memorandum from: date: subject: resolution no. … docs/2014boardmeetings...board members resolution...

MEMORANDUM

To: Board Members Alaska Industrial Development and Export Authority From: Ted Leonard Executive Director

Date: April 24, 2014 Subject: Resolution No. G14-09 Authorizing Funding for Mustang Oil Field

Processing Facility under the Development Finance Program Summary Management recommends that AIDEA, under its Development Finance Program, enter into an agreement with CES Oil Services Pte. Ltd to form MOC1, LLC for the purpose of jointly financing an oil and gas production and processing facility at the Mustang field. Resolution No. G14-09 authorizes the Executive Director to complete the negotiations on all the agreements that are required for the Project, execute all the agreements relating to the Project and to use up to $50 million in funds from the Economic Development Account to invest in the Project in accordance with the final agreements. The statute governing AIDEA’s development project program (AS 44.88.172) allows the Authority to own infrastructure related to the development of natural resources in the State. This potential project satisfies the definition of a “project” and “development project” (AS 44.88.900(4) & (10)) and allows the Authority to develop the project through the Economic Development Account (AS 44.88.172). Project Description The Mustang Operations Center 1 (MOC 1), a 15,000 barrels per day (BPD) operating facility (“MOC 1 Facility” or “Facility”), will process crude oil produced from the South Miluveach Unit (“SMU”) on the North Slope of Alaska. The Facility will be jointly owned by the Alaska Industrial Development and Export Authority (“AIDEA”) and CES Oil Services Pte. Ltd (“CES”), a subsidiary company of Charisma Energy Services, an affiliate company of Ezion Holdings, via MOC 1, LLC. MOC 1 will contract with Brooks Range Petroleum Company (BRPC), operator of the Mustang Field, to build and operate the Facility and other associated equipment at the Mustang pad. The proposed Facility is estimated to cost $200 - $225 million, which include costs for the engineering design, procurement, fabrication, and installation of the production facility, piping,

Board Members Resolution No. G14-09 April 24, 2014 of 5 equipment, tankage, and well tie-ins. Additionally, these costs include connections to the common-carrier Alpine oil pipeline, which connects to the Kuparuk oil pipeline, and then Trans-Alaska Pipeline System (TAPS) for transport and sale of the produced crude oil. Economic Impacts

AIDEA management believes that this project has the potential to fulfill AIDEA’s mission of economic development and job growth through the following:

The program prolongs the economic life of the North Slope oil infrastructure and TAPS, contributing much needed oil flow to these pipelines.

The overall development program for the Mustang Field has the potential to generate significant State of Alaska revenues from royalties and production taxes. This is estimated (at $100/barrel oil) to range from $300 million (1P reserves) to $640 million (2P reserves).

It is estimated that the MOC 1 Facility will generate more than $45 million in property tax revenue to the North Slope Borough over the lifetime of the Facility.

Provides a stepping stone for continued regional exploration by others including Repsol, ASRC, as well as other BRPC fields (Appaloosa, Kachemach, etc.) that would potentially use this Facility.

The Mustang Road and Pad enabled >100 jobs for exploration and construction in the area in 2013-14

The MOC 1 Facility will create Alaskan jobs: o 250 construction-related jobs (fabrication, construction, installation) o 20 - 25 full time facility operations jobs o 50 additional jobs related to facility design/engineering and environmental

permitting and services o Up to 200 indirect long-term jobs (based on ratios developed by the Alaska Oil

and Gas Association) AIDEA’s overall $70 million investment in the Mustang Development Program ($50

million in MOC1 and $20 million in Mustang Road and Pad) is estimated to leverage in excess of $500 million of private investment.

Business Case

The business case for MOC 1 is based on the production and sale of crude oil produced from the Mustang Field through the Facility and sold by a broker. The oil production volumes used were based on the DeGolyer and MacNaughton (D&M) third party review of the field, using the 1P – proven reserves only. This evaluation had previously been reviewed by an AIDEA independent consultant and verified. The business plan was tested and included a sensitivity analysis of oil pricing, oil flow, taxes/royalties, and other factors that affect project economics. Under several worst-case scenarios, sufficient cash flows are available to provide for the payment of AIDEA’s proposed financing and other anticipated expenses. However, the project economics can vary significantly within any single year and overall cash flows are most directly linked to actual oil production rates and oil prices.

Board Members Resolution No. G14-09 April 24, 2014 of 5 Finance Plan

The following are the key elements of this financing structure:

AIDEA will provide $50 million of equity funding to MOC 1 via preferred shares. AIDEA shares are provided a 10% annual dividend (paid quarterly) and 7 year repurchase plan.

CES will provide $1 million of equity funding to MOC 1 via common shares. These shares will not be provided any dividends and cannot be repurchased until after all of the AIDEA shares have been repurchased and after all of MOC 1’s debt has been repaid.

CES will arrange for a loan to MOC 1 of up to $175 million ($150 million base plus $25 million of contingency financing) to be provided by Strategic Equipment Inc. (SEI), a Mauritius based company that has other agreements and financing arrangements with CES.

Loan payments are deferred during construction and commence following substantial construction completion.

After project completion, the loan will be structured with dual tiers based on their priority of payment from MOC 1.

Tier 1 of the loan is provided as a floating rate loan that is based on LIBOR rates with a small additional markup. The low interest rate for this loan tier requires it to receive a primary obligation of payment from MOC 1, including primary rights to the salvage value of the facility.

Tier 2 of the loan is provided an obligation of payment “behind” the payment required for AIDEA’s dividend and share repurchases. The overall loan term is 59 months from the date of the first funds injection.

MOC 1 will be provided working interest in the Mustang Field that will enable it to receive State of Alaska Pre-Production Capital Expenditure Tax Credits. The amount of working interest will be established and reviewed on an annual basis, factoring in the projected oil production rates and forecasted oil prices but will begin with a notional 20%.

Tax Credits will be split between MOC 1 and the Other WIOs, with 50% of the Tax Credit (up to $45 million) to be directed for early payment of the SEI loan and 50% redirected from MOC 1 back to BRPC to support the drilling and development program for the field.

MOC 1 to be paid via a Charter Payment from a Control Account that contains the proceeds from the sale of oil from Mustang Field. MOC 1 to receive the greater of the Charter Payment or the assigned working interest (WI). Charter Payment is sufficient to repay the SEI loan, AIDEA dividends and share repurchase, production taxes, establishment of reserve account, and MOC 1 operating expenses.

A reserve account will be established during the first 10 months of payments equal to 3 months loan payment. This reserve will be used only in the event of an unscheduled/planned outage in the Facility or in TAPS.

If a surplus is created in MOC1, in the event of higher planned production or sales price of crude, that surplus will be returned to the Other WIOs.

Board Members Resolution No. G14-09 April 24, 2014 of 5 The following figure summarizes cash available after deducting all royalties, tariffs, over-riding royalty interests (ORRIs), lifting costs, and taxes, and represents the cash available to the WIOs and the amounts necessary to meet the requirements of the MOC 1 charter agreement.

Other

AIDEA regulations require approval by the local governing entity for where a development project will be located. On December 4, 2012, North Slope Borough passed Resolution 40-2012 to demonstrate their support for the project. Significantly, BRPC also has all of the necessary permits to initiate construction, including an approved Plan of Development from the Alaska Department of Natural Resources (DNR).

Board Members Resolution No. G14-09 April 24, 2014 of 5 Conditions Precedent The execution of this project and AIDEA’s participation in the MOC 1, LLC require the completion of several documents as described in Section E of the attached report. In addition to these documents, the following activities are also required prior to funds distribution from AIDEA to MOC 1, LLC:

Assurances in the form of guaranty agreements or other financing documents are needed for the timely and successful drilling and development of wells and their associated infrastructure for Mustang Field. This includes demonstration that sufficient funds exist for the completion of the Phase 1 drilling. The development activities will be performed by BRPC on behalf of Thyssen Petroleum.

Completion of the buyout of BRPC and 90% of SMU working interest from AVCG, LLC and Ramshorn Investments, Inc. to Thyssen Petroleum North Slope (TP NS), LLC (a subsidiary of TP USA, LLC).

Setup of MOC 1, LLC as an Alaska-based partnership LLC.

Receipt of loan terms, payment schedule, and other associated documents for the CES (via SEI) to MOC 1 loan and execution of this loan.

Recommendation to Board

AIDEA management recommends approval of Resolution No. G14-09 directing AIDEA to execute all necessary agreements with CES to create MOC 1, LLC, to execute and perfect all necessary side agreements related to the carried working interest and associated tax credits, and to execute with BRPC a design-build agreement for the engineering ,design, procurement fabrication and installation of all equipment and material associate with the MOC 1 facility. Attachments

1. AIDEA Resolution No. G14-09

2. Mustang Operations Center Due Diligence and Finance Plan

ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY

RESOLUTION NO. G14-09

RESOLUTION OF THE ALASKA INDUSTRIAL

DEVELOPMENT AND EXPORT AUTHORITY

APPROVING A PROCESSING FACILITY FOR THE

MUSTANG OIL FIELD UNDER THE DEVELOPMENT

FINANCE PROGRAM

WHEREAS, Brook Range Petroleum Corporation (“BRPC”), the Operator of the oil and

gas leases that comprise the Southern Miluveach Unit on the North Slope of Alaska (which is

commonly referred to as the “Mustang Oil Field”), has requested the Alaska Industrial

Development and Export Authority (the “Authority”) assist in developing a 15,000 barrels-per-

day processing facility for the Mustang Oil Field (the “Project”);

WHEREAS, BRPC’s exploration of the Mustang Oil Field has established that it has

proven oil reserves of 25 to 30 million barrels;

WHEREAS, through an investment in Mustang Road LLC, the Authority has previously

provided $20 million in financing for the construction of roads and a gravel pad for the Mustang

Oil Field;

WHEREAS, at the time the Authority made the investment in Mustang Road LLC, the

Authority consulted with the North Slope Borough and obtained its approval for the Authority to

participate in the development of the Mustang Oil Field, including the processing facility;

WHEREAS, the construction of the Project will permit BRPC as Operator to produce oil

from the Mustang Oil Field, process the oil, and put that oil into the Trans-Alaska Pipeline

System (“TAPS”) through connecting pipelines, which would be in furtherance of the State of

Alaska’s goal of getting more oil into TAPS;

