It is not clear from the Sellers’ demands whether they are seeking: 1) a Daily ToP provision (when buyer has the right not to take gas but can pay for the gas not taken and reclaim this gas or equivalent value later) or 2) a Sellers nomination provision (where buyer would be required to take and pay for a volume of gas at the direction of the sellers, whether or not operationally buyer needed this gas).

Daily ToP: Sellers’ requirements for Daily ToP are usually a sign of desperation for early cash flow during the contract year as any ToP payments for undertake of gas would normally be settled on a monthly basis rather than annually, as would be the case with annual ToP.

Typically, when a daily TOP is demanded by a seller,  there would also be an annual ToP provision on top of the (lower) daily ToP term.

While daily ToP at the level proposed (85% of the average daily take – based on what? Forecast? Actual historic take patterns?) may not seem onerous to the buyers since it sees it as lower than its annual TOP, it  reduces the buyer’s flexibility to manage its gas supplies. It also reduces the buyer’s flexibility to buy additional short term gas for periods of days or weeks should such be available at attractive prices.

It also means, that if buyer needs to contract for more annual gas supplies in addition to its contract(s) with the first gas supplier, then those new supplies will have to be on very flexible terms to the detriment of this other seller, as the daily baseload demand would already be blocked out by the daily ToP to the first seller, and such other purchases would thus potentially have to be bought at a higher price than they would if they were not restricted by the daily TOP obligation that the buyer has taken upon himself.

Daily ToP also complicates the management of the contract as there would need to be probably monthly accounting for MuG and Carry Forward and ongoing reconciliation between the monthly aggregates and the annual ToP/MuG/CF aggregates.

Sellers Nomination: Sellers nomination terms is worse even for buyers than daily TOP because they don’t include the benefits to buyers of MuG/CF, and are normally only a feature of associated gas supply deals, where the major value to the Seller is from the oil and liquids in a field of which gas is a by-product and needs to be disposed of to avoid preventing oil and liquids production.

As we know, T field has no substantial liquids production nor any other operational need for a Sellers’ Nomination type supply agreement that it is now trying to impose on buyer.

Typically gas prices for a Sellers’ Nomination supply would be substantially below those for a buyer’s nomination/annual ToP agreement, because the buyer is having to accommodate a variable and uncertain flow of gas from the Sellers and manage the reduced flexibility on his total supplies through his remaining annual ToP supply contracts. In certain circumstances such as in the US when the seller needs to offload its gas to be able to sell its liquids, the gas can even go down to a negative price.

Neither option is attractive to x as a buyer, compared with the existing ToP terms, unless there are substantial price discounts to compensate for the disadvantages outlined above.