In a case arising from natural gas production interruptions caused by Winter Storm Uri, the Business Court [11TH Division] has ruled that a natural-gas purchase and sale agreement did not require the Seller to purchase gas on the spot market to meet its delivery obligations nor to buy back its delivery obligation. The seller declared force majeure when Winter Storm Uri prevented it from delivering the promised amount of gas to the pipeline in February 2021.
Marathon Oil Co. v. Mercuria Energy American, LLC (No. 25-BC11A-0013; 2025 Tex. Bus. 39; October 15, 2025) stemmed from Winter Storm Uri’s impact on a natural-gas purchase and sale agreement between Marathon and Mercuria. The parties entered into a master contract that governed individual transactions. They agreed that Marathon would sell Mercuria natural gas each day in February 2021 at the EOIT West Texas Pool under the base contract. The parties exchanged transaction confirmations reflecting the agreement. [The court previously ruled that the transaction confirmations were binding on the parties and became integrated into the master contract.] A couple of weeks later Winter Uri struck. Marathon declared force majeure and delivered only 424,000 of the 560,000 MMBtu for the month. Mercuria disputed the declaration and filed suit for breach of contract. Both parties moved for partial summary judgment. The court granted in part and denied in part both motions. The court subsequently determined that “analysis relating to the Court’s holdings on the replacement-gas and buyback issues will benefit the parties and the jurisprudence.” This opinion followed.
Judge Andrews commenced the analysis by looking to Section 11 of the Base Contract (based on a form published by the North American Energy Standards Board), the force-majeure provision. In addition to describing the conditions under which a party could declare force majeure, the provision “impose[d] a duty on 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, however, modified the form contract to provide that “neither party shall be liable to the other for failure to perform …, to the extent such failure was caused by Force Majeure and the party claiming excuse shall have no obligation to seek alternative Gas supplies in order to satisfy any obligation hereunder” (court’s emphasis). Though this language seems clear enough, the parties disputed whether it relieved Marathon of any obligation to buy gas on the spot market to meet its delivery obligation or only its obligation to buy spot-market gas at other locations besides West Pool. In other words, the question boiled down to whether the phrase “alternative Gas supplies” included spot-market gas available at West Pool, the contractual delivery location.
The court ruled that it did. Although the phrase was “specific to this Contract and [was] not the subject of prior decisions,” the court looked to decisions construing a similar phrase, “Seller’s Gas Supply,” in the form contract. If the parties had not added the bespoke phrasing, Marathon “would not be obligated to purchase spot-market gas to rely on the force-majeure clause to exlcusive delivery, but it might have a duty to do so as a ‘reasonable effort’” to avoid the adverse effects of a force majeure. In a case arising from a declaration of force majeure under an NAESB form contract after Hurricanes Rita and Katrina, the Houston [14th] Court of Appeals, the court ruled that “gas supply” meant “the amount or quantity of gas that was available to satisfy [the buyer’s] contractual demands.” Virginia Power Energy Marketing, Inc. v. Apache Corp., 297 S.W.3d 397, 407 (Tex. App.—Houston [14th Dist.] 2009, pet. denied). Consequently, Virginia Power raised a fact issue as to whether “Apache had its own available gas that could have been used to fulfill its obligation to Virginia Power, as necessary to rely on the force-majeure clause.” At the same time, however, the court determined that Apache was not obligated to purchase spot-market gas because the purpose of the provision was to relieve the seller of having to purchase gas on the spot market at inflated prices.
In a Winter Storm Uri case similar to this one, Mieco, L.L.C. v. Pioneer Natural Resources USA, Inc., 109 F.4th 710 (5thCirc. 2024), the U.S. 5th Circuit held that “Seller’s gas supply” meant only gas the seller regularly produced from its crude oil operations in the Permian Basin, not spot-market gas. The court based its decision on the fact that the “vast majority” of gas Pioneer sold was “residue gas from its operations in the Permian Basin, which was what Pioneer considered its ‘gas supply.’” The court also pointed out that the NAESB drafting committee had “repeatedly rejected efforts to amend the form contract so that force majeure would not excuse performance when gas could be purchased on the spot market for the delivery point.” But the 5th Circuit remanded the case to the trial court for determination of whether Pioneer might still owe a duty to purchase spot-market gas as a “reasonable effort.” Similarly, in Marathon Oil Co. v. Koch Energy Services, LLC [Marathon I], 2023 WL 4032879, the federal district court for the Southern District of Texas held that Marathon was not obligated to buy spot-market gas, but that Koch “could still ‘put on the full panoply’ of what it considered a ‘reasonable effort’” under the form contract.
Here the court followed the non-binding case law, holding that: “(1) the phrase ‘Seller’s Gas supply’ [in the form contract] refers to gas Marathon had available to satisfy its delivery obligations under the parties’ contract and does not include gas available for purchase on the spot market; (2) Marathon was not required to purchase spot-market gas to fulfill its original delivery obligation and need not provide that Winter Storm Uri prevented it from doing so to satisfy [the force majeure provision]; and (3) in the absence of Special Provision 5, Marathon might still have had a duty to purchase spot-market gas as a ‘reasonable effort’ under [the form contract.]” But two issues remained, the meaning of the bespoke language “alternative gas supplies” added to the contract and whether that language nullified Marathon’s potential duty to purchase spot-market gas as a reasonable effort.
The court concluded that “alternative Gas supplies” meant “gas supplies that could be used to fulfill Marathon’s delivery obligation instead of or as a substitute for the gas that Marathon is excused from delivering by the force-majeure clause—typically the seller’s gas supply.” Since spot-market gas was not part of Marathon’s gas supply, it constituted one of the “alternative gas supplies” covered by the bespoke language. Consequently, the bespoke language “expressly relieve[d] the party claiming force majeure of any ‘obligation to seek alternative Gas supplies in order to satisfy any obligation” under the contract. Marathon had no to seek spot-market gas to satisfy its delivery obligation to Mercuria. Nor did the contract require Marathon to buy back its delivery obligations, which Mercuria argued may constitute a “reasonable effort.” The contract obligated Marathon to make reasonable efforts to avoid the adverse impacts of force majeure and to resolve the event or occurrence in order to resume performance. A buyback would accomplish neither but “would merely shift the financial consequences from one party to the other.” Additionally, reading the contract to require a buyback would render the force-majeure clause ineffective, since a party claiming force majeure would be liable for delivering the gas one way or another.
The court thus granted Marathon’s motion for partial summary judgment on the force-majeure clause issue.
