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ARTICLE · 12 JUNE 2020

Key Considerations For Midstream Contracts In A Low-Price And Low-Demand Environment

A&O Shearman
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Last month, West Texas Intermediate crude dropped below $0.00 for the first time in history after weeks of low global oil demand as a result of the novel Coronavirus (COVID-19) pandemic

United StatesCoronavirus (COVID-19)
A&O Shearman
A&O Shearman
Ian Roberts
Ian Roberts
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KEY CONSIDERATIONS FOR MIDSTREAM CONTRACTS IN A LOW-PRICE AND LOW-DEMAND ENVIRONMENT

Last month, West Texas Intermediate crude dropped below $0.00 for the first time in history after weeks of low global oil demand as a result of the novel Coronavirus (COVID-19) pandemic and the Saudi Arabia-Russia price war. Many upstream and midstream oil and gas companies are currently faced with the lack of, or limited, offtake capability and disappearing crude oil storage capacity, which has these companies evaluating the impact of shutting in wells or pipelines.

For so long as this historically low oil demand persists, both upstream and midstream companies face the risk that they, or their counterparties, will default under their midstream contracts. Upstream producers primarily need to identify whether their contracts have minimum volume commitments or other take-or-pay obligations that may be difficult to meet in the current environment, especially if some of their

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