Record warm weather last year and a surplus of natural gas that kept prices down, teamed up with a lackluster regional economy to push Questar Corp.'s 1987 earnings 40 percent below 1986 levels, according to the Salt Lake-based utility's annual report.
Questar logged earnings of $25.93 million last year ($1.33 per share of common stock), down some $20 million from 1986 earnings of $43.16 million ($2.39 per share. Those 1986 earnings were 30 percent below 1985.Terming the 1987 figures "disappointing," Questar Chairman R.D. Cash said management nevertheless remains confident that the basic structure and business strategy of the diversified energy company remains well suited for the current "challenging" period.
"Our basic objective is to stay in and enhance our three principal lines of business retail natural gas distribution, interstate gas transmission and oil and gas exploration and production," said Cash in his letter to share-holders.
Questar is comprised of eight subsidiary companies including Mountain Fuel Supply Co., Questar Pipeline Co., Entrada Industries Inc., Universal Resources Corp., Questar Service Corp., Celsius Energy Co., Wexpro Co. and Interstate Brick Co.
The 1987 annual report, published this week, leads off with a "theme statement" that reads, in part: "Questar Corporation's fundamental strengths include a distinctive, integrated organization, conservative financial structure, growing customer base and a capable work force. Together, they have enabled Questar to remain sound with a strong balance sheet, steady cash flow from operations and a competitive, reliable dividend."
Cash said the 1987 earnings included two after-tax write-downs totaling $19.92 million ($1.07 per share). The 1986 figure also included an after-tax write-down of $9.76 million (55 cents per share). Without the write-downs, said Cash, 1987 net income would have been $45.85 million ($2.40 per share) compared with $52.92 million ($2.94 per share) in '86.
The two 1987 write-downs, said Cash, were necessary because of Celsius Energy Co.'s (Questar's exploration and production affiliate) unsuccessful drilling of a deep exploratory well, and because of natural gas prices dropping during the year "due to a persistent, nation-wide surplus of deliverable supplies - the so-called gas bubble."
Still, said Cash, Questar's balance sheet remains strong, cash flow steady and the dividend reliable. The dividend was increased last October by 4.4 percent from 45 cents to 47 cents per share the 15th such increase in as many years.
Questar's consistent dividend, said Cash, is one reason the company's stock price has recovered much that it lost in the Oct. 19 Black Monday market crash.
Cash said Questar accomplished several major objectives in 1987, including a $40 million project to extend natural gas service to central and southwestern Utah which could add as many as 14,000 new Mountain Fuel customers over the next few years.
Also, new low-cost gas supplies were acquired by purchase of Universal Resources Corp, Dallas, Tex., and Questar prepared itself to "take advantage of future opportunities" by selling 1.72 million shares of stock and $50 million in notes during 1987.
Questar undertook a restructuring of its subsidiaries in the first quarter of 1988 that Cash said puts the company in good position to have better earnings this year provided the economy perks up, industrial use of gas increases and the weather returns to normal.
"Weather, in fact, continues to be a crucial earnings variable," said Cash as nearly 70 percent of Mountain Fuel's sales are to residential and commercial customers during winter months. A warmer-than-normal winter depresses gas sales which in turn lowers purchases from its other energy segments - negatively affecting the entire organization.
But while weather is beyond Questar's control, Cash said the company's diversified structure will help it respond to other variables more effectively.