Regulators hopeful well test can jumpstart Mustang oil project

Positive results from a well test have helped give a small independent oil company another shot at finally developing its North Slope prospect.

Anchorage-based Brooks Range Petroleum Corp. announced Jan. 8 that a late November flow test of the North Tarn 1-A at its Mustang oil project produced peak flows averaging 1,292 barrels per day with only small amounts of water.

The test confirms the company’s prior assumptions and Brooks Range expects the results will lead to accelerated development of the Mustang project, according to a press release.

“This recent success is very encouraging and highlights the dedicated and persistent support invested by the working interest owners, state agencies and the contracting community. These results confirm we are on the right track with our development plans,” Brooks Range CEO Bart Armfield said in the release.

The Mustang project is in the small Southern Miluveach Unit on the southwest edge of the large Kuparuk River Unit. It’s estimated to hold 33 million barrels of proven and probable light oil reserves, according Brooks Range. Peak production estimates for the field have been in the range of 15,000 barrels per day.

The Southern Miluveach Unit was set to expire at the end of 2017 because Brooks Range had repeatedly failed to make good on its development plans. Company leaders first said in late 2012 that they hoped to have Mustang in production by the fall of 2014.

Between December 2012 and April 2014 the Alaska Industrial Development and Export Authority, the state-owned investment bank, invested a total of $70 million in a five-mile gravel road, a 19-acre production pad and a $225 million oil processing facility, which would be the first such open-access facility on the North Slope.

Full development of the field has been estimated at $580 million, a price that included drilling 11 production and 20 more gas and water injection wells. In its Jan. 8 release Brooks Range said the next phase of work is installing the oil processing facility and drilling up to 18 production and injection wells.

Brooks Range ultimately missed the 2014 production target, meaning the company would also have to deal with a new, lower oil price regime that is just now starting to turn around.

Subsequent plans submitted to the state Division of Oil and Gas to develop Mustang have gone unmet with Brooks Range claiming it would install the necessary facilities and then, after not doing so, contending “unfavorable economic circumstances” forced the company to delay the work it had promised multiple times up to last November.

With little construction work having occurred at Mustang in 2016 and 2017, according to Brooks Range’s submissions to the Division of Oil and Gas, the company again said it would move facility modules constructed in Canada and Alaska to the Slope this year and achieve production by early 2019 in its 2018 plan of development sent to state officials in late October.

As a result, Division of Oil and Gas officials have met the company’s recent work plans with skepticism but have continued to approve them.

Deputy Oil and Gas Director Jim Beckham approved the 2018 Southern Miluveach development plan Dec. 20. That approval extended the term of the unit for another year, but also brought with it a requirement for quarterly progress reports detailing the company’s work.

The one thing of significance Brooks Range did accomplish in 2017 — which was a late amendment to it original 2017 plan — was the North Tarn-1A well test.

Beckham said in an interview prior to the well results being released that division officials anticipated the test would be a success and the hope is it is one Brooks Range can build on.

He noted, “the whole industry got turned on its head with the plummeting oil prices” in 2014 and said the decision to extend the unit term and give the company another shot because the state should do what it can to support struggling operators.

“I have to protect the state’s interest and all that means, but, that said, my philosophy here is to get to ‘yes,’ right? If we don’t get to ‘yes’ we don’t have producers and explorers out there and if we don’t have that what do we have? We don’t have an economy. So, within reason and within statutory and regulatory bounds our job is to get to ‘yes,’” Beckham said.

“I think it’s far better for the state to work closely with the companies and try to find a mutually beneficial path forward.”

AIDEA’s investments in Mustang and other state investments in oil and gas projects do not factor into the Division of Oil and Gas’ regulatory decisions, according to Beckham.

“We’re just concerned about the nuts and bolts of getting them into production,” he added.

Brooks Range CEO Armfield said in a brief interview that company leaders are working intensely on plans now to meet the early 2019 goal for first oil and he would be able to detail how this year will be different than the prior few in the coming weeks. He also noted the state owes the company $44 million in unpaid tax credits.

Some of the tax credits the company has earned for the work it has done at Mustang went to pay back a portion of AIDEA as a part of the structure to that agreement.

In early 2016 Brooks Range attempted to transfer its leases in the nearby Tofkat Unit to ConocoPhillips shortly before the unit was set to expire.

That led to a lengthy back-and-forth between Brooks Range, state officials and ConocoPhillips that ultimately concluded last August with Conoco agreeing to drill an exploration well on the Tofkat acreage this winter or relinquish the leases back to the state.

In the case of Tofkat, Brooks Range allegedly was unable to explore and develop the leases because it couldn’t secure an access agreement with Kuukpik Corp., the Alaska Native village corporation that jointly holds surface rights to the state leases.

Elwood Brehmer can be reached at [email protected].

01/10/2018 - 10:20am