Brooks Range closing in on Mustang startup

  • Crude oil is loaded to a tanker truck at the Mustang Operations Center near the Kuparuk River field on the North Slope. The road and gravel pad constructed with state money to facilitate oil production at the site has only been used by other companies for staging and other purposes since it was completed in 2013. Oil is now expected to start flowing from the Mustang oil prospect in the next 90 days. (Photo/Courtesy/Alaska Industrial Development and Export Authority)

Alaska is on the cusp of gaining a new, albeit quite small, North Slope oil field.

Brooks Range Petroleum CEO Bart Armfield said first oil from his company’s Mustang project should be flowing sometime in the next 90 days.

The company is in the midst of prepping the infrastructure and facilities needed to support the flow of oil.

“We’ve got a lot of activity taking place in the field right now with pipeline installation, electric and instrumentation, platform installation — a lot of trenching work on the pad itself,” Armfield said during an April 17 Alaska Industrial Development Authority Board of Directors meeting in Anchorage.

With the 1,100-foot oil line nearing completion, the remaining major work includes installing a modular “early production facility” before production can commence, according to Armfield.

The pipeline connects to ConocoPhillips’ main Alpine transportation pipeline, which serves as a primary artery for moving sales-quality oil produced from the west and central portions of North Slope oil development to the Trans-Alaska Pipeline System.

Armfield highlighted that oil production from Mustang would make Brooks Range the first small independent company working on the North Slope to take a prospect from discovery and see it through to commercialization.

“If little Brooks Range can do it anybody should be able to go to the North Slope and do it,” he said.

The Mustang project is in the Southern Miluveach Unit just south of the very large Kuparuk River field operated by ConocoPhillips.

The company is targeting the same sandstone formations that have helped produce more than 2 billion barrels of oil from Kuparuk. Mustang holds 22 million barrels of proven reserves, according to Brooks Range. Peak production estimates for the field have been in the range of 12,000 barrels per day.

The latest timeline to first production is pushed back slightly from what Armfield forecasted in a December interview, when he pegged an April startup, but it still signals a major step forward for Brooks Range. The company has been working on Mustang for years, though the project has gone through fits and starts since oil prices collapsed starting in late 2014.

Anchorage-based Brooks Range is owned through subsidiaries by the Singapore investment firm Alpha Energy Holdings Ltd. The small oil company has been subject to multiple ownership structures since starting the Mustang project.

AIDEA first partnered with Brooks Range in December 2012 when the authority approved a $20 million investment in a nearly $30 million five-mile gravel road to access the prospect and 20-acre gravel pad to host production facilities. The gravel infrastructure was completed in April 2013.

At the time, Brooks Range leaders said they wanted to have the field in production by fall 2014 and credited incentives in the just-passed and industry-supported oil production tax structure under Senate Bill 21 for improving the economics of the project and spurring it forward.

In April 2014, AIDEA committed an additional $50 million of investment into a planned $225 million Mustang oil processing facility known as Mustang Operations Center-1, or MOC1, which authority leaders then saw as a facility other small companies prospecting in the area might potentially be able to use.

However, when oil prices fell from $100-plus per barrel in late 2014 to eventually less than $30, it caused company and authority leaders to reevaluate their plan.

“(At) $120 oil we sometimes make decisions that maybe should be rethought,” Armfield said April 17.

Multibillion-dollar budget deficits — also triggered by the collapse of oil prices — also pushed the state to slow the pace of repaying its oil and gas tax credits starting in 2015, which further challenged Mustang.

Brooks Range is owed approximately $20 million in tax credit payments, according to Armfield.

AIDEA and Brooks Range owners agreed to rework their partnership last May when the authority approved a transaction to shift from an investor to a lender in Mustang by selling its stake in the holding companies set up under the original deals for the gravel infrastructure and processing facilities.

That move freed Brooks Range to focus on getting to first oil — and cash flow — with a smaller, less expensive early production facility before eventually growing the operation.

“MOC1 was the Cadillac and now we’re going with a Chevy that still gets us from point A to point B on four wheels safely in a proper manner,” Armfield said.

He noted that while AIDEA has had to wait much longer than expected for its investments to bear fruit, the gravel road and pad have been used by numerous other companies as a launching point for exploration activities in the area.

State officials in the Division of Oil and Gas have also pressed Brooks Range to find a way to production in recent years as the company failed to follow through on its stated drilling and development plans, but that trend appears to have been reversed.

Once the early production facility is installed Brooks Range will begin production from the North Tarn-1A well the company successfully flow tested in November 2017. The North Tarn well produced nearly 1,300 barrels per day from a 10-foot section the Kuparuk C sandstone formation with only trace amounts of water during the test, according to a company release.

Production is expected to start in the 1,000 barrels per day range. Once it’s sustained, the company plans to drill 6,000-foot lateral section in another partially completed well that should generate an additional 2,000-3,000 barrels daily.

“It’s right above the Kuparuk sands. We just need to drill the lateral section in it,” Armfield said of the second well.

The early production facility is designed to process up to 6,000 barrels per day, so as oil flow ramps up with the eventual drilling of up to 18 wells — split between producers and water injectors — permanent processing facilities estimated at roughly $350 million will need to be installed, according to Armfield.

“We’ve been around for a while and we’re finally going to get this thing done and start (producing) oil and putting money in our pocket and in turn back into your pocket,” he told the AIDEA board.

Elwood Brehmer can be reached at [email protected].

04/19/2019 - 11:59am