MIECO, LLC v. Pioneer Natural Resources presented a challenge to a force majeure defense in a dispute arising from Winter Storm Uri. The defense carried the day.
MIECO agreed to purchase 20,000 MMBtu/day of natural gas from Pioneer. Pioneer delivered residue gas from the tailgate of a Targa processing plant to two points near the border of Arizona and California. If Pioneer experienced a shortfall, it purchased gas on the spot market to cover.
From February 14 to 19, 2021, Pioneer failed to deliver the full amount of gas it contracted to deliver. To fulfill its obligations to its own customers MIECO reallocated gas it had contracted to purchase for other purposes two days earlier. On February 16, Pioneer sent a notice of force majeure dated February 15. On February 16-19 Pioneer delivered no gas and MIECO purchased gas on the spot market. During this period Pioneer made no effort to purchase replacement gas. Pioneer resumed daily delivery on February 20 until March 1 when it was short again. Pioneer withdrew its force majeure declaration two days later.
The contracts (substantially redacted)
11.1. (as amended) … “Force Majeure” … means an event or circumstance which prevents one party from performing its obligations under one or more Transactions, which event or circumstance was not anticipated as of the date of the Transaction was agreed to, which is not within the reasonable control of, or the result of the negligence of, the claiming party, and which, by the exercise of due diligence, the claiming party is unable to overcome or avoid or cause to be avoided.
11.2. Force Majeure shall include … weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe …. Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the occurrence once it has occurred in order to resume performance.
11.3. Neither party shall be entitled to the benefit of … Force Majeure to the extent performance is affected by … loss or failure of Seller’s gas supply …
MIECO sued for $9MM+ in damages for the cost to cover gas not delivered by Pioneer.
In cross-motions for summary judgment Pioneer argued its nondelivery was excused by the force majeure provisions of the contract because it lost its gas supply due to low temperatures that affected the entire region.
Force majeure wins
MIECO argued three reasons why Pioneer’s facilities were not covered, none of which the Court found persuasive.
Caveat: For the most part, New York law applied in this Texas case.
First: the event must render performance literally impossible, citing a dictionary definition of “prevent”. But “prevent” also has other meanings (look it up). To require impossibility would render portions of the force majeure provisions superfluous, including the requirement that the claiming party was unable to overcome or avoid the event by exercise of due diligence.
Force majeure ordinarily excuses a party’s performance only if the clause specifically includes the event that actually prevents performance. Citing Ergon W. Va. v. Dynergy, a Texas case, the Court reasoned that to require a party to be unable to perform by force majeure if it could still purchase gas on the spot market would render the force majeure provision essentially meaningless because it would mean that a seller could never invoke force majeure so long as there was some gas available anywhere in the world at any price. That would lead to an absurd result.
Second: Pioneer lost only its preferred source and that is not force majeure because the contract provides only for price, amount, and delivery point. But the contract specifically mentioned Pioneer’s gas supply. The availability of other supplies did not bar a force majeure defense.
Third, the contract did not define the gas supply to be delivered. Under MIECO’s definition, if there were no available gas anywhere in the world at any price with which Pioneer could meet its contractual obligation it would still be liable for non-delivery unless 11.2 was met. Pioneer’s “gas supply” is the gas it received from the Targa plant. This avoids the same absurd result. And use of the possessive “Seller’s” suggests the gas supply is owned or possessed by Pioneer, something which cannot be said of the spot market.
The court excused Pioneer’s failure to perform, granted Pioneer’s motion and denied Mieco’s breach of contract claim.