketing, Trading, Storage)
Questar Gas Management Company
(Gathering and Processing)
Questar Regulated Services Company
(Subholding Company)
Questar Gas Company
(Retail Distribution)
Questar Pipeline Company
(Transportation and Storage)
Questar Energy Services Inc.
(Retail Services)
As a diversified provider of energy services, Questar
believes that its structure enhances its operating flexibility to
take advantage of the earnings growth potential of exploration and
production operations, wholesale marketing, gathering and processing
even as it continues to take advantage of opportunities to expand
its regulated activities through customer additions and new pipeline
projects. The Company's management is convinced that its experience
in the various activities along the natural gas value
chain--production, gathering, processing, transportation, storage,
distribution--enable it to develop and implement strategies for
taking advantage of opportunities associated with the growing demand
for natural gas. Questar, however, is also concerned about the
increased risks associated with traditional utility operations as
regulators and politicians fail to understand the need for
competitive returns and to reward efficient operators.
Questar intends to continue emphasizing the ownership of
assets--reserves, pipelines, storage reservoirs, distribution
systems--as it fulfills stated objectives to enter new markets and
take advantage of the convergence of natural gas and electricity.
The Company has important joint venture arrangements and will
continue to pursue new alliances to strengthen its position and
exploit its assets.
<PAGE>
Financial information concerning the Company's lines of
business, including information relating to the amount of total
revenues contributed by any class of similar products or services
responsible for 10 percent or more of consolidated revenues, is
presented in Note 10 of the Notes to Consolidated Financial
Statements under Item 14.
The Company's activities are discussed below.
Market Resources, General.
The Market Resources unit is the primary growth area within
the Company. Questar expects to spend approximately 60-70 percent
of its budgeted capital expenditures over the next five years on
nonregulated activities, primarily to expand oil and gas reserves
through drilling and acquisitions and to enlarge an infrastructure
of gathering systems, processing plants, header facilities, and
nonregulated storage facilities. The diversity of activities within
the group enhances a basic strategy to pursue complementary growth.
As Questar E&P, Celsius and Canor (QMR's three exploration and
production subsidiaries), for example, find and acquire new
reserves, Questar Gas Management should have more opportunities to
expand gathering and processing activities, and Questar Energy
Trading should have more physical production to support its
marketing programs.
Market Resources, Exploration and Production
The Company has been in the exploration and production
("E&P") business since its organization in 1935. Through the
ensuing years, the Company's E&P activities have generated
substantial economic benefits for the Company and its shareholders
and customers and have expanded in size and geographic location.
The year 2000 was the second consecutive banner year for the
Company's E&P operations as record production volumes and reserves
were announced and the expectations for the Pinedale Anticline area
of Wyoming were validated.
Questar's E&P group includes Questar E&P and its Canadian
subsidiaries Celsius and Canor. These entities form a unique E&P
group that conducts a blended program of low-cost development
drilling, low-risk reserve acquisition, and high-quality
exploration.
The E&P group also maintains a geographical balance and
diversity, while concentrating its activities in core areas where it
has accumulated geological knowledge and has significant expertise.
Core areas of activity include the Rocky Mountain region of Wyoming
and Colorado; the Midcontinent region of Oklahoma, the Texas
Panhandle, East Texas, and the Upper Gulf Coast; the Southwest
region of northwestern New Mexico and southwestern Colorado; and the
Western Canadian Sedimentary Basin located primarily in Alberta,
Canada.
Natural gas remains the primary focus of the Company's E&P
operations. As of year-end 2000, the Company had proved reserves
(excluding Questar Gas's cost-of-service reserves) of 639.9 billion
cubic feet ("Bcf") of gas and 15.0 million barrels ("MMBbls") of oil
and natural gas liquids, compared to 514.5 Bcf of gas and 13.9
MMBbls of oil as of the same date in 1999. (Any references to oil
in this report include natural gas liquids.) On an
energy-equivalent basis ratio of six thousand cubic feet ("Mcf") of
natural gas to one barrel ("Bbl") of crude oil, natural gas
comprised approximately 87.6 percent of total non-cost-of-service
proved reserves. Proved developed gas reserves constituted 76.5
<PAGE>
percent of the total non-cost of service proved gas reserves
reported. Approximately 9.4 percent of the group's proved natural
gas reserves and 24.7 percent of its proved oil reserves are located
in Canada. See "Oil and Gas Operations," a separate section of this
Report, for additional information concerning the Company's oil and
gas activities on a consolidated basis.
During 2000, E&P companies and Wexpro, on a combined basis,
participated in 316 gross wells (94 net), compared to 235 gross
wells (93 net) in 1999. The 316 wells included 223 gas wells, 18
oil wells, 21 dry holes and 54 wells in progress (waiting on
completion or drilling) at year-end. The overall drilling success
(on a net well count basis) in 2000 was 90 percent, compared to 91
percent in 1999.
Questar E&P's drilling activities occurred in four core
operating areas: Midcontinent and Upper Gulf Coast, Rocky
Mountains, Pinedale Anticline in western Wyoming (separated out from
the Rocky Mountain area given its key importance) and western
Canada. Questar E&P was involved in more net wells located in the
Midcontinent than in the Rocky Mountains, including Pinedale.
QMR's Pinedale activities in 2000 merit special mention.
During 2000, Questar E&P and Wexpro drilled nine wells and completed
six of them in the Pinedale Anticline area of Sublette County,
Wyoming. (Three of the wells will not be completed until June of
2001 when winter drilling restrictions are lifted.) Drilling
results and initial production tests confirmed reserve expectations
of 5-6 Bcf per well. As of December 31, 2000, the gross daily
production from the 14 QMR wells in Pinedale was estimated at 26
MMcf and 45 BBl of oil.
Questar E&P and Wexpro expect to continue drilling activities
in Pinedale when government restrictions permit. On a combined
basis, they have an approximate 60 percent average working interest
in 14,800 acres in the Mesa Area of the Pinedale Anticline and
expect to drill between 135-150 wells based on 80-acre spacing
during the next several years.
QMR's activities in Pinedale illustrate its long-term
approach. Wexpro held the leasehold acreage by production as a
result of three wells drilled in the area during the mid-1970's.
Pinedale gas reserves are contained in tight sands with a low
porosity. Consequently, Questar E&P and Wexpro did not drill
additional wells in the area until other companies developed new
stimulation techniques that fractured sandstone formations at
multiple intervals and successfully used such techniques to drill
wells in neighboring fields. The Pinedale wells cost an average of
$2.2 million to drill and complete. This cost reflects the
completion depth of the wells (12,848 to 13,300 feet), the need for
special handling and multiple stimulations, and government
regulations that impose pad limitations and restrict drilling.
Current production profiles suggest that the average well may
produce on a long-term basis after stabilizing between 2 and 4 MMcf
per day within the first year or two after completion.
The Questar E&P group's gas production increased from 62.7
Bcf in 1999 to 69.0 Bcf in 2000. The increase in production was
attributable to reserve acquisitions and expanded development
activities. Questar E&P received an average selling price of $2.80
per Mcf in 2000, compared to $2.00 per Mcf in 1999. Gas production
is produced from four separate regions--the Midcontinent area, San
Juan Basin area, Rocky Mountain area, which includes the Pinedale
<PAGE>
Anticline area, and western Canada area. Production from each of
these areas is generally priced below the Henry Hub pricing center
in Louisiana, reflecting demand and access to transportation.
Although average gas prices were significantly higher in 2000
than in 1999, spot prices remained volatile. The E&P group hedges
as much as 50-60 percent of its natural gas production in order to
minimize the effect of price volatility on revenues and to lock in
prices that will enable it to meet strategic objectives. Hedging
activities are conducted by Questar Energy Trading.
During 2000, the E&P companies produced 2.2 MMBbls of oil,
roughly equivalent to the 2.3 MMBbls in 1999. The production was
sold at an average price of $20.50 per barrel in 2000, compared to
$13.92 per barrel in 1999.
The E&P group continued to generate Section 29 tax credits
during 2000. These tax credits are available for production from
wells that meet specified criteria, including a requirement that
drilling of the wells was commenced prior to January 1, 1993.
Properties are often referred to as "tight sands," "coal seams," or
low permeability formations from which it is generally more
expensive to produce gas. During 2000, Questar E&P recorded $4.7
million in Section 29 credits, compared to $5.3 million in 1999.
The production of oil and gas is subject to regulation by
appropriate federal and state agencies in the United States and by
federal and provincial agencies in Canada. In general, these
regulatory agencies are authorized to make and enforce regulations
to prevent waste of oil and gas, protect the correlative rights and
opportunities to produce oil and gas by owners of a common
reservoir, and protect the environment. Many leases held or
operated by the E&P group are federal or Crown (Canadian) leases
subject to additional regulatory requirements. As illustrated by
the actions taken by the Bureau of Land Management for Pinedale,
agencies are generally imposing more restrictions on access to
leasehold acreage, thereby increasing the planning time to obtain
drilling permits and limiting the E&P group's flexibility to adapt
quickly to new developments.
Questar E&P maintains regional offices in Denver, Colorado,
Tulsa, Oklahoma, and Oklahoma City, Oklahoma. Canadian operations
are managed through an office in Calgary, Alberta.
Wexpro Company. Wexpro was incorporated in 1976 as a
subsidiary of Questar Gas. Questar Gas's efforts to transfer
producing properties and leasehold acreage to Wexpro resulted in
protracted regulatory proceedings and legal adjudications that ended
with a court-approved settlement agreement that was effective August 1,
1981.
Wexpro, unlike the members of the E&P group, does not
conduct exploratory operations and does not acquire leasehold
acreage for exploration activities. It conducts oil and gas
development and production activities on certain producing
properties located in the Rocky Mountain region under the terms of
the settlement agreement. (The terms of the settlement agreement are
described in Note 9 of the Notes to Consolidated Financial
Statements under Item 14.) Wexpro produces gas from specified
properties for Questar Gas and is reimbursed for its costs plus a
return on its investment. In connection with its operations, Wexpro
charges Questar Gas for its costs plus a specified rate of return,
which averaged 19.5 percent on an after-tax basis in 2000, and is
adjusted annually based on a specified formula on its net investment
in such properties adjusted for working capital and deferred taxes.
<PAGE>
At year-end 2000, Wexpro's investment (net of deferred income taxes)
in cost-of-service operations was $124.8 million compared to $108.9
million at year-end 1999. Under the terms of the settlement
agreement, Wexpro bears all dry hole costs. The settlement
agreement is monitored by the Utah Division of Public Utilities, the
staff of the Public Service Commission of Wyoming and experts
retained by these agencies.
The gas volumes produced by Wexpro for Questar Gas are
reflected in the latter's rates at cost-of-service prices.
Cost-of-service gas (defined to include the gas attributable to
royalty interest owners) produced by Wexpro satisfied 48 percent of
Questar Gas's system requirements during 2000. Questar Gas relies
upon Wexpro's drilling program to develop the properties from which
the cost-of-service gas is produced. During 2000, the average
wellhead cost of Questar Gas's cost-of-service gas was $1.78 per
decatherm ("Dth"), which is lower than Questar Gas's average price
for field-purchased gas.
Wexpro participates in drilling activities in response to the
demands of other working interest owners, to protect its rights, and
to meet the needs of Questar Gas. Wexpro, in 2000, produced 45.0
billion cubic feet equivalent ("Bcfe") of natural gas and
hydrocarbon liquids from Questar Gas's cost-of-service properties
and added reserves of 71.3 Bcfe through drilling activities and
reserve estimate revisions. (These numbers do not include the
related royalty gas.)
Wexpro, under the terms of the Wexpro agreement, owns
oil-producing properties. The revenues from the sale of crude oil
produced from such properties are used to recover operating expenses
and provide Wexpro with a return on its investment. In addition,
Wexpro receives 46 percent of any residual income. (The remaining
income is received by Questar Gas and is used to reduce natural gas
costs reflected in customer rates.)
Wexpro has an ownership interest in the wells and facilities
related to its oil properties and in the wells and facilities that
have been installed to develop and produce gas properties described
above since August 1, 1981 (a date specified by the settlement
agreement referred to above). Wexpro maintains an office in Rock
Springs, Wyoming, in addition to its principal office in Salt Lake
City, Utah.
Market Resources, Gathering and Processing
Questar Gas Management conducts gathering and processing
activities in the Rocky Mountain and Midcontinent areas. Its
activities are not subject to regulation by the Federal Energy
Regulatory Commission (the "FERC") because the Natural Gas Act of
1938 specifically provides that the FERC's jurisdiction does not
extend to facilities involved in the production or gathering of
natural gas. Questar Gas Management's core system and activities,
however, reflect its historical connection to Questar Pipeline's
regulated activities.
Questar Gas Management was formed in 1993 as a wholly-owned
subsidiary of Questar Pipeline to construct and operate the Blacks
Fork processing plant in southwestern Wyoming. It expanded in 1996
as a result of receiving Questar Pipeline's gathering assets and
activities. In mid- 1996, Questar Gas Management was moved from
Regulated Services to Market Resources shortly after the transfer of
<PAGE>
gathering assets and acquired the processing plants that formerly
belonged to Questar E&P.
Questar Gas Management's gathering system was originally
built as part of a regulated enterprise. It consists of 1,284 miles
of gathering lines, compressor stations, field dehydration plants
and measuring stations and was largely built to gather production
from Questar Gas's cost-of-service properties. Under a contract
that was assigned when the gathering assets were transferred from
Questar Pipeline, Questar Gas Management is obligated to gather the
cost-of-service production for the life of the properties. During
2000, Questar Gas Management gathered 36.8 million decatherms
("MMDth") of natural gas for Questar Gas, compared to 32.1 million
in 1999, for which it received $8.5 million, including $4.5 million
of demand charges.
Questar Gas Management continues to expand the volumes of gas
gathered for affiliates within QMR and for nonaffiliated customers.
During 2000, Questar Gas Management gathered 25.0 MMDth for QMR
affiliates, compared to 19.7 MMDth in 1999, and gathered 93.0 MMDth
for nonaffiliated customers, compared to 85.0 MMDth in 1999.
Questar Gas Management is interested in acquiring the existing
gathering system that serves the Pinedale wells and constructing
additional facilities in the area.
Questar Gas Management continues to own a 50 percent interest
in the Blacks Fork processing plant, which has a daily capacity of
84 MMcf and could be expanded. A processing plant strips liquids
such as butane and ethane from natural gas volumes to enable the
producers to meet pipeline specifications for their gas volumes and
to take advantage of historical price advantages for natural gas
liquids when compared to natural gas volumes. Questar Gas
Management and Wexpro jointly own a processing facility located in
the Canyon Creek area of southwestern Wyoming that has an operating
capacity of 43 MMcf per day. It owns interests in other processing
plants in the Rocky Mountain and Midcontinent areas.
Questar Gas Management's 2000 increase in gathering
activities reflects the increased value of natural gas volumes. It
also processed more natural gas liquids during 2000 in response to
their increased value, but plant volumes slowed significantly in the
last months of 2000 as natural gas became disproportionately
valuable when compared to natural gas liquids.
Market Resources, Wholesale Marketing
Questar Energy Trading conducts energy marketing activities.
It combines gas volumes purchased from third parties and equity
production (production that is produced by affiliates) to build a
flexible and reliable portfolio. Questar Energy Trading aggregates
supplies of natural gas for delivery to large customers, including
industrial users, municipalities, and other marketing entities.
During 2000, Questar Energy Trading marketed a total of 100.6 MMDth
of natural gas and .8 MMBbls of liquids and earned a margin of $.095
per equivalent Dth. (The volumes and margins exclude affiliated
production.)
Questar Energy Trading uses derivatives as a risk management
tool to provide price protection for physical transactions involving
equity production and marketing transactions. It executed hedges
for equity production on behalf of Questar E&P with a variety of
<PAGE>
contracts for different periods of time. Questar Energy Trading
does not engage in speculative hedging transactions. (See Notes 1
and 4 of the Notes to Consolidated Financial Statements included in
Item 14 of this Report for additional information relating to
hedging activities.)
As a wholesale marketing entity, Questar Energy Trading
concentrates on markets in the Pacific Northwest, Rocky Mountains,
Midwest, and western Canada that are close to reserves owned by
affiliates or accessible by major pipelines.
Questar Energy Trading is expanding its capabilities in order
to sustain its activities in an increasingly competitive environment
in which parties are becoming more sophisticated. During 2000, it,
through a limited liability company, commenced operating a private
storage facility in southwestern Wyoming adjacent to several
interstate pipelines.
Market Resources, Regulation
The Company's operations are subject to various levels of
government controls and regulation in the United States and Canada
at the federal, state/provincial, and local levels. Such regulation
includes requiring permits for the drilling of wells; maintaining
bonding requirements in order to drill or operate wells; submitting
and implementing spill prevention plans; submitting notices relating
to the presence, use and release of specified contaminants
incidental to oil and gas regulations; and regulating the location
of wells, the method of drilling and casing wells, surface usage and
restoration of properties upon which wells have been drilled, the
plugging and abandoning of wells and the transportation of
production. QMR's operations are also subject to various
conservation matters, including the regulation of the size of
drilling and spacing units or proration units, the number of wells
that may be drilled in a unit, and the unitization or polling of oil
and gas properties. State conservation laws establish the maximum
rates of production from oil and gas wells, generally prohibit the
venting or flaring of gas and impose requirements for the ratable
purchase of production.
Some of QMR's leases, including many of its leases in the
Rocky Mountain area, are granted by the federal government and
administered by federal agencies. These leases require compliance
with detailed regulations on such things as drilling and operations
on the leases and the calculation and payment of royalties.
Various federal, state and local environmental laws and
regulations affect the Company's operations and costs. These laws
and regulations concern the generation, storage, transportation,
disposal or discharge of contaminants into the environment and the
general protection of public health, natural resources, wildlife,
and the environment. They also impose substantial liabilities for
any failure on the part of the Company to comply with them.
Each province in Canada and the federal government of Canada
also have laws and regulations governing land tenure, royalties,
production rates and taxes, and environmental protection.
<PAGE>
Market Resources, Competition and Customers
QMR faces competition in all aspects of its business
including the acquisition of reserves and leases; obtaining goods,
services, and labor; and marketing its production. The Company's
competitors include multinational energy companies and other
independent producers, many of which have greater financial
resources than QMR has.
The Company's business activities can be subject to seasonal
variations. Historically, the demand for natural gas decreases
during the summer months and increases during the winter months.
The increasing demand for natural gas to generate electricity may
cause increased demand during the hottest months of the summer.
Weather (both in terms of temperatures and moisture) can have
dramatic impacts on natural gas prices and the Company's operations.
The Company sells its natural gas production to a variety of
customers including pipelines, gas marketing firms, industrial
users, and local distribution companies. QMR's crude volumes are
sold to refiners, remarketers and other companies, some of which
have pipeline facilities near the producing properties. In the
event pipeline facilities are not available, crude oil is trucked to
storage, refining, or pipeline facilities.
Regulated Services, Introduction
Questar's Regulated Services segment includes Questar Gas, a
retail distribution utility; Questar Pipeline, an interstate
pipeline; QES, an entity engaged in retail energy services,
particularly appliance financing and energy management services; and
QRS, a subholding company that provides administrative services to
all these entities. All members of the Regulated Services group
have common officers and share service functions, e.g., marketing,
planning, business development, engineering, compensation, legal,
regulatory affairs, accounting, and budgeting. All Regulated
Services employees share base and incentive compensation programs
and are expected to work together to improve customer service and
operating efficiency. The integration of the entities has resulted
in lower operating and maintenance costs and better coordination of
activities and projects.
Effective October 31, 2000, 262 employees and 14 disability
recipients within the Regulated Services unit retired pursuant to
the terms of a special early retirement program. This early
retirement was the fourth program offered to employees of Regulated
Services within the last nine years and reflects continuing efforts
to cut costs in response to competitive pressures and to reap the
benefits associated with technological improvements.
Regulated Services, Retail Distribution
Customers and Deliveries. Questar Gas distributes natural
gas as a public utility in Utah, southwestern Wyoming, and a small
portion of southeastern Idaho. As of December 31, 2000, it was
serving 704,629 sales and transportation customers, a 2.7 percent
increase from the 686,317 customers as of year-end 1999. (Customers
are defined in terms of active meters.)
Over 96 percent of Questar Gas's customers live in Utah.
Questar Gas distributes gas to customers in the major populated
areas of Utah, commonly referred to as the Wasatch Front in which
<PAGE>
the Salt Lake metropolitan area, Provo, Ogden, and Logan are
located. It also serves customers in eastern, central, and
southwestern Utah with Price, Roosevelt, Fillmore, Richfield, Cedar
City, and St. George as the primary cities. Questar Gas supplies
natural gas in the southwestern Wyoming communities of Rock Springs,
Green River, and Evanston, and the southeastern Idaho community of
Preston. Questar Gas has the necessary regulatory approvals granted
by the Public Service Commission of Utah ("PSCU"), the Public
Service Commission of Wyoming ("PSCW"), and the Public Utilities
Commission of Idaho ("PUCI") to serve these areas. It also has
long-term franchises granted by communities and counties within its
service area.
Questar Gas added 18,312 customers in 2000, compared to
22,925 new customers added 1999. Utah's population is continuing to
grow faster than the national average, although the rate of increase
is slowing down, and Questar Gas expects to add 17,000-20,000
customers each year for the next several years.
Questar Gas's sales to residential and commercial customers
are seasonal, with a substantial portion of such sales made during
the heating season. The typical residential customer in Utah
(defined as a customer using 115 Dth per year) consumes over 75
percent of his total gas requirements in the coldest six months of
the year. Questar Gas's revenue forecasts used to set rates are
based on normal temperatures. As measured in degree days,
temperatures in Questar Gas's service area were 4 percent warmer
than normal in 2000, which was the seventh consecutive year in which
temperatures have been warmer than normal.
Questar Gas's sensitivity to weather and temperature
conditions, however, has been ameliorated by a weather normalization
mechanism for its general service customers in Utah and Wyoming.
The mechanism, which has been in effect since 1997, adjusts the
non-gas portion of a customer's monthly bill as the actual degree
days in the billing cycle are warmer or colder than normal. This
mechanism reduces the sometimes dramatic fluctuations in any given
customer's monthly bill from year to year.
During 2000, Questar Gas sold 83.4 MMDth to residential and
commercial customers, compared to 82.2 MMDth in 1999. General
service sales to residential and commercial customers were
responsible for 87 percent of Questar Gas's total revenues in 2000.
The increase in sales volumes reflects colder weather and increased
customers. Customers are continuing to decrease their usage on a
temperature-adjusted basis as they use more efficient gas-burning
appliances and respond to higher commodity prices with conservation
measures.
Questar Gas has designed its distribution system and annual
gas supply plan to handle design-day demand requirements. It
periodically updates its design-day demand, which is the volume of
gas that firm customers could use during extremely cold weather.
For the 2000-01 heating season, Questar Gas used a design-day demand
of 999,856 Dth for firm sales customers. Questar Gas is also
obligated to have pipeline capacity, but not gas supply, for
firm-transportation customers; the combined design-day requirement
for supply and transportation capacity is 1,100,700 Dth. Questar
Gas's management believes that the distribution system is adequate
to meet the demands of its firm customers. During the 2000-01
winter heating season, Questar Gas did curtail transportation
capacity to some of its interruptible customers.
<PAGE>
Questar Gas has been providing transportation service since
1986. It has worked diligently to retain its transportation
customers with cost-based rates. Transportation service is
attractive to customers that can buy volumes of gas directly from
producers and have such volumes transported at aggregate prices
lower than Questar Gas's sales rates.
Questar Gas's largest transportation customers, as measured
by revenue contributions in 2000, are the Geneva Steel plant in
Orem, Utah; the Gadsby plant operated by Scottish Power (electric
utility) in Salt Lake City; the Kennecott copper processing
operations, located in Salt Lake County; and the mineral extraction
operations of Magnesium Corporation of America in Tooele County,
west of Salt Lake City. Questar Gas's total industrial deliveries,
including both sales and transportation, increased from 61.5 MMDth
in 1999 to 65.2 MMDth in 2000, reflecting the increased use of
natural gas for electric generation.
Gas Supply. Questar Gas's competitive position has been
strengthened as a result of owning natural gas producing properties.
During 2000, it satisfied 48 percent of its system requirements
with the cost-of-service gas produced from such properties. These
properties are operated by Wexpro, and the gas produced from such
properties is transported by Questar Pipeline. Questar Gas's
investment in these properties is included in its utility rate base.
Questar Gas had reserves of 399.7 Bcfe as of year-end 2000,
compared to 373.4 Bcfe as of year-end 1999. (The reserve numbers do
not include volumes attributable to royalty interests but they do
include oil reserves.) The average wellhead cost associated with
Questar Gas's cost-of-service reserves was below the cost of
field-purchased gas. During 2000, Questar Gas recorded $1.8 million
in Section 29 tax credits associated with production from wells on
its cost-of-service properties that qualify for such credits.
Questar Gas believes that it is important to continue owning gas
reserves, producing them in a manner that will serve the best
interests of its customers, and satisfying a significant portion of
its supply requirements with gas produced from such properties.
Questar Gas uses storage capacity at Clay Basin (a base-load
storage facility owned and operated by Questar Pipeline) to provide
flexibility for handling gas volumes produced from cost-of-service
properties. It stores gas at Clay Basin during the summer and
withdraws it during the heating season.
Questar Gas has a balanced and diversified portfolio of gas
supply contracts with suppliers located in the Rocky Mountain states
of Wyoming, Colorado, and Utah. It purchases gas on the spot market
and under longer-term contracts, primarily during the winter heating
season. The contracts have market-price provisions and are either
of short-term duration or renewable on an annual basis upon
agreement of the parties. Questar Gas's gas acquisition objective
is to obtain reliable, diversified sources of gas supply at
competitive prices. In its latest semi-annual pass-through
application, Questar Gas estimated that its average cost of
purchased gas would be $6.75 per Dth for gas delivered to the
upstream pipeline, compared to the $2.61 price it was quoting a year
earlier.
Competition. Questar Gas has historically enjoyed a
favorable price comparison with all energy sources used by
residential and commercial customers except coal and occasionally
fuel oil. This historic price advantage, together with the
convenience and handling advantages associated with natural gas, has
permitted Questar Gas to retain 90-95 percent of the residential
<PAGE>
space and water heating markets in its service area and to
distribute more energy, in terms of Btu content, than any other
energy supplier to residential and commercial markets in Utah.
Questar Gas has virtually 100 percent of the space heating and water
heating offered in new homes within its service area that are
connected to its system.
Questar Gas is a public utility and currently has no direct
competition from other distributors of natural gas for residential
and commercial customers. (The PSCW approved a "suppler choice"
program for Questar Gas's Wyoming customers in 1998, but no supplier
has yet offered to provide service under the program.) Questar Gas
does compete with other energy sources. It continues to monitor its
competitive position, in terms of commodity costs and efficiency of
usage, with other energy sources.
Questar Gas is also interested in Utah's economic development
in order to enhance market growth and is encouraging the use of
natural gas in additional appliances. Its market share for other
gas appliances, e.g., ranges and dryers, has historically been less
than 30 percent, which is significantly lower than its over 90
percent market share for furnaces and water heaters. Questar Gas
continues to focus marketing efforts to develop incremental load in
existing homes and new construction.
Questar Gas believes that it must maintain a competitive
price advantage in order to retain its residential and commercial
customers and to build incremental load by convincing current
customers to convert additional appliances to natural gas.
Consequently, Questar Gas follows an annual gas supply plan that
provides for a judicious balance between cost-of-service gas and
purchased gas and that allows it to increase operating efficiency.
The Kern River pipeline, which was built to transport gas
from southwestern Wyoming to Kern County, California, runs through
portions of Questar Gas's service area and provides an alternative
delivery source for transportation customers. As of the date of
this report, Questar Gas has lost no industrial load as a result of
the Kern River pipeline. The existence of this interstate pipeline
system has made it possible for Questar Gas to extend service into a
new area in Utah and to develop a second source of supply for its
central and its southern Utah system. Questar Gas has taps on the
Kern River line for the delivery of additional peak-day supplies to
meet increasing demand.
Questar Gas and other local distribution companies are faced
with the challenges and opportunities posed by the unbundling and
restructuring of traditional utility services, which have been
complicated by recent developments in California and other states
where partial deregulation activities have resulted in market
anomalies and demands for "reregulation." At this point, it is far
too soon to predict a timetable for Questar Gas's unbundling of
services to residential and commercial customers. Questar Gas will
continue to examine its costs, take advantage of technological
developments, and improve its overall efficiency in order to take
advantage of opportunities in a deregulated environment.
Regulation. As a public utility, Questar Gas is subject to
the jurisdiction of the PSCU and PSCW. (Questar Gas's customers in
Idaho are served under the provisions of its Utah tariff. Pursuant
to a special contract between the PUCI and the PSCU, rates for
<PAGE>
Questar Gas's Idaho customers are regulated by the PSCU.) Questar
Gas's natural gas sales and transportation services are made under
rate schedules approved by the two regulatory commissions.
Questar Gas's 2000 general rate case proceedings culminated
with the receipt of an "acceptable" decision from the PSCU in August
of 2000. Specifically, the PSCU granted $13.5 million in general
rate relief and authorized a return on equity of 11 percent. This
dollar amount includes the $7.1 million in interim rate relief that
Questar Gas was authorized to collect, subject to refund, effective
January 1, 2000. Questar Gas originally requested a general rate
increase of $22.2 million and a return on equity of 12 percent in
December of 1999. The decision permitted Questar Gas to collect $5
million (included in the $13.5 million) of annual carbon dioxide
processing costs that the PSCU had earlier refused to accept as part
of Questar Gas's gas costs for pass-through treatment.
Questar Gas was disappointed in the authorized return on
equity it received from the PSCU, given its testimony concerning the
response of financial markets to unattractive returns and given the
increased evidence that utilities cannot earn their allowed returns
when they are growing their customer base faster than the national
average. It is authorized to earn a return on equity of 11.83
percent in Wyoming.
Questar Gas has consistently endeavored to balance the costs
of adding 18,000-21,000 customers each year with the cost savings
associated with reducing labor costs, consolidating activities, and
utilizing new technology. During 2000, Questar Gas improved its
overall efficiency by closing the front office of its service
centers, limiting in-home service calls to safety and emergency
calls, outsourcing some non-core functions, and combining operations
with Questar Pipeline.
Regulatory treatment of processing costs has been an issue of
contention for the past 18 months. Questar Gas, in order to give
its customers time to adjust the combustion settings in its service
area to handle lower Btu-gas, determined to enhance the Btu of such
gas by contracting to have carbon dioxide removed from it and
agreeing to pay the costs associated with this activity.
Questar Gas is involved in two separate cases before the Utah
Supreme Court involving the PSCU's treatment of carbon dioxide
costs. The first case, which has been briefed and argued, is
Questar Gas's appeal from the PSCU's order denying its application
to recover the costs in its pass-through proceedings from June of
1999 through year-end 1999. The second case, which has not been
argued, involves an appeal taken by a state agency from the PSCU's
general rate case order allowing Questar Gas to include the
processing costs in its rates.
Questar Gas aborted its legislative efforts to address
regulatory problems in Utah when the Utah state legislature voted to
repeal legislation that was adopted during 2000. The legislation
was designed to improve regulatory processes by consolidating two
state agencies into one, encouraging rate-case settlements without
protracted and adversarial proceedings, and requiring the PSCU to
consider "known and measurable" changes when setting rates. The
legislation received adverse reactions from consumer groups and
local media, which resulted in a political decision to repeal the
legislation before it could become effective.
<PAGE>
Both the PSCU and the PSCW have authorized Questar Gas to use
a balancing account procedure for changes in the cost of natural
gas, including supplier non-gas costs, and to reflect changes on at
least a semi-annual basis. During 2000, Questar Gas filed three
pass-through applications with both the Utah and Wyoming commissions
to reflect increased gas costs in its rates. In the last
pass-through applications that became effective January 1, 2001,
Questar Gas was allowed to reflect annualized gas costs of
$504,865,533 in its Utah rates and $19,529,523 in its Wyoming rates.
The typical residential customer in Utah would have an annual bill
of $905.02, using rates in effect as of January 1, 2001, compared to
an annual bill of $611.19, using rates in effect as of January 1,
2000. The PSCW and PSCU have allowed Questar Gas to collect the
increased gas costs in rates, subject to refund. Both commissions
scheduled public hearings to consider any issues raised in the most
recent pass-through filings.
Questar Gas has requested regulatory permission to purchase
Utah Gas Service Company ("Utah Gas") and Wyoming Industrial Gas
Company ("Wyoming Gas") and immediately merge these two entities
into it. Utah Gas is the only other retail natural gas utility in
Utah and serves the three primary cities of Vernal, Moab, and
Monticello, which are located in eastern and southeastern Utah.
