“Force Majure” is a legal term that some people might have heard before, but never really considered. Attorneys dealing with complex and/or expensive business contracts deal with this language, but the current Covid-19 worldwide pandemic makes the meaning of the language hit home. “Force Majure” contract clauses come is lots of forms and varying levels of detail, but generally seek to explain what happens to contractual obligations and duties when unexpected and uncontrollable worldwide or natural events take place. Worldwide disease outbreaks may qualify. You can be sure with the cancellation and postponement of the NCAA tournament, MLB the NBA and the Olympics that union leaders, advertisers, and food and merchandise suppliers have looked at their contracts for “Force Majure” language.
Many different types of oil and gas agreements include “Force Majure” provisions. Most are included in complex sales and marketing agreements related to the sale of products, but I have even seen some regular landowner leases and mineral sales agreements which have included the clauses. How might these affect the industry? While most governmental stay at home orders have identified oil and gas operations as “essential” it still may be up to the individual companies to decided how much of their operations will stay intact. Couple the medical crisis with the previously depressed pricing market for oil and gas and many landowners could see delays and changes to their personal royalties. We all love to see the price per gallon of gasoline go down- if only we could go somewhere to enjoy it- but when you see those prices drop you can assume your monthly royalty payments might drop. In those situations, you might see companies attempt to shut in particular well operations and/or exercise their “delay in marketing” rights to delay sales and royalty payments. As major companies consider the nature of their “Force Majure” clauses, local mineral owners might begin to see disruptions and delays in their monthly royalty payments. Keep an eye on your royalty payments during this time to see how the trickle down might affect you.
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