WHEREAS, the construction of the Project may also enable other nearby oil fields in the

area to begin production and thereby put even more oil into TAPS;

AIDEA Resolution No. G14-09 Page 2 of 4

WHEREAS, the Staff of the Authority has conducted a feasibility analysis of the Project

and completed further due diligence of the Project, based on the premise that the Authority

would invest a maximum of $50 million in a limited liability company to be named Mustang

Operations Center 1 LLC (“MOC1”) and the Authority’s investment, along with loans obtained

by another MOC1 investor, CES Oil Services Pte. Ltd., would finance the construction of the

Project;

WHEREAS, the Staff of the Authority has prepared a finance plan for the Project and

recommended that the Authority proceed with the Project and release funds, subject to the

following conditions (the “Conditions”):

(1) the Authority, CES Oil Services Pte. Ltd., BRPC, and the working interest owners

of the Mustang Oil Field must complete negotiations on and execute a limited liability company

agreement, facility charter agreement, working interest purchase and sale agreement, design and

build construction contract, guaranty agreements, security agreements and other ancillary

agreements, the material terms of which are generally outlined on the memorandum provided to

the Board;

(2) all permits, authorizations, and regulatory approvals required for the construction

and operation of the Project must be obtained;

(3) MOC1 must obtain a carried working interest in the oil and gas leases of the

Southern Miluveach Unit in a percentage that is expected to generate sufficient funds to re-pay

the Authority’s investment and provide a return on that investment (which percentage may be

adjusted from time to time), and the Alaska Department of Natural Resources must approve the

transfer of the carried working interest to MOC1;

(4) BRPC, through its parent organization(s), must provide proof of availability of

funds (estimated at $85.1 million) and documentation for implementation of the Phase 1 drilling

program consistent with the Mustang Oil Field development plan;


(5) all of the other parties to the final agreements related to the Project must execute

and deliver the final agreements;

(6) BRPC, as Operator of the Mustang Oil Field, must obtain insurance coverage for

the Project and MOC1 in such amounts, and placed with such insurers, as the final agreements

require;

(7) the Executive Director must be satisfied that BRPC, together with its parent

organization(s) and the working interest owners of the Mustang Oil Field, have the financial

capacity and operational ability to develop the Mustang Oil Field into a producing oil field and to

perform all of their obligations under the final agreements;

(8) CES Oil Services Pte. Ltd. must secure for MOC1 a loan or loans in a total of

amount of $150 million for MOC1 for use in funding the Project, with access to at least an

additional $25 million to cover possible Project cost overruns, and the Executive Director must

satisfied with the payment terms and conditions of the loan or loans; and

(9) the terms under which the Authority’s investment in Mustang Road LLC will be

repaid, and the return on that investment obtained, must be restructured in substantially the

manner indicated in the memorandum provided to the Board.

WHEREAS, the Project is eligible for financing under the Authority’s development

finance program (AS 44.88.172) because the processing facility for the Mustang Oil Field

qualifies as a “development project” under AS 44.88.900(4) and (10)(A) in that it will constitute

a “plant” or “facility” that will be used in connection with developing or utilizing the natural

resources of the State; and

WHEREAS, the Board finds the Project is a suitable one for the Authority to invest in

and is in furtherance of the Authority’s statutory purpose of promoting, developing and

advancing the general prosperity and economic welfare of the people of Alaska, to relieve

problems of unemployment, and to create additional employment.


NOW, THEREFORE, BE IT RESOLVED BY THE ALASKA INDUSTRIAL

DEVELOPMENT AND EXPORT AUTHORITY AS FOLLOWS:

Section 1. The Authority shall proceed with the Project, subject to the satisfaction of

the Conditions. The finance plan for the Project submitted to the Board is approved.

Section 2. The Executive Director of the Authority is authorized to complete the

negotiations on all the agreements that are required for the Project, with those agreements to be

on the terms outlined in the memorandum provided to the Board or with modifications to those

terms as the Executive Director, in his discretion, determines to be appropriate.

Section 3. Upon the satisfaction of the Conditions, the Executive Director is

authorized to execute all the agreements relating to the Project and to use up to $50 million in

funds from the Economic Development Account to invest in the Project in accordance with the

final agreements. The Executive Director is further authorized to take all other steps that are

necessary or desirable to develop and construct the Project and to perform the Authority’s

obligations under the final agreements.

DATED at Anchorage, Alaska on this 24th day of April, 2014.


___________________________________ Chair

SEAL ATTEST: ________________________________ Secretary

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MUSTANG OPERATIONS CENTERApril 23, 2014

MUSTANG OPERATIONS CENTER

ContentsTABLE OF CONTENTSACRONYMSEXECUTIVE SUMMARY 1

A. PROPOSED PROJECT 8General Project & Facility Description 8Project Timeline 9Drilling Operations and Development 11 Project Capital Cost Estimates 12Operating Cost Estimates 13

B. BUSINESS PLAN 17 Mustang Field Oil Reserves and Production Rates 17

Project Revenue/Sensitivity Analysis 19

C. FINANCING PLAN 23Financing Collateral/Security 28Financing Schedule 30Financing Repayment 30 Anticipated Project Revenues and Financials 31

D. ECONOMIC DEVELOPMENT IMPACT & AIDEA SUITABILITY 32 Economic Impact Analysis 32 Future Fields and Potential Expansion 33 E. PROJECT SPONSOR INFORMATION 34 Brooks Range Petroleum Corporation 34 Thyssen Petroleum 34 Charisma Energy Services Limited 35

F. RISKS & MITIGATION 36 Conditions Precedent 37

G. CONCLUSIONS AND NEXT STEPS 39

APPENDICES A. Facility Description and Analysis 41 B. Supporting Reports and Documents 49 C. Phases 1-2 Graphy of Control Account Revenues 53 D. References 57

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

The following technical abbreviations and acronyms are used throughout this report and thereference documents, drawings and reports that were reviewed as part of this study.

AIDEA Alaska Industrial and Export AuthorityAOGA Alaska Oil and Gas AssociationBBL BarrelBOP Base of PipeBOPD Barrels of Oil per DayBP British PetroleumBPD Barrels per DayBRPC Brooks Range Petroleum CorporationBS&W Basic Sediment and WaterBSCFD Billion Standard Cubic Feet per DayBWPD Barrels of Water per DayCPF Central Processing FacilityCOP ConocoPhillips, Inc.DS DrillsiteFEED Front-End Engineering DesignFG Fuel GasFS Flow StationGC Gathering CenterGKA Greater Kuparuk AreaGOR Gas Oil RatioH2S Hydrogen SulfideKRU Kuparuk River UnitLACT Lease Account & Custody TransferM Thousand (used in $ estimates)MAWP Maximum Allowable Working PressureMM Million (used in $ estimates)MMSCFD Million Standard Cubic Feet per DayMOC Mustang Operations CenterORRI Overriding Royalty InterestOSC Operations Support CenterOPEX Operating ExpenditureP&ID Piping and Instrumentation DiagramsPE Professional EngineerPFD Process Flow DiagramPPL or P/L PipelineSSV Surface Safety Valve

SSSV Sub-surface Safety ValveWI Working InterestWIO Working Interest Owner(s)

EXECUTIVE SUMMARY

Proposed Project – Mustang Operations Center #1

The Mustang Operations Center #1 (MOC 1), a 15,000 barrels per day (BPD) operating facility (MOC 1 Facility or Facility), will process crude oil produced from the South Miluveach Unit (SMU) on the North Slope of Alaska. The Facility will be jointly owned by the Alaska Industrial Development and Export Authority (AIDEA) and Charisma Energy Services, Oil Services Pte., Ltd. (CES) via MOC 1, LLC. MOC 1 will contract with Brooks Range Petroleum Company (BRPC), operator of the field, to build and operate the Facility. The project will be funded by a combination of capital contributions from AIDEA and CES plus a loan from a 3rd party bank procured by CES. Upon the completion of the Facility, BRPC will charter the Facility from MOC 1 and will operate the Facility for the benefit of the Working Interest Owners (“WIOs”). MOC 1 will be granted a carried working interest in the SMU that will enable the receipt of a portion of the field production revenues to make the Charter Payments for the use of the Facility.

The proposed Facility is estimated to cost $200 - $225 million, which include costs for the engineering design, procurement, fabrication, and installation of the production facility, piping, equipment, tankage, and well tie-ins. Additionally, these costs include connections to the common-carrier Alpine oil pipeline, which connects to the Kuparuk oil pipeline, and then Trans-Alaska Pipeline System (TAPS) for transport and sale of the produced crude oil. Production and reinjection wells will be installed by BRPC on behalf of the other WIOs in the field.

The Facility will use the Mustang Road and be constructed on the Pad owned by Mustang Road, LLC (MR LLC), of which AIDEA owns 80%. Mustang Road and Pad was authorized under AIDEA Resolution No. G12-08 in December 2012 and constructed in May 2013. This pad has been used this past winter by Repsol in support of their drilling/exploration activities of their nearby leaseholds and by ConocoPhillips as a staging area for the CD-5 development and construction materials.

DUE DILIGENCE AND FINANCE PLANMUSTANG OPERATIONS CENTER - BROOKS RANGE PETROLEUM CORPORATION

DUE DILIGENCE AND FINANCE PLAN •

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AIDEA regulations require approval by the local governing entity for where a project will be located. On December 4, 2012, North Slope Borough passed Resolution 40-2012 to demonstrate their support for the project. Significantly, BRPC also has all of the necessary permits to initiate construction, including an approved Plan of Development from the Alaska Department of Natural Resources (DNR).

The MOC 1 Facility is a “project” under Alaska’s Statute (AS) 44.88.900(10)(A), in relevant part: “…a plant or facility used or intended for use in connection with making, processing, preparing, transporting, or producing in any manner, goods, products, or substances of any kind or nature or in connection with developing or utilizing a natural resource…”

Economic Development Impact / AIDEA Mission Suitability

The statute governing AIDEA’s development project program (AS 44.88.172) allows the Authority to own infrastructure related to the development of natural resources in the State. This potential project satisfies the definition of a “project” and “development project” (AS 44.88.900(4)(10) and allows the Authority to develop the project through the Economic Development Account (AS 44.88.172). Based on the due diligence review completed by the Development Project Division, AIDEA management believes that this project has the potential to fulfill AIDEA’s mission of economic development and job growth through the following:

• The program prolongs the economic life of the North Slope oil infrastructure and TAPS, contributing much needed oil flow to these pipelines.

