PART I FINANCIAL INFORMATION

Item 1. Financial Statements

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

3 Months Ended

9 Months Ended

September 30,

September 30,

2002

2001

2002

2001

(In Thousands)

REVENUES

$    133,684

$    153,339

$    439,297

$   588,927

OPERATING EXPENSES

  Cost of natural gas and other products sold

31,953

48,976

126,465

268,765

  Operating and maintenance

32,472

28,756

98,037

77,890

  Depreciation, depletion and amortization

29,841

21,952

87,479

64,267

  Exploration

1,102

1,117

4,983

4,017

  Abandonment and impairment of gas and oil properties

1,411

1,489

2,466

4,084

  Production and other taxes

6,106

8,006

21,398

36,993

  Wexpro settlement agreement - oil income sharing

234

578

1,243

2,603

    TOTAL OPERATING EXPENSES

103,119

110,874

342,071

458,619

    OPERATING INCOME

30,565

42,465

97,226

130,308

INTEREST AND OTHER INCOME

1,583

59

12,809

12,819

MINORITY INTEREST

124

85

316

254

INCOME FROM UNCONSOLIDATED AFFILIATES

1,220

568

2,321

796

DEBT EXPENSE

(9,020)

(7,301)

(26,284)

(16,346)

    INCOME BEFORE INCOME TAXES

24,472

35,876

86,388

127,831

INCOME TAXES

8,472

12,825

29,969

45,801

       NET INCOME

$     16,000

$     23,051

$     56,419

$     82,030

See notes to the consolidated financial statements

-2-

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

2002

2001

(Unaudited)

(In Thousands)

ASSETS

Current assets

  Cash and cash equivalents

$          1,504

$          2,270

  Notes receivable from Questar Corp.

43,400

9,500

  Accounts receivable, net

80,693

98,303

  Fair value of hedging contracts

8,828

55,593

  Inventories, at lower of average cost or market -

    Gas and oil storage

6,131

14,245

    Materials and supplies

4,043

5,127

  Prepaid expenses and other

7,889

11,661

  Total current assets

152,488

196,699

Property, plant and equipment

2,034,811

1,979,164

Less accumulated depreciation, depletion

    and amortization

771,012

731,330

    Net property, plant and equipment

1,263,799

1,247,834

Investment in unconsolidated affiliates

28,842

23,829

Goodwill

66,823

66,823

Other assets

3,156

3,279

$   1,515,108

$   1,538,464

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities

  Notes payable to Questar Corp.

$     51,300

$     275,100

  Accounts payable and accrued expenses

124,284

133,053

  Fair value of hedging contracts

18,895

5,323

  Current portion of long-term debt

18,822

1,696

    Total current liabilities

213,301

415,172

Long-term debt, less current portion

583,272

402,226

Other liabilities

10,671

11,244

Deferred income taxes

165,678

175,024

Minority interest

8,105

8,369

Common shareholder's equity

  Common stock

4,309

4,309

  Additional paid-in capital

116,027

116,027

  Retained earnings

426,698

383,254

  Other comprehensive income (loss)

(12,953)

22,839

    Total common shareholder's equity

534,081

526,429

$   1,515,108

$   1,538,464

See notes to the consolidated financial statements

-3-

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

9 Months Ended

September 30,

2002

2001

(In Thousands)

OPERATING ACTIVITIES

  Net income

$        56,419

$        82,030

  Depreciation, depletion and amortization

91,384

65,092

  Deferred income taxes

12,772

13,737

  Abandonment and impairment of gas and oil properties

2,466

4,084

   (Income) loss from unconsolidated affiliates, net

    of cash distributions and minority interest

2,171

(649)

  Gain from sale of assets

(5,498)

(10,012)

  Changes in operating assets and liabilities

19,898

40,575

        NET CASH PROVIDED FROM

          OPERATING ACTIVITIES

179,612

194,857

INVESTING ACTIVITIES

   Capital expenditures

   Property, plant and equipment

(122,880)

(144,983)

   Acquisitions

(402,954)

   Other investments

(7,500)

      Total capital expenditures

(130,380)

(547,937)

   Proceeds from disposition of property, plant & equipment

22,183

27,127

        NET CASH USED IN INVESTING ACTIVITIES

(108,197)

(520,810)

FINANCING ACTIVITIES

  Increase in notes receivable from Questar Corp.

(33,900)

(14,400)

  Decrease in notes payable to Questar Corp.

(223,800)

203,600

  Checks outstanding in excess of cash balance

13,602

  Decrease in short-term loans

47,500

  Decrease in cash balance in escrow account

5,177

  Long-term debt issued

325,000

321,501

  Long-term debt repaid

(127,010)

(241,635)

  Other

503

(264)

  Payment of dividends

(12,975)

(12,975)

        NET CASH (USED IN) PROVIDED FROM

            FINANCING ACTIVITIES

(72,182)

322,106

  Foreign currency translation adjustment

1

(133)

  Change in cash and cash equivalents

(766)

(3,980)

  Beginning cash and cash equivalents

2,270

3,980

  Ending cash and cash equivalents

$              1,504

$                 -

See notes to the consolidated financial statements

-4-

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 nine-month periods ended September 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. As a result of the purchase of Shenandoah Energy, Inc. (SEI), Questar Market Resources, Inc. (QMR) recorded $66.8 million of goodwill on July 31, 2001. The goodwill 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. The yearly goodwill impairment test required by SFAS 142 will be conducted in the fourth quarter.

