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Financing upstream developments

The limitations with securing a companys interest in a UK continental shelf


licence are that it only covers an interest in the licence, not petroleum in the field.
Direct agreements with the government are not typically entered into by participants
in the UK continental shelf, lenders instead being comfortable with the history of
the governments involvement. Under the licence conditions, the secretary of state
may revoke a licence if a receiver or administrator is appointed in relation to a
licensee. Therefore, his/her consent would be required for any transfer or sale of a
licence interest on an enforcement of security. Whether the co-licensees consent
would also be required would depend on the provisions of the joint operating
agreements assignment clause. Co-licensees may also have pre-emption rights under
the joint operating agreements which apply in such circumstances.
Given these qualifications, UK continental shelf licence security is often only
defensive in that it can prevent others dealing with assets, not giving effective
control over the assets on enforcement.

7.4 Other jurisdictions


A floating charge is a common-law concept only available for lenders in countries
which have inherited an English-law-based legal regime. Given that, in the future,
many of the jurisdictions playing host to reserve-based financings will be civil law
based, it will not always be possible to create floating security over the assets. Lenders
would ideally like to see equivalent security, involving taking security in some form
over the licence interests, contracts and other assets. In many jurisdictions this may
be difficult or impossible and a costbenefit analysis will be required to decide
whether it is worthwhile or practicable to take such asset security.
For example, in Norway the market view is generally that asset-level security is
not worth taking because of the difficulty of obtaining consents and adjusting the
finance documentation so that enforcement can only be taken on a Norwegian asset-
related default. In the Netherlands there is debate over whether even defensive
security can be taken without breaking the relevant licence terms.

8. Documentation

8.1 Typical package


Before full loan documentation is drafted, a borrower will execute a mandate letter with
the lead arrangers, setting out rights and obligations which apply prior to execution of
definitive finance documentation and attaching a term sheet. Arrangers are appointed
on a sole (or joint in the case of multiple arrangers) and exclusive basis and are obliged
to underwrite the debt subject to conditions including no material adverse change,
agreement of full documentation, no competing financing by the borrower, satisfaction
of due diligence, no breach by the borrower of the mandate letter and credit approval.
At the time of writing, club deals have become prevalent, whereby arranging banks will
assemble a small club of banks to sign up to the definitive finance documents, without
any bank assuming a prior underwriting commitment.
The definitive finance documentation package will include principally the
facility agreement, security documents, a security trust deed and (if required) an

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