Wyoming Gas supplies gas to Kemmerer, Wyoming, which is located in
western Wyoming. As a result of the acquisition, Questar Gas would
add approximately 10,500 customers. Questar Gas specified several
conditions to its acquisition that include receiving regulatory
approval to continue charging the acquired customers the current
non-gas cost portion of their rates for 10 years.
Miscellaneous. Questar Gas owns and operates distribution
systems throughout its Utah, Wyoming and Idaho service areas and has
a total of 21,660 miles of street mains, service lines, and
interconnecting pipelines. Questar Gas has consolidated many of its
activities in its operations center located in Salt Lake City, Utah.
It also owns operations centers, field offices, and service center
facilities throughout other parts of its service area. The mains
and service lines are constructed pursuant to franchise agreements
or rights-of-way. Questar Gas has fee title to the properties on
which its operation and service centers are constructed.
Regulated Services, Transmission and Storage
Questar Pipeline is an interstate pipeline company that
transports natural gas in the Rocky Mountain states of Utah, Wyoming
and Colorado and stores gas volumes in Utah and Wyoming. As a
"natural gas company" under the Natural Gas Act of 1938, Questar
Pipeline is subject to regulation by the FERC as to rates and
charges for storage and transportation of gas in interstate
commerce, construction of new facilities, extensions or abandonments
of service and facilities, accounts and records, and depreciation
and amortization policies. Questar Pipeline holds certificates of
public convenience and necessity granted by the FERC for the
transportation and underground storage of natural gas in interstate
commerce and for the facilities required to perform such operations.
Transmission System. Questar Pipeline, as an open-access
pipeline, transports gas for affiliated and unaffiliated customers.
It also owns and operates the Clay Basin storage facility, which is
a large underground storage project in northeastern Utah, and other
underground storage operations in Utah and Wyoming. Questar
Pipeline has a 72 percent ownership interest in Overthrust Pipeline
<PAGE>
Company ("Overthrust") and, through a subsidiary, a 50 percent
ownership interest in TransColorado Gas Transmission Company
("TransColorado").
Questar Pipeline's transmission system is strategically
located in the Rocky Mountain area near large reserves of natural
gas. It is referred to as a "hub and spoke" system, rather than a
"long-line" pipeline, because of its physical configuration,
multiple connections to other major pipeline systems and access to
major producing areas. Questar Pipeline's transmission system
connects with the transmission systems of Colorado Interstate Gas
Company ("CIG"), the middle segment (commonly referred to as the
"WIC segment") of the Trailblazer pipeline system, The Williams
Companies, Inc. ("Williams") including Kern River, and
TransColorado. These connections provide access to markets outside
Questar Gas's service area and allow Questar Pipeline to transport
gas for nonaffiliated customers.
Questar Pipeline's transmission system includes 1,734 miles
of transmission lines that interconnect with other pipelines and
link producers of natural gas with Questar Gas's distribution
operations in Utah and Wyoming. (The transmission mileage figure
includes lines at storage fields and tap lines used to serve Questar
Gas, but does not include the 700-mile Southern Trails line.) This
system includes two major segments, often referred to as the
northern and southern systems; the northern system segment extends
from northwestern Colorado through southwestern Wyoming into
northern Utah, and the southern system segment extends from western
Colorado to Payson in central Utah. The two portions are linked
together and have significant connections with other pipeline
systems, making it a fully integrated system.
Questar Pipeline's largest single transportation customer is
Questar Gas. During 2000, Questar Pipeline transported 108.2 MMDth
for Questar Gas, compared to 105.5 MMDth in 1999. These
transportation volumes include cost-of-service gas produced by
Wexpro on properties owned by Questar Gas as well as some volumes
purchased by Questar Gas directly from field producers.
Questar Gas has reserved firm transportation capacity of
about 798,000 Dth per day on an ongoing basis, or about 66 percent
of Questar Pipeline's reserved capacity. (Questar Gas also
contracts for additional capacity during the heating season.)
Questar Pipeline's transportation agreement with Questar Gas was
extended in mid-1999 and expires on June 30, 2002. Questar Gas paid
reservation charges of $54.3 million to Questar Pipeline in 2000;
these charges include reservation charges attributable to firm and
"no-notice" transportation. Questar Gas only needs its total
reserved capacity during peak-demand situations. When it is not
fully utilizing such capacity, Questar Gas releases it to others,
primarily industrial transportation customers and marketing entities.
Questar Pipeline recovers approximately 95 percent of its
transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay
primarily for access to transportation capacity. Consequently,
Questar Pipeline's throughput volumes do not have a significant
effect on its short-term operating results. Questar Pipeline's
transportation revenues are not significantly impacted by
fluctuating demand based on the vagaries of weather or natural gas
prices. Its revenues may be adversely affected if the FERC changes
its basic regulatory scheme of "straight fixed-variable" rates.
<PAGE>
Questar Pipeline's total system throughput increased from
253.5 MMDth in 1999 to 275.2 MMDth in 2000. Questar Pipeline
increased the volumes it transports for nonaffiliated customers from
135.9 MMDth in 1999 to 158.6 MMDth in 2000.
In addition to the transmission system described above,
Questar Pipeline has a 72 percent interest in and is the operating
partner of Overthrust, a general partnership that owns and operates
the Overthrust segment of Trailblazer. Trailblazer, in turn, is a
major 800-mile line that transports gas from producing areas in the
Rocky Mountains to the Midwest. The 88-mile Overthrust segment is
the western-most of Trailblazer's three segments. Although the
Overthrust segment is currently underutilized, Questar Pipeline and
its remaining partners are reviewing opportunities, including
backhauling, to increase its value.
The Kern River pipeline, which is owned by Williams, was
built to transport gas from Wyoming to the enhanced oil recovery
projects in Kern County, California. It runs through Utah's Wasatch
Front, making it possible for some large industrial customers to
bypass both Questar Gas and Questar Pipeline by buying
transportation service on Kern River. The Kern River line has
diverted some transportation volumes from both Questar Pipeline and
Overthrust. The Kern River line, on the other hand, has also
provided Questar Pipeline with opportunities to make additional
connections with outside markets.
Questar Pipeline's 50 percent ownership interest in the
TransColorado pipeline project is subject to a complex lawsuit that
is described under "Legal Proceedings" later in this Report. Until
this lawsuit is resolved, Questar Pipeline is effectively precluded
from realizing any value by its contractual claim to sell its
interest in TransColorado to its partner, a subsidiary of Kinder
Morgan Inc. (formerly KN Energy), as early as March 31, 2001.
The TransColorado pipeline project, which commenced
operations on March 31, 1999, was built to transport natural gas
from the Rocky Mountain area that was traditionally priced lower
than other gas supplies, e.g., San Juan Basin, to California and
Midwestern markets through interconnections with major pipeline
systems. The pipeline originates at a point on Questar Pipeline's
system 25 miles east of Rangely in northwestern Colorado and extends
292 miles to the Blanco hub in northwestern New Mexico.
In its two years of operation, TransColorado incurred
significant losses because gas prices did not reflect basis
differentials that encouraged producers and market aggregators to
transport volumes on the line. Questar Pipeline wrote down its
investment in TransColorado at year-end 1999. Since it is
effectively precluded from exercising its put pending the outcome of
the litigation, Questar Pipeline will record operating results as of
April 1, 2001.
New Projects. Questar Pipeline expects to construct a new
line-- the Mainline 104 project-- during 2001 and meet its original
timetable to have the project in service before the winter heating
season of 2001-02. Questar Pipeline, however, does not have the
final environmental approvals to construct the line. This line,
which is 75.6 miles long and 24 inches in diameter, extends from
Price, Utah, near the Ferron area of coalbed methane gas, to Questar
Gas's system at Payson, Utah, and the Kern River line near Elberta,
Utah. CIG has a 31.3 percent interest in the project, which is
estimated to cost $80 million and which will provide approximately
<PAGE>
272,000 Dth of additional firm transportation capacity. Questar Gas
has contracted for approximately 22 percent of the capacity on the
new line, which will allow it to have additional firm capacity to
meet its long-term needs.
Questar Pipeline, through a subsidiary, is continuing to
negotiate necessary rights of way and obtain market support for the
Southern Trails project. It has received regulatory approval from
the FERC and formal certification from the California State Lands
Commission. This project involves converting a 700-mile oil
pipeline and installing the necessary compression facilities to
transport natural gas volumes. The line extends from the Four
Corners area where the states of Utah, Colorado, New Mexico, and
Arizona meet to Long Beach, California. Current operating plans
divide the line into two segments. The eastern segment extends from
the San Juan Basin to the California state line and is expected to
be in service in 2002. The western segment, which extends from the
California state line to Long Beach needs additional market support
and decisions by the California Public Utilities Commission to
support competition for transportation volumes.
Questar Pipeline owns and operates a major compressor complex
near Rock Springs, Wyoming, that compresses volumes of gas from the
transmission system for delivery to the WIC segment of the
Trailblazer system and to CIG. The complex has become a major
delivery point on Questar Pipeline's system, with five of its major
natural gas lines connected to the system at the complex. In
addition, both of CIG's Wyoming pipelines and the WIC segment are
connected to the complex.
Storage and Processing. Questar Pipeline's Clay Basin
storage facility in northeastern Utah is the largest underground
storage reservoir in the Rocky Mountains. The facility has a
capacity of 117.5 Bcf. Clay Basin has been operational since 1977
and has been successfully expanded several times. Storage service
is important to parties that need to balance purchases with
fluctuating customer demand, improve service reliability, and avoid
imbalance penalties. The storage capacity at Clay Basin is fully
subscribed by customers under long-term agreements. Questar Gas
currently has 13.3 MMDth of working gas capacity at Clay Basin. Other
large customers, in addition to Questar Gas, include Williams;
Puget Sound Energy Company, a utility in the state of Washington;
and Duke Energy Trading and Marketing. Questar Pipeline also offers
interruptible storage service at Clay Basin and allows firm storage
service customers the right to transfer their injection and
withdrawal rights to other parties.
Through a subsidiary, Questar Pipeline also owns a processing
plant near Price, Utah, that removes carbon dioxide from coalbed
methane gas in order to raise the Btu content of the gas to be
safely and efficiently used for appliances in Questar Gas's service
area. This plant began operations in June of 1999.
Miscellaneous. Questar Pipeline extended its footprint to
other parts of the western United States by participating in the
TransColorado pipeline project and purchasing the Southern Trails
line. There are market risks associated with these projects, as
evidenced by Questar Pipeline's decision to writedown its investment
in TransColorado. Questar Pipeline's efforts to complete the
Southern Trails conversion are affected by its ability to obtain
market support.
<PAGE>
Questar Pipeline does not currently plan to file a general
rate case in 2001. It, however, will continue to review its
revenues and costs as it adds new facilities that are not included
in its rate base and makes expenditures to comply with regulatory
mandates.
Competition for Questar Pipeline's transportation and storage
services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility and increased the risks
associated with new projects. Questar Pipeline has two key assets
that contribute to its continued success. It has a strategically
located and integrated transmission system with interconnections to
major pipeline systems and with access to major producing areas and
markets and it has significant storage capacity with Clay Basin.
Questar Pipeline intends to take advantage of these assets by
increasing its "intra-hub capacity" or its ability to quickly and
reliably move gas between receipt and delivery points and by
expanding its storage capacity and services.
Regulated Services, Other Services
QES was organized in 1996 to pursue opportunities created by
the deregulation of energy markets and was transferred from QMR to
QRS effective January 1, 1999. It provides energy management
equipment, installation, and service contracts for commercial and
industrial clients and home security systems, service contracts, and
equipment financing to residential customers.
During 2000, QES concentrated on three new business
activities. It partnered with Northwest Natural Gas Company, a
Portland-based natural gas utility, to provide residential and
commercial appliance financing for Northwest's customers. It
developed a "joint trenching" business in which it works with
developers to coordinate utility installations in new developments.
Finally, QES introduced a program to supply contractors with a
reliable energy source for winter construction projects.
Other Operations
In addition to the two primary segments of Market Resources
and Regulated Services, Questar has "other operations." This group
includes Questar InfoComm, which is a full-service provider of
integrated information and communication services to affiliates and
external businesses; Consonus's activities; and, limited real estate
operations. Stock owned by the Company or Questar InfoComm is also
included in this category.
Questar InfoComm provides information and communication
services. It operates a regional microwave system that covers much
of Utah and southwestern Wyoming. This digital system was
originally built to satisfy the needs of Questar's operations, but
also carries data for alternative telephone providers and other
external customers. Questar InfoComm installs and maintains
telephone-switching equipment and voice-mail systems. It built and
leases a fiber optic telephone network in parts of Salt Lake City
for an alternative telephone provider XO Communication ("XO"
formerly Nextlink Communication) and owns shares of stock issued by
XO. Questar InfoComm is currently involved with a special project
to modify its proprietary software to handle electric grid customers
in the United Kingdom and Europe.
<PAGE>
Questar InfoComm, in addition to XO, owns equity positions in
other companies that are involved in telecommunications. It owns an
equity interest in Evolution Networks, a private company organized
in 1999 to take advantage of opportunities with integrating and
extending microwave facilities, and Parker Vision, a Florida-based
firm that develops wireless technology and new equipment using such
technology.
In 1999, Questar InfoComm launched Consonus (formerly known
as Questar MetroNet Services), which offers managed hosting and
operations services, critical data center support, network
engineering and equipment sales. Consonus owns three ultra-secure
Internet data centers in the Salt Lake metropolitan area and intends
to construct additional data centers in other metropolitan areas.
These centers are designed to protect critical systems and data from
natural or man-made disasters. Consonus's customers range from
small businesses that lack the expertise to design their networks to
large corporations such as Hewlett-Packard that use Consonus's
newest data center in West Jordan, Utah, to showcase their services
and products.
Questar InfoComm also owns a Colorado-based manufacturing
company, Questar Baseline Industries, Inc. ("Baseline"), that
develops and manufactures gas-analysis systems. This entity was
purchased in 1998 to support Questar InfoComm's strategy to expand
its gas-analysis expertise and applied technology services. Questar
InfoComm transferred these functions to QRS as of January 1, 2001
and has announced its intention to sell Baseline.
As of year-end 2000, Questar retained 802,962 shares of its
original 7.8 million shares issued by Nextel, an international
wireless communication company. The Company acquired this stock in
1994 when it sold Questar Telecom, a specialized mobile radio
subsidiary, to Nextel.
Questar no longer owns the office building in downtown Salt
Lake City that serves as its headquarters facility. It does have a
long-term lease for the building and has approximately 750 employees
in it. Questar, through a subsidiary, continues to own property
adjacent to the building that is currently used for parking and will
continue to review proposals to develop it.
Through an affiliate, Questar also owns 14.5 acres of
commercial real estate in Salt Lake County that was the site of the
Wasatch Chemical clean-up activities and is currently being utilized
by the organizing committee for the Salt Lake 2002 Olympics. See
Legal Proceedings. Although the Company intends to continue owning
the property to minimize any future problems associated with
environmental compliance, it believes that the property can earn
attractive returns when leased.
Employees
As of December 31, 2000, Questar and its affiliates had 2,022
employees compared to 2,288 employees at year-end 1999. Of this
total, 1,218 worked for the Regulated Services segment, 412 worked
for Market Resources entities, and 392 worked for corporate, Questar
InfoComm, Consonus, and Baseline. (At year-end 1999, the Regulated
Services unit had 1,497 employees. The reduction in employees
reflects the impact of an early retirement program described under
"Regulated Services.") None of these employees is represented under
collective bargaining agreements. Questar has comprehensive benefit
plans for its employees, but some benefit plans vary by business
unit. Employee relations are generally deemed to be satisfactory.
<PAGE>
Environmental Matters
Questar and its affiliates are subject to the National
Environmental Policy Act and other federal and state legislation
regulating the environmental aspects of their businesses. During
2000, Questar continued to be involved in actions involving local
and federal environmental enforcement agencies and allegations of
"hazardous waste" problems. The Company does not believe that
environmental protection provisions will have any significant effect
on its competitive position; it does believe, however, that such
provisions have added and will continue to add to capital
expenditures and operating costs.
Questar is actively promoting the environmental advantages of
natural gas in comparison to other fuels. It has actively
participated in various clean air committees and has promoted the
use of natural gas in automobiles. Questar's management believes
that increasing concerns about environmental pollution will result
in an increased demand for natural gas.
Research and Development
Questar Gas has the primary responsibility for the Company's
research and development activities. It evaluates gas conversion
equipment, gas piping, and engines using natural gas and also
evaluates technological developments with electrical appliances.
The total amount spent by Questar on research and development
activities either directly or through contributions is not significant.
Oil and Gas Operations
Oil and gas operations are significant to the business
functions and financial condition of Questar. (All information set
forth below relates to the Company on a consolidated basis.)
Certain information concerning the Company's oil and gas operations
is presented in Note 12 of the Notes to Consolidated Financial
Statements included in Item 14 of this Report. The Company does not
have any long-term supply contracts with foreign governments or
reserves of equity investees.
Reserve Reports. The following is a reconciliation of
reserve quantities reported in Note 12 of the Notes to Consolidated
Financial Statements and reserve quantities reported to other
regulatory agencies:
The Company, on a consolidated basis, is reporting 1,018.9
Bcf of natural gas reserves at year-end 2000. This total represents
the net revenue interest of all owned reserves and includes
quantities attributable to cost-of-service properties.
During 2000, the Company filed estimated reserves as of
year-end 1999 on Form EIA-23 with the Energy Information
Administration in the Department of Energy and will submit a
comparable report for 2000. Although Questar used the same
technical and economic assumptions when it filed this report, it was
obligated to report reserves on wells it operates, not on all wells
in which it has an interest, and to include the reserves
attributable to other owners in such wells.
Questar Gas files information using a FERC Form 2 format with
the PSCU and PSCW and lists gas reserves of 431.9 Bcf (working
interest) at December 31, 2000, which include reserves attributable
<PAGE>
to royalty interests. The 379.0 Bcf (net revenue interest) reported
as cost-of-service gas reserves in Note 12 exclude reserves
attributable to royalty interests.
Questar Pipeline files a Form 2 (Annual Report) with the
FERC. The Form 2 discloses Questar Pipeline's cushion gas of 61.8
Bcf at December 31, 2000. This gas is not included in the total
reserve number.
Oil and Gas Production.1
2000 1999 1998
Natural gas (MMcf) 110,509 101,602 88,44
Oil (Mbbl) 2,804 2,934 2,95
1Production quantities from all properties, including
cost-of-service properties.
Average Sales Price.2
2000 1999 1998
Natural gas per Mcf $2.80 $ 2.00 $ 1.92
Oil per bbl $20.50 $13.92 $12.70
2Average sales price is calculated on production excluding
cost-of-service volumes.
Average Production (Lifting) Cost. The average production
cost Mcfe excludes costs and volumes associated with production of
cost-of-service reserves. One barrel of oil equals the energy
content of 6 Mcf of gas.
2000 1999 1998
Production cost per Mcfe $.70 $.59 $.63
Producing Wells at December 31, 2000.
Gas Oil
Gross wells 4,244 1,248
Net wells 1,741 468
The numbers for gross wells include 140 wells with multiple
completions.
Leasehold Acreage at December 31, 2000. Questar can retain
its interest in undeveloped acreage by either drilling activity that
establishes commercial production or by the payment of delay
rentals. A portion of the unproved acreage may be allowed to lapse
prior to the primary terms of the lease. Leasehold acreage is
located in the United States and Canada. Approximately 78 percent
<PAGE>
of the domestic unproved acreage consists of federal and state
leases that generally have ten-year terms. The remaining 22 percent
is attributable to fee leases that generally have three- to
five-year terms. About 35 percent of the unproved acreage is
scheduled to expire within the next five years if no drilling or
development activity is undertaken. Substantially all the Canadian
unproved acreage is related to Crown or government leases, which
provide for five-year terms.
The following chart lists the Company's consolidated
productive and unproved acreage:
Productive Unproved
Gross Net Gross Net
United States 2,348,662 779,882 1,793,625 756,033
Canada 258,284 92,465 371,369 161,655
Total 2,606,946 872,347 2,164,994 917,688
Net Productive and Dry Wells Drilled.
Exploratory Wells Development Wells
2000 1999 1998 2000 1999 1998
Productive 2 85 84 6
Dry 3 1 3 6 8 5
Total 3 1 5 91 92 66
Present Activities. At year-end 2000, Questar affiliates had
a working interest in 38 wells waiting on completion and 16 wells
being drilled.
Delivery Commitments. Questar Gas is obligated to deliver
natural gas to approximately 704,600 customers in Utah, Wyoming and
Idaho, but future quantities associated with such service are
neither fixed nor determinable.
The E&P group sells a majority of its oil and gas production
through Questar Energy Trading on the spot-market or under
short-term contracts that provide for price readjustments.
ITEM 3. LEGAL PROCEEDINGS.
There are various legal proceedings pending against the
Company and its affiliates. Management believes that the outcome of
these cases will not have a material adverse effect on the Company's
financial position or liquidity. Significant cases are discussed
below.
TRANSCOLORADO. Questar TransColorado, Inc. ("QTC"), a
subsidiary of Questar Pipeline, owns a 50 percent interest in the
TransColorado Gas Transmission Company ("TransColorado), which is
<PAGE>
the partnership that built and operates the TransColorado pipeline
project. QTC and its partner, KN TransColorado, Inc. ("KNTC") are
involved in a complex lawsuit that is pending in a state district
court in Colorado. At center stage in the lawsuit is the validity
of a contractual right claimed by QTC to put its 50 percent interest
in TransColorado to KNTC during the 12-month period beginning March
31, 2001.
KNTC originally filed the lawsuit in June of 2000 alleging
that Questar Pipeline and its affiliates breached their fiduciary
duties to TransColorado and KNTC by developing a plan to construct
and operate a new pipeline (this project--Mainline 104--is described
under the section "Regulated Services, Transportation and Storage")
that would compete with TransColorado, rendering it economically
unviable. KNTC is seeking $150 million plus punitive damages, a
declaratory judgment that KNTC's obligation to purchase QTC's
interest in the project be declared void and unenforceable, and a
dissolution of the partnership under Colorado law.
QTC and its affiliates subsequently filed a counterclaim and
third party complaint against KNTC and its named affiliates,
including Kinder Morgan, Inc., seeking a declaratory judgment that
its contractual right to exercise the put is binding and enforceable
and damages of at least $185 million.
The parties have entered into a stipulation and standstill
agreement that preserves the claims made by the parties pending the
resolution of the litigation. On December 31, 2000, QTC gave notice
of its election to exercise its contractual right to sell its 50
percent interest in TransColorado to KNTC, subject to the standstill
agreement. The Company determined that it will be required to
account for its share of any operating results as of April 1, 2001.
The parties are also evaluating the retention of an outside party to
operate the TransColorado pipeline during the litigation, which is
currently scheduled for trial in February of 2002.
BRIDENSTINE. On January 4, 2001, a district court judge in
Oklahoma approved the settlement agreement in Bridenstine v.
Kaiser-Francis Oil Company, a class action lawsuit that was
originally filed against Questar E&P, other named affiliates
including Questar and QMR, and unrelated defendants in 1995.
Pursuant to the terms of the settlement, Questar E&P and Union
Pacific Resources Company (predecessor in interest to Questar E&P)
paid $22.5 million, with Questar E&P's portion being $16.5 million.
Although the Questar defendants disputed claims that centered on
allegations of an excessive and improper transportation charged
against royalty payments, they settled the lawsuit to avoid
continued legal costs and the uncertainty of a jury verdict.
GRYNBERG. Questar affiliates are named defendants in a
lawsuit filed by an independent producer (Grynberg) under the
Federal False Claims Act. This case and the 75 substantially
similar cases filed by Grynberg against pipelines and their
affiliates have been consolidated for discovery and pre-trial
motions in Wyoming's federal district court. The cases involve
allegations of industry-wide mismeasurement and undervaluation of
gas volumes on which royalty payments are due the federal
government. The complaint seeks treble damages and imposition of
civil penalties. The federal district judge has not ruled on the
defendants' motion to dismiss.
On March 8, 2001, the trial court judge granted a motion to
dismiss another lawsuit filed by Grynberg against several Questar
defendants including Questar Pipeline, Questar Gas Management and
<PAGE>
Questar Energy Trading. This case, which was filed in a Utah state
district court, claims that the Questar defendants mismeasured gas
volumes attributable to Mr. Grynberg's working interest in a
specified property in southwestern Wyoming. The plaintiff's
allegations included breach of contract, negligent
misrepresentation, fraud, breach of fiduciary duty, etc. The judge
dismissed the lawsuit based on defendants' arguments that the
applicable statute of limitation had expired and, there was no basis
to support fraudulent concealment claims, or independent tort claims.
QUINQUE. Questar E&P, Questar Gas Management, Wexpro,
Questar Gas, and Questar Pipeline are among the 220 named defendants
in Quinque Operating Company v. Gas Pipelines, which was recently
transferred from the Wyoming federal district court where it had
been consolidated with the Grynberg cases to the Kansas state court
where it had been originally filed. This case is very similar to
the cases filed by Mr. Grynberg against the pipeline industry, but
the allegations of systematic mismeasurement of natural gas volumes
and resulting underpayment of royalties are made on behalf of
private and state lessors, rather than on behalf of the federal
government.
Royalty class actions are being asserted in numerous states,
including Wyoming, against other companies in the oil and gas
production and marketing businesses in which QMR's subsidiaries
participate. Similar actions could be filed against QMR and its
subsidiaries.
The Company continues to monitor the Wasatch Chemical
property in Salt Lake City, which is still included on the national
priorities list, commonly known as the "Superfund" list. The
Wasatch Chemical property was the location of chemical mixing
operations and is the subject of a 1992 consent order. Questar
conducted the necessary soil remediation and groundwater remediation
activities and expects that the site will be eventually removed from
the Superfund list.
See "Regulated Services, Retail Distribution, Regulation" for
a review of significant regulatory proceedings and appeals from
decisions in such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of
stockholders during the last quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information concerning the market for the common equity of
the Company and the dividends paid on such stock is located in Note
11 of the Notes to Consolidated Financial Statements under Item 14.
As of March 14, 2001, Questar had 11,279 shareholders of record and
estimates that it had an additional 25,000-30,000 beneficial holders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues $1,266,153 $924,219 $906,256 $936,337 $817,981
Operating expenses
Cost of natural gas and other
products sold 562,229 352,554 367,932 399,941 314,271
Write-down of full cost oil
and gas properties 34,000 3,000
Write-down of gas gathering
properties 3,000
Other expenses 444,014 391,747 371,543 360,241 332,087
Total operating expenses 1,006,243 744,301 773,475 766,182 646,358
Operating income $259,910 $179,918 $132,781 $170,155 $171,623
Interest and other income 41,682 74,700 18,202 19,667 12,040
Write-down of investment in
partnership (49,700)
Net income $156,711 $98,830 $76,899 $104,795 $98,145
Basic earnings per common share $1.95 $1.20 $0.93 $1.27 $1.20
Diluted earnings per common share $1.94 $1.20 $0.93 $1.27 $1.19
Dividends per share $0.685 $0.67 $0.6525 $0.62 $0.60
Book value per common share 12.26 11.37 10.62 10.30 9.41
Total assets $2,539,045 $2,237,997 $2,161,281 $1,945,017 $1,816,225
Net cash provided from operating
activities 260,373 214,998 284,685 202,678 182,921
Capital expenditures 323,753 268,004 461,347 212,797 291,835
Capitalization
Long-term debt, less current
portion 714,537 735,043 615,770 541,986 555,509
Redeemable cumulative
preferred stock 4,828
Common stock 991,066 925,845 877,958 845,778 772,085
Total capitalization $1,705,603 $1,660,888 $1,493,728 $1,387,764 $1,332,422
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY
Questar Corporation earned $156.7 million in 2000, representing
a 59% improvement over net income reported for 1999. Following
is a year to year comparison of net income by line of business.
<TABLE>
<CAPTION> 2000 1999 Change Percentage
(Dollars in thousands)
<S> <C> <C> <C> <C>
Questar Market Resources $ 85,042 $ 45,866 $ 39,176 85%
Questar Regulated Services 54,332 11,079 43,253 390%
Corporate and other operations 17,337 41,885 (24,548) -59%
$ 156,711 $ 98,830 $ 57,881 59%
Earnings per diluted common share $ 1.94 $ 1.20 $ 0.74 62%
</TABLE>
Questar Market Resources' net income rose 85% in 2000 compared
with 1999 due primarily to higher energy prices, a 10% increase
in natural gas production and increased investment by Wexpro in
gas-development properties.
Net income of Questar Regulated Services increased 390% in
2000. In 1999, Questar Pipeline recorded a write-down of its
investment in the TransColorado partnership and ongoing
operating losses from the TransColorado partnership. Questar
Gas received a $13.5 million general rate increase effective
August 11, 2000, including $7.1 million of interim rate relief
beginning January 1, 2000.
Net income of corporate and other operations decreased 59% in
2000 primarily as the result of reduced sales of securities.
Corporate and other operations recorded after tax gains from
selling securities of $13.8 million in 2000 compared with $36.9
million in 1999.
Repurchase of 3.2 million shares of Questar common stock
beginning in April 1999 and continuing through August 2000
increased earnings per share by $.04 in 2000.
<PAGE>
RESULTS OF OPERATIONS
QUESTAR MARKET RESOURCES (Market Resources) conducts Questar's
exploration and production, gas development, gathering,
processing and marketing activities. Following is a summary of
financial results and operating information.
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Natural gas sales $ 193,359 $ 125,245 $ 98,767
Oil and natural gas liquids sales 59,901 41,521 36,722
Cost-of-service gas operations 74,492 61,705 61,448
Energy marketing 379,760 243,296 234,565
Gas gathering and processing 29,278 22,341 21,954
Other 5,263 4,203 4,816
Total revenues 742,053 498,311 458,272
Operating expenses
Energy purchases 369,752 239,201 230,462
Operating and maintenance 106,703 79,916 74,863
Depreciation and amortization 84,475 78,608 71,377
Write-down of full cost oil
and gas properties 34,000
Other taxes 36,262 21,516 24,988
Wexpro settlement agreement -
oil income sharing 4,758 2,292 1,053
Total operating expenses 601,950 421,533 436,743
Operating income $ 140,103 $ 76,778 $ 21,529
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 68,963 62,712 51,309
Oil and natural gas liquids
(in Mbbl)
Questar Exploration & Production 2,225 2,311 2,340
Wexpro 521 555 554
Production revenue
Natural gas (per Mcf) $ 2.80 $ 2.00 $ 1.92
Oil and natural gas liquids
(per bbl)
Questar Exploration & Production $ 20.50 $ 13.92 $ 12.70
Wexpro $ 27.43 $ 16.84 $ 12.64
Wexpro investment base, net
of deferred income taxes
(in millions) $ 124.8 $ 108.9 $ 97.6
Energy-marketing volumes
(in thousands of equivalent dth) 105,632 112,982 113,513
Natural gas-gathering volumes
(in Mdth)
For unaffiliated customers 92,969 84,961 72,908
For Questar Gas 36,791 32,050 29,893
For other affiliated customers 25,068 19,659 17,720
Total gathering 154,828 136,670 120,521
Gathering revenue (per dth) $ 0.13 $ 0.15 $ 0.16
</TABLE>
<PAGE>
Revenues
Revenues were 49% higher in 2000 when compared with 1999
because of higher prices for natural gas, oil and NGL and
increased natural gas production. Natural gas production rose
10% to 69 Bcf and the average selling price increased 40%. U.
S. gas production increased 3% to 61.7 Bcf, while Canadian
production rose 152% to 7.3 Bcf. Questar acquired Canadian
reserves and producing properties in January 2000.
Approximately 53% of gas production in 2000 was hedged at an
average price of $2.16 per Mcf, net to the well. Hedging
activities reduced revenues from gas sales by $33.7 million in
2000, but had an insignificant impact in 1999 and 1998.
Selling prices of oil and NGL for nonregulated operations
increased 47% to a combined average of $20.50 per barrel and
more than offset a 4% decrease in production volumes.
Approximately 73% of the nonregulated oil production was hedged
at an average price of $17.36 per barrel. Hedging activities
reduced revenues from oil sales by $15.5 million in 2000, but
had an insignificant impact in 1999 and 1998. Production
declined in 2000 as a result of selling nonstrategic properties
in the fourth quarter of 1999.
