Mustang in loan limbo
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Alaska North Slope oil field still offline, no timetable for sustained production
The Mustang development loan once again was the subject of an executive session at a board meeting of the Alaska Industrial Development and Export Authority on May 20. The confidential session was not expected to produce a resolution to the delinquent status of the loan, and it lived up to those expectations.
Part of the problem is likely because Caracol Petroleum, the field’s majority owner, is owned by Singapore-based Alpha Energy Holdings Ltd., which under the latest agreement with AIDEA was to invest $60 million in Mustang in the first quarter of this year and advance at least $15 million to Caracol in the form of equity or a senior secured loan.
Karsten Rodvik, AIDEA’s external affairs officer, told Petroleum News May 15 that Alpha has not met those commitments.
Still offlineThe first oil field on Alaska’s North Slope to have been developed and brought online by a small independent oil company, Mustang began production in early November under operator Brooks Range Petroleum Corp., or BRPC.
The oil field was offline for December and has remained so.
Mustang loan payments were initially scheduled to begin Oct. 1, 2019, several months after the anticipated startup, which was delayed. The interest rate on the loan was 8%, to be paid in 29 level quarterly installments,
In a board resolution passed on Jan. 16, AIDEA agreed to change the terms of financing for Mustang to accommodate field setbacks and delayed loan payments by Caracol.
Under the terms of the new agreement with AIDEA, the interest rate was reduced to 6%, with the first interest payment deferred until three months after closing. The loan principal was effectively reduced to $63.6 million.
Initial payments were interest only, with principal plus interest payments starting in the seventh quarter of the schedule. Principal payments were accelerated, starting in the 14th quarter.
AIDEA also committed to make up to an additional $35 million in loan financing available after July 1 to support Mustang development drilling, contingent on oil production targets being met and the establishment of a debt service reserve fund.
Bumpy roadWhen announcing the revised financing terms Jan. 16 AIDEA Board Chairman Dana Pruhs said AIDEA’s mission to advance economic development and create job opportunities “can sometimes run into delays, disappointments, and missed production deadlines. Brooks Range startup problems and the oil tax credits veto three years ago (under the Walker administration), along with other factors, created the largest workout situation at AIDEA as identified by the Dunleavy transition team in early 2019. Producing from these state oil leases in 2020 requires better understanding of North Slope challenges, reserve base lending, and capital requirements.”
That was before the COVID-19 pandemic and the oil price crash.
So, in light of the current oil market and the uncertainties that surround the pandemic, how does AIDEA plan to move forward?
“Current volatility in the oil markets has created additional issues for the Mustang project,” Rodvik said. “AIDEA is currently reviewing its alternatives as a creditor to the project.”
Has a timeline for putting Mustang back online been established?
“We haven’t received any specific timeline for achieving sustained oil production from the field,” he said.
BRPC drilled the Mustang discovery well in January 2012 in the Southern Miluveach unit, adjacent to the southwest edge of the Kuparuk River unit.