The woes just keep piling up for Chesapeake Energy. The company is front and center in the nation’s natural gas fracking boom and it just got hit with one of the largest ever civil penalties for violating Section 404 of the Clean Water Act. The penalty was levied against its subsidiary, Chesapeake Appalachia LLC.
Wait, what? We thought the fracking industry was notoriously exempt from the Clean Water Act, thanks to a loophole engineered back in 2005 by former Vice President (and former Halliburton oil company executive) Dick Cheney.
So, how’d they do that?
Fracking And The Clean Water Act
Fracking is an unconventional gas and oil drilling method that involves pumping vast quantities of a chemical brine deep underground, to shake deposits loose from shale formations.
Though natural gas is billed as a clean alternative to coal and oil, fracking has been linked to a raft of local pollution issues, and emissions of methane (a powerful greenhouse gas) from drilling sites may be wiping out any advantage that natural gas has as a fuel.
The Clean Water loophole makes it almost impossible to gather direct evidence that traces fracking to a growing list of water contamination episodes, though the link between fracking waste disposal and earthquakes is becoming beyond dispute.
Under the Obama Administration, the EPA has been doggedly pursuing other avenues to bring fracking companies to account for environmental damage, and one of them is the Clean Water Act’s Section 404.
In announcing the action against Chesapeake last week, EPA described the alleged violations like this:
The federal government and the West Virginia Department of Environmental Protection (WVDEP) allege that the company impounded streams and discharged sand, dirt, rocks and other fill material into streams and wetlands without a federal permit in order to construct well pads, impoundments, road crossings and other facilities related to natural gas extraction.
See what they just did? Section 404 does not apply directly to fracking brine, which is exempt from federal disclosure regulations under the Clean Water Act. It covers general construction activity common across a wide range of industries.
Evidently Chesapeake Energy saw the writing on the wall. Some of the violations were discovered by its own internal audit and the company has been working with EPA since 2010 to comply with remediation orders.
The settlement includes an estimated payment of $6.5 million to restore 27 sites in West Virginia, 16 of which involved fracking operations. It also includes a civil penalty of $3.2 million, which EPA describes as “one of the largest ever levied by the federal government for violations of the Clean Water Act (CWA), under the Section 404 program.”
Fracking In The Headlines Again
For those of you keeping score at home, the EPA announcement follows a string of bad press for the fracking industry and Chesapeake.
Just this past August, Bloomberg News reported that oil and gas land deals have fallen off the cliff, indicating that the natural gas boom is turning into one whopper of a bust (it could turn around if the Obama Administration opens up the export market, but that’s a whole ‘nother can of worms).
As for Chesapeake Energy, this year the company settled with a group of homeowners in Greenbrier, Arkansas for damages from earthquakes, which were linked to fracking waste disposal by the US Geological Survey.
New York Attorney General Eric Schneiderman has been pursuing the Ponzi-like financial angle of the fracking boom, and in June 2012 he won a “landmark agreement” with Chesapeake Appalachia to renegotiate more than 4,400 leases in New York State.
Also last year, Bloomberg reported that Chesapeake Energy paid a tax rate of less than one percent on profits of $5.5 billion, legendary investor T. Boone Pickens dumped his Chesapeake stock, and an in-depth report in Rolling Stone compared Chesapeake’s land “flipping” practices to the ongoing mortgage crisis.
This is just a random sample so feel free to add your Chesapeake story to the comment thread.