Chesapeake Loses in Texas Court, Ramifications May Be Felt Nationally
Chesapeake wrongfully canceled an agreement to buy drilling rights held by the family-owned Peak Energy Corp., the U.S. Court of Appeals in New Orleans ruled. The panel today upheld a 2011 decision by U.S. District Judge John Ward in Marshall, Texas, awarding Plano, Texas-based Peak $19.7 million.
Peak claimed Oklahoma City-based Chesapeake breached a contract and abandoned the deal as gas prices plummeted. Ward said a letter of intent signed by both sides was a valid contract. Chesapeake asked the court to reverse Ward and find that a letter of intent isn’t a binding contract.
“The absence of closing documents does not necessarily make an agreement nonbinding,” the appeals court said today. “This agreement is enforceable.”
Chesapeake also asked the appeals court to cancel Ward’s order telling the company to pay the $12,000-an-acre difference between the offer price and the lease value when the bid was withdrawn. Peak didn’t have rights to almost two-thirds of the 5,405 acres (2,187 hectares) covered in the accord, Chesapeake argued.
The court upheld the damage award.
Michael Kehs, a Chesapeake spokesman, didn’t immediately reply to a call and e-mail seeking comment on the ruling.
Claims similar to Peak’s have been filed in federal and state courts by hundreds of landowners in states including Pennsylvania, Michigan and Texas alleging that Chesapeake breached contracts to buy oil and gas leases.
Those suing typically claim Chesapeake offered top prices, including sign-up bonuses, only to walk away from agreements when gas prices dropped or shale formations proved less profitable to develop than originally projected.
Chesapeake lost a separate Texas lawsuit July 10, when a federal judge ordered the company to pay more than $100 million to holders of three leases. The plaintiffs, Texas energy companies unrelated to Peak, sued Chesapeake in November 2008 for failing to complete the purchase of three gas leases the producer began negotiating for in June of that year, before energy prices plunged by as much as 50 percent.
“This is a big loss for Chesapeake and will have ramifications across the U.S.,” said Anthony Sabino, a law professor at St. John’s University in New York who specializes in complex litigation and oil-and-gas law.