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AIDEA picks up Mustang loan from DOR as precursor to sale
Alan Bailey Petroleum News
On April 22 the board of the Alaska Industrial Development and Export Authority passed a resolution allowing AIDEA to purchase an Alaska Department of Revenue loan associated with the development of the Mustang oil field on the North Slope. The purpose of the approved transaction is to enable AIDEA to deal with the loan in conjunction with the sale of its interests in the Mustang development to CaraCol Petroleum LLC, the major working interest owner in the field.
Ownership interests AIDEA has had ownership interests in two business entities involved in the project: Mustang Operations Center 1 LLC and Mustang Road LLC. The agency has used these entities as vehicles for financial support for the construction of the field’s operational facilities, and the field’s gravel pad and road. In May of last year, the AIDEA board decided to sell MOC 1 to CaraCol for $52.5 million and Mustang Road for $8.5 million. CaraCol was to fund its purchase through an AIDEA loan of $64 million plus any AIDEA costs associated with the transaction. The end result would be the conversion of AIDEA’s involvement in the development from part ownership to simply being a lender for the project.
When in May the board agreed to change the financing arrangements, John Springsteen, then executive director of AIDEA, commented that the changes in the financing reflected the fact that the project had lower capital needs following a change in the project’s development plan. The initial scale of the development had been shrunk in response to a drop in the price of oil since the original development plan was put together.
DOR loan A complication in the changes to the financing results from the fact that MOC 1 has a loan from the Department of Revenue to cover state tax credits which are owed to MOC 1 but which have not been paid. The concept behind this loan is that the tax credit payments, when made, would be used to pay off the loan, with the payments going direct to DOR.
Under the terms of AIDEA’s April 22 resolution, if CaraCol buys MOC 1, AIDEA will purchase the debt from DOR for the debt’s principal of $16 million plus accrued interest. Subsequently, tax credit payments used to pay off the loan would be paid to AIDEA rather than to DOR, with the loan, in effect, becoming a second AIDEA loan for the Mustang project. AIDEA has the authority to extend the maturity date for the tax credit related loan. And any amount, up to $10 million, that CaraCol owes on the loan when the loan matures could be added to the other AIDEA loan.
Nearing startup As reported previously in Petroleum News, the project is moving towards initial oil production this year, with the installation of production facilities and of an oil export pipeline connecting to ConocoPhillips Alpine line, for the shipment of oil to the trans-Alaska pipeline. Although the original plan for the field envisaged the installation of facilities with a capacity of 15,000 barrels per day of oil, that plan has been scaled back to the installation of a smaller temporary facility - the idea now is to start small and grow over time. Field operator Brooks Range Petroleum has said that it anticipates initial production of about 1,000 barrels per day from a single well. With the drilling of a sidetrack lateral to another well and the drilling of two additional wells, production should ramp up to about 6,000 barrels per day by the end of the year, the company has said.
A small independent This will be the first oil field developed by a small, independent company to go into operation on the North Slope. In addition, companies such as Oil Search have been able to make use of the Mustang gravel road and pad, to help with access to off road drilling sites on the east side of the Colville River delta.
AIDEA’s mission is to provide financing for Alaska businesses and hence to expand the state’s economy and create jobs.
- ALAN BAILEY
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