Security over licences
It is common practice for banks lending money to companies to demand a charge on the company’s assets as a form of collateral.
Creation of a charge on a Petroleum Act licence is controlled in accordance with the model clauses attached to each licence.
Any licensee wishing to create a charge should first consider the terms of the Open Permission (Creation of Security Rights over Licences) – particularly the conditions of use.
Where the open permission has already granted consent to the creation of the charge, the licensee can create it without seeking further individual approval from OGA.
As a condition of use, the open permission carries an obligation to notify the OGA of the following details of the charge within 10 days of its creation:
- size of the loan secured;
- licences affected
- identity of the chargee.
Notification should be emailed to firstname.lastname@example.org or to the OGA’s London postal address. There is no form to complete or a prescribed format for the notification.
If a borrower defaults on the loan, the lender may wish to seek enforcement of the charge to have a licence interest transferred to it, possibly after appointing a receiver. This would constitute a licence assignment and the OGA would take into account all relevant factors, including the expectations of the lender. However, OGA must exercise its discretion in each specific case.
The open permission covers charges made to trustees on behalf of other financial institutions and crystallisation of a floating charge into a fixed charge.
Charges under Scottish Law
The OGA is aware of forms of security where the assignment of the licence to a chargee occurs at the moment the security is created, rather than later, if and when the charge should be enforced. These forms appear to be particularly relevant where a charge is to be made under Scottish Law.
Before creating such a charge the licensee would require the OGA’s consent to the immediate assignment of his licence to the chargee, but it is difficult to envisage circumstances in which the OGA could make an informed decision at that time.
This guidance reflects current policy on such security, but the OGA is prepared to discuss other ways to address concerns, either on a basis of case-by-case approval or by further changes to the open permission.
Exclusion of a charge from the open permission should not necessarily be interpreted as a final refusal; it may be that the OGA would grant an individual approval after careful scrutiny.
We will consider requests for individual approval via a written application explain why the charge is excluded from the open permission and information requested in the open permission’s notification requirement. In any particular case we reserve the right to call for other information deemed necessary.
Applications should emailed to email@example.com or in writing to Nic Rogers.