<Page>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002.
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. 0-30321
QUESTAR MARKET RESOURCES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0287750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45601, 180 East 100 South, Salt Lake City, Utah 84145-0601
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 324-2600
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF APRIL 30, 2002
- ---------------------------------- ----------------------------------------
Common Stock, $1.00 par value 4,309,427 shares
Registrant meets the conditions set forth in General Instruction H(a)(1) and (b)
of Form 10-Q and is filing this Form 10- with the reduced disclosure format.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
3 Months Ended
March 31,
2002 2001
---------------------------
(In Thousands)
REVENUES $ 153,129 $ 258,846
OPERATING EXPENSES
Cost of natural gas and other
products sold 49,064 141,580
Operating and maintenance 35,384 23,719
Exploration 2,748 1,067
Depreciation, depletion and amortization 29,284 20,839
Abandonment and impairment of gas
and oil properties 306 550
Production and other taxes 7,399 16,837
Wexpro settlement agreement - oil
income sharing 281 1,179
---------------------------
TOTAL OPERATING EXPENSES 124,466 205,771
---------------------------
OPERATING INCOME 28,663 53,075
INTEREST AND OTHER INCOME 5,754 11,951
MINORITY INTEREST 97 62
INCOME FROM UNCONSOLIDATED
AFFILIATES 435 49
DEBT EXPENSE (8,419) (4,985)
---------------------------
INCOME BEFORE INCOME TAXES 26,530 60,152
INCOME TAXES 8,928 21,808
---------------------------
NET INCOME $ 17,602 $ 38,344
===========================
</Table>
See notes to consolidated financial statements
2
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QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
March 31, December 31,
2002 2001
(Unaudited)
---------------------------
(In Thousands)
ASSETS
Current assets
Cash and cash equivalents $ - $ 2,270
Notes receivable from Questar Corp. 13,600 9,500
Accounts receivable, net 84,829 98,303
Hedging contracts 236 50,270
Inventories, at lower of average cost or market -
Gas and oil storage 5,010 14,245
Materials and supplies 5,329 5,127
Prepaid expenses and other 11,561 11,661
-----------------------------
Total current assets 120,565 191,376
-----------------------------
Property, plant and equipment 2,015,549 1,979,164
Less accumulated depreciation, depletion
and amortization 759,882 731,330
-----------------------------
Net property, plant and equipment 1,255,667 1,247,834
-----------------------------
Investment in unconsolidated affiliates 22,169 23,829
Other assets
Goodwill 66,823 66,823
Cash held in escrow account 5,084
Other 4,273 3,279
-----------------------------
76,180 70,102
-----------------------------
$ 1,474,581 $ 1,533,141
=============================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of cash balance $ 1,773 $ -
Notes payable to Questar Corp. 189,400 275,100
Accounts payable and accrued expenses 113,432 133,053
Current portion of long-term debt 1,598 1,696
-----------------------------
Total current liabilities 306,203 409,849
-----------------------------
Long-term debt, less current portion 480,365 402,226
Other liabilities 12,452 11,244
Deferred income taxes 158,601 175,024
Minority interest 8,373 8,369
Common shareholder's equity
Common stock 4,309 4,309
Additional paid-in capital 116,027 116,027
Retained earnings 396,531 383,254
Other comprehensive income (loss) (8,280) 22,839
-----------------------------
Total common shareholder's equity 508,587 526,429
-----------------------------
$ 1,474,581 $ 1,533,141
=============================
</Table>
See notes to consolidated financial statements
