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,

2003

2002

2003

2002

(In Thousands)

REVENUES

$209,262

$133,684

$634,841

$439,297

OPERATING EXPENSES

  Cost of natural gas and other products sold

83,709

31,953

249,319

126,465

  Operating and maintenance

30,400

32,472

94,938

98,037

  Depreciation, depletion and amortization

30,533

29,841

88,597

87,479

  Exploration

961

1,102

3,174

4,983

  Abandonment and impairment of gas and oil properties

1,087

1,411

2,062

2,466

  Production and other taxes

13,568

6,106

38,526

21,398

  Wexpro agreement - oil income sharing

444

234

1,896

1,243

    TOTAL OPERATING EXPENSES

160,702

103,119

478,512

342,071

    OPERATING INCOME

48,560

30,565

156,329

97,226

Interest and other income

681

1,583

2,939

12,809

Income from unconsolidated affiliates

1,329

1,220

3,687

2,321

Minority interest

38

124

129

316

Debt expense

(7,145)

(9,020)

(21,613)

(26,284)

    INCOME BEFORE INCOME TAXES

      AND CUMULATIVE EFFECT

43,463

24,472

141,471

86,388

Income taxes

16,111

8,472

52,294

29,969

    INCOME BEFORE CUMULATIVE EFFECT

27,352

16,000

89,177

56,419

Cumulative effect of accounting change

for asset retirement obligations, net of

income taxes of $3,049

(5,113)

       NET INCOME

$  27,352

$  16,000

$  84,064

$  56,419

See notes accompanying the consolidated financial statements

3

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

2003

2002

(Unaudited)

(In Thousands)

ASSETS

Current assets

  Cash and cash equivalents

$        1,061

$       10,404

  Notes receivable from Questar Corp.

27,700

95,600

  Accounts receivable, net

119,769

106,487

  Fair value of hedging contracts

4,895

3,617

  Inventories, at lower of average cost or market -

    Gas and oil storage

10,283

6,924

    Materials and supplies

4,258

4,217

  Prepaid expenses and other

7,637

7,965

      Total current assets

175,603

235,214

Property, plant and equipment

2,044,155

1,917,645

Less accumulated depreciation, depletion and amortization

787,997

716,989

    Net property, plant and equipment

1,256,158

1,200,656

Investment in unconsolidated affiliates

32,340

23,617

Goodwill

61,423

61,423

Other assets

12,911

2,787

$1,538,435

$1,523,697

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities

  Notes payable to Questar Corp.

$    11,000

$      9,900

  Accounts payable and accrued expenses

142,957

140,826

  Fair value of hedging contracts

33,423

24,278

    Total current liabilities

187,380

175,004

Long-term debt

405,000

550,000

Deferred income taxes

221,853

204,185

Asset retirement obligation

53,765

Other long-term liabilities

27,493

19,013

Minority interest

7,919

8,156

Common shareholder's equity

  Common stock

4,309

4,309

  Additional paid-in capital

116,027

116,027

  Retained earnings

534,972

463,883

  Other comprehensive loss

(20,283)

(16,880)

    Total common shareholder's equity

635,025

567,339

$1,538,435

$1,523,697

See notes accompanying the consolidated financial statements

4

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

9 Months Ended

September 30,

2003

2002

(In Thousands)

OPERATING ACTIVITIES

  Net income

$   84,064

$   56,419

  Adjustment to reconcile net income to net cash provided

    From operating activities:

    Depreciation, depletion and amortization

91,798

91,384

    Deferred income taxes

22,729

12,772

    Abandonment and impairment of gas and oil properties

2,062

2,466

    Income from unconsolidated affiliates, net

      of cash distributions

1,727

2,487

    Net (gain) loss from asset sales

117

(5,498)

    Cumulative effect of accounting change

5,113

    Minority interest

(129)

(316)

    Changes in operating assets and liabilities

(7,773)

19,898

      NET CASH PROVIDED FROM OPERATING ACTIVITIES

199,708

179,612

INVESTING ACTIVITIES

  Capital expenditures

    Property, plant and equipment

(116,492)

(122,880)

    Other investments

(10,450)

(7,500)

      Total capital expenditures

(126,942)

(130,380)

    Proceeds from the disposition of assets

6,975

22,183

      NET CASH USED IN INVESTING ACTIVITIES

(119,967)

(108,197)

FINANCING ACTIVITIES

  Change in notes receivable from Questar Corp.

