Questar Reports Record Net Income of $212 Million for 2012

Questar Reports Record Net Income of $212 Million for 2012

Affirms 2013 guidance

SALT LAKE CITY--(BUSINESS WIRE)-- Questar Corporation (NYS: STR) reported record net income of $212.0 million, or $1.19 per diluted share for 2012 compared to 2011 net income of $207.9 million, or $1.16 per diluted share. 2012 earnings include a $3.0 million ($0.02 per diluted share) after-tax charge for the cost of a retirement incentive offer. Excluding the charge, Questar earned $215.0 million, or $1.21 per diluted share. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for 2012 were up 5% to $567.8 million compared to $540.8 million for 2011. Return on average common equity (ROE) was 20.8% for 2012, excluding the retirement incentive charge.

"I am very pleased with Questar's performance for 2012 in a challenging economic environment," said Ronald W. Jibson, Questar chairman, president and CEO. "Even with the cost of the retirement incentive, Questar posted record net income and an industry-leading return on equity. Adjusted EBITDA was up 5% to $568 million for the year, allowing us to fund growth projects and maintain a strong balance sheet while still returning capital to shareholders via a 5% dividend increase and the repurchase of 4.6 million company shares at an average price below $20 per share. Questar Gas and Wexpro grew net income by 2% and 9% respectively, while Questar Pipeline's income dipped slightly. Questar delivered full-year EPS at the top end of our 2012 guidance, despite the many headwinds that we discussed with investors throughout the year."

The Company also affirmed its preliminary 2013 EPS guidance of $1.12 to $1.20 per diluted share.

2012 Highlights

Other 2012 highlights include:

• Questar Gas invested $58.4 million in 2012 to replace high-pressure feeder-lines, about the same amount as in 2011;

• Questar Gas's customer growth rate increased to 1.3%, up from 1.1% in 2011;

• Questar Gas earned its authorized return on equity for the eighth straight year (excluding the impact of the retirement incentive);

• Questar Gas issued $150 million of private-placement notes in December 2012 at an average rate of 3.20% to replace $133.5 million of maturing debt averaging 6.1%;

• Wexpro had a net drilling-success rate of 94%, participating in 98 gross wells (57.9 net), which resulted in 43.5 net successful gas and oil wells, with 10.8 net wells waiting on completion;

• Wexpro grew its ending investment base 12% to a record $531 million in 2012;

• The "Wexpro II" agreement was submitted for expedited hearing and review with the public service commissions of Utah and Wyoming;

• Questar Pipeline invested $21.7 million on two system expansion projects in 2012;

• Questar Pipeline initiated a strategic review of certain pipeline assets;

• Questar spent $92 million to repurchase 4.6 million shares of its common stock in 2012, bringing the outstanding share count to the target level of 175 million shares.

Questar Gas

For 2012, Questar Gas reported net income of $47.1 million, including a $1.5 million after-tax charge for the retirement incentive. Questar Gas generated $148.0 million of Adjusted EBITDA for the year. This compares to net income of $46.1 million and Adjusted EBITDA of $144.0 million for 2011. On a financial basis, in 2012 Questar Gas earned a 10.5% ROE, excluding the retirement charge. Changes in Questar Gas margin (revenues less cost of natural gas sold) are summarized in the following table:

As of December 31, 2012, Questar Gas served about 930,800 customers, an increase of 11,500 customers, or 1.3%, from year-end 2011. Customer growth was 1.1% during 2011. New customers increased margin by about $3.1 million in 2012, up from $2.7 million in 2011. Changes in margin from demand-side-management (DSM) cost-recovery revenues are offset by equivalent changes in the program's expenses. Combined operating and maintenance (O&M) and general and administrative (G&A) expenses, excluding DSM costs, were up 1% to $143 per customer in 2012, compared to $141 a year earlier, primarily due to higher employee-related costs.

