Co-author Taylor Hall
In Marathon Oil Co. v. Mercuria Energy America, LLC, the Texas Business Court (11th Division) considered a North American Energy Standards Board (NAESB) contract to buy and sell natural gas. With three opinions to discuss, this post will be longer than usual.
When the storm hit Texas, seller Marathon failed to deliver all of the gas required under the contract and declared force majeure. The parties disputed whether the force-majeure clause excused Marathon’s failure to deliver. The court, having granted in part and denying in part dueling motions for summary judgement, issued this opinion because an opinion would “benefit the parties and the jurisprudence … “.
Reasonable efforts – what is an “alternative Gas supply”?
The court rejected Purchaser Mercuria’s argument that Marathon had a duty to buy replacement gas on the spot market to meet its delivery obligations or to buy back its delivery obligation.
The standard NAESB form requires any party claiming force majeure to “make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance.” The parties modified this provision by adding “the party claiming excuse shall have no obligation to seek alternative Gas supplies in order to satisfy any obligation hereunder.” The court read “hereunder” broadly to encompass the duty to use “reasonable efforts” to avoid the impacts of force majeure.
Relying heavily on – and agreeing with – earlier Winter Storm Uri decisions, the court explained what counts as “alternative Gas supplies”. Supplies that could substitute for the gas the seller could not deliver are typically the seller’s own gas supply. Because spot-market gas is not part of the seller’s gas supply, it is not one of the “alternative Gas supplies” covered by the provision. The modified provision relieved Marathon of an obligation to obtain spot-market gas as a “reasonable effort” under the contract.
No buybacks
The court then turned to buybacks. Buybacks are always possible in gas contracts and simply shift money between the parties. The purpose of a force-majeure clause is to excuse nonperformance. Requiring the seller to buy back its delivery obligation would render force majeure protection meaningless, as it would never excuse a failure to deliver.
Damages
In a subsequent opinion a week later, the court addressed damages, in particlar liquidated damages. The contract’s remedy provision used the “Spot Price Standard,” which measures the difference between the seller’s obligations and the actual quantity delivered, multiplied by the positive difference, if any, between the contract price and the spot price. Marathon argued that the Spot Price Standard was unenforceable because the gap between the spot-price damages and actual damages was too great.
For the liquidated-damages clause to be unenforceable, there must be an “unbridgeable discrepancy” between spot‑price damages and actual damages. Although the parties agreed on several points—such as the contract price and the dates and amounts of the seller’s delivery shortfall—neither party conclusively proved the amount of either spot-price damages or actual damages.
Liquidated damages provisions are typically enforceable but damages are limited to “just compensation for the loss or damage actually sustained.” They cannot operate as a penalty. To decide whether the Spot Price Standard was enforceable, the court first had to determine damage amounts. Neither party established the correct amounts. Marathon’s calculations indicated Mercuria benefited from Marathon’s failure to deliver because Mercuria used gas it had already purchased before the breach. In rejecting this argument the court stated that any unbridgeable discrepancy is measured at the time of breach. Mercuria’s actual damages would be the difference between the market price at the time of breach and the contract price.
The evidence necessary to establish Mercuria’s actual and spot‑price damages was not before the court, so the court could not determine whether the liquidated damages clause was enforceable. This was a summary judgment and the existence of fact issues precluded a final ruling. Those issues will be resolved at trial..
The holdings
- The extreme weather associated with Winter Storm Uri constituted a force‑majeure event under the contract,
- Marathon exercised reasonable efforts to mitigate the storm’s effects,
- Marathon had no duty to buy replacement gas on the spot market to meet its delivery obligations or to buy back that delivery obligation.
- The court could not determine whether the contract was unenforceable as a matter of law because of an “unbridgeable gap” between Mercuria’s actual and spot-price damages.
A third opinion
The court referred to its opinion issued on September 18, 2025, in which the court determined that several transactional confirmations must be read together with the Base Contract as a single, integrated agreement. The court withheld judgment on how that ruling might affect what was required under the contract.
Caveat
The three opinions together contain 67 pages. If gas sales contracts are your thing, you should read all three opinions. Otherwise, proceed to the musical interludes.
While we are going long, your musical interlude will do the same with cool movie themes.