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March 2018

Vol. 23, No.10 Week of March 11, 2018

AIDEA approves budget for Mustang Road, credit line for ongoing costs

Alan Bailey

Petroleum News

During its March 1 meeting the board of the Alaska Industrial Development and Export Authority approved a resolution, setting a budget for Mustang Road LLC, the operator of the gravel road and pad for the Mustang oil field that is being developed on the North Slope. The board also approved a line of credit of up to $300,000 from an AIDEA revolving fund, to cover continuing costs being incurred by Mustang Road. This latest board decision follows a decision on June 19 last year, authorizing AIDEA to acquire a 100 percent ownership interest in Mustang Road, and the subsequent acquisition of the company in December.

Mustang development

A joint venture operated by Brooks Range Petroleum Corp. is developing the Mustang field in the Southern Miluveach unit, immediately west of the Kuparuk River field. There have been significant delays in the development project, as a result of technical difficulties with development drilling followed by funding challenges during a period of low oil prices. The road and pad for the field have already been constructed, as have many of the modules for the field facilities. Brooks Range has recently said that it anticipates development proceeding this year, with first oil in the first quarter of 2019.

The design concept for the field anticipates the field facilities becoming the fulcrum for other developments in the immediate neighborhood - the production facilities will connect with the nearby Alpine oil pipeline.

AIDEA, as part of its role to encourage industrial development in Alaska, has been providing assistance with the financing of the road, pad and processing facilities for the Mustang field. The agency acts a source of financing at attractive rates, ultimately earning a return for the state from the agency’s investments.

AIDEA funding assistance

In 2012 AIDEA lent $20 million for the construction of the road and pad by acquiring an 80 percent stake in Mustang Road. The agency anticipated making an 8 percent return on its investment. Then, in 2014, AIDEA opted to partner with CES Oil Services Pte. Ltd. to form Mustang Operations Center 1 LLC, for the construction of the Mustang processing facility. AIDEA committed up to $50 million to the $200 million to $225 million project, with a 10 percent annual dividend being part of the deal. This deal also involved MOC 1 obtaining a working interest in the Mustang field.

In June 2017 the AIDEA board approved an additional $2.5 million from an AIDEA revolving fund as bridging finance for MOC 1. The board also approved the acquisition by AIDEA of 100 percent of MOC 1, although that ownership change has not yet happened.

Under the terms of an agreement between AIDEA and Brooks Range for the use by Brooks Range of the Mustang road and pad, Brooks Ranges must pay Mustang Road, now fully owned by AIDEA, a usage fee of $50,000 per quarter, once the Alaska Department of Natural Resources has approved the easement, or the easement goes into effect, for the road and pad.

Budget for Mustang Road

As part of its March 1 resolution, the AIDEA board approved a budget for Mustang Road, for the period up to June 30, 2018. That budget encompasses costs such as property taxes, lease fees and administrative expenses. But the company has no current revenue source or operating capital, and income from Brooks Range usage fees is contingent on the timing of DNR approval of the easement acquisition. The board has, therefore, approved the line of credit of up $300,000, an amount of money that should more than cover an anticipated funding shortfall of less than $200,000.

John Springsteen, AIDEA CEO and executive director, told the board in a March 1 memorandum that continuing AIDEA support for the Mustang project is consistent with AIDEA’s mission and supports the state’s interest in independent oil development on the North Slope. Ultimately, AIDEA expects to earn revenue from Mustang Road, once the Mustang field goes into operation.

- ALAN BAILEY






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