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Newfield Signs Uinta Basin Supply Agreement

Newfield Exploration Co. has signed a 10-year supply agreement with HollyFrontier Corp. to provide 20,000 b/d of supply capacity at HollyFrontier's Woods Cross, UT, refinery.

The oil price differential associated with the agreement, which is scheduled to begin in 2014, is not materially different than Newfield's current supply contracts in the basin, the company said. Newfield said it has also extended an existing arrangement with Big West Oil to add up to 3,000 b/d of oil sales through the first quarter of 2014.

The agreement with HollyFrontier comes one month after Newfield signed a seven-year supply agreement with Tesoro Corp. to provide 18,000 b/d of supply capacity at Tesoro's refinery in Salt Lake City.

"We are planning to significantly increase our drilling activities in the Uinta Basin, both in our proven shallow oil developments and in new and deeper oil horizons," said Newfield CEO Lee K. Boothby. "This new agreement with HollyFrontier helps ensure that our oil growth will be matched by capacity expansions in the Uinta Basin."

The supply agreement "has no value impact but does de-risk future Uinta Basin growth to some degree," according to analysts at Canaccord Genuity Energy Research. "These agreements were well telegraphed by the company as it works to accommodate the production growth associated with its planned ramp from five to 8-9 rigs in the Uinta Basin this year."

In separate deals last year, Newfield paid a total of $308 million to add about 70,000 net acres to its unconventional oil and gas holdings in Utah's Uinta Basin (see Shale Daily, May 20, 2011; March 24, 2011).

Newfield's domestic areas of operation include the Midcontinent, Rocky Mountains, onshore Texas, Appalachia and the Gulf of Mexico. The company also has operations in Malaysia and China.

Dallas-based HollyFrontier is one of the largest independent petroleum refiners in the United States, operating five complex refineries with 443,000 b/d of crude oil processing capacity.

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