• The overall development program for the Mustang Field has the potential to generate significant State of Alaska revenues from royalties and production taxes. This is estimated (at $100/barrel oil) to range from $300 million (1P reserves) to $640 million (2P reserves).

• It is estimated that the MOC 1 Facility will generate more than $45 million in property tax revenue to the North Slope Borough over the lifetime of the Facility.

• Provides a stepping stone for continued regional exploration by others including Repsol, ASRC, as well as other BRPC fields (Appaloosa, and Kachemach) that would potentially use this Facility.

• The Mustang Road and Pad in 2013 -14 enabled more than 100 jobs for exploration and construction activities in the area.

• The MOC 1 Facility will create Alaskan jobs:

Alaska Industrial Development and Export Authority

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o 250 construction-related jobs (fabrication, construction, installation)

o 20 - 25 full-time facility operations jobs

o 50 additional jobs related to facility design/engineering and environmental permitting and services

o Up to 200 indirect long-term jobs (based on ratios developed by the Alaska Oil and Gas Association)

• AIDEA’s overall $70 million investment in the Mustang Development Program ($50 million in MOC 1 and $20 million in MR LLC) is estimated to leverage in excess of $500 million of private investment.

Economic Base & Business Plan

The business case for MOC 1 is based on the production and sale of crude oil produced from the Mustang Field through the Facility and sold by a broker. The oil production volumes used were based on the DeGolyer and MacNaughton (D&M) third party review of the field (2013), using the 1P – proven reserves only. This evaluation had previously been reviewed by an AIDEA independent consultant and verified (Hite, 2012). The business plan was tested and included a sensitivity analysis of oil pricing, oil flow, taxes/royalties, and other factors that affect project economics. Under several worst-case scenarios, sufficient cash flows are available to provide for the payment of AIDEA’s proposed financing and other anticipated expenses. However, the project economics can vary significantly within any single year and overall cash flows are most directly linked to actual oil production rates and oil prices.

Finance Plan

The finance plan for the construction of the Facility includes:

• AIDEA and CES Oil Services Pte, Ltd. (CES), will contribute up to $226 million to MOC 1 to finance the Facility design and construction.

• AIDEA’s contribution to MOC 1 will be made through an equity investment of $50 million. AIDEA will be a preferred member. MOC 1 will provide to AIDEA a 10% annual dividend based on the outstanding amount of principal shares. AIDEA’s shares will be repurchased annually over 7 years. Additionally, AIDEA will


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receive a 10% dividend for use of its capital during the construction period, which will be capitalized and become part of the repurchase amount.

• CES’s contribution will be an equity contribution of $1 million. CES will be a common member of the LLC. In addition, CES will arrange for a bank loan of up to $175 million. The loan will be amortized over 59 months, with no payments due during construction.

• MOC 1 will be provided a working interest in the Mustang Field, making it eligible for pre-production tax credits in a similar way as MR LLC.

• 50% of the available tax credits (but not less than $45 million) will be used as an early repayment of the loan CES secures. The remaining will be distributed to BRPC for funding of field development/drilling.

• All revenues associated with the sale of crude oil will be deposited into a control account. MOC1 will receive the greater of its working interest percentage or the minimum charter payments for the use of the Facility. MOC 1 will receive funds from this account prior to distribution of funds to the Other WIOs. These charter payments are based on a formula that covers the costs for debt service, expenses, and a reserve, dividend payments and share repurchases (Charter Payments).

• A reserve account will be established during the first 10 months of payments equal to 3 months debt service payment. This reserve will be used only in the event of an unscheduled/planned outage in the Facility or in TAPS.

• If a surplus is created in MOC 1, in the event of higher planned production or sales price of crude, that surplus will be returned to the Other WIOs.

• In the event that insufficient funds exist in the control account, the Other WIOs will guarantee payments.

• MOC 1’s amount of working interest will be evaluated and adjusted annually as necessary to ensure payment of the Charter Payments.


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Preliminary Pro Forma Financials

AIDEA engaged Western Financial Group (WFG) to review the financial feasibility of the project. Based on the estimates of proven oil reserves, and the notional structure for the MOC 1 financing, projections indicate net cash flows exceeding the necessary payments to AIDEA and CES and sufficient cash flows to fund the drilling and other associated project expenses (see above graph). This report provides a full detailed analysis of the project.

Project Sponsor

The primary project sponsor for MOC 1 is Brooks Range Petroleum Corporation (BRPC). BRPC is a small, independent oil exploration and development company, focused on exploring for oil and gas on Alaska’s North Slope. Outside of the Mustang Field, BRPC controls 104,000 acres adjacent to the Prudhoe Bay, Kuparuk, and Point Thomson oil fields. BRPC is an Alaskan company with headquarters in Anchorage. BRPC will operate the Facility on behalf of MOC 1.

Thyssen Petroleum (TP) will participate in the project through the buyout of BRPC from Alaska Venture Capital Group, LLC (AVCG) and Ramshorn Investments, LLC, via a to-be formed subsidiary (LLC) of the larger TP U.S. corporation. Thyssen Petroleum USA (TP USA) is incorporated in the State of Delaware and is a wholly- owned entity of Thyssen Limited which is based in the British Virgin Islands with offices in Monte Carlo, Monaco. TP USA is a privately-owned company and 100% of the stock is owned by the Thyssen family. TP USA was created to invest in the exploration and production of oil and gas assets in United States. Currently, TP USA has interest in and is drilling and producing from assets in the State of Louisiana.


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Risks & Risk Mitigation

Numerous areas of risk to the operational and financial success of the project can be identified.These risks and potential mitigation strategies for each are presented in the table below.

POTENTIAL RISKS MITIGATION MEASURES

Oil Prices Decrease

• Use of the “Control Account” to pay MOC1 prior to distr ibution of funds to the other WIOs

• Annual adjustment of MOC1 WI based on requirements for payment of expenses and debt

• “Cash call” to Other WIOs if insufficient funds exist in Control Account

Field Production Rate Decreases (i.e., decreased WI revenues)

• Requirements for Other WIOs to increase or modify dri l l ing plans

• Use of “Control Account” to pay MOC1 prior to distr ibution of funds to the other WIOs

• Annual adjustment of MOC1 WI based on requirement for payment of expenses and debt

Oil-Water Ratio Fluctuations • Modify gas/water reinjection volumes/rates• Dri l l new wells at different depths or location

Construction Prices Increase

• Requirement for Other WIOs to contribute for additional funds

• Evaluate the potential for additional funding to MOC1

Operating Costs/Expenses Increase

• Annual evaluation and adjustment of MOC1 WI

• Use of the “Control Account” to pay MOC1 prior to distr ibution of funds to the other WIOs

Oil Pipeline Interruption/Closure • Investigate other modes of oil export• Salvage/sell facil ity and equipment


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Project Timeline

The table below provides a brief summary of the timing for the significant milestones identified for this project.

ACTIVITY ANTICIPATED TIMEFRAME

AIDEA Approves Funding/LLC Formed April 2014

Engineering Design Q2 2014 - Q4 2014

Equipment Ordering and Procurement Q2 2014 - Q4 2014

Module Fabrication Q3 2014 - Q2 2015

On-site Fabrication Q4 2014 – Q4 2015

Commissioning Q2 2015 - Q4 2015

Well Drilling (Phase 1 Start) Q3 2014

First Oil Q1 2016

Summary

The findings indicate that this project is robust. Cash flows are sufficient under a variety of crude prices, production rates, and tax regimes. Security is established through the use of the control account, guarantee’s by the Other WIO’s, and the filing of Production Payments liens on all non-Mustang BRPC leases. Additionally, security is provided via the working interest in the field and the salvage value of the Facility. This project fulfills AIDEA’s mission of economic development through the creation of construction jobs, operating jobs, local property taxes as well as royalties paid to the State. AIDEA’s involvement as an equity owner enables and leverages significant outside capital to be used to finance the overall project.


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A. PROPOSED PROJECT

General Project and Facility Description

The Mustang Operations Center #1 (MOC 1) is a proposed Facility that will be constructed to produce oil from in the Southern Miluveach Unit (SMU) that is located to the southwest of the Kuparuk River Unit (KRU) on the North Slope of Alaska. A map showing the location of the Facility is shown as Figure 1 (p. 10).

MOC 1 includes the following permanent equipment and operations support facilities:

• Multi-stage oil/water/gas separation equipment sized for the separation and production of up to 15,000 barrels-per-day (bpd) of pipeline quality crude oil.

• Gas treatment equipment to produce up to 7.5 million standard cubic feet (MMSCF) per day of solution gas (for fuel and reinjection requirements)

• Power plant equipped with 10MW of primary electrical production via two gas turbines, 3.8MW of backup electrical power via a diesel generator, and the necessary electrical distribution infrastructure

• Oilfield operations for up to 11 production and 20 reinjection wells (gas and water)

• Operations camp to include a central monitoring and control facility, maintenance/workshop spaces, fuel storage tanks, fuel dispensing equipment, and materials/equipment warehousing space

• Personnel quarters, living spaces, and eating/food preparation for up to 30 rotating employees

• Water and sewer utilities including a potable water tank and septage holding tank

Additional areas provided at the proposed site include space for a temporary construction/development support camp, material/equipment laydown and stockpiling areas, and space for the setup/operation of the drilling rig(s) and associated equipment. Figure 2 (pg. 12) shows a 3 dimensional (3D) depiction of the conceptual layout of the facility and the surrounding area. The conceptual site plan for the Facility is shown as Figure 3 (p. 17). Greater detail and feasibility analyses of the processes included in these areas is provided in the following subsections. A conceptual process/block flow diagram for the Facility is provided as Figure 4 (p. 18). Appendix A contains significant detail about the various processes and other equipment that will be included in the Facility.


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These facilities will be constructed on the existing 17.4 acre Mustang Field production pad, a gravel pad installed in Spring 2013 by Mustang Road, LLC (MR LLC). AIDEA is the primary equity partner in this LLC. This pad is accessed via the 4.4 mile gravel Mustang Road that was also constructed in 2013 by MR LLC. The road initiates from within the KRU road network and ends at the pad.

Project Timeline

The table below provides a brief summary of the timing for the significant milestones identified for this project.

