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Simple English definitions for legal terms
economic-out clause
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A quick definition of economic-out clause:
An economic-out clause, also known as a market-out clause, is a provision in a contract that allows a buyer to lower the purchase price of a product, such as natural gas, if market conditions make it too expensive to continue buying at the agreed-upon price. This clause also allows the seller to either accept the lower price or cancel the contract altogether. Market-out clauses often refer to competing fuels, like fuel oil.
A more thorough explanation:
An economic-out clause, also known as a market-out clause, is a provision in a contract that allows a purchaser to lower the purchase price if market conditions make it uneconomical to continue buying at the contract price. This clause is commonly used in the oil and gas industry.
For example, if a pipeline-purchaser of natural gas has a contract to buy gas at a certain price, but the market price of gas drops significantly, the economic-out clause would allow the purchaser to renegotiate the contract price to reflect the new market conditions. The well owner would then have the option to accept the lower price or cancel the contract.
Market-out clauses can also refer to competing fuels such as fuel oil. This means that if the price of fuel oil drops significantly, the purchaser may be able to renegotiate the contract price for natural gas.
Overall, economic-out clauses provide flexibility in contracts and allow parties to adjust to changing market conditions.