The Production Payment Agreement is a key financing instrument used when a producer seeks to monetize future production output while maintaining operational control of their assets. This document type, governed by Hong Kong law, is commonly used in resource-based industries but can be adapted for various production contexts. It provides a detailed framework for the sale of rights to future production, including calculation methodologies, payment mechanisms, security arrangements, and operational requirements. The agreement must comply with Hong Kong's legal framework, particularly regarding security interests, corporate law, and financial regulations. It typically includes comprehensive provisions for production monitoring, reporting requirements, and risk allocation between parties. This document is essential for transactions where upfront capital is provided in exchange for future production rights, requiring careful consideration of both operational and financial aspects under Hong Kong's jurisdiction.
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1. Parties: Identifies the parties to the agreement - typically the payor (purchaser of production payment rights) and payee (owner of production assets)
2. Background: Sets out the context of the agreement, including details of the production assets and purpose of the arrangement
3. Definitions and Interpretation: Defines key terms including Production Payment, Production Assets, Payment Period, Calculation Methods
4. Production Payment Rights: Details the grant of production payment rights, including percentage or fixed amount of production
5. Calculation and Payment Mechanisms: Specifies how production payments are calculated, timing of payments, and measurement procedures
6. Security and Collateral: Details any security interests granted over production assets or other collateral
7. Covenants and Undertakings: Operational requirements, maintenance standards, and other ongoing obligations
8. Representations and Warranties: Standard and transaction-specific representations regarding production assets and capacity
9. Events of Default: Circumstances constituting default and consequences
10. Termination: Rights and process for termination, including any early termination payments
11. Governing Law and Jurisdiction: Specifies Hong Kong law and jurisdiction provisions
12. General Provisions: Standard boilerplate clauses including notices, amendments, assignment
1. Minimum Production Guarantees: Used when there are guaranteed minimum production levels or payments
2. Multiple Products: Required when production payment applies to different types of products with different calculation methods
3. Insurance Requirements: Detailed insurance obligations when specific coverage is required for production assets
4. Environmental Compliance: When production involves significant environmental considerations or risks
5. Third Party Rights: When rights or obligations extend to third parties under Hong Kong law
6. Force Majeure: Detailed force majeure provisions if production is susceptible to external disruptions
7. Step-In Rights: When payor has rights to take control of production in certain circumstances
8. Hedging Requirements: If parties must maintain certain hedging arrangements
1. Production Assets Description: Detailed description and specifications of the production assets covered
2. Calculation Methodology: Detailed formulas and examples for calculating production payments
3. Form of Reports: Templates for production reports and payment calculations
4. Security Documents: Forms of security documents and registrations
5. Insurance Requirements: Detailed specifications of required insurance coverage
6. Operating Standards: Technical specifications for operation and maintenance
7. Form of Direct Agreement: Template for agreements with third parties if required
8. Measurement Procedures: Technical procedures for measuring production quantities and quality
Relevant legal definitions
Account Bank
Advance Payment
Applicable Law
Calculation Period
Commercial Production Date
Default Event
Default Interest Rate
Designated Account
Effective Date
Encumbrance
Facility Agent
Force Majeure Event
Independent Engineer
Initial Payment
Interest Period
Material Adverse Effect
Measurement Point
Minimum Production Level
Operating Standards
Payment Date
Production Assets
Production Payment
Production Payment Percentage
Production Period
Production Report
Project
Project Documents
Quality Standards
Quarter
Recovery Plan
Security Documents
Security Interest
Security Trustee
Specified Product
Technical Advisor
Term
Termination Date
Testing Procedures
Transaction Documents
Trust Account
Advance Payment
Applicable Law
Calculation Period
Commercial Production Date
Default Event
Default Interest Rate
Designated Account
Effective Date
Encumbrance
Facility Agent
Force Majeure Event
Independent Engineer
Initial Payment
Interest Period
Material Adverse Effect
Measurement Point
Minimum Production Level
Operating Standards
Payment Date
Production Assets
Production Payment
Production Payment Percentage
Production Period
Production Report
Project
Project Documents
Quality Standards
Quarter
Recovery Plan
Security Documents
Security Interest
Security Trustee
Specified Product
Technical Advisor
Term
Termination Date
Testing Procedures
Transaction Documents
Trust Account
Clauses
Definitions
Grant of Rights
Payment Obligations
Calculation Methodology
Security Arrangements
Representations and Warranties
Covenants
Operating Requirements
Measurement and Testing
Reporting Requirements
Quality Standards
Title and Risk
Insurance
Force Majeure
Default
Termination
Step-in Rights
Assignment
Confidentiality
Dispute Resolution
Governing Law
Notices
Environmental Compliance
Health and Safety
Records and Audits
Indemnification
Tax
Anti-corruption
Change in Law
Amendments
Waiver
Severability
Entire Agreement
Third Party Rights
Counterparts
Grant of Rights
Payment Obligations
Calculation Methodology
Security Arrangements
Representations and Warranties
Covenants
Operating Requirements
Measurement and Testing
Reporting Requirements
Quality Standards
Title and Risk
Insurance
Force Majeure
Default
Termination
Step-in Rights
Assignment
Confidentiality
Dispute Resolution
Governing Law
Notices
Environmental Compliance
Health and Safety
Records and Audits
Indemnification
Tax
Anti-corruption
Change in Law
Amendments
Waiver
Severability
Entire Agreement
Third Party Rights
Counterparts
Relevant Industries
Mining
Oil and Gas
Manufacturing
Agriculture
Renewable Energy
Industrial Production
Natural Resources
Commodities
Food and Beverage Production
Relevant Teams
Legal
Finance
Operations
Treasury
Risk Management
Compliance
Commercial
Production
Project Finance
Business Development
Relevant Roles
Chief Financial Officer
Production Manager
Legal Counsel
Finance Director
Operations Director
Risk Manager
Treasury Manager
Commercial Director
Project Finance Manager
Compliance Officer
Contract Administrator
Business Development Manager
Asset Manager
Production Engineer
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