Sun Operating Limited Partnership v. Holt

Elizabeth and Robert Holt (plaintiffs) were the lessors of two oil and gas leases, under which Sun Operating Limited Partnership (Sun) (defendant) was the lessee. The leases’ habendum clauses stated that once the primary terms were extended, cessation of production for more than 60 consecutive days could terminate the leases. However, the leases also contained force majeure clauses stating that if operations were “interrupted by fire, storm, flood, war . . . or failure of carriers to transport or furnish facilities for transportation . . . or as a result of any cause whatsoever beyond the control of the Lessee,” the interruption would not be held against Sun. Producing wells were drilled on the leaseholds, extending the primary terms of the leases. Panhandle Eastern Pipeline Company (Panhandle) was the sole purchaser of gas from the wells and transported the gas directly from the wells. Several years after the primary terms were extended, Panhandle needed to conduct major renovations on its transmission line. The renovations delayed production for more than 60 days. The Holts brought suit to cancel the leases under the terms of the habendum clauses. Sun argued that the force majeure clauses prevented termination of the leases. The trial court declared that the leases were terminated. Sun appealed, arguing in part that Sun should have been granted a directed verdict because the sole cause of the cessation of production was Panhandle’s failure to transport the gas.