First oil finally flows from Mustang project

  • Crude oil is loaded to a tanker truck at the Mustang Operations Center near the Kuparuk River field on the North Slope. Originally targeting a 2014 startup before oil prices collapsed, the first oil finally flowed from the project starting in late October. (Photo/Courtesy/Alaska Industrial Development and Export Authority)

A small but long-awaited North Slope development has quietly started producing oil.

Brooks Range Petroleum Corp. achieved first oil from its Mustang project Oct. 30, according to Houston-based Thyssen Petroleum CEO Majid Jourabchi.

Thyssen Petroleum became an owner-investor in the project in 2014. Jourrabchi said first production was about 620 barrels per day from one well.

The Mustang project is adjacent to the southern portion of ConocoPhillips’ large Kuparuk River field and also near the Nanushuk oil project being developed by Oil Search.

The single well, North Tarn 1-A, that is producing will eventually be turned into a gas injection well, according to Jourabchi.

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.

However, Brooks Range installed modular early production facilities capable of handling approximately 6,000 barrels per day over the past year to expedite production without the initial expense of permanent processing facilities.

Anchorage-based Brooks Range has been working on Mustang for years, though the project has gone through fits and starts since oil prices collapsed starting in late 2014.

Brooks Range CEO Bart Armfield said in a December 2018 interview that the company was then owed $22 million in refundable tax credits by the State of Alaska, which slowed repayment on the incentive program in 2016 while facing multibillion-dollar yearly budget deficits under former Gov. Bill Walker.

The delay in tax credit payments, combined with reluctance from its investors to fund development activities after oil prices fell sharply, delayed the startup of Mustang, which once was scheduled for 2014.

Armfield told the Alaska Industrial Development and Export Authority Board of Directors in April that startup of Mustang would mark the first time a small independent company such as Brooks Range had taken a North Slope oil prospect all the way from discovery to development without it changing hands.

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

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.

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.

AIDEA spokesman Karsten Rodvik wrote via email that achieving first oil from Mustang is an important milestone for the state and the authority will continue to help the Brooks Range facilitate its investment plan for the project.

Armfield wrote in the company’s development plan submitted to the Division of Oil and Gas Sept. 30 that Brooks Range prepared its North Tarn 1-A well for production in the third quarter.

The transport of produced oil from the early production facilities to ConocoPhillips’ common carrier Alpine pipeline was expected to start in the fourth quarter of the year.

According to the Mustang plan of development, four new wells are scheduled to be drilled in the first half of 2020.

The company continues to plan for eventually drilling up to 10 production and 11 injection wells, which would be accompanied by central processing facilities capable of handling up to 15,000 barrels of oil per day.

Elwood Brehmer can be reached at [email protected].

11/20/2019 - 9:10am