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 - Sale of Canadian Properties

On October 21, 2002, QMR sold its Canadian exploration and production subsidiary to EnerMark Inc., a subsidiary of Calgary-based Enerplus Resources Fund. Total consideration for 100% of the shares and retirement of associated debt was $US 105.6 million, subject to a one-time post-close adjustment in December 2002 to reflect changes, if any, in the Celsius Energy Resources, Ltd. (CERL) working capital balance as of the July 31, 2002 effective date of the transaction. CERL earned net income for the nine months ended September 30, 2002 of $US 1.5 million and had total assets of $US 80 million at September 30, 2002. CERL's daily gas production of 28 million cubic feet equivalent represents approximately 10% of QMR's current nonregulated production. At year-end 2001, CERL had 81.8 billion cubic feet equivalent (Bcfe) of natural gas and oil reserves, representing about 7% of QMR's nonregulated reserves. QMR will use the proceeds from the sale to repay debt.

Note 4 - 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 September 30, 2002, these affiliates did not have debt obligations with third-party lenders. The Company has 50% or less voting interest in each business. The form of organization and QMR's percentage ownership in these businesses are as follows: 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%).

-5-

Summarized gross operating results of the investments are listed below.

9 Months Ended

September 30,

2002

2001

(In Thousands)

Revenues

$     16,996

$     19,899

Operating income

5,438

1,709

Income before income taxes

5,492

1,957

Note 5 - Operations By Line of Business

3 Months Ended

9 Months Ended

September 30,

September 30,

2002

2001

2002

2001

(In Thousands)

REVENUES FROM UNAFFILIATED CUSTOMERS

  Exploration and production

$        67,078

  $      69,446

$     206,545

$     212,499

  Cost of service

3,110

3,073

6,647

11,115

  Gathering, processing and marketing

38,689

58,100

144,388

289,927

$      108,877

$     130,619

$    357,580

$     513,541

REVENUES FROM AFFILIATED COMPANIES

  Exploration and production

$                 2

$               1

$         1,172

$               5

  Cost of service

22,632

20,783

72,733

66,849

  Gathering, processing and marketing

2,173

1,936

7,812

8,532

$        24,807

$      22,720

$      81,717

$      75,386

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

  Exploration and production

$        22,770

 $        16,839

$      66,710

$      48,934

  Cost of service

4,946

3,663

15,489

11,077

  Gathering, processing and marketing

2,125

1,450

5,280

4,256

$        29,841

$       21,952

$      87,479

$      64,267

OPERATING INCOME

  Exploration and production

$        16,532

$       26,687

$      52,952

$      87,450

  Cost of service

13,312

11,732

39,534

32,510

  Gathering, processing and marketing

721

4,046

4,740

10,348

$        30,565

$       42,465

$      97,226

$    130,308

NET INCOME

  Exploration and production

$           7,221

$       13,106

$      29,889

$      54,447

  Cost of service

7,906

7,381

23,387

20,452

  Gathering, processing and marketing

873

2,564

3,143

7,131

$        16,000

$       23,051

$      56,419

$      82,030

-6-

3 Months Ended

9 Months Ended

September 30,

September 30,

2002

2001

2002

2001

(In Thousands)

FIXED ASSETS - NET, at period end

  Exploration and production

$      925,007

$     914,633

  Cost of service

201,332

186,853

  Gathering, processing and marketing

137,460

91,152

$   1,263,799

$    1,192,638

GEOGRAPHIC INFORMATION REVENUES

  United States

$      126,170

$     145,092

$     417,603

$    556,015

  Canada

7,514

8,247

21,694

32,912

$      133,684

$     153,339

$     439,297

$    588,927

FIXED ASSETS - NET, at period end

  United States

$   1,191,512

$  1,114,784

  Canada

72,287

77,854

$   1,263,799

$   1,192,638

Note 6 - 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. In the third quarter of 2002, the Company closed out its interest hedging position.

3 Months Ended

9 Months Ended

September

September

2002

2001

2002

2001

(In Thousands)

Net income

$       16,000

  $     23,051

  $     56,419

  $     82,030

Other comprehensive income (loss)

  Unrealized income (loss) on hedging transactions

(11,965)

27,741

(57,824)

30,769

  Foreign currency translation adjustments

(2,126)

(1,953)

113

(2,391)

      Other comprehensive income (loss) before income

          Taxes

(14,091)

25,788

(57,711)

28,378

      Income taxes on other comprehensive income (loss)

(5,883)

9,421

(21,919)

10,298

      Net other comprehensive income (loss)

(8,208)

16,367

(35,792)

18,080

              Total comprehensive income

$         7,792

  $     39,418

  $     20,627

  $    100,110

-7-

Note 7 - Financing

As part of a program to refinance its short-term debt 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 Securities and Exchange Commission (SEC) and exchange notes with the same terms were issued in April 2002.

Note 8 - Reclassifications

Certain reclassifications were made to the 2001 financial statements to conform with the 2002 presentation.

-8-

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

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

September 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 Company, an affiliated company. Wexpro earns a return on capital invested to develop these reserves and passes through its costs, which are included in Questar Gas's gas costs. Following is a summary of QMR's financial results and operating information.

3 Months Ended

9 Months Ended

September

September

2002

2001

2002

2001

FINANCIAL RESULTS - (In thousands)

  Revenues

    From unaffiliated customers

 $    108,877

$   130,619

$   357,580

$   513,541

    From affiliates

24,807

22,720

81,717

75,386

      Total revenues

$    133,684

$   153,339

$   439,297

$   588,927