PERFORMANCE SHARE AGREEMENT

Exhibit 10.3

AGREEMENT dated as of December 23, 2005, and entered into, in duplicate, by and between Chesapeake Utilities Corporation, a Delaware corporation (the "Company"), and Stephen C. Thompson (the "Grantee") who resides [address of executive].

WITNESSETH that:

WHEREAS, the Chesapeake Utilities Corporation Performance Incentive Plan (the "Plan"), to be effective January 1, 2006, has been duly adopted by action of the Company's Board of Directors (the "Board") on February 24, 2005 and by its shareholders on May 5, 2005; and

WHEREAS, the Committee of the Board of Directors of the Company referred to in the Plan (the "Committee") has determined that it is in the best interests of the Company to grant the Performance Share Award described herein pursuant to the Plan; and

WHEREAS, the shares of the Common Stock of the Company (“Shares”) that are subject to this Agreement, when added to the other shares of Common Stock that are subject to awards granted under the Plan, do not exceed the total number of shares of Common Stock with respect to which awards are authorized to be granted under the Plan;

NOW, THEREFORE, it is hereby covenanted and agreed by and between the Company and the Grantee as follows:

Section 1.   Performance Share Award

The Company hereby grants to the Grantee a Performance Share Award for the year ending December 31, 2006 (the "Award Year") and the three years ending December 31, 2008 (the “Award Period”). As more fully described herein, the Grantee may earn a maximum total of 9,600 Shares (the "Contingent Performance Shares") upon the Company's achievement of the Performance Goals set forth in Section 2. Alternatively, the Grantee may elect to receive 2,400 Shares (the "Forfeitable Performance Shares"), as detailed in Section 3, in lieu of receiving any Contingent Performance Shares. The Forfeitable Performance Shares shall be subject to forfeiture conditions, as set forth in Section 3(c).

Section 2.   Contingent Performance Shares

(1)   The performance measured for Shareholder Value will be the value of $10,000 invested in the Company stock compared to a Utility Index. If the Company’s performance exceeds the Utility Index, the Grantee will be eligible for the Annual Award. If the value of $10,000 invested for each Award Year does not exceed the Utility Index for the respective Award Year, the Grantee shall not earn any Contingent Performance Shares under this Paragraph (b)(1).

(1)   The performance measured for EG will be based upon the Company’s regulated natural gas operations achieving at least 90% of the average allowed pre-tax return on investment (“target return on investment”). If the Company’s regulated operations achieve the target return on investment over the Award Period, the Grantee will be eligible for the Three-Year Award. If the target return on investment is not achieved in the Company’s regulated natural gas operations, the Grantee shall not earn any Contingent Performance Shares under this Paragraph (c)(1).

(2)   If the Grantee is eligible to receive the Three-Year Award, but has received Forfeitable Performance Shares for 2006 and/or 2007, the number of Contingent Performance Shares awarded at the end of the Award Period shall equal 6,720 less any Forfeitable Performance Shares received.

(d)   Contingent Performance Shares that are earned by the Grantee pursuant to this Section 2 shall be issued promptly, without payment of consideration by the Grantee, within 2 ½ months of the end of the Award Year. The Grantee shall have the right to vote the Contingent Performance Shares and to receive the dividends distributable with respect to such shares on and after, but not before, the date on which the Grantee is recorded on the Company's ledger as holder of record of the Contingent Performance Shares (the "Issue Date"). If, however, the Grantee receives Shares as part of any dividend or other distribution with respect to the Contingent Performance Shares, such Shares shall be treated as if they are Contingent Performance Shares, and such Shares shall be subject to all of the terms and conditions imposed by this Section 2.

(e)   Sale, transfer, pledge, or hypothecation of the Contingent Performance Shares shall be prohibited for a period of three (3) years after the Issue Date (the "Limitation Period"), and the Performance Shares shall bear a restrictive legend to that effect. Any attempt to dispose of Contingent Performance Shares in contravention of this Agreement shall be ineffective. Upon expiration of the Limitation Period, the transfer restrictions imposed by this Section shall expire, and new certificates representing the Contingent Performance Shares, without the restrictive legend described in this paragraph (d), shall be issued, subject to the provisions of paragraph (e) of this Section 2.

(f)   The Performance Shares will be not registered for resale under the Securities Act of 1933 or the laws of any state except when and to the extent determined by the Board pursuant to a resolution. Until a registration statement is filed and becomes effective, however, transfer of the Contingent Performance Shares after expiration of the Limitation Period shall require the availability of an exemption from such registration, and prior to the issuance of new certificates, the Company shall be entitled to take such measures as it deems appropriate (including but not limited to obtaining from the Grantee an investment representation letter and/or further legending the new certificates) to ensure that the Contingent Performance Shares are not transferred in the absence of such exemption.

(g)   In the event of a Change in Control, as defined in the Plan, during the Award Period, the Grantee shall earn at least the Maximum Award of Contingent Performance Shares set forth in this Section 2, as if all employment and performance criteria were satisfied, without any pro ration based on the proportion of the Award Period that has expired as of the date of such Change in Control.

(h)   If, during the Award Period, the Grantee is separated from employment, Contingent Performance Shares shall be deemed earned or forfeited as follows:

(1)   Upon voluntary termination by the Grantee (other than for retirement at age 65 or as accepted by the Committee) or termination by the Company for failure of job performance or other just cause as determined by the Committee, all unearned Contingent Performance Shares shall be forfeited immediately;

(2)   If the Grantee separates from employment by reason of death or total and permanent disability (as determined by the Committee), the number of Contingent Performance Shares that would otherwise have been earned at the end of the Award Period shall be reduced by pro rating such Con