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SDM Obtains Denial of Eagle Ford Lease Termination Claim Against EP Energy

On December 14, 2021, United States Bankruptcy Judge Marvin Isgur denied a claim for an alleged $100 million in trespass damages against EP Energy E&P Company, L.P. asserted by the Eagle Ford lessor group known as “MSB.”

During its bankruptcy and the COVID-19 pandemic’s onset, EP Energy temporarily stopped producing from the entire Eagle Ford field in May of 2020 as a result of an unprecedented collapse in oil prices. EP Energy then resumed production in June of 2020 as the markets recovered.

MSB alleged that its sixteen leases to EP Energy—covering roughly 40,000 acres in the Eagle Ford—terminated as a result of that gap in production. MSB sought trespass damages as an administrative expense under EP Energy’s now-confirmed Chapter 11 Plan of Reorganization.

SDM represents EP Energy in connection with MSB’s temporary cessation termination claim. SDM briefed the threshold bankruptcy jurisdictional matters as well as the lease termination issue, with SDM partner Mark Hanna leading the team’s efforts and SDM partner Willie Cochran handling argument on behalf of EP Energy.

EP Energy argued that it maintained its continuous-development leases by drilling wells on schedule and that it maintained its held-by-production leases by restoring actual production within the permitted time period under the temporary cessation of production clause in the leases.

Judge Isgur agreed with EP Energy in full, rejecting MSB’s “strained reading” of the leases, which was “at odds with the Leases’ plain language” and would “result in unreasonable real-world consequences.”

Accordingly, Judge Isgur ruled that “[t]he Eagle Ford Leases remained in force following [the] temporary cessation of production,” and “[s]ince the Leases remained in force, EP Energy’s continued operations on the Leases were not trespassory.”

The SDM brief on lease termination can be found here. The memorandum opinion is available here.

SDM partners Mark Hanna, John Gasink, and Willie Cochran represent EP Energy, along with Weil Gotshal & Manges LLP.

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