ACTIVITY ANTICIPATED TIMEFRAME/DATE

AIDEA Approves Funding/LLC Formed April 2014

Engineering Design Q2 2014 - Q4 2014

Equipment Ordering and Procurement Q2 2014 - Q4 2014

Module Fabrication Q3 2014 - Q2 2015

On-site Fabrication Q4 2014 – Q4 2015

Commissioning Q2 2015 - Q4 2015

Well Drilling (Phase 1 Start) Q3 2014

First Oil Q1 2016


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Figure 1. MOC 1 Site Location Map


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Drilling Operations and Development

The MOC 1 Facility is supported by field drilling and development activities conducted by the Other Working Interest Owners (WIOs) in the SMU according to the North Tarn Operating Agreement.

Oil will be produced for separation and treatment through the Facility via a phased drilling program. The phases are anticipated to be delineated as follows:

• Phase 1 – 2 horizontal production wells, 1 vertical gas reinjection well, and 4 vertical water reinjection wells

• Phase 2 – 2 horizontal production wells, 4 vertical water reinjection wells



• Phase 5 - 3 horizontal production wells, 5 vertical water reinjection wells

These 5 phases of development are based on producing oil from the various sections of the Mustang Field. Based on the exploration work conducted for the delineation of the Mustang Field, each production well will be drilled to depths/lengths of roughly 11,000 to 22,000 feet. The horizontal portions of the wells, open to oil flow/extraction, will then extend roughly 5,000 feet from the bottom of each well. At the Facility pad, each well will be placed on 15-foot centers. Wellhead control panels, valving, well houses, trunk/lateral piperacks for the tie-ins, electrical modules, and chemical injection modules will be provided on the Facility pad. The preliminary well house design includes an unheated shelter over each wellhead. Chemical injection requirements may include corrosion inhibitors, scale inhibitors, and emulsion breakers, consistent with other North Slope production wells. The full five-phase drilling program is anticipated to be executed over a period of 3-4 years, depending upon drill rig availability, pricing, and contracting provisions. The geology and production characteristics of each well will also be evaluated and monitored to provide valuable information on the requirements and design of each subsequent well.


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Figure 2. A 3-D conceptual view of the proposed MOC 1 production facility and nearby area.

Project Capital Cost Estimates

Costs for the proposed MOC 1 production facility are based on a conceptual cost estimate as provided from BRPC (2012). The estimate is based on engineering evaluations, typical North Slope pricing, and some direct material, equipment, and labor quotations from potential vendors and contractors.

This estimate includes appropriate labor costs, transportation/logistics costs, engineering, construction management, and procurement costs as part of each facility component. As noted in this estimate, a significant contingency factor is included due to the current definition level of the estimate. The contingency level will decrease as further engineering and procurement of the pertinent materials/equipment progresses. For the purposes of this financing package, an estimate of $201 million is carried forward.

A review conducted by Arcadis and Arktis (2013) of these estimated costs has identified several areas that are not included the estimate:

• Site security costs, including a guard house, cameras, or other measures

• Snow fencing• Furnishings and other interior equipment, computers, etc.

Photo 1. Mustang #1 well at Mustang Field Production Pad in December 2013.


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• Tools and other small equipment• Spill response equipment• Fire prevention and response equipment• Medical facilities/equipment

Most of these considerations will be provided by the MOC 1 operator (BRPC) through the facility operating agreement. Also, any savings on the production facility construction or equipment may be used to purchase this equipment or related services to save on operation costs. Importantly, any unforeseen capital costs or construction cost over-runs will be paid by BRPC. The financing structure as outlined in the subsequent sections also provides potential funding in excess of the $201 million estimate described above.

The estimated costs for the 5 phases of drilling and development are more than $350 million. This drilling will be performed by BRPC on behalf of the Other WIOs in the SMU. MOC 1’s financing is dependent upon the demonstration of sufficient funds to ensure that the necessary Phase 1 drilling is performed to provide oil for the facility at startup. This security is described in greater detail in later sections of this document.

Operating Cost Estimates

Facility operating costs affect the amount of revenue available to fund both the repayment of the capital costs and the drilling/well development efforts. These operating costs are largely comprised of three components:

• Taxes – including State of Alaska production taxes, oil royalties, federal/state corporate income taxes and North Slope Borough property (ad valorem) taxes

• Lease Operating Costs/Expenses (LOEs) – these are largely composed of costs for labor/ personnel, overhead, materials, equipment, utilities, and other facility support costs. As described previously, BRPC will provide for the operations of the facility. To provide flexibility and to augment BRPC’s staff, many of the operating services may also be contracted to second party firms. The payments due to MR, LLC for the road/pad are also considered LOE.


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• Transportation Costs – these include costs for the transport of the oil through the Alpine Crude Oil Common Carrier Pipeline, the Kuparuk pipeline, and the Trans- Alaska Pipeline System (TAPS). Rates for each of these pipelines are regulated and

only adjusted periodically. Short-term storage and shipping costs out of the Valdez terminal and to West Coast markets are also included. The current economic model forthe project utilizes the 2013 published rates for the pipeline and shipping costs, which equate to $9.60 per barrel.

A sensitivity analysis as provided in Section B illustrates that even with significant inflation of the operating costs, sufficient revenues will be generated from the project to fund the repayment of the capital financing and provide other revenues for the drilling/development.

Photo 2. Lights at Mustang Field in December 2013


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Figure 3. MOC 1 Production Facility Conceptual Layout


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Figure 4. MOC 1 Facility Block Flow Diagram


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B. BUSINESS PLAN

The business plan for the Facility is for the production of crude oil that can be sold on the open market for refining into fuels or other chemical products. The February 2014 average spot price for Alaska North Slope (ANS) crude oil was $107.57 per barrel. A review of the oil reserves and production rates verifies the resiliency of the business case. Additional sensitivity reviews on future projected oil prices demonstrates the overall viability of the project’s business plan.

Mustang Field Oil Reserves And Production Rates

Four separate groups have analyzed the available oil reserves from Mustang Field. These analyses have been performed at each of the 3 standard industry-recognized classification levels: 1P, proven; 2P, proven + probable; and 3P, proven + probable + possible. Table 1 provides the results of this analysis by these groups.

Table 1. Estimated Mustang Field Reserves

RESERVES ESTIMATE RESERVE CASE (1P, 2P, or 3P) ESTIMATED RESERVES (MMBO)Brooks RangePetroleumCorporation (2012)

1P 27.024

Degolyer andMacNaughton (2013)

1P2P3P

24.73243.61151.037

Strickland Group (2012) 1P(?) 39.1

David Hite Associates (2012)

1P2P3P

30.72342.99248.336

The analyses conducted are based on the exploration drilling performed in the area by BRPC, other known and nearby exploration information, seismic survey information, and known information on the area geology and oil production from the nearby Kuparuk River Unit (KRU). As a conservative measure, the further economic analyses for the feasibility of the proposed Facility are based on the lowest 1P reserves, as estimated by D&M (2013). Several aspects support the estimated ~25 million barrels of oil (MMbo) 1P estimate for the field, including the following as summarized from the David Hite analysis (2013):


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• The Mustang Field development is geologically on very solid ground with minimal impediments to development success given known exploration information and nearby geologic/production information.

• The principal reservoir in the Mustang field is the Kuparuk “C” sandstone. Based on the proximity and geology of the Mustang Field to the Palm area of the KRU, the Palm area is an appropriate analog for the Mustang Field.

• Reservoir and oil parameters derived from the Palm area of the KRU can be applied to the Mustang Field area with a high degree of confidence, including the faults and the apparent over-pressuring that is believed to be associated with the water flood occurring in the KRU field. This latter aspect demonstrates pressure but not fluid communication.

• The regional oil column is nearly 900’ thick with the highest known oil at -5,600 feet total vertical depth (TVD) to an oil/water contact at approximately -6,500 feet TVD. This easily brackets the Southern Miluveach Unit (SMU) and the Mustang structure. The shallowest portion of Mustang is at -5,976 feet TVD and the deepest portion is at -6,265 feet TVD with the lowest known oil (LKO) at -6,108 feet TVD in the L2-03 well. Thus, there is little doubt that the entire area contains oil. In the reserve calculations, the LKO value was not used to define limits of the field, as it is interpreted to be define a minimum area not an expected area of the accumulation.

• The Kuparuk “A” sandstone was not considered in any reserve calculations but due to its local presence in the southeastern corner of the unit, it may contribute modestly to the estimated ultimate recovery (EUR).

• The reserve calculations performed by D&M and BRPC are reasonable values; when compared to those prepared as part of the Hite analysis these values appear to be conservative, at least in the 1P and 2P cases. The calculations by D&M are the most conservative with 24.732 MMbo in the 1P case while BRPC and the Hite analysis have values of 27.024 and 30.723 MMbo respectively. BRPC did not prepare 2P and 3P cases. In both the 2P and 3P cases, D&M calculated slightly higher reserves than the Hite analysis provided. These differences are readily explainable considering the inherent uncertainty in some of the values employed in the calculations.

• The major conclusion is that the D&M numbers are the most conservative in the 1P case and that case appears to provide favorable project economic feasibility. Additional reserves as given via the other estimates and 2P/3P scenarios further improve the feasibility of the project.


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• Given the anticipated declining production rate with an assumed field shut down at 300 BOPD, the Mustang Field has a life that could extend well beyond 2031 and in the 3P case perhaps beyond 2050. The production of oil from other nearby fields through the Facility obviously extends the Facility life.

Potential oil production rates from the field are anticipated to be similar to those from the greater Kuparuk area. BRPC has designed the field development and drilling program that will:

• Maximize production while minimizing the number of required production and injection wells

• Maximize production while minimizing drill rig mobilization requirements• Maximize production while minimizing overall facility size requirements (i.e.,

working within the 15,000 BPD facility throughput limitation)• Maximize oil-water ratios• Center development around the areas of the reservoir with the highest probability

for significant oil production, including the southeast corner (Phase 1 wells) and northeast corner (Phase 2 wells) of the field.

The overall field production rates are anticipated to follow a typical depletion curve that is similar to other area fields. Using the planned phased drilling program and the known site geology, BRPC has developed anticipated production curves from an oil reservoir model. In the event that only Phase 1 and 2 drilling/development occurs anticipated production is still greater than 10 million barrels. As described in later sections of this report several mechanisms are used to ensure the performance and success of the drilling and development program.