For 2001, Questar has used swaps, costless collars and
fixed-price contracts to hedge approximately 55% of estimated
gas production based on December 2000 reserves. The average
hedged price is $2.90 per Mcf (net to the well) assuming floor
prices on collars. The average hedged price increases to
$3.15 per Mcf (net to the well) if collar ceiling prices are
assumed. Approximately 62% of 2001 estimated oil production,
based on December 2000 reserves, is hedged at an average price
of $17.20 per barrel, net to the well. Quantities of hedged
production in any given month range between 49% and 66% for gas
and 56% and 70% for oil.
Revenues from cost-of-service operations were 21% higher in
2000 compared with 1999. Wexpro manages and develops oil and
natural gas properties on behalf of Questar Gas and receives a
return on its investment in successful wells. The natural gas
production is delivered to Questar Gas at cost of service. Oil
is sold at market prices. Any net income from oil sales
remaining after recovery of expenses and Wexpro's return on
investment is divided between Wexpro and Questar Gas. Questar
Gas's portion is reported as oil-income sharing. Wexpro's
investment base, net of deferred income taxes, grew 15% in 2000
when compared with 1999. The average return on investment was
19.5% in 2000 and 20% in 1999.
Higher energy prices were responsible for substantial increases
in revenues for energy marketing and improved plant-processing
margins. Increased gas demand led to higher volumes of gas
gathering.
Revenues in 1999 improved 9% compared with 1998 as a result of
increased prices for gas, oil and NGL and a 22% rise in gas
production. Natural gas selling prices averaged 4% higher in
1999.
Operating Expenses
Operating and maintenance expenses were 34%
higher in 2000 primarily due to an increase in the number of
gas and oil properties and increased legal costs in the
settlement of a major case. Depreciation and amortization
expense increased 7% in 2000 due largely to a 10% improvement
in natural gas production. The combined U.S. and Canadian
full-cost amortization rate was $.79 per thousand cubic feet
equivalent (Mcfe) for 2000, down from $.80 per Mcfe in 1999.
Other taxes, primarily production related, rose 69% in 2000
driven by higher revenues and prices.
Nonregulated Gas and Oil Reserves Market Resources achieved a
261% reserve replacement ratio in 2000 compared with 131% in
1999. Reserve additions, revisions and purchases, net of sales
in place, amounted to 214.8 Bcfe in 2000, more than double the
100.1 Bcfe added in 1999. Gains in reserves occurred through
drilling results in the Pinedale Anticline and the acquisition
of 61.1 Bcfe of proved reserves in Canada. In January 2001,
<PAGE>
Market Resources closed on the sale of 290 producing properties
and a gas gathering system in the Midcontinent for $27 million
with an effective sale date of November 2000. The properties
produced approximately 4.3 MMcf of gas and 180 barrels of oil
per day, but were not compatible with the long-term strategic
plans of the Company. In the fourth quarter of 1999, Market
Resources sold producing properties mostly in the Permian Basin
and Kansas with combined daily production of 4.3 MMcf of gas
and 1,100 barrels of oil.
Market Resources achieved a five-year average finding cost of
$.86 per Mcfe, excluding cost-of-service operations, in 2000
compared with $.90 per Mcfe in 1999.
QUESTAR REGULATED SERVICES (Regulated Services) conducts
Questar's natural gas- distribution, transmission, storage and
nonregulated retail energy services.
Natural Gas Distribution - Questar Gas conducts natural gas
distribution operations. Following is a summary of financial
results and operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
( In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial sales $ 467,293 $ 396,882 $ 425,452
Industrial sales 38,993 28,938 29,555
Industrial transportation 6,968 6,594 6,480
Other 23,508 17,523 15,336
Total revenues 536,762 449,937 476,823
Natural gas purchases 334,193 257,265 281,004
Margin 202,569 192,672 195,819
Operating expenses
Operating and maintenance 101,486 103,308 96,923
Depreciation and amortization 34,450 36,426 33,261
Other taxes 10,213 7,625 8,185
Total operating expenses 146,149 147,359 138,369
Operating income $ 56,420 $ 45,313 $ 57,450
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 83,373 82,201 83,231
Industrial deliveries
Sales 10,314 9,823 9,681
Transportation 54,836 51,643 55,461
Total industrial 65,150 61,466 65,142
Total deliveries 148,523 143,667 148,373
Natural gas revenue (per dth)
Residential and commercial $ 5.60 $ 4.83 $ 5.11
Industrial sales 3.78 2.95 3.05
Transportation for industrial
customers 0.13 0.13 0.12
System natural gas cost (per dth) $ 3.54 $ 2.61 $ 2.57
Heating degree days (normal 5,609) 5,402 5,317 5,462
Warmer than normal 4% 5% 3%
Number of customers at December 31,
Residential and commercial 703,306 684,950 662,084
Industrial 1,323 1,367 1,308
704,629 686,317 663,392
</TABLE>
<PAGE>
Margin (Revenues less natural gas purchases)
Questar Gas'margin increased 5% in 2000 when compared with 1999 after
declining by 2% in the prior-year comparison. The improvement
was primarily the result of a $13.5 million annual general rate
increase. A $7.1 million portion of the Utah rate increase
went into effect January 1, 2000, with the remainder reflected
in rates beginning August 11, 2000. The rate case authorized
Questar Gas to earn up to an 11% return on equity and included
$5 million for annual gas processing costs. The rate case
resolved an issue in which the Public Service Commission of
Utah (PSCU) had denied recovery of $3.6 million of gas
processing costs in 1999.
Usage per residential customer, calculated on a temperature
adjusted basis, decreased in 2000 for the third consecutive
year. Usage per residential customer was three decatherms or 3%
lower in 2000 when compared with 1999 and two decatherms or 1%
lower in 1999 compared with 1998. Temperatures have been warmer
than normal for the past seven years. However, since 1995, the
financial impact of warmer weather has been minimized because
of a weather-normalization adjustment in rates. Customers
served by Questar Gas grew by 18,312 or 2.7% in 2000, following
growth rates of 3.5% in 1999 and 3.4% in 1998.
Industrial deliveries were 6% higher in 2000 due to an increase
in natural gas volumes used to generate electricity. Gas
deliveries to industrial customers decreased by 6% in 1999
because a major steel-producing customer reduced operations.
Margins from gas delivered to industrial customers, either sold
or transported, are substantially lower than from gas delivered
to residential and commercial customers.
Significant gas-cost increases in the second half of 2000 due
to rising demand for natural gas in the western U. S. did not
affect the margin. Under rate regulation in Utah and Wyoming,
Questar Gas can request authorization to recover from customers
the cost of its gas supply on a dollar-for-dollar basis. Gas
costs in Utah rates have risen from $1.72 per dth in 1999 to
$2.91 in 2000. As of January 1, 2001, gas costs in rates rose
to $4.67 per dth.
Operating expenses
Operating and maintenance expenses were 2%
lower in 2000 due to decreases in legal, information technology
and labor costs. Questar Gas improved a number of its
information technology systems in 1999 as part of its year 2000
system-readiness program. Labor costs were lower as a result
of early retirement programs effective October 31, 2000, and
August 31, 1998. Operating and maintenance expenses were 7%
higher in 1999 due to incremental costs of serving a growing
customer base. Depreciation expense was $2.8 million lower in
2000 due to investments in several information systems being
fully depreciated. Depreciation increased 10% in 1999 because
<PAGE>
of capital spending. Other taxes increased in 2000 because of a
$1.4 million current-year adjustment of prior-year taxes and
from higher property tax rates.
Acquisition of distribution systems Questar Gas has agreed in
principle to acquire two gas distribution systems in exchange
for 390,000 shares of Questar Corporation common stock. The
acquisitions, pending approval from the PSCU and Public Service
Commission of Wyoming (PSCW), will add about 10,500 customers
in Utah and Wyoming. The transactions will be accounted for as
a purchase.
Natural Gas Transmission - Questar Pipeline conducts natural
gas-transmission and storage operations. Following is a
summary of financial results and operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $ 72,547 $ 69,885 $ 70,824
Storage 37,711 37,647 36,463
Processing 6,763 3,570
Other 2,055 1,058 1,270
Total revenues 119,076 112,160 108,557
Operating expenses
Operating and maintenance 43,761 38,534 38,832
Depreciation and amortization 15,391 16,743 13,927
Other taxes 3,071 2,488 2,600
Total operating expenses 62,223 57,765 55,359
Operating income $ 56,853 $ 54,395 $ 53,198
OPERATING STATISTICS
Natural gas transportation
volumes (in Mdth)
For unaffiliated customers 158,604 135,886 120,747
For Questar Gas 108,183 105,499 107,501
For other affiliated customers 8,370 12,153 26,878
Total transportation 275,157 253,538 255,126
Transportation revenue (per dth) $ 0.26 $ 0.28 $ 0.28
</TABLE>
Revenues
Revenues rose 6% in 2000 compared with 1999 due to an
increase in the demand charges resulting from a higher quantity
of transportation volumes under firm contracts and a full year
of operation of a plant that removes excess carbon dioxide from
the gas stream. The plant began operation mid-year 1999.
The transportation system experienced an increased demand for
gas transportation resulting from colder fourth-quarter
temperatures and expanded usage for regional power generation.
As of December 31, 2000, approximately 77% of Questar
Pipeline's transportation system was reserved by
firm-transportation customers under contracts with varying
terms and lengths. Questar Gas has reserved transportation
capacity from Questar Pipeline of approximately 828,000 dth per
day, representing 69% of the total reserved
daily-transportation capacity at December 31, 2000. This
contract, which accounts for 78% of the demand charges
collected by Questar Pipeline, extends through June 2002.
<PAGE>
Revenues from storage operations were unchanged in 2000 when
compared with 1999 after increasing 3% in 1999. Questar
Pipeline's primary storage facility at Clay Basin in eastern
Utah was enlarged in May 1998. The storage facility is 100%
subscribed under long-term contracts. Most of those
contractual volumes have remaining terms of at least nine
years. Questar Gas has contracted for 26% of firm-storage
capacity for at least seven years.
Operating expenses
Operating and maintenance expense climbed
14% in 2000 compared with 1999. A full year of expenses
associated with a gas-processing plant added $2 million of
expense and legal costs in a case involving the TransColorado
pipeline added $1.8 million. The estimated useful life of the
carbon-dioxide removal plant was increased from 10 to 20 years
resulting in a $1.3 million reduction of depreciation expense
in 2000. Because processing fees are determined on a
cost-of-service basis, the lower depreciation expense resulted
in a $1.3 million refund to Questar Gas, the primary customer
of processing services. Depreciation expense increased 20% in
1999 resulting from capital investment in facilities and
information-technology systems.
TransColorado case Questar TransColorado Inc. (QTC), a
subsidiary of Questar Pipeline, and KN TransColorado, Inc.,
(KNTC), a subsidiary of Kinder Morgan, are partners in the
TransColorado Gas Transmission Company (TransColorado). The
partners are involved in a complex lawsuit that is pending in a
state district court in Colorado. At the center of the lawsuit
is the validity of a contractual right claimed by QTC to put
its 50% interest in TransColorado to KNTC during the 12-month
period beginning March 31, 2001. QTC and KNTC entered a
standstill agreement regarding various issues in the
litigation. QTC provided notice to KNTC that it elected to put
its interest in TransColorado as of March 31, 2001, were it not
for the provisions of the standstill agreement.
Questar Pipeline recorded a $49.7 million pretax write-down of
its investment in the TransColorado partnership in 1999. QTC
share of TransColorado's operating losses ranged from $.3
million to $1.2 million per month.
CORPORATE AND OTHER OPERATIONS - This business segment is
responsible for information-technology and communications
services and corporate administration.
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues $ 73,409 $ 57,679 $ 47,907
Operating expenses
Cost of products sold 24,640 9,651 1,515
Operating and maintenance 33,506 37,516 37,113
Depreciation and amortization 7,590 5,953 6,575
Other taxes 1,073 1,071 1,019
Total operating expenses 66,809 54,191 46,222
Operating income $ 6,600 $ 3,488 $ 1,685
</TABLE>
<PAGE>
Revenues
Revenues increased 27% because of the acquisitions of
Consonus of Oregon at mid-year 2000 and two computer-networking
businesses in the second half of 1999. Questar InfoComm is
the majority owner of Consonus. Consonus is an e-commerce
business that combines Internet services and network support in
facilities designed to withstand many of the effects of natural
disasters. The gross margin on products and services sold
amounted to $8.3 million, $2.6 million and $2 million in 2000,
1999 and 1998, respectively.
Operating expenses
Operating and maintenance expenses were 11%
lower in 2000 when compared with 1999. The impact of adding
businesses was partially offset by the effect of an early
retirement program in 1999. A $2.9 million charge associated
with an early retirement program was recorded in 1999 when 50
employees elected to retire. The workforce reduction resulted
in a $2.8 million decrease of operating expenses in 2000.
Amortization of goodwill, incurred because of the acquisition
of Consonus, amounted to $1.7 million in 2000.
CONSOLIDATED OPERATING RESULTS
Revenues
Consolidated revenues rose 37% in 2000 compared with
1999 as a result of higher energy prices, a 10% increase in gas
produced from nonregulated sources and a boost in revenues from
e-commerce business. Higher energy prices increased revenues
from gas and oil production, energy marketing, natural gas
distribution and gas plant processing. Consolidated revenues
increased 2% in 1999 compared with 1998 due primarily to
increased gas production, higher selling prices for energy and
the revenues from electronic commerce services. These increases
were largely offset by lower revenues from gas distribution due
to lower gas costs collected in rates.
Cost of natural gas and other products sold
Higher energy prices were apparent in the cost of natural gas and other
products sold. The dominant areas were natural gas purchased
for resale to distribution customers and energy purchases in
marketing transactions. In addition, the cost of e-commerce
services increased in 2000. The cost of natural gas and other
products sold was 4% lower in 1999 due to lower gas costs
allowed in distribution rates.
Operating and maintenance
Operating and maintenance expenses
increased by 14% in 2000 when compared with 1999. Through an
acquisition of Canadian properties and development drilling,
Market Resources increased the number of producing properties.
Legal expenses grew in 2000. A major lawsuit involving
affiliates of Market Resources was settled in 2000, while a
lawsuit involving affiliates of Questar Pipeline began in 2000.
Operating and maintenance expenses increased 6% in 1999
compared with 1998 resulting from higher costs of serving a
growing number of gas-distribution customers, adding gas and
oil producing properties, and the cost of an early retirement
program for information-technology employees. Labor costs were
about $4.6 million lower in 1999 compared with 1998 as a result
of an early retirement program offered to employees of
Regulated Services in 1998.
Questar Regulated Services initiated an early retirement window
program effective October 31, 2000. A total of 262 employees
from Questar Gas, Questar Pipeline and Questar Regulated
Services elected to retire. The window program is projected to
result in pretax labor-cost savings for Regulated Services of
$6-$8 million yearly.
<PAGE>
Depreciation and amortization
Depreciation and amortization
increased 3% in 2000 when compared with 1999 as a result of
increased gas production and investment in depreciable assets.
A lower full-cost amortization rate partially mitigated the
increased production. The combined full-cost amortization rate
for U.S. and Canadian operations was $.79 per Mcfe in 2000
compared with $.80 in 1999 and $.85 in 1998. The reduction in
the amortization rate resulted primarily from increasing
reserves and selling properties from the full- cost asset pool
at prices in excess of the book value. Software that reached
the end of its depreciable life and an increase of the
estimated useful life of a processing plant resulted in a $4.1
million reduction of 2000 depreciation expense. Depreciation
and amortization was 10% higher in 1999 as a result of
increased gas production and more investment in exploration and
production, distribution and transmission facilities. The
Company wrote down the book value of its full-cost oil and gas
properties by $34 million in 1998 because of weak energy
prices.
Other taxes
Production and property taxes increased in 2000
because of higher revenues. Lower revenues in prior years
caused a decrease of other taxes in 1999. Rising property
values caused higher property taxes in 2000. A current-year
adjustment of a prior-year tax added $1.4 million to expense in
2000.
Interest and other income
Gain from selling securities of other
companies is a significant part of interest and other income.
However, the level of securities sales dropped in 2000 because
of the general decline in market value of technology companies.
These sales generated a pretax gain of $26.5 million ($16.3
million after tax) in 2000 and a pretax gain of $60.7 million
($36.9 million after tax) in 1999.
<TABLE>
<CAPTION>
Year ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Gain from sales of securities $26,523 $60,720 $10,474
Interest income and other earnings 8,460 9,765 4,410
Allowance for borrowed funds
used during construction 4,476 2,017 1,426
Return earned on working-gas inventory 2,223 2,198 1,892
Interest and other income $41,682 $74,700 $18,202
</TABLE>
Operations of unconsolidated affiliates
Higher energy prices
and not repeating TransColorado's operating losses resulted in
earnings in 2000 as opposed to losses the year before. This
income-statement line item included a $49.7 million write-down
of investment in the TransColorado partnership and $5.9 million
of operating loss, net of AFUDC, from TransColorado in 1999.
Debt expense
Interest expense increased due to higher short-
and long-term borrowing and to higher interest rates in 2000.
Income taxes
The effective combined federal, state and foreign
income tax rate was 35.3% in 2000, 32.6% in 1999 and 27.4% in
1998. Income tax rates were below the combined statutory rate
of about 38% primarily due to nonconventional fuel credits,
which amounted to $6.5 million in 2000, $7.2 million in 1999
and $8 million in 1998. In addition, a Colorado state income
tax credit derived from conducting business in a designated
enterprise zone reduced state income taxes by $3.2 million in 2000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
<TABLE>
<CAPTION> Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Net income $156,711 $98,830 $76,899
Adjustments to net income 174,500 141,670 136,919
Changes in operating assets
and liabilities (70,838) (25,502) 70,867
Net cash provided from
operating activities $260,373 $214,998 $284,685
</TABLE>
Net cash provided from operating activities increased 21% in
2000 when compared with 1999 due primarily to a 59% increase in
net income. Changes in operating assets and liabilities
resulted in a decrease of cash flow due to the timing
differences associated with the effect of higher energy prices
on accounts receivable and the purchased-gas adjustments. This
was partially offset by the change in accounts payable.
Interest bearing deposits with energy brokers, included in
accounts receivable, increased significantly in 2000. Net cash
provided from operating activities decreased 24% in 1999
compared with 1998 as a result of disbursements on accounts
payable. The balance in payables was higher at the end of 1998
due to construction projects completed in 1999. The
write-downs of investments in partnership and oil and gas
properties were noncash expenses.
Investing Activities
Capital expenditures amounted to $323.8 million in 2000 and
$268 million in 1999. Capital spending in 2001 is expected to
range between $368 million and $563 million. The upper
spending level is contingent upon several key projects going
forward. A 75-mile pipeline planned for central Utah is
awaiting final environmental approval. If approval is received
in 2001 and the pipeline is constructed, Questar Pipeline could
spend an additional $74 million. Another major pipeline
project, Questar Southern Trails Pipeline could begin
construction in 2001 pending final right of way agreements.
This would further increase capital spending by $45 million.
The development of Questar's e-commerce business is dependent
upon the level of outside venture capital invested.
<TABLE>
<CAPTION>
Year Ended December 31,
2001
Forecast 2000 1999
(In Thousands)
<S> <C> <C> <C>
Questar Market Resources
Exploratory drilling $8,700 $752 $1,538
Development drilling 76,000 97,361 64,642
Other exploration 10,700 8,647 19,464
Reserve acquisitions 32,000 65,130 3,704
Production 5,100 8,382 8,746
Gathering and processing 28,000 3,330 12,705
Electric generation 25,000
Storage 7,100 11,513 4,108
General 1,500 855 19,362
194,100 195,970 134,269
<PAGE>
Year Ended December 31,
2001
Forecast 2000 1999
(In Thousands)
Questar Regulated Services
Natural gas distribution
Distribution system and
customer additions 49,900 49,454 50,077
General 17,800 16,313 18,370
67,700 65,767 68,447
Natural gas transmission
Transmission system 20,700 15,312 11,936
Storage 11,900 333 1,571
Partnerships 7,900 9,024 14,414
Southern Trails Pipeline 13,975 14,639
Processing plant 250 2,912
General 6,600 4,141 4,952
47,100 43,035 50,424
Other 2,100 1,167 1,385
Total Questar Regulated Services 116,900 109,969 120,256
Corporate and other operations
Electronic commerce 49,900 12,878 4,296
Communications and technology 3,100 1,317 3,472
General 3,600 3,619 5,711
56,600 17,814 13,479
$367,600 $323,753 $268,004
</TABLE>
Questar Market Resources
Capital expenditures in 2000 primarily reflected exploration
for and development of gas and oil reserves and a purchase of a
Canadian company, which added 61 Bcfe of proved reserves.
Market Resources participated in drilling 316 wells (94 net
wells) in 2000 that resulted in 223 gas wells, 18 oil wells, 21
dry holes and 54 wells in progress at year end. The success
rate was 92%.
Questar Regulated Services - Natural gas distribution
The distribution system was extended by 964 miles of main,
feeder and service lines to accommodate the addition of 18,312
customers.
Questar Regulated Services - Natural gas transmission
Capital spending focused on expansion of the gas transmission
network, conversion of a crude-oil pipeline to transport gas
into Southern California and the acquisition of an additional
18% interest in a pipeline partnership.
Corporate and Other Operations
Capital expenditures included acquiring e-commerce operations
and developing information- technology facilities.
<PAGE>
Financing Activities
Cash flow generated from operations plus proceeds from the
sales of securities and release of cash previously held in
escrow were used to fund capital expenditures, reduce short-
and long-term borrowings, repurchase shares of Questar common
stock and pay dividends to holders of common stock. Proceeds
from a 1999 sale of nonstrategic gas and oil properties were
placed in an escrow account pending possible reinvestment in
other producing properties.
In April 1999, the Company announced plans to repurchase up to
$50 million of its shares over the next two years. From April
1999 through August 2000, the Company acquired 3.2 million
shares for $51.4 million, with about half of those purchases
occurring in 2000. The Company used part of the $121.9 million
in proceeds from its 1999 and 2000 sales of Nextel and other
securities to fund those stock repurchases.
Short-term borrowings amounted to $181.1 million of commercial
paper and $28 million of bank loans at December 31, 2000. A
year earlier, short-term debt consisted of $128.4 million of
commercial paper and $15.7 million of bank loans. The weighted
average interest rate on balances at December 31 was 6.68% in
2000 and 6.14% in 1999. Parent-company commercial-paper
borrowings are backed by short-term line-of-credit arrangements
and rated P1 and A1 by Moody's and Standard and Poor's,
respectively. In the third quarter of 2000, Market Resources
initiated an unrated commercial-paper program with a $100
million capacity. Commercial-paper borrowings are limited to
and supported by available capacity on Market Resources'
existing revolving credit facility. Market Resources had a
commercial-paper balance of $12.5 million that was included in
the total $181.1 million balance at December 31, 2000.
On March 6, 2001, Market Resources issued in a public offering
$150 million of 7.5% notes due 2011. Market Resources applied
the proceeds of the debt offering to repay a portion of its
outstanding floating-rate debt. In 1999, Market Resources
entered into a long-term revolving-credit facility with a
syndication of banks. The credit facility has a $300 million
capacity. Market Resources had borrowed $244.4 million as of
December 31, 2000 under this arrangement.
On February 27, 2001, Questar Pipeline gave notice that it will
redeem $30 million of its 9 7/8% debentures on March 30, 2001.
The redemption price is equal to 104.67% of the principal
amount plus interest from December 1, 2000.
The Company typically has negative net working capital at
December 31 because of short-term borrowings. These borrowings
are seasonal and generally peak at year end because of
cold-weather gas purchases. Negative working capital at year
end was exacerbated by rising energy prices experienced in the
second half of 2000 and extending into the first quarter of
2001.
Questar's consolidated capital structure consisted of 42%
long-term debt and 58% common shareholders' equity at December
31, 2000. Moody's and Standard and Poor's have rated the
long-term debt of Questar Gas and Questar Pipeline A1 and A+,
respectively. Questar Market Resources' debt rating is BBB+ by
Standard and Poor's and Baa2 by Moody's.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Questar's primary market-risk exposures arise from
commodity-price changes for natural gas, oil and other
hydrocarbons and changes in long-term interest rates. The
Company has an investment in a foreign operation that may
subject it to exchange-rate risk. Market Resources also has
<PAGE>
reserved pipeline capacity for which it is obligated to pay $3
million annually for the next six years, regardless of whether
it is able to market the capacity to others.
Hedging Policy
The Company has established policies and procedures for
managing market risks through the use of commodity-based
derivative arrangements. A primary objective of these hedging
transactions is to protect the Company's commodity sales from
adverse changes in energy prices. The volume of production
hedged and the mix of derivative instruments employed are
regularly evaluated and adjusted by management in response to
changing market conditions and reviewed periodically by the
Board of Directors. Additionally, under the terms of the
Market Resources' revolving credit facility, not more than 75%
of Market Resources' production quantities can be committed to
hedging arrangements. The Company does not enter into
derivative arrangements for speculative purposes.
Energy-Price Risk Management
Energy-price risk is a function of changes in commodity prices
as supply and demand fluctuate. Market Resources bears a
majority of the risk associated with changes in commodity
prices. The Company uses hedge arrangements in the normal
course of business to limit the risk of adverse price
movements; however, these same arrangements usually limit
future gains from favorable price movements.
Market Resources held hedge contracts covering the price
exposure for about 50.5 million dth of gas and 1 million
barrels of oil at December 31, 2000. A year earlier the
contracts covered 72.1 million dth of natural gas and 2.4
million barrels of oil. The hedging contracts exist for a
significant share of Questar-owned gas and oil production and
for a portion of gas-marketing transactions. The contracts at
December 31, 2000, had terms extending through December 2003,
with about 91% of those contracts expiring by the end of 2001.
The mark-to-market adjustment of gas and oil price-hedging
contracts at December 31, 2000 was a negative $98 million and
represented a liability owed to counterparties if terminated.
A 10% decline in gas and oil prices would decrease the
mark-to-market adjustment by $18.1 million; while a 10%
increase in prices would increase the mark-to-market adjustment
by $18.1 million. The mark-to-market adjustment of gas and oil
price-hedging contracts at December 31, 1999 was a negative
$6.2 million. A 10% decline in gas and oil prices at that time
would have caused a positive mark-to-market adjustment of $16.7
million. Conversely, a 10% increase in prices would have
resulted in a $16.3 million negative mark-to-market adjustment.
The calculations used energy prices posted on the NYMEX,
various "into the pipe" postings and fixed prices for the
indicated measurement dates. These sensitivity calculations do
not consider changes in the fair value of the corresponding
scheduled physical transactions (i.e., the correlation between
the index price and the price to be realized for the physical
delivery of gas or oil production), which should largely offset
the change in value of the hedge contracts.
Interest-Rate Risk Management
The Company owed $714.9 million of long-term debt at December
31, 2000, of which $470.5 million was fixed-rate debt. The
fair value of fixed-rate debt is subject to change as interest
rates fluctuate. The fair value of Questar's long-term debt
amounted to $735.6 million at December 31, 2000. The Company
owed $735.4 million of long-term debt at December 31, 1999, of
which $470.1 million was fixed-rate debt. The fair value of
Questar's long-term debt amounted to $728.3 million at December
31, 1999. The fair-value calculation was based upon quoted
market prices and the discounted present value of cash flows
using the Company's current borrowing rates. If interest rates
declined by 10%, fair value would increase to $758.4 million in
2000 and $753.3 million in 1999. Interest costs paid on
variable-rate long-term debt would decrease about $1.7 million.
The sensitivity calculations do not represent the cost to
retire the debt securities. The book value of variable-rate
debt approximates fair value.
<PAGE>
Securities Available for Sale
Securities available for sale represent equity instruments
traded on national exchanges. The value of these investments
is subject to day to day market volatility. A 10% change in
prices would result in a change in value of $3.3 million in
2000 and $9.5 million in 1999.
Foreign Currency Risk Management
The Company does not hedge the foreign currency exposure of its
foreign operation's net assets and long-term debt. Long-term
debt held by the foreign operation amounting to $54.4 million
(U.S.) is expected to be repaid from future operations of the
foreign company. In January 2000, Market Resources purchased
100% of the outstanding common stock plus debt of a Canadian
company for $66.4 million (U.S.).
Forward-Looking Statements
This report 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. All statements other than statements of
historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding the
Company's future financial position, business strategy,
budgets, projected costs and plans and objectives of management
for future operations, are forward-looking statements. In
addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as
"may", "will", "could", "expect", "intend", "project",
"estimate", "anticipate", "believe", "forecast", or
"continue" or the negative thereof or variations thereon or
similar terminology. Although these statements are made in
good faith and are reasonable representations of the Company's
expected performance at the time, actual results may vary from
management's stated expectations and projections due to a
variety of factors.
Important assumptions and other significant factors that could
cause actual results to differ materially from those expressed
or implied in forward-looking statements include changes in
general economic conditions, gas and oil prices and supplies,
competition, rate-regulatory issues, regulation of the Wexpro
settlement agreement, availability of gas and oil properties
for sale or for exploration and other factors beyond the
control of the Company. These other factors include the rate
of inflation, quoted prices of securities available for sale,
the weather and other natural phenomena, the effect of
accounting policies issued periodically by accounting
standard-setting bodies, and adverse changes in the business or
financial condition of the Company.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item are submitted
in a separate section of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company has not changed its independent auditors or had any
disagreements with them concerning accounting matters and financial
statement disclosures within the last 24 months.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information requested in this item concerning Questar's
directors is presented in the Company's definitive Proxy Statement
under the section entitled "Election of Directors" and is
incorporated herein by reference. A copy of the definitive Proxy
Statement will be filed with the Securities and Exchange Commission
on or about April 2, 2001.
The following individuals are serving as executive officers
of the Company:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 58 Chairman of the Board of
Directors (May 1985);
President and Chief Executive
Officer, Director (May 1984);
President (May 1984 to
February 2001); Chairman of
the Boards of Directors, all
affiliates except Questar
Energy Trading.
K. O. Rattie 47 President and Chief Operating
Officer, Director (February
2001); Vice Chairman and
Director, QRS, QMR, Questar
Gas, Questar Pipeline and
most affiliates (February 2001).
G. L. Nordloh 53 President and Chief Executive
Officer, all Market Resources
affiliates (at various times
beginning in March 1991);
Executive Vice President,
Questar (February 1996);
Senior Vice President,
Questar (March 1991 to
February 1996); Director,
(October 1996); Director, QMR
(May 1991), all Market
Resources subsidiaries
(various times beginning in
June 1989); Chairman, Questar
Energy Trading (August 1998).
<PAGE>
D. N. Rose 56 President and Chief Executive
Officer, Questar Gas (October
1984), Questar Pipeline
(March 1997), QRS (December
1996), QES (January 1999);
Executive Vice President,
Questar (February 1996);
Senior Vice President,
Questar (May 1985 to February
1996); Director (May 1984);
Director, Questar Gas (May
1984), Questar Pipeline (May
1996), QRS (December 1996),
and QES (January 1999).
S. E. Parks 49 Senior Vice President (March
2001); Vice President (
February 1990 to March
2001); Treasurer and Chief
Financial Officer, Questar
and all affiliates except
Questar Energy Trading
(February 1996); Treasurer,
Questar and affiliates except
Questar Energy Trading (at
various dates beginning in
May 1984); Director, Questar
E&P (May 1996) and Consonus
(October 1999).
Connie C. Holbrook 54 Senior Vice President (March
2001); Vice President
(October 1984 to March 2001);
Corporate Secretary (October
1984); General Counsel (April
1999); Corporate Secretary,
Questar Gas and other
affiliates except Questar
Energy Trading (at various
dates beginning in March
1982); Director, Consonus
(October 1999).
Glenn H. Robinson 50 President and Chief Executive
Officer and Director, Questar
InfoComm (August 2000); Vice
President and Chief
Information Officer (August
2000); Vice President and
Controller, QRS (January 1999
to August 2000), Questar Gas
(April 1991 to August 2000),
and Questar Pipeline
(September 1996 to August 2000);
There is no "family relationship" between any of the listed
officers or between any of them and the Company's directors. The
executive officers serve at the pleasure of the Board of Directors.
There is no arrangement or understanding under which the officers
were selected. Information concerning compliance with Section 16(a)
of the Securities Exchange Act of 1934, as amended, is presented in
the Company's definitive Proxy Statement under the section entitled
"Section 16(a) Compliance" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information requested in this item is presented in
Questar's definitive Proxy Statement for the Company's 2001 annual
meeting, under the sections entitled "Executive Compensation" and
"Election of Directors" and is incorporated herein by reference.
