Arkansas Oklahoma Gas Corporation v. BP Energy Company

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

FORT SMITH DIVISION

ARKANSAS OKLAHOMA GAS

CORPORATION PLAINTIFF

v. No. 2:21-CV-02073

BP ENERGY COMPANY DEFENDANT

OPINION AND ORDER

This matter came before the Court on December 12, 2022 for a 4-day bench trial on

Plaintiff Arkansas Oklahoma Gas Corporation’s (“AOG”) second amended complaint (Doc. 50)

against Defendant BP Energy Company (“BP”) for breach of contract.1 AOG, a utility company,

alleges that during the week of February 15, 2021, when Winter Storm Uri struck Arkansas, BP

failed to provide the full amount of natural gas to which AOG was entitled under their contract.

AOG claims this was a breach of the parties’ contract, and it seeks more than $34 million in

damages. BP argues that its performance during Winter Storm Uri was excused by the contract’s

force majeure clause.

At trial, the parties stipulated to certain facts and exhibits which were received into

evidence. See Doc. 112-1. Many other exhibits were also received into evidence, sometimes over

objections. The Court also heard live testimony from eight witnesses, and received deposition

testimony from four other witnesses. At the conclusion of the trial, the Court took the case under

submission.

1 AOG’s operative complaint also contained a second count for unjust enrichment, see Doc.

50, ¶¶ 30–34, but the Court previously granted BP summary judgment on that claim and dismissed

it with prejudice, see Doc. 101, pp. 7–8.

Following a bench trial, “the court must find the facts specially and state its conclusions of

law separately. The findings and conclusions . . . may appear in an opinion or a memorandum of

decision filed by the court.” Fed. R. Civ. P. 52(a)(1). However, “[t]he trial court need not make

specific findings on all facts and evidentiary matters brought before it, but need find only the

ultimate facts necessary to reach a decision in the case.” U.S. ex rel. R.W. Vaught Co. v. F.D. Rich

Co., 439 F.2d 895, 899 (8th Cir. 1971). Findings are adequate so long as they “afford a reviewing

court a clear understanding of the basis of the trial court’s decision.” Allied Van Lines, Inc. v.

Small Bus. Admin., 667 F.2d 751, 753 (8th Cir. 1982) (internal quotation marks omitted).

Accordingly, having considered the testimony of the witnesses and the exhibits received into

evidence, and having made credibility determinations on the evidence, the Court makes the

following findings of fact and conclusions of law.2

I. Background

A. Findings of Fact

AOG is a regulated natural gas utility that serves approximately 58,000 residential,

commercial, and industrial customers throughout Western Arkansas and Eastern Oklahoma. See

Doc. 90, ¶ 1. BP is a seller and trader of natural gas, incorporated in Delaware with its principal

place of business in Houston, Texas. See Doc. 56, ¶ 3. BP supplies natural gas to AOG.

The contract between AOG and BP that was in effect in February 2021 (“the Contract”)

was comprised of three documents: (1) a standard form Base Contract for Sale and Purchase of

Natural Gas, published by the North American Energy Standards Board (“NAESB”), dated

December 1, 2016 (the “Base Contract”); (2) Special Provisions attached to the Base Contract that

2 To the extent that any facts were admitted or undisputed prior to trial, then this opinion

and order may cite to pleadings or summary judgment materials in support of those findings, rather

than to the evidence received at trial.

modified certain terms of the Standard Base Contract; and (3) a Transaction Confirmation dated

November 5, 2020. See Ct. Ex. 1, ¶ 1. Under the Contract, BP agreed to sell AOG up to 30,000

MMBtu of natural gas each day in February 2021, see Doc. 79, ¶ 8; Doc. 95, ¶ 8, and to deliver

the natural gas to AOG at four locations on the interstate Ozark Gas Transmission, LLC3 pipeline

(the “Ozark Pipeline”): (1) AOG Tobey; (2) AOG McBride; (3) AOG Pocola; and (4) AOG Spiro,

see Doc. 79, ¶ 9; Doc. 95, ¶ 9. AOG agreed to pay BP an index-based contract price for any natural

gas it purchased from BP up to the 30,000 MMBtu maximum. See Doc. 79, ¶ 11; Doc. 95, ¶ 11.

BP’s contractual obligation to deliver this natural gas to AOG was “firm,” which meant that BP

could not interrupt its performance without liability unless performance was prevented by force

majeure. See Doc. 90, ¶¶ 21–22.

A substantially similar contract has been in place between the parties since 2008. See Doc.

79, ¶ 13; Doc. 95, ¶ 13. That year, AOG issued a request for proposal (“RFP”) soliciting a supply

of natural gas to meet AOG’s high demand during the winter months. See Pl. Ex. 9. This supply

was called “no-notice” gas, see id., Ex. A, which meant that the supplier would have to deliver gas

to AOG on demand, without notice, and that AOG was not required to make advance nominations

for gas, see Doc. 116, pp. 42:13–42:20. AOG accepted an offer that BP submitted in response to

the RFP. See Pl. Exs. 12, 13. The parties agreed that BP would be paid a premium, called a

“demand fee,” for supplying no-notice gas on demand. See Pl. Exs. 11, 12; see also Doc. 116, pp.

43:16–46:22.

Since 2008, BP’s general approach has been to secure in advance the amount of natural gas

it estimates AOG will use each day and to then obtain any additional gas that is needed by making

3 Ozark Gas Transmission, LLC operates the Ozark Pipeline and is a wholly owned

subsidiary of Black Bear Transmission LLC. See Ct. Ex. 1, ¶ 3.

same-day gas purchases on the so-called “spot market.” See Doc. 79, ¶ 14; Doc. 95, ¶ 14. Before

February 2021, BP never failed to deliver the gas AOG sought to purchase. See Doc. 79, ¶ 15;

Doc. 95, ¶ 15. However, that unblemished record changed with the arrival of Winter Storm Uri in

mid-February 2021, which brought ice storms and unprecedentedly low temperatures to the

southern region of the United States, including Arkansas and Oklahoma. See Doc. 79, ¶ 59–63;

Doc. 95, ¶ 59–63. These conditions were extraordinarily persistent, causing an enormous drop in

natural gas production across the middle of the United States due to wellhead, processing, and

pipeline freeze-offs. See id.

As will be discussed at much greater length below, over a period of several days before the

storm’s arrival BP made arrangements with various sources to supply more gas to AOG than usual,

anticipating the likelihood that AOG’s demand for gas would increase during the storm. And

indeed, on February 10, 2021, AOG informed BP that it expected to take the full 30,000 MMBtu

of gas per day on February 15 and 16. See Doc. 87, ¶ 74; Doc. 90, ¶ 74; see also Doc. 79, ¶ 111;

Doc. 95, ¶ 111. However, many of BP’s arrangements failed once the storm arrived, and BP was

unable to supply AOG with the full amount of gas that AOG required during Winter Storm Uri.

B. Legal Standard and Preliminary Conclusions of Law

Under the Contract’s express terms, BP had a firm obligation to supply AOG with up to

30,000 MMBtu of natural gas per day, on demand. See Pl. Ex. 15, p. 1. BP’s failure to supply the

full amounts of gas to which AOG was entitled under the Contract was thus a failure to perform a

firm obligation under the Contract. However, BP argues its nonperformance is excused by the

contractual provision that “neither party shall be liable to the other for failure to perform a Firm

obligation, to the extent such failure was caused by Force Majeure.” See Def. Ex. 1, Bates p. -351,

§ 11.1. The Contract defines “Force Majeure” as meaning “any cause not reasonably within the

control of the party claiming suspension,” id., including “weather related events affecting an entire

geographic region, such as low temperatures which cause freezing or failure of wells or lines of

pipe,” see id. at § 11.2. But the Contract also carves out an exception to this excuse, stating that

“[n]either party shall be entitled to the benefit of the provisions of Force Majeure to the extent

performance is affected by . . . the curtailment of interruptible or secondary Firm transportation

unless primary, in-path Firm transportation is also curtailed.” See id. at § 11.3(i).

