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Vol. 19, No. 25 Week of June 22, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Building for an anchor

Brooks Range hopes Mustang facilities will tie in future developments in area

Alan Bailey

Petroleum News

Brooks Range Petroleum Corp. sees the surface facilities it is planning to build for its Mustang development on Alaska’s North Slope as an anchor, potentially tying together future fields in the same general area, Bart Armfield, Brooks Range’s chief operating officer, told the Commonwealth North Energy Action Coalition on June 13.

“We view the Mustang development as an anchor position that can be expanded with (exploration) success in the immediate area,” Armfield said.

Although the company had originally targeted a production rate of 7,500 barrels per day when designing the Mustang facilities, it became apparent that it would be possible to increase the capacity to 15,000 barrels with little impact on the overall cost, Armfield said. The current design reflects that 15,000 bpd figure, but, with the equipment used in the facility being available “off the shelf,” increases to that initial design capacity would be possible.

“If we need to increase the size of the facility, that’s a great problem to have,” Armfield said.

Armfield said that Brooks Range is now targeting initial oil production of 8,000 to 10,000 bpd after field startup in the first quarter of 2016. Production will come predominantly from the Kuparuk C sands, equivalent to one of the reservoir sands in the neighboring Kuparuk River field.

Next to Kuparuk

Mustang is located adjacent the southwest perimeter of the Kuparuk unit, not far from the Shark Tooth prospect that ConocoPhillips is developing. In fact, Shark Tooth and Mustang are quite similar in scale, Armfield said. And with Brooks Range and others exploring in that same general area, the Mustang facilities could perhaps hook in some other modest sized oil pools.

“It is a very active area that has a lot of potential if allowed to make out,” Armfield said.

And Armstrong cited the example of the shared use of an ice road by Brooks Range, ConocoPhillips and Repsol for work carried out last winter as an example of how companies of widely different sizes are now willing to share some strategic infrastructure for North Slope development.

Mustang itself has proven oil reserves of 25 million barrels, with possible reserves in excess of 50 million barrels.

With the field’s production facilities to be located on a newly constructed gravel pad close to the pipeline that delivers crude oil from the ConocoPhillips Alpine field to the trans-Alaska oil pipeline, Brooks Range anticipates shipping its oil from the Mustang field through that Alpine line.

“We were very fortuitous to have our pad located 700 feet away from the Alpine pipeline,” Armfield said. “And we are in discussions and in the permitting process to get that infrastructure in place to allow us to tie in to the … pipeline, which is a common carrier.”

Modules for the production facilities will be fabricated in Anchorage and transported by road to the North Slope, Armfield said.

Approaching $700 million

Armfield said that the full-field development cost of the Mustang project is approaching $700 million, a high cost for any oil company and a figure that is representative of oil development costs on Alaska’s North Slope.

The Alaska Industrial Development and Export Authority, or AIDEA, has contributed $20 million towards the $30 million cost of the Mustang gravel road and pad, constructed in 2013, with the working interest owners picking up the remainder of that cost. AIDEA is also contributing $50 million towards the $225 million cost of the field facilities. The working interest owners are picking up the entire tab of about $46 million for exploration of the prospect and of $368 million for development drilling in the field, Armfield said.

Farm-out deal

Armfield said the Brooks Range’s involvement in Mustang dates back to 2010, when the company acquired the field’s lease position in a farm-out deal with Eni Petroleum. Brooks Range drilled the North Tarn No. 1 exploration well in 2011, followed by the completion of the North Tarn 1A sidetrack and the drilling of the Mustang No. 1 well in 2012. Starting in the fourth quarter of 2011 the company merged its own seismic data with seismic that it purchased from ConocoPhillips, to consolidate about 570 square miles of 3-D seismic.

Following a reserves evaluation by an independent, third-party consultant, Brooks Range sanctioned field development in the third quarter of 2012, Armfield said.

On-line early 2016

Brooks Range plans to drill three development wells this year, with the bulk of the field development drilling scheduled to start mid-2015 and then continue beyond field startup. Field facility construction is scheduled to start late this year, for commissioning towards the end of 2015, Armfield said.

The standalone field facilities will deliver crude oil to the Alpine pipeline, with produced water and some produced gas being injected back into the field reservoir, Armfield said. About half of the field’s produced gas will be used as fuel for powering the facilities, he said.

Brooks Range anticipates about 250 jobs from the construction of the facilities, with the development drilling involving about 150 jobs. Field support operations in Anchorage will likely require about 50 staff positions. And, based just on the proved reserves, the field should generate about $500 million in state revenues, Armfield said.

Risk factors

Armfield said that risk factors for the field development include ensuring that the project is completed within the planned schedule and cost. Ensuring that the hook up with the Alpine pipeline is timed to coincide with the North Slope winter construction season is particularly critical, he said.

But uncertainty over the future price of oil, a factor over which Brooks Range has no control, represents the biggest project risk, Armfield said. Although it is difficult to pin down a precise breakeven oil price for the project, the project should pencil out at prices somewhere in the range $80 to $120 per barrel, he said.

“Within that spectrum we think this is a viable project,” Armfield said.

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