The sections of the Proxy Statement labeled "Committee Report on
<PAGE>
Executive Compensation" and "Cumulative Total Shareholder Return"
are expressly not incorporated into this document.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information requested in this item for certain beneficial
owners is presented in Questar's definitive Proxy Statement for the
Company's 2001 annual meeting under the section entitled "Security
Ownership, Principal Holders" and is incorporated herein by
reference. Similar information concerning the securities ownership
of directors and executive officers is presented in the definitive
Proxy Statement for the Company's 2001 annual meeting under the
section entitled "Security Ownership, Directors and Executive
Officers" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information requested in this item for related transactions
involving the Company's directors and executive officers is
presented in the definitive Proxy Statement for the Questar's 2000
annual meeting under the section entitled "Election of Directors."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1)(2) Financial Statements and Financial Statement
Schedules. The financial statements identified in the List of
Financial Statements are filed as part of this Report.
(a)(3) Exhibits. The following is a list of exhibits required
to be filed as a part of this report in Item 14(c).
Exhibit No. Description
2.* Plan and Agreement of Merger dated as of December
16, 1986, by and among the Company, Questar
Systems Corporation, and Universal Resources
Corporation. (Exhibit No. (2) to Current Report
on Form 8-K dated December 16, 1986.)
3.1.* Restated Articles of Incorporation as amended
effective May 19, 1998. (Exhibit No. 3.1. to
Form 10-Q Report for Quarter ended June 30, 1998.)
3.2.* Bylaws (as amended effective August 11, 1998).
(Exhibit No. 3.2. to Form 10-Q Report for Quarter
ended June 30, 1998.)
<PAGE>
4.1.*1 Rights Agreement dated as of February 13, 1996,
between the Company and Chemical Mellon
Shareholder Services L.L.C. pertaining to the
Company's Shareholder Rights Plan. (Exhibit No.
4. to Current Report on Form 8-K dated February
13, 1996.)
4.2.* Questar Dividend Reinvestment and Stock Purchase
Plan. (Exhibit No. 4. to Current Report on Form
8-K dated February 8, 2000.)
10.1.* Stipulation and Agreement, dated October 14,
1981, executed by Mountain Fuel; Wexpro; the Utah
Department of Business Regulations, Division of
Public Utilities; the Utah Committee of Consumer
Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to
Mountain Fuel Supply Company's Form 10-K Annual
Report for 1981.)
10.2.2 Questar Corporation Annual Management Incentive
Plan, as amended and restated effective February
13, 2001.
10.3.*2 Questar Corporation Executive Incentive
Retirement Plan, as amended and restated
effective May 19, 1998. (Exhibit No. 10.2. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.4.2 Questar Corporation Long-Term Stock Incentive
Plan, as amended and restated effective March 1,
2001 (subject to the receipt of shareholder
approval.)
10.5.*2 Questar Corporation Executive Severance
Compensation Plan, as amended and restated
effective May 19, 1998. (Exhibit No. 10.3. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.6.2 Questar Corporation Deferred Compensation Plan
for Directors, as amended and restated effective
October 26, 2000.
10.7.*2 Questar Corporation Supplemental Executive
Retirement Plan, as amended and restated
effective June 1, 1998. (Exhibit No. 10.6. to
Form 10-Q Report for Quarter Ended June 30, 1998.)
10.8.*2 Questar Corporation Stock Option Plan for
Directors, as amended and restated effective
October 29, 1998. (Exhibit No. 10.10. to Form
10-Q Report for Quarter Ended September 30, 1998.)
10.9.*2 Form of Individual Indemnification Agreement
dated February 9, 1993 between Questar
Corporation and Directors. (Exhibit No. 10.11.
to Form 10-K Annual Report for 1992.)
10.10.*2 Questar Corporation Deferred Share Plan, as
amended and restated effective May 19, 1998.
(Exhibit No. 10.7. to Form 10-Q Report for
Quarter Ended June 30, 1998.)
<PAGE>
10.11.2 Questar Corporation Deferred Compensation Plan,
as amended and restated effective October 26, 2000.
10.12.*2 Questar Corporation Directors' Stock Plan as
approved May 21, 1996. (Exhibit No. 10.15. to
Form 10-Q Report for Quarter ended June 30, 1996.)
10.13.*2 Questar Corporation Deferred Share Make-Up Plan.
(Exhibit No. 10.8. to Form 10-Q Report for
Quarter Ended June 30, 1998.)
10.14.*2 Questar Corporation Special Situation Retirement
Plan. (Exhibit No. 10.10. to Form 10-Q Report
for Quarter Ended June 30, 1998.)
10.15. Employment Agreement between Questar Corporation
and Keith O. Rattie effective February 1, 2001.
21. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
99.1. Undertakings for Registration Statements on Form
S-3 (No. 33-48168) and on Form S-8 (Nos. 33-4436,
33-15149, 33-40800, 33-40801, 33-48169,
333-04913, and 333-04951).
________________________
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1The name of the Rights Agent has been changed to USBank
National Association.
2Exhibit so marked is management contract or compensation
plan or arrangement.
(b) The Company did not file any Current Reports on Form 8-K
during the last quarter of 2000.
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a) (1) and (2), and (d)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 2000
QUESTAR CORPORATION
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) AND (2)
QUESTAR CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of Questar Corporation and
subsidiaries are included in Item 8:
Consolidated statements of income--Years ended December 31,
2000, 1999 and 1998
Consolidated balance sheets--December 31, 2000 and 1999
Consolidated statements of common shareholders' equity--Years
ended December 31, 2000, 1999 and 1998
Consolidated statements of cash flows--Years ended December
31, 2000, 1999 and 1998
Notes to consolidated financial statements
Financial statement schedules, for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission, are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Questar Corporation
We have audited the accompanying consolidated balance sheets of
Questar Corporation and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of income and common
shareholders' equity and cash flows for each of three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Questar Corporation and subsidiaries at December 31,
2000 and 1999, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
/s/Ernst & Young
Ernst & Young
Salt Lake City, Utah
March 6, 2001
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES $1,266,153 $ 924,219 $ 906,256
OPERATING EXPENSES
Cost of natural gas and other products sold 562,229 352,554 367,932
Operating and maintenance 251,419 221,279 209,594
Depreciation and amortization 141,941 137,744 125,157
Write-down of full cost oil and gas properties 34,000
Other taxes 50,654 32,724 36,792
TOTAL OPERATING EXPENSES 1,006,243 744,301 773,475
OPERATING INCOME 259,910 179,918 132,781
INTEREST AND OTHER INCOME 41,682 74,700 18,202
OPERATIONS OF UNCONSOLIDATED
AFFILIATES
Income (loss) 3,996 (4,356) 2,917
Write-down of investment in partnership (49,700)
3,996 (54,056) 2,917
DEBT EXPENSE (63,510) (53,944) (47,971)
INCOME BEFORE INCOME TAXES 242,078 146,618 105,929
INCOME TAXES 85,367 47,788 29,030
NET INCOME $ 156,711 $ 98,830 $ 76,899
EARNINGS PER COMMON SHARE
Basic $ 1.95 $ 1.20 $ 0.93
Diluted $ 1.94 $ 1.20 $ 0.93
Average common shares outstanding
Basic 80,412 82,547 82,365
Diluted 80,915 82,676 82,817
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 9,416 $ 8,291
Accounts receivable 277,331 143,987
Unbilled gas accounts receivable 45,293 37,287
Federal income taxes recoverable 9,694
Inventories, at lower of average
cost or market
Gas and oil storage 30,062 27,360
Materials and supplies 10,472 10,254
Purchased-gas adjustments 35,565 432
Prepaid expenses and other 9,189 11,249
TOTAL CURRENT ASSETS 427,022 238,860
PROPERTY, PLANT AND EQUIPMENT
Questar Market Resources 1,657,291 1,469,676
Questar Regulated Services - gas distribution 1,067,362 1,013,599
Questar Regulated Services - gas transmission 731,246 698,236
Questar Regulated Services - other 5,764 4,493
Corporate and other operations 82,603 72,769
3,544,266 3,258,773
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Questar Market Resources 853,037 778,695
Questar Regulated Services - gas distribution 447,496 421,111
Questar Regulated Services - gas transmission 243,006 228,784
Questar Regulated Services - other 3,073 2,542
Corporate and other operations 43,661 40,727
1,590,273 1,471,859
NET PROPERTY, PLANT AND EQUIPMENT 1,953,993 1,786,914
SECURITIES AVAILABLE FOR SALE 33,019 94,945
INVESTMENT IN UNCONSOLIDATED
AFFILIATES 34,505 25,269
OTHER ASSETS
Regulatory assets 37,646 26,025
Goodwill, net 20,514 7,750
Cash held in escrow 5,387 36,727
Other noncurrent assets 26,959 21,507
TOTAL OTHER ASSETS 90,506 92,009
$2,539,045 $2,237,997
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> December 31,
2000 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt $ 209,139 $ 144,115
Accounts payable and accrued expenses
Accounts and other payables 273,892 132,473
Federal income taxes 17,374
Other taxes 30,718 22,315
Deferred income taxes 13,515 164
Interest 7,300 7,518
Total accounts payable and
accrued expenses 325,425 179,844
TOTAL CURRENT LIABILITIES 534,564 323,959
LONG-TERM DEBT 714,537 735,043
DEFERRED INCOME TAXES 241,720 210,948
DEFERRED INVESTMENT TAX CREDITS 5,262 5,648
OTHER LONG-TERM LIABILITIES 33,680 29,944
MINORITY INTEREST 18,216 6,610
COMMITMENTS AND CONTINGENCIES - Note 7
COMMON SHAREHOLDERS' EQUITY
Common stock - without par value; 350,000,000
shares authorized; 80,818,274 outstanding at
December 31, 2000 and 81,418,853 outstanding
at December 31, 1999 268,630 278,437
Retained earnings 710,125 608,498
Cumulative other comprehensive income 12,311 38,910
TOTAL COMMON SHAREHOLDERS' EQUITY 991,066 925,845
$2,539,045 $2,237,997
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE> Cumulative
<CAPTION> Note Other Compre-
Common Stock Retained Receivable Compre- hensive
Shares Amount Earnings from ESOP hensive Income
Income
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 82,142,084 $ 291,322 $ 541,663 $ (10,173) $ 22,966
Issuance of common stock 521,879 8,243
Purchase of common stock (31,885) (677)
1998 net income 76,899 $ 76,899
Payment of common stock dividends
of $.6525 per share (53,747)
Income tax benefit of dividends
paid to ESOP 143
Collection of note receivable
from ESOP 6,218
Other comprehensive income
Unrealized loss on securities
available for sale, net of income
taxes of $3,086 (4,992) (4,992)
Foreign currency translation
adjustmentnet of income
taxes of $53 93 93
Balances at December 31, 1998 82,632,078 298,888 564,958 (3,955) 18,067 $ 72,000
Issuance of common stock 488,302 8,124
Purchase of common stock (1,701,527) (28,575)
1999 net income 98,830 $ 98,830
Payment of common stock dividends
of $.67 per share (55,328)
Income tax benefit of dividends
paid to ESOP 38
Collection of note receivable
from ESOP 3,955
Other comprehensive income
Unrealized gain on securities
available for sale, net of income
net of income taxes of $13,193 21,303 21,303
Foreign currency translation
adjustment,net of income
taxes of $284 (460) (460)
Balances at December 31, 1999 81,418,853 278,437 608,498 - 38,910 $ 119,673
Issuance of common stock 958,232 11,764
Purchase of common stock (1,558,811) (25,543)
2000 net income 156,711 $ 156,711
Payment of common stock dividends
of $.685 per share (55,084)
Income tax benefit associated
with exercise of nonqualified
options and premature dispositions 3,972
Other comprehensive income
Unrealized loss on securities
available for sale, net of income
taxes of $16,767 (25,453) (25,453)
Foreign currency translation
adjustment, net of income
taxes of $1,018 (1,146) (1,146)
Balances at December 31, 2000 80,818,274 $ 268,630 $ 710,125 $ - $ 12,311 $ 130,112
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
OPERATING ACTIVITIES (In Thousands)
<S> <C> <C> <C>
Net income $ 156,711 $ 98,830 $ 76,899
Adjustments to reconcile net income to
net cash provided from operating
activities
Depreciation and amortization 147,645 144,704 128,664
Deferred income taxes and investment 54,277 315 (14,911)
tax credits
Write-down of investment in partnership 49,700
Write-down of full cost oil and gas
properties 34,000
(Income) loss from unconsolidated
affiliates, net of cash distributions (899) 7,671 (360)
Gain from sales of securities (26,523) (60,720) (10,474)
331,211 240,500 213,818
Changes in operating assets and liabilities
Accounts receivable (136,700) (1,004) 9,922
Inventories (2,892) 252 (7,238)
Prepaid expenses and other 2,077 615 2,556
Accounts payable and accrued expenses 144,190 (41,549) 38,207
Federal income taxes (27,068) 8,684 2,251
Purchased-gas adjustments (35,133) 1,635 35,184
Other assets (17,144) 3,446 (7,664)
Other liabilities 1,832 2,419 (2,351)
NET CASH PROVIDED FROM OPERATING ACTIVITIES 260,373 214,998 284,685
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (314,429) (221,835) (427,680)
Other investments (9,324) (46,169) (33,667)
Total capital expenditures (323,753) (268,004) (461,347)
Proceeds from disposition of property, plant
and equipment 3,051 44,220 44,500
Proceeds from sales of securities 46,814 75,126 6,759
NET CASH USED IN INVESTING ACTIVITIES (273,888) (148,658) (410,088)
FINANCING ACTIVITIES
Issuance of common stock 15,736 8,124 8,243
Purchase of Questar common stock (25,543) (28,575) (677)
Issuance of long-term debt 61,725 317,000 152,743
Repayment of long-term debt (80,075) (206,996) (77,198)
Increase (decrease) in short-term loans 64,581 (76,985) 89,900
Cash held in escrow 31,340 (36,727)
Other financing 2,955 3,993 6,361
Payment of dividends (55,084) (55,328) (53,747)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 15,635 (75,494) 125,625
Foreign currency translation adjustment (995) (44) (4)
CHANGE IN CASH AND CASH EQUIVALENTS 1,125 (9,198) 218
BEGINNING CASH AND CASH EQUIVALENTS 8,291 17,489 17,271
ENDING CASH AND CASH EQUIVALENTS $ 9,416 $ 8,291 $ 17,489
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
Principles of Consolidation: The consolidated financial
statements contain the accounts of Questar Corporation and
subsidiaries (Questar or the Company). Questar is a diversified
natural gas company with two principal lines of business:
nonregulated and regulated. The Company's nonregulated activities
of gas and oil exploration and production, gas gathering and
processing, and energy marketing are conducted by Questar Market
Resources, Inc. and subsidiaries (Market Resources). The
Company's regulated activities of natural gas distribution,
transmission and storage operations are conducted by Questar
Regulated Services Co. and subsidiaries (Regulated Services).
Natural gas-distribution activities are conducted by Questar Gas.
Questar Pipeline provides natural gas transmission and storage
services. Regulated Services also includes Questar Energy
Services which conducts retail-energy services. Corporate and
other operations include information-technology and
telecommunication services and corporate activities. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Investments in Unconsolidated Affiliates: Questar uses the
equity method to account for investments in affiliates in which
it does not have control. Principal affiliates and percentage
ownership include: Overthrust Pipeline Company (72%),
TransColorado Gas Transmission Company (50%), Canyon Creek
Compression Company (15%) and Blacks Fork Gas Processing Company
(50%). Generally, the Company's investment in these affiliates
equals the underlying equity in net assets, except for
TransColorado where the investment was written down. The Company
experienced an other-than-temporary decline in its partnership
investment in TransColorado caused by low volumes resulting from
unfavorable regional transportation economics.
Regulation: Questar Gas is regulated by the Public Service
Commission of Utah (PSCU) and the Public Service Commission of
Wyoming (PSCW). While Questar Gas also serves a small area of
southeastern Idaho, the Public Utilities Commission of Idaho has
deferred to the PSCU for rate oversight of this area. Questar
Pipeline is regulated by the Federal Energy Regulatory Commission
(FERC). These regulatory agencies establish rates for the
storage, transportation and sale of natural gas. The regulatory
agencies also regulate, among other things, the extension and
enlargement or abandonment of jurisdictional natural gas
facilities. Regulation is intended to permit the recovery,
through rates, of the cost of service, including a return on
investment.
The financial statements of rate-regulated businesses are
presented in accordance with regulatory requirements. Methods of
allocating costs to time periods, in order to match revenues and
expenses, may differ from those of other businesses because of
cost-allocation methods used in establishing rates.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets and liabilities and disclosure of contingent
liabilities reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. Questar Gas
records gas-distribution revenues for gas delivered to
residential and commercial customers but not billed at the end of
the accounting period. Rate-regulated companies periodically
collect revenues subject to possible refunds pending final orders
from regulatory agencies. These companies establish appropriate
reserves for revenues collected subject to refund. The Company's
exploration and production operations use the sales method of
accounting for gas revenues, whereby revenue is recognized on all
gas sold to purchasers. A liability is recorded to the extent
that the Company has an imbalance in excess of its share of
remaining reserves in an underlying property. The Company's net
gas imbalances at December 31, 2000 and 1999 were not
significant.
<PAGE>
Purchased-Gas Adjustments: Questar Gas accounts for
purchased-gas costs in accordance with procedures authorized by
the PSCU and PSCW under which purchased-gas costs that are
different from those provided for in present rates are
accumulated and recovered or credited through future rate
changes.
Cash and Cash Equivalents: Cash equivalents consist principally
of repurchase agreements with maturities of three months or less.
In almost all cases, the repurchase agreements are highly liquid
investments in overnight securities made through commercial bank
accounts that result in available funds the next business day.
Securities Available for Sale: The value of securities available
for sale approximates fair value at the balance sheet date based
on published share prices. Based on market value at the balance
sheet date, the Company records unrealized gains or losses, net
of income taxes, as a separate component of other comprehensive
income in shareholders' equity. Gains or losses resulting from
the sale of securities are included in the determination of
income as incurred.
Property, Plant and Equipment: Property, plant and equipment is
stated at cost. The Company uses the full-cost accounting method
for a majority of its gas and oil exploration and development
activities. However, as ordered by the PSCU, the
successful-efforts method of accounting is utilized with respect
to costs associated with certain "cost- of-service" oil and gas
properties managed and developed by Wexpro and regulated for
ratemaking purposes. Cost- of service oil and gas properties are
those properties for which the operations and return on
investment are regulated by the Wexpro settlement agreement (see
Note 9). In accordance with the settlement agreement, production
from the gas properties operated by Wexpro is delivered to
Questar Gas at Wexpro's cost of providing this service. That
cost includes a return on Wexpro's investment. Oil produced from
the cost-of-service properties is sold at market prices. Proceeds
are credited, pursuant to the terms of the settlement agreement,
allowing Questar Gas to share in the proceeds for the purpose of
reducing natural gas rates.
Under the full-cost method, all costs associated with the
acquisition, exploration and development of oil and gas reserves,
including certain directly related internal-employee costs, are
capitalized. Such amounts include the cost of drilling and
equipping productive wells, dry-hole costs, lease-acquisition
costs, delay rentals, and costs related to such activities. The
internal costs capitalized are directly attributable to
acquisition, exploration, and development activities and do not
include costs related to production, general corporate overhead
or similar activities. Exclusive of field-level costs, the
Company capitalized $3.6 million, $3 million and $2.6 million of
internal costs in 2000, 1999 and 1998, respectively. Costs
associated with production and general corporate activities are
expensed in the period incurred. Sales of oil and gas
properties, whether or not being amortized currently, are
accounted for as adjustments of capitalized costs, with no gain
or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved
reserves.
The Company limits, on a country-by-country cost-center basis,
the capitalized costs of oil and gas properties, net of
accumulated amortization and related deferred taxes, to the
full-cost ceiling. The full-cost ceiling comprises the present
value of estimated future net revenues from proved oil and gas
reserves plus the cost of unproved properties not being
amortized, all adjusted for the effect of related income taxes.
The present value calculation is based upon current economic and
operating conditions and estimated future development
expenditures, discounted at 10%. If capitalized costs exceed the
full-cost ceiling, the excess is expensed. In 1998, the Company
recorded a $34 million write-down of oil and gas properties
pursuant to the ceiling limitation required by the full-cost
accounting method.
Capitalized costs are amortized, on a country-by-country
cost-center basis, by an energy equivalent unit-of- production
method based upon production and estimates of proved gas and oil
reserves. The Company presently has two cost centers: the United
States and Canada. Amortizable costs include developmental
drilling in progress as well as estimates of future development
costs of proved reserves, but exclude the costs of certain
unproved oil and gas properties until the properties are
evaluated. The estimated costs of future site restoration,
dismantlement, and abandonment of producing properties are
expected to be offset by the estimated salvage value of the lease
and well equipment.
<PAGE>
The aggregate costs of unproved properties not being amortized
are assessed at least annually for possible impairments or
reduction in value. Significant properties are assessed
individually. If a reduction in value has occurred, costs being
amortized are increased. Of the $76.2 million of net unproved
property costs at excluded from the amortizable base at December
31, 2000, $22.9 million, $10.4 million, and $20.5 million were
incurred in 2000, 1999 and 1998, respectively. Based on
anticipated future exploration and development activities, the
Company expects the majority of the costs of unproved properties
currently excluded to be evaluated and included in the
amortization calculation within the next five years.
The Company uses the successful-efforts method of accounting for
costs associated with the development of cost- of-service oil and
gas properties. The cost to drill and equip development wells,
successful or unsuccessful, and construct appurtenant facilities
are capitalized. Geological and geophysical costs are expensed
as incurred.
Capitalized costs are amortized on an individual field basis
using the unit-of-production method based upon proved developed
oil and gas reserves attributable to the field. Costs of future
site restoration, dismantlement, and abandonment for producing
properties are accrued as part of depreciation and amortization
expense for tangible equipment by assuming no salvage value in
the calculation of the unit-of-production rate. The following
table contains the detail of Market Resources' property, plant
and equipment at December 31.
<TABLE>
<CAPTION>
2000 1999
(In Thousands)
<S> <C> <C>
Property, plant and equipment
Oil and gas properties - full-cost accounting
Proved properties $1,082,009 $ 943,349
Unproved properties, not being amortized 76,216 69,777
Support equipment and facilities 13,179 13,408
1,171,404 1,026,534
Cost-of-service oil and gas properties -
successful-efforts accounting 348,403 318,451
Gathering, processing and marketing 137,484 124,691
$1,657,291 $1,469,676
Accumulated depreciation and amortization
Oil and gas properties - full-cost accounting $ 601,620 $ 544,491
Cost-of-service oil and gas properties -
successful efforts accounting 193,029 180,867
Gathering, processing and marketing 58,388 53,337
$ 853,037 $ 778,695
</TABLE>
For the remaining Company properties, the provision for
depreciation and amortization is based upon rates that will
systematically charge the costs of assets against income over the
estimated useful lives of those assets. The investment in natural
gas distribution, transmission, storage, gathering and processing
property, plant and equipment is charged to expense using
the straight-line method. The costs of gas wells and related
production facilities are charged to expense using the
unit-of-production method. Average depreciation and amortization
rates used in the 12 months ended December 31 were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Questar Market Resources
Exploration and production, per
Mcf equivalent
Full-cost amortization rate
U.S. $ 0.78 $ 0.81 $ 0.83
Canada (in U.S. dollars) 0.85 0.65 1.04
Combined U.S. and Canada 0.79 0.80 0.85
Cost of service oil and gas properties, 0.44 0.42 0.39
per Mcfe
Average depreciation and amortization rates
used were as follows:
Questar Regulated Services
Natural gas distribution
Distribution plant 4.0% 4.2% 4.3%
Gas wells, per Mcf $ 0.15 $ 0.15 $ 0.17
Natural gas transmission, processing
and storage 3.2% 3.4% 3.2%
</TABLE>
<PAGE>
Goodwill: Goodwill is amortized on the straight-line method
principally over 10 years. Goodwill amortization expense was
$1.7 million in 2000 and the accumulated amortization balance was
$1.8 million at December 31, 2000.
Capitalized Interest and Allowance for Funds Used During
Construction: Questar's regulated subsidiaries capitalize the
cost of capital employed during the construction period of plant
and equipment in accordance with FERC guidelines. Capitalized
financing costs, called allowance for funds used during
construction (AFUDC), consist of debt and equity portions. The
debt portion of AFUDC is recorded as a reduction of interest
expense and the equity portion is recorded in other income. The
Company's nonregulated subsidiaries capitalize interest costs
during construction of assets when it is applicable. Interest
costs related to full cost oil and gas activities are expensed in
the period incurred. Under provisions of the Wexpro settlement
agreement, the Company capitalizes AFUDC on cost-of-service
construction projects and records the amount in other income.
Debt expense was reduced by $4,224,000 in 2000, $3,035,000 in
1999 and $1,421,000 in 1998. AFUDC included in interest and
other income amounted to $4,476,000 in 2000, $2,017,000 in 1999
and $1,426,000 in 1998.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt by rate-regulated affiliates are deferred and amortized as
debt expense over the would-be remaining life of the retired debt
or the life of the replacement debt in order to match regulatory
treatment.
Foreign Currency Translation: The Company conducts gas and oil
exploration and production activities in western Canada. The
local currency is the functional currency of the Company's
foreign operations. Translation from the functional currency to
U. S. dollars is performed for balance-sheet accounts using the
exchange rate in effect at the balance-sheet date. Revenue and
expense accounts are translated using an average exchange rate.
Adjustments resulting from such translations are reported as a
separate component of other comprehensive income in shareholders'
equity. Deferred income taxes have been provided on translation
adjustments because the earnings are not considered to be
permanently invested.
Hedging Policy: The Company has established policies and
procedures for managing market risks through the use of
commodity-based derivative arrangements. A primary objective of
these hedging transactions is to protect the Company's commodity
sales from adverse changes in energy prices. The volume of
production hedged and the mix of derivative instruments employed
are regularly evaluated and adjusted by management in response to
changing market conditions and reviewed periodically by the Board
of Directors. Additionally, under the terms of Market Resources'
revolving credit facility, not more than 75% of Market Resources'
production quantities can be committed to hedging arrangements.
The Company does not enter into derivative arrangements for
speculative purposes.
Energy-Price Risk Management: Market Resources enters into
swaps, futures contracts or options agreements to hedge exposure
to price fluctuations in connection with marketing of the
Company's natural gas and oil production, and to secure a known
margin for the purchase and resale of gas, oil and electricity in
marketing activities. It is expected that there is a high degree
of correlation between the changes in market value of such
contracts and the market price ultimately received on the hedged
physical transactions. The timing of production and of the hedge
contracts is closely matched. Hedge prices are established in the
areas of Market Resources' production operations. The Company
settles most contracts in cash and recognizes the gains and
losses on hedge transactions during the same time period as the
related physical transactions. Cash flows from the hedge
contracts are reported in the same category as cash flows from
the hedged assets. Contracts which do not have high correlation
with the related physical transactions are marked-to-market and
recognized in the current-period income.
<PAGE>
Interest-Rate Risk Management: The Company borrows funds under
both fixed and variable interest rate arrangements.
Variable-rate agreements expose the Company to market risk
related to changes in interest rates.
Credit Risk: The Company's primary market areas are the Rocky
Mountain regions of the United States and Canada and the
Midcontinent region of the United States. Exposure to credit
risk may be impacted by the concentration of customers in these
regions due to changes in economic or other conditions.
Customers include individuals and numerous industries that may be
affected differently by changing conditions. Management believes
that its credit-review procedures, loss reserves, customer
deposits and collection procedures have adequately provided for
usual and customary credit-related losses. Commodity-based
hedging arrangements also expose the Company to credit risk. The
Company monitors the creditworthiness of its counterparties,
which generally are major financial institutions, and believes
that losses from non-performance are unlikely to occur.
Income Taxes: Questar files income tax reports on a consolidated
basis in accordance with the Internal Revenue Code and associated
regulations. Questar's subsidiaries account for income taxes on
a separate-return basis. Rate- regulated operations record
cumulative increases in deferred taxes as income taxes
recoverable from customers. Questar Gas and Questar Pipeline have
adopted procedures with their regulatory commissions to include
under-provided deferred taxes in customer rates on a systematic
basis. Questar Gas and Questar Pipeline use the deferral method
to account for investment tax credits as required by regulatory
commissions.
Earnings Per Share: The Company presents basic and diluted
earnings per share (EPS) on the income statement. Basic EPS are
computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding
during the accounting period. Diluted EPS includes the potential
dilution from exercising stock options, which is the reason for
the difference between the number of basic and diluted average
shares outstanding.
Comprehensive Income: Comprehensive income is the sum of net
income as reported in the Consolidated Statement of Income and
other comprehensive income transactions reported in the
Consolidated Statement of Shareholders' Equity. Other
comprehensive income transactions that currently apply to Questar
result from changes in the market value of securities held for
sale and changes in holding value resulting from foreign currency
translation adjustments. These transactions are not the
culmination of the earnings process, but result from periodically
adjusting historical balances to fair value. Income is realized
when the securities available for sale are sold. Income taxes
associated with realized gains from selling securities available
for sale, which were included in other comprehensive income in
prior years, were $10.2 million in 2000, $23.4 million in 1999
and $1.9 million in 1998. Beginning in 2001, other comprehensive
income will include mark-to-market adjustments of the Company's
qualified energy derivatives. The balances of cumulative other
comprehensive income (loss) for the 12 months ended December 31,
were as follows:
<TABLE>
<CAPTION>
2000 1999
(In Thousands)
<S> <C> <C>
Unrealized gain on securities $13,832 $39,285
Foreign currency translation adjustment (1,521) (375)
Cumulative other comprehensive income $12,311 $38,910
</TABLE>
Business Segments: Questar's line-of-business disclosures are
presented based on the way senior management evaluates the
performance of its business segments. Certain intersegment sales
include intercompany profit.
New accounting standard: The Company is required to adopt the
accounting provisions of Statement of Financial Accounting
Standards 133, as amended, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) beginning in
January 2001. SFAS 133 addresses the accounting for derivative
instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to
carry all derivative instruments in the balance sheet at fair
value. The accounting for changes in fair value, which result in
gains or losses, of a derivative instrument depends on whether
<PAGE>
such instrument has been designated and qualifies as part of a
hedging relationship and, if so, depends on the reason for
holding it. If certain conditions are met, entities may elect to
designate a derivative instrument as a hedge of exposure to
changes in fair value, cash flows or foreign currencies. If the
hedged exposure is a fair-value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of
the change together with the offsetting loss or gain on the
hedged item attributable to the risk being hedged. If the hedged
exposure is a cash-flow exposure, the effective portion of the
gain or loss on the derivative instrument is reported initially
as a component of other comprehensive income in the shareholders'
equity section of the balance sheet and subsequently reclassified
into earnings when the forecasted transaction affects earnings.
Any amounts excluded from the assessment of hedge effectiveness,
as well as the ineffective portion of the gain or loss, is
reported in earnings immediately.
As of January 1, 2001, the Company structured a majority of its
energy derivative instruments as cash flow hedges. As a result of
adopting SFAS 133 in January 2001, the Company expects to record
a liability for derivative instruments of approximately $121
million. The offset to this amount, net of income taxes, will be
recorded as a loss in other comprehensive income in the
shareholders' equity section of the balance sheet. The
fair-value calculation does not consider changes in fair value of
the corresponding scheduled physical transactions. The Company
has identified a number of contracts that are derivative
instruments as defined by SFAS 133, but are specifically excluded
from the provisions of SFAS 133 on the basis of normal sales and
purchase transactions. These contracts are primarily located in
the natural gas distribution and transmission activities.
Reclassifications: Certain reclassifications were made to the
1999 and 1998 financial statements to conform with the 2000
presentation.
Note 2 - Debt
Questar has short-term line-of-credit arrangements with several
banks under which it may borrow up to $220 million. These lines
have interest rates generally below the prime interest rate.
Commercial paper borrowings are backed by the short-term
line-of-credit arrangements. The details of short-term debt are
as follows:
<TABLE>
<CAPTION>
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
Commercial paper with variable interest rates $181,100 $128,379
Bank loans with variable interest rates 28,039 15,736
$209,139 $144,115
Weighted average interest rate at December 31 6.68% 6.14%
<PAGE>
The details of long-term debt are as follows:
December 31,
2000 1999
(In Thousands)
Questar Market Resources
Revolving-credit loan due
2001- 2005 with variable
interest rates (7.01% at
December 31, 2000) $244,377 $264,894
Questar Regulated Services - Natural
gas distribution
Medium-term notes 6.85% to 8.43%, due 2007
to 2024 225,000 225,000
Questar Regulated Services -
Natural gas transmission
Medium-term notes 5.85% to 7.55%, due 2008
to 2019 130,400 130,400
9 3/8% debentures due 2021 85,000 85,000
9 7/8% debentures due 2020 30,000 30,000
Corporate and other 148 155
Total long-term debt outstanding 714,925 735,449
Less current portion 8 7
Less unamortized debt discount 380 399
$714,537 $735,043
</TABLE>
Maturities of long-term debt for the five years following
December 31, 2000, in thousands of dollars are as follows:
2001 $8
2002 6,977
2003 16,978
2004 186,980
2005 6,981
Cash paid for interest was $66,833,000 in 2000, $56,019,000 in
1999 and $49,430,000 in 1998.
