Notice of Violation to Chesapeake Energy from the Pennsylvania DEP

Notice of Violation

Certified Mail No. 7009 3410 0000 3618 7267

Chesapeake Energy Corporation

c/o Tal Oden, Regulatory Manager

P.O. Box 18496

Oklahoma City, OK 73154-0496

Re: Chesapeake Appalachia, LLC

Permit NO. 37-015-21237

Leroy Township, Bradford County

Dear Mr. Oden,

On April 20, 2011, the Department performed an inspection of your company's Atgas 2H well (Permit No. 37-015-21237), located in Leroy Township, Bradford County, following a call reporting a well control incident on April 20, 2011. According to Chesapeake, a flange, below the frac stack, failed resulting in loss of well control. The Department was notified at 1:10 AM. Boots and Coots well control services arrived on site at approximately 13:25. The well has not yet been fully brought under control, although the uncontrolled release of fluids and natural gas has ceased.

We understand that Chesapeake has ceased all hydraulic fracturing activities in the Commonwealth of Pennsylvania and that your company is taking steps to deconstruct and inspect wellhead hardware to assure that a repeat of the equipment failure in Bradford County will not recur. Our inspections at your active hydraulic fracturing sites conducted on Thursday April 22, 2011 confirm that Chesapeake has stopped all fraccing operations in Pennsylvania and that it is taking those other steps at the other sites to inspect and check wellhead hardware. The Department's inspectors will continue to inspect all aspects of the wellhead equipment at those sites. It is our expectation that Chesapeake will continue to be in a stand-down mode on hydraulic fracturing activities until it can diagnose the cause of the equipment failure at the Atgas 2H well, report those findings to the Department and provide assurances sufficient to the Department inspectors and technical staff that there will be no repeat of the Atgas 2H well site event at any Chesapeake site, and receive the Department's concurrence that it is appropriate to resume hyrdaulic fracturing activities.

The Department's investigation has, to date, revealed the following violations of the Clean Streams Law, 35 P.S. § 691.1 et seq.; the Solid Waste Management Act, 35 P.S. § 6018.101 et seq; the Oil and Gas Act, 58 P.S. § 601.101 et seq. and the rules and regulations promulgated under these statutes:

1. Pits and tanks for temporary containment.

The Department's investigation revealed that pollutional substances generated from activities associated with hydraulic fracturing were not contained. Specifically, an unknown quantity of frac fluid was released from a gas well on site. This is a violation of the Department's regulations, 25 PA Code § 78.56(a), which provides:

"Except as provided in 78.60(b) and 78.61(b) (relating to discharge requirements; and disposal of drill cuttings), the operator shall contain pollutional substances and wastes from the drilling, altering, completing, recompleting, servicing and plugging the well, including brines, drill cuttings, drilling muds, oils, stimulation fluids, well treatment and servicing fluids, plugging and drilling fluids other than gases in a pit, tank or series of pits and tanks."

2. Unpermitted discharge of polluting substances.

The Department's investigation of this event revealed a pollution to waters of the Commonwealth near the well site. Specifically, an unknown quantity of frac fluid was released from a gas well, that entered an unnamed tributary to Towanda Creek, a water of the Commonwealth. This is a violation of the Clean Streams Law. 35 P.S. § 691.401, which provides:

"It shall be unlawful for any person or municipality to put or place into any of the waters of the Commonwealth, or allow or permit to be discharged from property owned or occupied by such person into any waters of the Commonwealth, any substance of any kind or character resulting in pollution as herein defined."

3. Management of residual waste.

The Department's investigation revealed an unpermitted discharge of residual waste onto the ground at the site. Specifically, frac fluid was released onto the ground. This is a violation of the Solid Waste Management Act, 35 P.S. § 6018.301, which provides:

"No person or municipality shall store, transport, process, or dispose of residual waste within this Commonwealth unless such storage, or transportation, is consistent with or such processing or disposal is authorized by the rules and regulations of the department and no person or municipality shall own or operate a residual waste processing or disposal facility unless such person or municipality has first obtained a permit for such facility from the department."

A violation of the Solid Waste Management Act or the rules or regulations promulgated thereunder is contrary to Sections 601 and 610 of that Act, for which the Department could institute administrative, civil, and/or criminal proceedings. The Act provides for up to $25,000 per day in civil penalties, up to $1,000 in summary criminal penalties, and up to $25,000 in misdemeanor criminal penalties for each violation. Each day of continued violation constitutes a separate offense.

A violation of the Clean Streams Law or the rules or regulations promulgated thereunder is contrary to Sections 602 and 611 of that Act, for which the Department could institute administrative, civil, and/or criminal proceedings. The Act provides for up to $10,000 per day in civil penalties, up to $10,000 in summary criminal penalties, and up to $25,000 in misdemeanor criminal penalties for each violation. Each day of continued violation constitutes a separate offense.

A violation of the Oil and Gas Act or the rules or regulations promulgated thereunder is contrary to Sections 505 and 509 of that Act., for which the Department could institute administrative, civil, and/or criminal proceedings. The Act provides for up to $25,000 in civil penalties plus $1,000 for each day of continued violation, up to $300 in summary criminal penalties, and up to $5,000 in misdemeanor criminal penalties for each violation. Each day of continued violation constitutes a separate offense.

Please submit a written response to the Notice of Violation within 5 business days. Your response should include the following:

1. A complete list of materials used in the fraccing fluids utilized at the site

2. An evaluation of the materials released to the environment as part of the fraccing operations

3. A full description of actions taken by Chesapeake to prevent this discharge from reaching waters of the Commonwealth. Include an explanation of why it took Chesapeake nearly 12 hours to address the uncontrolled release of fluids off the well pad.

4. A description of immediate actions taken by Chesapeake to regain control of the well and secure the wellhead, as well as any measures taken to ensure public safety. This should include an explanation of why Chesapeake took 12 hours to have a well control service company at the site when there are other well control service companies located closer to the Atgas 2H Well.

5. A sampling plan that details future sampling locations and frequencies

6. A detailed analysis/explanation of the root cause or causes of the failure at the wellhead that resulted in loss of control of the well

7. An analysis of Chesapeake's completion activity and well control procedures existing on April 20, 2011

8. Corrective actions that Chesapeake proposes to implement at all Marcellus Shale gas wells to prevent similar failures in the future, and a proposed implementation schedule

9. Changes to Chesapeake's completion and well control procedures that Chesapeake proposes to implement at all Marcellus Shale gas wells, and a proposed implementation schedule

This notice of violation is neither an order nor any other final action of the Department of Environmental Protection. It neither imposes nor waives any enforcement action available to the Department under any of its statutes. If the Department determines that an enforcement action is appropriate, you will be notified of the action.

If you have any questions in this matter, please contact me at 570.321.6557.

Sincerely,

Jennifer W. Means

Environmental Program Manager

Oil and Gas Management

cc: John Ryder

Earl Fraley

Bruce Jankura

NCRO File (37-015-21237)