EP Energy Ordered to Pay $44 Million in “Most Favored Nations” Case
(Press Release) On July 11, 2019, La Salle County District Judge Russell Wilson granted a final judgement in Storey Minerals, LLC, at al. v. EP Energy E&P Company, LP based on a “Most Favored Nations” clause in three oil & gas leases and ordered EP Energy E&P Company, LP (“EP Energy”) to pay approximately $44 million to three lessors in the Eagle Ford Shale area in Texas.
Storey Minerals, Ltd., Maltsberger/Storey Ranch, LLC & Rene R. Barrientos Ltd. (“MSB”) entered into 16 separate leases with El Paso E&P Company, LP in 2009. Kinder Morgan bought El Paso E&P’s parent company, El Paso Corporation, in 2012 and sold ownership of it to Apollo Global Management, LLC, Riverstone Holdings, LLC, and other investors. Soon thereafter, El Paso E&P’s name was changed to EP Energy. Until recently, the MSB Leases constituted approximately 40% of EP Energy’s leased Eagle Ford acreage.
The 16 leases contain a Most Favored Nations provision or “MFN,” that can be triggered if EP Energy acquires another lease that provides for a higher bonus or delay rental. If the MFN provision is triggered, then the lessors are to receive equal treatment including the lessee being required to pay the difference from what the lessee previously paid in bonus. The lessee is also required to amend the leases to reflect the higher amount.
The court found that EP Energy materially breached the leases by failing to comply with the MFN provision in three of the MSB leases and ordered EP Energy to pay the difference—as plainly required by the leases—of $4,700 per acre for the bonus payment on about 8,730 acres.
Despite the obligation in the three leases, and a court ruling earlier this year, the EP Energy board has continually refused to amend these leases. Recently, EP Energy, who is guided by a management team affiliated with Apollo Global Management, was delisted from the NYSE.
Rene Barrientos commented that “we declined numerous earlier requests to waive this MFN provision which is meant to maintain and protect the market value of our acreage. EP’s new management made a calculated business decision to acquire additional acreage, so they effectively reset the market value and triggered this obligation under our lease. We made a trade in 2009 and the court agreed that they must comply with their trade.”
MSB have additional claims against EP Energy for breaching similar MFN provisions in at least three other separate leases covering different Eagle Ford acreage.
MSB are represented jointly by Chris Halgren and Don Jackson from McGinnis Lochridge in Houston, as well as Shannon Ratliff from Davis, Gerald & Cremer and Carlos R. Soltero from Cleveland Terrazas of Austin.
EP is represented by Steve McConnico, John Gasink, and William Cochran of Scott Douglass of Austin.
