The 5th Circuit affirmed a judgment today against Chesapeake Exploration for $19,951,004 in favor of Peak Energy Corporation, for breach of a contract to purchase oil and gas leases in the Haynesville Shale area of Harrison County, Texas. Coe v. Chesapeake Exploration, No. 11-41003. The Court’s summary of the case:
In July 2008 Chesapeake Exploration LLC entered into an agreement to purchase deep rights held by Peak Energy Corporation in certain oil and gas leases in the Haynesville Shale formation, for the hefty sum of $15,000 per acre. When the price of natural gas plummeted several months later, Chesapeake refused to honor its commitment. In response to the complaint filed by Peak it contended that the parties’ agreement was unenforceable under the Texas statute of frauds, fatally indefinite, and that the plaintiffs had failed to tender performance. The district court disagreed, rendering judgment in favor of Peak and its principals and awarding them damages in the amount of $19,951,004, prejudgment and post-judgment interest, and attorneys’ fees and costs. Finding no error, we affirm.
In 2008, gas prices were high and the boom was on in the Haynesville Shale. Chesapeake was buying all of the acreage it could find. Its brokers identified leases covering 5,405 acres in Harrison County, Texas owned by Peak Energy, and on July 2, Chesapeake sent Peak a letter offering to buy all rights in its leases below the base of the Cotton Valley formation for $15,000 per net acre, with Peak delivering a 75% net revenue interest and reserving an overriding royalty on any excess over 75%. A map generated by Chesapeake was attached to the letter agreement showing the tracts Chesapeake had identified in which Peak had leases. The letter said that it was a “valid and binding agreement,” and that the closing would occur on August 31. Peak signed and returned the letter.