Reed Smith Client Alerts

In the last two months, two federal courts in Texas issued two summary judgment opinions ‒ MIECO LLC v. Pioneer Nat. Res. U.S. and LNG Americas, Inc. v. Chevron Natural Gas ‒ in which Winter Storm Uri’s effect on Chevron’s and Pioneer’s production abilities was held to constitute a force majeure under the parties’ North American Energy Standards Board (NAESB) Base Contract and special conditions. As a result, Pioneer and Chevron were excused from the alleged breach of their contractual obligations to deliver gas during Winter Storm Uri, during which temperatures plummeted and energy prices skyrocketed as high as $9,000 per megawatt hour.
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MIECO LLC v. Pioneer Nat. Res. U.S.1

Pioneer had contracted to supply MIECO with 20,000 MMBTU of natural gas per day.2 Pioneer’s gas came from its crude oil extraction operations in the Permian Basin in Texas. Those operations produced casinghead gas, which was processed by a third party into residue methane gas and natural gas liquids for Pioneer. That processed gas was Pioneer’s gas supply for sale to its customers.

From February 14 to February 19, 2021, during Winter Storm Uri, Pioneer failed to deliver the full contractual volumes to MIECO under the parties’ NAESB agreement. On February 16, 2021, Pioneer declared force majeure occurred because it was unable to deliver the full volumes of gas to MIECO. Pioneer did not attempt to purchase replacement gas from the spot market to cover the shortfall.3

MIECO sued Pioneer. The parties filed competing summary judgment motions on MIECO’s claim and Pioneer’s assertion of force majeure. The Northern District of Texas considered whether Pioneer’s nonperformance from February 14 to February 19, 2021 was excusable under the contract’s force majeure provisions due to Winter Storm Uri. The court’s analysis applied New York law4 and focused on three documents forming the parties’ contract: (i) the Base Contract, (ii) the Special Provisions, and (iii) the Transaction Confirmation. Section 11 of the parties’ Base Contract defined force majeure:

“Section 11. Force Majeure

11.1. …the term ‘Force Majeure’ as employed herein means any cause not reasonably within the control of the party claiming suspension, as further defined in Section 11.2.

11.2. Force Majeure shall include, but not be limited to, the following: … (ii) weather-related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines...5

11.3. Neither party shall be entitled to the benefit of the provisions of Force Majeure to the extent performance is affected by any or all of the following circumstances: … (v) the loss or failure of Seller’s gas supply or depletion of reserves, except, in either case, as provided in Section 11.2.”