Marcellus driller fined record $1.1M

The Pennsylvania Department of Environmental Protection on Tuesday fined Chesapeake Energy Corp. $1.1 million for violations related to natural gas drilling activities, the largest penalty ever against a Marcellus Shale operator.

Under a consent order, Chesapeake will pay $900,000 for contaminating private water supplies in Bradford County. Under a second agreement, Chesapeake will pay $188,000 for a Feb. 23 tank fire at its drilling site in Avella, Washington County.

Chesapeake is the largest operator working in Pennsylvania's Marcellus Shale, a gas-rich formation that has triggered a bonanza of drilling activity in the last three years.

"The water well contamination fine is the largest single penalty DEP has ever assessed against an oil and gas operator, and the Avella tank fire penalty is the highest we could assess under the Oil and Gas Act," DEP Secretary Mike Krancer said in a statement. "Our message to drillers and to the public is clear."

The fines are nearly triple the $400,000 penalty that the DEP assessed last year against EOG Resources Inc. and a contractor, C.C. Forbes L.L.C., related to a blowout of a Clearfield County well.

According to consent agreement signed on Monday, the DEP investigated at least seven instances of methane migration that contaminated 16 residential water wells in Bradford County last year.

The DEP blamed improper cement casings of Chesapeake gas wells for allowed the natural gas to seep into drinking water supplies. The incidents occurred in Tuscarora, Terry, Monroe, Towanda and Wilmot Townships.

"It is important to me and to this administration that natural gas drillers are stewards of the environment, take very seriously their responsibilities to comply with our regulations, and that their actions do not risk public health and safety or the environment," Krancer said in the statement.

Chesapeake will pay $200,000 of the $900,000 fine into DEP's well-plugging fund. In addition, Chesapeake will establish an escrow account to cover the cost of water treatment equipment on select water wells in the vicinity of the drilling activity.

Chesapeake said it had worked with the DEP to resolve the issues, but said the blame for the gas migration issues was unresolved.

"Even though the results of our joint review remain inconclusive at this time, we believe proceeding with an agreement and taking prompt steps to enhance our casing and cementing practices and procedures was the right thing to do," said Chesapeake spokesman Brian Grove, senior director of corporate development for Chesapeake's Eastern Division.

The $188,000 Avella penalty was assessed after tanks on the Washington County well site caught fire on Feb. 23 and injured three subcontractors. The DEP said Chesapeake mishandled natural gas liquids known as condensate, which are separated into tanks on the well site.

The fines are unrelated to an April 19 accident that Chesapeake had on a Bradford County well site in Leroy Township.

Chesapeake suspended hydraulic fracturing operations after the incident last month, but resumed operations on Friday.

In a 700-page report delivered to state and federal regulators last month, Chesapeake said the environmental damage from the spill was limited. It said that 10,000 gallons of wastewater and rainwater escaped the well site, and that a smaller amount reached an unnamed tributary of Towanda Creek.

It blamed the accident on an "extremely rare" failure of a flange on the wellhead.