During 2012, Questar Gas spent $58.4 million on its multi-year infrastructure-upgrade program to replace aging high-pressure, large-diameter steel pipe. By comparison, 2011 feeder-line replacement costs totaled $58.6 million. Questar Gas expects to spend about $55 million on the program annually for several more years. In 2010, Utah regulators approved an infrastructure-cost-tracking mechanism for the replacement program, thus enabling the timely inclusion of related expenditures into rate base. Questar Gas recognized $5.9 million of increased margin under this program in 2012 compared to $4.3 million in 2011.

In December 2012, Questar Gas issued $150 million of private-placement notes at historically low coupon rates of 2.98% for a $40 million 12-year tranche and 3.28% for a $110 million 15-year tranche, replacing $133.5 million of debt maturing in 2012 and 2013 that averaged 6.1%. Maturing notes were initially retired using lower cost short-term debt until the new long-term debt was issued, reducing interest expense in 2012.

Wexpro

Wexpro grew 2012 net income 9% to $103.9 million and generated $236.1 million of Adjusted EBITDA, up 10% over 2011. This growth was driven by a higher average investment base which grew by 13% to $514.3 million for 2012. It earned a 19.9% after-tax return on average investment base in 2012. Wexpro recovers its costs and earns an unlevered after-tax return of approximately 20% on its average investment base under the terms of the Wexpro Agreement, a long-standing agreement with the states of Utah and Wyoming. Currently, Wexpro's natural gas production supplies more than half of the utility's annual gas-supply requirements. Wexpro's efficient drilling program resulted in finding costs below $1.00 per Mcfe in the Vermillion Basin and an 8% reduction in cost-of-service prices per unit delivered in 2012. Wexpro increased natural gas liquids (NGL) and oil revenues by 18% in 2012 compared to 2011. NGL and oil revenues are shared with Questar Gas customers, thereby benefitting both customers and shareholders. A summary of changes in Wexpro's investment base is provided below:

Questar Pipeline

In 2012, Questar Pipeline reported net income of $64.7 million, including a $0.6 million after-tax charge for the retirement incentive. Questar Pipeline generated $180.8 million of Adjusted EBITDA for the year. This compares to net income of $67.9 million and Adjusted EBITDA of $181.5 million for 2011. Excluding the retirement charge, Questar Pipeline earned a 10.8% ROE. The drop in net income was primarily due to lower revenues from transportation and NGLs as well as higher depreciation, interest and G&A costs. The modest decrease in transportation revenues was primarily from lower interruptible volumes and reduced rates on some contract renewals. NGL revenues were down 10% for all of 2012 compared to 2011, reflecting lower NGL prices that more than offset higher NGL sales volumes. Lower NGL revenues were partially offset by gas received from Clay Basin storage customers. This gas is part of an agreement that allows Questar Pipeline to recover any shortfall between the NGL revenues and the cost of service for conditioning gas at Clay Basin to meet pipeline gas-quality specifications. The value of this gas received, and subsequently sold, represents most of Questar Pipeline's overall revenue increase for 2012. During 2012, Questar Pipeline's combined O&M and G&A costs were up 4% compared to 2011 levels. However, 14% higher transportation volumes in 2012 enabled O&M and G&A expenses to remain at $0.10 per decatherm transported, the same as in 2011. At December 31, 2012, Questar Pipeline held net firm-transportation contracts totaling 5,039 thousand decatherms (Mdth) per day, up 1% from 4,973 Mdth per day at December 31, 2011.

Questar Pipeline strategic review

In the fourth quarter of 2012, Questar Pipeline announced that it was initiating a strategic review of certain pipeline assets, namely Southern Trails and Overthrust pipelines. Initially, the primary focus of this review is on the Southern Trails Pipeline, which appears to offer compelling economics if converted back to its original purpose as a crude oil pipeline to move production from two southwestern U.S. producing regions to refineries in Southern California. Questar Pipeline is in the very early stages of this process. During the first half of 2013, Questar Pipeline will review all preliminary proposals received and determine the appropriate path to provide shareholders with the greatest value.

