Oil drilling in Utah’s Uinta Basin has “dried up” in light of low crude prices, and will affect availability of the waxy crude prevalent there, Tesoro Corp Chief Executive Greg Goff told analysts on Thursday.
Tesoro recently finished a $275 million conversion project at its 57,500 barrel-per-day (bpd) refinery in Salt Lake City, Utah, to double waxy crude processing capacity to 22,000 bpd.
Goff said the plant can run other types of crude, and Tesoro is working to forecast waxy crude availability.
“In the short term the economics that were originally behind the project are not as attractive as they were when we spent the money,” Goff said during Tesoro’s quarterly earnings call.
Uinta trades at a discount to the U.S. crude benchmark, West Texas Intermediate as it is more costly to produce and process. As domestic crude prices plunged 58 percent from last year’s triple-digit highs, that discount narrowed, prompting producers to pull back and focus on other more profitable oilfields.
Baker Hughes Inc says drilling rigs in Utah fell to 4 last week from 24 a year ago, having declined since January. Newfield Exploration Co, the biggest Uinta oil producer, ceased drilling there earlier this year to cut costs.
The Utah Department of Natural Resources says Uinta oil output reached a high of 41 million barrels last year, or about 112,046 bpd. Output through April this year, the latest data available, was 13.17 million barrels, or 30,096 bpd if stretched through 2015.
Rail shipments of Utah crude to California refineries also fell to nothing in June from 49,318 barrels in January.
HollyFrontier Corp is doing a similar conversion project at its Woods Cross refinery in Utah that will increase capacity to 45,000 bpd from 31,000 bpd with ability to process up to 25,000 bpd of Uinta waxy crude.
The $350 million to $400 million project, slated to start up in the fourth quarter this year, also aims to improve gasoline and diesel yields.
Reuters reported last month that Tesoro held talks earlier this year to buy HollyFrontier, but no deal emerged.
On Thursday’s call Goff declined to comment about those talks, but said Tesoro “fully” intends to examine possible acquisitions from the Midwest to the West Coast, “pretty much staying out of the Gulf Coast.”
In addition to Utah, HollyFrontier operates plants in Oklahoma, Kansas, Wyoming and New Mexico.