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Law360 (May 4, 2020, 3:27 PM EDT) -- A unit of midstream giant Enterprise Products Partners LP said in a Texas state court suit that a driller owes $2.3 million in pipeline gathering fees and can't use the COVID-19 pandemic to nullify its contractual obligations.
EFS Midstream LLC alleges in the suit it filed Friday that Sundance Energy Inc. has refused to pay fees for failing to deliver the minimum amount of annual revenues for an EFS pipeline gathering system in the Eagle Ford of South Texas. That minimum revenue total is a condition of a 2018 gathering agreement between the companies, according to the petition it lodged in Harris County district court.
Sundance has asserted that it doesn't have to pay the fees it's already accrued and claims it doesn't have to pay future fees because the COVID-19 pandemic has triggered a force majeure clause in its contract, EFS said in the suit. Yet the force majeure clause in the companies' agreement expressly excludes the fees in question, EFS said in the petition.
"Rather than honor its commitment, Sundance manufactured a host of excuses to avoid paying EFS," EFS said in the petition.
Most oil and gas contracts contain force majeure language that cite unforeseen circumstances that prevent a party from fulfilling their contractual obligations, and the COVID-19 pandemic has lawyers bracing for a wave of litigation over the issue. Attorneys say now is the time for industry players to examine the force majeure language in their contracts and start thinking about contract frustration and whether they'll still be able to perform under their contracts.
EFS said its agreement with Sundance required the driller to pay deficiency fees if it failed to deliver minimum amounts of revenue per year for gathering and processing gas and liquid hydrocarbons. Sundance failed to deliver the minimum revenues in 2019, so EFS billed it for deficiency fees in February, according to the company's lawsuit.
Sundance disputed the charges and claimed that it was entitled to at least $2.6 million in credits from EFS for alleged issues stretching back to 2018, according to the lawsuit. The driller then told EFS in March that it was "canceling" its minimum revenue guarantees for 2020, claiming the impact of COVID-19 was a force majeure event under the parties' agreement, the suit said.
EFS said Sundance had never identified any "issues" with its gathering deal in 2018 or 2019 and that its allegations were baseless. EFS also said it reminded Sundance that the force majeure provision in the deal expressly excludes payment of the deficiency fees.
"Nonetheless, Sundance refuses to honor its existing obligations and continues to repudiate its future obligations," EFS said in the suit.
Representatives for the parties couldn't be immediately reached for Monday.
EFS Midstream is represented by Christopher A. Verducci, David E. Harrell and Danielle Charron of Locke Lord LLP.
Counsel information for Sundance wasn't immediately available Monday.
The case is EFS Midstream LLC v. Sundance Energy Inc., case number 2020-27256, in the District Court of Harris County, Texas.
--Editing by Gemma Horowitz.
For a reprint of this article, please contact reprints@law360.com.
