Point Energy Partners Permian, LLC v. MRC Permian Co.
| Decision Date | 21 April 2023 |
| Docket Number | 21-0461 |
| Parties | Point Energy Partners Permian, LLC, et al., Petitioners, v. MRC Permian Company, Respondent |
| Court | Texas Supreme Court |
Argued October 25, 2022
On Petition for Review from the Court of Appeals for the Eighth District of Texas
This mineral-lease dispute concerns the interpretation of a force majeure clause. Typically, a lessee invokes a force majeure clause to avoid the harsh result of lease termination when confronted with circumstances beyond its control that impede compliance with a lease deadline or obligation. But here, the lessee mistakenly scheduled operations to drill a new well to commence after the deadline to suspend lease termination under a continuous-drilling program. After missing the deadline, the lessee discovered its scheduling error and only then invoked the lease's force majeure clause, referencing an allegedly qualifying event that had occurred nearly a month before the drilling deadline. Though the event did not cause the lessee to miss the deadline, the lessee argues the clause extended the drilling deadline and prevented the lease from terminating. We disagree.
As with other lease clauses, the application of a force majeure clause depends on the terms the contracting parties freely chose. The clause here provides that "[w]hen Lessee's operations are delayed by an event of force majeure, being a non-economic event beyond Lessee's control," and timely notice is given, the lease shall "remain in force" during the delay and the lessee shall have 90 days to "resume operations." According to the lessee, its invocation of the clause retroactively kept its lease "in force" through the deadline because an earlier wellbore instability on an unrelated lease (the alleged force majeure event) required that the lessee effectively redrill portions of that well setting back its rig schedule for subsequent drilling on other leases-including the untimely scheduled operation-by 30 hours. Before receiving notice, however, the lessors signed new leases. Contending the force majeure clause extended the lease, the original lessee sued the putative successor in interest and others for, among other claims, tortious interference with its lease. The putative successor responded that the original lease terminated when the lessee missed the deadline and that the size of any retained interests in production units for already-drilled wells was limited.
On cross-motions for summary judgment, the trial court determined that (1) the force majeure clause did not extend the lease as a matter of law, (2) the putative successor was entitled to a take-nothing summary judgment on the lessee's tortious-interference claims, and (3) the lessee's retained production units were not limited as a matter of law to the smaller of two possible capped sizes. On permissive interlocutory appeal, the court of appeals focused on the phrase "Lessee's operations are delayed" to conclude that the lease deadline and untimely scheduled drilling date were irrelevant for invoking the force majeure clause. Reversing the trial court's judgment and remanding the case, the appellate court determined that fact issues exist both as to whether the clause applied and as to each element of the lessee's tortious-interference claims and that, given its holdings, the issue of the production-unit size was not "ripe" for decision.
We hold that, construed in context, "Lessee's operations are delayed by an event of force majeure" does not refer to the delay of a necessary drilling operation already scheduled to occur after the deadline for perpetuating the lease. We therefore (1) reverse the court of appeals' judgment on the force majeure and tortious-interference issues, (2) render judgment that the force majeure clause did not save the lease, (3) render a take-nothing judgment in part on the lessee's tortious-interference claims to the extent those claims are predicated on the force majeure clause's saving the lease, and (4) remand the case to the court of appeals to consider two issues preserved but not reached: the size of the production units when the lease terminated and whether the evidence raised a fact issue supporting the lessee's tortious-interference claims regarding any leasehold interest in the retained production units.
In 2014, the Lessors[1] executed four identical leases (collectively, the MRC Lease) granting MRC Permian Company an exclusive leasehold estate of around 4,000 gross acres in Loving County for exploring, developing, producing, and marketing oil and gas. The MRC Lease's primary term ended on February 28, 2017. During the primary term, MRC drilled five horizontal oil wells, spudding[2] the last well-the Totum well-on November 22, 2016.
