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Producers 2020: Finnex takes the reigns at Mustang
BRPC brought field online after seven years of work, but challenges persisted
Eric Lidgi for Petroleum News
The story of the Mustang field has been one of frustration and persistence. It is the frustration and persistence specific to small independent companies on the North Slope.
Finnex LLC recently assumed control of the initial development of the South Miluveach unit, located in the fairway between the Kuparuk River unit and the Colville River unit. The company is currently working with its partners on a “recovery plan” to resume development work stalled by financial challenges.
Although the future of the project appears to belong to Finnex, the history of the project to date belongs mostly to Brooks Range Petroleum Corp.
The small independent company spent eight years looking for the right North Slope play before eventually drilling the North Tarn No. 1A discovery well in 2012. The resulting Mustang field is estimated to hold some 21.2 million proven barrels of oil in place.
BRPC then spent the next seven years responding to a series of technical, economic, political and logistical complications at the Mustang field. While some of those complications were inherent to the field and to the company, others were external, such as the crash in oil prices in 2014, as well as the 2017 veto by Gov. Bill Walker of previously approved oil and gas tax credits designed to offset exploration expenses.
With the start of commercial production on Oct. 30, 2019, BRPC became the first small independent oil company in Alaska history to bring a North Slope field from discovery to production. The company conducted an extended production test from its North Tarn 1A well using its temporary processing facilities and exported oil to the Alpine Pipeline System. By the time a flaring permit for the unit expired on Nov. 27, the company had produced 11,944 barrels of oil, according to its estimates. Although the production test was small and temporary, it was a sign that the basin was at least theoretically accessible to players beyond multinational majors and even beyond large and mighty independents with strong balance sheets.
But the complications that had plagued earlier years continued apace.
As the production test was proceeding, a private sector backer failed to meet its financial obligations on the project. BRPC and working interest owners began refinancing a major loan with its main financial backer Alaska Industrial Development and Export Authority. According to BRPC, AIDEA issued a notice of default on that debt in early October. And then, in early November, it exercised its rights to accelerate debt repayments. In response, BRPC suspended operations until it could secure financing it needed.
The dream of a small independent operator had lasted one month.
BRPC operated the unit on behalf of a joint venture - Caracol Petroleum LLC, TP North Slope Development LLC, Nabors Drilling Technologies USA Inc. and AVCG LLC.
Even after negotiating new financing terms in January 2020, the immediate economic conditions surrounding the project proved to be insurmountable. BRPC said that the low oil price environment in the early days of the coronavirus pandemic made it “very difficult” to find new financing “in the short term.” The company put the field in cold shutdown in early April 2020 and began some demobilization activities.
And then in mid-September 2020, AIDEA authorized a sale of the field to Finnex LLC and approved a debt settlement and restructuring agreement, DRSA, between AIDEA, Finnex and the major creditors on the project.
The Anchorage-based Finnex was formed on June 23, 2020, according to filings with the Alaska Division of Corporations, Business and Professional Licensing. According to the filing, Thyssen Petroleum Alaska LLC holds 85% of the company and Galactico LLC holds the remaining 15%.
Even with this latest round of setbacks, work continues.
According to the latest plan of development, submitted in early October 2020, the DRSA will allow the companies to restart design and engineering work to complete Mustang production facilities.
“Procurement of materials and module fabrication for the support modules and pad infrastructure will begin to meet a goal of production from the wells drilled and future wells to be drilled by the 3rd quarter of 2021,” the companies wrote.
Despite the recent challenges, and the lost year of the proposed schedule, the companies continue to believe that the underlying project “remains fundamentally sound and (capable) of being brought to fruition.”
Help from AIDEA Brooks Range Petroleum Corp. was formed in 2004 as the operating arm of the Kansas-based Alaska Venture Capital Group LLC, which was created explicitly to pursue large or mid-sized oil fields passed over during the first decades of North Slope development.
In the years following the 2012 discovery of Mustang, a joint venture comprising JK E&P Group Pte. Ltd., Thyssen Petroleum North Slope Development LLC and MEP Alaska LLC acquired the entity BRPC as well as a package of associated North Slope properties for $450 million from AVCG and its partner Ramshorn Investments Inc.
Singapore-based Caracol Petroleum also joined the joint venture. The company later failed to meet loan obligations to AIDEA, which ultimately prompted the foreclosure.
AIDEA has been involved in the project since its early days.
To encourage development, AIDEA provided financing for a $25 million preliminary infrastructure program and a $225 million processing facility for the standalone field.
Through the deal, AIDEA contributed a portion of the costs in return for a set rate of return and a small working interest ownership in the Southern Miluveach unit leases.
The financing helped BRPC secure investment from the private sector joint venture that acquired the company and launched a development program - construction and drilling.
In a notice of sale published in June 2020, AIDEA listed more than $76 million in principle, late fees, accrued interest and foreclosure fees on the property. The expected gross value of oil production from the Mustang field is estimated at $1.3 billion.
The sale included a gravel pad and road, pipelines and related facilities at the Mustang field, as well as the State of Alaska leases underpinning the Southern Miluveach unit.
EPF to start In its original plan of development for the unit for 2020, Brooks Range Petroleum described plans to advance an early production facility, or EPF, at the unit.
The revenue generated from initial production would have been used to finance a 15,000-barrel-per-day central processing facility, which would accommodate Mustang production as well as third-party production from other independent operators in the area.
With the larger processing facilities in place, BRPC would have begun an initial development drilling campaign with as many as 10 producers and 11 injectors.
The next plan of development for the unit was scheduled for release in late September, but with the transfer of the project to new ownership, future plans will likely be delayed.
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