The Contract in this case is governed by Texas law. See Ct. Ex. 1, ¶ 2. Under Texas law,

“[t]he party seeking to excuse its performance under a contractual force majeure clause . . . bears

the burden of proof to establish that defense.” Va. Power Energy Mktg., Inc. v. Apache Corp., 297

S.W.3d 397, 402 (Tex. App. 2009). In other words, for BP to avoid liability for its

nonperformance, BP bears the burden of proving: (1) that Winter Storm Uri caused BP’s failure

to supply the full amounts of natural gas that AOG required (up to 30,000 MMBtu) during the

week of February 15, 2021; and (2) that either (a) BP’s performance was not affected by the

curtailment of interruptible or secondary firm transportation; or (b) primary, in-path firm

transportation was also curtailed.

II. Liability

A. Findings of Fact

Different pipelines offer different portfolios of transportation service. Firm transportation

is a transportation service that cannot be curtailed in the absence of force majeure. BP had a firm

transportation service agreement with the Ozark Pipeline. See Pl. Ex. 24. By contrast, interruptible

transportation service permits curtailment of transportation for reasons other than force majeure

or, depending on the terms of the agreement, potentially even for no reason at all. Additionally,

some pipelines offer a physical gas-storage service; however, the Ozark Pipeline did not offer

storage. See Doc. 117, pp. 409:4–409:6.4

As already mentioned, the Contract obligated BP to deliver gas to AOG on the Ozark

Pipeline. However, the Contract did not specify how BP was to obtain supplies to meet this

contractual obligation. Historically, BP generally used two methods of obtaining gas for AOG.

First, BP utilized long-term supply contracts with “on-system” producers who were connected to

the Ozark Pipeline. (An on-system producer is one whose supply feeds directly from its wellhead

or gathering system into the pipeline. See Doc. 117, pp. 449:3–449:11.) Then, if AOG needed

more gas than BP’s on-system suppliers were contracted to provide, BP would source additional

gas from off-system producers, typically by purchasing it on the spot market. See id. at 458:22–

459:4.

To facilitate flexibility for AOG’s no-notice needs, BP contracted with the Ozark Pipeline

for a service called “park and loan” (“PAL”). BP routinely utilized PAL long before Winter Storm

Uri’s arrival. See Doc. 79, ¶ 21; Doc. 95, ¶ 21; see also Doc. 117, pp. 350:14–350:21, 443:21–

445:10. PAL is neither a transportation service, see Doc. 79, ¶ 22; Doc. 95, ¶ 22, nor a physical

storage service, see Doc. 117, pp. 409:4–409:6. Rather, PAL is an interruptible balancing service

provided by pipelines that allows shippers to receive credit for the excess of gas placed in the

pipeline by that shipper on a given day over the amount the shipper takes off the pipeline that day,

see Doc. 90, ¶ 35. Later, the shipper can “unpark” that “parked” gas by taking more gas off the

pipeline than the shipper delivers to the pipeline. See id. “Parked” gas is not physically stored;

rather, it is an accounting credit that allows a shipper to “unpark” gas from the pipeline’s “line

4 Citations to the official transcript of the bench trial are to the document’s internal page

numbers rather than to the ones contained within the document’s filemarks.

pack,” which is the amount of gas exceeding that being transported for delivery in a segment of

pipeline. See id.

BP designated the McBride interconnection on the Ozark Pipeline as its “parking/loaning

point.” See id. at ¶ 41. However, AOG was able to withdraw gas from other delivery points

besides McBride, see Doc. 116, pp. 123:23–124:2, and could do so without making advance

nominations for the gas. Instead of making advance nominations, AOG would typically inform

the Ozark Pipeline of how much gas it wished to take just before taking the gas. See Doc. 79, ¶ 17;

Doc. 95, ¶ 17. This practice was facilitated by a separate “operational balancing agreement” that

AOG had with the Ozark Pipeline, under which AOG was allowed to take more or less gas from

the Ozark Pipeline than it had scheduled for delivery on a given day. See Doc. 116, pp. 123:20–

128:14. A few days later, BP would “true up” AOG’s imbalance with Ozark, even though BP was

not a party to that operational balancing agreement between AOG and the Ozark Pipeline. See id.

In other words, BP’s PAL agreement with Ozark functioned in concert with AOG’s operational

balancing agreement with Ozark to establish accounting mechanisms that facilitated the no-notice

Contract between AOG and BP.

As a courtesy, AOG often provided BP with estimates of how much gas it would use, and

when those estimates were larger than usual then BP would purchase additional supply as

necessary; but the Contract did not require AOG to send BP estimates. See Doc. 116, pp. 118:20–

118:23, 224:17–225:6; Doc. 117, pp. 444:4–444:13, 446:15–448:4, 458:22–459:21. Likewise, the

Contract did not require AOG to nominate5 gas, and indeed AOG has never nominated gas under

the Contract. See Doc. 116, pp. 125:19–126:9, 127:2–127:22. This is because the Contract was a

5 “Nomination” is the formal scheduling of a specific quantity of gas to be taken on a

pipeline, and is typically performed at least one day in advance of the scheduled flow date. See

Doc. 116, pp. 40:13–41:25.

no-notice contract. See Def. Ex. 2, p. 2. The Contract does not define “no-notice” but, as already

discussed above, the term is commonly used in the industry to mean that a utility company can

receive gas without making advance nominations. See Doc. 116, pp. 42:13–42:20, 44:6–44:11,

65:25–66:4; Doc. 117, pp. 276:5–277:25.

PAL is an interruptible service, and has the lowest priority of all the services provided on

the Ozark Pipeline, which means it is made available only after all other services are available on

the pipeline. See Doc. 90, ¶¶ 36, 41. At the end of the day on February 12, BP had a balance of

38,527 MMBtu in its PAL on the Ozark Pipeline. See Doc. 79, ¶ 31; Doc. 95, ¶ 31; see also Def.

Ex. 80. However, three days earlier the Ozark Pipeline had already curtailed PAL in anticipation

of Winter Storm Uri, prohibiting users from withdrawing any gas that was not already physically

on the pipeline until further notice. See Doc. 116, pp. 81:12–82:11; Pl. Ex. 22. This made BP’s

PAL balance nearly useless during Winter Storm Uri, leaving AOG almost completely reliant on

whatever other sources of gas BP had arranged.6 BP did make other arrangements, which will be

discussed in more detail below. But those arrangements ultimately failed; and beginning on

February 15, BP failed to physically deliver onto the Ozark Pipeline sufficient quantities of gas to

meet AOG’s needs. See Doc. 116, pp. 82:12–84:11.

As of February 2021, natural gas could enter the Ozark pipeline only through on-system

production, or through one of two intrastate pipelines that connect to the Ozark Pipeline. The two

intrastate pipelines that connect to the Ozark Pipeline are: (1) the pipeline owned by Enable

Oklahoma Intrastate Transmission, commonly referred to as the “EOIT” Pipeline or the “Enogex”

6 The Court says “nearly” and “almost” because on February 15 and February 16 the Ozark

Pipeline apparently allowed AOG to withdraw 6,980 and 6,611 MMBtu of gas, respectively, that

BP had not already physically placed on the pipeline, notwithstanding the prior curtailment notice.