The lease provisions, including a retained-acreage clause,[3] provide that after the primary term, the lease "shall automatically divide" into separate production units and terminate as to all lands and depths not then included in a production unit. A production unit, as defined by the lease, is the area and depths of the lease allocated to a producing well. Within 90 days after completing a well, MRC "shall file" a written designation of the production unit in the county where the well is located. For a horizontal oil well, the production unit "shall not exceed" either 160 or 320 acres (plus 10% tolerance) depending on whether "more than 5000 feet of its wellbore extends horizontally in the producing formation."
MRC could "temporarily suspend automatic termination" of the lease at the end of the primary term by conducting a continuous-drilling program, and the "lease will remain in force . . . so long as the Continuous Drilling Program is conducted by Lessee." Under that program, MRC had to spud a new well every 180 days measured from the spud date of the last well. If not, the MRC Lease "shall terminate as to all lands and depths" not then included in a production unit. Because MRC spudded the Totum well on November 22, 2016, MRC had until May 21, 2017, to spud a new well and continue "temporarily suspend[ing]" the lease's termination.
In early 2017, MRC's executive committee scheduled a May 11 spudding of a sixth well-the Toot 211 well-using Patterson Drilling Rig 295, the same rig it had used to drill the Totum well. Rig 295, according to MRC, is "specially equipped to handle the high pressures" found in Loving County, and its "special equipment and crew make Rig 295 safer and more efficient for the area than other rigs."
Subsequently, however, MRC's operations team created a new drilling schedule. By April 18, Rig 295's schedule listed June 2 as the spud date for the Toot 211 well and erroneously identified June 19, rather than May 21, as the MRC Lease's expiration date absent a timely spudded well. Around two weeks after the correct expiration date, MRC discovered the scheduling mistake. MRC concedes it had mistakenly calculated June 19 as the expiration date based on the rig-release date from the Totum well, rather than its spud date as required by the lease.
Having missed the May 21 deadline to continue "temporarily suspend[ing]" lease termination, and upon discovering its scheduling mistake, MRC determined in early June that an April 21 force majeure event provided 90 days from resolution of that event to spud the Toot 211 well. The lease provision MRC relied on provides:
13. Force Majeure. When Lessee's operations are delayed by an event of force majeure, being a non-economic event beyond Lessee's control, if Lessee shall furnish Lessor a reasonable written description of the problem encountered within 60 days after its commencement, and Lessee shall thereafter use its best efforts to overcome the problem, this lease shall remain in force during the continuance of such delay, and Lessee shall have 90 days after the reasonable removal of such majeure within which to resume operations; provided, however, this paragraph shall not extend this lease or relieve Lessee for liability for any breach thereof for a period in excess of 180 days, and Lessee's obligation to pay sums due hereunder shall not be affected by an event of force majeure.
MRC sent force majeure notices to the Lessors on June 13- 53 days after the alleged force majeure event and more than three weeks after the MRC Lease would have terminated under the May 21 continuous-drilling deadline if no savings clause applied.[4] In the notices, MRC alleged that around April 21, MRC began experiencing "operational issues with the rig scheduled to drill the Toot 211 well" and "wellbore stability issues that required a reaming operation for over 2,500 feet of the lateral," which "have caused a delay in drilling the Toot 211 well beyond MRC's control."[5] The notices did not mention the erroneously scheduled June 2 spud date; in fact, the notices referenced the earlier schedule, claiming the Toot 211 well "was scheduled to be spud[ded] . . . on May 11, 2017." MRC alerted the Lessors that it "currently anticipates that a rig will be arriving at the Lease acreage to drill the Toot 211 well as early as next week."
Discovery during litigation revealed that the delay caused by the April 21 wellbore instability lasted for only 30 hours while Rig 295 was drilling a well-the Dorothy White well-on an unrelated lease 60 miles away. This wellbore instability, as MRC's senior vice president of operations later explained, occurred when MRC was running production casing and the wellbore caved in. MRC overcame the problem through a reaming operation, redrilling over 2,500 feet of the wellbore. According to MRC, the delay on the Dorothy White well "necessarily set back the schedule for all of the subsequent wells on [Rig 295]'s...
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