PART I FINANCIAL INFORMATION

Item 1. Financial Statements

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

3 Months Ended

6 Months Ended

June 30,

June 30,

2002

2001

2002

2001

(In Thousands)

REVENUES

$    152,484

$    176,742

$    305,613

$    435,588

OPERATING EXPENSES

  Cost of natural gas and other products sold

45,448

78,209

94,512

219,789

  Operating and maintenance

30,181

25,415

65,565

49,134

  Exploration

1,133

1,833

3,881

2,900

  Depreciation, depletion and amortization

28,354

21,476

57,638

42,315

  Abandonment and impairment of gas and oil properties

749

2,045

1,055

2,595

  Production and other taxes

7,893

12,150

15,292

28,987

  Wexpro settlement agreement - oil income sharing

728

846

1,009

2,025

    TOTAL OPERATING EXPENSES

114,486

141,974

238,952

347,745

    OPERATING INCOME

37,998

34,768

66,661

87,843

INTEREST AND OTHER INCOME

5,472

809

11,226

12,760

MINORITY INTEREST

95

107

192

169

INCOME FROM UNCONSOLIDATED AFFILIATES

666

179

1,101

228

DEBT EXPENSE

(8,845)

(4,060)

(17,264)

(9,045)

    INCOME BEFORE INCOME TAXES

35,386

31,803

61,916

91,955

INCOME TAXES

12,569

11,168

21,497

32,976

       NET INCOME

$     22,817

$     20,635

$     40,419

$     58,979

See notes to the consolidated financial statements

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30,

December 31,

2002

2001

(Unaudited)

(In Thousands)

ASSETS

Current assets

  Cash and cash equivalents

$          1,355

$          2,270

  Notes receivable from Questar Corp.

27,800

9,500

  Accounts receivable, net

87,438

98,303

  Fair value of hedging contracts

13,015

55,593

  Inventories, at lower of average cost or market -

    Gas and oil storage

3,411

14,245

    Materials and supplies

4,234

5,127

  Prepaid expenses and other

7,185

11,661

  Total current assets

144,438

196,699

Property, plant and equipment

2,043,169

1,979,164

Less accumulated depreciation, depletion and amortization

778,349

731,330

    Net property, plant and equipment

1,264,820

1,247,834

Investment in unconsolidated affiliates

22,803

23,829

Goodwill

66,823

66,823

Cash held in escrow account

5,213

Other

4,205

3,279

$   1,508,302

$   1,538,464

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities

  Notes payable to Questar Corp.

$     175,900

$     275,100

  Accounts payable and accrued expenses

122,824

133,053

  Current portion of long-term debt

21,526

1,696

  Fair value of hedging contracts

10,157

5,323

    Total current liabilities

330,407

415,172

Long-term debt, less current portion

459,460

402,226

Other liabilities

11,840

11,244

Deferred income taxes

167,947

175,024

Minority interest

8,034

8,369

Common shareholder's equity

  Common stock

4,309

4,309

  Additional paid-in capital

116,027

116,027

  Retained earnings

415,023

383,254

  Other comprehensive income (loss)

(4,745)

22,839

    Total common shareholder's equity

530,614

526,429

$   1,508,302

$   1,538,464

See notes to the consolidated financial statements

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

6 Months Ended

June 30,

2002

2001

(In Thousands)

OPERATING ACTIVITIES

  Net income

$        40,419

$        58,979

  Depreciation, depletion and amortization

60,232

42,675

  Deferred income taxes

9,110

8,263

  Abandonment and impairment of gas and oil properties

1,055

2,595

   (Income) loss from unconsolidated affiliates, net

    of cash distributions and minority interest

834

(127)

  Gain from sale of properties

(4,828)

(10,591)

  Changes in operating assets and liabilities

15,212

65,727

        NET CASH PROVIDED FROM

          OPERATING ACTIVITIES

122,034

167,521

INVESTING ACTIVITIES

   Capital expenditures

(78,316)

(80,211)

   Proceeds from disposition of property, plant and

     Equipment

10,793

27,210

        NET CASH USED IN INVESTING ACTIVITIES

(67,523)

(53,001)

FINANCING ACTIVITIES

  Increase in notes receivable from Questar Corp.

(18,300)

(29,000)

  Decrease in notes payable to Questar Corp.

(99,200)

(42,100)

  Decrease in short-term loans

(12,500)

  Checks outstanding in excess of cash balance

2,399

  (Increase) decrease in cash balance in escrow account

(5,213)

5,387

  Long-term debt issued

200,000

185,000

  Long-term debt repaid

(124,454)

(221,446)

  Other

308

2,446

  Payment of dividends

(8,650)

(8,650)

        NET CASH USED IN FINANCING ACTIVITIES

(55,509)

(118,464)

  Foreign currency translation adjustment

83

(36)

  Change in cash and cash equivalents

(915)

(3,980)

  Beginning cash and cash equivalents

2,270

3,980

  Ending cash and cash equivalents

$              1,355

$                 -

See notes to the consolidated financial statements

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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- and six-month periods ended June 30, 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 June 30, 2002, these affiliates did not have debt obligations with third-party lenders. The principal businesses, form of organization and percentage ownership were Canyon Creek Compression Co., a general partnership, (15%), Blacks Fork Gas Processing Co., a general partnership, (50%) and Rendezvous Gas Services LLC, a limited liability corporation, (50%). The Company has 50% or less voting interest in each business.

