Security

While still a novice in the upstream, I was involved in the development of an oil field in the North Sea. We arranged to finance our share of the development costs with a loan from one of the big European banks.

For corporate reasons our interest in this oil field was held by a subsidiary formed for the purpose. The subsidiary had a share capital of two pounds, and no other assets. So we knew that the bank would demand security of some kind to back our obligations under the loan agreements.  

For months the bank’s lawyer bombarded us with demands for information and documents about the group, the subsidiary and the project, all of which I scrupulously provided. But the long-awaited demand for security never came.

 The signing ceremony was arranged at the Bank’s oak-paneled offices in London. I arrived early to check that the signature documents were in order, and then waited for the signatories to arrive. These included our chief executive, our finance director, and the chairman of the Bank. At the appointed hour the chairman opened the proceedings with a speech of welcome.

About two minutes into the chairman’s speech, the door opened and the bank’s lawyer appeared, looking extremely agitated. He came straight over to me, crouched down by my chair, and whispered in my ear:

“I have been looking at the documents, and as far as I can see the company has no assets at all apart from the interest in the field we are financing.”

In the circumstances I was not inclined to be helpful: “You have had all the information for weeks. Have you only just looked at it?”

The chairman glared angrily at the two of us but kept going.

The lawyer’s face began to turn purple: “I intend to rely on your oral undertaking that the company has substantial other assets, including interests in the  ---- Field and the ---- Field, on which we can rely for security.”

I replied: “That’s not going to work, is it? You drafted these agreements, and they expressly invalidate all oral undertakings. Now, if you will excuse me, I have work to do back in my office.” With that I stood up and left the room.

I waited for a few minutes in a stairwell by the lifts, to see if the meeting broke up. I doubted that the lawyer had the bottle to interrupt his chairman’s speech of welcome and tell him that there was something wrong with the signature documents. He didn’t.

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See also:  Signing