When oil prices crash, storms shut down rigs or regulators delay permits, many energy companies turn to force majeure clauses for protection. But what happens when that clause doesn’t hold up in court?
Relying on this reason alone can leave you exposed. Texas courts enforce these clauses strictly. If you miss a step or use vague language, you risk turning a business disruption into a costly breach of contract. To protect your operation, you need to understand the limits of force majeure.
Force majeure doesn’t always apply
In Texas, many energy contracts include a force majeure clause. These clauses excuse delays or nonperformance caused by events outside a party’s control, like natural disasters, regulatory changes or wars. But courts interpret these clauses narrowly.
If your situation doesn’t match the specific terms in the contract, the court may reject your claim.
In one Texas case, a party argued that supply chain issues triggered the force majeure clause. The court disagreed. It ruled that disruptions from economic downturns or foreseeable events didn’t qualify.
That decision shows a harsh truth. If the clause doesn’t cover the situation, the court may hold you liable for breach.
Key steps to reduce your exposure
Texas courts expect businesses – especially in the oil and gas sector – to manage risk proactively. To avoid breach claims when problems arise, take these steps:
- Review contracts early: Use specific language in your force majeure clauses. Vague terms like acts of God won’t cover pandemics, price crashes or regulatory delays unless you list them.
- Document mitigation efforts: Show that you tried to reduce the impact. You can do this by using backup suppliers or adjusting your operations.
- Communicate early: Notify your counterparties as soon as you anticipate delays. Many contracts require written notice within a short timeframe to invoke force majeure.
Failing to take these steps can weaken your legal position and damage business relationships.
Alternatives beyond force majeure
When force majeure doesn’t apply, you may still have options. You can raise “impracticability” or “commercial frustration” as legal defenses. But Texas courts apply them sparingly.
A better strategy is to add flexibility when you draft contracts. Include fallback terms, price adjustments or renegotiation clauses. These tools help you adapt when market conditions shift.
Protecting yourself
Force majeure clauses don’t guarantee protection, especially in Texas energy deals. You need to plan and act quickly. Always document your efforts.
A knowledgeable attorney can review your contracts, help you manage risk and reduce your chances of ending up in court.