Summarized operating results of the investments are listed below.

6 Months Ended

June 30,

2002

2001

(In Thousands)

Revenues

$     10,550

$     14,793

Operating income

2,763

466

Income before income taxes

2,800

666

Note 4 - Operations By Line of Business

3 Months Ended

6 Months Ended

June 30,

June 30,

2002

2001

2002

2001

(In Thousands)

REVENUES FROM UNAFFILIATED CUSTOMERS

  Exploration and production

$        72,198

$        64,733

$      139,467

$      143,053

  Cost of service

955

2,976

3,537

8,042

  Gathering, processing and marketing

50,392

84,348

105,699

231,827

$       123,545

$      152,057

$      248,703

$      382,922

REVENUES FROM AFFILIATED COMPANIES

  Exploration and production

$            415

$             

$         1,170

$               4

  Cost of service

26,172

22,691

50,101

46,066

  Gathering, processing and marketing

2,352

1,994

5,639

6,596

$        28,939

$      24,685

$      56,910

$      52,666

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

  Exploration and production

$        21,381

$       16,395

$      43,940

$      32,095

  Cost of service

5,364

3,646

10,543

7,414

  Gathering, processing and marketing

1,609

1,435

3,155

2,806

$        28,354

$       21,476

$      57,638

$      42,315

OPERATING INCOME

  Exploration and production

$        22,924

$       22,959

$      36,420

$      60,763

  Cost of service

13,338

10,289

26,222

20,778

  Gathering, processing and marketing

1,736

1,520

4,019

6,302

$        37,998

$       34,768

$      66,661

$      87,843

NET INCOME

  Exploration and production

$        13,922

$       13,243

$      22,668

$      41,341

  Cost of service

7,858

6,487

15,481

13,071

  Gathering, processing and marketing

1,037

905

2,270

4,567

$        22,817

$       20,635

$      40,419

$      58,979

FIXED ASSETS - NET, at period end

  Exploration and production

$      972,054

$     494,455

  Cost of service

197,026

167,680

  Gathering, processing and marketing

95,740

92,361

$   1,264,820

$     754,496

GEOGRAPHIC INFORMATION REVENUES

  United States

$      144,575

$     165,423

$     291,433

$    410,923

  Canada

7,909

11,319

14,180

24,665

$      152,484

$     176,742

$     305,613

$    435,588

FIXED ASSETS - NET, at period end

  United States

$   1,187,101

$     670,022

  Canada

77,719

84,474

$   1,264,820

$     754,496

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.

3 Months Ended

6 Months Ended

June 30,

June 30,

2002

2001

2002

2001

(In Thousands)

Net income

$       22,817

$       20,635

$       40,419

$       58,979

Other comprehensive income (loss)

  Unrealized income (loss) on hedging transactions

3,914

55,128

(45,859)

3,028

  Foreign currency translation adjustments

2,342

1,831

2,239

(438)

      Other comprehensive income (loss) before income

          Taxes

6,256

56,959

(43,620)

2,590

      Income taxes

2,721

21,642

(16,036)

877

      Net other comprehensive income (loss)

3,535

35,317

(27,584)

1,713

              Total comprehensive income

$       26,352

$       55,952

$       12,835

$       60,692

Note 6 - Financing

As part of a program to refinance its short-term debt following the 2001 acquisition of Shenandoah Energy Inc. (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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

June 30, 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.

3 Months Ended

6 Months Ended

June 30,

June 30,

2002

2001

2002

2001

FINANCIAL RESULTS - (In thousands)

  Revenues

    From unaffiliated customers

$     23,545

$   152,057

$   248,703

$   382,922

    From affiliates

28,939

24,685

56,910

52,666

      Total revenues

$    152,484

$   176,742

$   305,613

$   435,588

  Operating income

$      37,998

$     34,768

$     66,661

$     87,843

  Net income

22,817

20,635

40,419

58,979

OPERATING STATISTICS

  Nonregulated production volumes

    Natural gas (in million cubic feet)

19,856

15,844

39,863

31,631

    Oil and natural gas liquids (in thousands of barrels)

736

522

1,483

1,017

    Average daily production (in million cubic feet

        equivalent)

267

209

269

208

  Nonregulated production revenue (average selling price)

    Natural gas (per thousand cubic feet)

$         2.55

$         3.31

$         2.49

$         3.74

    Oil and natural gas liquids (per barrel)

$       20.60

$       20.36

$       19.72

$        20.91

Wexpro investment base at June 30, net of deferred

    income taxes (in millions)