A volume commitment can be firm, or firm subject to availability, or subject to reasonable endeavours, or subject to a nomination process that lets the buyer reshape volumes each quarter. All of them get called firm in a term sheet.
The question is not whether volumes are committed, but what specifically relieves the other party of the obligation — and then to read those provisions as though they will be used, because sooner or later they are.
Take-or-pay protects you against a buyer who won't lift. It does nothing about a buyer who can't pay, which is the situation you end up in when the market turns.
And an agreement signed with a trading subsidiary is not the agreement you think you have, even when the letterhead is identical. Subsidiaries are established to be walked away from. If the obligation matters, you want the balance sheet that matters, or a guarantee from it.
Asking early is awkward. Discovering its absence in year six is worse.
Indexation that makes sense in one price environment stops making sense in another. Oil-linked pricing is reasonable until oil and gas decouple. Hub-linked pricing is reasonable until the hub stops being liquid.
A formula is a bet on the future structure of a market, and worth describing as one rather than treating as a neutral mechanism.
A fifteen-year financing sitting over a seven-year off-take is a refinancing risk that has been given a different name.
Whoever holds the equity discovers this at the moment they have least room to do anything about it.
Most people read an off-take agreement for the price. The price is the easiest thing in the document, and almost never the thing that decides whether an asset makes money.
None of this requires a technical background to see. It requires reading the agreement as the asset rather than as paperwork that follows the deal. The plant, the terminal, the pipeline: those are the things that have to keep working so the contract can pay. The contract is what an investor actually owns.
The corollary is uncomfortable for anyone who likes a clean process. You can’t understand an off-take without understanding the counterparty, and you can’t understand a counterparty from a data room. We go and meet them, more than once, and pay attention to how they behave when asked something they would rather not answer.
Voxen Energy
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