A debit contract is a type of contract used primarily in the oil and gas industry. Although a number of large producers and suppliers of oil and gas dominate the oil and gas industry, some began as small businesses. Debit contracts provide some of the „guarantees“ or guarantees needed to finance projects. Debit contracts allow small businesses to make great strides in the oil and gas industry. A small business can benefit from a debit contract if it needs equipment or service to start operating. For example, an aspiring contractor who has just opened a delivery business could provide service to a local carrier at a fixed price for six months. Services may include the use of vehicles, drivers and related transportation costs. Whether the price of gasoline rises or falls over the six-month period, the new contractor always pays the same amount of money for each delivery based on the terms of the contract. If the small contractor expects gas prices to escalate, they position themselves to save money for gasoline over a six-month period with the conclusion of the debit contract. A flow contract takes its name because a contracting party undertakes to move a minimum amount of liquid or gas through a pipeline or processing plant for a specified period of time. Specifically, for the oil and gas industry, a group of oil and gas producers enter into a contract agreement with a processor to transfer a minimum amount of crude oil, refined oil or natural gas through a refinery, pipeline or processing plant. The parties agree to do so for a month, a quarter or a year. A debit contract is a kind of take-or-pay contract.
This means that the buyer is fully obliged to pay, that the buyer accepts the goods or services. For example, a regional energy company in India or Nicaragua may agree to pay a fixed charge for electricity generated by a power plant built by a U.S. company, even if a hurricane or tornado interrupts power supply. Take-or-pay contracts are generally used to facilitate project financing, as these contracts have guaranteed payments and both protect buyers from commodity price increases, while protecting sellers from price declines. The conclusion of a contract with such strict restrictions has its drawbacks, but there are also advantages for these restrictions.