See Def. Ex. 80.

Pipeline, and (2) the pipeline owned by OneOK Gas Transportation, LLC, referred to as the

“OneOK” Pipeline. See Ct. Ex. 1, ¶ 4. These two intrastate pipelines connect with the Ozark

Pipeline in Oklahoma—EOIT at a point called the “Boiling Spring” interconnect, and OneOK at

a point near Boiling Spring called the “Lequire” interconnect. See Doc. 117, pp. 300:5–300:11;

Doc. 119, pp. 880:8–880:12; Pl. Ex. 65. BP made arrangements with several different on-system

and off-system producers, as well as with EOIT, for a total of 29,425 MMBtu per day to be

delivered to AOG through the Ozark Pipeline on February 15 and 16, and for the delivery of 24,425

MMBtu per day on February 17 through 19.

The on-system producers with which BP contracted were Merit Energy Company, LLC

(“Merit”) and Wells Fargo Commodities, LLC (“Wells Fargo”). These were long-standing

contracts which significantly predated Winter Storm Uri. BP’s contract with Merit called for the

delivery of 12,000 MMBtu per day during the month of February 2021, of which 8,400 was the

“baseload” component and 3,600 was the “swing” component. See Def. Ex. 13, p. 1; Def. Ex. 14,

p. 1. (Pricing for the swing component was tied to the daily market, while pricing for the baseload

component was monthly.) See Def. Ex. 13, p. 1. BP’s contract with Wells Fargo was for the

delivery of 1,725 MMBtu per day during that same period. See Def. Ex. 15. Wells Fargo managed

to deliver nearly all of what it promised during Winter Storm Uri, providing the full 1,725 MMBtu

per day on February 15 through 17, and 1,640 MMBtu per day on February 18 and 19. See Def.

Ex. 81. However, Merit only delivered 3,150 MMBtu on February 15, and did not deliver any gas

at all on February 16 through 19. See id. Meanwhile, the Ozark Pipeline never curtailed BP’s

transportation service during Winter Storm Uri. See Ct. Ex. 1, ¶ 5.

Both Merit and Wells Fargo sent BP notices of force majeure dated February 12, 2021,

citing the ongoing severe winter weather as the cause.7 See Def. Exs. 19–20. The Court finds that

Winter Storm Uri was in fact the cause for BP’s loss of supply from Merit and Wells Fargo, given:

the temporal proximity of Winter Storm Uri with those two producers’ failures to deliver the

amounts for which they contracted; the fact that production declined as the storm wore on instead

of being abruptly curtailed; Wells Fargo’s substantial performance despite the storm; Merit’s

financial incentive to produce the full quantity of gas if possible in order to take advantage of

soaring daily-index prices during Uri; and the availability of transportation on Ozark for both

producers.

As for off-system sources, BP contracted with the EOIT Pipeline and a marketer called

Koch Energy Services, LLC (hereinafter “Koch”) for gas to be delivered to AOG on the Ozark

Pipeline during the week of February 15 through 19. On February 12, BP moved 10,700 MMBtu

of natural gas sourced from an entity called Unbridled Resources, LLC, onto the Ozark Pipeline

from the EOIT Pipeline through the Boiling Spring interconnect. See Doc. 79, ¶ 37; Doc. 95, ¶ 37.

BP paid the maximum rate for that transportation, thereby reserving that capacity at the highest

interruptible transportation priority on EOIT for each remaining day of February 2021. But that

reservation was still for interruptible transportation service—not firm.8 On February 15, the EOIT

7 Notwithstanding the date on the letterhead of Merit’s notice, it was not emailed to BP

until February 16, 2021. See Doc. 20.

8 BP’s transportation agreement with the EOIT Pipeline was explicitly an “Interruptible

Transportation Service Agreement.” See Pl. Ex. 38. However, BP offered testimony opining that

BP’s February 12 nomination somehow transformed BP’s service into firm rather than

interruptible transportation. See, e.g., Doc. 117, pp. 492:13–497:12; but see Doc. 118, pp. 582:3–

588:25. The Court finds this testimony entirely lacking in credibility on this point. The EOIT

Pipeline’s Statement of Operating Conditions Applicable to Transportation Services explicitly

discusses the type of transaction that BP made on February 12, and is perfectly clear that it is a

means of acquiring higher priority among interruptible shippers but not for acquiring firm

Pipeline issued an operational order anticipating it would be “unable to provide any tolerance for

short positions outside of firm contractual rights” in order to “maintain . . . operational integrity,”

but that it would continue to “provide services in accordance with the customers’ contractual

rights.” See Def. Ex. 178. Since BP had not contracted for firm transportation rights on the EOIT

Pipeline, the gas from Unbridled was not permitted to flow during Winter Storm Uri. See Doc.

119, p. 902:2–902:25.

Additionally, BP contracted with Koch to purchase 5,000 MMBtu of gas per day, from

February 13 through 16, 2021, at a rate of $500 per MMBtu. See Doc. 79, ¶ 40; Doc. 95, ¶ 40.

Koch planned to transport this natural gas from the EOIT Pipeline onto the Ozark Pipeline. See

Doc. 79, ¶ 42; Doc. 95, ¶ 42. However, because of the EOIT Pipeline’s curtailment of interruptible

transportation, and because neither BP nor Koch had contracted for firm transportation, BP did not

receive any of this contracted-for gas from Koch on February 15 or February 16. See Doc. 79,

¶¶ 80–81, 83–84; Doc. 95, ¶¶ 80–81, 83–84. Koch sent BP a notice of force majeure dated

February 23, 2021. See Def. Ex. 21. Much like Merit and Wells Fargo, Koch cited the ongoing

severe winter weather as the cause. See id. However, there is an important factual difference

between Koch’s situation and that of Merit and Wells Fargo: although the Ozark Pipeline never

curtailed BP’s transportation service during Winter Storm Uri, the EOIT Pipeline did. Unlike

Merit and Wells Fargo, Koch had the gas ready for delivery; but the EOIT Pipeline simply did not

allow it to be delivered on February 15 and 16. See Doc. 117, pp. 426:3–426:14. Therefore the

Court finds that although Winter Storm Uri contributed indirectly to Koch’s failure to deliver gas

transportation. The document speaks for itself and is neither vague nor ambiguous on this point.

See Def. Ex. 225, “Clean SOC” attachment, § 4.1(B). An expert witness for AOG, Richard Smead,

testified consistently with the Court’s understanding of these matters. See Doc. 117, pp. 308:8–

309:23.

to BP (and AOG) on those days, the direct and proximate cause was that neither BP nor Koch

secured firm transportation rights on the EOIT Pipeline during the relevant period.9 The same is

true for all other gas BP arranged to be transported to AOG over the EOIT Pipeline but which was

not delivered during Winter Storm Uri.

BP offers several arguments against this finding, but none is persuasive. One is an assertion

that the EOIT Pipeline curtailed all transportation, not merely interruptible transportation, such

that it would have made no difference whether firm transportation had been secured. But this

argument is belied not only by the plain language of EOIT’s February 15 operational order, but

also by the meter readings during the relevant period. There are two interconnects where gas flows

onto the Ozark Pipeline from EOIT: Boiling Spring, and Transok, which are located right next to

each other. See Doc. 119, pp. 920:23–921:23. Meter readings show that gas flowed from EOIT

to Ozark through the Boiling Spring interconnect on February 15, 18, and 19, but not on February

16 or 17. See Def. Ex. 84, pp. 4–5. However, meter readings also show that during this same

period 30,700 dekatherms of gas consistently flowed each day from EOIT onto Ozark through

Transok. See id. Clearly, then, there was no period during Winter Storm Uri when EOIT curtailed

all transportation.

