Chesapeake Energy Says It Is Facing Drilling-Contamination Probes

Source: Dow Jones News Service, March 2, 2011
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Chesapeake Energy Corp. (CHK) said some of its oil-and- gas-drilling operations in Pennsylvania and West Virginia are being investigated by environmental regulators.

In Pennsylvania, the state Department of Environmental Protection is looking into the possible contamination of groundwater and residential water wells with methane, Chesapeake said in documents filed with the U.S. Securities and Exchange Commission late Tuesday.

In West Virginia, the U.S. Environmental Protection Agency is probing Chesapeake’s compliance with Clean Water Act permitting requirements, the company said in its filing.

Chesapeake, the second-largest U.S. natural gas producer by output, said the investigations were initiated in the fourth quarter of 2010 and the first quarter of 2011 and that the company is cooperating with investigators. The company said in the filing that any fines or penalties imposed would likely exceed $100,000.

Representatives of Chesapeake, the Pennsylvania Department of Environmental Protection and the EPA didn’t immediately respond to requests for comment and more detailed information about the investigations.

The news come amid growing scrutiny over the environmental consequences of drilling for onshore oil and gas, as companies are massively deploying new techniques to crack open deeply buried shale formations and extract hydrocarbons trapped within. The increase in activity due to the new technology–known as hydraulic fracturing, or fracking–has extended beyond traditional oil and gas basins in Texas and Oklahoma into areas that are relatively unfamiliar with oil and gas production.

Environmentalists say the fracking technique risks contaminating aquifers and produces toxic waste that can find its way back into surface waters. The oil industry says that the process, which involves forcing water, chemicals and sand into the ground to break apart the rock formations and release fossil fuels, is safe.

Members of Congress, including some representatives from states rich in natural gas, have asked the EPA to look more closely at the practice. Most recently, they urged the agency to investigate the industry’s wastewater disposal practices.

“We can’t afford to take the ‘wait-and-see’ approach when it comes to radioactive, carcinogenic materials contaminating drinking water,” said U.S. Rep. Maurice Hinchey. The New York Democrat has asked the EPA to speed up its ongoing study on hydraulic fracturing study and begin monitoring radioactivity levels near drilling operations.

Shares of Chesapeake recently traded up 0.58%, or 20 cents, at $33.90.

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