Brooks Range Petroleum seeks more time as Mustang delayed again

  • Brooks Range Petroleum Corp. CEO Bart Armfield is seeking yet another extension from the state to develop the small Mustang project near the Kuparuk Unit on the North Slope. (Photo/Michael Dinneen/For the Journal)

Brooks Range Petroleum Corp. leaders are asking state regulators for another year to bring their small and long-delayed North Slope oil project to fruition.

Bart Armfield, CEO of Anchorage-based Brooks Range wrote in the 2018 plan of development document for the company’s Mustang oil project submitted to the Division of Oil and Gas Oct. 23 that first oil is not expected now until early 2019.

The 2017 plan, submitted to and approved by the division last fall, pegged first production for this December. According to what Armfield wrote, that isn’t close to happening.

He explained in the most recent Mustang development plan that: “In general, the (2017) plan remained in ‘Warm Standby’ during the term of the 4th POD due to continued low oil prices and difficult economic conditions.”

Brooks Range had hoped to finish the remaining engineering for production facilities; connect to ConocoPhillips’ Alpine oil transmission pipeline; install the modular facilities and begin producing oil in 2017, based on the planning documents.

Full development of the oil field has been estimated to cost $580 million and includes drilling 11 production wells to go along with another 20 gas and water injection wells to reach expected peak production of about 15,000 barrels per day.

On the west edge of ConocoPhillips’ large Kuparuk River oil field, Mustang holds about 22 million barrels of proven reserves.

Brooks Range did manage to further its evaluation of oil formation data and refine its drilling plans this year and requested and receive proposals to conduct the facility installation work.

Additionally, the company has reentered one of its Mustang exploration wells and is currently fracking and testing the well, according to the plan of development.

Armfield said via email that the ongoing evaluation should provide information that will be key to determining the future of the project.

Brooks Range was unable to commission a drill rig for development wells this year because a processing facility was not available. Further, the company did not tie into the Alpine pipeline, advance facility engineering, solicit proposals for fabricating facility modules and subsequently get the modules fabricated and moved to the Slope all “due to adverse economic conditions,” Armfield wrote.

Engineering of the processing facility and associated infrastructure started in January 2015 but was put on hold by the third quarter of the year as low oil prices hampered financing and project economics, according to the Mustang development plan Brooks Range submitted to Oil and Gas last September.

The most recent Mustang plan submitted Oct. 23 — which the Division of Oil and Gas has 60 days to review — states that Brooks Range will do basically everything in 2018 that didn’t and won’t happen this year to be ready for first oil in the first quarter of 2019.

Getting production from Mustang this year was a particularly key milestone because the Southern Miluveach Unit of state lands that contains the prospect is set to expire Dec. 31.

The Southern Miluveach Unit’s original five-year term was set to expire March 31, 2016. However, former Department of Natural Resources Commissioner Marty Rutherford granted a request to extend the unit term to Dec. 31, 2017, on the hopes Brooks Range would have Mustang up and producing before the extension ran out.

When acting Oil and Gas Director Jim Beckham approved the 2017 Mustang plan in November 2016, he wrote that completing the scope of work it outlined and getting to production seemed possible, but called the schedule “extremely tight.”

At the time, Beckham informed Brooks Range that it would “need to drill and test a well that is capable of producing in paying quantities, apply for and receive certification of that well, and either produce from the unit or be working towards production by Dec. 31, 2017.”

He added at the time that the state wants to see the company succeed but the tight schedule, pending unit expiration and financing and other issues caused state officials to question the likelihood of success.

The Alaska Industrial Development and Export Authority is also keenly interested in seeing Mustang be a success because it invested $70 million in two installments in December 2012 and April 2014.

A $20 million investment in 2012 from the state-owned finance authority supported a five-mile gravel road and 19-acre facility pad. AIDEA is an 80 percent owner in that base infrastructure that was finished in April 2013.

Then, Brooks Range leaders said they were shooting to have the field in production by the fall of 2014.

In April 2014, AIDEA committed another $50 million equity investment in the $225 million Mustang oil processing facility. Armfield said at the time that the project would start production in late 2015 and likely peak in 2017.

With AIDEA’s investment, the Mustang processing facility would be the first such open-access facility on the Slope and have the potential to help in the development of other nearby fields.

A spokesman for AIDEA said in a prior interview that the authority’s interests in the road, pad, yet-to-be constructed facilities and North Slope lease holdings give it multiple forms of collateral in Mustang should the project fail.

DNR terminated the nearby Tofkat Unit held by Brooks Range in 2016 after the company held the acreage for years without doing much with it.

In the case of Tofkat, Brooks Range allegedly was unable to secure an access agreement with Kuukpik Corp., the Alaska Native village corporation that holds surface rights to the state leases.

The Tofkat leases have subsequently been transferred to ConocoPhillips in exchange for commitments to drill exploration wells this winter and to make a total of $7 million in bonus bid replacement payments to the state.

Elwood Brehmer can be reached at [email protected].

11/15/2017 - 10:19am