In a similar vein, BP points out that there were entities which had firm transportation

contracts at Boiling Spring, see Doc. 118, pp. 768:22–773:17; Def. Ex. 235, pp. 18–31, and that

meter readings show these entities also had no gas delivered through Boiling Spring during the

relevant period. See Def. Ex. 84, pp. 4–5. BP argues the Court should infer from this fact that

9 Koch’s notice to BP was very broad and generic in its description of the basis for its

declaration of force majeure, but among the causes listed was “interruptions and curtailments of

. . . transportation and deliveries by third parties” during Winter Storm Uri. See Def. Ex. 21.

EOIT curtailed firm transportation even though it never formally announced it was doing so. But

the Court believes it is far more likely that these entities simply did not nominate any gas to be

delivered through Boiling Spring during Winter Storm Uri, since the meter readings show that no

gas flowed through Boiling Spring under these firm contracts at any point from February 8 through

February 20, 2021, see Def. Ex. 84, even though EOIT’s curtailment was not announced until

February 15.

BP also argues that delivery of its gas onto the Ozark Pipeline from the EOIT Pipeline was

prevented by a compressor outage that occurred somewhere on the EOIT Pipeline, rather than by

a decision on the part of the EOIT Pipeline to curtail non-firm transportation. However, this claim

is not supported by any competent evidence. No testimony regarding the alleged compressor

outage was provided by any witness with direct knowledge of the matter. And even the hearsay

testimony on the topic was ambiguous at best.

For example, Scott Langston (senior vice president and chief commercial officer of Black

Bear Transmission, LLC) provided the following testimony:

Q: Do you know whether Winter Storm Uri had any effect on the Enable

Oklahoma pipeline?

. . .

A: My understanding is that pipeline was impacted by the storm. I believe

some of its facilities and production flowing into that pipeline that was

impacted, that was based on conversation that we had with an EOIT

representative.

Q: Do you know which facilities were impacted?

A: We were told that a compressor that operated and helped support deliveries

to Ozark was not available for a period of time.

Q: And that compressor was not available because of issues related to the

storm; is that fair?

. . .

A: We believe weather contributed to the compressor challenges. I can’t speak

on that, all of the causes. But we believe weather was a contributing factor.

Q: And because of that issue with the compressor, the EOIT pipeline was not

delivering gas on to Ozark for a period of time after the storm; is that fair?

. . .

A: EOIT delivered quantities lower[] than scheduled volumes for a period of

time, and there was a brief period that EOIT deliveries to Ozark were

suspended entirely.

Def. Ex. 221, pp. 86:17–88:4 (objections omitted). Later, Mr. Langston had the following

exchange with counsel for AOG:

Q: You also said that during Winter Storm Uri there was a brief period in which

EOIT did not deliver to Ozark; how long was that period?

A: It was in between zero and 90 minutes, I would say. I can’t recall the exact

duration. I believe the extension of deliveries were—was—we could

probably find the operational data. So it was not greater than two hours,

that’s my understanding.

Q: Other than that not-greater-than-two-hour period, EOIT was delivering at

least some gas to the Ozark Pipeline during Winter Storm Uri?

A: That’s correct. At least some.

Id. at 101:19–102:10.

Mr. Langston’s testimony on whether and why the compressor outage occurred is hearsay

and speculative. (“We were told that . . . .” “We believe . . . .” “I can’t speak on that . . . .”) It

also provides no information on where the compressor was located, whether at Boiling Spring or

elsewhere. But even assuming a compressor outage occurred and that it was caused by Winter

Storm Uri, Mr. Langston’s testimony does not support the proposition that this outage stopped

deliveries from EOIT to Ozark for any longer than two hours. Similar problems afflict the

testimony provided by Walt McCarter, see Doc. 116, pp. 152:6–153:12, 203:6–204:4, 217:8–

218:25, and Richard Smead, see Doc. 117, pp. 384:18–385:16, 387:9–389:10, as well as records

of internal instant message communications between AOG employees, see, e.g., Def. Ex. 134, p. 1

(explaining that “Ozark was . . . cutting that entire [BP] package for today due to supply shortages

and a failed compressor somewhere”), all of which is simply a conduit for hearsay from EOIT.

No evidence, hearsay or otherwise, was ever introduced regarding precisely when the compressor

outage occurred, where it occurred, why it occurred, or why it would have affected deliveries at

Boiling Spring but not at Transok. Meanwhile, EOIT’s February 15 operational order announcing

its curtailment of non-firm transportation made no mention of any compressor outage. See Def.

Ex. 178. BP has not carried its burden of proving that a compressor outage even occurred, much

less that this outage was the reason why BP’s gas was not delivered to AOG from EOIT.10

So far, the Court has discussed the failure to deliver gas that BP arranged to be delivered

to AOG during Winter Storm Uri. But there is also the matter of gas that BP did not arrange for

delivery. As mentioned above, BP arranged for a total of 29,425 MMBtu per day to be delivered

to AOG through the Ozark Pipeline on February 15 and 16, and for the delivery of 24,425 MMBtu

per day on February 17 through 19. This, of course, is less than the 30,000 MMBtu per day that

BP was contractually obligated to provide to AOG upon request. So the question also arises

whether this shortfall is excused by force majeure.

In the Court’s order on the parties’ cross-motions for summary judgment, it observed:

AOG contends that BP’s failure was not caused by Winter Storm Uri itself, but

rather was caused by BP’s failure to secure sufficient firm sources of gas supply

and transportation prior to the Storm. BP disagrees, arguing among other things

that it was either impossible or commercially unreasonable to obtain additional firm

sources of gas supply for AOG, that doing so would have made no difference during

Winter Storm Uri anyway, and that regardless BP had no legal obligation to do so.

10 Interestingly, although EOIT is the one entity that presumably could have provided

competent testimony on the compressor outage, no EOIT representatives were ever called to testify

by either side.

To the last point, BP asserts that “Texas law is well established that due diligence

is not required under force-majeure clauses.” See Doc. 97, p. 4 (quoting Moore v.

Jet Stream Invs., Ltd., 261 S.W.3d 412, 422 (Tex. App. 2008)). However, Texas

law is actually more nuanced than that; Moore itself qualifies this rule with

“[u]nless the [contract] provides otherwise.” See Moore, 261 S.W.3d at 422. The

bottom line under Texas law is that parties must expend as much reasonable effort

or due diligence to avoid force majeure events or their effects as their contracts

require, and no more than that. See, e.g., Sun Operating Ltd. P’ship v. Holt, 984

S.W.2d 277, 283–84 (Tex. App. 1998) (distinguishing the contract before it with

the one in United Gas Pipe Line Co. v. F.E.R.C., 824 F.2d 417, 432 n.19 (5th Cir.

1987), the latter expressly limiting force majeure events to those “which by the

exercise of due diligence [the invoking party] was unable to prevent or overcome”).

Here, the Contract defines force majeure as “any cause not reasonably within the

control of the party claiming suspension.” (Doc. 85-1, p. 22) (emphasis added).

