It is important to know and understand the legislation of these agreements. For example, where a force majeure clause is ambiguous, the Texas courts have decided that the language of the contract would be governing.1 In Texas, force majeure is a positive defence, and the burden of proof is imposed on the party claiming the defence. Under farmout agreements, The Texas courts have refused to extend the interpretation of force majeure provisions to significant price fluctuations. For example, a Texas court has stated that there are several standard contract forms for physical (and non-accidental) gas sales, which can guide the parties in choosing the terms and rationalization to summarize whether COVID-19 and its associated effects constitute a force majeure event, a fact-specific investigation governed by the language of the contract. Oil and gas companies should evaluate their production-related agreements to assess the potential for supply chain disruptions, whether they are asserting a case of force majeure or facing a declaration of force majeure. K-L Gates is happy to help you analyze the force majeure. futures contracts that provide for the sale and purchase of gas for a fixed period and are generally considered to be short-term (one to five years) or long-term (often 20 years, but much longer); By integrating the oil and gas supply chain, force majeure has been a useful instrument, particularly for the upstream oil and gas sectors. Much of the most recent force majeure case law in the United States refers to the wave effect resulting from a production interruption in the downstream segment. Upstream contracts, including exploration and production sharing agreements, joint operating agreements, oil and gas leases, farmout agreements, unitation agreements, etc., are closely linked. The possibility of the use of force majeure could lead to disruptions in the oil and gas exploration sector in the United States. Depletion contracts, on the other hand, are based on an unspecified amount of economically recoverable reserves from a designated gas field. A real contract of exhaustion remains for the duration of the field, so that the scope of the agreement is limited by such reserves and not by time. As noted above, a force majeure clause is generally governed by contract law.
In many legal systems, the interpretation of a force majeure clause is governed by the four corners of the treaty. It should be noted, however, that in many legal systems, force majeure clauses are interpreted against debt relief from the benefit. Companies should carefully consider structuring these clauses for all contracts under negotiation to protect themselves from the direct or indirect challenges of COVID-19.