Pa. DEP issues $1M in fines to major gas driller

http://www.businessweek.com/ap/financialnews/D9N9D7T01.htm
By MARC LEVY
HARRISBURG, Pa.

One of the most active companies in Pennsylvania’s natural gas drilling boom was fined more than $1 million on Tuesday, including a penalty that state officials called the single largest fine for an oil or gas operator in the state.

The state Department of Environmental Protection said the action stems from Chesapeake Energy Corp.’s contamination of private water supplies with methane in northern Pennsylvania’s Bradford County and a February tank fire at a drilling site in southwestern Pennsylvania’s Washington County.

“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,” DEP Secretary Michael Krancer said in a statement.

Oklahoma City-based Chesapeake said it had voluntarily entered into two separate agreements with the DEP and improved its well construction practices, although it did not assume blame for methane gas migrating into wells.

“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,” Chesapeake official Brian Grove said in a statement.

Chesapeake will pay $900,000 in the gas migration case and $188,000 for the tank fire.

The fines come as the U.S. Environmental Protection Agency is looking closely at how Pennsylvania is regulating the rush to explore the lucrative Marcellus Shale formation, considered the nation’s largest  natural gas reservoir, and putting pressure on state regulators to toughen enforcement. For instance, the EPA has asked for a full accounting of operations at the site of a Chesapeake well blowout in April.

Any potential violations from that well blowout, also in Bradford County, are not included in the fines announced Tuesday. The accident spilled thousands of gallons of chemical-laced water and prompted officials to ask seven families to temporarily evacuate.

The Chesapeake action might be the largest fine, but it is not the biggest Marcellus Shale-related payout: In December, the agency announced a settlement with Houston-based Cabot Oil & Gas Corp. to pay $4.1 million to residents in the northern Pennsylvania town of Dimock where private water wells were also contaminated with methane gas. Cabot agreed to pay the state $500,000 in the case.

The Marcellus Shale formation lies primarily beneath Pennsylvania, New York, West Virginia and Ohio. Pennsylvania, however, is the center of activity, with more than 3,000 wells drilled in the past three years and many thousands more planned in the coming years as thick shale emerges as an affordable, plentiful and profitable source of natural gas.

Drillers’ use of chemicals and high-volume hydraulic fracturing, which produces millions of barrels of often-toxic briny wastewater annually, has raised fears of river and groundwater pollution.

Chesapeake is perhaps the most active company in the Marcellus Shale, with more than 360 wells drilled. It has received more than 1,200 well-drilling permits — the most of any operator — or about one in six issued on the Marcellus Shale in the last three years, according to state records. In 2010, it was also one of Pennsylvania’s most-penalized Marcellus Shale drillers, with 134 violations and 25 enforcements, state records say.

In the Bradford County problems that contributed to the million-dollar fines, the department said that improper well casing and cementing allowed natural gas to seep into groundwater and contaminate 16 families’ drinking water wells. The department began investigating the complaints last year. In November, it won approval of stronger well-casing and cementing rules that a top DEP official has said would have prevented the gas migration.

The agreement requires Chesapeake to create a corrective action plan for the contaminated wells and clean up the contaminated water supplies.

In Avella in southwestern Pennsylvania, three condensate separator tanks caught fire on Feb. 23, injuring three subcontractors working at the site, the DEP said. The agency blamed improper handling  and management of condensate, a wet gas, and is requiring Chesapeake to submit condensate-management plans.

Chesapeake also is facing lawsuits over the tank fire and gas migration.

Peter Cambs, a lawyer who represents several plaintiffs in Bradford County who have sued Chesapeake over methane contamination, said the fine is the latest indication that gas drilling can be hazardous.

“I think it clearly shows there are problems and I don’t think the DEP would just willy-nilly assess a fine of that magnitude based on a whim or speculation,” Cambs said. “They wouldn’t have done so without careful investigation or analysis. I think you’re going to see more and more of these findings.”