3
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QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
3 Months Ended
March 31,
2002 2001
-----------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 17,602 $ 38,344
Depreciation, depletion and amortization 30,578 21,018
Deferred income taxes 2,332 9,538
Abandonment and impairment of gas and oil
properties 306 550
Income from unconsolidated affiliates, net
of cash distributions and minority interest 1,563 162
Gain from sale of properties (4,494) (10,543)
Changes in operating assets and liabilities 2,342 45,474
-----------------------------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 50,229 104,543
INVESTING ACTIVITIES
Capital expenditures (38,887) (23,408)
Proceeds from disposition of property,
plant and equipment 5,608 25,830
-----------------------------
NET CASH (USED IN) PROVIDED FROM
INVESTING ACTIVITIES (33,279) 2,422
FINANCING ACTIVITIES
Increase in notes receivable from Questar Corp. (4,100) (20,300)
Decrease in notes payable to Questar Corp. (85,700) (40,500)
Checks outstanding in excess of cash balance 1,773 741
Decrease in short-term loans (12,500)
Increase in cash balance in escrow account (5,084) (21,131)
Long-term debt issued 200,000 185,000
Long-term debt repaid (121,881) (197,569)
Other 101 (159)
Payment of dividends (4,325) (4,325)
------------------------------
NET CASH USED IN FINANCING
ACTIVITIES (19,216) (110,743)
Foreign currency translation adjustment (4) (202)
------------------------------
Change in cash and cash equivalents (2,270) (3,980)
Beginning cash and cash equivalents 2,270 3,980
------------------------------
Ending cash and cash equivalents $ - $ -
==============================
</Table>
See notes to consolidated financial statements
4
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QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the interim period presented. All such adjustments are of a
normal recurring nature. The results of operations for the three-month period
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. For further information refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2001.
Note 2 - New Accounting Standards
GOODWILL AND OTHER INTANGIBLE ASSETS
Statement of Financial Accounting Standards 142 "Goodwill and Other Intangible
Assets" (SFAS 142) was issued in June 2001. SFAS 142 addresses, among other
things, the financial accounting and reporting for goodwill subsequent to an
acquisition. According to the new standard, amortization of goodwill was
replaced by a requirement to test goodwill for impairment at least yearly or
sooner if a specific triggering event occurs. QMR acquired $66.8 million of
goodwill on July 31, 2001, which was exempt from amortization under the new
guidelines in SFAS 142. The Company adopted the remaining provisions of SFAS 142
as of January 1, 2002 and completed an initial impairment test with no
indication of impairment.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
The Company adopted SFAS 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" as of January 1, 2002 without an impact in the balance sheet,
income statement or statement of cash flows.
Note 3 - Investment in Unconsolidated Affiliates
QMR, indirectly through subsidiaries, has interests in businesses accounted for
on the equity basis. These entities are engaged primarily in gathering and
processing of natural gas. As of March 31, 2002, these affiliates did not have
debt obligations with third-party lenders. The principal businesses and
percentage ownership were Canyon Creek Compression Co. (15%), Blacks Fork Gas
Processing Co. (50%) and Rendezvous Gas Services LLC (50%).
Summarized operating results of the partnerships are listed below.
