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New owner for Mustang
AIDEA board authorizes director to finalize sale of Slope field to Finnex
Kristen Nelson Petroleum News
The Mustang field, moribund since initial production in 2019, is slated to have new ownership within the month, after the Alaska Industrial Development and Export Authority board voted in September to authorize the agency's executive director and staff to finalize an agreement with Finnex Operating LLC for the sale of AIDEA's interest in Mustang.
The resolution was approved unanimously by the board Sept. 21. Executive Director Randy Ruaro told the board the agreement would be finalized within 30 days.
The Southern Miluveach unit, SMU, lies between the Kuparuk River and Colville River units on Alaska's North Slope. The field, originally developed by Brooks Range Petroleum Corp., produced for just one month, a total of 10,999 barrels in October 2019, according to Alaska Oil and Gas Conservation Commission records and is currently shut-in.
In a Sept. 21 memorandum to members of the AIDEA board, Ruaro described the board's involvement through Mustang Holding LLC. AIDEA's investment began in 2012 with $20 million for construction of an ice road, a gravel mine, a mine access road, a site access road from Mustang to the Kuparuk River unit road system and a main production pad. A further $50 million was invested in 2014 in a limited liability company, MOC1, to finance construction of a 15,000 barrel per day processing facility, along with a bridge loan of $2.5 million.
Caracol Caracol Petroleum LLC agreed to buy MRLLC, MOC1 and BRPC in 2018, consolidating the Mustang field and the Southern Miluveach unit.
AIDEA's investment was restructured as a loan to finance the purchase and it acquired the Department of Revenue direct loan to MOC1 secured by associated oil and gas tax credit.
While Caracol and BRPC achieved first oil production, they didn't have gas injection equipment or AOGCC permits and "significantly exceeded their operating and capital budget, creating material cash flow deficiencies that impaired their ability to fulfill immediate financial obligations and the approved plan of development," Ruaro said. When Alpha Energy Holdings Ltd., Caracol's parent company, declined additional funding, Caracol defaulted on initial payment and other obligations to AIDEA, which took action to declare a default.
In January 2020, AIDEA authorized the executive director to finalize and sign an amended loan agreement, subject to Alpha providing a minimum of $60 million of new capital.
But by March 2020, Caracol and Alpha had failed to meet conditions for the restructured agreement and in May, AIDEA began non-judicial foreclosure proceedings on the SMU leases and related collateral.
Finnex Mustang assets were expected to be transferred to "a Thyssen Petroleum owned special purpose entity, Finnex, LLC," immediately following the non-judicial foreclosure, Ruaro said.
In September 2020, Mustang Holding LLC, a wholly owned subsidiary of AIDEA, was vested with a 70.1% working interest ownership in the South Miluveach unit, 100% of the membership interests in MOC1 LLC (with 20% interest in SMU) and related assets, and Mustang Holdings, as operator, took steps to bring operations into "a regulatory compliant cold shut down status" as the agreement with Thyssen was never completed.
In August 2021 the board concluded that divesting Mustang Holding was in the best interests of AIDEA.
An initial non-binding term sheet with Finnex was terminated in 2022 and efforts have been ongoing in 2023 to reach an agreement with Finnex.
Last November the Alaska Department of Natural Resources' Division of Oil and Gas rejected a plan of development filed by Mustang Holding, finding that the SMU was without a qualified operator in place and that approving further plans of development "does not protect the interest of all parties."
Under the previous POD, approved in 2021, Mustang Holding maintained cold shutdown and provided protection for surface equipment, wellbores, pipelines, roadways, well pads and related equipment.
This March the Mustang Pipeline was physically disconnected from the Alpine Pipeline.
The resolution approved by the AIDEA board on Sept. 21 approves disposition of Mustang Holding and its assets to Finnex Operating and authorizes the executive director and AIDEA staff to agree with Finnex on a transaction maximizing return or minimizing loss to AIDEA.
Finnex, Fairweather Rick Fox of Fairweather LLC, a Doyon company, told the board Sept. 21 that Fairweather supported Mustang for many years, and has been asked to and agreed to take 30 cents on the dollar for what is it owed for work done in support of the agreement. He said Fairweather believes Finnex will follow through on development and supports the transfer of the assets to Finnex.
Gordon Pospisil, president and CEO of Finnex, said Finnex will become unit operator and return the unit to production, using three-phase processing equipment and reconnecting the pipeline.
Of four wells drilled at Mustang, Pospisil said one is producible in paying quantities.
During construction 120 jobs are expected, he said, with 10 to 20 permanent jobs at the field.
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