60 wells will be drilled
EP Energy (ticker: EPE) and Tesoro (ticker: TSO) announced a drilling joint venture in the Uinta basin this week, supporting EP’s Altamont program.
The joint venture will provide for a 60 well drilling program, a significant acceleration of EP’s operations in the area. From Q1 2016 through Q1 2017 EP completed 18 wells in the Uinta basin, so 60 wells would definitely increase activity. In Q1 2017 EP produced an average of 11.9 MBOPD. EP has not updated its guidance yet, but expects to change its guidance to represent the effects of the venture in mid-year.
Tesoro will provide a capital carry in exchange for 50% of the working interest in the JV wells, while EP will retain operational control. EP’s net share of capital is expected to be about $64 million. EP’s primary focus in the Uinta basin is drilling closely-spaced vertical wells. The company is typically using 160-acre spacing but is piloting 80-acre downspacing. In total, EP owns over173,000 acres in the basin.
Tesoro will purchase all produced oil
In addition, Tesoro will purchase all of the oil produced through the JV, along with additional crude produced by other EP properties in the Uinta basin. This oil will supply Tesoro’s Salt Lake City Refinery. According to Reuters, Tesoro has configured this refinery to run the cheaper, waxy crude produced in the Uinta, and recently upgraded the refinery’s capacity. The oil brought in by this project will allow Tesoro’s refinery to run a higher rates, improving profitability.
“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,” said Brent Smolik, Chairman, President, and CEO of EP Energy. “We plan to keep two rigs active in the Uinta Basin and look forward to building a long-term relationship with Tesoro, an in-basin refinery partner.”
Second JV for EP this year
This is the second major JV entered into by EP this year. In January the operator announced a joint venture with Wolfcamp Drillco Operating to fund development in the Permian. In this venture, EP will drill up to 150 wells, in two 75-well tranches.
