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Tesoro, EP Energy Team Up To Form Drilling Joint Venture

Published 05/29/2017, 08:26 AM
Updated 07/09/2023, 06:31 AM

Independent oil refiner and marketer Tesoro Corporation (NYSE:TSO) has tied up with Texas-based upstream energy player EP Energy Corporation (NYSE:EPE) to fund oil and natural gas development in Uinta Basin in Utah.

The companies recently inked a deal to form a drilling joint venture (JV) to operate 60 wells in order to support EP Energy’s Altamont program. Under this Altamont program, EP Energy has completed the drilling of 18 wells in Uinta Basin since the first quarter of 2016. The drilling program thus holds significance in the operations of EP Energy in the region. The deal represents the second major JV entered into by EP Energy this year, following the company’s announcement in Jan to enter into a joint venture with Wolfcamp Drillco Operating L.P. to fund development in the Permian Basin.

Tesoro is also accelerating its refining scale and capacity. The company is set to close its $4.1 billion acquisition of fellow refiner Western Refining on Jun 1, which will make Tesoro the fourth-largest independent U.S. refiner, after Valero Energy Corporation (NYSE:VLO) , Marathon Petroleum Corporation (NYSE:MPC) and Phillips 66 (NYSE:PSX).

Deal Highlights

Per the deal, 60 wells will be drilled, with Tesoro providing capital in exchange for 50% of the working interest in the wells. EP Energy will contribute $64 million in net capital to the deal and will retain the operational control of the assets.

The companies have also signed a Crude Oil Supply Agreement under which Tesoro will purchase all the oil produced by the JV as well as the additional crude produced by other properties of EP Energy in the Uinta basin. This agreement will ensure continued supply of crude oil to Tesoro’s Salt Lake City Refinery.

Tesoro expects the JV to close on Jun 1. The initial wells under the JV are expected to commence production in July this year.

Deal Benefits

EP Energy has a deep inventory of high-return drilling opportunities in Altamont field. This deal will enable the company to boost the returns and capital efficiency of the Altamont program. EP Energy, which intends to keep two rigs active in Uinta Basin, looks forward to improve its long-term relationship with Tesoro.

For Tesoro, the agreement is likely enhance the value of its Rockies assets as well as guarantee additional supply of crude oil. This is likely to boost the operation of the company’s Salt Lake City Refinery further. The oil supplied by this project will lead to higher rates and improve profitability of Tesoro’s refinery. Further, the investment in crude oil is expected to enhance shareholders value and support the economic development of Utah.

Zacks Rank

Headquartered in San Antonio, TX Tesoro is an independent refiner and marketer of refined petroleum products in the western U.S.

The company under the Zacks categorized Oil and Gas - Refining and Marketing industry currently carries a Zacks Rank #4 (Sell). The Zacks Consensus Estimate for the company’s second quarter has been revised downward over the last 30 days. Over the same time frame, the Zacks Consensus Estimate for full-year 2017 has also moved south.

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.


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Valero Energy Corporation (VLO): Free Stock Analysis Report

Tesoro Corporation (TSO): Free Stock Analysis Report

Marathon Petroleum Corporation (MPC): Free Stock Analysis Report

EP Energy Corporation (EPE): Free Stock Analysis Report

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