September 12, 2012 / 8:33 PM / 6 years ago

Chesapeake loses bid to void award over canceled Texas deal

(Reuters) - A federal appeals court rejected Chesapeake Energy Corp’s (CHK.N) attempt to overturn a $20 million award arising from claims it wrongfully backed out of a contract to buy some Texas oil and gas leases.

Wednesday’s decision by a panel of the 5th U.S. Circuit Court of Appeals in New Orleans upheld a September 2011 lower court ruling in favor of privately held Peak Energy Corp.

Chesapeake has faced lawsuits in several U.S. states, including more than 100 in Michigan alone, accusing it of breaching contracts to lease land, and reneging on making associated bonus payments to land owners.

Peak claimed that Chesapeake took advantage of plummeting natural gas prices in 2008 to renege on its binding agreement that July to buy its rights in the Haynesville Shale, an area in Texas, Louisiana and Arkansas that is rich in natural gas.

Chesapeake countered that its $81.1 million all-cash offer was merely a letter of intent, not a binding contract, notwithstanding that Chief Executive Aubrey McClendon had previously urged a Texas oilman to “make the deal for us.”

It also said Plano, Texas-based Peak did not have rights to roughly two-thirds of the 5,405 acres in the transaction, court papers show.

U.S. District Judge John Ward in Marshall, Texas, ruled in favor of Peak, and the 5th Circuit upheld the award.

“So long as the agreement contains all essential terms, the need to formalize the transaction with closing documents is not fatal to its enforceability,” Circuit Judge Patrick Higginbotham wrote for a unanimous three-judge appeals court panel. “The July agreement was sufficiently definite to be enforced.”

Michael Kehs, a Chesapeake spokesman, said the Oklahoma City-based company does not discuss pending litigation.

The company has sometimes raised the defense that it never had a binding obligation to complete transactions in other, similar cases.

Chesapeake has over the years amassed some 15 million acres, roughly the size of West Virginia, for oil and gas drilling, in what the company has itself dubbed a “land grab” strategy.

But in recent months, Chesapeake has struggled with falling natural gas prices, as well as controversy over personal loans taken out by McClendon.

It announced plans on Wednesday to sell some gas fields and pipelines for $6.9 billion, to reduce debt and help address a funding shortfall that could impede growth.

The case is Coe et al v. Chesapeake Exploration LLC et al, 5th U.S. Circuit Court of Appeals, No. 11-41003.

Reporting by Jonathan Stempel in New York; additional reporting by Joshua Schneyer in New York; editing by Matthew Lewis

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