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Simple English definitions for legal terms
as-extracted collateral
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A quick definition of as-extracted collateral:
As-extracted collateral refers to minerals such as oil and gas that are used as security for a loan. The borrower pledges their interest in the minerals before they are extracted, and the security interest attaches to the minerals as they are extracted. It can also refer to the account created from the sale of these minerals.
A more thorough explanation:
Definition: As-extracted collateral refers to oil, gas, or other minerals that are pledged as security against a debt. This collateral is created by a debtor having an interest in the minerals before extraction and that attaches to the minerals as they are extracted.
Example: A mining company borrows money from a bank to fund its operations. As part of the loan agreement, the mining company pledges the minerals it extracts from the mine as collateral. This means that if the mining company defaults on the loan, the bank can seize the minerals to recover its money.
This example illustrates how as-extracted collateral works. The minerals are not yet extracted, but they are still considered collateral because the debtor has an interest in them before extraction. Once the minerals are extracted, they become the property of the debtor, but the security interest remains attached to them.