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Vol. 25, No.40 Week of October 04, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Mustang plan filed

Oil production from the North Slope Southern Miluveach unit to start 3Q 2021

Kay Cashman

Petroleum News

On Oct. 1, operator Brooks Range Petroleum Corp., or BRPC, and Finnex LLC filed the eighth annual plan of development for the Southern Miluveach unit on behalf of the working interest owners with Alaska’s Division of Oil and Gas. Sustained oil production from the unit’s Mustang field is planned by third quarter of next year.

The eighth POD, which will run from Jan. 1 to Dec. 31, 2021, takes up where work in the 8,960-acre, five-lease, unit left off in December 2019. Note: As previously reported in Petroleum News, on Sept. 16 the Alaska Industrial Development and Export Authority passed a resolution approving the negotiation and execution of a debt settlement restructuring agreement, or DSRA, and authorized the sale of the Mustang oil field leases to Finnex.

Finnex is the special purpose vehicle, or SPV, that recently acquired the assets of BRPC and the other working interest entities owned by Alpha Energy Holdings.

Adjacent to the southwest edge of the Kuparuk River unit, the Southern Miluveach unit, or SMU, working interest owners currently include Caracol Petroleum LLC, TP North Slope Development LLC, BRPC, Nabors Drilling Technologies USA Inc., AVCG LLC, Mustang Road LLC and Mustang Operations Center 1 LLC, per the POD.

The plans proposed in the seventh and previous year’s POD included the following:

* Tie-in of the seawater cross country pipeline to the Alpine seawater pipeline.

* Completion of the initial gas compression and water injection capabilities of the early production facilities, or EPF.

* Bringing the modules built for the Mustang Operations Center, or MOC, to the North Slope.

* Planning for integration and substitution of the temporary process facilities with the permanent MOC process modules continuing in 2020.

Planned initial production was to be from existing wells North Tarn 1A, SMU M-02, Mustang 1-B, and to drill up to four new wells in 2020.

Accomplished in 2020

According to the eighth POD, the work in the 2020 seventh POD that BRPC achieved included completion of the EPF, and the start of an extended production test of the NorthTarn-1A well on Oct. 30, 2019.

The facility was onstream until Nov. 27, 2019, when the flaring permit expired. Two shut-in and pressure build-up periods were factored into this test which measured 11,944 barrels of oil produced at the wellhead.

In this same period, BPRC and the working interest owners were also in discussions on the refinancing of BRPC’s loan with AIDEA.

On Oct. 8 of last year AIDEA gave BRPC a Notice of Events of Default and on Nov. 5 exercised its right to accelerate repayment of all BRPC indebtedness, which obliged the small independent to suspend operations and development at Mustang until financing could be secured.

Accordingly, two wells (NT-1A and M-02) were temporarily suspended, rented production facilities were dismantled and activities on the Mustang pad were reduced to a minimum. Nevertheless, modules with sensitive electronics such as the Lease Area Custody Transfer, or LACT, module and the Remote Electrical and Instrumentation Module, or REIM, were maintained in warm standby mode.

New agreement with AIDEA

On Jan. 15, AIDEA ratified an agreement reached between BRPC’s ultimate parent company, Alpha, the other working interest owners and AIDEA for the restructuring of the loan facility. Certain equity financing pre-conditions were imposed by AIDEA and an end-of-February deadline was set to allow a restructured loan financing to proceed.

“Notwithstanding, the collapse in oil prices and COVID-19 consequences made market conditions very difficult to raise financing and, by the end of March, it was evident that new financing could not be raised by Alpha in the short term,” BRPC/Finnex said in the eighth POD.

Since the proposed development plan activities could not be continued until financing was secured, BRPC then proceeded to demobilize all activity at the Mustang pad, putting the field in warm standby by mid-May.

Non-judicial foreclosure

At the beginning of May, AIDEA entered into non-judicial foreclosure proceedings against the assets held by Alpha to secure their loan (the Mustang leases and other Alaska leases) and this process was concluded on Sept. 23.

“It is premature to describe the final structure of the new special purpose vehicle arrangements, but it can be said that subject to a satisfactory conclusion to the foreclosure proceedings, AIDEA and one of the former working interest owners, Thyssen Petroleum, have been working on securing the future of the Mustang development and working to ensure current and future payment of creditors,” BRPC/Finnex said in the eighth POD.

AIDEA authorized the agreement between it, Finnex and the major creditors. BPRC, Finnex, and the major creditors have been working closely with the agency on a recovery plan which would allow the resumption of development activities. The recovery plan relies on the continued participation of creditors, with interests aligned, insofar as ensuring debt obligations will be satisfied from future revenues.

Once the DSRA “enters into force, design and engineering endeavors and operations planning will restart in earnest to complete the Mustang Operations Center design with changes to meet current conditions. 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 eighth POD said.

Promised in eighth POD

In summary, BRPC/Finnex said the Mustang project lost a year in its planned development schedule, “but the project remains fundamentally sound and (capable) of being brought to fruition.”

BRPC/Finnex’s long-range proposed development activities and its plans to delineate all underlying oil or gas reservoirs to bring the SMU into production, involve the following:

* Central process facilities with capacities of 15,000 barrels of oil per day, 15 million cubic feet a day gas handling, and 7,500 barrels of water a day.

* Drill site facilities.

* Non-process infrastructure including buildings and equipment.

* Up to 10 production wells and 11 injection wells

BRPC/Finnex continues to review all potential targets within the SMU, including but not limited to the Kuparuk “C” and “A” sands. Details of the proposed eighth POD operations for at least one year following submission of the plan include:

* Completion of the surge and welding studies required for tie-in of the seawater cross country pipeline to the Alpine seawater pipeline - work that may continue until 2022. The seawater injection system will be available for produced water in third quarter 2021 but the seawater import pipeline tie-in cannot be completed until first quarter 2022 because it’s dependent on ice road access to the tie-in point in December-January.

* Completion of the initial gas compression capabilities of the EPF will continue into third quarter 2021. In particular, gas compression facilities will be prioritized to meet no-flaring regulations at startup.

* Planning activities will focus on bringing the modules constructed for the MOC to the North Slope during 2021.

* The EPF will be reinstalled by third quarter 2021.

• Integration and substitution of temporary process facilities (EPF) with the permanent MOC process modules continuing and implementation timeline finalized.

* Drilling activities will be conducted to best maximize recovery of the Mustang field resources and timed to best utilize the EPF:

Planned initial production will be from North Tarn 1A and SMU M-02, which will require a frac to stimulate the well, and the Clover well - a new four-string design horizontal lateral producer.

The Mustang-1B well requires drilling a lateral extension or possible deviated slant sidetrack, which is planned for May 2021.

Up to two more new wells may be drilled in 2021.

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