The working interest owners of the Mustang oil field have gotten some wiggle room from two Alaska agencies.
The public auction of the field that was scheduled to be held in Barrow on July 31 has been rescheduled for Sept. 23, per Karsten Rodvik, Alaska Industrial Development and Export Authority’s external affairs officer.
Lender AIDEA is selling the property to the highest bidder to satisfy all indebtedness, together with any interest and all necessary costs and expenses.
Mustang, which is in the Southern Miluveach unit adjacent to the southwest edge of the Kuparuk River unit, is the first oil field on Alaska’s North Slope to have been taken from discovery to production by a small independent oil company - original operator and minority owner Brooks Range Petroleum Corp., or BRPC.
BRPC drilled the Mustang discovery well, North Tarn 1A, in January 2012. The field is thought to hold 21.2 million barrels of proven oil in place.
Some relief from DNR
On Aug. 27 the Alaska Department of Natural Resources’ Division of Oil and Gas approved in part a reduction in the lease rental rates for Mustang’s current working interest owners, or WIOs, which include Caracol Petroleum LLC, TP North Slope Development LLC, Nabors Drilling Technologies USA Inc. and AVCG LLC.
The agency received two applications from Mustang operator BRPC’s Vice President Harry Bockmeulen on behalf of the WIOs for two groups of leases that would reduce the rent from $250 to $10 per acre (or fraction of an acre) for the state’s interest, which was the rate during the first seven years of the leases. All the leases were eligible for a rent reduction, division Director Tom Stokes said in the approval.
BRPC had asked that the rental rate be reduced for years eight, nine and 10, but the division only approved it for the eighth year.
The two groups of leases were as follows:
* Leases 392344, 392347 and 392353.
* Leases 392361, 392362, 392394 and 392395.
The application for the first three leases was filed on June 25; additional confidential information was submitted July 15. The second application was filed on July 23.
The seven leases are contiguous, approximately 4-5 miles southeast of the village of Nuiqsut, between the Colville and Kachemach rivers.
The three leases include 7,653 acres and the four leases, or parts of leases, encompass 3,803 acres.
Two of the four leases, ADLs 392394 and 392395, include 1,280 acres and are on lands with undivided interest owned by the state of Alaska and Arctic Slope Regional Corp. or ASRC.
While the rental rate for the state’s interest will be reduced to $10 per acre for the eighth year, in accordance with the 1991 Settlement Agreement between the state and ASRC, the Aug. 27 approval by the division does not alter ASRC’s subsurface revenues in relation to its undivided interest in the leases, Stokes wrote in the approval document.
Seismic and other work
In both applications BRPC submitted a tally of exploration and development work it had completed on the leases and confidential expenditure information associated with the work, which was required for a rental reduction. (Sometimes the work was performed on behalf of the lessee.)
The four leases were issued effective Nov. 1, 2013, with a 10-year primary term; the three leases were issued Oct. 1, 2013.
All seven leases had the following rental schedule: For the first year through the seventh year, $10 per acre or fraction of an acre; and for the eighth year through the 10th year, $250 per acre or fraction of an acre.
At the division’s discretion, if the lessee had exercised “reasonable diligence in exploring and developing a lease” the annual rental could be dropped to $10, per the lease terms.
Those terms are a little different the year after sustained production has begun, but in Mustang’s case, sustained production had not commenced on any lease, so the application asserted the WIOs diligently explored and developed the leases. Specifically, it said the WIOs “acquired the Big Island 3D seismic survey and licensed the WBA 3D and SE Delta seismic surveys. Reprocessing and data merges were conducted on the Big Island 3D and WBA 3D seismic surveys. A geological and geophysical attribute study has been initiated on lands that encompass the leases and adjacent acreage during the primary term and the WIOs continue to complete the study.”
Big Island 3D has been publicly available for purchase through DNR’s Geologic Materials Center, or GMC, since 2018. (The GMC is part of the Division of Geological and Geophysical Surveys.)
Public information related to the WBA and SE Delta surveys was not available, but the permit serial numbers on BRPC’s application indicate they were shot in the 1990s, so they could have been acquired privately by Mustang’s WIOs for the purpose of reprocessing.
The seismic and reprocessing work “added to the WIOs understanding of prospective reservoir targets on the leases and adjacent acreage. The work performed continues to inform new phases of exploration and development for the leases,” Stokes said in the approval.
He also noted that rental for the ninth and 10th years of the primary term of the leases will be $250 per acre “unless subsequent rental reduction applications are approved.”
Looking to cover debt
Mustang began producing oil in early November 2019, per the Alaska Oil and Gas Conservation Commission. The field produced 10,999 barrels of oil that month, averaging 478 barrels a day for the 23 days it was in production.
Mustang was offline for the entire month of December and has remained so. The process of putting the field in cold shutdown commenced in April.
“The assets being sold are the real property as described in the Notice of Sale (first published on June 14), and the personal property as related to the Southern Miluveach unit,” Rodvik told PN July 15.
As of April 29, the first of two notes on the Mustang assets, including principal, late fees, accrued interest and foreclosure fees, was listed as $70,290,445.91 in the legal notice. The second note shows a principal balance of $6,119,409.00, accrued interest of $608,252.52, zero late fees, and a per diem of $2,179.52. The balance continues to accrue interest.
The Mustang assets include a gravel pad (on ADL 390680 approximately 16 miles east of Nuiqsut) and road, pipelines, related facilities and State of Alaska leases which means the sale is subject to approval by DNR.
The bidder must use its “best efforts to obtain DNR approval within 30 days after the auction date,” the legal notice said.
If the bidder does not obtain that approval, or otherwise confirm in writing to the trustee that it will purchase the property without obtaining DNR’s approval within 30 days of the auction, the trustee has the right to cancel the sale to the bidder.
Payment must be made at the time of sale in cash or by cashier’s check. Or AIDEA, the original beneficiary, may enter a credit offset bid consisting of sums due it under the deeds of trust and notes.
