From Bloomberg News;
Chesapeake Energy, facing claims by mineral-rights holders in multiple states over canceled oil and gas lease offers, lost a bid Wednesday to reverse a $19.7 million judgment to a Texas lease owner.
Chesapeake wrongly canceled an agreement to buy drilling rights held by the family-owned Peak Energy Corp., the 5th U.S. Circuit Court of Appeals in New Orleans ruled.
The panel upheld a 2011 decision by U.S. District Judge John Ward in Marshall, awarding Plano-based Peak $19.7 million.
Peak said 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 is a valid contract. Chesapeake asked the court to reverse that finding.
"The absence of closing documents does not necessarily make an agreement nonbinding," the appeals court said. "This agreement is enforceable."
Michael Kehs, a Chesapeake spokesman, declined to 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.
Those suing typically say that 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 projected.
Chesapeake lost a separate lawsuit July 10 in Houston, 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 that the producer began negotiating that June, before energy prices plunged 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.
The federal appeals court in New Orleans covers Texas, Louisiana and Mississippi, "a huge portion of the oil patch," and is often given deference by other courts on cases involving the industry, Sabino said.
"It is unlikely that the Supreme Court will review this, so the 5th Circuit's decision will be final," he said. In arguing similar lawsuits, "lawyers for Chesapeake will have to distinguish this case and why it doesn't apply," he said.