(Adds background and company comment, paragraphs 2-7)
By Erwin Seba
HOUSTON, May 24 (Reuters) - U.S. oil and gas producer EP Energy Corp and refiner Tesoro Corp on Wednesday announced a joint venture to drill 60 wells in the Uinta basin in Utah.
Tesoro will buy all the oil produced from the wells and provide capital for a 50 percent stake in EP Energy’s working interest in the wells, the companies said. Financial terms of the joint venture were not disclosed.
The investment does not signal a broad shift by San Antonio, Texas-based Tesoro into exploration and production. The company has expanded its Salt Lake City refinery and needs more crude oil to supply it.
“It made sense for this region and this refinery,” said Tesoro spokeswoman Destin Singleton, who declined to comment about future drilling ventures. “It is about supply for the Salt Lake City refinery.”
The two companies also signed a multi-year crude oil supply agreement for yellow and black waxy crude oil to supply Tesoro’s Salt Lake City refinery.
The refinery has the capacity to process 63,000 barrels of oil per day. Tesoro has configured it to run the cheaper waxy crude from Uinta. Oil supplies for the plant have come from Wyoming and Canada via pipelines.
“They probably do need this waxy crude to run their plant at a higher utilization (rate),” said Matthew Blair, a Denver-based refinery analyst with Tudor Pickering & Holt. Rival HollyFrontier Corp also recently expanded its Salt Lake City refinery, he said, adding to pressures on crude supplies. (Reporting by Erwin Seba in Houston, Jessica Resnick-Ault in New York and John Benny in Bengaluru; Editing by Gary McWilliams and David Gregorio)