Project Revenue/Sensitivity Analysis

The financing and business plan for the MOC 1 Facility is directly affected by three primary factors that include the following:

1. Oil Prices2. Oil Production Rates/Volumes3. LOEs, including transportation costs


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Each of these factors are considered further below.

Oil Prices

The price received for oil sold from Mustang Field directly impacts the ability to pay the necessary taxes, LOEs, and repayment of the MOC 1 financing. Figure 5 (p. 21) presents a graph of the Alaska North Slope (ANS) oil prices over the past ten years (AK DOR, 2013). Several agencies publish short and long-term oil price forecasts, including the State of Alaska. Table 2 provides a summary of these forecasts. As shown, a general consensus exists that oil prices are anticipated to remain in the >$90 per barrel range over the next ten years. This is also consistent with the ANS prices experienced over the past 3 years. While these forecasts acknowledge the on-going increase in U.S. oil production, global markets remain tight and even with increased output from the U.S. and other nations/regions, this output will largely match anticipated demand growth, resulting in stable pricing.

Oil Production Rates/Volumes

As described in Section A, BRPC plans to develop the Mustang Field through 5 phases of drilling and well installations. The total rate and volume of oil production is largely dependent upon the execution of these 5 phases. A graph of the available revenues for the project if only the Phase 1 and 2 drilling is performed is presented in Appendix C. With the execution of only the Phases 1 and 2 drilling, total project revenues exist for the repayment of the MOC 1 financing. In this unlikely scenario, the use of the MOC 1 reserve amount may be required in some years depending upon oil pricing and other expenses. The early repurchase of the preferred shares may also be performed when cashflows are available.

A contingency upon AIDEA’s financing is the development of assurances, via dedicated financing or other mechanisms, for the execution of both the Phase 1 and Phase 2 drilling/development. All parties anticipate the completion of the remainder of the necessary field development (i.e., Phases 3-5) to achieve the full production scenarios. Importantly, information and data from the initial development activities will also be used to enhance and potentially increase total oil production above the anticipated 1P reserve amount.


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Table 2. Oil Price Forecasts

OIL PRICE FORECASTS ($/bbl)

YearAK Revenue Source Book

(AK DOR, 2013)

EIA

(US EIA, 2014)

World Bank

(2014)2013 $107.57 $108.64 $104.102014 $105.68 $104.92 $103.502015 $105.06 $100.92 $ 99.802016 $107.69 $ 98.602017 $110.38 $ 98.202018 $115.40 $ 97.902019 $121.19 $ 97.602020 $122.43 $ 97.402021 $123.67 $ 97.302022 $133.00 $ 97.102023 $131.85 $ 97.002024 $ 96.802025 $108.99 $ 96.70

$20

$40

$60

$80

$100

$120

$140

ANS Monthly Average Price

Figure 5. Historical pricing of Alaska North Slope (ANS) crude oil (AK DOR, 2014).


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Lease Operating Expenses and Transportation Costs

Payment of LOEs and oil transportation costs is necessary to produce and market/sell the Mustang Field oil. While the current project economic model maintains these costs as constant each year, inflation will affect these costs over time. Oil transportation costs typically only adjust annually or less frequently as these require action through the State Pipeline Coordinator’s Office (SPCO). Further, increased activity and flows from other fields, including Mustang, will help maintain or potentially increase TAPS flowrates, which spreads out the pipeline operation costs and lowers the per barrel costs.

As both the MOC 1 operator responsible for the majority of the LOEs and a subsidiary of parent companies with field working interest, BRPC has significant incentives to implement savings on LOEs. Importantly, even a doubling of the LOEs, does not result in significant effects on the overall feasibility/financing of the project (i.e., significant “free cashflows” remain to meet these potential expenses).


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C. FINANCE PLAN This section provides a description of the plan of financing to fund the his will be performed through the formation of an LLC with Charisma Energy Solutions. FC. FINANCING iPLAN

The overall financing of the project consists of three aspects:

1. MOC 1 Construction. This will be provided through the formation of MOC 1.

2. MOC 1 Operations. BRPC will be the facility operator; BRPC will be paid via the LOEs.

3. Drilling and Development Activities. BRPC will execute these activities utilizing funds provided by the field’s Other WIOs in a phased approach as described previously.

The financing for the design and construction of the MOC 1 facility is graphically described via Figure 6 (p. 25). The following are the key elements of this financing structure:

• AIDEA and CES Oil Services Pte, Ltd. (CES), a subsidiary of Charisma Energy Services Ltd., an affiliate company of Ezion Holdings, will form MOC 1, LLC for the financing and construction of the Facility.

• AIDEA will provide $50 million of equity financing to MOC 1, LLC via the purchase/ownership of 25,000 Class B shares. Class B shares have an initial purchase price of $2,000 each. These shares come with rights to a 10% annual dividend, paid quarterly based on the prior year’s share ownership. To compensate for the construction period financing, the repurchase price for each of these shares is $2,200. Class A share repurchase is anticipated annually following oil production.

• CES will provide $1 million of equity funding to MOC 1 via the purchase/ownership of 1,000 Class A shares. Class A shares have an initial purchase price of $1,000 each. These shares will not be provided any dividends. These shares cannot be repurchased until after all of the Class B shares have been repurchased and after all of MOC 1’s debt has been repaid.

• CES will arrange and secure loan(s) to MOC 1 of up to $175 million ($150 million base plus $25 million of contingency financing). Up to $169 million is expected, to be provided by Strategic Equipment Inc.(SEI), a Mauritius based company that has other agreements and financing arrangements with CES. The loan payments are deferred during construction and commence following substantial construction completion or a maximum of 15 months from the date of the first injection of these funds to the LLC. After project completion, the loan will be structured with dual tiers based on their priority of payment from MOC 1.


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Tier 1 of the loan is provided as a floating rate loan that is based on LIBOR rates with a small additional markup. The low interest rate for this loan tier requires it to receive a primary obligation of payment from MOC 1 which includes primary salvage rights to the Facility. Tier 2 of the loan is provided an obligation of payment “behind” the payment required for AIDEA’s dividend and share repurchases. The overall loan term is 59 months from the date of the first funds injection, with typical monthly payment requirements. Early repayment of the loan is not permitted, other than the anticipated payments from the State of Alaska pre-production capital expenditure tax credits.

• MOC 1 will be provided working interest in the Mustang Field that will enable it to receive the State of Alaska tax credits. The amount of working interest will be established and reviewed on an annual basis, factoring in the projected oil production rates and forecasted oil prices. When received, the tax credits will be split between MOC 1 and the Other WIOs, with 50% of the payments to be directed for early payment of the SEI loan and 50% redirected from MOC 1 back to BRPC to support the drilling and development program for the field.

• As shown in Figure 6 (p. 25), a common oil broker will be used by each of the Working Interest Owners, including MOC 1, for the sale of oil produced from the field. Net proceeds (less state royalties, other ORRIs, and transportation tariffs) due to the WIOs holding 90% of the Field will be deposited to a common Control Account. After payment of applicable Lease Operating Expenses (LOEs), MOC 1 will have “first rights” to the funds in the Control Account on a monthly basis.

• The working interest provided to MOC 1 will be used to make the Charter Payments that repay the Facility financing and associated operating expenses. Oil sale proceeds are deposited to the Control Account by each of the North Tarn Agreement WIOs. From the Control Account, on a monthly basis, MOC 1 will receive funds equivalent to its working interest or the Charter Payment. In the event that funds in the Control Account are insufficient to pay the Charter Payment, MOC 1 will receive the balance


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Figure 6. MOC 1 Financing Diagram


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remaining in the Control Account and issue a cash call to the Other WIOs for the remaining needed funds. Figure 7 (p. 27) illustrates how the Control Account will operate.

• The MOC 1 monthly Charter Payment is comprised of payments as follows:

o MOC 1 production taxes

o SEI loan repayment, Tier 1 portion (monthly)

o AIDEA dividends (quarterly)

o AIDEA share repurchase (annually)

o SEI loan repayment, Tier 2 (quarterly)

o Charter Payment reserve funds (equal to 3 months of Tier 1 bank loan payments plus 3 months of MOC 1 operating expenses)

o MOC 1 operating costs (accounting, audits, bookkeeping, tax payment, etc.)

o AIDEA transaction costs (only in first year after the start of production)

o Any other taxes or insurance required to be paid by MOC 1

The Charter Payment will be adjusted annually. The amount of the Charter Payment will also be used to set the level of MOC 1’s working interest, also factoring in the projected oil prices and production rates.

The following subsections describe the security and other collateral provided for MOC 1 financing. Additional financing details are contained within the full project agreements, primarily the MOC 1 Charter Agreement and the MOC 1 Operating Agreement. A copy of the term sheet for the project is provided on the following pages.

The overall financing plan for this project is executed through numerous legal documents. These documents will require completion prior to the distribution of funds to MOC 1. Each of these should be considered as “Conditions Precedent” for the closing of this financing arrangement. A full discussion of the Conditions Precedent is provided in Section F.


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Figure 7. Control Account Flowchart


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Financing Collateral/Security

Security for MOC 1 is provided through several mechanisms:

1. Pre-Production Field Lien. Prior to the production of oil, MOC 1 will receive a lien on the full Mustang Field. This security will primarily provide protection against the unlikely event that drilling/development does not occur. This lien enables MOC 1 to become the owner of the field (less 10% of legacy WIOs and applicable ORRIs).

2. State of Alaska Tax Credits. As described previously, MOC 1 will receive 50% of the available State of Alaska pre-production tax credits for capital expenditures. These funds will be received as cash payments and will be used as early payments on the SEI loan. These credits are anticipated to equal at least $45 million, paying down a significant portion of the loan. These credits will be received regardless of the operational status of the facility or field.

3. MOC 1 Working Interest. MOC 1 will receive working interest in the Mustang Field. The working interest can also be sold as collateral or security in the event of default or other unforeseen events. The amount of MOC 1’s working interest will be reviewed and adjusted annually, taking into account the required Charter Payment amounts, forecasted production rates, and oil prices.

4. Control Account and Priority of Funds. MOC 1 will receive on a monthly basis the greater of its working interest or the Charter Payment through the Control Account as described previously. These payments will be received ahead of the distribution of funds out of the Control Account to the Other WIOs holding 90% of the working interest in the Field. MOC 1 also receives funds from the Control Account that are sufficient to meet the Charter Payments, even if these exceed the assigned MOC 1 working interest. If insufficient funds exist in the Control Account, a cash call to the Other WIOs (excluding carried WIOs) can be issued by MOC 1 to receive the necessary funds for the Charter Payment.


