Subsurface flow is influenced by the heterogeneity of the porous medium and in particular by the presence of faults and large fractures which act as preferential paths for the flow. In this work we present a robust numerical method for the simulation of two- phase Darcy flows in heterogeneous media and propose a possible treatment of fractures by means of the extended finite element method, XFEM, and the coupling with a reduced model for the flow inside the fracture. The use of extended finite elements allows to handle fractures that are non conforming with the underlying mesh, thus increasing the applicability of the proposed scheme to the simulation of realistic problems such as oil migration in fractured basins, CO2 storage or pollutant dispersion in groundwater flows.