UPDATE 2-Massey settles EPA water lawsuit for $20 million

(Adds details from EPA statement)

NEW YORK, Jan 17 (Reuters) - Massey Energy Co (MEE.N: Quote, Profile, Research) said on Thursday that it would pay $20 million to settle a lawsuit with the U.S. Environmental Protection Agency over claims that it violated the Clean Water Act at its coal mines.

Massey said it would take a $15 million charge in the fourth quarter to cover the costs of the settlement, which is higher than it had estimated. The company had previously created a $5 million reserve to cover costs related to the issue.

According to the EPA lawsuit filed by in federal court in West Virginia in May, the company discharged pollutants in excess of its permit limits about 4,100 times from January 2000 through March 2006. Massey disputed those claims.

The EPA said that in addition to the penalty, Massey will invest about $10 million to develop and implement a set of procedures to prevent future violations.

It said Massey had agreed to take measures at all of its facilities that will prevent about 380 million pounds of sediment and other pollutants from entering U.S. waters each year.

Massey said the settlement was higher than its initial estimate, but also noted that it was much lower than some other published views. Some analyst and media reports in May had speculated that fines could climb to nearly $2 billion or higher.

In addition to the settlement, the company agreed to perform 20 water quality improvement projects on the Little Coal River in West Virginia and to set aside 200 acres of riverfront property for conservation.

Massey Energy shares were down 61 cents, or 1.9 percent, at $31.71 in early New York Stock Exchange trade. (Reporting by Matt Daily and Michael Erman, editing by Dave Zimmerman and Lisa Von Ahn)