As of December 31, 2000, Questar Pipeline guaranteed $100
million of long-term debt borrowed by TransColorado Gas
Transmission Company. The partnership has borrowed $200 million
under a three-year revolving-credit arrangement that will expire
unless renewed by October 2001.
Market Resources revolving-credit loan contains covenants
specifying a minimum amount of net equity and a maximum ratio of
debt to equity. On March 6, 2001, Market Resources issued in a
public offering $150 million of 7.5% notes due 2011. Market
Resources applied the proceeds of the debt offering to repay a
portion of its outstanding floating-rate debt. On February 27,
2001, Questar Pipeline gave notice that it will redeem $30
million of its 9 7/8% debentures on March 30, 2001. The
redemption price is equal to 104.67% of the principal amount plus
interest from December 1, 2000.
Note 3 - Common Stock
Dividend Reinvestment and Stock Purchase Plan: The Dividend
Reinvestment and Stock Purchase Plan (Reinvestment Plan) allows
parties interested in owning Questar common stock to reinvest
dividends or invest additional funds in common stock. The
Company can use unissued shares or purchase shares in the open
market in order to meet shareholders' purchase demands. The
Reinvestment Plan issued total shares of 322,062, 371,985 and
329,794 in 2000, 1999 and 1998, respectively. At December 31,
2000, 1,920,761 shares were reserved for future issuance.
<PAGE>
Employee Investment Plan: The Employee Investment Plan (Plan)
allows eligible employees to purchase shares of Questar
Corporation common stock or other investments through payroll
deduction. Since January 1, 1999, the Company has matched 80% of
employees-pretax purchases up to a maximum of 6%. Prior to that
date, the Company matched 75% of employees' eligible
contributions. The Company's expense equals its matching
contribution. Questar's expense and contribution to the Plan
amounted to $5,042,000, $4,713,000 and $4,542,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Stock Plans: The Company has a Long-term Stock Incentive Plan
for officers and employees and a Stock Option Plan for
nonemployee directors (Stock Plans). The number of shares made
available for a given year for options or other stock awards
under the Long-term Stock Incentive Plan is 1% of the outstanding
shares of common stock on the first day of the calendar year.
The current plan was amended March 1, 2011, subject to
shareholders approval. The option price equals the market price
of the stock on the grant date. Stock options for employees have
a 10-year life and vest in four equal annual installments
beginning six months after grant date. Nonemployee directors may
receive shares of common stock instead of cash in payment for
directors fees under a separate plan. At December 31, 2000 there
were 90,729 shares available for future issuance under this plan.
No compensation expense is recorded for stock options issued to
employees or directors because the exercise price equals the
market price on the date of issue. If compensation expense had
been recorded, it would be based on an estimate of the fair value
of stock options granted and would reduce earnings per share by
$.03 in 2000 and 1998 and $.02 in 1999. For purposes of the
pro-forma expense, the weighted average fair value of the options
was amortized over the vesting period. The pro-forma estimates
rely upon subjective assumptions and the use of a mathematical
model to estimate value, and may not be representative of future
results.
Transactions involving option shares in the Stock Plans are
summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Price Range Exercise
Price
<S> <C> <C> <C>
Balance at January 1, 1998 2,940,610 $ 9.81-$19.13 $16.22
Granted 857,800 21.38 21.38
Cancelled (77,200) 13.69- 21.38 17.33
Exercised (437,209) 9.81- 16.81 14.72
Balance at December 31, 1998 3,284,001 9.81- 21.38 17.74
Granted 866,400 17.00 17.00
Cancelled (82,900) 9.81- 21.38 17.94
Exercised (138,445) 9.81- 16.81 14.44
Balance at December 31, 1999 3,929,056 9.81- 21.38 17.69
Granted 1,289,050 15.00 15.00
Cancelled (89,254) 13.69- 21.38 17.19
Exercised (1,301,361) 9.81- 21.38 15.99
Balance at December 31, 2000 3,827,491 $9.81-$21.38 $17.37
Exercisable at December 31, 2000 2,464,368 $17.98
Available for future grant at
December 31, 2000 1,191,636
</TABLE>
<PAGE>
The stock options at December 31, 2000 had a weighted average
remaining life of 4.6 years. The fair value of the stock options
was determined on the grant date using the Black-Scholes
option-valuation model. The calculated fair value of options
granted and major assumptions used in the model at the date of
grant were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Fair value of options at grant date $3.38 $3.16 $3.94
Risk-free interest rate 6.79% 5.11% 5.56%
Expected price volatility 25.1% 20.6% 20.2%
Expected dividend yield 4.53% 3.88% 3.09%
Expected life in years 7.0 7.2 4.4
</TABLE>
In addition to stock options, the Company issued restricted
shares to officers and employees as part of its payment of
bonuses. Compensation expense is recorded when the bonus is
earned. Restricted stock vests in two equal, annual installments
beginning one year after grant. Stock is issued at the market
price on date of grant. Recipients of restricted stock awards are
entitled to full voting rights and receipt of dividends.
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Shares of restricted stock awarded 46,053 16,919 7,620
Market price at award date $28.01 $15.00 $17.00
</TABLE>
Shareholder Rights: On February 13, 1996, Questar's Board of
Directors declared a stock-right dividend for each outstanding
share of common stock. The stock rights were issued March 25,
1996. The rights become exercisable if a person, as defined,
acquires 15% or more of the Company's common stock or announces
an offer for 15% or more of the common stock. Each right
initially represents the right to buy one share of the Company's
common stock for $87.50. Once any person acquires 15% or more of
the Company's common stock, the rights are automatically
modified. Each right not owned by the 15% owner becomes
exercisable for the number of shares of Questar's stock that have
a market value equal to two times the exercise price of the
right. This same result occurs if a 15% owner acquires the
Company through a reverse merger when Questar and its stock
survive. If the Company is involved in a merger or other
business combination at any time after the rights become
exercisable, rightsholders will be entitled to buy shares of
common stock in the acquiring company having a market value equal
to twice the exercise price of each right. The rights may be
redeemed by the Company at a price of $.005 per right until 10
days after a person acquires 15% ownership of the common stock.
The rights expire March 25, 2006.
Note 4 - Financial Instruments and Risk Management
The carrying value and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 2000 December 31, 1999
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $9,416 $9,416 $8,291 $8,291
Financial liabilities
Short-term loans 209,139 209,139 144,115 144,115
Long-term debt 714,545 735,554 735,050 728,273
Gas and oil price-hedging contracts (98,000) (6,200)
</TABLE>
<PAGE>
The Company used the following methods and assumptions in
estimating fair values: Cash and cash equivalents and short-term
loans - the carrying amount approximates fair value; Long-term
debt - the carrying amount of variable-rate debt approximates
fair value. The fair value of fixed-rate debt is based on quoted
market prices, and on the discounted present value of cash flows
using the Company's current borrowing rates; Gas and oil
price-hedging contracts - the mark-to-market adjustment of
contracts is based on market prices as posted on the NYMEX from
the last trading day of the year.
The average price of the oil contracts at December 31, 2000, was
$18.30 per barrel and was based on the average of fixed amounts
in contracts which settle against the NYMEX. All oil contracts
relate to Company-owned production where basis adjustments would
result in a net to the well price of $17.20 per barrel. The
average price of the gas contracts at December 31, 2000 was $3.87
per MMBtu representing the average of contracts with different
terms including fixed, various "into the pipe" postings and NYMEX
references. Gas-hedging contracts were in place for Market
Resources-owned production and gas-marketing transactions.
Removing transportation and heat-value adjustments on the hedges
of Company-owned gas as of December 31, 2000, would result in a
price between $2.90 and $3.15 per Mcf, net back to the well.
Fair value is calculated at a point in time and does not
represent the amount the Company would pay to retire the debt
securities. In the case of gas and oil price-hedging activities,
the fair value calculation does not consider the the fair value
of the corresponding scheduled physical transactions (i.e., the
correlation between the index price and the price to be realized
for the physical delivery of gas or oil production).
Energy-Price Risk Management
Market Resources held hedge contracts covering the price exposure
for about 50.5 million dth of gas and 1 million barrels of oil at
December 31, 2000. A year earlier the contracts covered 72.1
million dth of natural gas and 2.4 million barrels of oil. The
hedging contracts exist for a significant share of Questar-owned
gas and oil production and for a portion of gas-marketing
transactions. The contracts at December 31, 2000, had terms
extending through December 2003, with about 91% of those
contracts expiring by the end of 2001. A primary objective of
energy-price hedging is to protect product sales from adverse
changes in energy prices. The Company does not enter into hedging
contracts for speculative purposes.
Securities Available for Sale
Securities available for sale represent equity instruments traded
on national exchanges. The value of these investments is subject
to day-to-day market volatility. Common shares of Nextel
Communications, XO Communications and ParkerVision represented
the Company's primary investments. At December 31, 2000, the
Company holdings amounted to 803,000 shares of Nextel, 214,000
shares of ParkerVision and 237,000 shares of XO.
Credit Risk.
The Company's primary market areas are the Rocky Mountain regions
of the United States and Canada and the Midcontinent region of
the United States. Exposure to credit risk may be impacted by
the concentration of customers in these regions due to changes in
economic or other conditions. Customers include individuals and
numerous industries that may be affected differently by changing
conditions. Management believes that its credit-review
procedures, loss reserves, customer deposits and collection
procedures have adequately provided for usual and customary
credit-related losses. Commodity-based hedging arrangements also
expose the Company to credit risk. The Company monitors the
creditworthiness of its counterparties, which generally are major
financial institutions, and believes that losses from
non-performance are unlikely to occur.
<PAGE>
Note 5 - Income Taxes
Details of Questar's income tax expenses and deferred income
taxes are provided in the following tables. The components of
income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Federal
Current $24,758 $43,326 $39,454
Deferred 49,481 (2,349) (7,160)
State
Current 4,067 6,602 3,918
Deferred 1,053 437 346
Deferred investment tax credits (386) (387) (387)
Foreign income taxes 6,394 159 (7,141)
$85,367 $47,788 $29,030
</TABLE>
The difference between income tax expense reported and the tax
computed by applying the statutory federal income tax rate of 35%
to income before income taxes is explained as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $242,078 $146,618 $105,929
Federal income taxes at 35% $84,727 $51,316 $37,075
State income taxes, net of federal
income tax benefit 3,328 4,576 2,773
Nonconventional fuel credits (6,453) (7,154) (7,953)
Investment tax credits utilized (386) (387) (387)
Deferred taxes related to regulated
assets that were not provided in
prior years 921 921 922
Tax benefits from dividends paid
to ESOP (398) (840)
Foreign income taxes 2,474 48 (1,061)
Other 756 (1,134) (1,499)
Income tax expense $85,367 $47,788 $29,030
Effective income tax rate 35.3% 32.6% 27.4%
</TABLE>
<PAGE>
Significant components of the Company's deferred income taxes
were as follows:
<TABLE>
<CAPTION>
December 31,
2000 1999
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $256,368 $215,055
Mark-to-market adjustments of securities
available for sale 8,568 24,333
Other 9,826 13,477
Total deferred tax liabilities 274,762 252,865
Deferred tax assets
Write-down of investment
in partnership 11,806 18,706
Alternative minimum tax and nonconventional-
fuel-credit carryforwards 3 2,468
Deferred compensation 7,443 4,910
Depletion and ITC carryforwards 1,995 2,140
Other 11,795 13,693
Total deferred tax assets 33,042 41,917
Deferred income taxes - noncurrent $241,720 $210,948
Deferred income taxes - current
Purchased -gas adjustment $13,515 $164
</TABLE>
Cash paid for income taxes was $54,088,000, $35,244,000 and
$35,036,000 in 2000, 1999 and 1998, respectively.
Note 6 - Litigation and Commitments
Bridenstine vs. Kaiser-Francis Oil Company
On January 4, 2001, a district court judge in Texas County,
Oklahoma, approved the settlement agreement reached by the
Questar defendants and Union Pacific Resources Company,
predecessor in interest to Questar Exploration & Production
(QE&P), as defendants in the Bridenstine case. Under the terms of
the settlement, the Company and Union Pacific Resources paid a
total of $22.5 million ($16.5 million by the Company) to resolve
all of the issues in the litigation. The Questar defendants
disputed plaintiffs' claims, but settled the lawsuit to avoid the
uncertainty of a jury verdict. Payment of the settlement funds
did not have a material adverse effect on the Company's results
of operations, financial position, or liquidity.
TransColorado case
Questar TransColorado Inc. (QTC) and its partner, KN
TransColorado, Inc., (KNTC) in the TransColorado Gas Transmission
Company (TransColorado) are involved in a complex lawsuit that is
pending in a state district court in Colorado. At the center of
the lawsuit is the validity of a contractual right claimed by QTC
to put its 50% interest in TransColorado to KNTC during the
12-month period beginning March 31, 2001.
KNTC originally filed a lawsuit in June of 2000 alleging that
Questar Pipeline and its affiliates breached their fiduciary
duties to TransColorado and KNTC by developing a plan to
construct and operate a new pipeline that would compete with
TransColorado, rendering TransColorado economically unviable.
KNTC is seeking damages in excess of $150 million plus punitive
damages; a declaratory judgment that KNTC's obligation to
purchase QTC's interest in the project be declared void and
unenforceable; and a dissolution of the partnership under Colorado
<PAGE>
law. QTC and its affiliates subsequently filed a counterclaim and
third-party complaint against KNTC and named affiliates,
including Kinder Morgan, Inc., seeking a declaratory judgment
that its contractual right to exercise the put is binding and
enforceable and damages of at least $185 million.
The trial judge denied the motion filed by the Questar defendants
to stay the proceedings and remove some issues to be considered
by the FERC. The parties have entered into a standstill
agreement that preserves the claims made by Questar and by KNTC
pending the resolution of the litigation. On December 31, 2000,
QTC gave notice of its election to exercise its contractual right
to sell its 50% interest in TransColorado to KNTC. The parties
have agreed to hire an outside party to operate the TransColorado
pipeline during the pending litigation. The trial is scheduled
for February of 2002.
Grynberg lawsuits
Questar affiliates are named defendants in a lawsuit filed by
independent gas producer Jack J. Grynberg under the Federal False
Claims Act. This case and the 75 substantially similar cases
filed by Grynberg against pipelines and their affiliates have
been consolidated for discovery and pre-trial rulings in Wyoming
federal district court. The cases involve allegations of industry
wide mismeasurement and undervaluation of gas on which royalty
payments are due the federal government. The complaint seeks
treble damages and imposition of civil penalties. The Wyoming
district court judge has not ruled on the defendants' motion to
dismiss.
Grynberg has filed a case against Questar Pipeline, Questar
Energy Trading and Questar Gas Management in Utah state district
court, alleging mismeasurement of gas volumes attributable to his
working ownership interest in a specified property in
southwestern Wyoming. Grynberg alleges breach of contract,
negligent misrepresentation, fraud, breach of fiduciary duty,
etc. On March 8, 2001, the trial judge granted defendants'
motion to dismiss a case by Grynberg.
It is too early to estimate the outcome of the other cases filed
by Grynberg against Questar affiliates.
There are various other legal proceedings against Questar and its
subsidiaries. While it is not currently possible to predict or
determine the outcomes of these proceedings, it is the opinion of
management that the outcomes will not have a materially adverse
effect on the Company's results of operations, financial position
or liquidity.
Commitments
Historically, 45% to 50% of Questar Gas's gas-supply portfolio
has been provided from company-owned gas reserves at the cost of
service. The remainder of the gas supply has been purchased from
various suppliers under agreements with a duration of one year or
less and index-based pricing. Generally, at the conclusion of the
heating season and after a bid process, new agreements for the
upcoming heating season are put into place. Questar Gas bought
significant quantities of natural gas under purchase agreements
amounting to $184 million, $93 million and $100 million in 2000,
1999 and 1998, respectively. In addition, Questar Gas makes use
of various storage arrangements to meet peak-gas demand during
certain times of the heating season.
Questar Energy Trading has contracted for firm-transportation
services with various pipelines to transport 76.2 Mdths per day
of gas. The contracts extend for the next six years and have an
annual cost of approximately $3 million. Due to market
conditions and competition, it is possible that Questar Energy
Trading may be unable to sell enough gas to fully utilize the
contracted capacity.
Questar sold its headquarters building under a sale and
lease-back arrangement in November 1998. The operating agreement
commits the Company to occupy the building for the next 11 years
with an option for renewal. The minimum future payments under the
terms of long-term operating leases for the Company's primary
office locations, including its headquarters building, for the
five years following December 31, 2000, are as follows:
<PAGE>
(In Thousands)
2001 $4,507
2002 4,314
2003 4,155
2004 3,677
2005 3,633
Thereafter 37,121
Total minimum future rental payments have not been reduced for
sublease rental receipts of $187,000, and $24,000, which are
expected to be received in the years ended December 31, 2001, and
2002, respectively. Total rental expense amounted to $4,402,000
in 2000, $4,321,000 in 1999 and $563,000 in 1998. Sublease
rental receipts were $96,000 in 2000 and $94,000 in 1999.
Note 7 - Rate Regulation and Other Matters
State rate regulation
On August 11, 2000, the Public Service Commission of Utah (PSCU)
issued an order in the general rate case filed by Questar Gas.
The PSCU granted $13.5 million in general rate relief and
authorized an 11% return on equity. The $13.5 million in general
rate relief includes the $7.1 million in interim rate relief that
Questar Gas was authorized to collect, subject to refund,
effective January 1, 2000. The PSCU's order allows Questar Gas
to collect $5 million of carbon-dioxide-processing costs yearly.
In February 2000, the Public Service Commission of Wyoming (PSCW)
reaffirmed Questar Gas's 11.83% authorized return on equity in a
general rate case filing and approved the request for a $377,000
rate reduction. Cost efficiencies and slower population growth
in Wyoming compared with Utah, enabled Questar Gas to reduce its
rates in Wyoming. The PSCW's rate-ruling also ordered the
Company to transfer the recovery of carbon dioxide gas processing
costs from gas costs to general rates beginning April 2000.
Questar Gas routinely files semi-annual applications with the
PSCU and the PSCW requesting permission to reflect annualized gas
cost increases or decreases depending on gas prices. These
requests for gas cost increases or decreases are passed on to
customers on a dollar-for-dollar basis with no markup.
On May 31, 2000, Questar Gas filed with the PSCW to reflect
annualized gas costs of $11.1 million in rates for Wyoming
customers. The filing reflected a $53,000 increase from the
previous filing. The PSCW authorized Questar Gas to reflect the
request in rates effective July 1, 2000. On June 14, 2000,
Questar Gas filed a request with the PSCU to reflect annualized
gas costs of $286.6 million in rates for Utah customers effective
July 1, 2000. The request slightly decreased rates for
residential and commercial customers. However, the PSCU, by an
interim order, chose to make no adjustment in rates.
Due to the rapidly rising gas prices caused by a high demand for
energy, Questar Gas filed an out-of-period pass-on application on
September 19, 2000, with the PSCW seeking approval to reflect an
increase of annualized gas costs of $2.5 million in rates for
Wyoming customers. The PSCW authorized the requested gas-cost
increase in rates effective October 1, 2000. On September 20,
2000, Questar Gas filed a special pass-through application with
the PSCU requesting permission to reflect annualized gas cost
increases of $63.5 million in rates for Utah customers. The
PSCU, by interim order, authorized Questar Gas to reflect the
increase in rates effective October 1, 2000.
As a result of a continuing growing demand for energy and the
accompanying pressure on energy prices, Questar Gas filed on
December 19, 2000, with the PSCU to reflect a $167.5 million
increase of annualized gas cost in rates for Utah customers. The
PSCU, by interim order, authorized Questar Gas to reflect the
increase in rates effective January 1, 2001. On December 19,
2000, Questar Gas filed an application with the PSCW to increase
gas costs in Wyoming rates by $7.1 million. The PSCW authorized
the increase in Wyoming gas rates effective January 1, 2001.
<PAGE>
Federal rate regulation
The Federal Energy Regulatory Commission (FERC) issued a final
order granting a certificate of public convenience and necessity
to Questar's Southern Trails Pipeline. The FERC's July 28, 2000,
ruling came after the agency became satisfied that the pipeline
was in the public convenience and necessity and could be
completed in an environmentally sound manner. The California
State Lands Commission has formally certified the Environmental
Impact Report for the Southern Trails Pipeline. Questar Pipeline
is actively working on right-of-way issues and exploring
marketing opportunities to subscribe Southern Trail's pipeline
capacity.
Questar Pipeline has received a preliminary determination from
the FERC to construct a 75-mile natural gas pipeline from the
Price area in eastern Utah to a proposed interconnect with Kern
River Gas Transmission Co. near Elberta, Utah. A final order is
contingent upon completion of an environmental impact statement.
The proposed expansion of Questar Pipeline's interstate system
will parallel an existing Questar pipeline for 57 miles from
Price to Payson, Utah. The $80 million project, referred to as
Main Line 104, will be 24 inches in diameter, with a maximum
operating pressure of 1,400 pounds per square inch.
Note 8 - Employee Benefits
Pension Plan: The Company has a defined-benefit pension plan
covering the majority of its employees. Benefits are generally
based on the employee's age at retirement, years of service and
highest earnings in a consecutive 72 pay-period interval during
the ten years preceding retirement. The Company's policy is to
make contributions to the plan at least sufficient to meet the
minimum funding requirements of the Internal Revenue Code. Plan
assets consist principally of equity securities and corporate and
U.S. government debt obligations.
The Company offered early retirement windows to specific groups
of employees in 2000, 1999 and 1998. Questar's Regulated Services
has offered early retirement windows to eligible employees in
2000 and 1998. In 2000, a total of 276 employees and recipients
of long-term disability from Questar Gas, Questar Pipeline and
Questar Regulated Services elected to retire effective October
31. The $14.4 million cost of the early retirement window will be
amortized over a five-year period in accordance with regulatory
treatment. In 1998, Regulated Services offered an early
retirement window that was accepted by 178 eligible employees.
The $3.1 million cost of the window is being amortized over a
five-year period beginning August 1998.
Questar InfoComm, which conducts telecommunications and
information-technology services, announced an early retirement
program effective November 1, 1999. Fifty employees elected to
retire and the $2.9 million cost was expensed in 1999.
<PAGE>
A summary of pension expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Service cost $7,354 $8,894 $7,746
Interest cost 18,447 18,814 18,617
Expected return on plan assets (23,782) (24,059) (23,016)
Prior service and other costs 1,581 1,365 872
Recognized net actuarial gain (552)
Early retirement expenses 1,340 3,744 530
Pension expense $4,388 $8,758 $4,749
Assumptions used to calculate pension expense were as follows:
2000 1999 1998
Discount rate 7.75% 6.75% 6.75%
Rate of increase in compensation 5.00% 5.00% 5.00%
Long-term return on assets 9.25% 9.25% 8.50%
The status of the pension plan was as follows:
Pension Plan 2000 1999
(In Thousands)
Change in benefit obligation
Projected benefit obligation
at January 1, $246,958 $252,799
Service cost 7,354 8,894
Interest cost 18,447 18,814
Plan amendments 8,153 2,164
Change in discount rate assumption (42,321)
Actuarial loss 34,096 35,264
Benefits paid (11,275) (11,469)
Early retirement settlements paid (80,946) (17,187)
Projected benefit obligation
at December 31, 222,787 246,958
Change in plan assets
Fair value of plan assets
at January 1, 274,907 264,632
Actual return on plan assets 4,284 32,831
Contributions to the plan 3,000 6,100
Benefits paid (11,275) (11,469)
Early retirement settlements paid (80,946) (17,187)
Fair value of plan assets
at December 31, 189,970 274,907
Plan assets less the projected
benefit obligation (32,817) 27,949
Unrecognized net actuarial
(gain) loss 3,053 (36,724)
Unrecognized prior-service cost 19,138 12,424
Unrecognized transition obligation 67 210
(Current liability) prepaid
pension expense ($10,559) $3,859
</TABLE>
<PAGE>
Postretirement Benefits Other Than Pensions: Postretirement
health-care benefits and life insurance are provided only to
employees hired before January 1, 1997. The Company pays a
portion of the costs of health-care benefits, as determined by an
employee's years of service, and limited to 170% of the 1992
contribution. The Company's policy is to fund amounts allowable
for tax deduction under the Internal Revenue Code. Plan assets
consist of equity securities and corporate and U.S. government
debt obligations. The Company is amortizing its transition
obligation over a 20-year period, which began in 1992.
Regulated Services accounts for approximately 50% of the
postretirement benefit costs. The impact of postretirement
benefit costs on Questar's future net income will be mitigated by
the ability to recover these costs from customers. The
regulatory agencies allow Questar Gas and Questar Pipeline to
recover future costs if the amounts are funded in external
trusts.
A summary of the expense of postretirement benefits other than
pensions follows:
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Service cost $823 $1,006 $1,138
Interest cost 4,979 4,545 4,094
Expected return on plan assets (3,241) (2,831) (1,830)
Amortization of transition obligation 1,877 1,877 1,878
Amortization of regulatory liability 523
Postretirement-benefit expense $4,438 $5,120 $5,280
Assumptions used to calculate postretirement benefit expense were as follows:
2000 1999 1998
Discount rate 7.75% 6.75% 6.75%
Long-term return on assets 9.25% 9.25% 8.50%
Health care inflation rate 10.00% 10.50% 11.00%
decreasing decreasing decreasing
to 6.5% to 5.5% to 5.5%
by 2008 by 2010 by 2010
</TABLE>
A 1% increase in the health-care inflation rate would increase
the service cost and interest cost by $290,000 and the
accumulated postretirement benefit obligation by $3.3 million. A
1% decrease in the health-care inflation rate would decrease the
service cost and interest cost by $210,000 and the accumulated
postretirement benefit obligation by $2.8 million. The status of
the postretirement benefit programs was as follows:
Postretirement Benefits Other Than Pensions
<TABLE>
<CAPTION> 2000 1999
(In Thousands)
<S> <C> <C>
Change in benefit obligation
Projected benefit obligation
at January 1, $66,169 $64,245
Service cost 823 1,006
Interest cost 4,979 4,545
Actuarial gain (701) (498)
Benefits paid (3,406) (3,129)
Projected benefit obligation
at December 31, 67,864 66,169
<PAGE>
2000 1999
(In Thousands)
Change in plan assets
Fair value of plan assets
at January 1, 35,302 30,845
Actual return on plan assets 389 3,732
Contributions to the plan 3,017 3,854
Benefits paid (3,406) (3,129)
Fair value of plan assets
at December 31, 35,302 35,302
Projected benefit obligation
in excess of plan assets (32,562) (30,867)
Unrecognized transition obligation 22,529 24,406
Unrecognized net gain (2,442) (4,594)
Accrued postretirement benefit
liability recorded in
current liabilities ($12,475) ($11,055)
</TABLE>
Postemployment Benefits: The Company recognizes the net present
value of the liability for postemployment benefits, such as
long-term disability benefits and health-care and life-insurance
costs, when employees become eligible for such benefits.
Postemployment benefits are paid to former employees after
employment has been terminated but before retirement benefits are
paid. The Company accrues both current and future costs. In
2000, 14 former employees of Questar Regulated Services and
recipients of postemployment benefits accepted early retirement
benefits. Questar's postemployment liability at December 31,
2000, 1999 and 1998 was $1,381,000, $2,347,000 and $2,452,000,
respectively.
Note 9 - Wexpro Settlement Agreement
Wexpro's operations are subject to the terms of the Wexpro
settlement agreement. The agreement was effective August 1,
1981, and sets forth the rights of Questar Gas's utility
operations to share in the results of Wexpro's operations. The
agreement was approved by the PSCU and PSCW in 1981 and affirmed
by the Supreme Court of Utah in 1983. Major provisions of the
settlement agreement are as follows:
a. Wexpro continues to hold and operate all oil-producing
properties previously transferred from Questar Gas's nonutility
accounts. The oil production from these properties is sold at
market prices, with the revenues used to recover operating
expenses and to give Wexpro a return on its investment. The
after-tax rate of return is adjusted annually and is
approximately 13.64%. Any net income remaining after recovery of
expenses and Wexpro's return on investment is divided between
Wexpro and Questar Gas, with Wexpro retaining 46%.
b. Wexpro conducts developmental oil drilling on productive oil
properties and bears any costs of dry holes. Oil discovered from
these properties is sold at market prices, with the revenues used
to recover operating expenses and to give Wexpro a return on its
investment in successful wells. The after-tax rate of return is
adjusted annually and is approximately 18.64%. Any net income
remaining after recovery of expenses and Wexpro's return on
investment is divided between Wexpro and Questar Gas, with Wexpro
retaining 46%.
c. Amounts received by Questar Gas from the sharing of Wexpro's
oil income are used to reduce natural-gas costs to utility
customers.
d. Wexpro conducts developmental gas drilling on productive gas
properties and bears any costs of dry holes. Natural gas produced
from successful drilling is owned by Questar Gas. Wexpro is
reimbursed for the costs of producing the gas plus a return on
its investment in successful wells. The after-tax return allowed
Wexpro is approximately 21.64%.
e. Wexpro operates natural-gas properties owned by Questar Gas.
Wexpro is reimbursed for its costs of operating these properties,
including a rate of return on any investment it makes. This
after-tax rate of return is approximately 13.64%.
<PAGE>
Note 10 - Operations by Line of Business
Following is a summary of operations by line of business
for the Year Ended December 31.