67,900

(33,900)

  Change in notes payable to Questar Corp.

1,100

(223,800)

  Long-term debt issued

325,000

  Long-term debt repaid

(145,000)

(127,010)

  Other

(109)

503

  Payment of dividends

(12,975)

(12,974)

        NET CASH USED IN FINANCING ACTIVITIES

(89,084)

(72,181)

  Change in cash and cash equivalents

(9,343)

(766)

  Beginning cash and cash equivalents

10,404

2,270

  Ending cash and cash equivalents

$    1,061

$    1,504

See notes accompanying consolidated financial statements

5

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(Unaudited)

Note 1 - Basis of Presentation of Interim Financial Statements

The accompanying consolidated financial statements of Questar Market Resources, Inc. (Market Resources or the Company), with the exception of the condensed consolidated balance sheet at December 31, 2002, have not been audited by independent public accountants. 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. Market Resources manages commodity-price risk through the use of natural-gas and oil-price hedging instruments. The results of operations for the three- and nine- month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2002 filed by Mark et Resources.

Note 2 - Cumulative Effect for Accounting Change - "Accounting for Asset Retirement Obligations"

On January 1, 2003, Market Resources adopted Statement of Financial Accounting Standards 143 (SFAS 143) "Accounting for Asset Retirement Obligations" and recorded a $5.1 million after tax charge for the cumulative effect of this accounting change. SFAS 143 addresses the financial accounting and reporting of the fair value of legal obligations associated with the retirement of tangible long-lived assets. The new standard requires the Company to estimate a fair value of abandonment costs and to capitalize and depreciate those costs over the life of the related assets. The asset retirement obligation is adjusted to its present value each period through an accretion process using a credit-adjusted risk-free interest rate. Both the accretion expense associated with the liability and the depreciation associated with the capitalized abandonment costs are non-cash expenses until the asset is retired. The adoption of SFAS 143 caused Market Resources to change the accounting method for plugging a nd abandonment costs associated with gas and oil wells and certain other properties. SFAS 143 was applied retroactively to prior years to determine the cumulative effect through December 31, 2002.

Questar Gas, an affiliate of Market Resources, recorded a regulatory asset amounting to $6.6 million as of January 1, 2003 representing a retroactive charge for the abandonment costs associated with gas wells operated on its behalf by Wexpro Company (Wexpro), a Market Resources subsidiary. The regulatory asset will be reduced as gas wells are plugged and abandoned.

The accretion expense in the first nine months of 2003 amounted to $1.5 million. An additional $1.0 million of accretion costs were recorded in a receivable from Questar Gas for properties operated by Market Resources. If the new method of accounting for plugging and abandonment costs had been in effect in the first nine months of 2002, the pro forma effect accretion expense would have been $1.2 million.

Changes in asset retirement obligation

In Thousands

Balance at January 1, 2003

$50,667

Accretion

2,470

Additions

1,279

Property sales

(579)

Retirements

(72)

Balance at September 30, 2003

$53,765

6

Note 3 - Investment in Unconsolidated Affiliates

Market Resources, indirectly through subsidiaries, has interests in partnerships accounted for on the equity basis. These entities are engaged primarily in gathering and/or processing of natural gas. The entities do not have debt obligations with third-party lenders. Market Resources uses the equity method to account for investments in affiliates in which it does not have control. The principal affiliates and Market Resources' ownership percentage as of September 30, 2003 were: Rendezvous Gas Services LLC, a limited liability corporation, (50%) and Canyon Creek Compression Co., a general partnership (15%). Market Resources' 50% interest in Blacks Fork Processing is included in the amounts for the 2002 periods presented. Market Resources acquired the other 50% interest in Blacks Fork Processing in the fourth quarter of 2002 and has consolidated operating results since the acquisition.

Summarized operating results of the investments are listed below.

