Perlman v. Pioneer Limited Partnership

918 F.2d 1244 (5th Cir. 1990)

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Nature of the Case

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Facts

D entered into an Oil and Gas Lease (the Lease) with P to 'explore, drill, prospect and operate' for oil and gas on acreage located in Montana and Wyoming. P agreed to (1) pay D $ 137,676.65 in initial rent, and (2) spend $1,500,000 in exploring and developing the acreage or, alternatively, to pay D the difference between $1,500,000 and the amount he spent. P also obtained from Kendrick (D) the right of access to and use of land in Wyoming and Montana overlying and adjoining D's acreage (the Surface Agreement) and in exchange, agreed to pay Kendrick (D) $ 60,000. The lease contained a force majeure clause: 14. FORCE MAJEURE . . . This lease shall not be terminated . . . nor Lessee held liable in damages . . . if compliance [with covenants in lease] . . . is prevented or hindered by an act of God, of the public enemy, adverse field, weather or market conditions, labor disputes, inability to obtain materials in the open market or transportation thereof, inability to obtain governmental permits or approvals necessary or convenient to Lessor's operations . . . such circumstances of events being hereafter referred to as 'force majeure'. . . . Lessee shall notify Lessor in writing . . . within fifteen (15) days of any force majeure which prevents or hinders any compliance, activity or event hereunder. . . . Lessee shall use all reasonable efforts to remove such force majeure. P anticipated using his patented 'Perlman Process' to produce coal seam gas. It involves the injection of substantial amounts of water into the ground during the drilling process (the fracturing phase), and the production of water and gas resulting from the fracturing phase. A separate well on other land had been completed using the Perlman process. Due to the substantial amounts of water produced the Wyoming Oil and Gas Conservation Commission (Commission) ordered the owners either to permit the well as a water well or plug it. This well connected to the same aquifer as the D tract. The Commission required that studies be done which was normal. The costs of these studies were estimated to be $50,000 to $200,000 per well. P concluded unilaterally that the actions of the Wyoming regulators hindered his performance under the contract. He also unilaterally concluded that because Montana regulated its water similarly or more stringently than Wyoming, he would also be hindered there. P invoked the force majeure clause taking the position that he was no longer bound to perform under the Lease or the Surface Agreement. P filed this suit for a declaratory judgment in April 1988. The district court rejected P's force majeure argument on findings that Perlman made no effort whatsoever to drill on the lease even though he may not have encountered the same quantity of water as he did on the Taylor 24 and that P failed to give timely notice of the force majeure. The court held that the event was foreseeable to P and within his control. The district court therefore awarded D $137,676.65 plus interest pursuant to Section 2 of the Lease and $1,500,000 plus interest pursuant to Section 8 of the Lease. Kendrick (D) was awarded $60,000 plus interest pursuant to the terms of the Surface Agreement. The district court awarded $75,000 for attorney's fees P appealed.