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1. Four Texas Cases to Watch These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case is fact-specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and their law firm cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presen- tation of these materials does not establish any form of attorney-client relationship with the authors or their law firm. While every attempt was made to insure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed. TEC Olmos, LLC v. ConocoPhillips Co. Are falling oil prices a force majeure event? 1. Background TEC Olmos, LLC (“Olmos”) entered into a farmout agreement (“agreement”) with ConocoPhillips Company (“ConocoPhillips”) to test-drill land that was leased by ConocoPhillips. The agreement set out a specific date by which drilling had to be completed. Also included in the agreement was a $500,000 force majeure event and that it was entitled to the liquidated damages penalty. The trial court granted ConocoPhillips’ motion for summary judgment, finding that ConocoPhillips had established each element of its breach of contract claim and had disproved Olmos’s claims and affirmative defenses. As a result, Olmos appealed the trial court’s order. Id. at 180.
liquidated damages provision in the event the drilling deadline was not met. The agreement also contained a force majeure clause that outlined specific events which, if they occurred, would suspend the drilling deadline. The events included “fire, flood, storm, act of God, governmental authority, labor disputes, war or any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected. . . .” Olmos’s parent company, Terrace Energy Company (“Terrace”), guaranteed the contract. TEC Olmos, LLC v. ConocoPhillips Co. , 555 S.W.3d 176, 179 (Tex. App.—Houston [1 st Dist.] 2018, pet. filed). After the contract’s effective date, the price of oil dropped significantly causing Olmos’s financier for the project to revoke its financing. Olmos was unable to secure other financing for the project and, thus, was unable to meet the drilling deadline. Olmos invoked the force majeure provision to avoid paying the $500,000 liquidated damages penalty. ConocoPhillips challenged the provision’s applicability and sued Olmos, seeking a declaration that the drop in oil prices was not a covered
2. The Court of Appeals
On appeal, Olmos argued that: (1) fact issues precluded summary judgment on their invocation of the force majeure clause; and (2) fact issues precluded summary judgment regarding whether the maximum liquidated damages claimed by ConocoPhillips constituted an unenforceable penalty. Id. A. Force Majeure Olmos contended that the downturn in oil prices was a covered force majeure event because of the catch-all provision that covers “any other cause not enumerated herein but which is beyond the reasonable control of the Party whose performance is affected.” Id. at 182. The court disagreed and reasoned that because the provision did not specifically include a downturn in the oil and gas market, the real issue is whether the catch-all provision includes events that are foreseeable.
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
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