Background and Procedural History

EP Energy E&P Company, L.P., a Chapter 11 debtor in the Southern District of Texas, temporarily ceased production on certain oil and gas wells located on leased premises in south Texas during its bankruptcy proceedings and the onset of the COVID-19 pandemic. After resuming production within 40 or fewer days, EP Energy faced a motion for allowance of administrative expense claims filed by mineral lessors Storey Minerals, Limited; Storey Surface, Limited; Maltsberger, L.L.C.; Maltsberger/Storey Ranch, L.L.C.; Maltsberger/Storey Ranch Lands, L.L.C.; and Rene R. Barrientos, Limited. The lessors asserted that the debtor's interim cessation of production had caused the leases to terminate under Texas law and that EP Energy's continued operations thereafter constituted trespass giving rise to damages qualifying as administrative expenses under 11 U.S.C. § 503(b)(1)(A).

The Bankruptcy Court, presided over by Judge Marvin Isgur, determined it had jurisdiction, denied permissive abstention, and denied the administrative expense claims after finding the leases had not terminated. The District Court, with Judge Charles Robert Eskridge, III presiding, affirmed the Bankruptcy Court's decision. The lessors appealed to the Fifth Circuit.

The Jurisdictional Question

A threshold issue before the Fifth Circuit was whether the Bankruptcy Court had subject-matter jurisdiction over the underlying state-law lease-termination and trespass claims when those claims were presented in the context of a request for payment of administrative expenses. The court held that upon the lessors' request for payment of an administrative expense, the Bankruptcy Court had subject-matter jurisdiction over the underlying Texas state-law claims.

The Fifth Circuit determined that a proceeding to determine a request for payment of administrative expenses under 11 U.S.C. § 503 is a core proceeding. The court further held that the lessors' administrative expense claims were ripe for determination.

The Lease Termination Analysis

On the merits, the Fifth Circuit addressed whether EP Energy's temporary 40-day cessation of production caused the mineral leases to automatically terminate under Texas law. The court held that under Texas law, the debtor's temporary 40-day cessation of production did not cause the mineral leases to automatically terminate, even though the debtor did not also begin and diligently pursue new drilling or reworking operations within 120 days from the initial cessation date.

This holding rejected the lessors' theory that the temporary cessation triggered automatic lease termination, which would have supported their claims that EP Energy's subsequent operations constituted trespass giving rise to administrative expense damages.

Conclusion

The Fifth Circuit affirmed the lower courts' decisions, finding that the Bankruptcy Court properly exercised jurisdiction over the administrative expense claims and correctly determined that the mineral leases had not terminated due to the temporary cessation of production during the bankruptcy and COVID-19 pandemic.