<Table>
<Caption>
3 Months Ended
March 31,
2002 2001
-----------------------------
(In Thousands)
Revenues $ 4,816 $ 8,579
Operating income 1,154 165
Income before income taxes 1,173 298
</Table>
5
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Note 4 - Operations By Line of Business
<Table>
<Caption>
3 Months Ended
March 31,
2002 2001
---------------------------
(In Thousands)
REVENUES FROM UNAFFILIATED CUSTOMERS
Exploration and production $ 67,269 $ 78,320
Cost of service 2,582 5,066
Gathering, processing and marketing 55,307 147,479
---------------------------
$ 125,158 $ 230,865
===========================
REVENUES FROM AFFILIATED COMPANIES
Exploration and production $ 755 $ 4
Cost of service 23,929 23,375
Gathering, processing and marketing 3,287 4,602
---------------------------
$ 27,971 $ 27,981
===========================
DEPRECIATION AND AMORTIZATION EXPENSE
Exploration and production $ 22,559 $ 15,700
Cost of service 5,179 3,768
Gathering, processing and marketing 1,546 1,371
---------------------------
$ 29,284 $ 20,839
===========================
OPERATING INCOME
Exploration and production $ 13,496 $ 37,804
Cost of service 12,884 10,489
Gathering, processing and marketing 2,283 4,782
---------------------------
$ 28,663 $ 53,075
===========================
NET INCOME
Exploration and production $ 8,746 $ 28,098
Cost of service 7,623 6,584
Gathering, processing and marketing 1,233 3,662
---------------------------
$ 17,602 $ 38,344
===========================
FIXED ASSETS - NET, at period end
Exploration and production $ 963,670 $ 485,635
Cost of service 196,896 155,619
Gathering, processing and marketing 95,101 77,625
---------------------------
$ 1,255,667 $ 718,879
===========================
GEOGRAPHIC INFORMATION
REVENUES
United States $ 146,858 $ 245,500
Canada 6,271 13,346
---------------------------
$ 153,129 $ 258,846
===========================
FIXED ASSETS - NET, at period end
United States $ 1,181,038 $ 635,023
Canada 74,629 83,856
---------------------------
$ 1,255,667 $ 718,879
===========================
</Table>
6
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Note 5 - Comprehensive Income
Comprehensive income is the sum of net income as reported in the Consolidated
Statements of Income and other comprehensive income transactions reported in
Shareholder's Equity. Other comprehensive income transactions result from
changes in the fair value of energy-price hedging contracts and interest-rate
hedging contracts, and changes in the carrying value of foreign investments
caused by 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 or loss is realized when the gas or
oil underlying the hedging contracts is sold. Interest expense is adjusted
quarterly for the difference between the variable-rate on the debt instruments
and the fixed-rate interest swaps.
<Table>
<Caption>
3 Months Ended
March 31,
2002 2001
-------------------------------
(In Thousands)
Net income $ 17,602 $ 38,344
Other comprehensive loss
Unrealized loss on hedging transaction (49,773) (52,100)
Foreign currency translation adjustments (103) (2,269)
-------------------------------
Other comprehensive loss before
income taxes (49,876) (54,369)
Income taxes on other
comprehensive loss (18,757) (20,765)
-------------------------------
Net other comprehensive loss (31,119) (33,604)
-------------------------------
Total comprehensive income (loss) $ (13,517) $ 4,740
===============================
</Table>
Note 6 - Financing
As part of a program to restructure its financing arrangements following the
2001 acquisition of SEI, QMR issued $200 million of notes in a private placement
on January 16, 2002. The notes mature in five-years and have a coupon rate of
7%. Subsequently, the private placement notes were registered with the SEC and
exchange notes with the same terms were issued in April 2002.
Note 7 - Reclassifications
Certain reclassifications were made to the 2001 financial statements to conform
with the 2002 presentation.
7
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES
March 31, 2002
(Unaudited)
Operating Results
Questar Market Resources (QMR or the Company) through its subsidiaries conducts
gas and oil exploration, development and production, gas gathering and
processing, and energy marketing operations. Wexpro, a subsidiary of QMR,
conducts cost of service development of gas reserves on behalf of Questar Gas,
an affiliated company. Following is a summary of QMR's financial results and
operating information.