Obviously BP cannot control the weather; so to whatever extent Winter Storm Uri

was the cause of BP’s failure to perform, then that cause was not reasonably within

BP’s control. But likewise, to whatever extent BP’s failure to perform was caused

by its failure to secure sufficient firm supply or transportation, then BP can avoid

liability only if its failure to secure sufficient firm supply or transportation was “not

reasonably within [its] control.” Importantly, Section 11.1 contemplates the

possibility that a failure to perform can be caused in part by a force majeure event

and in part by circumstances reasonably within the control of the party claiming

suspension; and under such circumstances it only protects the invoking party from

liability “to the extent such failure was caused by” the force majeure event. See id.

(emphasis added).

(Doc. 101, pp. 4–6) (internal footnotes omitted).

BP made many unsuccessful efforts to secure more gas than it was ultimately able to

arrange for delivery to AOG in anticipation of Winter Storm Uri. See, e.g., Doc. 117, pp. 472:13–

480:7. The Court finds that under the circumstances, at the time BP learned of Winter Storm Uri’s

approach, these were reasonable efforts to avoid Winter Storm Uri’s effects. However, the Court

also finds that these last-minute efforts would not have been necessary if BP had previously

secured sufficient firm supply and firm transportation to provide AOG with 30,000 MMBtu of

natural gas per day on demand.

BP built its supply structure for AOG based on AOG’s historical use of gas. See Doc. 117,

pp. 442:12–445:10. Prior to Winter Storm Uri, AOG’s average historical usage was between

10,000 and 12,000 MMBtu per day, which obviously is nowhere near the maximum 30,000

MMBtu per day to which it was entitled under its Contract with BP. See id. at 441:19–442:11. BP

provided expert testimony opining that securing firm supply and transportation for 30,000 MMBtu

per day despite AOG’s much lower historical usage would have been an unusual practice among

gas marketers, and that doing so would have been expensive. See id. at 462:21–465:3; Doc. 119,

pp. 807:19–812:24. But even if the Court credits these opinions, the Court believes they are

ultimately beside the point. AOG’s average use is not relevant to the Contract. BP entered into a

firm contract to provide AOG up to 30,000 MMBtu of gas per day, on demand, with no advance

notice required. BP then failed, for many years, to enter into sufficiently firm, redundant, or

contingent contractual relationships with pipelines and suppliers to guarantee this amount of gas

would always be available to AOG on short or no notice. See Doc. 117, pp. 313:8–316:6.

The Court finds that BP’s decision not to make such arrangements was a conscious

business decision that was made by and “reasonably within the control of” BP. See Doc. 119, pp.

809:1–809:5. Instead, BP gambled that if the day ever arrived when AOG should demand the full

30,000 MMBtu, then BP would be able to find whatever it needed on the spot market and to

transport the gas over the EOIT Pipeline on an interruptible contract. See Doc. 117, pp. 458:9–

462:5; Doc. 118, pp. 566:24–567:11. But when that day finally arrived, BP lost its gamble and

breached the Contract.

The Court therefore finds that this business decision and Winter Storm Uri were equal

causes of BP’s inability to arrange for delivery of the full 30,000 MMBtu of gas per day to AOG

during Winter Storm Uri. However, as discussed earlier in the “Legal Standard” subsection of this

opinion and order, for BP to reduce its liability for this shortfall it must show not only that Winter

Storm Uri was a contributing cause, but also that either: (a) BP’s performance was not affected by

the curtailment of interruptible or secondary firm transportation; or (b) primary, in-path firm

transportation was also curtailed. BP has failed to do this. It did not submit any proof regarding

whether its last-minute attempts at purchasing gas on the spot market were affected by

transportation curtailment.11 Since BP has not carried its burden of showing the impact, or lack

thereof, of transportation curtailment on its failures to obtain gas on the spot market, the Court

finds that BP’s inability to arrange for delivery of the full 30,000 MMBtu of gas per day to AOG

during Winter Storm Uri is not excused by force majeure.

One issue remains on the topic of liability, which is whether BP breached the Contract by

failing to divert any gas to AOG during Winter Storm Uri from another utility company called

Black Hills Energy Arkansas, Inc. (“Black Hills”), who is also a customer of BP. See Doc. 119,

pp. 879:12–880:25. The Contract’s “Special Provisions” to Section 11.2 provide that “[t]o the

extent an event of Force Majeure occurs, Seller or Buyer will allocate the supply or purchase of

Firm Gas for affected transactions, as applicable, on a pro rata basis with other similarly situated

Firm Gas customers.” See Def. Ex. 1, Bates p. -342. There is no dispute that BP did not divert

any gas from Black Hills to AOG during Winter Storm Uri. However, BP contends this was not

a breach of the Contract because Black Hills and AOG were not “similarly situated” customers.

The Court agrees.

11 In fact, the record contains some evidence that BP’s attempts at purchasing spot gas were

affected by transportation curtailment. For example, on February 10 BP asked Tenaska, a gas

marketer, if it was selling any gas on Ozark for February 12 through 16. See Def. Ex. 70. Tenaska

responded that it was not. See id. Tenaska also happened at that time to be under a long-term

contract to provide gas directly to AOG, and continued providing gas to AOG throughout Winter

Storm Uri; but it did so by rerouting these deliveries to a different pipeline instead of the Ozark

Pipeline which they normally used under that contract with AOG. See Doc. 116, pp. 98:8–99:12.

This implies that Tenaska’s reason for rebuffing BP’s request might not have been a lack of supply,

but rather that Tenaska was having problems with transportation on or to the Ozark Pipeline.

As previously mentioned, the OneOK and EOIT Pipelines are the two intrastate pipelines

that connect to the Ozark Pipeline. Somewhat similarly to its contract with AOG, BP has a firm

contract with Black Hills for delivery of natural gas. See Def. Exs. 7, 11. However, although BP’s

contracts with AOG and Black Hills are both firm, the Black Hills contract is for a fixed amount

(15,000 MMBtu) of gas per day, see Def. Ex. 11, while the AOG contract is variable. And unlike

with AOG, BP delivers that gas to Black Hills over the OneOK Pipeline rather than EOIT.

Specifically, BP delivers natural gas over the OneOK Pipeline to an interconnect with the Ozark

Pipeline, from which point the gas is then delivered to Black Hills using Black Hills’ own firm

transportation contract with the Ozark Pipeline. See Doc. 119, pp. 887:24–889:2.

The upshot of this arrangement is that although BP holds title to the gas while it is on the

OneOK Pipeline, Black Hills takes title to this gas once it hits the interconnect with the Ozark

Pipeline. See id. at 889:20–890:23. Furthermore, although BP’s transportation agreement with

OneOK is firm, it is exclusively for gas destined to Black Hills. See id. at 881:10–885:11; see also

Doc. 118, pp. 617:25–618:13. This effectively means that in order to divert gas from Black Hills

to AOG, BP needs permission to do so either from OneOK (in the form of additional transportation

capacity) or from Black Hills (in the form of additional supply). In anticipation of Winter Storm

Uri, BP asked OneOK to sell it additional transportation capacity and asked Black Hills to loan it

gas; but both of these requests were declined. See Doc. 79, ¶¶ 96, 100; Doc. 95, ¶¶ 96, 100. Thus

BP’s relationships with Black Hills and AOG were characterized by logistical and contractual

differences that prevented BP from diverting any gas from Black Hills to AOG. Therefore, the

Court finds that Black Hills and AOG were not “similarly situated Firm Gas customers” for

purposes of BP’s contract with AOG.12

B. Conclusions of Law

The Court’s November 21, 2022 summary-judgment opinion and order discussed Texas

law on force majeure, and noted that most of the cases cited by both parties were unhelpful because

they involved different industries, different types of events, or different states’ laws.13 See Doc.

101, pp. 5–6 & nn. 2–4. However, a couple of important general principles should be mentioned.

