Imagine these facts in a force majeure dispute (as presented in Point Energy Partners Permian LLC et al. v. MRC Permian Company).
Lessee (MRC) invokes the force majeure provision of an oil and gas lease, asserting that “wellbore instability” on a well on an unrelated lease requires the lessee to effectively redrill portions of the other well, setting back its rig schedule for the lease at issue. The event results in a 30-hour slowdown in the drilling of the other well. The lessee’s deadline to spud a new well on the lease to avoid lease termination is May 22, which it mistakenly records as June 19. Lessee schedules the spud date for June 2. Lessee discovers the error after the deadline has passed. Lessee could have spudded the well by the May 22 deadline but decides to drill the other well first. Before lessors receive a June 15 force majeure notice from MRC they sign new leases with Point Energy.
MRC sues Point Energy and the lessors for trespass to try title, repudiation and civil conspiracy to tortiously interfere with the existing lease. Point Energy counterclaims for trespass to try title, accounting and constructive trust.
Who wins?
The force majeure discussion
The Court described a force majeure clause as a “contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event or fact that the parties could not have anticipated or controlled”. The Court observed that force majeure clauses “come in many, shapes, sizes and forms” and may vary according to
- The definition of force majeure,
- the causal-nexus requirement,
- the remedial-action requirement,
- the notice requirement, and
- the grace period excusing or delaying performance.
The Court focused on the “causal-nexus” requirement that is a necessary predicate to properly invoke the force majeure clause and decided that MRC did not satisfy the predicate.
As for remedial-action requirement, the lessee must use its “best efforts” to overcome the problem, which would not have been satisfied even if there had been no delay because the drilling of the new well as scheduled (i.e., after the lease termination deadline) would not have satisfied the continuous drilling requirement to perpetuate the lease.
The Court also determined that MRC would have had enough time to move the rig to the well on the lease at issue and to commence drilling by the termination date but chose to drill other wells first.
MRC’s proposed definition of the meaning of “delay” was not persuasive. The Court cautioned against taking literalism too literally and adopting of wooden construction of a word foreclosed by the context of the document at issue. That’s a mouthful, but the lesson is the Court will not allow a party to focus on the meaning of one wordd at the expense of the entire document.
The Court concluded that the ordinary person using the phrase “Lessee’s operations are delayed in by an event of force majeure”, given its textual context, would not understand those words to encompass a 30-hour slowdown of an essential operation that was already destined to be untimely due to a scheduling error.
The Court conclujded that the force majeure clause did not save the lease, and the Court rendered a take nothing judgment on MRC’s tortious interference claims to the extent those claims were predicated on application of the force majeure clause to save the lease.
Other issues preserved but not reached by the Supreme Court, such as the extent of acreage that would be held under a retained-acreage clause, were remanded to the Court of Appeals.
Your post-Jazz Fest musical interlude
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