Providing coverage of Alaska and northern Canada's oil and gas industry
June 2018

Vol. 23, No.23 Week of June 10, 2018

AIDEA converts its Mustang ownership interest to loan financing

Alan Bailey

Petroleum News

During its May 31 meeting the board of the Alaska Industrial Development and Export Authority passed a resolution converting its ownership interests in the Mustang oil field on the North Slope to a loan to CaraCol Petroleum LLC, one of the field’s working interest owners. The deal involves AIDEA selling its ownership interest in Mustang Operations Center 1 LLC to CaraCol for $52.5 million, and its interest in Mustang Road LLC for $8.5 million. CaraCol will fund its purchases through an AIDEA loan of $64 million plus any associated AIDEA costs. MOC1 and Mustang Road 1 are vehicles though which AIDEA has provided financial support for the field development and are minority working interest owners in the field.

Working interest owners

Brooks Range Petroleum LLC operates the field on behalf of its working interest owners, which also include TP North Slope Development LLC, MEP Alaska LLC, Nabors Drilling Technologies USA Inc. and AVCG LLC.

As collateral for its loan to CaraCol AIDEA is retaining its security interests in Brooks Range’s North Slope assets and in the assets of MOC 1 LLC. And, in addition to the repayment of principal and interest for the loan to CaraCol, AIDEA will receive options in CaraCol’s parent company, Alpha Energy Holdings Ltd.

Although Mustang is a modest sized oil field, the field lies at a convenient location close to the existing North Slope infrastructure, in particular the Alpine oil pipeline. Brooks Range has been following a strategy of developing field facilities that can act as hub facilities in the future for other developments nearby, as well as supporting the Mustang field itself. AIDEA sees providing financial support for the field as consistent with the agency’s mission of facilitating commercial activity in Alaska.

Purchase of field assets

In 2012 AIDEA purchased an 80 percent stake in Mustang Road LLC, the company that would build the gravel road and pad for the Mustang development. And in 2014 the agency invested in MOC 1, the company that would develop the Mustang processing center.

John Springsteen, AIDEA CEO and executive director, told the AIDEA board that, subsequent to the investment in MOC 1, the downturn in the oil industry caused financing problems for the Mustang development - in February 2016 AIDEA and Brooks Range agreed on a “warm standby” plan for the development. And, although that plan expired at the end of November 2016, Brooks Range and AIDEA continued to seek financing for the project.

In June 2017 AIDEA approved an additional investment of $2.5 million into the development. That investment, designed to protect the investment in equipment already developed for the field, enabled the successful drilling and testing of the North Tarn 1A well in the field in November 2017. This successful test demonstrated a well that could be commercially supportable.

Revised development plan

In parallel with this new drilling and testing, Brooks Range has prepared a revised development plan involving the installation of a rented modular production facility that would enable early production from the field but would be replaced by permanent production facilities, once those are completed. The new plan envisions Mustang oil production of some 2,000 barrels per day by the beginning of 2019, rising to 5,000 barrels per day by the end of that year.

The resulting reduced capital needs of this new development plan are causing a shift in AIDEA’s role in the project from being an owner to a lender in the project, Springsteen explained. Hence the switch from ownership interests in MOC 1 and Mustang Road 1 to a loan to CaraCol.

During its May 31 meeting the AIDEA board also approved a line of credit of up to $1 million for MOC 1, to act as bridging finance for costs associated with MOC 1.


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