The Pennsylvania Department of Environmental Protection (DEP) on Thursday immediately suspended its review of Cabot Oil & Gas Corp.'s pending drilling applications statewide and barred the producer from drilling new natural gas wells "for at least one year" in the Dimock Township area of Susquehanna County because of contaminated groundwater.

Regulators suspended their review of Cabot's drilling applications until the Houston-based producer fulfills its obligations under a sweeping consent order and agreement (CO&A), said DEP Secretary John Hanger. The action follows Cabot's failure to abide by the terms of a November 2009 CO&A (see NGI, Nov. 23, 2009).

"Cabot had every opportunity to correct these violations, but failed to do so," Hanger stated. "Instead, it chose to ignore its responsibility to safeguard the citizens of this community and to protect the natural resources there."

Under the CO&A, Cabot is required to plug three wells within 40 days that are believed to be the source of mitigating gas that has contaminated groundwater and drinking water supplies for 15 homes in the Dimock Township area. Cabot also is required to install permanent treatment systems in the affected homes within 30 days.

As part of the order, Cabot also paid a $240,000 fine to the commonwealth, which has been deposited into the state's well-plugging account. Cabot also is required to pay $30,000 per month beginning in May until DEP has determined that the company has met its obligations under the 2009 order.

"I have ordered that all of Cabot's permit applications for further drilling in any region of the state be put on hold, indefinitely, until the region's homeowners receive their new water treatment systems, the fines are paid, and the wells are plugged," said Hanger.

The DEP chief called "gas migration...a serious issue that can have dire consequences to affected communities, and we will not allow Pennsylvania's citizens to be put in harms' way by companies that chose not to follow the law."

During recent inspections, DEP said it identified five additional defective Cabot gas wells and another home water supply that has been affected by gas migration, bringing to 14 the number of impacted water supplies in the Dimock area.

DEP also plans to continue to investigate another 10 Cabot gas wells in the Dimock area over the next 85 days "that could be sources of migrating gas and determine whether Cabot should be ordered to plug some or all of those wells," said Hanger.

The original November 2009 CO&A directed Cabot to meet a March 31 deadline to fix defective cement and well casings on certain wells and to prevent the unpermitted natural gas discharge into groundwater that violated Pennsylvania's Clean Streams Law and the Oil and Gas Act. The company did not meet this deadline, while the migrating gas continues to impact water supplies at homes in a nine-square-mile area near Carter Road, said Hanger.

"Companies drilling in the Marcellus Shale have the legal responsibility to design and construct their wells to keep all gas contained within the wells and to prevent gas from moving into fresh groundwater," he said. "These standards are not mere suggestions or recommendations. Oil and gas companies doing business in Pennsylvania will follow the environmental rules and regulations put in place to protect citizens and our natural resources or face aggressive action by this department."

In response Cabot said it has hired Robert W. Watson, a recently retired petroleum engineering professor at Penn State University, to assist the company in performing its obligations under the CO&A. The company agreed to complete all of the compliance measures by November.

"This modified order does not impact the number of wells scheduled to be drilled under Cabot's 2010 drilling effort, nor will it impact our production guidance," said CEO Dan O. Dinges. "Specifically, we have no rigs drilling in the area presently, and of the eight wells scheduled in the affected area later in the year, these wells will be replaced with other wells."

Dinges said the company "may experience a slight delay for eight wells drilled that are waiting on completion in the area. However, with our better-than-expected results from the overall operation and 49 stages of fracs from six wells waiting to be turned in line, we see no need to adjust production guidance. We are currently producing approximately 110 MMcf/d with anticipated production increases when we start our first compressor at Lathrop [PA] in early May."

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