9 Months Ended

September 30,

2003

2002

(In Thousands)

Revenues

$11,860

$16,996

Operating income

7,190

5,438

Income before income taxes

7,217

5,492

Note 4 - Operations By Line of Business

3 Months Ended

9 Months Ended

September 30,

September 30,

2003

2002

2003

2002

(In Thousands)

REVENUES FROM UNAFFILIATED CUSTOMERS

  Exploration and production

$  83,807

$  65,941

$250,401

$199,024

  Cost of service

3,290

3,110

9,948

6,647

  Gathering, processing and marketing

92,883

39,826

288,804

151,909

$179,980

$108,877

$549,153

$357,580

REVENUES FROM AFFILIATED COMPANIES

  Exploration and production

$         23

$          2

$         68

$    1,172

  Cost of service

24,797

22,632

75,333

72,733

  Gathering, processing and marketing

4,462

2,173

10,287

7,812

$  29,282

$  24,807

$  85,688

$  81,717

OPERATING INCOME

  Exploration and production

$  32,529

$  16,140

$102,609

$  50,734

  Cost of service

12,732

13,312

39,058

39,534

  Gathering, processing and marketing

3,299

1,113

14,662

6,958

$  48,560

$  30,565

$156,329

$  97,226

7

3 Months Ended

9 Months Ended

September 30,

September 30,

2003

2002

2003

2002

(In Thousands)

NET INCOME

  Exploration and production

$  17,344

$    6,984

$  55,302

$  28,560

  Cost of service

7,791

7,906

24,443

23,387

  Gathering, processing and marketing

2,217

1,110

9,432

4,472

      Income before cumulative effect of

       Change in accounting

27,352

16,000

89,177

56,419

      Cumulative effect

(5,113)

$  27,352

$  16,000

$  84,064

$  56,419

GEOGRAPHIC INFORMATION REVENUES

  United States

$209,262

$126,170

$634,841

$417,603

  Canada

7,514

21,694

$209,262

$133,684

$634,841

$439,297

FIXED ASSETS - NET, at period end

  United States

$1,256,158

$1,191,512

  Canada

72,287

$1,256,158

$1,263,799

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 include changes in the market value of gas and oil hedging derivatives and changes in holding value resulting from foreign currency translation adjustments. These transactions are not the culmination of the earnings process, but result from periodically adjusting historical balances to market value. Income or loss is realized when the gas or oil underlying the hedging contracts are sold.

3 Months Ended

9 Months Ended

September 30,

September 30,

2003

2002

2003

2002

(In Thousands)

Net income

$  27,352

$  16,000

$  84,064

$  56,419

Other comprehensive income (loss)

  Unrealized income (loss) on hedging transactions

34,513

(11,965)

(5,415)

(57,824)

  Foreign currency translation adjustments

(2,126)

113

      Other comprehensive income (loss) before

          Income taxes

34,513

(14,091)

(5,415)

(57,711)

      Income taxes on other comprehensive

          Income (loss)

12,917

(5,883)

(2,012)

(21,919)

      Net other comprehensive income (loss)

21,596

(8,208)

(3,403)

(35,792)

              Total comprehensive income

$  48,948

$    7,792

$  80,661

$  20,627

Note 6 - Reclassifications

Certain reclassifications were made to the 2002 financial statements to conform with the 2003 presentation.

8

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

QUESTAR MARKET RESOURCES, INC. AND SUBSIDIARIES

September 30, 2003

(Unaudited)

Operating Results

Questar Market Resources and subsidiaries (Market Resources) acquire and develop gas and oil properties, develop cost-of-service reserves for an affiliated company, Questar Gas, provide gas-gathering and processing services, market equity and third-party gas and oil, provide risk-management services, and own and operate an underground gas-storage reservoir. Primary objectives of gas- and oil-marketing operations are to support Market Resources' earnings targets and to protect Market Resources' earnings from adverse commodity-price changes. Market Resources does not enter into gas- and oil-hedging contracts for speculative purposes. Following is a summary of Market Resources' financial results and operating information:

3 Months Ended

9 Months Ended

September 30,

September 30,

2003

2002

2003

2002

FINANCIAL RESULTS - (In Thousands)