AIDEA modifies loan for struggling Mustang project

  • Crude oil is loaded to a tanker truck at the Mustang Operations Center near the Kuparuk River field on the North Slope. After its owners missed their first two $3.1 million loan payments, the state corporation that has financed $70 million worth of the project approved a loan modification at its Jan. 15 meeting. (Photo/Courtesy/Alaska Industrial Development and Export Authority)

Alaska Industrial Development and Export Authority officials are trying yet another way to recoup their $70 million investment in a small and struggling North Slope oil project.

The AIDEA board of directors unanimously approved a modification to the state-owned investment authority’s loan to Singapore-based Caracol Petroleum Jan. 16, which owns Brooks Range Petroleum Corp. and the Mustang oil project, in an effort to spur the requisite investment from Caracol’s shareholders to advance the project.

The move comes after Caracol failed to make its first two $3.1 million quarterly payments to AIDEA on a $64 million loan to Caracol that the authority approved last May. The loan was a modification of AIDEA’s $70 million total investment made in two tranches in 2012 and 2014 in the holding companies set up for the Mustang project’s infrastructure development.

The loan payments were due Oct. 1 and Jan. 1, according to AIDEA spokesman Karsten Rodvik.

Brooks Range, which operates the field, began producing oil from Mustang in early November through temporary modular facilities after years of delays brought on by collapsed oil prices and other financing challenges. Majid Jourabchi, CEO of Brooks Range’s parent company Houston-based Thyssen Petroleum, said at the time that Brooks Range was producing about 620 barrels of oil per day from the North Tarn 1-A well.

Alaska Oil and Gas Conservation Commission records show Brooks Range produced an average of 478 barrels of oil over 23 days from the well in November.

However, records for December indicate Mustang did not produce oil during the month.

The amended loan agreement calls for Caracol’s parent company, Singapore-based Alpha Energy Holdings to commit $60 million for project development by April 15. Alpha is also required to repay a $10.5 million allowance AIDEA made to the project last year when Brooks Range failed to meet development targets.

In exchange, AIDEA agreed to relax the terms of the loan and push principal payments back while Alpha injects money directly into the project. The new loan terms call for 6 interest-only quarterly loan payments, followed by seven $1 million quarterly principal payments plus interest and then $4.5 million principal payments until the loan is repaid, according to the board resolution. The interest rate on the loan is also reduced from 8 percent to 6 percent.

AIDEA board chair Dana Pruhs said in a formal statement that meeting the authority’s mission of advancing economic development in the state can sometimes be a challenge, as has been the case with Mustang.

“With the increasingly favorable state business climate, together with oil price and tax stability, Brooks Range owners and creditors took another look at Mustang,” Pruhs said. “So here we go, and I hope the equity holders can obtain buy-in from the entire list of creditors.”

At the time AIDEA made its first investment in Mustang, Brooks Range leaders said they hoped to start producing oil by 2015. Progress towards first oil slowed greatly when oil prices started falling in late 2014 and investment from AIDEA’s partners became hard to come by.

By February 2016, management for the authority and Brooks Range agreed to put Mustang in “warm standby” as oil prices in the $30 per barrel range hampered the ability to secure other financing options.

The Mustang field 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 field is estimated to hold about 22 million barrels of oil and could peak at production rates of about 12,000 barrels per day when fully developed.

Making the new loan arrangement work will require Brooks Range other creditors making similar compromises over the coming weeks, according to a statement from the authority.

New Brooks Range CEO Majid Jourabchi thanked AIDEA and the Dunleavy administration for prioritizing a fix to the Mustang situation in the authority’s statement.

“Brooks Range and our contractors on the North Slope are completely aligned in what needs to be done, and the urgency to have it be so,” Jourabchi said.

He could not be reached for further comment.

AIDEA’s Rodvik wrote via email that the authority retains “options commonly available to a senior secured creditor” if Alpha-Caracol again fails to make good on its commitments.

Elwood Brehmer can be reached at [email protected].

01/23/2020 - 8:57am