Security Aspects of the ABC Transaction

In recent years, investments in subterraneous oil and gas have become a common addition to the investment portfolios of national financial institutions. Relying on the assurances of reputable geological studies, traditionally conservative financers have invested amounts ranging up to several hundred million dollars against collateral once accepted only by speculators and a few adventurous oil-country bankers. The increased interest in these investments is in part attributable to the development of the ABC method of financing the purchase of producing oil and gas properties. This method offers unique tax advantages, which have been discussed elsewhere, but also creates problems for the financer who must weigh the possibility that he will have to defend his collateral in the courts. The purpose of this Comment is to examine both the nature of the collateral acquired by the investor in the ABC transaction and the legal protection which such collateral is likely to be afforded.