<Table>
<Caption>
3 Months Ended
March 31,
2002 2001
-----------------------
FINANCIAL RESULTS - (In thousands)
Revenues
From unaffiliated customers $125,158 $230,865
From affiliates 27,971 27,981
-----------------------
Total revenues $153,129 $258,846
=======================
Operating income $ 28,663 $ 53,075
Net income 17,602 38,344
OPERATING STATISTICS
Nonregulated production volumes
Natural gas (in million cubic feet) 20,007 15,787
Oil and natural gas liquids (in thousands of barrels) 747 495
Nonregulated production revenue (average selling price)
Natural gas (per thousand cubic feet) $ 2.44 $4.17
Oil and natural gas liquids (per barrel) $ 18.85 $21.48
Wexpro investment base at March 31, net of
deferred income taxes (in millions) $ 163.0 $ 122.2
Marketing volumes
(in thousands of energy equivalent decatherms) 22,465 24,028
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated customers 23,904 22,085
For Questar Gas 12,223 10,211
For other affiliated customers 7,387 6,799
-----------------------
Total gathering 43,514 39,095
=======================
Gathering revenue (per decatherm) $ 0.14 $ 0.13
</Table>
8
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Revenues
Lower selling prices for energy more than offset the effect of higher natural
gas production resulting in a 41% decrease in revenues. In the first quarter of
2002, nonregulated production increased 31% to 24.5 billion cubic feet
equivalent when compared with the first quarter of 2001. Natural gas production
rose 27% and oil and natural gas liquids rose 51% due to the acquisition of
Shenandoah Energy Inc. (SEI) on July 31, 2001. A combination of property sales
and normal declines in producing fields put downward pressure on production from
existing fields.
The average realized selling price for natural gas declined 41% from $4.17 to
$2.44 per Mcf (thousand cubic feet), while the combined nonregulated oil and
natural gas liquids selling price fell 12% to $18.85 per barrel. An energy
shortage in the western United States combined with a cold winter to drive up
first quarter 2001 energy prices. Weak energy prices in the first quarter of
2002 began to improve in March; too late to impact first quarter earnings.
However as prices improved, QMR added to the number of its energy-price hedging
contracts. A summary of QMR's energy-price hedging positions for equity gas and
oil production, excluding Wexpro, follows:
<Table>
<Caption>
Percent of production
Time periods under price hedging Average price
------------ contracts net to the well
Gas Oil Gas Per Mcf Oil Per bbl
--- --- ----------- -----------
2nd and 3rd quarters of 2002 61% 81% $3.05 $22.82
4th quarter of 2002 53% 84% $3.42 $22.82
12 months of 2003 47% 52% $3.30 $21.80
12 months of 2004 28% $3.23
</Table>
The practice of entering into energy-price hedging contracts benefited QMR in
the first quarter of 2002 by incrementally adding $10.9 million to revenues from
gas sales and $111,000 to revenues from the sale of oil. Approximately 35% of
the volumes of equity gas production and 41% of the volumes of equity oil
production, excluding Wexpro, were priced under hedging contracts in the
quarter.
Marketing revenues and margins also suffered from the decline in energy prices
in the first quarter of 2002. The margin, representing revenues less the costs
to purchase gas and oil and transportation of gas, decreased from $4.5 million
in the first quarter of 2001 to $3.1 million in the first quarter of 2002. Also,
the volumes marketed declined by 7% during the same period to period comparison.
Expenses
Operating and maintenance expenses, which include general overhead charges, were
$11.7 million higher in the first quarter of 2002 compared with the first
quarter of 2001, because of additional producing properties and higher gas
gathering charges. The additional operating and maintenance expenses associated
with properties acquired during 2001 was $8.2 million. Gas gathering charges
increased $1.4 million due to an 11% increase in volumes gathered. Exploration
expenses increased as a result of drilling dry exploratory wells.
Depreciation, depletion and amortization expense increased 41% in the comparison
of the first quarter of 2002 with the prior year quarter. As was mentioned,
equity production volumes increased 31% and the average DD&A rate increased from
$.83 per energy equivalent Mcf in 2001 to $.89 in 2002. Production and other
taxes decreased following the decline of gas and oil prices.
Debt expense rose 69% in the first quarter of 2002 because of increased
borrowing to finance the acquisition of SEI. Interest rates were lower in the
first quarter of 2002 when compared with the same quarter in 2001.
The Rendezvous LLC with Western Resources began processing and gathering
operations in the fourth quarter of 2001. This partnership's startup was
responsible for the increase in earnings from unconsolidated affiliates. The
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effective income tax rate for the first quarter was 33.7% in 2002 and 36.3% in
2001. The decrease in the effective income tax was primarily due to the
relationship of the nonconventional fuel tax credits, which changed only
slightly, while income before income tax dropped by more than half. The Company
recognized $1.1 million of nonconventional fuel tax credits in the 2002 period
and $1.2 million in the 2001 period.
