Alaska boosts investment in North Slope oil processing facility to spark new production

An Alaska state agency will add more money to the $70 million it has already invested toward building an oil-processing plant and related infrastructure on the North Slope as it seeks to move a project that stalled as oil prices and Alaska’s economy took a nosedive.

The Alaska Industrial Development and Export Authority on June 29 unanimously agreed to invest another $2.5 million to help support construction of the processing facility, known as the Mustang Operations Center and located southwest of ConocoPhillips’ giant Kuparuk River field.

Pipelines snake across Prudhoe Bay, Alaska on Thursday, May 21, 2015.
Pipelines snake across Prudhoe Bay, Alaska on Thursday, May 21, 2015.

The additional money is meant to help independent operator Brooks Range Petroleum Corp. complete the first well at the Mustang field. The money can help attract financing for additional development after the initial well is drilled, according to the board’s resolution.

“We are very pleased with the action taken by the AIDEA board and the resolution and hopefully it will prompt progress that allows the full project to move forward,” Bart Armfield, president of Brooks Range, said over the weekend.

The field is estimated to produce up to 15,000 barrels of oil daily. The processing facility is expected to cost $215 million. First production will come in late 2018 at the earliest, Armfield said.

The processing plant will create sales-quality crude oil. It will prepare the oil for shipment in the trans-Alaska pipeline, removing water, for example, that comes out of the ground with the oil.

The step by AIDEA will help the investment authority make its original investment start turning out cash and will support a project that will generate hundreds of jobs, Armfield said.

As the landowner at Mustang, the state will receive a royalty share of the oil produced. The state’s royalty share is usually 12.5 percent. But Brooks Range will pay the state a royalty of 16.67 percent.

Karsten Rodvik, AIDEA’s external affairs officer, said the authority made its original investment knowing changing oil prices could affect the project. The project was put on “warm standby” more than a year ago.

“Despite the challenges that have come about as a result of the oil price collapse, we continue to believe there is a viable opportunity to help advance Mustang development,” Rodvik said. “We are taking steps to restructure our investment to reflect current market conditions, and given these comprehensive efforts, we believe that Mustang should move forward.”

The project has also faced delay due to drilling complications caused by too much pressure in wells in a complex reservoir, requiring Brooks Range to install specialized equipment, officials said last year.

The state has invested $20 million in a road and gravel drilling pad on the tundra. It has also invested $50 million in the processing facility. The investments give AIDEA an ownership stake in the infrastructure.

The resolution authorized the authority to take full ownership of the limited liability company that is financing the project, Mustang Operations Center 1 LLC.

That joint venture had been represented 96 percent by AIDEA and 4 percent by CES Oil Services, a subsidiary of Charisma Energy Services Ltd., a Singapore-based firm.

AIDEA’s additional investment will go to Mustang. It will allow the business to pay outstanding obligations, retain assets and fund additional infrastructure that will support oil production, the resolution says.

The state agency says up to 250 jobs will be involved in the design and construction of the processing center. The plant would support additional exploration and development at nearby fields.

Armfield, the oil-company president, said engineering work is underway on the processing plant. Buildings associated with the project are also being fabricated.