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The Associated Press May 17, 2011, 2:51PM ET

Pennsylvania fines Chesapeake Energy $1.1 million

Pennsylvania has fined Chesapeake Energy Corp. $1.1 million for contaminating well water and causing a tank fire during natural gas drilling operations.

The state environmental protection department said Tuesday that the well contamination fine was the largest it ever imposed against companies drilling in the Marcellus shale, energy-rich formations under the Appalachians.

Chesapeake agreed under a court-monitored consent order to pay $900,000 for contaminating water supplies and $188,000 related to a Feb. 23 tank fire at a drilling site.

The state agency said that throughout 2010 it investigated complaints of private water well contamination from residents of Bradford County in northeastern Pennsylvania. The agency said it determined that improper casing and cementing of wells allowed natural gas to seep into groundwater, contaminating the water supply of 16 families.

Chesapeake, based in Oklahoma City, agreed to fix the wells, take steps to prevent seepage and report complaints about water supplies, the agency said. It said $200,000 of the fine will go to a well-plugging fund.

The agency said the fire occurred during testing at a well in Washington County, near Pittsburgh. It blamed improper handling of a liquid form of natural gas called condensate. Under the agreement, Chesapeake must give the state agency a plan for any well that could produce condensate.

The environmental department secretary, Mike Krancer, said the well-contamination fine was the biggest penalty the agency had ever levied against an oil and gas operator, and the fire-related penalty was the biggest it could impose under state law.

Last month, a blowout at a Chesapeake gas well in rural northern Pennsylvania spilled thousands of gallons of chemical-laced water, contaminating a stream and leading to the evacuation of nearby families. Chesapeake said a piece of equipment failed while it was "fracking" or injecting a brew of water and chemicals at high pressure to break up rock formations and extract gas.

Chesapeake shares fell 42 cents to $29.20 in afternoon trading.

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