Gas Gathering Agreement
(Midstream Energy)

Summary

This template is a gas gathering agreement used in the midstream energy context by a gatherer and a shipper of natural gas. It contemplates that the gatherer will provide gathering and redelivery services to the shipper using its natural gas gathering system. This template includes practical guidance, drafting notes, and an optional clause. When an exploration company drills a natural gas well, it must be prepared to transport any natural gas the well produces to a processing plant. Unlike with oil, which can be stored on-site and/or trucked away, if need be, natural gas must either enter a gathering system, which is a series of small pipelines, or must be set on fire (flared) at the well site. There is no good alternative for local storage, and it is not always easy or efficient to re-inject the natural gas into the well. Because of this, an exploration company generally builds a gathering system for a well or series of wells so that natural gas can be captured quickly after well completion. However, gathering systems are expensive to build. In an already capital-intensive environment, an exploration company may not find it financially feasible to both drill wells, and build a gathering system to service those wells. In such a case, a midstream gathering operator will build and operate a gathering system to service the new wells, and will charge the producer—otherwise known as the shipper—for the right to use that gathering system. When this occurs, the agreement governing the commercial relationship is known as a gas gathering agreement. Specifically, this gas gathering agreement provides, among other things, the term of the agreement as well as terms governing the following: • The gatherer's receipt and redelivery of the shipper's gas • Which party holds title to the natural gas, and when such title passes • Indemnification • The quality and pressure of the shipper's gas upon delivery • The gatherer's fees and payment terms • Termination rights For more information about the midstream energy process, including pipeline construction, gas gathering, and gas processing, see Midstream Oil & Gas Transactions and Agreements, Acquisition, Construction, and Project Development, Liquefied Natural Gas Project Financing Structures, and Lease Agreement Drafting and Negotiation (Oil & Gas Company).