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5. MOC 1 Reserves. MOC 1’s account will include a reserve component to provide protection against unforeseen interruptions in oil flows or other unplanned facility outages. The reserve will be set and maintained at a minimum of 3 months of SEI Tier 1 loan payments and MOC 1 operating expenses, called the “base reserve”. If the MOC 1 working interest funds result in a buildup of reserve funds greater than the base reserve, a minimum surplus of up to $1 million will also be maintained prior to the distribution of excess reserve funds back to the other WIOs. Importantly, this reserve will not be utilized in the event that the Control Account does not contain funds to meet the monthly MOC 1 Charter Payments. Rather, a cash call to the other WIOs (excluding carried WIOs) will be issued as necessary to receive the necessary funds.

6. Drilling/Development Security. Prior to the distribution of MOC 1 funds for the facility appropriate assurances via dedicated financing or other mechanisms will be provided to show that BRPC will have the resources to enable the execute of the Phase 1 and 2 drilling and development of the Mustang Field. Such assurances include the agreement for the use of the 50% of MOC 1’s tax rebates directly for drilling/development and the use of the tax rebates received from the Phase 1 drilling to offset costs for the Phase 2 drilling. These assurances will mitigate the potential risk of not having production and reinjection wells available to produce oil for the MOC 1 Facility.

7. Facility/Equipment Salvage Value. The equipment, materials, processes, and facilities that will be installed at MOC 1 are anticipated to have a salvage value of approximately $45 million. MOC 1 has first rights to this equipment in the event of default.

8. Production Payments Security. Additional security is provided through the establishment of contingent “Production Payments” from the other BRPC leased fields. Production payments operate similar to a lien and are contractractually established on a particular field between each of the field WIOs. If exercised, these payments require the distribution of revenues equivalent to the liened amount from the future oil field production revenues to the named recipient. The amount of the Production Payment lien will decline as the MOC 1 financing is repaid.

9. Insurance/Indemnification. Several areas of insurance and indemnification are also provided to MOC 1, by BRPC as the facility operator, including fire/hazard insurance, general liability insurance, and environmental liability insurance. MOC 1 may also maintain its own insurances as necessary.


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Financing Schedule

As described through this section, MOC 1 will be provided funds from both AIDEA and CES (via the SEI loan). The following identifies an approximate schedule for the release of these funds from AIDEA and CES to MOC 1:

• AIDEA to provide up to $20 million in installments based on project invoices from BRPC following the approval of this project by the AIDEA Board and successful completion of the Conditions Precedent as identified in Section F.

• CES (via SEI loan) to provide the next $20 million following the AIDEA investment, also based on BRPC invoices.

• AIDEA and CES (via SEI loan) to provide next $60 million in funds ($30 million each) on an as-needed and matched basis until reaching the AIDEA $50 million ceiling. As above, BRPC will submit invoices for receipt of these funds.

• CES (via SEI loan) to provide remaining funds ($101 million) on an as-needed basis.

MOC 1 will then provide these funds to BRPC under the terms of the design-build agreement. Through this schedule, the start of the loan is delayed until as late as possible, minimizing overall interest expenditures

Financing Repayment

AIDEA’s investment in the MOC 1, LLC will be made through the receipt of preferred equity shares. A financing schedule will be produced prior to the distribution of funds. The preferred shares will receive a dividend that will begin accruing at the end of the construction period. The quarterly dividend amount will be 2.5% of the outstanding share value, which is based on the redemption price of the shares ($2,200 each). The preferred shares are anticipated to be repurchased over the 7 years following first oil, or by the end of 2022.

Repayment of the SEI loan will be made according to the loan payment schedule which will be provided after the loan amount is finalized.


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Anticipated Project Revenues and Financials

Figure 8 (below) shows the projected revenues available in the Control Account after the payment of royalties, ORRIs, carried working interest, and the lease operating expenses (LOEs, including the payments to MR, LLC). The available revenues are presented at 3 different oil prices. In each case, the revenues are sufficient to pay the Charter Payments, as shown via the annual columns below the revenue lines. It is important to note that these revenues are based on the conservative D&M 1P oil production rates (assuming all 5 phases of development/drilling). Additional production or greater reserves improves the revenues available in the later years of the project. The bars do not present the anticipated well drilling/development costs, which will be incurred from 2015 to 2017.

Figure 11. Control Account Revenues and Charter Payments, under the SB21 production tax scenario including the drilling/development of all phases.

0

1

2

3

4

5

6

$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2015 2016 2017 2018 2019 2020 2021 2022 2023O

il P

rodu

ctio

n (m

illi

ons

of b

arre

ls p

er y

ear)

$ in

mil

lion

s

SB21 Production Scenario - All Drilling Phases

MOC1 Charter Paymnts Control Acct @$70 oil Control Acct @$90 oil Control Acct @$120 oil Oil Prodn Rate (million of bbls per year)

Figure 8. Control Account Revenues and Charter Payments, under the SB21 production tax scenario including the drilling/development of all phases.


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D. ECONOMIC DEVELOPMENT AND AIDEA SUITABILITY

The MOC 1 Facility is a “project” under Alaska Statute (AS) 44.88.900(11)(A), which defines a project as “a plant or facility used or intended for use in connection with making, processing, preparing, transporting, or producing in any manner, goods, products, or substances of any kind or nature or in connection with developing or utilizing a natural resource, or extracting, smelting, transporting, converting, assembling, or producing in any manner, minerals, raw materials, chemicals, compounds, alloys, fibers, commodities and materials, products, or substances of any kind or nature.”

The Mustang Development Program, including the MOC 1 Facility constitutes a major opportunity for economic development in a remote region of Alaska.

Economic Impact Analysis

This project provides numerous potential positive impacts, which include the following:

• The project provides additional oil to the TAPS, helping prolong the life of this infrastructure and the North Slope oil industry.

• The Facility will create up to 250 construction jobs, 20-25 full-time facility operations jobs, up to 100 jobs for the drilling/development activities, and additional jobs for the facility design, engineering, and permitting. Based on the AOGA typical North Slope job multiplier (1 North Slope job creates 9 other state-wide induced jobs), the project will create more than 200 induced jobs through the spending by BRPC, its direct contractors, consultants, and related government spending.

• AIDEA’s $50 million investment leverages more than $500 million of private investments for the overall project. It also capitalizes on the more than $200 million spent by BRPC since its formation in 2006.

• The Facility will generate more than $45 million in property tax revenue to the North Slope Borough over the anticipated facility lifetime.

• The production of oil from the Mustang Field generates more than $300 million in State royalty and production taxes based on the conservative 1P field reserve estimates. Greater state revenues are produced if production exceeds the 1P reserve estimates. Additional state revenues are also feasible from the development of nearby fields.


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A letter from Northern Economics, Inc., a local Anchorage based economics consulting firm, supports the positive economic impacts as given in the bullets above. A copy of this letter is provided in Appendix B.

Future Fields and Potential Expansion

The MOC 1 Facility will be established in an “open” use arrangement that enables the production of oil from other nearby or future fields. Some of these nearby fields include Placer, Kachemach, Tofkat, and Appaloosa, each of which are believed to contain significant reserves. Some of these fields have been formally evaluated for contingent resources estimates. Other operators with leases in the area may also utilize the Facility for oil production. Depending upon the timing of the development of these fields and the on-going production from the Mustang Field, potential facility expansion may be needed to accommodate this additional oil. MOC 1 will work with BRPC and others as necessary to develop an appropriate facility lease charge for managing this additional oil and any necessary upgrades/expansions. Importantly, the production of oil from the Mustang Field will be given primary rights to the facility should capacity issues arise.


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E. PROJECT SPONSOR INFORMATION

Several parties will be participating as proponents of this project. Brief description of the companies are as follows.

Brooks Range Petroleum Corporation

BRPC is the overall proponent of the project. BRPC is a small, independent oil exploration and development company, focused on safely exploring for oil and gas on Alaska’s North Slope. BRPC controls 104,000 acres of state leased lands adjacent to the Prudhoe Bay, Kuparuk, and Point Thomson oil fields. BRPC is an Alaskan company with headquarters in Anchorage. BRPC is currently formed as a joint-venture (JV) between the Alaska Venture Capital Group (AVCG) and Ramshorn Investments, Inc. Ramshorn Investments is a wholly-owned subsidiary of Nabors Industries, Ltd. AVCG was formed to identify and develop North Slope oilfield opportunities outside of those being worked by the major oil companies. AVCG and Ramshorn’s interest in BRPC is currently in the process of being purchased by a new owner. BRPC’s new owner will be the newly formed Alaskan arm of Thyssen Petroleum U.S.A. Further information on Thyssen Petroleum is provided below.

Thyssen Petroleum

Thyssen Petroleum (TP) will participate in the project through the buyout of BRPC from AVCG and Ramshorn, via a to-be formed Alaskan arm (LLC) of the larger TP U.S. corporation. Thyssen Petroleum USA (TP USA) is incorporated in the State of Delaware and is a wholly-owned entity of Thyssen Limited which is based in British Virgin Islands with offices in Monte Carlo, Monaco. TP USA is a privately-owned company and 100% of the stock is owned by the Thyssen family. TP USA was created to invest in the exploration and production of oil and gas assets in United States. Currently, TP USA has interest and is drilling and producing from assets in the State of Louisiana.


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Charisma Energy Services Limited

Charisma Energy Services Limited (CES), an investment holding company based in Singapore, engages in the provision of mechanical and electrical engineering services. CES via its subsidiary, CES Oil Services Pte., Ltd., will participate in the project as the partner with AIDEA in the ownership of MOC 1, LLC. CES will provide the majority of the financing to MOC 1, via its arrangements to provide a loan to MOC 1 from SEI as previously described.

CES is a publicy listed company on the Singapore Exchange Securities Trading Limited (the SGX-ST) with market capitalization of about US$420 million. It also operates as a contractor in the refinery, petrochemical, construction, and marine industries.

