Uinta’s Scout Energy Likely Not for Sale as Takeaway to Gulf Rises

Nissa Darbonne, executive editor-at-large, Hart Energy: Hi. I'm Nissa Darbonne, executive editor-at-large for Hart Energy. We're visiting with Juan Nevarez. Juan is executive vice president of Scout Energy Management. He just spoke here in Midland at the Executive Oil Conference. Besides operating in the Permian Basin, Scout has a very, very exciting position in the Uinta Basin.

Juan, thank you so much for joining us. I wanted to ask first if you could let all of the viewers know what is currently accurate versus what is the outdated understanding of Uinta Basin takeaway?

Juan Nevarez, executive vice president, Scout Energy Partners: You bet. Let me start out with the Uinta production is waxy crude. So what that means is waxy crude—it has to have a certain temperature, typically it's about anything between 130 to 150 for it to flow. So one of the things that has to happen is you have to keep it heated. How that's done is basically by making sure that wherever it goes, it stays heated so it doesn't become solid.

The refining capacity that you have in Salt Lake City is around 90- to 100,00 barrels of oil per day. That refining capacity has not changed for quite a while, so that limited the production from the Uinta Basin for quite a while. Since, I would say going back to 2014, there have been several efforts to increase that capacity, the refining capacity, [and] it hasn't happened.

So what they've done is you have a rail system where you basically take the crude [by truck] from Myton, [Utah], down to Helper or Price, and that then gets railed to the Gulf Coast. That has significantly increased our ability to produce. We're up to now up to 160-, 180,000 barrels per day because the refiners in the Gulf Coast, they're actually demanding that crude. So that 90,000-[bbl/d] capacity that people talk about is no longer there.

ND: And because of this opportunity, the Uinta’s a little bit late to horizontal. I don't want to say "late," but because it was capped to 90-, 100,000 bbl/d, there had not been much in the way of horizontal development. But pretty much, I think at least in the western oily side of the Uinta, development is now exclusively horizontal except for maybe some one-offs there. There is an estimate by SM Energy, and Crescent Energy operates there as Javelin, of up to 17 benches. Uteland Butte is the most popular landing zone.

What are your thoughts on how many different layers of the Uinta operators may be able to produce laterally from?

JN: Correct. Well, that really depends on where you are in the basin. As you go north, the basin tends to get deeper and you have additional benches to be able to develop. The Green River Formation—that obviously is going to include the Uteland Butte—and then below that you have the Wasatch. So there are some operators that may have up to 17 [benches]. As you go to the north, you basically have a shallower environment. At that point, you may have anywhere from six to 10 different benches to produce from. It's going to be Castle Peak. It's going to be absolutely Uteland Butte and then the Wasatch. But anywhere depending on where you're at, anywhere from six to 17 benches are possible in the Uinta.

ND: The color of the wax changes north to south from black to yellow. Or is it from black to yellow? I don't remember which direction. What does that mean though?

JN: Yes, as you go north, you basically get into a yellow wax, and as you come to the south, the shallower, you have black wax. The crude is very similar. You may have a few variations, but the refiners really don't think of it much differently. They're still demanding that crude because it's a crude that they can use for lubricants and in other things that the lighter unconventional oil cannot yield. But there's really not much difference between what you have in the yellow wax and the black wax. It really depends on what you're drilling that you're more likely to get either yellow or black wax.

ND: The Uinta Basin has seen an incredible amount of transactions this year. SM Energy bought out XCL and Altamont for an average of $40,000 per flowing boe/d. The Ovintiv transaction just recently, the metrics are $54,000 per flowing boe/d.

On the one hand, one, I would think, to ask for Scout to continue to grow even organically leasing-wise or some bolt-ons in the basin, that potentially it may have become too pricey for Scout. But on the other hand, the transaction activity could also mean that it's now approaching or become the price at which you would be willing to sell.

JN: The type of investors that Scout has are investors that are looking to be long-term holds. So the likelihood of us selling is very low. We think there's plenty of opportunities to grow there. Obviously, we have a 100,000-acre position. The partnership that we have with [Wasatch Energy Management] only covers around 30,000 acres, so there's plenty of opportunity to grow and obviously right now all of the development's going into the Uteland Butte. We see opportunity in the Castle Peak and we see opportunity in the Wasatch.

So there's opportunity to grow just within the acreage that we have. We see anywhere from 100 to up to 250 wells that could be drilled just in our acreage.

ND: Super. Wonderful. Thank you so much, Juan.

JN: Thank you so much for your time.

ND: Thank you for joining us. Stay tuned here for more actionable energy intelligence.