First, under Texas law, the scope and application of force majeure is “utterly dependent

upon the terms of the contract in which it appears.” Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d

277, 283 (Tex. App. 1998). Texas courts do not impose additional duties of due diligence or efforts

to overcome the effects of force majeure events that are not required by the governing contract;

nor do they decline to impose such duties when the contract requires them. See id. at 283–84; see

also Moore v. Jet Stream Invs., Ltd., 261 S.W.3d 412, 422 (Tex. App. 2008). Here, the Contract

defines force majeure as “any cause not reasonably within the control of the party claiming

suspension.” See Def. Ex. 1, Bates p. -351, § 11.1. As the Court observed in its previous order:

Obviously BP cannot control the weather; so to whatever extent Winter Storm Uri

was the cause of BP’s failure to perform, then that cause was not reasonably within

BP’s control. But likewise, to whatever extent BP’s failure to perform was caused

12 AOG did not present any evidence at trial in support of its claim that AOG and Black

Hills were “similarly situated” for purposes of the Contract.

13 Two of the supplemental authorities that BP submitted post-trial—opinions from the

case of MIECO LLC v. Pioneer Nat. Res. USA, Inc., Case No. 3:21-cv-1781-B (N.D. Tex.), see

Docs. 121, 124, 131, 132—are similarly unhelpful. That case turns on a materially different force

majeure clause that imposes a variety of additional requirements not present under the instant

Contract, see Doc. 121-1, p. 11 (internally numbered as p. 10), which is governed by a different

state’s law (New York rather than Texas), as applied to materially different facts (loss of a seller’s

supply from its own production facilities rather than from third-party facilities, see id. at 3

(internally numbered as p. 2)). MIECO is thus inapposite, despite dealing with Winter Storm Uri’s

impact on the natural gas industry.

by its failure to secure sufficient firm supply or transportation, then BP can avoid

liability only if its failure to secure sufficient firm supply or transportation was “not

reasonably within [its] control.”

(Doc. 101, p. 5) (internal footnote omitted).

Second, and relatedly, when a contract requires delivery of gas at a specific point, Texas

law does not require a gas supplier invoking force majeure to attempt delivery at some different

point. See Va. Power Energy Mktg., Inc. v. Apache Corp., 297 S.W.3d 397, 402 (Tex. App. 2009).

Here, as already mentioned, the Contract obligated BP to deliver gas to AOG at four specific

locations on the Ozark Pipeline. See Doc. 79, ¶ 9; Doc. 95, ¶ 9. So it is irrelevant to BP’s defense

in this case whether it could have delivered gas to AOG at some other location, as BP had no

obligation to explore such alternatives.

Applying these legal principles to the factual findings made in the preceding subsection,

the following conclusions of law result:

• BP’s failure to divert gas from Black Hills to AOG during Winter Storm Uri was not a

breach of the Contract;

• BP’s failure to supply AOG with the full amount of gas AOG required (up to 30,000

MMBtu per day) during Winter Storm Uri was a breach of the Contract;

• The loss of gas supply that BP arranged with Merit and Wells Fargo is excused by force

majeure;

• The loss of gas transportation that BP arranged to be delivered over the EOIT Pipeline

(including from Koch) is not excused by force majeure; and

• The difference between the full 30,000 MMBtu per day to which AOG was entitled and

the amount of gas that BP actually arranged to deliver to AOG during Winter Storm Uri

also is not excused by force majeure.

III. Damages

A. Findings of Fact

Before the Court can calculate the amount of damages to which AOG is entitled, it must

address a threshold question: for how many days during Winter Storm Uri was AOG damaged?

There is no dispute that, as discussed earlier in this opinion and order, AOG informed BP on

February 10 that it expected to use the full 30,000 MMBtu of gas to which it was entitled on

February 15 and 16. And there is no evidence that AOG ever provided BP any estimate of its gas

needs for February 17 through 19. BP argues that AOG is not entitled to recover on its claims for

February 17 through 19, as AOG cannot prove it needed or intended to use any gas on those dates

beyond the amounts it actually used (which was far less than 30,000 MMBtu per day). The Court

disagrees and finds that, but for BP’s breach of contract, AOG would have used the full 30,000

MMBtu to which it was entitled on each day from February 15 through 19. Four points should be

made in support of this finding.

First, it bears repeating that this was a no-notice contract, which means AOG had no duty

to give BP advance estimates of the amount of gas it intended to take. So the fact that AOG never

provided BP any advance estimate of its gas needs for February 17 through 19 does not

contractually preclude BP’s liability for damages that AOG may have suffered on those days.

Second, and more to the point, AOG’s manager of gas supply and contracting (Walt

McCarter) testified that AOG would have taken the full 30,000 MMBtu of no-notice gas from BP

each day from February 15 through 19 if it had been available. See Doc. 116, pp. 94:17–96:11.

This testimony, which the Court finds credible, is essentially unrebutted. The only evidence BP

introduced which might undermine this testimony is internal AOG forecasts dated February 14,

which estimated that AOG might need anywhere from 3,680 to 22,139 MMBtu of gas on February

17, from 3,680 to 22,139 MMBtu on February 18, and from 6,012 to 22,130 MMBtu on February

19. See id. at 190:12–195:12; Def. Ex. 38. But these estimates were based on historical averages,

and were produced before AOG had any clear picture of what the weather would actually be on

February 17 through 19. See Doc. 116, pp. 209:14–214:3. Therefore the Court considers these

forecasts to be less reliable than Mr. McCarter’s testimony on this point, which was informed by

his knowledge of the actual weather conditions on those dates.

Third, it makes no difference that AOG ultimately did not take anywhere near the full

30,000 MMBtu per day to which it was entitled on February 17 through 19. BP’s failure to deliver

the full 30,000 MMBtu per day on February 15 and 16 caused AOG’s system pressures to drop

steadily towards dangerous levels, as the amount of gas being used by AOG’s customers

significantly exceeded the amount of gas coming onto the system. See id. at 85:25–87:22. This

forced AOG to implement, beginning on February 15, a multi-tier curtailment plan for the purpose

of maintaining system pressure, which effectively resulted in AOG first shutting off the gas to all

of its larger industrial customers, and then mandating that all of its smaller commercial customers

stop their gas usage as well. See id. at 87:23–94:8. None of this curtailment would have been

necessary if AOG had received the full 30,000 MMBtu of gas per day to which it was entitled

under the Contract. See id. at 94:9–94:16, 190:12–190:15. AOG could not responsibly lift the

curtailment until it was certain there was sufficient gas supply in place to meet the resulting

demand. See id. at 104:22–105:3. And BP was not able to provide AOG that certainty at any point

during the week from February 15 through 19. See id. at 99:13–105:3; see also Pl. Ex. 52. In

other words, the relatively low quantities of gas that AOG ultimately took from BP on February

17 through 19 do not undermine the conclusion that AOG was damaged on those days—rather,

they support it.14

Fourth, and finally, BP argues that the damages AOG is seeking to recover for February

17 through 19 are consequential damages, which are expressly prohibited by the Contract. See

Def. Ex. 1, Bates p. -351, § 13. The Court disagrees, and believes these are not consequential

damages. Consequential damages “compensate the plaintiff for foreseeable losses that were

caused by the breach but were not a necessary consequence of it.” Signature Indus. Servs., LLC

v. Int’l Paper Co., 638 S.W.3d 179, 186 (Tex. 2022). An example of consequential damages here

would be if AOG were seeking to recover profits it lost because customers angered by the

curtailment of their service during Winter Storm Uri decided to switch to a different utility

provider. See, e.g., Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265, 278–79 (Tex. 2015);

