Pioneer Natural Resources USA Inc. told a Texas federal court Monday that Winter Storm Uri made it impossible to deliver about $9 million worth of natural gas to an energy trading company, saying during a Monday bench trial that the storm exempted it from its contractual obligations.

Energy trading company MIECO LLC claimed in its 2021 lawsuit that Pioneer had to make good on its contractual duties despite the storm, but Pioneer told the court during opening statements the storm was a classic example of an extraordinary and unforeseen event. The contract grants an exemption for such events, Pioneer said, arguing that the company should not have to pony up the $9 million in damages MIECO claimed it suffered after Pioneer failed to deliver the natural gas.

Once the storm disrupted Pioneer's gas production in the Permian Basin in Texas, it could not deliver gas to MIECO, said Thomas Walsh of Winston & Strawn LLP, counsel for Pioneer. Pioneer entered into a contract with MIECO to sell the latter 20,000 million British thermal units of natural gas per day.

MIECO claimed that Pioneer should have purchased gas from the spot market, or a publicly traded market where commodities are paid for and delivered immediately. The contract between the parties specifies that Pioneer has to make up a shortfall in its gas supply by purchasing gas on the spot market.

But the contract also specifies that an unforeseen event absolves Pioneer of its obligation to purchase gas on the spot market, Walsh said. When Pioneer lost its ability to supply gas, "it's against industry customs and procedure" to make a producer like Pioneer replace the gas using the spot market in an event like Winter Storm Uri.

Additionally, it's unclear whether Pioneer even could have replaced the gas using the spot market, as the storm made gas scarce, he said. Even if so, that scarcity could have made the gas prohibitively expensive, he said.

U.S. District Judge Jane Boyle asked whether such a high cost would mean in the context of a claim of force majeure. Walsh said having such high prices impedes buying on the spot market in and of itself, and forcing Pioneer to deliver would render the force majeure clause obsolete, he said.

Pioneer designed its infrastructure for Texas, "not for the Arctic Circle," he said. The company ran short on gas for MIECO for six days before it began meeting its obligations again, Walsh said, and "that's pretty extraordinary" considering the circumstances.

But MIECO's attorney, Creighton Magid of Dorsey & Whitney LLP, told the court that Winter Storm Uri did not prevent Pioneer from meeting its end of the deal between the companies. The company could have fulfilled its obligations under the contract if it had wanted to because there was gas on the market, he said.

The risk any party takes on when entering a contract such as the one before the court is that prices can vary, he said. Just because prices jumped during the winter storm does not mean Pioneer got a blank check to dodge its contractual obligations.

In 2023, Judge Boyle let Pioneer off the hook for MIECO's claims, finding that Pioneer couldn't deliver its product because of severe weather conditions during the storm. But the Fifth Circuit tossed the decision, finding that although the lower court correctly interpreted the force majeure clause in the Pioneer-MIECO contract, fact issues remained regarding whether Pioneer took steps to mitigate the impact of the winter storm.

MIECO is represented by J. Brian Vanderwoude, Creighton R. Magid and Steven A. Weiler of Dorsey & Whitney LLP.

Pioneer is represented by Thomas M. Melsheimer, Thomas B. Walsh, IV and Chase J. Cooper of Winston & Strawn LLP.

The case is Mieco LLC v. Pioneer Natural Resources USA Inc, case number 3:21-cv-01781, in the U.S. District Court for the Northern District of Texas.