Mieco v. Pioneer: Interpreting NAESB Force Majeure Provisions in the Context of Winter Storm Uri
The North American Energy Standards Board (“NAESB”) Base Contract is the most commonly used form contract for physical purchases and sales of natural gas within the industry. It has existed in its current form since 2006; however, the force majeure language in Section 11 remains relatively untested, with only a few courts receiving an opportunity to interpret its language. A federal court in Dallas recently issued an opinion analyzing the NAESB force majeure language and determined that force majeure excused a seller of gas from making gas deliveries during Winter Storm Uri, which impacted many states across the United States in February 2021. Mieco, LLC v. Pioneer Natural Resources, Inc., Cause No. 3:21-cv-01781-B (N.D. Tex. Feb. 15, 2023). This is one of few decisions regarding force majeure related to Winter Storm Uri, and the Court distinguished the facts from those involved in other cases where courts examined interpretation of NAESB force majeure clauses.
Overview of the Case
Pioneer and MIECO were parties to a NAESB contract for Pioneer to supply MIECO with natural gas. During the course of the contract, Pioneer used its own production operations as the source of gas to supply MIECO. Pioneer would send its produced raw gas to a third party for processing, and Pioneer would then sell the processed gas to its customers. Pioneer considered this processed natural gas its “gas supply” for its contract with MIECO. During Winter Storm Uri, Pioneer’s crude oil and gas production operations were severely limited, thereby inhibiting its ability to supply gas under its contracts. Pioneer declared force majeure and made partial deliveries, and on some days no deliveries, to MIECO during the force majeure period. MIECO sought out alternative sources of gas to cover.
MIECO sued Pioneer for the cost of its cover gas. The parties submitted opposing motions for summary judgment, in which MIECO argued that force majeure did not apply because alternative sources of gas were available to Pioneer that could have been used to meet its delivery obligations. Pioneer argued that its performance was prevented because it lost its gas supply. Further, Pioneer argued that the force majeure provision of the contract excused Pioneer from making deliveries if Pioneer experienced a “loss or failure of [its] gas supply” caused by low temperatures affecting an entire geographic region that caused freezing or failure of wells or lines of pipe. The Court, interpreting the contract under New York law, agreed with Pioneer and held that Pioneer properly invoked force majeure because the circumstances surrounding Pioneer’s force majeure event fell squarely within the language of the force majeure provision. Because of this, the Court found that Pioneer did not breach its NAESB contract by failing to deliver full quantities of gas during the force majeure period.
In making its decision, the Court analyzed Hess Corp. v. ENI Petroleum US, LLC, 86 A.3d 723 (N.J. Super. Ct. App. Div. 2014). In Hess, the Superior Court of New Jersey, applying New York law, concluded that no force majeure event occurred when a seller lost only its preferred gas supply, and the parties’ NAESB contract did not prevent the seller from using available alternative sources of gas to deliver to the buyer. The Pioneer Court distinguished Hess because the force majeure provision at issue in Hess did not specifically enumerate “loss or failure of Seller’s gas supply” as a force majeure event like Pioneer and MIECO’s contract did. The Court further found that the plain meaning of “Seller’s gas supply” in the contract was the gas normally used by the seller to fill its contract, not any gas available to the seller to satisfy its contractual obligations.
What This Means for You
Even within the leading jurisdictions on the issue, a limited number of courts have examined force majeure under NAESB contracts, and even fewer courts have examined the subject in the context of Winter Storm Uri. The Pioneer decision provides important guidance to sellers and purchasers of natural gas under a NAESB contract as to how a court will analyze the merits of a potential breach of contract claim arising out of Winter Storm Uri or other events impacting natural gas supply.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.