Tariff Turbulence: Navigating Force Majeure Risks in Texas Oil and Gas Contracts

Upstream oil and gas producers and oilfield service companies are facing new uncertainties from recently imposed federal tariffs. In early 2025, the US expanded tariffs on a broad range of imports, suddenly increasing costs for critical equipment and materials. These abrupt governmental actions raise a pivotal question for the industry: Can newly imposed tariffs qualify as force majeure events under Texas law, thereby excusing delays or non-performance in oil and gas leases and service contracts? This article analyzes Texas judicial interpretations of force majeure clauses, specifically addressing whether tariffs can trigger these protections, and provides practical recommendations for industry players.

Force Majeure Under Texas Law

Under Texas law, a force majeure clause is a contractual provision suspending the obligation to perform if performance becomes impossible or impracticable. Force majeure clauses are strictly interpreted according to their specific contractual language. A force majeure event is generally beyond the reasonable control of the impacted party or unforeseeable at the time the parties entered into the contract, as known or reasonably anticipated risks at the time of contracting are usually deemed assumed by the parties unless explicitly listed in the force majeure clause. Texas courts have consistently emphasized that increased expense or economic hardship alone does not justify force majeure. For instance, courts have denied force majeure claims where commodity price fluctuations or internal scheduling errors, although burdensome, did not render performance truly impossible. Additionally, Texas courts closely examine the foreseeability of the event. When a force majeure clause includes broad catch-all language such as “any other causes beyond the parties’ control,” Texas courts typically limit this to unforeseen, extraordinary events. 

Can Newly Imposed Tariffs Trigger Force Majeure Clauses?

Whether newly imposed tariffs qualify as a force majeure event under Texas law heavily depends on the contract’s language. Contracts often broadly define force majeure to include governmental actions, orders, or regulatory changes, which could encompass the imposition of tariffs. However, Texas courts would further scrutinize whether the tariffs actually prevent or substantially impede performance. Merely increasing the cost of critical materials is insufficient to trigger force majeure. The party invoking a force majeure clause would have to demonstrate that the tariffs created a genuine obstacle to performance with no reasonable alternatives or mitigation options available. Foreseeability is also crucial because tariffs that were foreseeable at the time of contracting may not constitute a force majeure event unless explicitly enumerated in the contract. 

Special Considerations for Oil and Gas Leases and Service Agreements

The oil and gas industry often uses force majeure clauses in upstream leases and oilfield service contracts, but their implications can differ. Oil and gas leases in Texas typically include force majeure clauses to prevent lease termination when events beyond the lessee’s control impede operations. However, the contractual language used should explicitly provide for an extension of lease durations or performance deadlines; otherwise, force majeure clauses might only shield against covenant breaches during the force majeure period but not prevent lease expiration. Additionally, in the context of tariffs, a lessee should be prepared to demonstrate its strict regulatory compliance and that the tariff could not have been planned around by a prudent operator. For oilfield service agreements, force majeure clauses usually suspend or delay performance obligations for their duration and may protect service providers from liability for late delivery or non-performance during covered events. Texas courts especially emphasize that mere financial inconvenience due to tariffs typically will not constitute force majeure. Thus, service providers should clearly demonstrate that tariff-imposed costs render contractual performance effectively impossible. Furthermore, strict adherence to contractual notice and mitigation requirements is crucial for the affected party to preserve its force majeure defense under upstream leases and oilfield service contracts.

Practical Recommendations for Industry Contracts

Given the above legal landscape, upstream oil and gas producers and oilfield service companies should consider taking proactive steps to manage the risk of tariffs and similar events:

• Review Force Majeure Clauses in Current Contracts: Identify whether your force majeure clauses specifically include tariffs or broadly cover governmental actions.
• Assess Foreseeability at Contracting: Consider including tariffs, trade sanctions, or governmental actions in future agreements, or incorporating price adjustment clauses to mitigate tariff risks if possible.
• Define the Effect of Force Majeure on Obligations:
  • In oil and gas leases, ensure the force majeure clause explicitly states that lease terms and deadlines are extended for the duration of the force majeure event.
  • In service contracts, clarify whether prolonged force majeure allows termination or merely suspends performance.
• Ensure Procedural Compliance: Strictly comply with notice and mitigation obligations outlined in contracts and document your mitigation efforts thoroughly.
• Stay Informed and Plan Ahead: Keep abreast of potential tariff announcements that could affect your operations or supply chain. Proactively negotiating foreseeable risks can help prevent litigation in the future.

Conclusion

Ultimately, Texas courts will closely examine precise contract language and the specific facts of each claim to determine whether newly imposed tariffs constitute a valid force majeure event. While a broadly drafted force majeure clause that includes government actions could cover tariff-related disruptions, parties should recognize that economic hardship alone rarely meets the threshold required by Texas courts. Therefore, careful drafting, timely notification, and clear evidence of substantial impediments to performance are crucial when invoking a force majeure clause. By understanding how Texas courts interpret these clauses, stakeholders can more effectively manage risk and avoid unexpected challenges while navigating tariff uncertainties.

Seyfarth Shaw LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from their professional advisers.