Nicholas Ross-McCall, Huw Thomas

structure, lenders may be more relaxed and may be prepared to close a financing
on the basis of no security being taken over certain project agreements or an
undertaking from the borrower to use reasonable endeavours to obtain any necessary
counterparty consent for the granting of security. To meet the second concern, it is
necessary to examine termination clauses in the underlying contracts. Typically, they
entitle the counterparty to terminate if the project company is not solvent, if any
security it gives is enforced or if another party obtains control of its shares. Hence,
lenders ask to have these provisions amended or to have direct agreements with the
relevant counterparty. In a borrowing base facility structure, again lenders tend to be
more relaxed and will usually be prepared to live with the existing provisions.
Cross-guarantees and security given by English companies are now likely to be of
little use for lenders in appointing an administrative receiver (Section 4.14). Banks
have been willing to live with this, perhaps emphasising the point that their
principal protection is through the operation of the borrowing base amount concept,
which limits total borrowings.

7.2 Other types of security

In addition to asset-level security, lenders will take security over:
the project accounts, which will be located in a jurisdiction where
appropriate security rights exist;
shares in the companies within the borrower group so that lenders can step
in at this level, regardless of whether they have effective asset-level security;
and
the borrowers insurances (Section 9).

As we have seen, in borrowing base facilities, a light touch is typically taken by

lenders and little, or only defensive, security may be taken at the asset level. In many
jurisdictions it is not possible, or at least difficult, to take security over the licence,
production sharing contract or concession. Borrowing base facility lenders will
generally accept this position, so long as they have adequate security over the shares
of the companies in the borrower group, project accounts and insurance proceeds.

7.3 The UK open permission

Petroleum assets in the UK continental shelf are managed by way of a licence-based regime
with joint operating agreements entered into by the parties to a licence. The terms of the
licences prevent the granting of security except with the consent of the secretary of state,
who in the past gave individual formal written consents to the creation of security over
licence interests. However, in recent years this cumbersome process has been replaced by
an open permission, which is a general consent by the appropriate UK secretary of state to
the creation of security over licences, with certain notification conditions. The consent is
stated to cover crystallisation of a floating charge into a fixed charge. The more modern
joint operating agreements expressly contemplate and allow assignments by way of
security, although previous versions often do not. Under the borrowing base facility
structure, usually only a floating charge will typically be taken over the licence interest and
the borrowers interest under the joint operating agreement.

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