Article
Top Five Things to Know About Borrowing Money for Gulf State Energy Financing
Published: Jun 13, 2025
Oil and gas companies operating in the Gulf States frequently access financing to support their operations and exploration. The transactions involve unique legal complexities due to the nature of the industry and assets involved.
Below are five critical considerations that we consider when advising on such financing arrangements.
1. Securing Collateral and Perfecting LiensOil and gas companies often pledge various types of collateral to secure loans, including mineral leases, production equipment, and hydrocarbons in storage or transit. Lawyers must ensure the proper creation, attachment, and perfection of liens as required by the lender to protect the lender’s security interest. In many Gulf States, perfection involves filings under the Uniform Commercial Code (UCC) and mortgages or deeds of trust. Lenders want to be comfortable that there aren’t errors in documentation or filing that could jeopardize the lender’s security, and they will require borrower’s participation in the documentation process.
2. Mortgage Recording Taxes
The cost of recording mortgages can be significant in states like Alabama, where fees are based on the maximum secured indebtedness amount. Lawyers must plan strategically to manage this expense. This can be accomplished by having the debt allocated among the various states where the collateral is or limiting the amount of debt recorded on the mortgage, among other options. Not understanding these concepts and addressing them early on in structuring the documents and collateral can have significant impacts on the costs involved.
3. Legal Opinions and Due Diligence
Banks commonly require legal opinions from borrower’s counsel to confirm the validity and enforceability of loan and collateral documents, as well as matters relating to recording and perfection of security interests in the collateral. Getting the loan to closing requires lawyers familiar with these matters and who are capable of working with lenders to deliver the opinions required for the bank or lender to close.
4. Loan Documentation
The preparation and negotiation of loan documents are critical to defining the rights and obligations of the borrower. Key documents include loan agreements, promissory notes, and intercreditor agreements in syndicated facilities. Lawyers must focus on covenants that govern the borrower’s operations, ensuring compliance with industry standards while protecting the lender’s investment. For oil and gas borrowers, these covenants may address minimum production levels, reserve maintenance, and insurance coverage. A lawyer’s role also includes ensuring the enforceability of these documents under applicable state laws.
5. Collateral Documentation
Collateral documents, such as mortgages, deeds of trust, and security agreements, must be meticulously drafted to reflect the nature of oil and gas assets to ensure enforceability. Additionally, lawyers must address unique challenges, such as the treatment of after-acquired property, production revenues, and fixtures. Ensuring the lender has a valid security interest in all relevant assets is paramount for the lender and will be required by the lender before closing.
Conclusion
Oil and gas financing in the Gulf States involves complex legal considerations, from securing collateral to preparing loan documents and managing mortgage taxes. Lawyers play an essential role in structuring these transactions to protect both borrowers and lenders. By addressing these five key areas, legal counsel can facilitate successful financing arrangements while minimizing potential disputes and risks.
About Our Author
Raymond “Rusty” Russell is the leader of Adams & Reese’s Economic Development team, and a partner in the firm’s Mobile office. Rusty assists companies in secured finance transactions, especially relating to oil and gas exploration and production assets. Rusty combines decades of experience in Gulf state energy transactions with industry insight to assist clients.
