With more than $70 million invested and an expected gross value from oil production of $1.3 billion, lender Alaska Industrial Development and Export Authority is putting the assets of the North Slope Mustang oil field up for sale through a competitive bid process.
AIDEA passed a resolution Aug. 12, approving the “divestiture of the assets of, or the equity interests in, Mustang Holding LLC,” the entity established to hold the foreclosed assets formerly run by the company that discovered the field, Brooks Range Petroleum Corp., or BRPC.
AIDEA-owned Mustang Holding is the current operator of the field, which is in cold shutdown and part of the Southern Miluveach unit. An increased budget for the balance of 2021 was also part of the resolution.
The increase included the engagement of attorney Jeffrey Feldman as lead counsel in the divestment. Per a profile posted online, he is well versed in the real estate market and “all facets of the sale process.”
The revised 2021 budget is $500,000 more than the previously approved $1.59 million, bringing it to $2.1 million. The resolution also called for the transfer of additional funds in the amount of $850,000 from the Revolving Fund “in order to responsibly carry the project in cold shutdown status through calendar year 2021.”
Furthermore, the resolution said the budget and project plan can be “non-materially amended and approved” at the discretion of AIDEA’s executive director, Alan Weitzner.
The budget includes unforeseen pad remediation work to maintain Mustang in cold shutdown, property taxes, and professional fees regarding the competitive sale process, AIDEA staff said in background material.
Mustang assets
In a notice of sale published in June 2020, AIDEA listed more than $76 million in principal, late fees, accrued interest and foreclosure fees on the property.
The sale included a gravel pad and road, pipelines and related facilities at the partially completed Mustang field, as well as the five State of Alaska leases underpinning the Southern Miluveach unit. (A buyer would have to be approved by Alaska’s Division of Oil and Gas to operate the leases.)
In briefing the board prior to the vote on Aug. 12, AIDEA’s chief investment officer for Mustang, Morgan Neff, said: “What we’re looking at now as we’re coming up on the one-year anniversary of the foreclosure of this asset is to properly move forward and monetize it by discussing and engaging with interested third parties that are qualified and have the ability to properly develop this asset that could, over time generate in excess of $200 million in royalty and tax revenue for the state,” adding AIDEA is “looking at a very competitive process for this asset.”
Story of a broken dream
In its original 2020 plan of development for the unit that was filed with the division, BRPC described plans to advance an early production facility, or EPF, at the unit.
The revenue generated from initial production would have been used to finance a 15,000-barrel-per-day central processing facility, which would accommodate Mustang production as well as third-party production from other independent operators in the area.
With the larger processing facilities in place, BRPC would have begun an initial development drilling campaign with up to 10 producers and 11 injectors.
BRPC was formed in 2004 as the operating arm of the Kansas-based Alaska Venture Capital Group LLC, which was created to pursue large or mid-sized oil fields passed over during the first decades of North Slope development. The lead individual was Bart Armfield.
The small independent company spent eight years looking for the right North Slope play before drilling the North Tarn No. 1A discovery well in 2012. The resulting Mustang field is estimated to hold some 21.2 million proven barrels of oil in place.
BRPC then spent the next seven years responding to a series of technical, economic, political and logistical challenges at the Mustang field. While some of those complications were inherent to the field and to the company, others were external, such as the crash in oil prices in 2014, as well as the 2017 veto by then-Gov. Bill Walker of previously approved oil and gas tax credits designed to offset exploration expenses.
Despite all, with the start of commercial production on Oct. 30, 2019, BRPC became the first small independent oil company in Alaska history to bring a North Slope field from discovery to production.
The company conducted an extended production test from its North Tarn 1A well using its temporary processing facilities and exported oil to the Alpine Pipeline System. By the time a flaring permit for the unit expired on Nov. 27, 2019, the company had produced 11,944 barrels of oil, according to its estimates.
Although the production was small by North Slope standards, it was a sign that the basin was at least theoretically accessible to players beyond multinational majors and even beyond large and mighty independents with strong balance sheets.
But the challenges that had plagued earlier years continued apace.
As the production test was proceeding, a private sector backer failed to meet its financial obligations on the project. BRPC and working interest owners began refinancing a major loan with AIDEA, their main financial backer.
According to BRPC, the authority issued a notice of default on that debt in early October, and then, in early November exercised its rights to accelerate debt repayments.
BRPC suspended operations.
Even after negotiating new financing terms in January 2020, the immediate economic conditions surrounding the project proved to be insurmountable, including low oil prices in the early days of the coronavirus pandemic.
BRPC put the field in warm shutdown in early April 2020.
Foreclosure followed, with AIDEA working closely with former investors and creditors to put a deal together. Again, deals fell apart and payments were not made, which brings us to AIDEA’s continued efforts today to secure a qualified owner/operator for Mustang.