Other income
QMR sold non-strategic producing properties resulting in pretax gains of $4.5
million in 2002 and $9.4 million in 2001. In addition, the sale of gathering
properties in the first quarter of 2001 generated a $1.1 million pretax gain.
The after tax gains of property sales were $2.8 million in the first quarter of
2002 and $6.6 million in the first quarter of 2001.
Wexpro's earnings
Wexpro's net income was $1.0 million higher in 2002. Wexpro's investment in gas
development projects grew $40.8 million from the level reported at March 31,
2001. Wexpro conducts cost of service development of gas reserves on behalf of
Questar Gas.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities in the first quarter of 2002 was
$54.3 million less than the net cash flow generated in the first quarter of
2001. In the first quarter of 2001, cash flow from operating activities
benefited from higher net income, the release of cash deposited as collateral
for qualifying hedging contracts, and the collection of receivables.
Investing Activities
Capital expenditures amounted to $38.9 million in the first quarter of 2002, up
$15.5 million from a year ago because of increased well drilling activities.
Capital expenditures for calendar year 2002 are forecast to reach $190 million.
Financing Activities
Net cash flow from operating activities was more than sufficient to finance
first quarter 2002 capital expenditures. The excess cash flow plus the proceeds
from issuing $200 million of five-year, 7% notes in January 2002 was used to
repay $207.6 million of debt. The issuance of long-term debt was part of a debt
restructuring plan that QMR has undertaken since acquiring SEI. QMR expects to
finance remaining 2002 capital expenditures and reduce its debt balance using
net cash flow provided from operating activities and the proceeds from selling
non-strategic assets.
Moody's Reviews Possible Downgrade of Debt Ratings
On May 2, 2002, Moody's Investors Service placed Questar Market Resources
under review for a possible rating downgrade of the Company's Baa2 senior
unsecured debt. In the same notice, Moody's also placed QMR's parent company,
Questar Corporation and affiliated companies, Questar Pipeline and Questar
Gas under review. The review was prompted by Moody's concern of Questar's
leverage following the $403 million acquisition of Shenandoah Energy Inc. in
2001 and the shift in business mix towards nonregulated businesses. Moody's
review will assess Questar's plan to reduce its leverage and to manage
increased business risk and commodity price exposure.
10
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Quantitative and Qualitative Disclosures about Market Risk
QMR's primary market-risk exposures arise from commodity-price changes for
natural gas, oil and other hydrocarbons and changes in interest rates. QMR also
has an investment in a foreign operation that subjects it to exchange-rate risk.
A QMR subsidiary has long-term contracts for pipeline capacity for the next
several years and is obligated for transportation services with no guarantee
that it will be able to recover the full cost of these transportation
commitments.
Hedging Policy
The Company has established policies and procedures for managing market risks
through the use of commodity-based derivative arrangements. The primary
objectives of these energy-price hedging transactions are to support the
Company's earnings targets and to protect earnings from downward movements in
commodity prices. The Company targets between 50 and 75% of the current year's
production to be hedged at or above budget levels by the end of March in the
current year. The Company will add incrementally to these hedges, to reach
forward beyond the current year when price levels are attractive. 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 Company's Board of Directors. Additionally,
under the terms of the QMR's 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
Oil and natural gas prices fluctuate in response to many factors including
changes in supply and demand. QMR bears a majority of the risk associated with
commodity price changes and uses energy-price hedging 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.
