Chesapeake Energy Pays $75,000 Fine, Fails to Comply with OCC Rules

Chesapeake Energy Pays $75,000 Fine, Fails to Comply with OCC Rules

Chesapeake Energy Corporation (NYSE:CHK), the second largest natural gas producer in the United States, paid a $75,000 fine in connection with the blowout of its 1H Davis Well, located at Sweetwater in Roger Mills County, Oklahoma.

Based on the report ,filed by Engineer Thomas Lains of the Oklahoma Corporation Commission (OCC), the blowout happened around last January 5, 2012 around 6:00 PM, after encountering high-pressured gas at 925 feet. The report indicated the Chesapeake immediately notified the OCC regarding the incident. The blowout was controlled on January 11, 2012.

In his report, Engineer Lains cited the blowout was caused by a failure in the production casing in one of the company’s 2-30 Davis wells. According to the report, Chesapeake Energy Corporation (NYSE:CHK) already noticed production problems at the 2-30 Davis well during the middle of 2011; the company failed to report the failure to the OCC, and no immediate action was taken to repair it.

In addition, Lains also found there was no blowout preventer, or other well control equipment installed to the 1H Davis well when drilling out of the surface casing and into the shallow gas charged zone, at approximate 925 feet. According to Lains, Chesapeake violated the OCC Compliance Rule 165:10-3-5 subsection (i).

Furthermore, Lains also cited that the company failed to comply with OCC Rules 165:10-3-3 (b) and 165:10-3-4 (i). He emphasized that the blowout could have been prevented if Chesapeake Energy Corporation (NYSE:CHK) followed these rules.

According to the report, Chesapeake has been cooperative with the investigation conducted by the OCC, and adopted new internal policy of checking data for wells. The report reads, “Chesapeake completed a thorough internal investigation to determine the cause of the incident and was proactive in sharing its findings with the OCC. Chesapeake has completed a new internal policy of checking data from wells, offsetting any proposed new well in this area for indications of potential similar problems.”

The OCC also stated they decided not approve any request for alternative surface casing plans in the general area of the 1H Davis well from Chesapeake, or any other operator to prevent the possibility of another blowout.