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Glossary:Loan agreement
A loan agreement is typically used by a bank, other financial investor, or partner to finance all or part of an oil and gas project. Compensation for funds advanced is limited to a specified interest rate. The lender does not participate in profits earned by the project above this interest rate. There is normally a fixed repayment schedule for the amount advanced, and repayment of the obligation is made before any return to equity investors. Risk is limited to default of the borrower or failure of the project. Variations in production, market prices, and sales do not normally affect compensation. Reserves are not recognized under this type of agreement. (SPE)