Earlier this year, Brooks Range Petroleum Corp. said that it expected to begin oil production from the Mustang field at the Southern Miluveach unit in November 2017.
The operating subsidiary of a three-company joint venture had initially expected to bring the field online in April 2016 and later pushed the start date toward the end of 2016.
A comparison puts those delays in perspective. If the company hits its target date, the Mustang project will have taken almost seven years between the first exploration wells in early 2011 and commercial production in late 2017. How does that compare to the time span between the official discovery date and the start of commercial production at the three most recent North Slope fields to come online? Point Thomson took 39 years, Nikaitchuq took seven years and Oooguruk took 16 years. Even measuring Point Thomson and Oooguruk from more recent development campaigns yields a favorable comparison.
“We’re off to a new start now,” Brooks Range Petroleum Operations and Strategy Manager Jack Laasch told the Alaska Support Industry Alliance in May 2016. He was referring to both the resumption of development work and to new ownership.
JK E&P Group Pte. Ltd., Thyssen Petroleum North Slope Development LLC and MEP Alaska LLC acquired BRPC and a package of North Slope properties from Alaska Venture Capital Group and Ramshorn Investments Inc. for $450 million in mid-2014.
In return for using the Alaska Industrial Development and Export Authority as a financier for two major infrastructure projects at the Mustang project, the consortium handed over some working interest in the leases to a pair of public-private joint ventures. After all the dust had settled from those deals, BRPC was operating the Southern Miluveach unit on a behalf of seven working interest owners: JK E&P subsidiary Caracol Petroleum LLC (36.28 percent), TP North Slope Development LLC (22.46 percent), Mustang Operations Center 1 LLC (20 percent), MEP Alaska LLC (10.37 percent), Ramshorn Investment Inc. (6.08 percent), AVCG LLC (3.82 percent) and Mustang Road LLC (1 percent).
‘Very high level’
At the time of the deal, BRPC expected to drill three wells toward the end of 2014, undertake facilities construction throughout 2015 and bring the field online in early 2016.
The company saw the project as a potential anchor for future development between the Kuparuk River unit and the Colville River unit, a region that ARCO Alaska once evocatively labeled the “billion-dollar fairway.” Although BRPC originally considered building a 7,500 barrel per day facility, the company eventually doubled the capacity to 15,000 bpd to accommodate potential third-party shippers in the region.
BRPC completed an initial three-well drilling program in early 2015. All three wells faced complications, making them unusable for production without additional work. A subsequent “root cause analysis” determined that the company needed to acquire a new rig or significantly modify its existing rig to accommodate high pressure in the reservoir.
Analyzing and addressing the problem occupied the remainder of 2015 and the first half of 2016. By late May 2016, Laasch said the company would be ready to resume its drilling program at Mustang with a modified rig sometime in the second quarter of 2017.
BRPC recently told the state that it was currently discussing its needs with contractors and would schedule the retrofitting project with an eye toward the late 2017 startup date.
Earlier this year, the Alaska Department of Natural Resources extended the term of the Southern Miluveach unit agreement until December 2017 to accommodate the delay.
In the most recent plan of development released in late September 2016, BRPC presented a timeline for bringing Mustang online between October and December 2017. The company described its current timeline as a “very high level” assessment based on its current understanding of the field and current economic conditions within Alaska.
Roads and pads for the project were completed in 2013 and most of the above ground pipeline supports were installed in early 2015. Engineering work on the Mustang Operations Center No. 1 processing facilities was about 65 percent complete when BRPC slowed its timeline in the third quarter of last year. Before the slowdown, BRPC contractors in Canada completed fabrication of the oil train modules, the gas compression train and gas conditioning train. The modules are currently staged in Calgary and Nisku, Alberta, according to the company. BRPC also finished procuring much of the long-lead engineering equipment that it had ordered before it slowed down the project. The equipment is being stored at three facilities in Anchorage, according to BRPC.
Another reason for the slowdown, according to BRPC, was that the downturn in oil prices made it difficult to attract capital. If funding comes through before the end of this year, the company expects to resume the engineering and procurement activities that were stalled last year and begin the process of finding fabrication and installation contractors.
According to the most recent timeline, BRPC will install communication infrastructure toward the end of this year and build early operations centers and camps early next year.
Prior to the expected arrival of the first Alaska-fabricated modules in April 2017, the company plans to complete pipeline installation and interconnection and some remaining pad work. The last Alaska-fabricated modules are expected in September 2017, with the Canadian-fabricated modules arriving in August 2017 and installed by October 2017, providing two-to-three months for conducting the final system-wide review of facilities.
The company expects Mustang to initially produce approximately 6,000 barrels per day and gradually increase to a peak of 12,000 bpd by late 2018 and into 2019. A third-party evaluation suggests 24.7 million barrels of proved oil reserves, almost 44 million barrels of probable reserves and 51 million barrels of possible reserves.
Economics
A major challenge for the project is the combination of oil prices and tax credits.
When BRPC announced the Mustang discovery in early 2012, the prevailing price of Alaska North Slope crude oil was more than $120 per barrel. Speaking to the Commonwealth North Energy Action Coalition in June 2014, then-Chief Operating Officer Bart Armfield said that the project would be “viable” between $80 and $120 per barrel. In his presentation to the Alaska Support Industry Alliance in May 2016, when oil prices were approximately $46 per barrel, Laasch said the company was committed to bringing the project online at any price but was looking for $50 per barrel or higher.
The Southern Miluveach unit benefits from its location. It sits along the southwestern border of the Kuparuk River unit, and the Mustang development is less than one thousand feet from the Alpine oil pipeline, which follows a series of pipelines to the trans-Alaska oil pipeline and outside markets. The ASRC Exploration LLC-operated Placer unit is immediately to the north, providing a potential future customer for facilities.
As of May 2016, Laasch said the company expected to spend another $8 million on field engineering, $25 million on fabrication and $33 million on the installation of facilities on the field pad, in addition to $145 million already spent between December 2014 and November 2015 - $85 million for surface facilities and $60 million for drilling wells.
