Throughput Agreement Sample

A flow contract takes its name because a contracting party undertakes to move a minimum amount of liquid or gas through a pipeline or processing plant for a specified period of time. Specifically, for the oil and gas industry, a group of oil and gas producers enter into a contract agreement with a processor to transfer a minimum amount of crude oil, refined oil or natural gas through a refinery, pipeline or processing plant. The parties agree to do so for a month, a quarter or a year. The conclusion of a contract with such strict restrictions has its drawbacks, but there are also advantages for these restrictions. By entering into a debit contract with the pipeline, the oil company has a form of transportation guaranteed at its discretion for one year; The pipeline has a form of guaranteed payment for one year. Regardless of the actual use of the pipeline throughout the year, this is a win-win situation for both parties, as equipment and funding are provided for both parties. The purpose of a debit or compensation contract is to ensure the right of an oil company to pump its oil through the pipeline for a certain period of time, which also determines the duration of the contract. In this regard, the pipeline company ensures that the oil group makes available some form of transportation for its product (oil) through its pipelines, for a certain amount of money, which is the royalty that the oil company will pay to the pipeline company. There are many advantages to signing a debit agreement; However, with strict restrictions or restrictions, both parties may face some drawbacks. It does not matter whether or not the oil company uses the pipeline to transport oil; the pipeline company does not have to worry about the oil company`s payments. In the worst case, it is a win-win situation for both parties and the best of all; Both remain protected from market fluctuations. The oil and gas industry mainly uses flow contracts, although there are periods when flows are used between manufacturers and materials suppliers. In both cases, debits are specialized agreements that define a product or service, use and service life.