Wexpro II hearings held

On January 30, 2013, a hearing was held before the Public Service Commission of Utah to formally review Questar Gas Company's application and proposed agreement to enable Wexpro to acquire additional oil and gas properties for future development. The goal is to perpetuate the current program of providing cost-of-service production for Questar Gas customers in Utah and Wyoming. This agreement, referred to as "Wexpro II," is patterned after the terms of the original 1981 Wexpro Agreement. This successful model has resulted in stable natural gas prices and savings of about $1.3 billion to Questar Gas customers over the past three decades while providing stable returns to shareholders. Questar Gas filed for expedited review and expects a ruling in the first half of 2013.

Questar Fueling to build CNG-fueling facilities

Questar Fueling announced that it had signed an agreement to build, own and operate a CNG-fueling facility in Houston, Texas, that will serve up to 200 natural gas-powered trucks operated by Swift Transportation and Central Freight Lines. These trucks are projected to use about 5 million gallon-equivalents of natural gas per year. Part of this facility will also offer public refueling to other CNG-powered vehicles. Additionally, Questar Fueling is in the final stages of contract negotiations to build dedicated CNG-fueling facilities for other parties. While not expected to make meaningful earnings or cash flow contributions in the early years, Questar sees long-term growth potential for the use of natural gas for transportation.

Share repurchase program completed

During 2012, Questar repurchased a total of 4.6 million shares of its common stock for about $92 million, at an average price of $19.95 per share. The program was authorized to repurchase up to $100 million of common stock through the end of 2012, with the goal to bring the outstanding share count to its current level of about 175 million shares. Going forward, the Board of Directors authorized additional repurchases of up to 1 million shares per year in order to maintain the share count at the current level.

2013 EPS guidance and outlook

For 2013, Questar affirmed that EPS may range from $1.12 to $1.20 per diluted share. "Despite continuing challenges with commodity prices, government policies, pension and property tax expenses, we are holding to our guidance range," Jibson said. "In 2012, we made significant progress on three key initiatives that have the potential to drive significant shareholder value in 2013 and beyond. We filed the Wexpro II agreement with Utah and Wyoming regulators and expect a decision in the coming months. With the formation of Questar Fueling and the signing of an initial benchmark contract, Questar is well-positioned to be a major player in natural gas refueling infrastructure across the nation." In addition, Questar Pipeline has identified a potentially attractive project to convert its Southern Trails pipeline back into crude oil transport service. And last, but not least, strong cash flow generation from Wexpro and Questar Pipeline will support continued reinvestment in our businesses and future dividend growth," Jibson added.

Fourth-Quarter 2012 earnings teleconference

Questar management will discuss fourth-quarter 2012 results and the outlook for 2013 in a conference call with investors Thursday, February 21, beginning at 9:30 a.m. ET. The call can be accessed on the company website at www.questar.com.

About Questar Corporation

Questar is a Rockies-based integrated natural gas company with an enterprise value of about $5.5 billion, operating through three principal subsidiaries:

• Questar Gas provides retail natural gas distribution in Utah, Wyoming and Idaho;

• Wexpro develops and produces natural gas from cost-of-service reserves for Questar Gas customers; and

• Questar Pipeline operates interstate natural gas pipelines and storage facilities in the western U.S. and provides other energy services.

Forward-Looking Statements

This document may contain or incorporate by reference information that includes or is based upon "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Any or all forward-looking statements may turn out to be wrong. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to the following:

• general economic conditions, including the performance of financial markets and interest rates;

• changes in industry trends;

• changes in laws or regulations; and

• other factors, most of which are beyond Questar's control.

Questar undertakes no obligation to publicly correct or update the forward-looking statements in this document, in other documents, or on the website to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.

For more information, visit Questar's website at www.questar.com