The company was formerly known as YHM Group Limited and changed its name to CES in November 2013. In November 2012, Ezion Holdings Limited acquired 49.3% of the shares in YHM, becoming its largest shareholder. Ezion continues to be CES’s largest shareholder. Ezion is also traded on the Singapore Exchange, under the SGX symbol of SME. CES is chaired by T.K. Chew, who also serves as the CEO of Ezion. P.K. Woo is the CEO and Executive Director of CES.

CES has embarked on a strategic transformation into the oil and gas business, primarily through the oil and gas equipment and facility services markets/segments, which are complimentary to the existing businesses of Ezion. This project represents a key part of these transformation plans for CES.

AIDEA has successfully worked with Ezion and Mr. Chew and Mr. Woo previously through the financing and ownership of the Endeavour – Spirit of Independence jack-up drilling rig.


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The feasibility, execution, and financing for the MOC 1 Facility involves numerous risks to the overall project’s success. The table below identifies these risks and describes the mitigation measures employed to manage and reduce these risks.

POTENTIAL RISK DESCRIPTION/ANALYSIS MITIGATION MEASURE

Oil Price Fluctuations

(low oil prices)

Revenues based on MOC 1’s Working Interest are insufficient to meet Charter Payments

• MOC 1 receives the greater of its Working Interest or the Charter Payment amount from the Control Account

• MOC 1 receives priority on Control Account funds

• MOC 1 issues cash call to Other WIOs (excluding carried WIOs) for necessary funds in excess of available Control Account funds

• MOC 1’s Working Interest is reviewed annually to ensure funds are sufficient to meet Charter Payments

Oil Production Rates Fluctuate (low oil

production rates or outages)

Revenues insufficient to meet Charter Payments

• MOC 1 receives the greater of its Working Interest or the Charter Payment amount from the Control Account

• MOC 1 receives priority on Control Account funds

• MOC 1 issues cash call to Other WIOs (excluding carried WIOs) for necessary funds in excess of available Control Account funds

• MOC 1’s Working Interest is reviewed annually to ensure funds are sufficient to meet charter payments meet Charter Payments

Unexpected Facility Maintenance or Equipment

Malfunction Issue

Production decreases or drops significantly for extended period of time

MOC 1 Reserve funds are used to pay SEI loan until Control Account is replenished

F. RISKS & RISK MITIGATION


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POTENTIAL RISK DESCRIPTION/ANALYSIS MITIGATION MEASURE

Operating Costs Increase

LOEs or transportation costs increase, which decreases funds available in Control Account

BRPC has incentive to maintain low operating costs to increase profits (i.e., funds available in Control Account after all expenses)

Oil Reserves Lower than Projections

Lower total reserves results in lower potential revenues for the project

• Development plan is based on solid geologic, seismic, and other exploration data/information

• Additional drilling can be performed• Post-production, MOC 1 will hold

“Production Payment” liens on other BRPC leases/fields at or in excess of the outstanding financing amounts

• Pre-production capital expenditure tax credits are received regardless of field “success”

Process/Equipment Unknowns

Oil processing equipment does not operate as designed

• Facility utilizes known and proven processes/equipment

• Equipment/processes will be provided with appropriate manufacturer guarantees and warranties

Change in Production Tax

SystemLower revenues for project

• MOC 1 to receive sufficient funds/Working Interest to make necessary tax payments as part of the Charter Payment

• MOC 1’s Working Interest is reviewed annually to ensure funds are sufficient to meet Charter Payments

Conditions Precedent

The execution of this project and AIDEA’s participation in the MOC 1 require the completion of the numerous legal documents as described in Section E. In addition in order to mitigate some of the risks identified above, the following activities are also required prior to funds distribution from AIDEA to MOC 1:

• Assurances in the form of guaranty agreements or other financing documents are needed for the timely and successful drilling and development of wells and their associated infrastructure for Mustang Field. This includes demonstration that sufficient funds exist for the completion of the Phase 1 drilling. The development activities will be performed by BRPC on behalf of Thyssen Petroleum.


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• Completion of the buyout of BRPC and 90% of the Mustang Field working interest from AVCG, LLC and Ramshorn Investments to Thyssen Petroleum North Slope (TP NS), LLC (a subsidiary of TP USA, LLC). This includes all appropriate DNR approvals of the working interest transfers.

• Setup of MOC 1, LLC as an Alaska-based partnership LLC.

• Receipt of loan terms, payment schedule, and other associated documents for the CES (via SEI) to MOC 1 loan and execution of this loan.


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G. CONCLUSIONS AND NEXT STEPS

Development of this project is anticipated according to the timeline as described below.

AIDEA recommends the approval of this project to enable the investment of $50 million in MOC 1, LLC. Approval will also involve the completion of numerous financial agreements and other documents that are conditions precedent prior to the distribution of AIDEA’s funds.

The project will provide numerous positive economic impacts as described in the previous section, including significant new state and North Slope Borough revenues.

AIDEA TIMELINEAIDEA-BRPC Mustang Development Project Reimbursement Agreement

April 5, 2013

Board Resolution and Approval April 24, 2014Financial Closing / Funding April/May 2014Commence Construction Q3 2014Project Completion Q4 2014 - Q1 2016Initial Revenues from Project Q1 2016


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DUE DILIGENCE AND FINANCE PLAN

APPENDIX A

FACILITY DESCRIPTION AND ANALYSIS


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Facility Description and Analysis

Section A provided a brief description and review of the equipment, processes, and facilities planned for the proposed MOC 1 production facility. A more detailed review is provided via the following subsections. The major equipment/processes, according to the types of equipment/treatment processes, are as follows:

• Oil train and related facilities/processes • Water train and related facilities/processes • Gas train and related facilities/processes • Pipelines • Utilities/camp infrastructure • Personnel quarters and living facilities

Figures 2, 3, and 4 provided an overview of the planned facility layout and design

Figure A-1. MOC 1 Facility Block Flow Diagram


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Oil Train and Related Facilities

Oil entrained with water and gas will be produced from the up to 11 production wells that are planned via the proposed phased drilling program. The produced solution will be heated via an indirect heater to approximately 170F to efficiently separate the oil, water, and solution gas via the inlet separator. Separated oil will be reheated via the indirect heater prior to secondary separation of water and any sediment via the final treater separation drum. This is a similar process to the processes employed at other Kuparuk area production facilities.

Oil out of the final treater will be cooled to ensure it meets pipeline requirements. Following cooling, oil will be pumped to the connection pipelines from the facility to the Alpine Common Carrier Crude Pipeline. The facility will be equipped with two, 750 barrel capacity crude oil storage tanks to enable storage in the event of pipeline maintenance, cleaning, or other temporary disruptions.

Water Train and Related Facilities

Water is removed from the two separation processes and routed to a gas-blanketed produced water surge drum for reinjection back into the formation to replace the removed oil. At the beginning of the field life, up to 17,000 gallons per day (gpd) of water from the Alpine pipeline is anticipated necessary. This will enable a greater than 1:1 replacement of water for oil removed from the reservoir. As the field matures, the oil-water ratio is anticipated to decrease and less Alpine water will be necessary. The mixed produced water and seawater is pumped out of the surge drum and to the individual water reinjection wells at anticipated 2,100 psi.

Gas Train and Related Facilities

Similar to the water train, gas will be removed from the oil solution via the two separators. Separated gas will be compressed via a 3-stage compression system for reinjection back into the reservoir. The anticipated reinjection pressure is approximately 4,000 psi. Up to 12 million standard cubic feet (mmscf) per day of gas may be produced near the end of the field life. Lower volumes are anticipated during early phases of production.


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A gas flare system, including a knockout drum module will be installed for emergency purposes.

A small portion of the gas will be removed from the intermediate (second-stage) compressor, at approximately 1,450 psi, to be routed through a fuel gas treatment process to remove impurities and any remaining moisture/water. This will enable the gas to be used as the fuel for the turbines and other plant equipment, such as building heaters.

Pipelines

Connection of the facility to the nearby Alpine Common Carrier Crude Pipeline will require the construction of roughly 1,000 feet of 6-inch diameter pipeline. This new pipeline will be constructed on vertical support members (VSMs) that will be spaced roughly 55-feet apart and at a height of 7-feet from the ground surface to the bottom of the pipe. Pipelineswill include typical pig launching and receiving equipment for inspection and cleaning purposes. The crude pipeline will be designed to achieve a 15,000 barrels of oil per day transport rate at an operating pressure of 1,064 psi or greater. Pipeline designs will be coordinated with the ConocoPhillips Alaska, Inc. (CPAI) Alpine field representatives.

Utilities/Camp Infrastructure

The overall production facility will be constructed on the existing 17.4 acre Mustang Field gravel pad, which was built in late winter/spring 2013 by Mustang Road, LLC. The facility will include infrastructure and utilities as necessary for full site operations. These include the following:

• Power Plant – The current plans include the installation of (2) natural gas fired turbine generators to produce 10 MW of electricity for facility operations. As described above, fuel gas for these turbines will be sourced from the solution gas produced on-site. This gas will be compressed and treated on-site prior to use in the turbine and other small gas-fired heaters that may be used in the camp buildings.


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The turbines will also have the capability to fire diesel fuel as a backup. A 3.8MW diesel backup generator will also be installed on-site and will provide blackstart capabilities for the turbines. A universal power supply (UPS) unit will be included for maintenance of critical fire, safety, communications, and process monitoring functions facility-wide.

• Tank Farm and Fuel Dispensing – A tank farm will be constructed to support operations, including 2 crude oil storage tanks (31,500 gallons each), 1 diesel tank (16,800 gallons), and 1 methanol tank (16,800 gallons). The diesel tank will feed a dispensing pump for fueling site equipment and vehicles. The crude oil tanks are connected to the pipeline that leads to the Alpine Crude Oil Common Carrier Pipeline as shown in Figure 3. Portable tanks for drilling fluids and other chemicals will also be periodically present on-site.

• Buildings – A single modular/portable type building will be installed on-site to support facility operations. This building will provide space for site offices, maintenance activities, warehousing, and workshops. A separate building for drillsite equipment and production facility equipment may also be provided.

• Communications – Cellular and data communications will be provided via a permanent microwave tower that will be installed on-site or a connection to the local fiber optic network.

• Water and Sewer – On-site potable water will be provided via several large water tanks that will be filled on a contract basis as necessary. Sewage will also be collected and stored in a septage tank for periodic removal and off-site treatment/disposal as necessary. These plans may change to include on-site production/treatment of potable water and treatment/discharge of wastewater depending upon on-going studies of these options.