QMR held energy-price hedging contracts covering the price exposure for about
77.4 million dth of gas and 2.6 million barrels of oil as March 31, 2002. The
fair value of these hedging contracts was a $236,000 current asset. The fair
value of the hedging contracts declined $50.7 million from the current asset
measured at December 31, 2001. Settlement of contracts represented $16.0
million of the change and decline in energy prices on futures markets
amounted to $34.7 million of the change. The hedging contracts exist for a
significant share of QMR-owned gas and oil production and for a portion of
energy-marketing transactions. A portion of the contracts at March 31, 2002
had terms extending through December 2004. About 63% of those contracts,
representing approximately $3.0 million, will settle and be reclassified from
other comprehensive income in the next 12 months. A year earlier QMR held
hedging contracts covering 42.6 million dth of natural gas and 735,000
barrels of oil.
QMR's undiscounted mark-to-market valuation of financial gas and oil
price-hedging contracts plus a sensitivity analysis follows:
<Table>
<Caption>
2002 2001
-----------------------------
(In Millions)
Mark-to-market valuation as of March 31, $ (4.0) $(48.4)
Value if gas and oil prices decrease by 10% $ 24.1 $(39.4)
Value if gas and oil prices increase by 10% $(32.1) $(57.3)
</Table>
The calculations reflect energy prices posted on the NYMEX, various "into the
pipe" postings, and fixed prices on the indicated 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. Also, the sensitivity measures exclude mark-to-market calculations on
physical hedge contracts, where settlement is
11
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achieved through delivery of the gas or oil as opposed to cash settlements with
counterparties.
Interest-Rate Risk Management
As of March 31, 2002, QMR had $132 million of floating-rate long-term debt and
$350 million of fixed-rate long-term debt. The book value of variable-rate
long-term debt approximates fair value. Effective October 2001, the Company
hedged $100 million of variable-rate debt by entering a fixed-rate interest swap
for one year. Declining interest rates have resulted in a $627,000 reduction in
the fair value of the interest-rate hedge.
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 $61.1 million (U.S.), is expected to be repaid from
future operations of the foreign company.
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, land-access and environmental issues, 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, assumptions
used in business combinations, the weather and other natural phenomena, the
effect of accounting policies issued periodically by accounting standard-setting
bodies, possible adverse repercussions from terrorist attacks or acts of war,
and adverse changes in the business or financial condition of the Company.
12
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Item 1. Legal Proceedings.
There are various legal proceedings pending against Questar Market
Resources, Inc. ("QMR" or the "Company"). Management believes that the outcome
of these cases will not have a material adverse effect on the Company's
financial position or liquidity. Two significant cases are discussed below:
a. Questar Exploration and Production Company ("Questar E&P"), a wholly
owned subsidiary of the Company, recently negotiated a settlement in a royalty
class action case involving production from wells connected to a gas gathering
system and related processing plants collectively known as the Northeast Enid
Pipeline System, which is located in Oklahoma. The case, officially referred to
as THE MARJORIE LAVERNE MCINTOSH TRUST V. QUESTAR EXPLORATION AND PRODUCTION
CO., was recently filed to obtain class certification and to have the settlement
agreement formally approved. Under the terms of the settlement agreement, which
received its final approval on May 1, 2002, Questar E&P will contribute
approximately $1.1 million to settle the claims.
b. Questar E&P and Wexpro Company ("Wexpro," which is another wholly owned
subsidiary of QMR) have also been named as defendants in cases (SUSAN L. BISHOP
ET AL V. QUESTAR GAS CO. AND WEXPRO CO. AND SUSAN L. BISHOP ET AL V. QUESTAR
EXPLORATION AND PRODUCTION CO.) that were filed in Sweetwater County, Wyoming,
in which the plaintiffs claim that the two entities underpaid royalties because
they deducted gathering fees and other charges when calculating such royalties.
The cases are similar to other cases filed against producers in Wyoming, and the
Questar parties are working with other producers to coordinate their defenses to
the allegations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
QUESTAR MARKET RESOURCES, INC.
(Registrant)
May 13, 2002 /s/ G. L. Nordloh
- ------------ ----------------------------------------
(Date) G. L. Nordloh
President and Chief Executive Officer
May 13, 2002 /s/ S. E. Parks
- ------------ ----------------------------------------
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer