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Mustang financial situation discussed at AIDEA board meeting
Kay Cashman Petroleum News
A three and a half hour executive session at the April 15 board meeting of the Alaska Industrial Development and Export Authority that included the Mustang development loan did not produce a resolution the board could vote on in the public session that followed.
“We’re not taking action on the matters discussed in the executive session,” AIDEA Board Chairman Dana Pruhs said after the confidential conference.
Mustang, the first oil field on Alaska’s North Slope to have been developed and brought online by a small independent oil company, began production in early November under operator Brooks Range Petroleum Corp., or BRPC.
The field was offline for December, January and February per the Alaska Oil and Gas Conservation Commission’s most recent North Slope oil production numbers.
Latest agreement In a board resolution passed on Jan. 16, AIDEA agreed to change the terms of financing for Mustang to accommodate delayed loan payments by Caracol Petroleum, the field’s majority owner.
“I want to thank the AIDEA Board and Gov. Dunleavy for assigning a high priority to fixing this problem,” BRPC CEO Majid Jourabchi said after that resolution passed. “Brooks Range and our contractors on the North Slope are completely aligned in what needs to be done, and the urgency to have it be so.”
Caracol is owned by Singapore-based Alpha Energy Holdings Ltd.
“The AIDEA mission to advance economic development and create job opportunities can sometimes run into delays, disappointments, and missed production deadlines,” Pruhs said when announcing the revised financing terms Jan. 16. “Brooks Range startup problems and the oil tax credits veto three years ago, 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.”
AIDEA was originally involved in Mustang as an investor. However, in 2019 its investment was restructured into a loan: $64 million for field development plus $6 million in interest, totaling about $70 million. The gross expected value of oil production from Mustang was $1.3 billion.
Loan payments were scheduled to begin Oct. 1, 2019, several months after planned startup. Interest rate on the loan was 8%, to be paid in 29 level quarterly installments,
Under the terms of the January agreement, 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.
Alpha investment required The new loan was also contingent upon Alpha investing $60 million in Mustang in the first quarter of this year and advancing at least $15 million to Caracol in the form of equity or a senior secured loan.
Alpha also had to strengthen management and management oversight of the Mustang project.
Final agreement was needed by all BRPC creditors by the end of January, AIDEA said in January.
No additional public announcements have been made by BRPC, in part because of the current crisis with low oil prices and the coronavirus, a source close to the company told Petroleum News April 15.
BRPC drilled the Mustang discovery well in January 2012 in the Southern Miluveach unit, adjacent to the southwest edge of the Kuparuk River unit.
- KAY CASHMAN
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