Chesapeake Energy Corp., the nation’s second-largest gas producer, has recently attempted to void hundreds of agreements with mineral rights owners, amid plummeting energy prices. In a recent case, the company found itself on the losing end of a court battle.
Chesapeake signed a letter of intent with family-owned Peak Energy Corp., based in Plano, Texas, to acquire drilling rights on 5,405 acres of land. When prices plummeted, Chesapeake tried to walk away, claiming that the letter of intent was not a binding contract. The Fifth Circuit Court of Appeals in New Orleans disagreed, holding that the contract was valid and that Chesapeake must pay $19.7 million, the difference between the amount of the offer and the value of the lease when the deal was canceled.
The Fifth Circuit decision affects the prime energy-producing states of Texas, Louisiana and Mississippi, and is likely to be influential in other Circuits where oil and gas are big industries.
Chesapeake is facing hundreds of similar lawsuits from landowners from Pennsylvania to Texas, as the company tries to void contracts that are no longer profitable now that the price of gas has dropped. In another case, the gas driller was ordered to pay more than $100 million to three landowners after the company did not follow through on a contract.
Chesapeake has lost 35 percent of its market value in the past year, as its stock price has dropped significantly.