“Because of the downturn, Canadian producers and midstreamers have had to come to new and innovation risk-sharing agreements, and at the same time be a little more collaborative than has historically been the case,” Warrier says. “Industry lawyers can play an important role here.”
By way of example, producers have traditionally had to commit a fixed amount of product when contracting for pipeline access, the so-called “take or pay” model.
“The difficulty with the model, of course, is that producers have to pay whether they use the capacity or not, and that’s increasingly frustrating in today’s volatile environment,” Warrier says.
So, arrangements between producers and midstreamers have evolved. One of many solutions is the area dedication model, where instead of committing a fixed volume for transport, producers commit all the production from a specific area, whatever that turns out to be.
“Midstreamers have seen that their customers, the producers, are really suffering, so they’ve adopted new creative structures ensuring that they get a rate of return on infrastructure that takes into account the risk to build, and that producers can get their products to market without breaking the bank,” Warrier says.