Basic Cap. Mgmt., Inc. v. Dynex Com., Inc., 348 S.W.3d 894, 901–04 (Tex. 2011). However, even

if the damages AOG seeks for February 17 through 19 were a form of consequential damages, it

would not come within the Contract’s limitation on that type of recovery because the recovery

AOG seeks for those days is expressly provided for elsewhere in the Contract as liquidated

damages. See Def. Ex. 1, Bates p. -351, § 13 (limiting recovery to “direct actual damages” only

14 The aforementioned three factors distinguish the instant matter from the facts of LNG

Americas, Inc. v. Chevron Nat. Gas, Case No. 4:21-cv-2226 (S.D. Tex. Apr. 12, 2023), which BP

submitted in a post-trial notice of supplemental authority. See Doc. 129. The contract in LNG

Americas apparently was not a no-notice contract. See Doc. 129-1, p. 2 (internally numbered as

p. 1) (referring to contract as “fixed”). The plaintiff in LNG Americas did not take the full amount

of gas to which it was contractually entitled during the relevant period despite having the

opportunity to do so. See id. at 26–27 (internally numbered as pp. 25–26). And because the

plaintiff in LNG Americas was a gas marketer, not a utility, see id. at 2 (internally numbered as p.

1), there is no good reason to believe it was forced (or even had the ability) to implement

curtailments on end users of natural gas. Rather, LNG Americas’ decision to decline gas from the

defendant almost certainly was caused by a lack of demand from local distribution companies to

which it marketed—i.e., LNG Americas’ refusal of available gas was not caused by its prior loss

of supply from the defendant.

“if no remedy or measure of damages is expressly provided herein or in a transaction”); see id. at

Bates p. -346, § 3.2 (setting out the “Cover Standard” method of calculating liquidated damages

for “breach of a Firm obligation to deliver . . . Gas”); cf. El Paso Mktg., L.P. v. Wolf Hollow I,

L.P., 383 S.W.3d 138, 144–45 (Tex. 2012) (holding that although “replacement-power” damages

sought by plaintiff were consequential damages, and although contract prohibited recovery of

consequential damages, plaintiff could nevertheless recover replacement-power damages under

the contract’s “Cover Standard” provision because that provision contemplated recovery of

replacement-power damages).

B. Conclusions of Law

The Contract provides for liquidated damages. The parties elected the “Cover Standard”

for calculating damages, which means that “if there is an unexcused failure to . . . deliver any

quantity of Gas pursuant to this Contract, then [AOG] shall use commercially reasonable efforts

to . . . obtain Gas . . . at a price reasonable for the delivery or production area, as applicable,

consistent with: the amount of notice provided by [BP]; the immediacy of [AOG]’s Gas

consumption needs . . . ; the quantities involved; and the anticipated length of failure by [BP].”

See Def. Ex. 1, Bates p. -345, § 2.12. The Contract also sets out a method for calculating damages

under the Cover Standard, stating in relevant part:

The sole and exclusive remedy of the parties in the event of a breach of a Firm

obligation to deliver or receive Gas shall be recovery of the following: (i) in the

event of a breach by [BP] on any Day(s), payment by [BP] to [AOG] in an amount

equal to the positive difference, if any, between the purchase price paid by [AOG]

utilizing the Cover Standard and the Contract Price, adjusted for commercially

reasonable differences in transportation costs to or from the Delivery Point(s),

multiplied by the difference between the Contract Quantity and the quantity

actually delivered by [BP] for such Day(s) excluding any quantity for which no

replacement is available; . . . and (iii) in the event that [AOG] has used

commercially reasonable efforts to replace the Gas . . . , and no such replacement

or sale is available for all or any portion of the Contract Quantity of Gas, then in

addition to (i) . . . above, as applicable, the sole and exclusive remedy of [AOG]

with respect to the Gas not replaced . . . shall be an amount equal to any unfavorable

difference between the Contract Price and the Spot Price, adjusted for such

transportation to the applicable Delivery Point, multiplied by the quantity of such

Gas not replaced . . . .

Id. at Bates p. -346, § 3.2.

Basically, then, subsection (i) compensates AOG for whatever extent to which it replaced

BP’s undelivered gas with gas purchased from third parties at prices greater than it would have

paid BP under their Contract; while subsection (iii) compensates AOG for whatever amount of

BP’s undelivered gas it was unable to replace. In algebraic form, the formula appears thus:

{[(PP – CP) or 0, whichever is greater] x (CQ – DQ – UQ)}

+ {[(SP – CP) or 0, whichever is greater] x UQ}

• PP: purchase price paid by AOG utilizing the Cover Standard

• SP: Spot Price

• CP: Contract Price

• CQ: Contract Quantity

• DQ: quantity actually delivered by BP

• UQ: quantity for which no replacement is available

The final task is to determine the values for each of these variables on each day, plug them

in, and see what sum results. That will be the amount of damages to which AOG is entitled under

the Contract.

We begin with PP: the purchase price paid by AOG for replacement gas utilizing the Cover

Standard. The Court finds that AOG used commercially reasonable efforts to replace the gas that

BP failed to deliver during Winter Storm Uri, but that these efforts were entirely unsuccessful.15

15 At various earlier stages in this case, and in several March 2021 invoices sent to BP,

AOG seemed to argue or imply that certain purchases of gas that it made under pre-existing swing

contracts with a couple of marketers, called Spire Marketing, Inc. and Tenaska, constituted

replacement gas. See Pl. Exs. 16–17; see also Doc. 50, ¶¶ 10–19; Doc. 80-42, pp. 3–4 (internally

numbered pp. 2–3). However, AOG exercised its options under those contracts several days before

it had any reason to expect that BP would fail to perform under its Contract with AOG. See Doc.

79, ¶ 107; Doc. 95, ¶ 107. No evidence introduced at trial supports the proposition that AOG’s

purchases from Spire and Tenaska were an attempt to replace BP’s gas.

To this end, the Court credits the testimony of Mr. McCarter, who testified that although AOG

attempted to purchase gas from many different marketers during the period from February 15

through 19, including Conoco-Phillips, NextEra, United Energy Trading, Southwest Energy and

Shell, AOG was ultimately unable to procure any gas on the open market. See Doc. 116, pp.

148:15–150:24. In other words, AOG ultimately paid zero dollars and zero cents for replacement

gas, which means that on each day the value of PP is 0. This has the lucky consequence of

simplifying the damage calculations somewhat, as it means the total from the subsection (i) portion

of the formula will necessarily be zero. That is because regardless of whatever values are assigned

to CP, CQ, DQ, and UQ, it is necessarily true that 0 x (CQ – DQ – UQ) = 0.

Next, we must determine the value of SP: Spot Price, which the Contract defines in relevant

part thus:

“Spot Price” as referred to in Section 3.2 shall mean the price listed in the

publication indicated on the Base Contract, under the listing applicable to the

geographic location closest in proximity to the Delivery Point(s) for the relevant

Day; provided, if there is no single price published for such location for such Day,

but there is published a range of prices, then the Spot Price shall be the average of

such high and low prices. . . .

See Def. Ex. 1, Bates p. -346, § 2.31, as amended by id. at Bates p. -340. The parties indicated in

the Base Contract that S&P Global Platts Gas Daily would be the publication, and that its daily

“midpoint” index would be the price used in calculating the Spot Price. See id. at Bates p. -339.

