AIDEA board approved foreclosure sale for failed Mustang project
Leaders of the state development bank approved a plan Aug. 12 to offload the foreclosed North Slope oil project where it has to date invested more than $70 million.
With little discussion, the Alaska Industrial Development and Export Authority board of directors unanimously passed a resolution directing management to seek out a buyer for the partially complete Mustang oil project that faces “severe financial difficulties,” according to the resolution.
AIDEA CEO Alan Weitzner said authority officials have been working with the creditors to Singapore-based Caracol Petroleum and its operating subsidiary, Anchorage-based Brooks Range Petroleum Corp., to optimize the Mustang project for a sale, which is currently in a cold shutdown, since foreclosing on it last December.
The authority is actually selling Mustang Holding LLC, a company established to hold the foreclosed assets formerly run by Brooks Range, according to Weitzner.
“It would be and has been proposed as a competitive sale process where we will engage with parties directly on these foreclosed assets and their interest in the field and be able to address their proposals and questions as they come,” he told the AIDEA board.
AIDEA initially invested $70 million in two holding companies set up for the development of a road to the small oil prospect and its processing facilities.
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.
Brooks Range drilled test wells at Mustang in 2011 and 2012 that led AIDEA in December 2012 to make a $20 million investment in Mustang Road LLC. The $20 million funded the lion’s share of work to build a five-mile access road and a 19-acre drilling and facility pad.
The gravel road and pad — in which AIDEA was an 80 percent owner — were finished 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 another $50 million equity investment in the $225 million Mustang oil processing facility through MOC1. AIDEA held a 96 percent stake in the holding company as Brooks Range’s owners matched the authority’s equity with a $1 million investment of their own.
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.
AIDEA leaders later attempted to jumpstart development by restructuring its investments into multiple iterations of a loan to Caracol that required the owner company to commit at least $60 million to the project by April 2019.
Brooks Range eventually produced a small amount of oil from a single well at Mustang in November 2019 with temporary, modular facilities under new leadership, but it was not sustained.
Caracol missed its first quarterly $3.1 million loan payment to AIDEA in late 2019 as well, which started pushing authority officials toward foreclosure last year.
AIDEA Chief Investment Officer Morgan Neff noted that the project could still net the state upwards of $200 million in taxes and royalties if it is fully developed.
The Mustang resolution also included a $500,000 increase to the authority’s budget for managing the project’s infrastructure this year.
Ness said the increase from approximately $1.6 million to $2.1 million largely stems from unexpected remediation of the gravel pad and property tax payments to the North Slope Borough, which recently valued Mustang at $4.3 million, according to AIDEA. The local property tax bill for Mustang is $77,388 per year.
Elwood Brehmer can be reached at [email protected].