<TABLE>
<CAPTION>
Questar Regulated Services
Questar Natural Gas Natural Gas Other Corporate Intercompany Questar
Market Distri- Trans- & Other Transactions Consol-
Resources bution mission Operations idated
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Revenues
From unaffiliated customers $649,200 $531,988 $42,500 $3,642 $38,823 $1,266,153
From affiliated companies 92,853 4,774 76,576 283 34,586 ($209,072)
742,053 536,762 119,076 3,925 73,409 (209,072) 1,266,153
Operating expenses
Cost of natural gas and
other products sold 369,752 334,193 2,253 24,640 (168,609) 562,229
Operating and maintenance 106,703 101,486 43,761 1,668 33,506 (35,705) 251,419
Depreciation and amortization 84,475 34,450 15,391 35 7,590 141,941
Other expenses 41,020 10,213 3,071 35 1,073 (4,758) 50,654
Total operating expenses 601,950 480,342 62,223 3,991 66,809 (209,072) 1,006,243
Operating income (loss) 140,103 56,420 56,853 (66) 6,600 259,910
Interest and other income 10,631 1,673 3,025 1,349 36,926 (11,922) 41,682
Income from unconsolidated
affiliates 2,776 1,220 3,996
Debt expense (22,922) (21,041) (17,584) (722) (13,163) 11,922 (63,510)
Income tax expense (45,546) (12,889) (13,689) (217) (13,026) (85,367)
Net income $85,042 $24,163 $29,825 $344 $17,337 $156,711
Identifiable assets $1,027,509 $830,889 $538,408 $19,640 $122,599 $2,539,045
Investment in unconsolidated
affiliates 15,417 19,088 34,505
Capital expenditures 195,970 65,767 43,035 1,167 17,814 323,753
1999
Revenues
From unaffiliated customers $418,603 $447,606 $36,922 $2,260 $18,828 $924,219
From affiliated companies 79,708 2,331 75,238 196 38,851 ($196,324)
498,311 449,937 112,160 2,456 57,679 (196,324) 924,219
Operating expenses
Cost of natural gas and
other products sold 239,201 257,265 774 9,651 (154,337) 352,554
Operating and maintenance 79,916 103,308 38,534 1,700 37,516 (39,695) 221,279
Depreciation and amortization 78,608 36,426 16,743 14 5,953 137,744
Other expenses 23,808 7,625 2,488 24 1,071 (2,292) 32,724
Total operating expenses 421,533 404,624 57,765 2,512 54,191 (196,324) 744,301
Operating income (loss) 76,778 45,313 54,395 (56) 3,488 179,918
Interest and other income 4,272 2,980 4,229 1,014 73,406 (11,201) 74,700
Income (loss) from
unconsolidated affiliates 763 (5,109) (10) (4,356)
Write-down of investment
in partnership (49,700) (49,700)
Debt expense (17,363) (20,062) (17,466) (605) (9,649) 11,201 (53,944)
Income tax (expense) credit (18,584) (9,012) 5,260 (102) (25,350) (47,788)
Net income (loss) $45,866 $19,219 ($8,391) $251 $41,885 $98,830
Identifiable assets $831,186 $722,290 $517,981 $11,423 $155,117 $2,237,997
Investment in unconsolidated
affiliates 13,301 11,724 244 25,269
Capital expenditures 134,269 68,447 50,424 1,385 13,479 268,004
<PAGE>
1998
Revenues
From unaffiliated customers $382,791 $475,754 $37,156 $2,355 $8,200 $906,256
From affiliated companies 75,481 1,069 71,401 99 39,707 ($187,757)
458,272 476,823 108,557 2,454 47,907 (187,757) 906,256
Operating expenses
Cost of natural gas and
other products sold 230,462 281,004 1,249 1,515 (146,298) 367,932
Operating and maintenance 74,863 96,923 38,832 2,269 37,113 (40,406) 209,594
Depreciation and amortization 71,377 33,261 13,927 17 6,575 125,157
Write-down of full-cost oil
and gas properties 34,000 34,000
Other expenses 26,041 8,185 2,600 1,019 (1,053) 36,792
Total operating expenses 436,743 419,373 55,359 3,535 46,222 (187,757) 773,475
Operating income (loss) 21,529 57,450 53,198 (1,081) 1,685 132,781
Interest and other income 3,638 3,566 78 655 22,756 (12,491) 18,202
Income (loss) from
unconsolidated affiliates (930) 4,011 (164) 2,917
Debt expense (12,631) (19,792) (14,456) (385) (13,198) 12,491 (47,971)
Income tax (expense) credit 2,131 (13,816) (14,940) 339 (2,744) (29,030)
Net income (loss) $13,737 $27,408 $27,891 ($472) $8,335 $76,899
Identifiable assets $778,694 $699,727 $556,226 $8,519 $118,115 $2,161,281
Investment in unconsolidated
affiliates 3,673 54,712 253 58,638
Capital expenditures 254,546 76,328 114,318 493 15,662 461,347
</TABLE>
Questar Market Resources has subsidiaries that conducts
gas and oil exploration and production activities in
western Canada. Canadian operations reported revenues,
measured in U. S. dollars, totaling $38.1 million, $12.3
million and $10.5 million for the 12 months ended December
31, 2000, 1999, and 1998, respectively. Total assets at
December 31, stated in U. S. dollars, amounted to $120
million, $40.3 million and $36.9 million in 2000, 1999 and
1998, respectively.
<PAGE>
Note 11 - Quarterly Financial and Stock Price Information (Unaudited)
Following is a summary of quarterly financial and stock price data.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
2000
Revenues $336,702 $232,542 $245,117 $451,792 $1,266,153
Operating income 82,140 45,049 45,344 87,377 259,910
Net income 50,230 26,205 27,263 53,013 156,711
Basic earnings per common share 0.62 0.33 0.34 0.66 1.95
Diluted earnings per common share 0.62 0.33 0.34 0.65 1.94
Dividends per common share 0.17 0.17 0.17 0.18 0.69
Market price per common share
High $19.00 $20.63 $28.00 $31.88 $31.88
Low $13.56 $17.13 $18.88 $26.00 $13.56
Close $18.56 $19.38 $27.81 $30.06 $30.06
Price-earnings ratio on closing price 14.4 14.4 18.5 15.4 15.4
Annualized dividend yield on closing price 3.7% 3.5% 2.4% 2.3% 2.3%
Market-to-book ratio on closing price 1.56 1.62 2.33 2.45 2.45
Average number of common shares traded
per day 233 169 237 280 230
1999
Revenues $277,814 $177,858 $183,070 $285,477 $924,219
Operating income 67,362 30,549 27,396 54,611 179,918
Net income 43,364 23,070 15,102 17,294 98,830
Basic earnings per common share 0.52 0.28 0.19 0.21 1.20
Diluted earnings per common share 0.52 0.28 0.18 0.21 1.20
Dividends per common share 0.165 0.165 0.17 0.17 0.67
Market price per common share
High $19.38 $19.94 $19.63 $19.13 $19.94
Low $16.13 $15.81 $17.88 $14.75 $14.75
Close $16.94 $19.13 $18.13 $15.00 $15.00
Price-earnings ratio on closing price 17.8 18.4 16.2 12.5 12.5
Annualized dividend yield on closing price 3.9% 3.5% 3.8% 4.5% 4.5%
Market-to-book ratio on closing price 1.52 1.69 1.58 1.32 1.32
Average number of common shares traded
per day 201 147 138 179 166
1998
Revenues $300,083 $179,157 $150,282 $276,734 $906,256
Operating income 67,056 25,084 18,173 22,468 132,781
Net income 40,882 16,196 8,235 11,586 76,899
Basic earnings per common share 0.50 0.19 0.10 0.14 0.93
Diluted earnings per common share 0.49 0.19 0.10 0.14 0.93
Dividends per common share 0.1575 0.165 0.165 0.165 0.6525
Market price per common share
High $22.28 $22.38 $19.81 $20.38 $22.38
Low $20.19 $18.69 $15.81 $17.38 $15.19
Close $20.78 $19.63 $19.25 $19.38 $19.38
Price-earnings ratio on closing price 16.4 15.1 15.9 20.8 20.8
Annualized dividend yield on closing price 3.2% 3.4% 3.4% 3.4% 3.4%
Market-to-book ratio on closing price 1.94 1.84 1.82 1.82 1.82
Average number of common shares traded
per day 171 165 169 188 173
</TABLE>
<PAGE>
Note 12 - Supplemental Oil and Gas Information (Unaudited)
The Company uses the full-cost accounting method for the
majority of its oil and gas exploration and development
activities. However, as ordered by the Public Service
Commission of Utah, the successful efforts method of
accounting is utilized with respect to costs associated
with certain cost- of-service oil and gas properties
managed and developed by Wexpro and regulated for
ratemaking purposes. Cost-of-service oil and gas
properties are those properties for which the operations
and return on investment are regulated by the Wexpro
settlement agreement (See Note 9).
Oil and Gas Exploration and Development Activities: The
following information is provided with respect to
Questar's oil and gas exploration and development
activities, located in the United States and Canada.
Capitalized Costs
The aggregate amounts of costs capitalized for oil and gas
exploration and development activities and the related
amounts of accumulated depreciation and amortization
follow:
<TABLE>
<CAPTION>
As of December 31, United State Canada Total
(In Thousands)
<S> <C> <C> <C>
2000
Proved properties $962,942 $119,067 $1,082,009
Unproved properties 48,429 27,787 76,216
Support equipment and facilities 12,002 1,177 13,179
1,023,373 148,031 1,171,404
Accumulated depreciation and amortization 558,884 42,736 601,620
$464,489 $105,295 $569,784
1999
Proved properties $885,333 $58,016 $943,349
Unproved properties 58,248 11,529 69,777
Support equipment and facilities 12,418 990 13,408
955,999 70,535 1,026,534
Accumulated depreciation and amortization 509,976 34,515 544,491
$446,023 $36,020 $482,043
1998
Proved properties $869,514 $48,723 $918,237
Unproved properties 49,724 12,763 62,487
Support equipment and facilities 13,949 929 14,878
933,187 62,415 995,602
Accumulated depreciation and amortization 469,555 29,163 498,718
$463,632 $33,252 $496,884
<PAGE>
Unproved Properties Excluded from Full-Cost Amortization
Unproved properties are excluded from full cost
amortization until evaluated. A summary of costs excluded
from amortization at December 31, 2000, and the period in
which these costs were incurred are listed below by cost
center:
</TABLE>
<TABLE>
<CAPTION>
Year Costs Incurred
1997 and
Total 2000 1999 1998 Prior
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States
Acquisition $35,387 $2,932 $7,266 $17,689 $7,500
Exploration 13,042 2,340 2,967 1,868 5,867
48,429 5,272 10,233 19,557 13,367
Canada
Acquisition 23,786 14,903 71 534 8,278
Exploration 4,002 2,703 125 382 792
27,788 17,606 196 916 9,070
Total U. S. and Canada $76,217 $22,878 $10,429 $20,473 $22,437
</TABLE>
Costs Incurred
The following costs were incurred in oil and gas
exploration and development activities:
<TABLE>
<CAPTION>
Year Ended December 31, United
States Canada Total
(In Thousands)
<S> <C> <C> <C>
2000
Property acquisition
Unproved $3,082 $14,885 $17,967
Proved 1,202 31,900 33,102
Exploration 5,412 3,078 8,490
Development 65,709 30,470 96,179
$75,405 $80,333 $155,738
1999
Property acquisition
Unproved $12,547 $351 $12,898
Proved 3,746 18 3,764
Exploration 7,467 501 7,968
Development 53,488 3,745 57,233
$77,248 $4,615 $81,863
<PAGE>
United
States Canada Total
(In Thousands)
1998
Property acquisition
Unproved $29,367 $145 $29,512
Proved 126,723 3,144 129,867
Exploration 10,055 1,222 11,277
Development 43,090 5,363 48,453
$209,235 $9,874 $219,109
</TABLE>
Results of Operations
Following are the results of operations of Market
Resources' oil and gas exploration and development
activities, before corporate overhead and interest
expenses. The Company recorded write-downs of its
full-cost oil and gas properties in accordance with the
limitation of its full-cost ceiling in 1998.
<TABLE>
<CAPTION>
United
States Canada Total
Year Ended December 31, 2000 (In Thousands)
<S> <C> <C> <C>
Revenues
From unaffiliated customers $207,656 $38,072 $245,728
From affiliates 18 18
Total revenues 207,674 38,072 245,746
Production expenses 49,116 9,370 58,486
Depreciation and amortization 54,942 9,677 64,619
Total expenses 104,058 19,047 123,105
Revenues less expenses 103,616 19,025 122,641
Income taxes - Note A 33,890 10,939 44,829
Results of operations before corporate
overhead and interest expenses $69,726 $8,086 $77,812
Year Ended December 31, 1999
Revenues $150,159 $12,316 $162,475
Production expenses 41,948 3,681 45,629
Depreciation and amortization 57,545 3,512 61,057
Total expenses 99,493 7,193 106,686
Revenues less expenses 50,666 5,123 55,789
Income taxes - Note A 13,616 2,567 16,183
Results of operations before corporate
overhead and interest expenses $37,050 $2,556 $39,606
<PAGE>
Year Ended December 31, 1998
Revenues $125,035 $10,474 $135,509
Production expenses 38,788 3,004 41,792
Depreciation and amortization 49,740 5,275 55,015
Write-down of oil and gas properties 19,000 15,000 34,000
Total expenses 107,528 23,279 130,807
Revenues less expenses 17,507 (12,805) 4,702
Income taxes - Note A 1,191 (5,263) (4,072)
Results of operations before corporate
overhead and interest expenses $16,316 ($7,542) $8,774
</TABLE>
Note A - Income tax expenses have been reduced by
nonconventional fuel tax credits of $4,655,000 in 2000,
$5,282,000 in 1999 and $5,736,000 in 1998.
Estimated Quantities of Proved Oil and Gas Reserves
Estimates of the reserves located in the United States
were made by Ryder Scott Company, H. J. Gruy and
Associates, Inc., Netherland, Sewell & Associates, and
Malkewicz Hueni Associates, Inc., independent reservoir
engineers. Estimated Canadian reserves were prepared by
Gilbert Laustsen Jung Associates Ltd. and Sproule
Associates Ltd. Reserve estimates are based on a complex
and highly interpretive process that is subject to
continuous revision as additional production and
development-drilling information becomes available. The
quantities reported below are based on existing economic
and operating conditions at December 31. All oil and gas
reserves reported were located in the United States and
Canada. The Company does not have any long-term supply
contracts with foreign governments or reserves of equity
investees.
<PAGE>
<TABLE>
<CAPTION>
Oil
United Natural Gas United Oil Total
States Canada Total States Canada
(MMcf) (MBbls)
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves
Balance at January 1, 1998 357,529 21,134 378,663 12,664 2,435 15,099
Revisions of estimates 378 (3,568) (3,190) (3,165) 238 (2,927)
Extensions and discoveries 28,598 1,984 30,582 442 261 703
Purchase of reserves in place 129,207 5,110 134,317 3,720 71 3,791
Sale of reserves in place (440) (440) (76) (76)
Production (48,584) (2,725) (51,309) (1,936) (404) (2,340)
Balance at December 31, 1998 466,688 21,935 488,623 11,649 2,601 14,250
Revisions of estimates 4,155 (106) 4,049 4,031 372 4,403
Extensions and discoveries 77,737 1,720 79,457 794 257 1,051
Purchase of reserves in place 17,020 17,020 130 130
Sale of reserves in place (11,984) (11,984) (3,665) (3,665)
Production (59,839) (2,873) (62,712) (1,876) (435) (2,311)
Balance at December 31, 1999 493,777 20,676 514,453 11,063 2,795 13,858
Revisions of estimates 25,662 (7,890) 17,772 221 (64) 157
Extensions and discoveries 123,155 2,511 125,666 1,532 208 1,740
Purchase of reserves in place 846 52,000 52,846 1 1,520 1,521
Sale of reserves in place (1,885) (1,885) (17) 0 (17)
Production (61,722) (7,241) (68,963) (1,484) (741) (2,225)
Balance at December 31, 2000 579,833 60,056 639,889 11,316 3,718 15,034
Proved-Developed Reserves
Balance at January 1, 1998 300,550 16,670 317,220 10,769 1,851 12,620
Balance at December 31, 1998 411,826 17,835 429,661 10,443 2,281 12,724
Balance at December 31, 1999 412,008 17,076 429,084 9,897 2,565 12,462
Balance at December 31, 2000 434,122 55,623 489,745 9,696 3,077 12,773
</TABLE>
Standardized Measure of Future Net Cash Flows Relating to
Proved Reserves
Future net cash flows were calculated at December 31 using
year-end prices and known contract-price changes. The
year-end prices do not include any impact of hedging
activities. Year-end production costs, development costs
and appropriate statutory income tax rates, with
consideration of future tax rates already legislated, were
used to compute the future net cash flows. All cash flows
were discounted at 10% to reflect the time value of cash
flows, without regard to the risk of specific properties.
The assumptions used to derive the standardized measure of
future net cash flows are those required by accounting
standards and do not necessarily reflect the Company's
expectations. The usefulness of the standardized measure
of future net cash flows is impaired because of the
reliance on reserve estimates and production schedules
that are inherently imprecise.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, United
States Canada Total
(In Thousands)
<S> <C> <C> <C>
2000
Future cash inflows $5,412,945 $568,771 $5,981,716
Future production costs (955,827) (73,583) (1,029,410)
Future development costs (107,355) (2,900) (110,255)
Future income tax expenses (1,493,301) (225,234) (1,718,535)
Future net cash flows 2,856,462 267,054 3,123,516
10% annual discount to reflect
timing of net cash flows (1,314,258) (117,637) (1,431,895)
Standardized measure of discounted
future net cash flows $1,542,204 $149,417 $1,691,621
1999
Future cash inflows $1,332,761 $108,990 $1,441,751
Future production costs (398,591) (28,280) (426,871)
Future development costs (61,034) (3,146) (64,180)
Future income tax expenses (183,767) (11,656) (195,423)
Future net cash flows 689,369 65,908 755,277
10% annual discount to reflect
timing of net cash flows (283,055) (23,193) (306,248)
Standardized measure of discounted
future net cash flows $406,314 $42,715 $449,029
1998
Future cash inflows $982,404 $66,885 $1,049,289
Future production costs (320,355) (22,088) (342,443)
Future development costs (45,138) (696) (45,834)
Future income tax expenses (74,738) (74,738)
Future net cash flows 542,173 44,101 586,274
10% annual discount to reflect
timing of net cash flows (216,907) (14,809) (231,716)
Standardized measure of discounted
future net cash flows $325,266 $29,292 $354,558
<PAGE>
The principal sources of change in the standardized
measure of discounted future net cash flows were:
Year Ended December 31,
2000 1999 1998
(In Thousands)
Beginning balance $449,029 $354,558 $301,162
Sales of oil and gas produced, net
of production costs (187,260) (116,846) (93,717)
Net changes in prices and
production costs 1,636,707 170,012 (53,626)
Extensions and discoveries, less
related costs 492,398 79,511 24,120
Revisions of quantity estimates 70,155 28,665 (14,399)
Purchase of reserves in place 33,102 3,764 129,867
Sale of reserves in place (1,867) (33,043) (540)
Accretion of discount 44,903 35,456 30,116
Net change in income taxes (804,799) (66,293) 11,550
Change in production rate (50,077) (8,859) 6,728
Other 9,330 2,104 13,297
Net change 1,242,592 94,471 53,396
Ending balance $1,691,621 $449,029 $354,558
</TABLE>
Cost-of-Service Activities
The following information is provided with respect to
cost-of-service oil and gas properties managed and
developed by Wexpro and regulated by the Wexpro settlement
agreement. Information on the standardized measure of
future net cash flows has not been included for
cost-of-service activities because the operations of and
return on investment for such properties are regulated by
the Wexpro settlement agreement.
Capitalized Costs
Capitalized costs for cost-of-service oil and gas
properties net of the related accumulated depreciation and
amortization were as follows:
<TABLE>
<CAPTION>
December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Wexpro $155,374 $137,584 $129,573
Questar Gas 22,620 25,380 27,739
$177,994 $162,964 $157,312
</TABLE>
Costs Incurred
Costs incurred by Wexpro for cost of service oil and gas
producing activities were $32,066,000 in 2000, $21,273,000
in 1999 and $26,956,000 in 1998.
<PAGE>
Results of Operations
Following are the results of operations of the Company's
cost-of-service gas and oil development activities before
corporate overhead and interest expenses.
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
(In Thousands)
<S> <C> <C> <C>
Revenues
From unaffiliated companies $15,179 $8,844 $10,025
From affiliates - Note A 73,721 62,335 58,581
Total revenues 88,900 71,179 68,606
Production expenses 27,861 18,548 22,439
Depreciation and amortization 13,922 12,665 11,379
Total expenses 41,783 31,213 33,818
Revenues less expenses 47,117 39,966 34,788
Income taxes 16,923 14,602 12,441
Results of operations before corporate
overhead and interest expenses $30,194 $25,364 $22,347
</TABLE>
Note A - Represents revenues received from Questar Gas
pursuant to Wexpro Settlement Agreement.
Estimated Quantities of Proved Oil and Gas Reserves
The following estimates were made by the Company's
reservoir engineers. No estimates are available for cost
of service proved-undeveloped reserves that may exist.
<TABLE>
<CAPTION>
Natural Gas Oil
(MMcf) (MBbls)
<S> <C> <C>
Proved Developed Reserves
Balance at January 1, 1998 337,179 3,049
Revisions of estimates 15,017 (46)
Extensions and discoveries 25,077 333
Production (37,138) (613)
Balance at December 31, 1998 340,135 2,723
Revisions of estimates 5,699 976
Extensions and discoveries 46,739 213
Production (38,890) (623)
Balance at December 31, 1999 353,683 3,289
Revisions of estimates 16,523 504
Extensions and discoveries 50,351 234
Production (41,546) (579)
Balance at December 31, 2000 379,011 3,448
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 23th day of March, 2001.
QUESTAR CORPORATION
(Registrant)
By /s/ R. D. Cash
R. D. Cash
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
/s/ R. D. Cash Chairman and Chief
R. D. Cash Executive Officer (Principal
Executive Officer)
/s/ S. E. Parks Senior Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal Financial
and Accounting Officer)
*R. D. Cash Director
*K. O. Rattie Director
*Teresa Beck Director
*Patrick J. Early Director
*W. W. Hawkins Director
*Robert E. Kadlec Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*G. L. Nordloh Director
*Scott S. Parker Director
*D. N. Rose Director
*Harris H. Simmons Director
March 23, 2001 *By /s/ R. D. Cash
Date R. D. Cash, Attorney in Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.* Plan and Agreement of Merger dated as of December 16, 1986,
by and among the Company, Questar Systems Corporation, and
Universal Resources Corporation. (Exhibit No. (2) to Current
Report on Form 8-K dated December 16, 1986.)
3.1.* Restated Articles of Incorporation as amended effective May
19, 1998. (Exhibit No. 3.1. to Form 10-Q Report for Quarter
ended June 30, 1998.)
3.2.* Bylaws (as amended effective August 11, 1998). (Exhibit No.
3.2. to Form 10-Q Report for Quarter ended June 30, 1998.)
4.1.*1 Rights Agreement dated as of February 13, 1996, between the
Company and Chemical Mellon Shareholder Services L.L.C.
pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
13, 1996.)
4.2.* Questar Dividend Reinvestment and Stock Purchase Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
8, 2000.)
10.1.* Stipulation and Agreement, dated October 14, 1981, executed
by Mountain Fuel; Wexpro; the Utah Department of Business
Regulations, Division of Public Utilities; the Utah Committee
of Consumer Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to Mountain Fuel
Supply Company's Form 10-K Annual Report for 1981.)
10.2.2 Questar Corporation Annual Management Incentive Plan, as
amended and restated effective February 13, 2001.
10.3.*2 Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.2. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.4.2 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective March 1, 2001 (subject to the
receipt of shareholder approval.)
10.5.*2 Questar Corporation Executive Severance Compensation Plan, as
amended and restated effective May 19, 1998. (Exhibit No.
10.3. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.6.2 Questar Corporation Deferred Compensation Plan for Directors,
as amended and restated effective October 26, 2000.
10.7.*2 Questar Corporation Supplemental Executive Retirement Plan,
as amended and restated effective June 1, 1998. (Exhibit No.
10.6. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.8.*2 Questar Corporation Stock Option Plan for Directors, as
amended and restated effective October 29, 1998. (Exhibit
No. 10.10. to Form 10-Q Report for Quarter Ended September
30, 1998.)
10.9.*2 Form of Individual Indemnification Agreement dated February
9, 1993 between Questar Corporation and Directors. (Exhibit
No. 10.11. to Form 10-K Annual Report for 1992.)
10.10.*2 Questar Corporation Deferred Share Plan, as amended and
restated effective May 19, 1998. (Exhibit No. 10.7. to Form
10-Q Report for Quarter Ended June 30, 1998.)
10.11.2 Questar Corporation Deferred Compensation Plan, as amended
and restated effective October 26, 2000.
10.12.*2 Questar Corporation Directors' Stock Plan as approved May 21,
1996. (Exhibit No. 10.15. to Form 10-Q Report for Quarter
ended June 30, 1996.)
10.13.*2 Questar Corporation Deferred Share Make-Up Plan. (Exhibit
No. 10.8. to Form 10-Q Report for Quarter Ended June 30, 1998.)
10.14.*2 Questar Corporation Special Situation Retirement Plan.
(Exhibit No. 10.10. to Form 10-Q Report for Quarter Ended
June 30, 1998.)
10.15. Employment Agreement between Questar Corporation and Keith O.
Rattie effective February 1, 2001.
21. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
99.1. Undertakings for Registration Statements on Form S-3 (No.
33-48168) and on Form S-8 (Nos. 33-4436, 33-15149, 33-40800,
33-40801, 33-48169, 333-04913, and 333-04951).
________________________
*Exhibits so marked have been filed with the Securities and Exchange
Commission as part of the indicated filing and are incorporated herein by
reference.
1The name of the Rights Agent has been changed to USBank National
Association.
2Exhibit so marked is management contract or compensation plan or
arrangement.
(b) The Company did not file any Current Reports on Form 8-K during the
last quarter of 2000.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2.
<SEQUENCE>2
<FILENAME>0002.txt
<TEXT>
QUESTAR CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended and restated effective February 13, 2001)
Paragraph 1. Name. The name of this Plan is the Questar
Corporation Annual Management Incentive Plan (the Plan).
Paragraph 2. Purpose. The purpose of the Plan is to provide
an incentive to officers and key employees of Questar Corporation
(the Company) for the accomplishment of major organizational and
individual objectives designed to further the efficiency,
profitability, and growth of the Company.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors shall have full
power and authority to interpret and administer the Plan. Such
Committee shall consist of no less than three disinterested members
of the Board of Directors.
Paragraph 4. Participation. Within 60 days after the
beginning of each year, the Committee shall nominate Participants
from the officers and key employees for such year. The Committee
shall also establish a target bonus for the year for each
Participant expressed as a percentage of base salary or specified
portion of base salary. Participants shall be notified of their
selection and their target bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives. Within
60 days after the beginning of each year, the Committee shall
establish target, minimum, and maximum performance objectives for
the Company and for its major operating subsidiaries and shall
determine the manner in which the target bonus is allocated among
the performance objectives. The Committee shall also recommend a
dollar maximum for payments to Participants for any Plan year. The
Board of Directors shall take action concerning the recommended
dollar maximum within 60 days after the beginning of the Plan year.
Participants shall be notified of the performance objectives as soon
as practicable once such objectives have been established.
Paragraph 6. Determination and Distribution of Awards. As
soon as practicable, but in no event more than 90 days after the
close of each year during which the Plan is in effect, the Committee
shall compute incentive awards for eligible participants in such
amounts as the members deem fair and equitable, giving consideration
to the degree to which the Participant's performance has contributed
to the performance of the Company and its affiliated companies and
using the target bonuses and performance objectives previously
specified. Aggregate awards calculated under the Plan shall not
exceed the maximum limits approved by the Board of Directors for the
year involved. To be eligible to receive a payment, the Participant
must be actively employed by the Company or an affiliate as of the
date of distribution except as provided in Paragraph 8.
<PAGE>
Amounts shall be paid (less appropriate withholding taxes
and FICA deductions) according to the following schedule for Plan
years beginning with 2001:
Award Distribution Schedule
Percent of
Award Date
67% As soon as possible after initial
award is determined
33 One year after initial award is
determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash. For 1992
and subsequent years, participants who have a target bonus of
$10,000 or higher shall be paid all deferred portions of such bonus
with restricted shares of the Company's common stock under the
Company's Long-Term Stock Incentive Plan. Such stock shall be
granted to the participant when the initial award is determined, but
shall vest free of restrictions according to the schedule specified
above in Paragraph 6.
Paragraph 8. Termination of Employment.
(a) In the event a Participant ceases to be an employee
during a year by reason of death, disability, approved retirement,
an award, or a reduction in force, if any, determined in accordance
with Paragraph 6 for the year of such event, shall be reduced to
reflect partial participation by multiplying the award by a fraction
equal to the months of participation during the applicable year
through the date of termination rounded up to whole months divided
by 12.
For the purpose of this Plan, approved retirement shall mean
any termination of service on or after age 55 with 10 years of
service. For the purpose of this Plan, disability shall mean any
termination of service that results in payments under the Company's
long-term disability plan. A reduction in force, for the purpose of
this Plan, shall mean any involuntary termination of employment due
to the Company's economic condition, sale of assets, shift in focus,
or other reasons independent of the Participant's performance.
The entire amount of any award that is determined after the
death of a Participant shall be paid in accordance with the terms of
Paragraph 11.
In the event of termination of employment due to disability,
approved retirement, or a reduction in force, a Participant shall be
paid the undistributed portion of any prior awards in his final
paycheck or in accordance with the terms of elections to voluntarily
defer receipt of awards earned prior to February 12, 1991, or
deferred under the terms of the Company's Deferred Compensation
Plan. In the event of termination due to disability, approved
retirement, or a reduction in force, any shares of common stock
previously credited to a Participant shall be distributed free of
<PAGE>
restrictions during the last month of employment. The current
market value (defined as the closing price for the stock on the New
York Stock Exchange on the date in question) of such shares shall be
included in the Participant's final paycheck. Such Participant
shall be paid the full amount of any award (adjusted for partial
participation) declared subsequent to the date of such termination
within 30 days of the date of declaration. Any partial payments
shall be made in cash.
(b) In the event a Participant ceases to be an employee during
a year by reason of a change in control, he shall be entitled to
receive all amounts deferred by him prior to February 12, 1991, and
all undistributed portions for prior Plan years. He shall also be
entitled to an award for the year of such event as if he had been an
employee throughout such year. The entire amount of any award for
such year shall be paid in a lump sum within 60 days after the end
of the year in question. Such amounts shall be paid in cash.
A Change in Control of the Company shall be deemed to have
occurred if (i) any "Acquiring Person" (as such term is defined in
the Rights Agreement dated as of February 13, 1996, between the
Company and ChaseMellon Shareholder Services L.L.C. ("Rights
Agreement")) is or becomes the beneficial owner (as such term is
used in Rule 13d-3 under the Securities Exchange Act of 1934) of
securities of the Company representing 25 percent or more of the
combined voting power of the Company; or (ii) the following
individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, as of May 19,
1998, constitute the Company's Board of Directors ("Board") and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by
the Company's stockholders was approved or recommended by a vote of
at least two-thirds of the directors then still in office who either
were directors on May 19, 1998, or whose appointment, election or
nomination for election was previously so approved or recommended;
or (iii) the Company's stockholders approve a merger or
consolidation of the Company or any direct or indirect subsidiary of
the Company with any other corporation, other than a merger or
consolidation that would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 60 percent of the
combined voting power of the securities of the Company or such
surviving entity or its parent outstanding immediately after such
merger or consolidation, or a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25 percent or
more of the combined voting power of the Company's then outstanding
securities; or (iv) the Company's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, other than a
sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 60 percent of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A
Change in Control, however, shall not be considered to have occurred
<PAGE>
until all conditions precedent to the transaction, including but not
limited to, all required regulatory approvals have been obtained.
Paragraph 9. Interest on Previously Deferred Amounts. Amounts
voluntarily deferred prior to February 12, 1991, shall be credited
with interest from the date the payment was first available in cash
to the date of actual payment. Such interest shall be calculated at
a monthly rate using the typical rates paid by major banks on new
issues of negotiable Certificates of Deposit in the amounts of
$1,000,000 or more for one year as quoted in The Wall Street Journal
on the Thursday closest to the end of the month or other published
source of rates as identified by Questar Corporation's Treasury
department.
Paragraph 10. Coordination with Deferred Compensation
Plan. Some Participants are entitled to defer the receipt of their
cash bonuses under the terms of the Company's Deferred Compensation
Plan, which became effective November 1, 1993. Any cash bonuses
deferred pursuant to the Deferred Compensation Plan shall be
accounted for and distributed according to the terms of such plan
and the choices made by the Participant.
Paragraph 11. Death and Beneficiary Designation. In the event
of the death of a Participant, any undistributed portions of prior
awards shall become payable. Amounts previously deferred by the
Participant, together with credited interest to the date of death,
shall also become payable. Each Participant shall designate a
beneficiary to receive any amounts that become payable after death
under this Paragraph or Paragraph 8. In the event that no valid
beneficiary designation exists at death, all amounts due shall be
paid as a lump sum to the estate of the Participant. Any shares of
restricted stock previously credited to the Participant shall be
distributed to the Participant's beneficiary or, in the absence of a
valid beneficiary designation, to the Participant's estate, at the
same time any cash is paid.
Paragraph 12. Amendment of Plan. The Company's Board of
Directors, at any time, may amend, modify, suspend, or terminate the
Plan, but such action shall not affect the awards and the payment of
such awards for any prior years. The Company's Board of Directors
cannot terminate the Plan in any year in which a change of control
has occurred without the written consent of the Participants. The
Plan shall be deemed suspended for any year for which the Board of
Directors has not fixed a maximum dollar amount available for
awards.
Paragraph 13. Nonassignability. No right or interest of any
Participant under this Plan shall be assignable or transferable in
whole or in part, either directly or by operation of law or
otherwise, including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy, or in any other manner,
and no right or interest of any Participant under the Plan shall be
liable for, or subject to, any obligation or liability of such
Participant. Any assignment, transfer, or other act in violation of
this provision shall be void.
Paragraph 14. Special Limitation. The Company's
shareholders have not been asked to approve the Plan. Consequently,
awards payable under the Plan do not constitute performance based
compensation under Section 162(m) of the Internal Revenue Code of
1986 as amended. Any portion of an award otherwise payable under
this Plan to a Participant who is listed in the compensation table
of the Company's proxy statement will be deferred to the extent that
the Company cannot take a tax deduction for it. The deferred
payment will be made as soon as the Company can take a deduction for
it.
Paragraph 15. Effective Date of the Plan. The Plan shall be
effective with respect to the fiscal year beginning January 1, 1984,
and shall remain in effect until it is suspended or terminated as
provided by Paragraph 12.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4.
