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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	10/1/2007 9:31:38 AM
	of 111

Questar Corp. (STR): More positive on Uinta acreage following management meetings - Goldman Sachs - 10/01/07 What's changed After meetings with Questar management last week, we are more optimistic on opportunities in the Uinta Basin and more cautious on the Vermillion Basin. Management indicated it continues to explore restructuring opportunities, many of which are somewhat challenged by tax and regulatory constraints. Implications Questar shares fell from its early summer highs as the Street became less positive on the Vermillion. While our perspective on the Vermillion would all else equal likely represent modest additional downside, we believe it is more than offset by a more positive view on the Uinta. As Rockies pipeline issues subside over the coming months, the risk/reward for Questar shares is positive. On restructuring, management seems more focused on a potential spinoff of its main unregulated subsidiary if ultimately it feels its various businesses are not receiving enough value. We remain positive on the Pinedale Anticline and expect that the Supplemental Environmental Impact Statement will be approved in 2Q 2008. We rate Questar Neutral relative to an Attractive coverage view. Valuation Questar trades at 8.8x 2008 EV/debt-adjusted cash flow, versus 8.3x-11.6x for unconventional gas E&Ps. We see 14% upside to our $59 12-month discounted cash flow based target price, which we would note does not assume much value for Uinta exploration potential. Key risks Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks. Impact on related securities Other Rockies gas companies should also benefit as pipeline capacity out of the Rockies increases over the next few months.

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