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A 2021 BUYBACK AGEEMENT BETWEEN A NATURAL GAS PRODUCER AND A NATURAL GAS SELLER WHICH WAS ENTERED IN ANTICIPATION OF A WINTER STORM WHICH WOULD REDUCE THE PRODUCER’S ABILITY TO DELIVER THE USUAL AMOUNT OF GAS IS VALID AND ENFORCEABLE AND CANNOT BE CANCELLED BASED UPON THE “FORCE MAJEURE” CLAUSE IN THE ORIGINAL 2019 CONTRACT BETWEEN THE PARTIES (FIRST DEPT).

The First Department, affirming Supreme Court, in a full-fledged opinion by Justice Mendez, determined a buyback agreement between Vaquero, a natural gas producer, and Hartree, a natural gas seller, which was entered in anticipation of an imminent winter storm during which Vaquero would be unable to meet its gas-delivery requirements under the 2019 contract, was valid and enforceable. The buyback contract could not be cancelled by asserting the “force majeure” clause in the original delivery and sales contract entered in 2019:

To the extent that Vaquero argues that its force majeure declaration eliminated its obligations under the buyback, the argument fails. The parties agree that the buyback did not require any physical delivery of gas, and created only a financial obligation. Indeed, Vaquero’s witnesses conceded at their depositions that the February 12, 2021, buyback was a purely financial agreement, with no physical delivery expected from either party. The mere fact that Vaquero had no gas to sell did not relieve it of its financial obligation to Hartree under the February 12, 2021 buyback agreement which did not contain a force majeure provision … . Moreover, the parties are sophisticated entities familiar with the natural gas industry and had a prior history of buyback arrangements. The February 12, 2021, buyback agreement, similar to the parties’ other buyback agreements, created an independent carve out that, because no physical delivery of gas was required, is not affected by the force majeure provisions of the base agreement … . Hartree Partners, LP v Vaquero Permian Processing LLC, 2024 NY Slip Op 01779, First Dept 4-2-24

Practice Point: Here a 2021 contract entered into in anticipation of the natural gas producer’s inability to deliver the required amount of gas during an imminent winter storm could not be cancelled under the “force majeure” clause in the original 2019 contract between the parties. The 2021 buyback agreement was an independent, enforceable contract which did not include a “force majeure” clause.

 

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