CHESAPEAKE FINED $1.09 MILLION IN PENNSYLVANIA - WALL STREET JOURNAL

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HOUSTON -- The Pennsylvania Department of Environmental Protection has fined Chesapeake Energy Corp. nearly $1.09 million for contaminating the drinking water of 16 families with natural gas, and, separately, for an explosion at a condensate storage tank.

The state agency said that throughout 2010 it investigated complaints of methane contamination in the drinking water of several residential water wells in northeastern Pennsylvania's Bradford County.

Investigators determined that "improper well casing and cementing in shallow zones" allowed gas from deep basins to seep into drinking water aquifers, the agency said Tuesday.

Chesapeake has agreed to pay the state $900,000 for the contamination, including $200,000 that will go to a state fund that pays for abandoned wells to be plugged. The Oklahoma City energy producer also has agreed to set aside an unspecified amount of money to cover the cost of water-treatment equipment at some water wells near its drilling activity.

Chesapeake also was fined $188,000 for a Feb. 23 fire at a liquid-natural-gas storage facility in Avella, in southwestern Pennsylvania. That blaze injured three workers.

"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," said Mike Krancer, who heads the state agency. "Our message to drillers and to the public is clear."

The vast Marcellus Shale, which lies beneath Pennsylvania and several neighboring states, has drawn a flurry of natural-gas drillers to the state in recent years. Though the rock formation was long believed to hold huge natural-gas reserves, it wasn't until recently that technological advances enabled producers to tap into it. With the drilling boom have come several incidents of groundwater contamination, surface chemical spills and fires, however.

Chesapeake, the second-largest U.S. natural gas producer, said Tuesday that while its review of the contamination cases remained "inconclusive," it believes "taking prompt steps to enhance our casing and cementing practices and procedures was the right thing to do."

Chesapeake said it has added additional layers of steel and cement to its well casings to better block gas from seeping into aquifers as it rises to the surface. The company said Tuesday that it will also expand water quality testing to all known water sources within 2,500 feet of proposed drilling sites.

The company said that it believes that pressure in shallow gas deposits changes as they are drilled through on the way to deeper basins, like the Marcellus, causing methane to push into aquifers.

On Friday, Chesapeake said it was resuming normal operations in Pennsylvania after voluntarily halting all well-completion work in the state in response to an April 19 blowout in Bradford County. In that incident, in which the company lost control of a well in Leroy Township, chemicals spilled into a nearby stream and nearby residents were forced to evacuate after a wellhead valve flange failed. It wasn't considered in Tuesday's fines, and remains under investigation.

By RYAN DEZEMBER

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