North Slope oil project, backed with millions from state, on hold

Another endeavor in Alaska's North Slope has been postponed, as low oil prices and drilling complications contribute to a yearlong delay for the Mustang project in which the state has already invested $49 million.

The Alaska Industrial Development and Export Authority, a state public corporation, has invested heavily in the project, including committing to pay for a large portion of the $215 million facility that will process up to 15,000 barrels of oil daily once it's complete.

The project is being placed in "warm standby" because oil prices are low, said Karsten Rodvik, AIDEA's external affairs officer.

Equipment on order will be shipped to Alaska, he said. Equipment and material already in Alaska will be stored until it's needed. Construction and other work are planned to resume next year.

"We anticipate that work to complete the facility and development drilling will move forward in 2017," he said.

Bart Armfield, president of Brooks Range, said the company is working with AIDEA and other partners.

"We have a plan forward and a realistic timeline as far as getting equipment issues resolved and facility construction started, with an eye on first oil" in the last quarter of 2017, he said.


Corri Feige, director of the state Division of Oil and Gas, said in an email that Brooks Range has encountered "engineering challenges" in its well drilling.

"To address these issues, Brooks Range is engineering solutions before drilling continues and this has delayed first oil production," she said.

Armfield said the technical challenges have been caused by too much pressure in the wells in a complex reservoir. Brooks Range is installing specialized equipment to stabilize the wellbore.

"We are working on modifications to equipment to accommodate technical issues and restructuring finances to be in line with $30 oil," he said, referring to the price of a North Slope barrel of crude recently, the lowest prices for Alaska oil since 2008.

State officials approved Brooks Range's plan of development in 2011. The company had once anticipated startup as early as 2014.

AIDEA has loaned the project $20 million to support construction of a road and drilling pad. It has been repaid $10 million of that, Rodvik said.

The road has helped support exploration by other companies, he said.

The agency has also invested $29 million in the processing facility and expects to spend more, up to $50 million. The processing facility will prepare oil for shipment in the 800-mile trans-Alaska pipeline. The state will be part-owner of the processing plant after it's built.

AIDEA officials have said their investment has helped move the Mustang project forward. They've called the state investment a model for future state partnerships with independent oil producers. Small companies such as Brooks Range generally don't have the financial flexibility of large North Slope operators such as ConocoPhillips.

Rodvik did not provide the number of people who would not be hired this year because of the delay. He said design and engineering work for the processing facility is 80 percent complete.

AIDEA has previously said about 500 jobs would be associated with the design, construction and operation of the processing facility.

"During the warm standby, jobs will be at a minimum," Rodvik said.

The Alaska economy has been buffeted by the collapse in oil prices over the last 20 months, forcing companies to shutter or delay projects and lay off employees.

In recent months, BP and ConocoPhillips have scaled back their workforces, Shell suspended its hunt for oil in the U.S. Arctic Ocean and Spanish producer Repsol and Italian producer ENI have delayed North Slope projects.

The oil produced at Mustang would be considered "new" under the state's tax law and would not pay a production tax until prices hit about $73 a barrel, according to the Alaska Department of Revenue. State officials do not expect that day to arrive until 2021, based on the state's latest revenue forecast.

As a landowner, 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, officials said.

In a previous oil and gas venture in Cook Inlet, AIDEA earned $5 million and was repaid its $23.6 million investment in the Endeavour drill rig that was used to define the Cosmopolitan field, officials have said. The profits came even though the rig became tied up in the bankruptcy of Buccaneer Energy, which had chartered the $120 million rig for oil and gas exploration.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or