A Crude oil pipeline throughput agreement is a contract taken by two parties, one out of which offers service while the other one, a commodity. The deal secures the parties for a specified and limited period. For the cases which include small business, a throughput agreement becomes an indirect form of project financing. It becomes beneficial as it provides access to materials instead of actual money.
The Crude oil pipeline throughput agreement is a take- or pay-type contract mostly in use within the oil industry. It is a legal document that serves as a written version of oral commitment towards the financing of the specific project. Most definitely! Its other name is a take or pay contract accounting to the benefits of both the signing parties shrouded by the protection of the law of the land!
When Do You Need the Crude Oil Pipeline Throughput Agreement?
Any company dealing in pipeline projects in the oil industry will know about the purpose of crude oil pipeline throughput agreement. It is a standard practice for them to get one prepared before getting involved in a project. This agreement gets signed between the company undertaking the task of putting (passing) a certain amount of crude oil through a processing plant (pipeline) that belongs to the other company for a fixed period. Every term and condition applicable to the usage of the pipe is clearly mentioned in the crude oil pipeline throughput agreement.
Inclusions in Crude Pipeline Throughput Agreement?
A throughput takes and pay contract sets forth the conditions that address the quantity of a service or a product and the payment schedules for a specific period. If both the parties agree to the terms, the deal is under seal. If by any chance, the oil company discontinues transporting its oil before the specified period ends, it will still have to pay the full amount as mentioned in the contract. It is done to ensure that the pipeline company doesn’t suffer due to a change of decision by the oil company.
The throughput agreement petroleum companies make use of is primarily a contract – a specialized agreement that sets forth the use of a product or a service for a specified duration. For example, in the case of oil companies, it secures the use of an oil pipeline – say for a year – which belongs to the pipeline holder.
How to Draft a Crude Oil Pipeline Throughput Agreement?
Drafting a Crude oil pipeline throughput agreement makes the mutually agreed upon decisions regarding the project finite and legal, while at the same time, remaining within the bounds of the predefined state federal laws. If you want to draft a throughput agreement, then you must take care of the essential things that need to be present in details, they are – duration, services, and facilities, insurance, the lapse of claims, termination, audit, and rights of access, governing law, notice of non-compliance, etc.
Benefits of Crude Oil Pipeline Throughput Agreement
The goal of a throughput takes or pay contract is to ensure the rights of an oil company to pump its oil through the pipeline for a certain period mentioned, which also determines the duration of the contract. Here, the pipeline company is ensuring to provide the oil company with a form of transportation for their product (oil) via their pipeline(s) in exchange of a specific monetary amount, which is the fee the oil company will be paying to the pipeline company.
There are many advantages of signing a throughput agreement; however, with strict limitations or restrictions, both the parties might face some disadvantages. It doesn’t matter if the oil company uses the pipeline to transport oil or not; the pipeline company will not have to worry about receiving the payments from the oil company. At worst, it is a win-win situation for both the parties and best of all; both will stay secured from market fluctuations.
Clauses in Crude Oil Pipeline Throughput Agreement
Since a Crude oil pipeline throughput agreement requires both the parties to agree and sign for a set of terms and conditions, it becomes legally binding for both. This way, both parties become sure that they are entering an arrangement with their full consent, which will make them able to enjoy specific rights and advantages while prohibiting both from harming each other’s interests. Below mentioned are some
Key Terms of Crude Oil Pipeline Throughput Agreement:
- It is advisable to keep the language of the agreement reasonably understandable, simple and straightforward to avert any complications or misunderstandings.
- Before the parties decide to enter a take or pay contract, they must be aware of their statutory rights for mutual betterment.
- Articulate every change to services and pathways mentioned in the agreement before implementing them. This way, the challenges you will face will be real and not an outcome of poor planning/communication.
The professional binding of the agreement enables one party to transport their product through a pipeline that belongs to the other party. The second party earns money by allowing the first party to use their pipe and the agreement puts them into a professional binding. You can download the crude oil pipeline throughput agreement sample PDF files from the internet and customize it accordingly.
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