It’s tough to be a small independent oil company with a comparably small oil discovery of 21.2 million barrels of proven oil in place on Alaska’s North Slope because investors and commercial lenders are hard to find.
What sometimes is available is investment or financing from the Alaska Industrial Development and Export Authority, or AIDEA, a state-owned entity, which provided a chunk of the funds needed to bring the Mustang field online Nov. 3 with a leased early production facility, or EPF. Adjacent to the southwest edge of the Kuparuk River unit, Mustang was the first North Slope field taken from discovery to production by a small independent (see story in the Nov. 10 edition of Petroleum News titled Mustang online!).
According to AIDEA records, the amount owed it by Mustang’s majority owner, Alaska-based independent Caracol Petroleum LLC, is approximately $70 million and the gross expected value of oil production from the Mustang field is $1.3 billion.
AIDEA initially participated in the Mustang oil field development with operator Brooks Range Petroleum Corp., or BRPC, through two development finance projects; one project being the construction of the now competed Mustang gravel road and pad through Mustang Road LLC, or MR LLC, and the other project being the development of an oil processing facility through Mustang Operations Center 1 LLC, or MOC 1.
From investor to lender
Initially an investor, AIDEA restructured its investment into a seller-financed seven-year loan of $64 million plus $6 million in interest (as of May 24) to Caracol, with $52.5 million from MOC 1, $8.5 million from MR, and $3 million AIDEA accrued dividends, transaction costs, etc. The loan carried an 8% interest rate and was set up with 29 level quarterly payments of $3.1 million beginning Oct. 1.
In terms of collateral, some of the infrastructure to produce Mustang, the only development in the Southern Miluveach unit, is in place, and through the end of December it appears more than $200 million has already been spent by the field’s owners on that infrastructure, with approximately another $50 million still needed for completion of the Mustang Operations Center. Those unconfirmed numbers are from Petroleum News sources and extrapolations from Alaska Department of Natural Resources Division of Oil and Gas documents and Caracol’s Singapore-based parent Alpha Energy Holdings Limited’s Singapore Stock Exchange filings.
According to Alpha, as of May 14, its Market Cap was around US$34.3 million,
AIDEA’s mission
AIDEA’s mandate from the Alaska Legislature that created it in 1967 is to promote, develop and advance economic growth and diversification in Alaska by providing various means of financing and investment, as well as financing guarantees for exports of Alaska goods and services.
The result is that not all the details of AIDEA loans and investments can be kept completely confidential, as would be the case with some banks and private lenders - at least until public collection is attempted.
Hence, much to do has been made about Alaska-based independent Caracol being almost two months late on its first quarterly loan payment of $3.1 million to AIDEA.
As of Dec. 31, no public records show the payment has been made.
According to a Dec. 26 email from Karsten Rodvik, AIDEA’s external affairs officer, Caracol incurred an additional $310,000 in fees and penalties because of the late payment.
“AIDEA and Caracol’s shareholders, the working interest owners in the Southern Miluveach unit, are continuing to hold discussions with an aim to satisfactorily resolving the status of AIDEA’s loan to Caracol, and the development of the Mustang field,” Rodvik said.
Payment in works?
There is an indication, although not yet confirmed by Caracol, that it plans to make the Oct. 1 payment as part of its fourth quarter expenses.
In Alpha’s fourth quarter Mustang project budget filed Nov. 15 with SGX, the company has a $3.5 million lease operating expenditure that might represent the payment.
Here is what Alpha filed for that budget:
Projection on the use of funds/cash for the next immediate quarter, including principal assumptions: For the next immediate quarter ending 31 December 2019 (“4Q 2019”), the funds/cash are expected to be used for the following activities:
Budget USD
Land & Rentals $75,000
Lease Operating Expenditure $3,500,000
Seismic Costs $200,000
Base Camp Costs-Development Drilling $3,250,000
Surface Development $3,700,000
Corporate Administrative Expenses $150,000
Total $10,675,000
Alpha suspends trading
Interestingly, Alpha halted trading for one day on Nov. 18, releasing a statement on SGX that included some of the following language (the “Lender” is AIDEA): “The board of directors of Alpha Energy Holdings Limited (the “Company” together with its subsidiaries, the “Group”) had, on 24 May 2019, entered into a loan agreement. The Board wishes to inform that during the past several weeks, the Company has been in negotiations with the Lender and it has, on 14 November 2019, received a notice dated 5 November 2019 from the lender notifying the Group that the Lender has elected to accelerate the Group’s indebtedness owed to the Lender due, inter alia, to the Group’s failure to make payment of approximately US$3.1 million on 1 October 2019, and to declare the entire principal sum of all indebtedness owed to the Lender immediately due and payable.”
Alpha said it is “currently engaging in further negotiations with the Lender which are sensitive in nature and which involves key assets of the Group. In order to avoid any irregular movement in share price and prevent any irregular trading activities that may result from the leakage of any information, the Board has recommended that the trading of the shares of the Company be suspended with immediate effect.”
Alpha’s ‘Group’
In a Nov. 5 press release that was a Mustang project update, Alpha said it together with its subsidiaries, the “Group,” which included Caracol and Mustang operator and minority working interest owner BRPC, had a 90.1% working interest in the Southern Miluveach unit.
Technically, the working interest owners in those five leases encompassing 8,960 acres per the Division of Oil and Gas website are the following, the majority of whom are presumably now part of Alpha’s Group:
Caracol Petroleum LLC 36.2775%
TP North Slope Development LLC (TP stands for Thyssen Petroleum and is an Alaska subsidiary of the Houston-based company) 22.4575%
Mustang Operations Center 1 LLC 20.0%
Brooks Range Petroleum Corp. 10.365%
Nabors Drilling Technologies USA Inc. 6.0786%
AVCG LLC 3.8214%
Mustang Road LLC 1.0%
Rodvik said Dec. 26 it was AIDEA’s understanding that “Caracol owns a 97.5% interest in BRPC.”
Why so soon?
So why did the loan payments begin before Mustang was in production?
First, BRPC had planned to start the field using a permanent 15,000 barrel-per-day production facility, which would be part of the field’s operations center. Following the oil price crash, the company and AIDEA put the project into “warm standby” before coming up with the plan to begin production with a less costly EPF.
The idea was to ramp production up to 6,000 barrels per day and use the revenue to upgrade the production facilities to a larger scale, BRPC said in its Sept. 30 filing of the seventh annual plan of development for the Southern Miluveach unit with the Division of Oil and Gas.
The holdup from anticipated first quarter 2019 startup was in part tied to the EPF being delayed, which in turn impacted some drilling.
The loan payment schedule initially anticipated the earlier production date; hence the current negotiations.
In November, per Alaska Oil and Gas Conservation Commission records, Mustang produced 10,999 barrels of oil, averaging 478 barrels per day for the 23 days it was in production.
