Unconventional/complex reservoirs

SM Energy Strikes $2-Billion Deal To Enter the High-Growth Uinta Basin

The acquisition underscores the rapid rise of the unconventional oil play in northeastern Utah that producers claim offers better margins than the Permian Basin.

Drilling in the Unita Basin.
Source: XCL Resources.

US independent SM Energy announced the acquisition of over 37,000 acres in the Uinta Basin from XCL Resources for $2.55 billion. XCL, founded in 2018, is a private producer backed by EnCap Investments and Rice Investment Group.

Additionally, SM has agreed to sell 20% of XCL to Northern Oil and Gas for $510 million, leaving SM with an 80% stake valued at $2.04 billion. SM will remain the operator of the combined asset, which produces around 38,000 B/D of crude oil.

The Denver, Colorado-based SM said the deal includes about 390 drilling locations with breakeven oil prices between $43 and $57/bbl. These additional locations extend its drilling inventory by 2 years to a total of 12 years, according to the company.

On a pro forma basis, SM’s production profile is expected to reach 195,000 BOE/D by next year, with about half of this volume represented as oil. SM highlights the stacked pay potential of the Uinta Basin, noting its technical capability to tap into as many as 17 distinct oil-bearing benches.

The company expects production margins from the Uinta asset to outperform those from its operations in the Permian Basin and South Texas, due to higher oil content and lower operating costs.

The Uinta Basin, contained mostly within northeastern Utah, is one of the fastest-growing unconventional developments in the US, with play-wide production rising from about 20,000 B/D in 2017 to around 120,000 B/D last year. The figures come from a new paper presented by XCL and Novi Labs at the recent Unconventional Resources Technology Conference (URTeC).

In URTeC 404757, XCL and the market research firm highlighted that as of the paper’s writing, there were more than 600 horizontal wells producing in the play, with over half drilled in the past 4 years. (SM said in its presentation on the acquisition that there are now more than 800 horizontal wells in the region.)

The authors said that the rapid growth of the Uinta Basin is supported by “comparable, if not superior, well performance to renowned unconventional oil plays such as the Permian Basin, Eagle Ford Formation of the Gulf Coast Basin, and Williston Basin.”

Enverus Intelligence Research (EIR) said in a note following the deal that it considered XCL to be the holder of the highest-quality acreage in the basin and that the deal could signal the start of a new acquisition trend. "Broadly, companies are likely to continue to expand their scope in the hunt for deals beyond the Permian Basin and look at other lesser-known areas, potentially including the emerging Utica liquids window, as the search for inventory at reasonable prices continues," said Andrew Dittmar, a principal analyst at EIR.