Gas balancing arrangement
/What is a Gas Balancing Arrangement?
A gas balancing arrangement settles the over-use or under-use of a gas well by the various partners who have interests in it. This arrangement is needed when there are two or more partners in a gas well, because it helps to avoid disputes among the owners, ensuring that all parties benefit equally from the production of the well.
This arrangement may be considered a derivative instrument; if so, the firms must include the disclosures required for any derivative instruments in their financial statements.
Example of a Gas Balancing Arrangement
As an example of gas balancing, one partner in a gas well decides not to sell any gas in the current period, perhaps due to unfavorable market conditions, so the other partner takes the production and sells it. In the future, the non-selling partner has a right to take more gas than its interest would normally allow, to balance out the sharing of gas over time. Alternatively, the non-selling partner may accept a cash payment from the other partner, or gas from another well.