Has The Time Arrived To Consider Taking Security Against Potential Defaulters?

With the cyclical fluctuation in oil and gas commodity prices, the UKCS has had its fair share of E&P companies going insolvent. As the UKCS matures, the profile of companies that invest in the region is changing. Many smaller parties, potentially with less access to capital, are now building positions.  The commercial exposure is that some companies will not be able to meet cash calls, creating headaches for their co-venturers.

Companies have traditionally sought comfort through their contractual right to forfeit a defaulting party's participating interest under what are fairly standard terms set out in Joint Operating Agreements ("JOAs"). Although the Supreme Court's judgment in Cavendish Square Holdings B.V. v Makdessi [2015] UKSC 67 has provided a degree of comfort over the enforceability of such provisions, it still leaves unresolved the tension that exists between the co-venturers' right to forfeit and the powers of the insolvency practitioner ("IP") appointed