All of the Contract’s Delivery Points are geographically located inside the “Enable Gas, East” area

as defined by Platts. See Doc. 117, pp. 324:22–325:11. So determining the Spot Price for a given

day is simply a matter of identifying the midpoint index price listed in the Platts Gas Daily for the

Enable Gas East geographical area on the “relevant Day.”

However, the parties disagree over what constitutes the “relevant Day” for purposes of

calculating the Spot Price. Unhelpfully, the Contract does not define this term. Predictably, each

party favors a definition that is more advantageous to it than the other. AOG contends that the

“relevant Day” should be the day on which the gas at issue should have flowed. BP contends that

the “relevant Day” should be two days later than when the gas at issue should have flowed, because

that is the date from which the Contract Price must be calculated according to the parties’ Contract

and Transaction Confirmation. See Def. Ex. 1, Bates p. -345, § 2.10 (defining “Contract Price”

with reference to the Transaction Confirmation); Def. Ex. 2, Bates p. -366 (providing that

“[b]ecause this is a No-Notice service the Gas Daily Price used” for calculating the Contract Price

“will be the GDD reported two business days following the actual flow date”). BP reasons that

pegging the “relevant Day” for the Spot Price to the same date as the Contract Price will maintain

consistency since the Contract Price is subtracted from the Spot Price.

Although at first blush BP’s argument has some intuitive force, it falls apart upon closer

examination. In fact, consistency is best maintained by pegging the “relevant Day” to the actual

flow date. This is because, as one can see when looking at the formula in algebraic form as

provided above, SP essentially functions as a hypothetical proxy for PP. In subsection (i) the

Contract Price is subtracted from PP, while in subsection (iii) the Contract Price is subtracted from

SP. Put differently, while subsection (i) compensates AOG for whatever it actually overpaid for

replacement gas on a given day, subsection (iii) compensates AOG for whatever it hypothetically

would have overpaid for replacement gas on a given day if AOG had been able to obtain it. And

since the value of PP would include whatever spot-market price AOG actually paid for

replacement gas for a given flow date, consistency requires valuing SP as the spot-market price

that AOG would have paid for that same flow date—not two days later. Therefore the Court finds

that for purposes of calculating the Spot Price, the “relevant Day” is the date on which the gas at

issue should have flowed. Thus the Spot Price for each day at issue is:

• Feb. 15: 375.810

• Feb. 16: 375.810

• Feb. 17: 300.000

• Feb. 18: 428.640

• Feb. 19: 34.450

Def. Ex. 227, p. 1;16 Def. Ex. 228, p. 1; Def. Ex. 229, p. 1; Def. Ex. 230, p. 1.

Next is CP: Contract Price. As already mentioned, the Transaction Confirmation specifies

that the Contract Price will be pegged to the Gas Daily index “reported two business days

following the actual flow date.” See Def. Ex. 2, Bates p. -366. It further provides that the formula

to be used for calculating the Contract Price is to multiply the price listed for the East Texas NGPL

Texok zone by 1.013, and then to add 0.03 to that. See id. at Bates p. -365. In other words, for

any given day:

(E. Tex. NGPL Texok 2 business days later) x 1.013 + 0.03 = CP

Thus the Contract Price for each day at issue is:

• Feb. 15: 24.125 x 1.013 + 0.03 = 24.469

• Feb. 16: 23.465 x 1.013 + 0.03 = 23.800

• Feb. 17: 6.700 x 1.013 + 0.03 = 6.817

• Feb. 18: 3.990 x 1.013 + 0.03 = 4.072

• Feb. 19: 2.660 x 1.013 + 0.03 = 2.725

Def. Ex. 228, p. 2; Def. Ex. 229, p. 2; Def. Ex. 230, p. 2; Def. Ex. 231, p. 2; Def. Ex. 232, p. 2.

Determining CQ (Contract Quantity) and DQ (quantity actually delivered by BP) for each

day is a relatively straightforward task. The Contract Quantity for each day is, of course, 30,000

MMBtu. And the parties’ separate internal calculations agree on the quantity actually delivered

by BP on each day:

16 Monday, February 15, 2021 was a federal holiday, so Friday, February 12 was the

effective trade date for gas that flowed not only on February 13–15 but also on February 16,

resulting in an identical midpoint index (and thus an identical SP) for both February 15 and

February 16. See Def. Ex. 227, p. 1.

• Feb. 15: 17,446 MMBtu

• Feb. 16: 8,203 MMBtu

• Feb. 17: 0 MMBtu

• Feb. 18: 0 MMBtu

• Feb. 19: 5,301 MMBtu

Compare Pl. Ex. 17 (March 29, 2021 AOG invoice to BP with attachment listing the quantity of

gas for each day that BP failed to deliver) with Def. Ex. 80 (internal BP spreadsheet that lists, inter

alia, “AOG Burn” for the relevant days).17

Now, to determine UQ: quantity of undelivered gas for which no replacement is available.

Subtracting DQ from CQ yields a subtotal quantity of gas that BP failed to deliver on each day.

Then, subtracting the undelivered gas from Merit and Wells Fargo that is excused by force majeure

yields a final total of undelivered gas for which no replacement is available and for which BP is

liable. Thus:

Feb. 15 Feb. 16 Feb. 17 Feb. 18 Feb. 19

CQ 30,000 30,000 30,000 30,000 30,000

DQ 17,446 8,203 0 0 5,301

Excused 8,850 12,000 12,000 12,000 12,000

Merit

Excused 0 0 0 85 85

Wells Fargo

UQ 3,704 9,797 18,000 17,915 12,614

17 Subtracting the undelivered quantities listed in Pl. Ex. 17 from the CP of 30,000 MMBtu

for each day yields the quantities listed as “AOG Burn” in Def. Ex. 80. Although BP argues that

it should also get credit for “delivering” gas to PAL on February 17–19 that AOG did not use, the

Court disagrees; AOG was prevented from using this gas by the service curtailment that BP’s prior

breach caused. See supra, pp. 22–25.

Now we have everything we need to calculate damages. As a reminder, this is the formula

to be used:

{[(PP – CP) or 0, whichever is greater] x (CQ – DQ – UQ)}

+ {[(SP – CP) or 0, whichever is greater] x UQ}

• PP: purchase price paid by AOG utilizing the Cover Standard

• SP: Spot Price

• CP: Contract Price

• CQ: Contract Quantity

• DQ: quantity actually delivered by BP

• UQ: quantity for which no replacement is available

And these are the values assigned to each variable for each day:

Feb. 15 Feb. 16 Feb. 17 Feb. 18 Feb. 19

PP 0 0 0 0 0

SP 375.810 375.810 300.000 428.640 34.450

CP 24.469 23.800 6.817 4.072 2.725

CQ 30,000 30,000 30,000 30,000 30,000

DQ 17,446 8,203 0 0 5,301

UQ 3,704 9,797 18,000 17,915 12,614

Plugging these values into the formula yields the following totals for each day:

• Feb. 15: $1,301,367.06

• Feb. 16: $3,448,641.97

• Feb. 17: $5,277,294.00

• Feb. 18: $7,606,135.72

• Feb. 19: $400,179.15

The sum of these numbers is $18,033,617.90 in damages which AOG is entitled to recover from

BP under the Contract.

IV. Conclusion

IT IS THEREFORE ORDERED that Plaintiff Arkansas Oklahoma Gas Corporation shall

have and recover from Defendant BP Energy Company $18,033,617.90 in damages on its claim

for breach of contract. Judgment will be entered separately.

IT IS SO ORDERED on this 24th day of May, 2023.

/s/P. K. Holmes, III

P.K. HOLMES, III

U.S. DISTRICT JUDGE