OT22083 - Interest and Financing

Lending Practice. Risk Control. Repayment Terms

In considering a project prior to financing it an arm's length bank will look at repayment taking into account such matters as expected interest rates and the cash flow associated with the proposal. Usually, the period after completion during which repayment occurs is a maximum of approximately 5 years. If the field development etc is 3 years in coming on stream this means the lending is normally for a maximum of 8 years. Depending on the facts the maximum might be less ie 2 years to first oil plus 5 years would give a maximum of 7 years.

Another risk control frequently imposed on an oil or gas field development is that a "tail" of at least approximately 30% to 40% of the proven reserves should remain to be produced when the final repayment is scheduled.