Understanding the Market-Out Clause [Oil and Gas]: A Comprehensive Guide

Q: Can a seller reject a market-out clause proposal?

Yes, the seller has the right to reject any proposed price changes and can cancel the contract if they choose to do so.

Q: How does a market-out clause affect contract negotiations?

This clause can provide leverage for buyers during negotiations, especially in fluctuating market conditions.

Definition & Meaning

A market-out clause is a provision in a contract that allows a buyer of natural gas, typically a pipeline purchaser, to reduce the purchase price if market conditions make the original price uneconomical. This clause gives the buyer the authority to lower the price, but it also allows the seller, often the oil well owner, the option to accept or reject this new price. If the seller chooses to reject the lower price, they can cancel the contract altogether.

Table of content

Legal Use & context

Market-out clauses are primarily used in contracts related to the oil and gas industry, particularly in agreements involving the sale of natural gas. These clauses are relevant in legal practices concerning contract law and commercial transactions. Users may find it beneficial to utilize legal templates from US Legal Forms to draft or review contracts that include market-out clauses, ensuring they understand their rights and obligations under such provisions.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A pipeline company has a contract to purchase natural gas at a fixed price. Due to a significant drop in market prices, the company invokes the market-out clause to propose a lower price. The oil well owner reviews the proposal and decides to accept the new price to maintain the contract.

Example 2: A different oil well owner faces a similar situation but decides to reject the lower price offered by the pipeline company. They choose to cancel the contract instead, seeking other buyers who may offer better terms. (hypothetical example)

State-by-state differences

Examples of state differences (not exhaustive):

State	Market-Out Clause Variations
Texas	Market-out clauses are commonly included in contracts, with specific terms often defined by state regulations.
Oklahoma	Similar provisions exist, but the enforcement of these clauses may vary based on local case law.
Kansas	As established in case law, buyers have unilateral authority, but sellers can reject offers.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Key Differences
Termination Clause	A provision that allows one or both parties to end a contract under certain conditions.	Termination clauses focus on ending the contract, while market-out clauses allow for price adjustments.
Price Adjustment Clause	A provision that allows for changes in price based on specific criteria.	Price adjustment clauses may apply to various factors, whereas market-out clauses specifically relate to market conditions.

Common misunderstandings

What to do if this term applies to you

If you are involved in a contract with a market-out clause, it's essential to review the terms carefully. Consider the following steps:

Assess the current market conditions to determine if invoking the clause is beneficial.
Consult a legal professional if you are unsure about your rights or obligations.
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Quick facts

Typical Use: Oil and gas contracts
Authority: Buyer has unilateral authority to propose price changes
Seller's Option: Seller can accept or reject the proposed price
Potential Outcome: Contract cancellation if the seller rejects the new price

Key takeaways

Frequently asked questions

What is a market-out clause?

A market-out clause is a provision that allows a buyer to lower the purchase price of natural gas if market conditions make the original price uneconomical.