## Facts

- Kaiser-Francis Oil Company, holding working interests in certain wells, entered into two long-term natural-gas purchase agreements with Producer’s Gas Company (PGC), commonly referred to as the Ellis and Cronin contracts.
- The contracts required PGC to “take or pay” specified minimum annual quantities of gas: PGC had to either take the contract minimum or pay for the shortfall even if it did not take the gas.
- The contracts included a detailed force-majeure clause listing events such as acts of God, labor disputes, civil disturbances, accidents, and governmental or regulatory actions, and generally covering events beyond the parties’ control that prevented performance.
- After execution, the resale price of natural gas declined substantially, reducing PGC’s ability to resell at prices comparable to the contract price.
- PGC stopped paying Kaiser-Francis for gas it took from wells in which Kaiser-Francis had an interest, asserting it was instead purchasing gas from co-owners at reduced prices.
- PGC also refused to make take-or-pay payments for minimum quantities of gas it did not take.
- Kaiser-Francis sued for breach in federal district court under diversity jurisdiction; the district court granted partial summary judgment on liability to Kaiser-Francis, rejecting PGC’s defenses, and the parties stipulated to damages and related amounts contingent on the liability ruling.
- PGC appealed, challenging only the rejection of its defenses to liability.

## Issues

1. Whether a decline in market demand or resale price constitutes a force-majeure event excusing performance of take-or-pay obligations.
2. Whether alleged failure of gas to meet contractual quality specifications excused PGC’s performance.
3. Whether PGC’s claimed purchases from co-owners eliminated or reduced its payment obligations to Kaiser-Francis under the contracts.
4. Whether take-or-pay payments were illegal or unenforceable because they allegedly violated Natural Gas Policy Act ceiling-price limits.

## Decision

- The Tenth Circuit affirmed the district court’s partial summary judgment for Kaiser-Francis on liability.
- The court held that market-driven declines in demand or resale price are not force majeure under the contracts and do not excuse take-or-pay obligations.
- The court rejected PGC’s other defenses (gas quality, seller identity/purchases from co-owners, and NGPA illegality) as insufficient to create a genuine dispute of material fact or as legally meritless under the contracts and applicable law.

## Legal Principles

- In take-or-pay gas contracts, the buyer generally bears market-demand and resale-price risk, while the seller bears production risk, unless the contract clearly reallocates those risks.
- A force-majeure clause listing external, supervening events (e.g., acts of God, labor disruptions, accidents, government action) does not ordinarily include a buyer’s reduced profitability from market price declines or reduced demand.
- Construing force majeure to include ordinary market downturns would nullify the economic function of take-or-pay provisions by permitting performance only when resale conditions are favorable.
- To avoid summary judgment on contract defenses (including quality-based defenses), the nonmovant must produce evidence sufficient to show a genuine dispute of material fact as to a defense that would excuse performance.
- Take-or-pay obligations for gas not taken may be treated as contractual payment obligations distinct from the regulated price for gas actually delivered, defeating generalized NGPA ceiling-price defenses absent a demonstrated statutory conflict.

## Conclusion

The court enforced the take-or-pay allocation of market risk and held that a downturn in gas prices or demand is not a force-majeure event under the contracts; PGC remained liable for payments to Kaiser-Francis, and its additional defenses did not defeat summary judgment.


Kaiser-Francis Oil Co. v. Producer’s Gas Co., 870 F.2d 563 (10th Cir. 1989)