The Uinta Basin is no Permian when it comes to drilling activity and production volumes, but the folks behind what may be the biggest M&A deal in Uinta history say the oil-production economics in parts of the quirky-as-heck play in northeastern Utah compare very favorably with the best of the Permian’s Delaware and Midland basins. And where else will an astounding 85%-plus of the produced hydrocarbons come out of the ground as high-quality waxy crude? In today’s RBN blog, we discuss the recently announced plan by SM Energy and non-op specialist Northern Oil & Gas (NOG) to acquire XCL Resources in a pair of deals valued at $2.55 billion.
We’re big fans of the offbeat. Who else but an RBN blogger would enthuse about ethane (the weirdest NGL), hyperventilate about clean hydrogen, or wax poetic about waxy crude? For that reason, and the great song-based titles we get to think up — who can forget Do You Think I’m Waxy? or Where You From, You Waxy Thing? — we have returned to the Uinta Basin well many times over the years, most recently in Bringing Waxy Back. As we said then, Uinta production has been on a tear lately, with crude oil output there doubling over the past three years to 160 Mb/d; natural gas takeaway concerns being addressed; and demand for waxy crude from Gulf Coast and other refiners outside the area rising.
Before we delve into the plans for SM Energy to purchase an 80% stake in XCL Resources’ Uinta assets and for NOG to buy the other 20%, we should remind those unfamiliar with waxy crude that:
- It has a medium-to-light API gravity (32 to 36 degrees for the “black wax” variant and 38 to 44 degrees for the “yellow wax” type) with very low levels of sulfur (0.01%), TAN (or total acid number; less than 0.1%), metals and nitrogen, all of which make it highly desirable to many refiners.
- It has the consistency of shoe polish in a tin, so it’s typically kept hot (black wax at 105 degrees Fahrenheit and yellow wax at 120 degrees F) until it is loaded into insulated tanker trucks (often double-tankers) and driven to one of the five refineries in the Salt Lake City (SLC) area about 150 miles northwest of the Uinta or to one of the two rail terminals (Price River and Wildcat) about 90 miles southwest of the basin for loading into coiled and insulated rail cars.
- About 90 Mb/d of current waxy-crude production is used by SLC-area refineries, with the other 70 Mb/d or so trucked and railed out of the region, mostly to a handful of Gulf Coast refineries that have worked the stuff into their crude slates.
- Oil-focused production in the Uinta isn’t very gassy — the gas-to-oil ratio, or GOR, is typically between 1:1 and 2:1, which means that 1-2 Mcf of gas is produced with each barrel of crude — but gas pipeline capacity out of the Uinta is relatively limited and, with the run-up in waxy crude production the past couple of years that capacity has been filling up. New capacity being added will enable crude production growth to continue (see Bringing Waxy Back for details).
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