A Dallas federal judge granted summary judgment on Wednesday to Dallas-based Pioneer Natural Resources which had been sued by a California energy trader for breach of contract for failing to supply natural gas during Winter Storm Uri in February 2021.
U.S. District Judge Jane Boyle ruled that Pioneer’s failure to deliver 20,000 MMBtu (metric million British thermal units) of gas to MIECO between Feb. 14 and Feb. 19 was excused by the contract’s force majeure provision.
MIECO, a subsidiary of the Japanese investment firm Marubeni, sued Pioneer in July 2021 claiming that Pioneer breached its obligations under the contract and sought $9 million in damages.
Texas and most of the South was hit by unprecedented cold temperatures that hovered near zero-degrees and extensive ice storms. As a result, Pioneer and other natural gas production companies saw rapid well and pipeline freeze-offs that significantly limited production.
The legal issue in the litigation was whether Winter Storm Uri constituted an force majeure event under the supply contract the two companies signed in 2020.
Judge Boyle, in a 19-page opinion, said it was, pointing to language in the contract that an force majeure is “an event or circumstance which prevents one party from performing its obligations” under the agreement.
“Force majeure includes a loss or failure of Pioneer’s gas supply caused by low temperatures that affected an entire geographic region and caused freezing or failure of wells or lines of pipe that prevented Pioneer from performing under the contract,” Judge Boyle wrote. “Because the [force majeure provision] on its face is reasonably susceptible of only one meaning, the court finds the contractual language is unambiguous.”
“Here, Pioneer was prevented from performing under the contract because it lost its gas supply — the residue gas from Targa’s processing plants in the Permian Basin — due to low temperatures that affected an entire geographic region,” the judge wrote. “Therefore, Pioneer’s non-delivery was excused by force majeure.”
Winston & Strawn partner Tom Melsheimer, who represents Pioneer in the litigation, said Judge Boyle’s order is “one of the first by any federal court resolving oil and gas liability issues associated with Winter Storm Uri” and that the decision “will be precedential” in other cases alleging “liabilities arising out of the shutdown caused by Winter Storm Uri.”
“What this opinion ultimately says is that force majeure means what we all learned it meant in law school,” Melsheimer said. “Catastrophic and unanticipated events excuse performance of a contract especially where the contract spells out that very circumstance.
Other Winston & Strawn lawyers representing Pioneer include Tom Walsh and Chase Cooper. Dorsey & Whitney partner J. Brian Vanderwoude represents MIECO.
The case is MIECO LLC v. Pioneer Natural Resources, Northern District of Texas, Dallas Division. No. 3:21-CV-1781-B.