Texas Supreme Court Asserts that Force Majeure Provisions Are Not Free Passes for Exemption from Contractual Obligations
Point Energy Partners Permian, LLC v. MRC Permian Company, 669 S.W.3d 796 (Tex. 2023).
Recently, the Texas Supreme Court and the appellate courts have reviewed cases regarding force majeure clauses. The Texas Supreme Court looked to Point Energy Partners Permian, LLC v. MRC Permian Company to solidify when and how Force Majure clauses can be invoked to escape a contractual obligation. The opinion highlights an important rule, that force majeure clauses are not to be utilized as the proverbial “get out of jail for free card.” Prior to invoking rights or disputes under a force majeure clause, parties should evaluate the occurrence of force majeure and the connection to the performance that is attempting to be excused.
In Point Energy Partners Permian, LLC v. MRC Permian Co., the Supreme Court of Texas addressed the interpretation of a force majeure clause. Point Energy Partners Permian, LLC v. MRC Permian Co., 669 S.W.3d 796, 799 (Tex. 2023). In 2014, MRC Permian Company (“MRC”) received a leasehold estate in Loving County to explore, develop, produce, and market oil and gas. Id. at 800. The primary term of the relevant leases was to terminate on February 28, 2017. Id.
Following the termination of the primary term, MRC was to engage in a continuous drilling program, whereby MRC would drill a new well every 180 days from the last drilled well in order to temporarily suspend automatic termination of the leases. Id. The final well MRC drilled was completed on November 22, 2016. Id. Accordingly, MRC had to drill a new well by May 21, 2017, to suspend termination of the leases. Id. MRC erroneously calculated June 19 as the termination date and scheduled to drill on June 2, 2017. Id. at 801.
Subsequenlty realizing its scheduling error, on June 13, 2017, MRC invoked force majeure asserting that a qualifying event occurred on April 21, 2017, claiming it had an additional 90 days from the resolution of the alleged event to drill a new well. Id. The alleged event of force majeure delayed MRC’s drilling schedule by thirty hours. Id. at 802. MRC could have drilled a well to suspend termination of the leases by early May but chose to stick with its schedule and drill other wells on unrelated leases first. Id.
The mineral owners subsequently signed new leases with Point Energy Partners Permian, LLC (“Point Energy”). Id. MRC then filed suit against Point Energy and the mineral owners seeking, in part, declaratory relief that the leases with MRC remained in full force and effect. Id. MRC and Point Energy filed dueling motions for summary judgment as to whether force majeure perpetuated the terms of MRC’s leases. Id at 803. The trial court determined that the MRC leases terminated in May 2017 as to all land that was not designated as a production unit. Id. The MRC leases included a retained-acreage clause, which operated to preserve the lease only to those areas of the land that were allocated to a producing well (a “production unit”). Id. at 800. Following a permissive interlocutory appeal, the Eighth Court of Appeals reversed the trial court’s judgment in part, holding in part that the MRC leases did not require the force majeure event to occur on the leased premises or cause MRC to miss a deadline and that there was sufficient conflicting evidence raising a fact issue even if the MRC leases had such a causation requirement. Id. at 803–04.
The Supreme Court of Texas focused on the language of the force majeure provision providing that “[w]hen [MRC’s] operations are delayed by an event of force majeure…” the leases shall remain during the delay with 90 days to resume operations. Id. at 807. The Court could not conclude that delayed operations are entirely dissociated from lease deadlines because the MRC lease is replete with operational deadlines, which terminate the lease if not met timely. Id. at 808. Ultimately the Court held that the force majeure provisions do not contemplate a delay of operations that would not suspend termination even in its absence thereby precluding its application to MRC’s scheduling error. Id. at 810–11.
The primary practice tip practitioners can take away from Point Energy Partners Permian, LLC v. MRC Permian Co. is that courts will strictly construe force majeure provisions. Unless otherwise specified by the language in the force majeure clause, performance generally will not be excused unless the purported event or occurrence of force majeure caused the failure to perform.