If all goes according to plan, Brooks Range Petroleum Corp. will become the newest operator-producer in Alaska sometime in early 2015 — after some 15 years in the state.
If successful at its Mustang project, the local operating arm of the Kansas-based independent Alaska Venture Capital Group LLC will also be the smallest company in the history of the North Slope to bring a field from exploration to discovery to production.
The wave of independents
When long-time oilmen John Jay “Bo” Darrah Jr. and Barton Armfield formed AVCG in 1999, they were part of a wave of independents interested in sizeable oil fields passed over by the majors during the first three decades of North Slope development. Although the company acquired several exploration properties, it struggled in its early years to find partners and to negotiate access agreements with the facility operators.
AVCG formed Brooks Range Petroleum Corp. in 2004 and established a multi-party joint venture over the course of 2006. Today, BRPC is partnering with Nabors Industries-subsidiary Ramshorn Investments Inc. at the Mustang field.
Although the joint venture spent years drilling at numerous other prospects across the North Slope, its first production will come from one of its most recent acquisitions.
In early 2010, a larger iteration of the joint venture farmed-in the North Tarn prospect, a group of six Eni Petroleum leases along the western edge of the Kuparuk River unit.
BRPC later began calling the prospect Mustang. The state approved the formation of the Southern Miluveach unit around five leases covering some 8,960 acres at the prospect — a protracted version of the 60,864-acre unit it had first requested.
North Tarn drilled in 2011
As the lone North Slope explorer of the season, BRPC drilled the North Tarn No.1 well and started drilling a sidetrack in early 2011 using Nabors rig 9ES.
The 6,223-foot well tested the Brookian (the producing formation at the nearby Tarn satellite) and deeper Kuparuk (the main producing formation at the Kuparuk River unit).
Beforehand, BRPC estimated that the Brookian reservoir could contain some 35 million barrels of oil and that the Kuparuk reservoir could contain an additional 6 million barrels of oil. Given the notoriously compartmentalized geology of the Brookian, the company was eyeing the Kuparuk, believing the smaller reservoir could be economic.
The well and sidetrack encountered oil, but “well control challenges” prevented a complete test. BRPC returned in early 2012 to complete the sidetrack, and drill the Mustang No. 1 delineation well. The work proved up a discovery in the range of 40 million barrels of recoverable oil from the Kuparuk — bigger than expected.
Independent audit
An independent audit proved up the internal estimates.
According to the global consulting firm DeGolyer and MacNaughton, the Mustang prospect contains proved, or P1, gross reserves of 24.7 million barrels of recoverable oil. The firm also estimated the field contained 43.6 million barrels of proved and probable, or P2, reserves and 51 million barrels of proved, probable and possible, or P3, reserves.
“These estimates confirm commerciality and a favorable rate-of-return to proceed with development,” AVCG lead member Ken Thompson told Petroleum News Aug. 3.
The oil shows in the Brookian sands were of “lower permeability than anticipated,” according to BRPC, but the company is evaluating several ideas for developing the formation, including fracture stimulating long horizontal wells or recompleting depleted Kuparuk producing wells into the Brookian using horizontals.
Additionally, the company wants to explore a potential Kuparuk formation extension to the northwest called Appaloosa that could add reserves and field life.
Aid from AIDEA
Developing the project is requiring BRPC to be strategic and using Tudor, Pickering, Holt & Co., a Houston-based integrated energy investment and advisory firm, it began considering two strategies.
The first was to find a private equity firm willing to fund development until Mustang production could fund continuing operations, after which the company would consider going public as a way to generate capital for future exploration work.
The second was to find a partner who would fund the work in return for a majority stake in the prospect, but would be willing to let BRPC operate the development.
BRPC ultimately found a local way to fund its operations.
In late 2012, the Alaska Industrial Development and Export Authority agreed to loan the company $20 million to help build a winter ice road, a gravel mine, a 19.3-acre gravel production pad, a 0.7-mile access road from the mine to the pad and a 4.4-mile open access road from the pad to the existing road system at the nearby Kuparuk River unit.
The loan covered 80 percent of the $25 million cost of the project, with BRPC on the hook for the remainder, but the parties expected tax credits from ACES, Alaska’s Clear and Equitable Share 2007 production tax, to cover some 46 percent of the cost, or $11.5 million.
Mustang Road LLC
Rather than fund the operations directly, AIDEA and BRPC created a joint venture company, Mustang Road LLC. The deal involved an 8 percent rate of return over 15 years and made Mustang Road LLC a 1 percent working interest owner in the Southern Miluveach unit.
Asked why the company sought public financing for the project, Armfield, BRPC’s chief operating officer, said the interest rates AIDEA offered were “very competitive” compared to the financing available from the Lower 48.
Mustang Road completed the infrastructure in early 2013, but the partnership continued.
Eager to play a bigger role in the oil and gas sector, AIDEA is interested in helping to fund a 15,000-barrel per day production facilities for Mustang — a major upfront cost component. Under a February 2013 proposal, AIDEA would put down $45 million of the estimated $190 million cost of the project, earning a 10 percent rate of return over 10 years and a small working interest in the unit. Singapore-based Ezion Holdings Ltd. would contribute between $95 million and $125 million to the project and an as-yet-undetermined third party would contribute the remaining $20 million to $50 million.
With the state having recently expanded the authority of the public corporation, AIDEA can now pursue this project — if it finds the economics of it to be acceptable.
