Legal Definitions - as-extracted collateral

As-extracted collateral refers to oil, gas, or other minerals that are still in the ground, but only if a legal interest (a "security interest") in them is created *before* they are extracted and *as* they are extracted. Once these resources are brought to the surface, they are generally classified as "goods" rather than "as-extracted collateral." This term is important in finance because it allows lenders to secure loans using natural resources that are yet to be removed from the earth.

Here are some examples to illustrate this concept:

• Example 1: Oil and Gas Drilling Loan

  A small energy company, "Desert Drills Inc.," needs a loan to purchase new drilling equipment for a promising oil field it has leased. A bank agrees to provide the loan, but it requires collateral. Instead of just taking a security interest in the equipment itself, the bank also takes a security interest in the oil and gas that Desert Drills Inc. will extract from the leased land. This security interest is specifically structured to attach to the oil and gas *while it is still underground* and *as it is brought to the surface*. This future oil and gas, before it's fully extracted and processed, serves as as-extracted collateral for the loan.

  This illustrates the term because the bank's security interest is in the natural resource (oil and gas) *before* it's fully removed from the earth and specifically covers it *as it is extracted*, providing a claim on the resource even before it becomes a tangible, movable good.

• Example 2: Mining Operation Financing

  A mining company, "Mountain Ore Holdings," owns rights to a large deposit of copper ore within a mountain. To fund the extensive infrastructure and machinery needed for a new mining project, Mountain Ore Holdings seeks a significant loan. The lender agrees, taking a security interest in the copper ore *still embedded within the mountain* and *as it is mined*. This means the lender has a claim on the copper even before it's dug out, crushed, and refined. The unmined copper, subject to this specific type of security interest, is considered as-extracted collateral.

  Here, the copper ore qualifies as as-extracted collateral because the security interest attaches to the mineral *before* it is fully separated from the earth and specifically covers it *as it is extracted* from the mine, rather than waiting until it becomes a processed commodity.