OT22080 - Interest and Financing

Lending Practice. Risk Control.

There are a number of ways in which an arm's length lender may seek to control exposure and to achieve risk reduction. Some of these mechanisms are outlined in the following pages. Many agreements will include a number of features which run in parallel. The use which is made of any particular control, and the way in it is structured, will depend upon the specific project etc. As ever, there are no hard and fast general rules. The aim of the lender is to achieve an all round level of satisfaction and security on prudence concepts. A company may argue that oil prices may increase, or that field reserves may be upgraded etc. This certainly might happen. But a lender at arm' s length is much more likely to be concerned about what will happen if prices fall, and/or field reserves have to be downgraded ie where the choice is between optimism and pessimism the lender will have to work on the pessimistic assumptions.