o Loan Application.
o Current Financial Statements of Borrower.
o Authorization Documentation.
o Promissory Note.
o Deed of Trust, Security Agreement, Financing Statement and Assignment of Production with an exhibit describing the interest (lease, etc.) and the property affected. The address of both the pledgor of the collateral (i.e., the borrower) and the Bank must appear in the Deed of Trust if it will be filed as a non-standard financing statement.
o UCC-1 Financing Statement. The Bank should file the Deed of Trust as a non-standard UCC-1 or a Form UCC-1 Financing Statement and should obtain a search reflecting such filing prior to funding the loan.
o Request for Information and Copies (Form UCC-11). Have records search made prior to funding the loan so that the Bank may determine the priority of its security interest. The search should be conducted with the Secretary of State and the county. Request photocopies of all prior filings.
o Notice of Security Interest Affecting a Utility when a utility is involved.
o Appraisal/Valuation/Engineering Report, to ensure that (i) the properties described in the loan documents are the same properties that the Bank is relying on as collateral and (ii) the working interest and net revenue interest of the borrower shown by the engineering report are the same as those reflected in the loan documents. This report should be reviewed by the Bank’s independent or in-house engineer to verify the value of proven oil and gas reserves.
o Conveyance documents
o Leases
o Operating Agreements
o Equipment lists and valuation
o Hedging/Commodity Contracts
o Ad Valorem Tax Statements, to make sure all ad valorem taxes on the property being mortgaged are paid through the end of the prior year. Taxes should be monitored yearly since unpaid ad valorem taxes have priority over the Bank’s lien.
o Environmental Audit Report. Waste associated with drilling and production such as drilling mud and frac fluids may be considered hazardous substances and the contamination of ground water from produced salt water may also be a source of environmental liability.
o Transfer Orders / Division Orders / Letter in Lieu executed at closing and sent to purchaser of production when assignment of production is to be enforced immediately or Letters-in-Lieu of Transfer Orders or Pipeline Letters which are letters signed by the borrower at closing which can, upon default, be dated and signed by the Bank and sent to the purchaser of production to instruct production payments to go to the Bank. A sample Letter in Lieu is located at the end of this Chapter.
o Title Opinion. Title insurance is unavailable on oil and gas interests. The Bank should consider obtaining a title opinion which will take one of the following forms:
•Acquisition and Financing Title Opinion which reflects the interest of the seller, the existence and identification of liens, burdens and interest of the seller, and the existence and identification of liens, burdens, reversionary interests, and other encumbrances on and rights with respect to the properties; in addition, a post-closing title opinion may have been obtained to confirm that the borrower is reflected, of record, as the owner of the seller’s interest with no other effect on the other information reflected in the initial opinion.
•Division Order Title Opinion which identifies the owners of interest in production and the identity of their respective working interest and net revenue interest. (Division orders are prepared and sent to the production owners setting forth the terms of delivery and payment of production, as well as verifying the production owner’s ownership of production.)
•Unit Division Order Title Opinion which is identical to a division order title opinion but covering only lease acreage within the boundaries of pooled units. (As a result, only a portion of the borrower’s interest may be reflected.)
o Insurance Policy with Bank as loss payee when equipment is taken as collateral.