Justice John Devine
In 2014 an oil and gas operator executed four leases covering about 4,000 acres in Loving County. The leases’ primary term ended on February 28, 2017. During that time, lessee drilled five horizontal wells, the last of which was spudded on November 22, 2016. Among other things, the lease included a retained acreage clause and a force majeure provision. The retained acreage provision required the lessee, within 90 days of completing a well, to notify the lessor in writing of the production unit, which “shall not exceed either 160 or 320 acres (plus a 10% tolerance) depending on whether ‘more than 5,000 feet of wellbore extends horizontally in the producing formation.’” The lessee could suspend termination of the primary term of the lease by conducting a “continuous-drilling program,” which required it to spud a new well every 180 days from the date of spudding the previous well. If it didn’t, the lease terminated “‘as to all lands and depths’ not then included in a production unit.’” Under this provision, lessee had until May 21, 2017, to spud a new well in order to avoid termination.
This is the factual context of Point Energy Partners Permian, LLC, et al. v. MRC Permian Company (No. 21-0461; delivered April 21, 2023). What happened next had to be corporate management’s worst nightmare. Lessee scheduled spudding a new well on May 11, 2017, ten days prior to the termination deadline. The rig it planned to use had to be moved from another well. For some reason, however, lessee’s operations team changed the drilling schedule to June 2, based on an erroneous determination that June 19, not May 21, was the termination date. Around the first week of June, lessee figured out its mistake. In the meantime, lessor executed new leases with Point Energy. The scramble for a legal position ensued, lighting on the force majeure clause in the leases. This clause defined an “event of force majeure” as “a non-economic event beyond Lessee’s control,” followed by a deadlines for notice and resumption of operations. In no event, however, could the lease be extended for more than 180 days. Lessee invoked the force majeure clause, contending that “operational issues with the rig schedule to drill” the new well and “wellbore stability issues that required a reaming operation” delayed drilling the new well. Lessee did not, however, inform lessor that it had rescheduled the spudding date based on an erroneous termination date, nor that the alleged “issues” delayed movement of the rig by only 30 hours. Litigation followed.
Lessee sued the lessor and Point Energy, the new lessee, alleging trespass to try title, breach of contract, tortious interference, and declaratory judgment that the leases were still in force. Defendants counterclaimed for breach of contract, trespass to try tile, and an accounting and constructive trust (part of this issue involved construction of the retained acreage clause). The trial court granted partial summary judgment for defendants on the force majeure issue, denied plaintiff’s corresponding motion, denied defendants’ motion to limit the production units to 160 acres under the retained acreage clause, granted defendants’ summary judgment motion on plaintiff’s tortious interference claims, and declared that the lease terminated on May 21, 2017. In a permissive interlocutory appeal, the El Paso Court of Appeals reversed, holding that plaintiff raised a material fact issue as to the application of the force majeure clause, the retained acreage issue was unripe for determination, and a genuine issue of material fact existed as to the tortious interference claims. Defendants sought review.
SCOTX reversed and remanded to the court of appeals. In an opinion by Justice Devine, the Court held that the force majeure clause did not apply when the alleged event occurred off the lease and lessee would have missed the termination deadline in any event. Commencing with the basic principle that “[a]s with other mineral-lease clauses, the application of particular force majeure clauses depends on the terms the contracting parties freely chose, and each clause must be construed according to its own terms because there is no ‘one size fits all’ construction.” The Court focused on “whether [lessee] satisfied the predicate causal-nexus requirement: ‘[w]hen Lessee’s operations are delayed by an event of force majeure…,’” specifically “what it means for ‘Lessee’s operations’ to be ‘delayed by’ a force majeure event and whether that requirement interacts with lease deadlines.” Lessee argued that even though it would missed the termination deadline anyway, that was irrelevant because “nothing in the [force majeure] clause here ties force majeure to performance or compliance [with these deadlines]—just delayed operations.” The Court did not buy this, opining that reading the lease that way would constitute “taking literalism too literally and adopting a wooden construction foreclosed by [the legal text’s] context.”
Quoting Scalia and Garner, the Court noted that “‘[c]ontext,’ after all, ‘is a primary determinant of meaning,’” and words “must be construed in the context they are used.” This requires an assessment of “‘the purpose of the text,’ as gathered ‘from the text itself, consistent with the other aspects of its context.” Taking this approach, the Court declined to “untether” the the delay of lessee’s operations from the lease deadlines. Instead, the Court found, the force majeure clause cannot operate without the deadlines, since they determine precisely what lessee must do to keep the lease in force. Further, lessee’s argument was fatally flawed because when the lessee rescheduled spudding until June 2, it assured that it would no longer be the lessee on that date by virtue of the termination of the primary term. It thus had no “operations” upon which the force majeure clause could even operate. “We conclude,” consequently, “that an ordinary person using the phrase ‘[w]hen Lessee’s operations are delayed by an event of force majeure,’ given its textual context, would not understand those words to encompass a 30-hour slowdown of an essential operation that was already destined to be untimely due to a scheduling error.”
As to the remaining issues, the Court sent the retained acreage back to the court of appeals for determination. “An intermediate appellate court’s answer to a predicate merits question within the same lawsuit,” the Court reasoned, “may make disposition of additional merits-based issues unnecessary to resolve the appeal, but it does not affect ripeness or, in the ordinary case, the appellate court’s jurisdiction.” The application of the retained acreage clause upon termination of the lease was a live issue that the court of appeals should have addressed, regardless of the outcome of the force majeure question. Regarding the tortious interference claims, the Court affirmed summary judgment that lessee take nothing on its primary claim related to the termination of the lease but remanded to the court of appeals a secondary theory on the question of the production unit size.
This is an interesting decision for, among other things, its discussion of contextual meaning as part of discerning the meaning of a legal text to an ordinary reader and the very real negative consequences of, as Justice Devine put it, “taking literalism too literally.” It is popular these days to quote Justice Scalia on textual interpretation, but those who do so should, as Justice Devine did here, take his rules of construction as a whole, not just cherry-pick them to achieve a desired result.
