Upstream operator EP Energy Corp. (NYSE: EPE) and refining giant Tesoro Corp. (NYSE: TSO) are teaming up for oil and natural gas development in the Uinta Basin in Utah, the companies said May 24.

Subsidiaries of both companies will operate a 60-well joint venture (JV) to target EP Energy’s Altamont program.

EP Energy will contribute $64 million in net capital to the deal. Tesoro will provide a capital carry in exchange for 50% working interest in the JV wells and, in a separate agreement, will purchase all of the oil from the wells.

The oil will provide an assured supply of local crude oil for Tesoro's Salt Lake City refinery.

EP Energy will retain control of the JV assets. Based on 120-acre spacing, the transaction’s estimated price is about $18,000/acre, said Gordon Douthat, a senior analyst at Wells Fargo Securities.

“While Tesoro is receiving 50% of EPE's interest in the production, rough math on capital commitment comes out to about 69% for Tesoro,” Douthat said. “At a high level, [the JV] looks attractive for EPE as the program should increase returns across the 60 wells and provides EPE flexibility to reallocate capital that was previously allotted to Altamont to higher return assets.”

The company's focus remains in the Permian, but Douthat termed the deal “an incremental positive in the Uinta.”

The deal allows EP Energy to maintain a two-rig program at Altamont, but frees up about $140 million of capital that otherwise would have been spent in the play over the next four to five quarters, Capital One Securities said in a May 25 note. “This will give EP added flexibility in its capital budget. This is important given EP’s levered balance sheet.”

The JV isn’t expected to affect EP Energy’s production or capex guidance. The company said it expects to update its 2017 outlook mid-year.

Brent Smolik, EP Energy’s chairman, president and CEO, said the Altamont Field had a large inventory of high-return drilling opportunities. The 60-well program accounts for less than 5% of the company’s Altamont future inventory of about 1,325 net locations, Capital One said.

“This joint venture will enable us to significantly increase the well-level returns and capital efficiency of our program,” Smolik said. “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.”

Greg Goff, chairman, president and CEO of Tesoro, said the JV with EP Energy will further enhance the company’s integrated value chain in the Rockies through support of wax crude oil production in the Unita.

“We believe this investment in crude oil production in Utah is good for our shareholders, our communities and for the state of Utah as it supports economic development in the region,” Goff said.

Darren Barbee can be reached at dbarbee@hartenergy.com.