The joint venture partnership of Kirkwood Resources and NERD Energy, which does business under the banner of Wesco Operating Co., has purchased Fidelity Exploration & Production's interests and assets near Moab, including the Cane Creek Unit 12-1 oil well. The well near Dead Horse Point State Park was identified as the most productive onshore oil well in 2012. [Photo courtesy of Fidelity Exploration and Production]

Fidelity Exploration & Production’s local oil and gas assets are under new ownership.

Joint venture partners Kirkwood Resources and NERD Energy bought the Moab-area leases and interests in the Big Flat area, after Fidelity’s parent company MDU Resources got out of the exploration and production business for good.

The assets span across more than 50,000 acres of federal and state lands around state Route 313 northwest of Moab, and include the Cane Creek Unit 12-1 oil well – the top-producing onshore site in the contiguous U.S. four years ago.

Kirkwood Oil and Gas owner Bob Kirkwood said his company is working closely with Fidelity as that company transitions out of business and ties up its loose ends.

“Whenever you buy an asset or transfer an asset, there are things that the previous operator needs to close the loop on,” Kirkwood said.

It’s making the most of that time by reviewing Fidelity’s proposals that were on the drawing board at the time of the sale, such as the West Fertilizer project, which includes plans for up to 48 new oil and gas wells on 16 five-acre pads in the greater Big Flat area.

“We’re trying to (prioritize) and decide which Fidelity things we want (to pursue),” Kirkwood said.

BLM Utah Deputy State Director of Lands and Minerals Kent Hoffman said his agency is still going through the mound of paperwork that spells out the details of the sale.

“We have received some of the documents requesting ownership assignments but (have) not yet received all documents for all leases,” he told the Moab Sun News. “We are initiating (the) processing of the documents we have.”

Kirkwood, meanwhile, said his company plans to spend the better part of 2016 familiarizing itself with its new operations.

“We’re going to be spending the next six months or so trying to get our arms around it,” Kirkwood said. “It’s a big project, so it’s going to take us a while.”

All but one of Fidelity’s 10 local employees have signed on to work for the new joint venture; the other employee opted to take a severance package that Fidelity offered, according to Kirkwood.

For the time being, Kirkwood said he doesn’t envision any huge changes in operations. While crude oil prices are up from this February’s lows, market conditions aren’t especially favorable toward new development, he said.

“Energy prices are pretty low right now,” he said. “I don’t think that we’re going to drill a lot of wells (in the immediate future).”

The new joint venture partnership does business under the banner of Wesco Operating Co., which is affiliated with Kirkwood Oil and Gas.

The small, family-owned company operates somewhere between 500 to 600 wells in Wyoming, Montana, North Dakota, Colorado and Nevada. It currently employs about 60 people, with about one-third of its workforce based at its headquarters in Casper, Wyoming.

Kirkwood’s father, William Kirkwood, worked for Shell Oil until the mid-1960s, and when that company left Casper, he went off on his own and began to pick up “odds and ends” in the energy sector.

William Kirkwood’s geologist son Steve joined him in the late 1970s, and Bob Kirkwood – a petroleum engineer by training – followed in 1982. They continued to buy oil and gas assets here and there, while weathering the industry’s upheaval during the 1980s, when global oil prices fell into the single digits.

“They were pretty tough times,” Bob Kirkwood said. “We learned a lot about what we don’t want to do.”

At one low point in the mid-1980s, Kirkwood Oil and Gas grew overwhelmed with debt. It emerged from bankruptcy in the early 1990s as a fiscally conservative and risk-averse company that doesn’t borrow much money, Kirkwood said.

“We are a very prudent operation,” he said.

Fidelity’s parent company says time was right to sell its assets

At one time, MDU Resources considered its Big Flat interests to be one of its core assets. But a company spokesperson said last December that MDU sold its exploration and production arm because its investors were not happy with the cyclical nature of the business, noting that the oil and gas industry will always be subject to the market’s whims.

MDU Resources President and CEO David Goodin said the time was right to move ahead with the divestment process.

“Exiting the (exploration and production) business lowers our risk profile, and it allows us to focus more on growing our other business operations,” Goodin said.

Now that MDU has sold Fidelity’s remaining assets, the subsidiary’s headquarters in Denver are expected to close by mid-year, according to MDU.

Fidelity acquired the Big Flat-area leases in 2005, and it began to develop the first phase of its local operations in 2008.

Under Fidelity’s watch, oil production at those wells jumped from 23,301 barrels in 2007 to a high of more than 1.31 million barrels in 2014, according to the Utah Division of Oil, Gas and Mining (UDOGM). Natural gas production also increased, albeit on a smaller scale.

The rise in development near the gateway to Dead Horse Point State Park, Canyonlands National Park’s Island in the Sky District and popular recreational areas on nearby BLM-administered lands proved to be controversial.

In 2014, environmentalists raised safety concerns about the approval and installation of the Dead Horse Lateral natural gas pipeline, as well as a new natural gas processing facility near Blue Hills Road to the north. More recently, recreationists questioned Fidelity’s plans for new oil and gas wells near Hell Roaring and Spring canyons.

Kirkwood said his company is well aware that it will be operating in an environmentally sensitive area, and added that it takes its responsibilities seriously.

It’s continuing to flare off some natural gas that is a byproduct of oil production, but Kirkwood said he hopes that will come to a stop.

“It’s not a desirable thing,” he said.

Right now, he said, the company is working diligently to resolve a “small issue” with the transporter that conveys the natural gas through the pipeline to the Blue Hills processing plant.

“We hope to have that taken care of pretty quickly,” he said.

As a corporate citizen, he touted his company’s commitment to working with the U.S. Environmental Protection Agency and other federal regulators, as well as their state counterparts.

“It’s very important for us to do the right thing with all of the different agencies,” he said.

Kirkwood said his company also looks forward to working with local stakeholders who have interests in the Big Flat area.

“I can’t say that we will always agree (with them),” he said. “But we will try to get along.”

Southern Utah Wilderness Alliance field attorney Neal Clark said his organization doesn’t have specific concerns about the joint venture partnership because it knows very little about either company.

But the fact that the lesser-known companies bought the Big Flat assets suggests that the project is more speculative and challenging than Fidelity led some to believe, he said.

“It’s always been known as a pretty tricky place to drill for oil,” he said.

Drilling challenges aside, Clark said the area’s location near state and national parks — as well as prime recreation areas — make it a less-than-ideal place for more development.

“It illustrates why the BLM needs to complete the Master Leasing Plan process (for oil, gas and potash development in the area),” he said.

Nine of 10 employees sign on with new venture

We’re going to be spending the next six months or so trying to get our arms around it … It’s a big project, so it’s going to take us a while.