The key difference between a traditional lending approach and a project-oriented lending approach to financing independent oil and gas producers is the stage at which the lender is willing to enter the project. A project-oriented lender must have the technical expertise to assess enhanced reservoir risks associated with financing oil and gas production prior to the minimum six months production history normally required by traditional lenders. In return for taking greater than traditionally acceptable lending risks, a project-oriented lender should receive an equity risk type of reward in addition to the usual interest rate on funds provided to finance the project. Although such a lender is knowingly accepting greater than usual reservoir risks, a careful analysis of the sponsor/operator's financial condition, a proper structuring of the loan, and exercise of good judgment about management's technical and planning capabilities, can help reduce the overall risk to the lender. This paper presents an approach to project-oriented lending to U.S. independent oil and gas producers.

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