Mustang field in final stretch, financial negotiations ongoing

Petroleum News

Mustang, the first oil field on Alaska’s North Slope to have been developed and brought online by a small independent oil company, appears to be facing its final challenge - getting its finances in order, something it hoped to have done by the end of January.

Starting production in early November, the field was offline for the entire month of December, per a filing by Mustang operator Brooks Range Petroleum Corp. with the Alaska Oil and Gas Conservation Commission. As of Feb. 5, it was not known whether production had been restored.

In a board resolution passed on Jan. 16, the Alaska Industrial Development and Export Authority agreed to change the terms of financing for Mustang to accommodate delayed loan payments by Caracol Petroleum, the field’s majority owner. It was not the first extension granted by AIDEA, but it was expected to be the last.

“I want to thank the AIDEA Board and Gov. Dunleavy for assigning a high priority to fixing this problem,” Brooks Range CEO Majid Jourabchi said after the resolution passed. “Brooks Range and our contractors on the North Slope are completely aligned in what needs to be done, and the urgency to have it be so.”

BRPC President and former CEO Bart Armfield has been with the project from the beginning.

Caracol is owned by Singapore-based Alpha Energy Holdings Ltd.

The latest agreement

“The AIDEA mission to advance economic development and create job opportunities can sometimes run into delays, disappointments, and missed production deadlines,” said AIDEA Board Chairman Dana Pruhs when announcing the revised financing terms. “Brooks Range startup problems and the oil tax credits veto three years ago, along with other factors, created the largest workout situation at AIDEA as identified by the Dunleavy transition team in early 2019. Producing from these state oil leases in 2020 requires better understanding of North Slope challenges, reserve base lending, and capital requirements.”

AIDEA was originally involved in Mustang as an investor. However, in 2019 its investment was restructured into a loan: $64 million for field development plus $6 million in interest, totaling about $70 million. The gross expected value of oil production from Mustang is $1.3 billion.

After one loan extension payments were scheduled to begin Oct. 1, 2019, several months after planned startup. Interest rate on the loan was 8%, to be paid in 29 level quarterly installments,

Under the terms of the Jan. 16 agreement, the interest rate was reduced to 6%, with the first interest payment deferred until three months after closing. The loan principal was effectively reduced to $63.6 million.

Initial payments were interest only, with principal plus interest payments starting in the seventh quarter of the schedule. Principal payments were accelerated, starting in the 14th quarter.

AIDEA also committed to make up to an additional $35 million in loan financing available after July 1 to support Mustang development drilling, contingent on oil production targets being met and the establishment of a debt service reserve fund.

Alpha investment needed

Alpha also had to strengthen management and management oversight of the Mustang project.

AIDEA consented to the sale of certain non-essential oil field equipment and other assets, with the proceeds to be used to pay off creditor debt.

AIDEA said Jan. 16 that other creditors had also agreed to mechanisms for dealing with the Mustang situation, but that not all creditors had yet “come on board.” Final agreement was needed by the end of January.

“This is a complex process and the negotiations are ongoing; however, we do not have confirmation yet from Brooks Range that those agreements have been finalized,” Karsten Rodvik, AIDEA’s external affairs officer, told Petroleum News Feb. 5.

- KAY CASHMAN