## Facts

- William Perlman (later substituted by Irene Perlman after his death) entered an oil and gas lease with Pioneer Limited Partnership covering acreage in Montana and Wyoming, and a related surface-use agreement with Kendrick Cattle Company for access and use of land overlying or near the leased acreage.
- Under the lease, Perlman agreed to pay initial rental of \$137,676.65 and to spend \$1,500,000 on exploration and development (or pay the shortfall in cash); under the surface agreement, he agreed to pay Kendrick \$60,000.
- The lease contained a force majeure clause providing that the lease would not be terminated and the lessee would not be liable if performance “is prevented or hindered by” specified events, including “inability to obtain governmental permits or approvals necessary or convenient” to operations.
- The force majeure clause also required Perlman to “use all reasonable efforts to remove such force majeure.”
- Perlman planned to use his coal-seam gas production method (the “Perlman Process”), which produced substantial amounts of water along with gas.
- After another well using the Perlman Process (in the same aquifer area) produced large quantities of water, the Wyoming Oil and Gas Conservation Commission required the well’s owners to either obtain a water-well permit or plug the well, and required studies to evaluate the water issues; the Commission treated such studies as a standard request.
- When the Commission learned Perlman intended to use the Perlman Process on the leased acreage, it required similar studies so it could determine whether the contemplated wells would need to be permitted as water wells; the estimated cost was \$50,000 to \$200,000 per well.
- Perlman did not conduct the studies. Instead, he took the position that the Commission’s requirements hindered performance within the meaning of the lease’s force majeure clause, and he assumed Montana regulators would pose similar or greater requirements.
- Perlman filed a diversity action seeking a declaratory judgment that the lease and surface agreement were canceled or unenforceable due to force majeure. The district court entered judgment for Pioneer and Kendrick, and Perlman appealed.

## Issues

1. Whether the Wyoming Oil and Gas Conservation Commission’s request for studies and possible water-well permitting amounted to an “inability to obtain governmental permits or approvals” that “prevented or hindered” performance under the lease’s force majeure clause.
2. Whether Perlman satisfied the lease requirement to use “all reasonable efforts to remove” the claimed force majeure condition.

## Decision

- The Fifth Circuit affirmed the judgment for Pioneer and Kendrick.
- The Commission’s study requirement and potential water-well permitting did not establish an “inability to obtain” permits or approvals within the meaning of the force majeure clause.
- Perlman could not rely on force majeure because he did not make the contractually required reasonable efforts to remove or address the alleged hindrance (including by performing the requested studies and pursuing the permitting process).
- The lease and related surface agreement were not canceled on the asserted force majeure theory, and Perlman remained bound by his contractual obligations.

## Legal Principles

- A force majeure clause covering “inability to obtain governmental permits or approvals” requires a showing of actual inability (or an effective bar to performance), not merely the existence of ordinary regulatory conditions or information requests.
- Standard agency requests for studies or data in connection with permitting generally do not, by themselves, constitute force majeure where the party can proceed by complying with the process.
- Increased cost or added regulatory steps, without more, does not convert a manageable permitting condition into force majeure when performance remains possible.
- When a force majeure clause requires the affected party to use “all reasonable efforts” to remove the condition, the clause cannot be invoked by a party who declines to take reasonable steps to pursue permits, supply requested information, or otherwise attempt to clear the impediment.

## Conclusion

The Fifth Circuit held that the Wyoming Commission’s standard requirement that Perlman conduct studies (so it could determine whether water-well permits were required) did not amount to an “inability to obtain governmental permits or approvals” under the lease’s force majeure clause, and Perlman’s refusal to perform the studies or pursue the permitting process meant he failed to use the “all reasonable efforts” the lease required; therefore, force majeure did not cancel the lease or the surface agreement, and judgment for Pioneer and Kendrick was affirmed.


Perlman v. Pioneer Limited Partnership, 918 F.2d 1244 (1990)