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Units of Tesoro Corp. and EP Energy Corp. on Thursday formed a drilling joint venture (JV) to fund oil and natural gas development in EP's Altamont program in the Uinta Basin of Utah.
The partners also signed a multi-year agreement to carry crude oil supplies to Tesoro's Salt Lake City refinery.
Under the JV, 60 wells would be drilled, with Tesoro providing capital in exchange for a 50% working interest in each well and moving all of the production from the wells. EP would invest $64 million and retain operational control of the assets.
Noting plans call for keeping two rigs going in the Uinta, EP CEO Brent Smolik characterized the company's Altamont field as a "high-return" drilling opportunity. The JV "will enable us to significantly increase the well-level returns and capital efficiency of our program,” he 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," said Tesoro CEO Greg Goff.
The first wells under the JV are expected to begin production in July, the companies said. EP’s average working interest in the JV wells is currently 80%,.
EP's main focus has been the Permian Basin, and the JV would allow the exploration and production company to reallocate capital previously slated for the Altamont to its higher return assets, said Wells Fargo Securities LLC, Analysts estimated the 60-well JV amounts to a program of about $200 million.