Houston producer EP Energy Corp. and San Antonio refiner Tesoro Corp. have formed a joint venture to fund a 60-well oil and gas development program in EP Energy’s Altamont program in the Uinta basin of Utah.
Tesoro will provide a capital carry in exchange for 50% of EP Energy's working interest in JV wells. EP Energy, whose net share of capital is expected to be $64 million, will retain operational control of the JV’s assets.
The first wells under the partnership are expected to begin production in July. EP Energy’s average working interest in the JV wells is currently 80%.
Tesoro and EP Energy also entered into a multiyear crude oil supply agreement through which Tesoro will purchase all of the oil produced in the JV along with additional waxy crude oil produced by EP Energy in the Uinta for Tesoro’s 63,000-b/d Salt Lake City refinery.
Brent Smolik, EP Energy chairman, president, and chief executive officer, commented, “In the Altamont field we have a deep inventory of high-return drilling opportunities. This joint venture will enable us to significantly increase the well-level returns and capital efficiency of our program.”
EP Energy plans to keep two rigs working in the Uinta going forward. During the first quarter, EP Energy completed three wells in its Altamont program and produced 11,900 b/d of oil, a 4% increase compared with first-quarter 2016. Altamont total equivalent production for the first quarter was 17,300 boe/d, roughly flat from fourth-quarter 2016.
Greg Goff, Tesoro chairman, president, and chief executive officer, said, “This agreement with EP Energy is an important step to further enhance our integrated value chain in the Rockies by supporting the growth of waxy crude oil production in the Uinta basin, and allowing us to secure additional supply of this advantaged crude oil to further optimize the operation of our Salt Lake City refinery.”
Separately, Tesoro expects its acquisition of Western Refining Inc. to close on June 1 (OGJ Online, Mar. 24, 2017).