• Other utilities – Other utilities that may be provided for operations include on-site nitrogen generation, instrument air (compressed), and cooling glycol. The utility systems and other infrastructure will be designed to meet general North Slope redundancy and operational standards.

Personnel Quarters and Living Facilities

As described previously, the MOC 1, LLC production facility complex will be constructed in a modular fashion, with long-term camp type accommodations provided for up to 20-30 personnel. It is currently planned that these facilities will be provided on a leased-basis;


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the capital costs for their construction are not included in the overall facility construction costs, however the camp may be added depending upon budget availability. Operating personnel will provide maintenance and monitoring functions for the facility on a rotating shift basis, similar to other North Slope facilities. Living quarters for these employees will include recreational spaces/entertainment room(s), dining room(s), food preparation areas, and storage room(s), and sleeping quarters. Similar or shared camp facilities will also be provided for the construction and drilling/development personnel during those phases of the project.


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Section B-1. AIDEA Board Resolution G13-01

Section B-2. North Slope Borough Resolution 40-2012 Section B-3. Northern Economics Inc. letter on MOC 1 Economic Impacts (April 10, 2014)

SUPPORTING REPORTS AND DOCUMENTS


APPENDIX B


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SUPPORTING REPORTS AND DOCUMENTS

Section B-1. AIDEA Board Resolution G13-01 Section B-2. North Slope Borough Resolution 40-2012 Section B-3. Northern Economics Inc. letter on MOC 1 Economic Impacts (April 10, 2014)


RESOLUTION NO. G13-01 RESOLUTION OF THE ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY RELATING TO THE PROPOSED MUSTANG PRODUCTION FACILITY PROJECT AND THE TRANSACTION COSTS OF THE MUSTANG ROAD PROJECT

WHEREAS, the Alaska Industrial Development and Export Authority (the “Authority”) has

been requested to participate in developing a crude oil production facility that would process oil

from Mustang Oil Field of the Southern Miluveach Unit;

WHEREAS, the project sponsors of the Mustang Field production facility are Brooks

Range Petroleum Corporation (“BRPC”), AVCG LLC (“AVCG”) (which is the parent of BRPC),

and Ramshorn Investments, Inc., all of which have interests in the Mustang Field;

WHEREAS, BRPC’s exploration of the Mustang Field has established that it has proven

oil reserves of 25 to 30 million barrels;

WHEREAS, the proposed Mustang Field production facility is expected to be able to

process 15,000 barrels per day of crude oil, with the processed oil from the facility being put into

the Trans-Alaska Pipeline through connecting pipelines, which would be in furtherance of

Governor Parnell’s goal of getting more oil into the Trans-Alaska Pipeline;

WHEREAS, the construction of the Mustang Field production facility should enable other

nearby oil fields in the area to begin production if they are developed, and this would thereby put

even more oil into the Trans-Alaska Pipeline;

AIDEA Resolution No. G13-01 Page 2

WHEREAS, the Staff of the Authority has made a preliminary determination that the

Mustang Facility production facility is feasible and financially sound, subject to conducting more

in-depth due diligence on the proposed project to make a final determination;

WHEREAS, the Staff of the Authority is ready to proceed with more in-depth due diligence

regarding the proposed project and has negotiated a Reimbursement Agreement with BRPC for

it to reimburse up to $100,000 in costs the Authority incurs in completing the due diligence;

WHEREAS, the due diligence the Staff plans to conduct may include, but is not

necessarily limited to, getting an understanding of incentives and tax credits available to the

project, developing a limited liability company (LLC) agreement for a new LLC that will own the

production facility, determining the ownership structure for the LLC, putting together a finance

package with other lenders for the project, preparing a financing plan for the Board to consider in

connection with the project, evaluating security for the repayment of any investment by the

Authority in the project, and assessing the interest of other parties to use the Mustang Field

production facility;

WHEREAS, the project is eligible for financing under the Authority’s development finance

program because the Mustang Field production facility will qualify as a “development project”

under AS 44.88.900(3) in that it will constitute a “plant” or “facility” that will be used in connection

with developing or utilizing natural resources of the state;

WHEREAS, the Board finds the proposed project is a suitable one for the Authority to

pursue and is in furtherance of the Authority’s statutory purpose of promoting, developing and

AIDEA Resolution No. G13-01 Page 3

advancing the general prosperity and economic welfare of the people of Alaska, to relieve

problems of unemployment, and to create additional employment;

WHEREAS, the production facility is related to the Mustang Road project that the Board

previously approved in Resolution G12-08 and the Staff of the Authority has recently closed, or is

in the process of completing the closing of, the transactions related to the Mustang Road project;

and

WHEREAS, the Authority incurred and is continuing to incur certain transaction costs

related to the Mustang Road project, such as legal fees, financial advisor fees, recording and filing

fees, and the like, that are in addition to, and not a part of, the $20 million investment the Board

authorized in the Mustang Road project, and the Board needs to approve the payment of these

transaction costs out of the economic development account.

NOW, THEREFORE, BE IT RESOLVED BY THE ALASKA INDUSTRIAL

DEVELOPMENT AND EXPORT AUTHORITY AS FOLLOWS:

Section 1. The Authority shall proceed with due diligence on the proposed Mustang

Field production facility. No final decision on the proposed project shall be made until the due

diligence is completed, the Staff of the Authority reports back to the Board on the project, a finance

plan for the project is developed and approved, and further action of the Board to give final

approval to the project takes place.

Section 2. The Staff of the Authority is authorized to take all actions necessary to

complete the due diligence on the proposed project and may expend funds in the due diligence

process up to a maximum of $100,000.

April 10, 2014

Mr. Matthew Narus Alaska Industrial Development and Export Authority 813 West Northern Lights Blvd. Anchorage, Alaska 99503

Dear Mr. Narus:

As requested, we have reviewed the economic impact information that the Alaska Industrial Development and Export Authority (AIDEA) prepared as part of a project summary for the MOC-1 production facility. The following bullet points summarize our review and findings.

• The estimate of direct construction jobs, development drilling jobs, and operations jobs presented in the project summary are reasonable and in line with what we would anticipate for a project of this magnitude, based on our experience.

• The estimate of long-term indirect jobs appears reasonable under the assumption that the AOGA ratio includes the effect of state and local government spending of royalties and taxes, as well as spending of labor income.

• Property taxes paid to the North Slope Borough are likely conservative if 2P oil is produced since the production facility will be assessed based on reserves that are yet to be produced.

• Royalty revenues are approximately what we would anticipate with crude oil prices in the vicinity of $100 per barrel.

As we discussed earlier, Northern Economics, Inc. could undertake a more detailed input-output analysis of the project, but such an analysis would provide only limited additional data (i.e., total labor income and total output or sales) beyond the information that AIDEA has already developed.

The expense of an input-output analysis and the time required to complete it are likely not worth these few additional pieces of information. A more detailed fiscal analysis could also be undertaken, but the result may not be significantly different from that presented in the project summary.

If you have any questions or comments regarding this letter, please contact me at 907.274.5600 or Ms. Leah Cuyno in our Seattle office at 206.747.8475.

Best regards,

Patrick L. Burden Principal Economist


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53

PHASES 1-2 GRAPH OF CONTROL ACCOUNT REVENUES


APPENDIX C


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PHASES 1-2 GRAPH OF CONTROL ACCOUNT REVENUES


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C-1. Phases 1-2 Graph of Control Account Revenues

0123456

$-

$50

$10

0

$15

0

$20

0

$25

0

$30

0

$35

0

2015

2016

2017

2018

2019

2020

2021

2022

2023

Oil Production (millions of barrels per year)

$ in millions

SB21

Pro

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ion

Scen

ario

-Ph

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2 D

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ng

MO

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Cha

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$70

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Con

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$120

oil

Oil

Prod

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(mill

ion

of b

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ear)


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57

REFERENCES


APPENDIX D


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REFERENCESAlaska Industrial Development and Export Authority, January 2013. Feasibility Report –

Mustang Production LLC.

Alaska Department of Revenue, Tax Division. Revenue Source Book – Fall 2013, published December 2013. Accessed at: http://www.tax.alaska.gov/programs/documentviewer/viewer.aspx?1022r

Alaska Dept. of Revenue, Tax Division, 2014. ANS West Coast Average Spot Price, accessed online at http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx, updated April 2014.

Arcadis U.S., LLC and Arktis, LLC, March 2013. Process Technology and Estimate Review of the Mustang Development Project.

Brooks Range Petroleum Corporation, December 2012. Mustang Exploration Stand Alone Processing Facility – Conceptual Cost Estimate.

Brooks Range Petroleum Corporation, December 2012. Plan of Operations – Mustang Development Project, Revision 1.

DeGolyer & MacNaughton, 2012. Contingent Resources of Certain Properties in the Appaloosa Drillsite Area owned by Brooks Range Petroleum Corporation. Dated April 1, 2012.

DeGolyer & MacNaughton, 2012. Report as of July 1, 2012 on Contingent Resources of the East Mikkelson Bay State Discovery in the Proposed Telemark Unit and the Adjacent Badami Unit on the North Slope of Alaska. Dated July 1, 2008.

Hite, D.G., September 2012. Geological Feasibility Analysis of the Brooks Range Petroleum Corporation’s Mustang Field.

Larkspur, Inc., December 2012. Revision of Mustang Cost Estimate – Mustang Exploration Stand Alone Process Conceptual Estimate.

Pearson, M.P., 2010. A Primer on Production Payments, paper presented at 28th Annual Advanced Oil, Gas, and Energy Resources Lay Course. Accessed online at http://images.jw.com/com/publications/1492.pdf.

The Strickland Group, 2012. Mustang and Tofkat Prospects Analysis.

The World Bank. Commodity Markets Outlook, January 2014. Accessed at :http://www.worldbank.org/content/dam/Worldbank/GEP/GEP2014a/Commodity_Markets_Outlook_2014_January.pdf

U.S. Energy Information Administration. Annual Energy Outlook – 2014. Accessed at: http://www.eia.gov/forecasts/aeo

U.S. Energy Information Administration. Short Term Energy Outlook – March 2014. Accessed at: http://www.eia.gov/forecasts/steo/

813 West Northern Lights Blvd.Anchorage, Alaska 99503

Phone: (907) 771-3000Fax (907) 771-3044

Toll Free (Alaska Only) 888-300-8534

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