Questar Corp., parent company of Mountain Fuel Supply Co. and other subsidiaries, achieved its highest earnings and return on shareholders' equity in four years during 1989, a performance that Chairman R.D. Cash says makes him more optimistic for the future of the diversified energy company than he's been in years.
"The decade of the 1990s will see renewed momentum and aggressiveness in our basic lines of business along with new opportunities and ideas," Cash tells Questar shareholders in the company's 1989 annual report.But despite the solid performance Questar enjoyed last year, he cautions, the company has "considerable work left to do over the next several years to achieve our goal of at least a 13 percent annual return on shareholders' equity.
"Also, we want to achieve total shareholder returns (including dividends and stock price appreciation) that are among the best for diversified natural gas companies, while continuing an aggressive growth policy."
Questar's net income in 1989 was $50.75 million, or $2.55 per share, with a 10.9 percent return on equity, compared with $25.85 million, or $1.28 per share, and a 5.3 percent return on equity in 1988. The comparison includes a $19.93 million after-tax write-down of oil and gas properties in 1988. Excluding that, 1988 net income was $45.78 million.
Capital spending at Questar increased from $79 million in 1988 to $97 million last year, with at least $140 million anticipated for project spending in 1990. Cash said this increase reflects improved business conditions in general and a new "opportunity oriented focus" within the company.
He said Questar was "placed on the defensive" in the mid-1980s because of the downturn in energy prices but became more aggressive in '89 and intends to be even more so this year.
"A major reason is the bright outlook for natural gas as the cleanest-burning fossil fuel," said Cash. "With growing national concern over the environment, gas increasingly is recognized by government and private-sector leaders as offering solutions . . . All the elements are in place for significant growth in gas use nationally and regionally, and we are well-positioned and will take advantage of this opportunity."
Cash outlined the company's business strategy for the '90s as follows:
- Sustain strong performances by its regulated entities, interstate natural gas transmission and retail natural gas distribution, and improve their growth potential by developing new markets.
- Improve annual returns on equity by its exploration and production units over the next three to four years, lower costs of finding new gas deposits and expand reserves.
- Pursue new income-producing activities that are less weather-sensitive and have good growth potential.
- Maintain a consistent dividend policy with an attractive yield.
Here's how Questar's various lines of business fared in 1989.
NATURAL GAS DISTRIBUTION: Mountain Fuel had net income of $21.95 million last year, up from $20.43 million in 1988. Total deliveries increased 5 percent. Credited for the increase was a 4 percent colder winter, a 9 percent increase in industrial deliveries and a 3 percent increase in total customers to 490,719.
NATURAL GAS TRANSMISSION: Questar Pipeline Co. earned a record $21.07 million in 1989, up from $18.27 million the previous year. The comparison does not include earnings by Questar Energy Co., the pipeline's former marketing affiliate which was merged with a Questar exploration and production subsidiary in early 1990.
EXPLORATION AND PRODUCTION: Questar affiliates had combined net income of $10.99 million in 1989 following a $10.92 million loss the prior year due to the oil and gas property write-down. Excluding the write-down, the companies earned $9.00 million in 1988. The average selling price of oil increased 24 percent in 1989 to $17.02 per barrel while production declined 14 percent. Average natural gas price was 3 percent lower than the previous year at $1.88 per thousand cubic feet.
OTHER OPERATIONS: Recorded a loss of $3.27 million in 1989 following a loss of $1.93 million the previous year. Higher corporate interest charges, environmental cleanup costs and start-up expenses for a new telecommunications subsidiary were blamed.
The new subsidiary, Questar Telecom Inc. was organized last year and began acquiring specialized mobile radio (SMR) operations. Cash said SMR combines the advantages of two-way radio plus mobile telephone. He said it is a lower-cost alternative to cellular phone systems and is widely used by fleet operations, including Questar's, because of its dispatching capability.