Note 8 - Share-Based Compensation

Questar may issue stock options, restricted shares, restricted stock units and performance shares to certain officers, employees and non-employee directors under its Long-term Stock Incentive Plan (LTSIP). Questar recognizes expense over time as the stock options, restricted shares, restricted stock units and performance shares vest. Total share-based compensation expense amounted to $8.0 million for the first nine months of 2011 compared to $13.3 million in 2010. Deferred share-based compensation, representing the unvested value of restricted share awards and restricted stock unit awards, amounted to $5.5 million at September 30, 2011. Deferred share-based compensation is included in common stock on the Condensed Consolidated Balance Sheets. For the first nine months cash flow from income tax benefits in excess of recognized compensation expense amounted to $5.3 million in 2011 compared to $2.6 million in 2010. There were 7,575,686 shares available for future grants at September 30, 2011.

The Company uses the Black-Scholes-Merton mathematical model in estimating the fair value of stock options for accounting purposes. Fair-value calculations rely upon subjective assumptions used in the mathematical model and may not be representative of future results. The Black-Scholes-Merton model was intended for measuring the value of options traded on an exchange. Questar did not grant any stock options in the first nine months of 2011.

Unvested stock options decreased by 115,068 shares to 117,794 shares for the nine months of 2011. Stock-option transactions under the terms of the LTSIP are summarized below:

	Options Outstanding	Price Range	Weighted- average Price
Balance at December 31, 2010	2,560,059	$3.70 - $17.35	$7.30
Exercised	(432,700)	3.70 - 13.10	5.09
Balance at September 30, 2011	2,127,359	$3.70 - $17.35	$7.74

Options Outstanding				Options Exercisable		Unvested Options
Range of exercise prices	Number outstanding at Sept. 30, 2011	Weighted-average remaining term in years	Weighted-average exercise price	Number exercisable at Sept. 30, 2011	Weighted-average exercise price	Number unvested at Sept. 30, 2011	Weighted- average exercise price
$3.70 - $ 4.37	1,144,985	1.0	$ 4.12	1,144,985	$ 4.12	-	$ -
7.84 - 12.43	649,174	3.2	11.17	590,177	11.15	58,997	11.40
$13.10 - $17.35	333,200	4.8	13.52	274,403	13.60	58,797	13.10
	2,127,359	2.3	$ 7.74	2,009,565	$ 7.48	117,794	$12.25

Restricted share grants typically vest in equal installments over a three- or four-year period from the grant date. Several grants vest in a single installment after a specified period. The weighted-average vesting period of unvested restricted shares at September 30, 2011, was 17 months. Transactions involving restricted shares under the terms of the LTSIP are summarized below:

	Restricted Shares Outstanding	Price Range	Weighted-average Price
Balance at December 31, 2010	568,707	$11.40 - $20.31	$14.66
Granted	348,127	17.50 - 17.97	17.96
Distributed	(133,391)	11.40 - 20.31	14.09
Forfeited	(11,893)	11.40 - 17.97	16.45
Balance at September 30, 2011	771,550	$11.40 - $17.97	$16.22

Restricted stock unit grants typically vest in equal installments over a three year period from the grant date. At September 30, 2011, Questar's outstanding restricted stock units totaled 68,519 with a weighted-average price of $15.31 per share and a weighted-average vesting period of nine months.

In the first quarter of 2011, Questar granted to certain Company executive officers a total of 128,021 performance shares under the terms of the LTSIP. The awards motivate and reward these executives for long-term Company performance and provide an incentive for them to remain with the Company. The target number of performance shares for each executive officer is subject to adjustment upward or downward based on the Company's performance over the three-year performance period ending December 31, 2013 with respect to specified performance criteria relative to a specified peer group of companies. The actual performance shares awarded, if any, will be distributed in the first quarter of 2014 so long as such executive officer was employed by the Company or its affiliates as of December 31, 2013. Half of any award will be distributed in shares of Company common stock and half in cash. The Monte Carlo simulation method was used to estimate the grant-date fair value of the performance share awards at $18.23 per share. The liability awards to be settled in cash will be marked-to-market at least annually using the Monte Carlo simulation method. Equity and liability-based performance share compensation expense amounted to $0.6 million in the first nine months of 2011.