<SEQUENCE>3
<FILENAME>0003.txt
<TEXT>
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated Effective March 1, 2001)
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the "Plan") is
designed to encourage directors, officers and employees of and consultants
to Questar Corporation and its affiliated companies (the "Company") to
acquire a proprietary interest in the Company, to generate an increased
incentive to contribute to the Company's future growth and success, and to
enhance the Company's ability to attract and retain talented individuals to
serve the Company. Accordingly, the Company, during the term of this Plan,
may grant incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, performance shares, and other awards
valued in whole or in part by reference to the Company's stock. Any awards
granted to a nonemployee director shall be solely to compensate such person
for service to the Company as a nonemployee director.
Section 2. Definitions
"Affiliate" shall mean any business entity in which the Company
directly or indirectly has an equity interest deemed significant by the
Company's Board of Directors.
"Award" shall mean a grant or award under Section 7 through 11,
inclusive, of the Plan, as evidenced in a written document delivered to a
Participant as provided in Section 12(b).
"Award Agreement" shall mean a written agreement between a Participant
and the Company that sets forth the terms of the Award.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the Management Performance Committee of the
Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, no par value, of
the Company. The term shall also include any Common Stock Purchase Rights
attached to the Common Stock.
"Company" shall mean Questar Corporation on a consolidated basis.
"Covered Participant" shall mean a Participant who is a "covered
employee" as defined in Section 162(m)(3) of the Code and the regulations
promulgated pursuant to it or who the Committee believes will be such a
covered employee for a Performance Period, and who the Committee believes
will have remuneration in excess of $1 million for the Performance Period,
as provided in Section 162(m) of the Code.
<PAGE>
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due
the Participant in the event of the Participant's death. In the absence of
an effective designation by the Participant, Designated Beneficiary shall
mean the Participant's estate.
"Disability" shall mean permanent and total disability within the
meaning of Section 105(d)(4) of the Code.
"Employee" shall mean any officer or employee of the Employer.
"Employer" shall mean the Company and any Affiliate.
"Fair Market Value" shall mean the regular closing benchmark price of
the Company's Common Stock reported on the New York Stock Exchange on the
date in question, or, if the Common Stock shall not have been traded on such
date, the closing price on the next preceding day on which a sale occurred.
"Family Member" shall mean the Participant's spouse, children,
grandchildren, parents, siblings, nieces and nephews.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 7 that is intended to meet the requirements of Section 422 of
the Code.
"Nonemployee Director" shall mean a member of the Board who is not an
Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated
under the Securities and Exchange Act of 1934 or any successor provision.
"Nonqualified Stock Option" shall mean a stock option granted under
Section 7 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Participant" shall mean an Employee or Nonemployee Director to whom an
Award is granted under this Plan.
"Payment Value" shall mean the dollar amount assigned to a Performance
Share which shall be equal to the Fair Market Value of the Common Stock on
the day of the Committee's determination under Section 8(c)(2) with respect
to the applicable Performance Period.
"Performance Goals" shall mean the objectives established by the
Committee for a Performance Period pursuant to Section 12, for the purpose
of determining the extent to which Performance Shares that have been
contingently awarded for such Period are earned.
<PAGE>
"Performance Period" or "Period" shall mean the period of years
selected by the Committee during which the performance is measured for the
purpose of determining the extent to which an Award of Performance Shares
has been earned.
"Performance Share" shall mean an Award granted pursuant to Section 9
of the Plan expressed as a share of Common Stock.
"Restricted Period" shall mean the period of years selected by the
Committee during which a grant of Restricted Stock or Restricted Stock Units
may be forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently
granted to a Participant under Section 10 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar
denominated unit contingently awarded under Section 10 of the Plan.
"Right" shall mean a Stock Appreciation Right granted under Section 7.
"Stock Unit Award" shall mean an Award of Common Stock or units granted
under Section 11.
"Termination of Service" shall mean the date on which a Participant
shall cease to serve as an Employee or Nonemployee Director for any reason.
Section 3. Administration
The Plan shall be administered by the Committee, unless otherwise
determined by the Board. The Committee shall have sole and complete
authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing the operation of the Plan, and to interpret the
terms and provisions of the Plan. The Committee's decisions shall be
binding upon all persons, including the Company, stockholders, an Employer,
Employees, Nonemployee Director, Participants, Designated Beneficiaries, and
Family Members.
All actions to be taken by the Committee under this Plan, insofar as
such actions affect compliance with Section 162(m) of the Code, shall be
limited to those members of the Board who are Nonemployee Directors and who
are "outside directors" under Section 162(m).
Section 4. Eligibility
Awards may only be granted to directors, officers and employees of or
consultants to the Company or any Affiliate who have the capacity to
contribute to the success of the Company. When selecting Participants and
making Awards, the Committee may consider such factors as the Participant's
functions and responsibilities and the Participant's past, present and
future contributions to the Company's profitability and growth.
Nothing contained in the Plan or in any individual agreement pursuant
to the terms of the Plan shall confer upon any Participant any right to
continue in the employment or service of the Company or to limit in any
respect the right of the Company to terminate the Participant's employment
or service at any time and for any reason.
<PAGE>
Section 5. Maximum Amount Available for Awards and Maximum Award
The Company shall reserve 8,000,000 shares of Common Stock for
issuance under this Plan plus any shares of Common Stock that are available
as of March 1, 2001, under the Plan provisions that existed prior to such
date and any shares of Common Stock that become available after such date as
a result of forfeitures or cancellations of options granted before or after
such date. Shares of Common Stock may be made available from the authorized
but unissued shares of the Company or from shares reacquired by the Company,
including shares purchased in the open market. In the event that an Option
or Right expires or is terminated unexercised as to any shares of Common
Stock covered thereby, or any Award in respect of shares is forfeited for
any reason under the Plan, such shares, to the extent not precluded by
applicable law or regulation, shall be again available for Awards pursuant
to the Plan.
In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase Common Stock at a price
substantially below fair market value or other similar corporate event
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available
under this Plan, then the Committee, in its sole discretion, may take
action. The Committee may adjust any or all of the number and kind of
shares that thereafter may be awarded or optioned and sold or made the
subject of Rights under the Plan, the number and kind of shares subject to
outstanding Options and other Awards, and the grant, exercise or conversion
price with respect to any of the foregoing and/or, if deemed appropriate,
make provision for a cash payment to a Participant or a person who has an
outstanding Option or other Award.
There is a maximum of 500,000 shares that can be the subject of Awards
granted to any single Participant in any given fiscal year.
There is a maximum of 600,000 shares that can be the subject of
Incentive Stock Options in any given fiscal year. There is also a maximum
of 1,000,000 shares that can be used for purposes other than options.
Section 6. Termination of Service
In the event of a Participant's Termination of Service, the
Participant's right to exercise an Option or receive any Award shall be
determined by the Committee and provided in the Award Agreement subject to
the general requirement that Incentive Stock Options cannot be exercised for
longer than three months after retirement or 12 months after death or
Disability.
Section 7. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the individuals to whom
Options shall be granted, the number of shares to be covered by each Option,
the option price therefor and the conditions and limitations, applicable to
the exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, Nonqualified Stock Options, or both types of Options.
<PAGE>
(b) Special Rules, Incentive Stock Options. In the case of Incentive
Stock Options, the terms and conditions of such grants shall be subject to
and comply with such rules as may be prescribed by Section 422 of the Code
and any implementing regulations. Incentive Stock Options shall not be
granted to Participants who are not employees of the Company or its
subsidiaries. The aggregate Fair Market Value of Common Stock for which any
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year under the Plan or any other Plan of the Company or
any subsidiary shall not exceed $100,000. To the extent the Fair Market
Value of the shares of Common Stock attributable to Incentive Stock Options
first exercisable in any calendar year exceeds $100,000, the Option shall be
treated as a Nonqualified Stock Option.
(c) Option Price. The Committee shall establish the option price at
the time each Option is granted, which price shall not be less than 100
percent of the Fair Market Value of the Common Stock on the date of grant.
(d) Exercise. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee, in its sole
discretion, may specify in the applicable Award or thereafter; provided,
however, that in no event may any Option granted hereunder be exercisable
earlier than six months after the date of such grant or after the expiration
of ten years from the date of such grant. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any conditions relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price is received by the Company. Such
payment may be made in cash, or its equivalent, or, if and to the extent
permitted by the Committee, by exchanging shares of Common Stock owned by
the Participant (that are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the Fair Market Value of any such
Common Stock so tendered to the Company, valued as of the date of such
tender, is at least equal to such option price. A Participant may tender
shares of Common Stock by actual delivery or by attestation.
(e) The Committee may provide one or more means to enable Participants
and the Company to defer delivery of shares of Common Stock upon exercise of
an Option on such terms and conditions as the Committee may determine,
including by way of example the manner and timing of making a deferral
election, the treatment of dividends paid on shares of Common Stock during
the deferral period and the permitted distribution dates on events.
(f) Transferability. Participants are allowed to transfer vested
Nonqualified Stock Options to Family Members or family trusts, provided that
such options were granted as of and after February 10, 1998 and provided
that such transfers are made and transferred Options are exercised in
accordance with procedural rules adopted by the Committee.
Section 8. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant Rights
in tandem with an Option. Rights shall not be exercisable earlier than six
months after grant, shall not be exercisable after the expiration of ten
years from the date of grant and shall have an exercise price of not less
than 100 percent of the Fair Market Value of the Common Stock on the date of
grant.
<PAGE>
(b) A Right shall entitle the Participant to receive from the Company
an amount equal to the excess of the Fair Market Value of a share of Common
Stock on the exercise of the Right over the grant price thereof. The
Committee shall determine whether such Right shall be settled in cash,
shares of Common Stock or a combination of cash and shares of Common Stock.
Section 9. Performance Shares
(a) The Committee shall have sole and complete authority to determine
the Participants who shall receive Performance Shares and the number of such
shares for each Performance Period and to determine the duration of each
Performance Period and the value of each Performance Share. There may be
more than one Performance Period in existence at any one time, and the
duration of Performance Periods may differ from each other.
(b) Once the Committee decides to use Performance Shares, it shall
establish Performance Goals for each Period on the basis of criteria
selected by it. Any Performance Goals for Covered Participants shall be set
and measured under the provisions of Section 12.
(c) As soon as practicable after the end of a Performance Period, the
Committee shall determine the number of Performance Shares that have been
earned on the basis of performance in relation to the established
Performance Goals. Payment Values of earned Performance Shares shall be
distributed to the Participant or as soon as practicable after the
expiration of the Performance Period and the Committee's determination. Any
Payment Values payable for Covered Participants shall be determined under
the provisions of Section 12. The Committee shall determine whether Payment
Values are to be distributed in the form of cash and/or shares of Common
Stock.
Section 10. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom shares of
Restricted Stock and Restricted Stock Units shall be granted, the number of
shares of Restricted Stock and the number of Restricted Stock Units to be
granted to each Participant, the duration of the Restricted Period during
which and the conditions under which the Restricted Stock and Restricted
Stock Units may be forfeited to the Company, and the other terms and
conditions of such Awards.
(b) Shares of Restricted Stock and Restricted Stock Units may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as
herein provided, during the Restricted Period. At the expiration of the
Restricted Period, the Company shall deliver such certificates to the
Participant or the Participant's legal representative. Payment for
Restricted Stock Units shall be made to the Company in cash and/or shares of
Common Stock, as determined at the sole discretion of the Committee.
Section 11. Other Stock Based Awards
(a) In addition to granting Options, Rights, Performance Shares,
Restricted Stock, Restricted Stock Units, the Committee shall have authority
to grant Stock Unit Awards to Participants that can be in the form of Common
Stock or units, the value of which is based, in whole or in part, on the
value of Common Stock. Subject to the provisions of the Plan, Stock Unit
<PAGE>
Awards shall be subject to such terms, restrictions, conditions, vesting
requirements and payment rules as the Committee may determine in its sole
and complete discretion at the time of grant.
(b) Any shares of Common Stock that are part of a Stock Unit Award may
not be assigned, sold, transferred, pledged or otherwise encumbered prior to
the date on which the shares are issued or, if later, the date provided by
the Committee at the time of grant of the Stock Unit Award.
Stock Unit Awards shall specify whether the Participant is required to
pay cash in conjunction with such Award, provided, however, that the
Participant shall be required to pay at least 50 percent of the Fair Market
Value of any Common Stock purchased in connection with a Stock Unit Award,
with such Fair Market Value calculated on the date the Award is granted.
Stock Unit Awards may relate in whole or in part to certain performance
criteria established by the Committee at the time of grant. Stock Unit
Awards may provide for deferred payment schedules and/or vesting over a
specified period of employment. In such circumstances as the Committee may
deem advisable, the Committee may waive or otherwise remove, in whole or in
part, any restriction or limitation to which a Stock Unit Award was made
subject at the time of grant.
(c) In the sole and complete discretion of the Committee, an Award,
whether made as a Stock Unit Award under this Section 11 or as an Award
granted pursuant to Sections 7 through 10, may provide the Participant with
dividends or dividend equivalents (payable on a current or deferred basis)
and cash payments in lieu of or in addition to an Award.
Section 12. Special Provisions, Covered Participants
Awards subject to Performance Goals for Covered Participants under this
Plan shall be governed by the conditions of this Section in addition to
other applicable provisions of the Plan.
All Performance Goals relating to Covered Participants for a relevant
Performance Period shall be established by the Committee by such date as is
permitted under Section 162(m) of the Code. Performance Goals may include
alternate and multiple goals and may be based on one or more business and or
financial criteria. In establishing the Performance Goals for the
Performance Period, the Committee may include one or any combination of the
following criteria in either absolute or relative terms, for the Company or
any business unit within it: (a) total shareholder return; (b) return on
assets, equity, capital or investment; (c) pre-tax or after-tax profit
levels including earnings per share; earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization; net
operating profits after tax; net income; (d) cash flow and cash flow return
on investment; (e) economic value added and economic profit; (f) growth in
earnings per share; (g) levels of operating expense or other expense items
as reported on the income statement, including operating and maintenance
expense; (h) measures of customer satisfaction and customer service as
surveyed; (i) reserve growth, production growth or ratio of reserves to
production; (j) efficiency measures such as throughput or production
increases; and (k) revenue and return on revenue.
Performance Goals must be objective and must satisfy third party
"objectivity" standards under Section 162(m) of the Code and regulations
promulgated pursuant to it. The Award and payment of any Award under this
Plan to a Covered Participant with respect to a relevant Performance Period
shall be contingent upon the attainment of the Performance Goals that are
specified in advance by the Committee. The Committee shall certify in
<PAGE>
writing prior to approval of any such Award that such applicable Performance
Goals relating to the Award are satisfied. (Approved minutes of the
Committee may be used for this purpose.)
The maximum Award that may be paid to any Covered Participant under the
Plan pursuant to Sections 9, 11 and 12 for any Performance Period shall be
$2 million, if paid in cash, or 200,000 shares of stock, if paid in stock.
Section 13. General Provisions
(a) Withholding. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash any taxes required by law to be
withheld in respect of Awards under this Plan. In the case of payments of
Awards in the form of Common Stock, the Committee shall require the
Participant to pay to the Employer the amount of any taxes required to be
withheld with respect to such Common Stock, or, in lieu thereof, the
Employer shall have the right to retain (or the Participant may be offered
the opportunity to elect to tender) the number of shares of Common Stock
whose Fair Market Value equals the amount required to be withheld.
(b) Awards. Each Award shall be evidenced in writing delivered to the
Participant and shall specify the terms and conditions and any rules
applicable to such Award.
(c) Nontransferability. Except as provided in Section 7(f), no Award
shall be assignable or transferable, and no right or interest of any
Participant shall be subject to any lien, obligation or liability of the
Participant, except by will or the laws of descent and distribution.
(d) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed under the Plan until becoming the holder. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall
not be entitled to the rights of a stockholder in respect of such Restricted
Stock.
(e) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of Utah.
(f) Effective Date. Subject to the approval of the stockholders of
the Company, the Plan as amended and restated, shall be effective on March
1, 2001. Any Options or Awards granted under the Plan, as of or after March
1, 2001, are granted subject to the receipt of shareholder approval within
12 months of such date.
(g) Duration of Plan. The Plan, as amended and restated, shall
terminate on February 28, 2011, unless the term is extended with approval of
the Company's shareholders.
(h) Amendment of Plan. The Board of Directors may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any tax or legal requirement.
<PAGE>
(i) Amendment of Award. The Committee may amend, modify or terminate
any outstanding Award with the Participant's consent at any time prior to
payment or exercise in any manner not inconsistent with the terms of the
Plan, including without limitation, to change the date or dates as of which
an Option or Right becomes exercisable; a Performance Share is deemed
earned; Restricted Stock becomes nonforfeitable; or to cancel and reissue an
Award under such different terms and conditions as it determines appropriate.
(j) Repricing. Except for adjustments pursuant to Section 5, the per
share price for any outstanding Option or Right granted under terms of the
Plan may not be decreased after the dates on which such Option or Right was
granted. Participants do not have the ability to surrender an outstanding
Option or Right as consideration for the grant of a new Option or Right with
a lower price.
Section 14. Change of Control.
In the event of a Change of Control of the Company, all Options,
Restricted Stock, and other Awards granted under the Plan shall vest
immediately.
A Change in Control of the Company shall be deemed to have occurred if
(i) any "Acquiring Person" (as such term is defined in the Rights Agreement
dated as of February 13, 1996, between the Company and ChaseMellon
Shareholder Services L.L.C. ("Rights Agreement")) is or becomes the
beneficial owner (as such term is used in Rule 13d-3 under the Securities
Exchange Act of 1934) of securities of the Company representing 25 percent
or more of the combined voting power of the Company; or (ii) the following
individuals cease for any reason to constitute a majority of the number of
directors then serving: individuals who, as of May 19, 1998, constitute the
Company's Board of Directors and any new director (other than a director
whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds of the directors then still in office who either were directors
on May 19, 1998, or whose appointment, election or nomination for election
was previously so approved or recommended; or (iii) the Company's
stockholders approve a merger or consolidation of the Company or any direct
or indirect subsidiary of the Company with any other corporation, other than
a merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent
thereof) at least 60 percent of the combined voting power of the securities
of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation, or a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no person is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing 25 percent or more
of the combined voting power of the Company's then outstanding securities;
or (iv) the Company's stockholders approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale
or disposition by the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least 60 percent
of the combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale. A Change in
Control, however, shall not be considered to have occurred until all
conditions precedent to the transaction, including but not limited to, all
required regulatory approvals have been obtained.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6.
<SEQUENCE>4
<FILENAME>0004.txt
<TEXT>
QUESTAR CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated October 26, 2000)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of Questar Corporation (the
"Company") with an opportunity to defer compensation paid to
them for their services as Directors.
2. Eligibility.
Subject to the conditions specified in this Plan or otherwise
set by the Executive Committee of the Company's Board of
Directors, all voting Directors of the Company who receive
compensation for their service as Directors are eligible to
participate in the Plan. Eligible Directors are referred to as
"Directors." Directors who elect to defer receipt of fees or
who have account balances are referred to as "Participants" in
this Plan.
3. Administration.
The Company's Board of Directors shall administer the Plan and
shall have full authority to make such rules and regulations
deemed necessary or desirable to administer the Plan and to
interpret its provisions.
4. Election to Defer Compensation.
(a) Time of Election. A Director can elect to defer
future compensation or to change the nature of his election for
future compensation by submitting a notice prior to the
beginning of the calendar year. A newly elected Director is
entitled to make a choice within five days of the date of his
election or appointment to serve as a Director to defer payment
of compensation for future service. An election shall continue
in effect until the termination of the Participant's service as
a Director or until the end of the calendar year during which
the Director serves written notice of the discontinuance of his
election.
All notices of election, change of election, or discontinuance
of election shall be made on forms prepared by the Corporate
Secretary and shall be dated, signed, and filed with the
Corporate Secretary. A notice of change of election or
discontinuance of election shall operate prospectively from the
beginning of the calendar year, but any compensation deferred
shall continue to be held and shall be paid in accordance with
the notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation
payable to him for serving as a Director and attending Board
and Committee Meetings as a Director. For purposes of this
Plan, compensation does not include any funds paid to a
Director to reimburse him for expenses or any income recognized
by him as a result of exercising options under the Company's
Stock Option Plan for Directors.
<PAGE>
(c) Period of Deferral. When making an election to defer all
or a specified percentage of his compensation, a Participant
shall elect to receive the deferred compensation in a lump sum
payment within 45 days following the end of his service as a
Director or in a number of annual installments (not to exceed
four), the first of which would be payable within 45 days
following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an
installment payout, the Participant's first installment shall
be equal to a fraction of the balance in his Deferred
Compensation Account as of the last day of the calendar month
preceding such payment, the numerator of which is one and the
denominator of which is the total number of installments
selected. The amount of each subsequent payment shall be a
fraction of the balance in the Participant's Account as of the
last day of the calendar month preceding each subsequent
payment, the numerator of which is one and the denominator of
which is the total number of installments elected minus the
number of installments previously paid. The term "balance," as
used herein, refers to the amount credited to a Participant's
Account or to the Fair Market Value (as defined in Section 5
(a)) of the Phantom Shares of the Company's Common Stock
credited to his Account.
(d) Phantom Stock Option and Certificates of Deposit Option.
When making an election to defer all or a specified percentage
of his compensation, a Participant shall choose between two
methods of determining earnings on the deferred compensation.
He may choose to have such earnings calculated as if the
deferred compensation had been invested in the Company's Common
Stock at the Fair Market Value (as defined in Section 5 (a)) of
such stock as of the date such compensation amount would have
otherwise been payable to him ("Phantom Stock Option") or may
choose to have earnings calculated as if the deferred
compensation had been invested in negotiable certificates of
deposit at the time such compensation would otherwise be
payable to him ("Certificates of Deposit Option").
The Participant must choose between the two options for all of
the compensation he elects to defer in any given year. He may
change the option for future compensation by filing the
appropriate notice with the Corporate Secretary before the
first day of each calendar year, but such change shall not
affect the method of determining earnings for any compensation
deferred in a prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be
established for each Participant.
(a) Phantom Stock Option Account. If a Participant elects the
Phantom Stock Option, his Account will include the number of
shares and partial shares of the Company's Common Stock (to
four decimals) that could have been purchased on the date such
compensation would have otherwise been payable to him. The
purchase price for such stock is the Fair Market Value of such
stock, i.e., the closing price of such stock as reported on the
Composite Tape of the New York Stock Exchange for such date or
the next preceding day on which sales took place if no sales
occurred on the actual payable date.
<PAGE>
The Participant's Account shall also include the dividends
that would have become payable during the deferral period if
actual purchases of Common Stock had been made, with such
dividends treated as if invested in Common Stock as of the
payable date for such dividends.
(b) Certificates of Deposit Option Account. If a Participant
elects the Certificates of Deposit Option, his Account will be
credited with any compensation deferred by the Participant at
the time such compensation would otherwise be payable and with
interest calculated at a monthly rate using the typical rates
paid by major banks on new issues of negotiable Certificates of
Deposit on amounts of $1,000,000 or more for one year as quoted
in The Wall Street Journal under "Consumer Savings Rates" on
the Thursday closest to the end of the month or other published
source of such rates as identified by Questar Corporation's
Treasury department. The interest credited to each Account
shall be based on the amount held in the Account at the
beginning of each particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a
statement will be sent to each Participant listing the balance
in his Account as of the end of the year.
7. Retirement
Upon retirement or resignation as a Director from the
Board of Directors or upon appointment as a non-voting Senior
Director, a Participant shall receive payment of the balance in
his Account in accordance with the terms of his prior
instructions and the terms of the Plan. Upon appointment as a
non-voting Senior Director of the Company, a Participant shall
also receive payment of account balances under any other
Deferred Compensation Plans maintained by the Company's
affiliates unless the Participant serves as a Director of the
affiliate maintaining the account balance.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the
Participant choosing the Phantom Stock Option shall be the cash
equivalent of the stock using the Fair Market Value of such
stock on the date of withdrawal.
(b) Certificates of Deposit Option. The amount payable to the
Participant choosing the Certificate of Deposit Option shall
include the interest on all sums credited to the Account, with
such interest credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock Option
Account and the Certificates of Deposit Option Account shall be
the last day of the calendar month preceding payment or if
payment is made because of death, the date of death.
<PAGE>
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a
Participant's death, payment shall be made within 45 days of
the Participant's death to the beneficiary designated by the
Participant or, in the absence of such designation, to the
Participant's estate.
9. Payment, Change in Control
Notwithstanding any other provisions of this Plan or
deferral elections made pursuant to Section 4 of this Plan, a
Director, in the event of a Change in Control of the Company,
shall be entitled to elect a distribtuion of his account
balance within 60 days following the date of a Change in Control.
A "Change in Control" of the Company shall be deemed to
have occurred if (i) any "Acquiring Person" (as such term is
defined in the Rights Agreement dated as of February 13, 1996,
between the Company and ChaseMellon Shareholder Services L.L.C.
("Rights Agreement")) is or becomes the beneficial owner (as
such term is used in Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of the Company representing 25
percent or more of the combined voting power of the Company; or
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, as of May 19, 1998, constitute the Company's
Board of Directors ("Board") and any new director (other than a
director whose initial assumption of office is in connection
with an actual or threatened election contest, including but
not limited to a consent solicitation, relating to the election
of directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least
two-thirds of the directors then still in office who either
were directors on May 19, 1998, or whose appointment, election
or nomination for election was previously so approved or
recommended; or (iii) the Company's stockholders approve a
merger or consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation,
other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at
least 60 percent of the combined voting power of the securities
of the Company or such surviving entity or its parent
outstanding immediately after such merger or consolidation, or
a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25
percent or more of the combined voting power of the Company's
then outstanding securities; or (iv) the Company's stockholders
approve a plan of complete liquidation or dissolution of the
Company or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity, at least 60 percent of the combined voting power of
the voting securities of which are owned by stockholders of the
Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale. A
Change in Control, however, shall not be considered to have
<PAGE>
occurred until all conditions precedent to the transaction,
including but not limited to, all required regulatory approvals
have been obtained.
10. Hardship Withdrawal.
Upon petition to and approval by the Executive Committee, a
Participant may withdraw all or a portion of the balance in his
Account in the case of financial hardship in the nature of an
emergency, provided that the amount of such withdrawal cannot
exceed the amount reasonable necessary to meet the financial
hardship. The Executive Committee shall have sole discretion
to determine the circumstances under which such withdrawals are
permitted.
11. Amendment and Termination of Plan
The Plan may be amended, modified or terminated by the
Company's Board of Directors. No amendment, modification, or
termination shall adversely affect a Participant's rights with
respect to amounts accrued in his Account. In the event that
the Plan is terminated, the Board of Directors has the right to
make lump-sum payments of all Account balances on such date as
it may determine.
12. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of
his Account shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or
attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the
right to continue as a Director. The right of a Participant to
receive any unpaid portion of his Account shall be an unsecured
claim against the general assets and will be subordinated to
the general obligations of the Company.
14. Effective Date.
The Plan shall become effective on October 15, 1984, and shall
remain in effect until it is discontinued by action of the
Company's Board of Directors. The Plan was amended and
restated effective May 1, 1991, was amended and restated
effective February 13, 1996, and was further amended and
restated effective May 19, 1998.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11.
<SEQUENCE>5
<FILENAME>0005.txt
<TEXT>
QUESTAR CORPORATION
DEFERRED COMPENSATION PLAN
FOR HIGHLY COMPENSATED EMPLOYEES
(As Amended and Restated Effective October 26, 2000)
Questar Corporation hereby amends this DEFERRED COMPENSATION
PLAN FOR HIGHLY COMPENSATED EMPLOYEES, effective October 26,
2000. This Plan, which was originally adopted effective
November 1, 1993, is an unfunded plan established to provide
highly compensated employees with an opportunity to defer
receipt of up to a specified portion of their annual
compensation in order to reduce current tax obligations.
1. Definitions.
"Affiliated Company" means the Company and any corporation that
is a member of a controlled group of corporations (as defined in
Section 414(b) of the Code), which includes the Company.
"Beneficiary" means that person or persons who become entitled
to receive a distribution of benefits under the Plan in the
event of the death of a Participant prior to the distribution of
all benefits to which he is entitled.
"Code" means the Internal Revenue Code of 1986 and amendments
thereto. Reference to a section of the Code shall include that
section and any comparable section or sections of any future
legislation that amends, supplements or supersedes said section.
"Common Stock" means common stock of the Company.
"Company" means Questar Corporation, a corporation organized
and existing under the laws of the State of Utah, or its
successor or successors.
"Compensation" means an Employee's salary or wages and payments
under incentive compensation plans paid by the Employer and
includable in taxable income during the applicable Plan Year,
but exclusive of any other forms of additional Compensation such
as the Employer's cost for any public or private employee
benefit plan or any income recognized by the employee as a
result of exercising stock options. An Employee's Compensation
for any Plan Year shall include any Elective Deferrals of the
Employee under the Company's Employee Investment Plan or other
tax-qualified plans. An Employee's Compensation also shall
include the amount of any reduction in Compensation for a Plan
Year agreed upon under one or more Compensation reduction
agreements entered into pursuant to the Questar Corporation
Cafeteria Plan.
"Disability" means a condition that renders a Participant
unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment
which can be expected to result in death or to be of
long-continued and indefinite duration. A Participant shall not
be considered to be disabled unless he furnishes proof of the
<PAGE>
existence of such disability in such form and manner as may be
required by regulations promulgated under Code Section 72(m)(7).
"Employee" means any officer or key manager of an Employer who
meets the eligibility criteria set out in Paragraph 4 of this Plan.
"Employer" means the Company and each Affiliated Company that
consents to the adoption of the Plan.
"Fair Market Value" means the closing price of the
Company's common stock as reported on the composite tape of the
New York Stock Exchange for any given valuation date or the next
preceding day on which sales took place if no sales occurred on
the actual valuation date.
"Participant" means an Employee who has made an election under
Paragraph 5 of this Plan.
"Plan" means the plan set forth in and created by this document
and all subsequent amendments thereto.
"Plan Year" means the fiscal year of the Plan, which shall
coincide with the Company's fiscal year.
"Tax-Qualified Plan" means the Questar Corporation Employee
Investment Plan, as amended from time to time, or any
tax-qualified plan adopted by the Company.
2. Purpose of Plan.
The purpose of the Plan is to provide eligible Employees with
the opportunity to defer receipt of up to a specified portion of
their annual Compensation in order to reduce current tax payment
obligations.
3. Administration.
The Management Performance Committee of the Company's Board of
Directors shall construe and administer the Plan and shall have
full authority to make such rules and regulations deemed
necessary or desirable to carry out such administration. The
Management Performance Committee may appoint an officer or
department to assist with the administration of the Plan. All
interpretations of the Plan by the Committee shall be final and
binding on all parties, including Participants, Beneficiaries
and Employers.
4. Eligibility.
All officers and any key manager whose annual Compensation is
expected to exceed $125,000 are eligible to participate in the
Plan.
<PAGE>
5. Election to Defer Compensation.
In order to participate in the Plan during 1993, an Employee
must make an election to defer at least $500 per month of
participation. For the first Plan Year, which is a partial Plan
Year, such election must be made at or prior to the effective
date of this Plan and can only be made as to Compensation to be
paid for future services. In order to participate in subsequent
Plan Years, an Employee must make an election to defer an amount
from $5,000 to 50 percent of annual Compensation. Such
elections must be made prior to the first day of the Plan Year
in which it is to become effective and can only be made with
respect to Compensation to be paid for future services. A
deferral election, once made, shall remain in effect for
subsequent Plan Years until it is revoked or modified by the
Participant. A Participant can modify or revoke his deferral
election with respect to Compensation to be paid for future
services by submitting a new election or a revocation prior to
the beginning of the Plan Year in which such new deferral
election or revocation is to become effective. All notices of
election or revocation shall be made on forms prepared by the
Company's Secretary and shall be dated, signed, and filed with
the Company's Secretary.
6. Elections, Deemed Investments.
When making an election to defer Compensation, an Employee
must choose between two methods of determining earnings on the
deferred Compensation. He may choose to have such earnings
calculated as if the deferred Compensation had been invested in
shares of the Company's Common Stock (the "Common Stock Option")
or he may choose to have earnings calculated by adding 100 basis
points to the interest payable on a 10-Year Treasury Note (the
"Treasury Note Option"). An Employee may also choose to
allocate his deferred Compensation between the options in
increments of 25 percent, 50 percent, or 75 percent.
The Participant must designate his deemed investment for
all of the Compensation he elects to defer in any given year.
