Throughput Agreements


A small business can benefit from a debit contract if it needs equipment or service to start operating. For example, an aspiring contractor who has just opened a delivery business could provide service to a local carrier at a fixed price for six months. Services may include the use of vehicles, drivers and related transportation costs. Whether the price of gasoline rises or falls over the six-month period, the new contractor always pays the same amount of money for each delivery based on the terms of the contract. If the small contractor expects gas prices to escalate, they position themselves to save money for gasoline over a six-month period with the conclusion of the debit contract. A debit contract is a type of contract used primarily in the oil and gas industry. Although a number of large producers and suppliers of oil and gas dominate the oil and gas industry, some began as small businesses. Debit contracts provide some of the “guarantees” or guarantees needed to finance projects. Debit contracts allow small businesses to make great strides in the oil and gas industry. A debit contract is a kind of take-or-pay contract. This means that the buyer is fully obliged to pay, that the buyer accepts the goods or services. For example, a regional energy company in India or Nicaragua may agree to pay a fixed charge for electricity generated by a power plant built by a U.S. company, even if a hurricane or tornado interrupts power supply.

Take-or-pay contracts are generally used to facilitate project financing, as these contracts have guaranteed payments and both protect buyers from commodity price increases, while protecting sellers from price declines. A start-up refinery, founded by former Mississippi oil industry managers, intends to use funding funds from state-backed projects to build a refinery. The founders form their contacts to meet several medium- to large-scale oil producers on their projects. After discussions with a number of producers, the refinery`s founders entered into an interim flow agreement to process a minimum amount of gallons of oil at a specified price as soon as the refinery is built. The refinery`s founders are using this interim debit contract to begin financing the refining project. 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 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. For example, an oil company could operate an oil pipeline for one year by entering into flow contact with the pipe carrier. 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.