Joint operating and field unitisation agreements between third parties will generally require participators to provide security to each other in respect of these obligations. Most agreements with such requirements specify that security must be provided when the remaining net present value of the oil in the ground is less than a specified multiple of the anticipated future abandonment costs. Agreements vary but generally set out a number of acceptable forms of security and require one of these to be provided on an annual basis in respect of the shortfall in value between the net present value of remaining production and the relevant abandonment costs. The acceptable forms of security usually include a guarantee or letter of credit from a creditworthy independent third party.
Expenditure incurred in obtaining such an abandonment guarantee is
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