He may change the deemed investment for future deferred
Compensation by filing the appropriate notice with the Company's
Corporate Secretary before the first day of each calendar year,
but such change shall not affect the method of determining
earnings of any Compensation deferred in a prior year.
Any deferred Compensation accounted for under the Common
Stock Option shall be accounted for as if invested in shares of
Common Stock purchased at a price equal to the average price
paid for shares of Common Stock purchased by the trustee of the
Tax-Qualified Plan during the month (quarter prior to January 1,
1996) in which the deferrals are made under this Plan. This
amount shall be credited to a Participant's account on a monthly
(quarterly prior to January 1, 1996) basis. In addition, a
Participant's account shall be credited on a quarterly basis
with an amount equal to the dividends that would have become
payable during the deferral period if actual purchases of Common
Stock had been made, with such dividends accounted for as if
invested in Common Stock as of the payable date for such
dividends. Any credited shares treated as if they were
purchased with dividends shall be deemed to have been purchased
<PAGE>
at a price equal to the average price of shares purchased with
reinvested dividends under the Tax-Qualified Plan during the
quarter in which the deemed purchases are treated as being made
under this Plan.
If a Participant elects the Treasury Note Option, his
account will be credited with any Compensation deferred by the
Participant in any given month. Interest shall be calculated at
a monthly rate calculated by dividing by 12 the sum of 100 basis
points plus the rate for the appropriate 10-Year Treasury Note
as quoted in the Wall Street Journal under "Consumer Savings
Rates" on the Thursday closest to the end of the month or other
published source of such rates as identified by Questar
Corporation's Treasury department. The appropriate 10-Year
Treasury Note shall be the Note that is the closest (in terms of
months) to the date on which the interest is credited. The
interest deemed to be credited to each Account shall be based on
the amount credited to such Account at the beginning of each
particular month.
7. Integration with Other Plans.
If an employee elects to reduce his Compensation under the
terms of this Plan, six percent of any Compensation deferred
shall be accounted for under the terms of the Questar
Corporation Deferred Share Plan. A Participant's benefits (if
any) under the Company's Executive Incentive Retirement Plan
shall be based on the Participant's base salary including any
base salary deferred under the terms of this Plan or the
Company's Deferred Share Plan or any base salary reductions
under the Company's Tax-Qualified Plan or Cafeteria Plan. A
Participant's benefits (if any) under the Company's Supplemental
Executive Retirement Plan or Equalization Benefit Plan shall be
based on the Participant's Compensation plus any Compensation
deferred under the terms of this Plan or the Company's Deferred
Share Plan.
8. Account Statement.
Within 60 days after the end of the calendar year, a statement
shall be sent to each Participant listing the balance in his
account as of the end of the year.
9. Payment of Account Balances.
When making the first deferral election under Paragraph 5,
a Participant shall determine when to receive the Compensation
deferred by him. A Participant can elect to receive such
deferred Compensation at a specified date prior to his
termination of employment, e.g., December 31, 2001, upon his
termination of employment or at a specified time within five
years after his termination of employment. A Participant can
also elect whether to receive deferred Compensation in a
lump-sum payment or in a number of annual installments (not to
exceed four). A Participant cannot change such elections for
Compensation previously deferred, but can change such elections
for Compensation to be paid for future services.
Under the Common Stock Option, the account balance shall be
valued using the Fair Market Value of the Company's Common Stock
on the last day of the calendar month preceding payment and
<PAGE>
shall be converted to a cash balance based upon such Fair Market
Value. Under an installment payout, the Participant's first
installment shall be equal to a fraction of the balance credited
to his account (or the portion of his account to be paid in
installments) as of the last day of the calendar month preceding
such payment, the numerator of which is one and the denominator
of which is the total number of installments selected. The
amount of each subsequent payment shall be a fraction of the
balance in the Participant's account as of the last day of the
calendar month preceding each subsequent payment, the numerator
of which is one and the denominator of which is the total number
of installments elected minus the number of installments
previously paid.
Under the Treasury Note Option, the account balance shall
be valued as of the date of withdrawal, which is the last day of
the calendar month preceding payment, with interest credited to
such date. Under an installment payout, the Participant's first
installment shall be equal to a fraction of the balance credited
to his account (or the portion of his account to be paid in
installments) as of the last day of the calendar month preceding
such payment, the numerator of which is one and the denominator
of which is the total number of installments selected. The
amount of each subsequent payment shall be a fraction of the
balance in the Participant's account as of the last day of the
calendar month preceding each subsequent payment, the numerator
of which is one and the denominator of which is the total number
of installments elected minus the number of installments
previously paid.
10. Miscellaneous Payment Issues.
(a) Adverse Tax Determination. If there is a
determination by the Internal Revenue Service (IRS) that a
Participant should be taxed on some or all of the amounts
allocated to his account prior to the distribution date(s)
elected under Paragraph 9, the Participant may elect to have all
amounts determined to be currently taxable paid to him
immediately prior to the time he must pay any taxes owed as a
result of such IRS determination.
(b) Change in Control. Notwithstanding any other provision of
this Plan, in the event of a "Change in Control" of the Company
(as defined below), all deferred Compensation credited to a
Participant's account shall be distributed to him within 60 days
following the Change in Control.
A Change in Control of the Company shall be deemed to have
occurred if (i) any "Acquiring Person" (as such term is defined
in the Rights Agreement dated as of February 13, 1996, between
the Company and ChaseMellon Shareholder Services L.L.C. ("Rights
Agreement")) is or becomes the beneficial owner (as such term is
used in Rule 13d-3 under the Securities Exchange Act of 1934) of
securities of the Company representing 25 percent or more of the
combined voting power of the Company; or (ii) the following
individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, as of May
19, 1998, constitute the Company's Board of Directors ("Board")
and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
<PAGE>
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds of the
directors then still in office who either were directors on May
19, 1998, or whose appointment, election or nomination for
election was previously so approved or recommended; or (iii) the
Company's stockholders approve a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with
any other corporation, other than a merger or consolidation that
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof) at least 60 percent of the combined voting power of the
securities of the Company or such surviving entity or its parent
outstanding immediately after such merger or consolidation, or a
merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no person is or
becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 25 percent or more of the
combined voting power of the Company's then outstanding
securities; or (iv) the Company's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
60 percent of the combined voting power of the voting securities
of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the
Company immediately prior to such sale. A Change in Control,
however, shall not be considered to have occurred until all
conditions precedent to the transaction, including but not
limited to, all required regulatory approvals have been obtained.
(c) Method of Payment. All amounts credited to a Participant's
account shall be distributed to him or, in the event of his
death, to his Beneficiary, in cash and in accordance with the
election made by the Participant.
(d) Source of Payments. Each participating Employer will pay
all benefits for its Employees arising under this Plan, and all
costs, charges and expenses relating thereto, out of its general
assets.
11. Amendment and Termination of Plan.
The Plan may be amended, modified or terminated by the
Company's Board of Directors at any time. Provided, however, no
such amendment, modification or termination shall be made in the
event there is a Change in Control, as defined in Paragraph
10(b). In addition, no amendment, modification, or termination
shall reduce any deferred benefit under the Plan reflected in a
Participant's account prior to the date of such amendment or
termination.
<PAGE>
12. Non-assignability of Benefits.
To the extent consistent with applicable law, the Participant's
deferred benefits under this Plan shall not be assigned,
transferred, pledged, or encumbered or be subject in any manner
to alienation or attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the
right to continue as an Employee of an Employer. The right of a
Participant to receive a cash distribution shall be an unsecured
claim against the general assets of his Employer. Nothing
contained in this Plan nor any action taken hereunder shall
create, or be construed to create, a trust of any kind, or a
fiduciary relationship between the Company and the Participants,
Beneficiaries, or any other persons. All accounts under the
Plan shall be maintained for bookkeeping purposes only and shall
not represent a claim against specific assets of any Employer.
14. Effective Date.
The Plan, as originally adopted, was effective November 1,
1993. The Plan, as amended and restated, is effective October
26, 2000, and shall remain in effect until it is discontinued by
action of the Company's Board of Directors.
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15.
<SEQUENCE>6
<FILENAME>0006.txt
<TEXT>
EMPLOYMENT AGREEMENT
This employment agreement is dated as of February 1, 2001
(the "Agreement") between Questar Corporation, a Utah corporation
("Company"), and Keith O. Rattie ("Executive").
WHEREAS, the Company desires to employ Executive as its
President and Chief Operating Officer upon the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, the Company and Executive hereby agree as
follows:
ARTICLE 1
DEFINITIONS
The terms set forth below have the following meanings:
Agreement Date means the effective date of this Agreement.
Anniversary Date means any annual anniversary of the
Agreement Date.
Board means the Board of Directors of the Company
Cause means any of the following: (a) Executive's conviction
of a felony or of a misdemeanor involving fraud, dishonesty or moral
turpitude, or (b) Executive's willful or intentional material breach
of this Agreement that results in financial detriment that is
material to the Company and its Affiliates taken as a whole.
For purposes of clause (b) of the preceding sentence, Cause
shall not include any one or more of the following: (i) bad
judgment, (ii) negligence, (iii) any act or omission that Executive
believed in good faith to have been in or not opposed to the
interest of the Company (without intent of Executive to gain,
directly or indirectly, a profit to which he was not legally
entitled), or (iv) Any act or omission of which any member of the
Board who is not a party to such act or omission has had actual
knowledge for at least 12 months.
Change in Control means the following: A Change in Control of
the Company shall be deemed to have occurred if (a) any "Acquiring
Person" (as such term is defined in the Rights Agreement dated as of
February 13, 1996, between the Company and ChaseMellon Shareholder
Services L.L.C. ("Rights Agreement")) is or becomes the beneficial
owner (as such term is sued in Rule 13d-3 under the Securities
Exchange Act of 1934) of securities of the Company representing 25
percent or more of the combined voting power of the Company; or (b)
the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who,
as of May 19, 1998, constitute the Company's Board of Directors
("Board") and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company)
whose appointment or election by the Board or nomination for
<PAGE>
election by the Company's stockholders was approved or recommended
by a vote of at least two-thirds of the directors then still in
office who either were directors on May 19, 1998, or whose
appointment, election or nomination for election was previously so
approved or recommended; or (c) the Company's stockholders approve a
merger or consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other than a
merger or consolidation that would result in the voting securities
of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 60 percent of the
combined voting power of the securities of the Company or such
surviving entity or its parent outstanding immediately after such
merger or consolidation, or a merger or consolidation effected to
implement a recapitalization of the Company for similar transaction)
in which no person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25 percent or
more of the combined voting power of the Company's then outstanding
securities; or (d) the Company's stockholders approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, other than a
sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 60 percent of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale. A
Change in Control, however, shall not be considered to have
occurred until all conditions precedent to the transaction,
including but not limited to, all required regulatory approvals,
have been obtained.
Committee means the Management Performance Committee of the
Board.
Common Stock means the common stock of the Company.
Company means Questar Corporation.
Date of Termination means the effective date of a Termination
of Employment for any reason, including death or Disability, whether
initiated by the Company or by Executive.
Disability means a mental or physical condition that, in the
opinion of the Board, renders Executive unable or incompetent to
carry out the material job responsibilities that such Executive held
or the material duties to which Executive was assigned at the time
the disability was incurred, which has existed for at least three
months and which in the opinion of a physician mutually agreed upon
by the Company and Executive (provided that neither party shall
unreasonably withhold his agreement) is expected to be permanent or
to last for an indefinite duration or a duration in excess of six
months.
Employment Period means that subject to termination
provisions, the term of Executive's employment under this Agreement
(the "Employment Period") shall begin on the Agreement Date and end
on the Anniversary Date that is three years after such date.
Good Reason means the occurrence of any one or more of the
following events unless Executive specifically agrees in writing
that such event shall not be Good Reason: (a) any material breach of
this Agreement by the Company, including: any material adverse
<PAGE>
change in the status, responsibilities or perquisites of Executive;
any failure to nominate or elect Executive as Chief Executive
Officer of the Company or as member of the Board; assignment of
duties materially inconsistent with his position and duties; (b)
the failure of the Company to assign this Agreement to a successor
to the Company or failure of a successor to the Company to
explicitly assume and agree to be bound by this Agreement. Any
reasonable determination by Executive that any of the specified
events has occurred and constitutes Good Reason shall be conclusive
and binding for all purposes.
Subsidiary means any entity of which the Company, directly or
indirectly, owns at least 50 percent of the outstanding shares of
capital stock entitled to vote for the election of directors.
Termination For Good Reason means a Termination of Employment
by Executive for a Good Reason.
Termination of Employment means a termination by the Company
or by Executive of Executive's employment by the Company.
Termination Without Cause means a Termination of Employment
by the Company for any reason other than Cause or Executive's death
or Disability.
ARTICLE 2
DUTIES
Chief Operating Officer Duties. The Company shall employ
Executive during the Employment Period as its President and Chief
Operating Officer, reporting to R. D. Cash, the Company's Chairman
and Chief Executive Officer. At its discretion, the Board may
appoint Executive to serve in other capacities with the Company's
Subsidiaries. During the first two years of Employment Period, the
Board shall determine whether the Executive has the leadership
qualities and business acumen to serve as the Company's Chief
Executive Officer. Executive, during the Employment Period, shall
devote substantially all of his business time, attention, and effort
to the affairs of the Company and shall use his reasonable efforts
to promote the best interests of the Company.
Director Duties. Effective February 1, 2001, the Board shall
appoint Executive to serve as a Director of the Company for the
remainder of a three-year term that will expire in May of 2003. As
long as the Executive serves as an employee or officer, the Board
shall continue to nominate Executive for election as a Director of
the Company. At its discretion, the Board of Directors of any
Subsidiary may appoint Executive to serve as a director of such
Subsidiary for the remainder of a one-year term that expires in May
of 2001.
ARTICLE 3
EMPLOYMENT PERIOD
Employment Period. Subject to termination provisions, the
term of Executive's employment under this Agreement (the "Employment
Period") shall begin on the Agreement Date and end on the
<PAGE>
Anniversary Date that is three years after such date. The
employment of Executive during the Employment Period shall not be
terminated other than in accordance with Article 7.
ARTICLE 4
COMPENSATION
Salary. The Company shall pay Executive an annual base
salary of $400,000, payable in semi-monthly installments ("Base
Salary"). The Committee shall review the Executive's Base Salary
when it reviews the base salaries paid to the Company's other
executive officers in February of each year and can only increase,
not reduce, the Executive's Base Salary. The Committee shall also
determine how to allocate the Executive's Base Salary among the
Company and its principal Subsidiaries.
Annual Bonus. The Executive shall be nominated to
participate in the Company's Annual Management Incentive Plan
("AMIP") for each year of the Employment Period and shall have a
Target Bonus equal to 50 percent of his base salary at the time the
target bonus is set ("Target Bonus"). (A copy of the Company's AMIP
is attached as Exhibit A.) The annual minimum, target, and maximum
performance goals for the Company and its principal Subsidiaries
shall be approved by the Committee each year within 90 days after
the beginning of such year.
ARTICLE 5
STOCK OPTIONS, RESTRICTED
STOCK AND STOCK OWNERSHIP
Option Grants. The Company shall grant to Executive, as of
the Agreement Date, an option to purchase 100,000 shares of the
Company's common stock at a per share price equal to the closing
price of the Company's common stock as reported in the Wall Street
Journal on the Agreement Date. The option shall be granted pursuant
to the terms of the Company's Long-Term Stock Incentive Plan ("Stock
Plan"); shall vest in four equal, annual installments, with the
first installment vesting six months after being granted; and shall
have a term of 10 years. To the extent permitted under applicable
tax laws, the initial option granted to the Executive shall be an
incentive stock option. The agreements for the initial option and
all subsequent options granted to the Executive shall contain a
special provision that permits the Executive to have 30 days after
Termination of Employment (for reasons other than death, Disability,
approved retirement, or a Change in Control) to exercise the vested
portion of any options granted to him. (If the Executive's
employment is terminated for one of the specified reasons, he shall
have longer periods of time in which to exercise his options.) A
copy of the Stock Plan and a copy of the form of Executive's Option
Agreement are attached to this Agreement as Exhibits B and C,
respectively.
The Company shall also grant to Executive, in February of
2001, another stock option to purchase at least 100,000 shares of
the Company's common stock, as part of the annual round of options
granted to the Company's officers and key employees. As long as
Executive serves as an executive officer of the Company, the Company
shall grant a stock option to Executive when it takes action to
grant stock options to other officers and employees.
<PAGE>
Restricted Stock. As of the March 1, 2001, the Company shall
grant 21,000 restricted shares of the Company's common stock to the
Executive. One-third of the grant (7,000 shares) shall vest and
become nonforfeitable upon each anniversary of the Agreement Date
during the Employment Period, except that all of the restricted
shares shall immediately vest and become nonforfeitable in the event
of a Change in Control and that a pro rata portion of the remaining
restricted shares shall immediately vest and become nonforfeitable
in the event of the Executive's Termination of Employment for a
reason other than Cause. A copy of the form of Restricted Stock
Grant is attached to this Agreement as Exhibit D.
Any shares of restricted stock granted as partial payment of
bonuses earned by Executive under the AMIP shall vest in accordance
with the provisions set forth in it.
The Executive shall choose between recognizing ordinary
income equal to the value of the shares of restricted stock at time
of grant or recognizing ordinary income equal to the value of the
shares of restricted stock as they vest and become nonforfeitable.
The Executive shall pay all withholding taxes attributable to the
recognition of income and may elect to use a portion of the shares
that would otherwise be distributed to satisfy such withholding
obligations.
The shares of restricted stock granted to Executive in 2001
are included within the shares reserved under the terms of the Stock
Plan and are covered by a registration statement filed with the
Securities and Exchange Commission. The Company intends to register
any shares of restricted stock that may be issued under any
successor to the Stock Plan.
The grant of restricted stock is being made pursuant to the
Stock Plan as amended and restated effective March 1, 2001.
Consequently, the stock grant is being made subject to shareholder
approval of the amendments, which is expected in May of 2001.
Stock Ownership. The Company requires all officers to own
shares of the Company's common stock. Executive shall be given the
duration of the initial Employment Period to own shares of the
Company's common stock (including phantom stock units) having a
value equal to one times his annual compensation.
ARTICLE 6
OTHER BENEFITS
Qualified Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in the qualified
plans (including defined benefit and 401(k) savings) sponsored by
the Company in accordance with the general rules applicable to other
employees participating in such plans.
Welfare Benefit Plans. During the Employment Period, the
Executive shall be eligible to participate in the welfare benefit
plans and programs (including health, life insurance, catastrophe
accident, cafeteria, disability, approved personal leave) sponsored
by the Company in accordance with the general rules applicable to
such plans.
<PAGE>
Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation time in accordance with the Company's
general rules, except that the Executive shall have the right to
four weeks of paid vacation in each anniversary year. After the
Executive has five anniversary years, he shall be entitled to five
weeks of paid vacation in each anniversary year.
Nonqualified Benefit Plans. During the Employment Period,
the Executive shall be eligible to participate in the Company's
optional nonqualified plans such as the Deferred Share Make-up Plan,
the Deferred Compensation Plan, and the Deferred Share Plan
(Collectively referred to as the "Deferred Compensation Plans") and
shall be covered by the Company's nonqualified plan the Supplemental
Executive Retirement Plan (the "SERP") to make-up the difference
between what can be earned by and paid to the Executive under the
Company's qualified deferred benefit plan and what could be earned
by and paid to the Executive under such plan in the absence of
federal tax law limitations applicable to it. A copy of such
Deferred Compensation Plan and the SERP are attached to the
Agreement as Exhibits E, F, G, and H respectively.
Change in Control/Indemnification. The Executive shall be
nominated to participate in the Company's Executive Severance
Compensation Plan ("Change in Control Plan") and shall also be given
an Indemnification Agreement. A copy of the Change in Control Plan,
the form of Change in Control Agreement, and the form of
Indemnification Agreement are attached as Exhibits I, J, and K.
Relocation Expenses. The Company shall pay the Executive a
one-time relocation allowance of $50,000 for him and his family to
move from Houston, Texas, to Salt Lake City, Utah. The Company
shall also reimburse Executive for any normal and customary moving
expenses, which include airfare and expenses for the Executive and
his spouse to make up to three house-hunting trips. During the
first year of the Employment Period, the Company shall also pay for
up to five round trips for the Executive to travel between Salt Lake
City and Houston.
Other Benefits. During the Employment Period, the Executive
shall be entitled to participate in the Company's special tax
preparation and financial planning reimbursement program available
to the Company's officers. The Executive shall also be entitled to
participate in any special programs adopted for the Company's
executive officers.
Office and Support Staff. During the Employment Period,
Executive shall be entitled to an office and secretarial assistance
appropriate to his position.
Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment-related expenses incurred by him and approved in
accordance with the Company's standard policies.
ARTICLE 7
TERMINATION OF EMPLOYMENT
Termination for Cause. If the Company terminates Executive's
employment for Cause, the Company shall only be required to pay
Executive any earned but unpaid base salary and vacation benefits.
<PAGE>
The Company may not terminate Executive's employment for
Cause unless it has: (a) officially given the Executive written
notice at least 30 days prior to the Date of Termination of its
intent to terminate Executive's employment, that contain a detailed
description of the specific reasons that form the basis for such
action; (b) provided the Executive an opportunity to appear before
the Board prior to the Date of Termination to present arguments on
his own behalf; and (c) received the affirmative vote of at least
two-thirds of the members of the Board that it is proper to
terminate the Executive's employment for Cause. Pending the final
resolution of any disputes concerning the Executive's termination of
employment for Cause, the Board may suspend Executive with pay.
Termination for Death or Disability. If Executive's
employment terminates during the Employment Period due to his death
or Disability, the Company shall pay to the Executive's
beneficiaries (in the event of his death) or to the Executive (in
the event of his Disability), a lump-sum amount equal to the
Executive's Base Salary for the remainder of the Employment Period.
The Company, in accordance with the AMIP, shall also pay a pro rata
portion of the annual bonus that would have been paid to the
Executive but for his death or Disability; this bonus amount shall
be paid in cash and shall be paid in February of the year following
the performance period and shall be prorated based on the portion of
the performance period that Executive was performing his duties (in
the event of his death) or receiving short-term disability benefits
(in the event of Disability). The Company shall also distribute a
pro rata portion of the one-time award of shares of stock previously
granted to the Executive on the Agreement Date and all shares of
stock previously granted as partial payment of the annual bonuses
earned under the AMIP.
Termination Without Cause. If the Company terminates
Executive's employment during the Employment Period for some reason
other than Cause, the Company shall pay Executive a lump-sum amount
equal to the Executive's Base Salary for the remainder of the
Employment Period and the Target Bonus amount for the year in which
his termination occurs. The Company shall also distribute a pro
rata portion of the one-time award of shares of stock previously
granted to the Executive on the Agreement Date and all shares of
stock previously granted as partial payment of the annual bonuses
earned under the AMIP. The calculation of any cash severance
benefit shall be based on the Executive's Base Salary at the time of
termination.
Termination by Executive. The Executive can terminate his
employment for any reason, provided that he gives the Board written
notice at least 30 days' prior to his Date of Termination. If the
Executive terminates his employment for other than Good Reason, he
shall only be paid his earned but unpaid Base Salary and accrued
vacation benefits (up to time of termination).
If the Executive terminates his employment for Good Reason,
the Company shall pay Executive a lump sum amount equal to his Base
Salary for the remainder of the Employment Period and the Target
Bonus for the year in which the termination occurs. The Company
shall also distribute a portion of the one-time award of shares of
stock previously granted to the Executive on the Agreement Date and
all shares of stock previously granted as partial payment of the
annual bonuses earned under the AMIP. The calculation of any cash
severance benefit shall be based on the Executive's Base Salary at
the time of termination.
<PAGE>
ARTICLE 8
RESTRICTIVE COVENANTS
Non-Solicitation of Employees. During the remainder of any
Employment Period for which the Executive is receiving compensation
as a result of a Termination of Employment and during the one-year
period immediately following a Termination of Employment for Cause
or Termination by Executive for other than Good Reason, the
Executive shall not directly or indirectly employ or seek to employ
any employees of the Company or its Subsidiaries and shall not
entice or otherwise encourage any such employee to leave such
employment.
Confidentiality. During the Employment Period, the Executive
shall maintain the confidential nature of information concerning the
Company's financial results and business strategies and shall not
disclose such information to any person whose interests are or may
be adverse to the Company's interests or any person that may use
such information to obtain personal financial gain.
After a Termination of Employment for any reason, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any confidential information other than the
Company and its designees.
Injunction. Executive acknowledges that monetary damages
will not be an adequate remedy for the Company in the event he
breaches the provisions of this Article. Consequently, Executive
agrees that the Company is entitled to an injunction to prevent
Executive from any breach of the provisions of this Article in
addition to other rights that the Company may have.
ARTICLE 9
MISCELLANEOUS
Beneficiary. If Executive dies prior to receiving all of the
amounts payable to him in accordance with the terms of this
Agreement, such amounts shall be paid to one or more beneficiaries
designated by Executive in writing to the Company during his
lifetime, or if no such beneficiary is designated, to Executive's
estate. Such payments shall be made in a lump sum to the extent so
payable and, to the extent not payable in a lump sum, in accordance
with the terms of this Agreement. Executive, without the consent of
any prior beneficiary, may change his designation of beneficiary or
beneficiaries at any time or from time to time by submitting to the
Company a new designation in writing.
Assignment: Successors. The Company may not assign its
rights and obligations under this Agreement without the prior
written consent of Executive except to a successor of the Company's
business that expressly assumes the Company's obligations in
writing. This Agreement shall be binding upon and inure to the
benefit of Executive, his estate and Beneficiaries, the Company and
the successors and permitted assigns of the Company.
Nonalienation. Benefits payable under this Agreement shall
not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment,
execution of levy of any kind, either voluntary or involuntary,
prior to actually being received by Executive or a beneficiary, as
<PAGE>
applicable, and any such attempt to dispose of any right to benefits
payable hereunder shall be void.
Severability. If one or more parts of this Agreement are
declared by any court or governmental authority to be unlawful or
invalid, such unlawfulness or invalidity shall not invalidate any
part of this Agreement not declared to be unlawful or invalid. Any
part so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such
part to the fullest extent possible while remaining lawful and valid.
Amendment: Waiver. This Agreement shall not be amended or
modified except by written instrument executed by the Company and
Executive. A waiver of any term, covenant or condition contained in
this Agreement shall not be deemed a waiver of any other term,
covenant or condition, and any waiver of any default in any such
term, covenant or condition shall not be deemed a waiver of any
later default thereof.
Notices. All notices hereunder shall be in writing and
delivered by hand, by nationally-recognized delivery service that
guarantees overnight delivery, or by first-class, registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Company, to Questar Corporation
180 East 100 South
Salt Lake City, Utah 84111
Attention: R. D. Cash
with a copy to: Questar's General Counsel
180 East 100 South
Salt Lake City, Utah 84111
If to Executive, to: Keith O. Rattie
[Home Address]
Either party may from time to time designate a new address by notice
given in accordance with this Section. Notice shall be effective
when actually received by the addressee.
Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
Entire Agreement. This Agreement forms the entire agreement
between the parties with respect to the subject matter addressed in
this Agreement. It supersedes all prior agreements, promises and
representations regarding employment, compensation, severance or
other payments contingent upon termination of employment.
Applicable Law. This Agreement shall be interpreted and
construed in accordance with the laws of the state of Utah, without
regard to its choice of law principles.
<PAGE>
Survival of Executive's Rights and Obligations. All of
Executive's rights and obligations shall survive the termination of
Executive's employment and/or the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
QUESTAR CORPORATION
By /s/R. D. Cash
R. D. Cash
Chairman of the Board
EXECUTIVE
/s/Keith O. Rattie
K. O. Katter
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.
<SEQUENCE>7
<FILENAME>0007.txt
<TEXT>
SUBSIDIARY INFORMATION
Registrant Questar Corporation has the following subsidiaries:
Questar Regulated Services Company, Questar Market Resources, Inc.,
Questar InfoComm, Inc., Interstate Land Corporation, and Questar
Employee Services, Inc. Each of these companies is a Utah corporation.
Questar Market Resources, Inc., has the following subsidiaries:
Wexpro Company, Questar Exploration and Production Company, Questar
Energy Trading Company, and Questar Gas Management Company. Questar
Exploration and Production is a Texas corporation. The other listed
companies are incorporated in Utah.
Questar Exploration and Production has a wholly owned
subsidiary, Celsius Energy Resources, Ltd., which is an Alberta
corporation. Celsius, Ltd., in turn, has a subsidiary, Canor Energy
Ltd., which is also an Alberta corporation.
Questar Exploration and Production has one domestic active
subsidiary: Questar URC Company, which is a Delaware corporation.
Questar Exploration and Production also does business under the names
Universal Resources Corporation, Questar Energy Company and URC
Corporation.
Questar Energy Trading Company has one active subsidiary, URC
Canyon Creek Compression Company, which is a Utah corporation.
Questar Regulated Services has three subsidiaries, all of which
are Utah corporations: Questar Gas Company, Questar Pipeline
Company, and Questar Energy Services, Inc. Questar Pipeline, in
turn, has four wholly owned subsidiaries: Questar TransColorado,
Inc., Questar Line 90 Company, Questar Southern Trails Pipeline
Company, and Questar Transportation Services Company, which are all
Utah corporations.
Questar InfoComm has one wholly owned subsidiary, Questar
Baseline Industries, Inc., which is a Colorado corporation. It also
owns approximately 82 percent of Consonus, Inc., which is a Utah
corporation. Consonus, in turn, has a wholly-owned subsidiary,
Consonus of Oregon, Inc., which is an Oregon corporation.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>0008.txt
<TEXT>
Exhibit 23.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 33-15149, Post-effective Amendment No. 3 to
No. 33-4436, No. 33-40800, No. 33-40801, and No. 33-48169; Form S-8,
No. 333-04951; and Form S-8, No. 333-04913) and the Registration
Statement (Form S-3, No. 33-48168) of Questar Corporation and in the
related Prospectus of our report dated March 6, 2001, with respect
to the consolidated financial statements of Questar Corporation
included in this Annual Report (Form 10-K) for the year ended
December 31, 2000.
Salt Lake City, Utah
March 23, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24.
<SEQUENCE>9
<FILENAME>0009.txt
<TEXT>
POWER OF ATTORNEY
We, the undersigned directors of Questar Corporation, hereby
severally constitute R. D. Cash and S. E. Parks, and each of them
acting alone, our true and lawful attorneys, with full power to
them and each of them to sign for us, and in our names in the
capacities indicated below, the Annual Report on Form 10-K for
2000 and any and all amendments to be filed with the Securities
and Exchange Commission by Questar Corporation, hereby ratifying
and confirming our signatures as they may be signed by the
attorneys appointed herein to the Annual Report on Form 10-K for
2000 and any and all amendments to such Report.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/ R. D. Cash Chairmanof the Board, 2-13-01
R. D. Cash Chief Executive Officer
/s/ K. O. Rattie President and 2-13-01
K. O. Rattie Chief Operating Officer
Director
/s/ Teresa Beck Director 2-13-01
Teresa Beck
/s/ Patrick J. Early Director 2-13-01
Patrick J. Early
/s/ W. Whitley Hawkins Director 2-13-01
W. Whitley Hawkins
/s/ Robert E. Kadlec Director 2-13-01
Robert E. Kadlec
/s/ Dixie L. Leavitt Director 2-13-01
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-13-01
Gary G. Michael
/s/ Gary L. Nordloh Director 2-13-01
Gary L. Nordloh
/s/ Scott S. Parker Director 2-13-01
Scott S. Parker
/s/ D. N. Rose Director 2-13-01
D. N. Rose
/s/ Harris H. Simmons Director 2-13-01
Harris H. Simmons
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>10
<FILENAME>0010.txt
<TEXT>
TO BE INCORPORATED BY REFERENCE INTO REGISTRATION
STATEMENTS ON FORM S-3 (NO. 33-48168) AND ON
FORM S-8 (NOS. 33-4436, 33-15149, 33-40800, 33-40801,
33-48169, 333-04913, and 333-04951)
UNDERTAKINGS
(a) Rule 415 Offering.
The undersigned registrant hereby undertakes:
(l) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) that, individually or in the aggregate,
represents a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected on
the form of prospectus filed by the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3 or Form S-8
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
that remain unsold at the termination of the offering.
(b) Incorporation of Documents by Reference.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(e) Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom
the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements of Rule 14a-3
or Rule 14c-3 under the Securities Exchange Act of 1934; and where
interim financial information required to be presented by Article 3
of Regulation S-X are not set forth in the prospectus, to deliver or
cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim
financial information.
(h) Registration Statements on Form S-8.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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