State of Alaska Department of Natural Resources Division of Mining, Land and Water Northern Regional Office. Preliminary Finding and Decision

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1 Proposed Action State of Alaska Department of Natural Resources Division of Mining, Land and Water Northern Regional Office Preliminary Finding and Decision ADL Designated Material Site Milne Point Mine Site Expansion Hilcorp Alaska, LLC (Hilcorp), has applied to the Department of Natural Resources (DNR), Division of Mining, Land and Water (DMLW), Northern Region Office (NRO) to expand the Milne Point Mine Site (ADL ) to the north, adding acres to the mine site s current 82 acres, more or less. Hilcorp applied for the mine site expansion to support the Moose Pad Development and additional pad expansions within the Milne Point Unit. DNR proposes to approve the expansion and designate the expansion area as a material site which will allow for subsequent issuance of material sale contracts under AS This document serves as a preliminary State's best interest finding regarding the designation of the material site with expanded boundaries. Scope of Review and Proposed Finding The scope of this Preliminary Finding and Decision (PF) is to determine whether or not it is appropriate to designate the expanded area as a material site and what, if any, additional operating requirement should be implemented specific to the expanded site. The scope is based on the statutes, regulations and other facts contained in case files ADL and the body of this decision. Authority The file is being adjudicated pursuant Alaska Statutes AS (e) (written decision for a best interest finding), AS (disposal of materials), AS (notice), AS (reclamation), Alaska Administrative Code 11 AAC 71 (timber and material sale procedures), and 11 AAC 97 (mining reclamation). The Director, DMLW, is authorized by AS (a)(6) to act on behalf of the State in this matter. The Director has subsequently delegated his authority under AS (b)(1) and Department Order 3 to the Regional Manager, NRO. Administrative Record The administrative record for this case is comprised of designated material site file ADL Hilcorps current material sale file, ADL , that expires on June 6, Location and Legal Description Location: approximately 2 miles east of Milne Point Road, 2 miles southeast of B-Pad and 2 miles south of Simpson Lagoon within the Milne Point Unit, USGS Topographic Map 1:63,360, Beechey Point (B-4), as shown on Attachment A.

2 Legal Description: That portion within the S1/2 Section 20, Township 13 North, Range 11 East, Umiat Meridian, currently containing approximately acres, more or less. Borough/Municipality: The site is located within the North Slope Borough. No borough lands are impacted. Regional/Village Corp: Arctic Slope Regional Corporation (ASRC) is the regional corporation. No corporation lands are impacted. Adjacent Landowner: The material site is surrounded by state land. Title The State obtained patent # under GS 1306 on January 29, Standard title reservations apply. Third Party Interests No encumbrances or third party interests exist for the authorization area that would prevent the issuance of this authorization. Besides Hilcorp has a material sale contract (ADL ), BP has a material sale contract, ADL , that expires on August 24, Existing oil and gas leases issued to Hilcorp (ADL and ADL 47438) encumber the subsurface. This site is an active, existing material site used by many operators. BP was previously the primary operator at this site. On November 18, 2014, the Milne Point Unit, including this material site, was transferred from BP to Hilcorp. Hilcorp is now the primary operator of the Milne Point Mine Site. Planning and Classification The site is not covered under an area plan. The land is classified Resource Management, under CL 618. Material sales are allowed under this classification. This site is located within the North Slope Area Special Use Lands (ADL 50666). Traditional Use Finding The subject material site and area of expansion are all located within the North Slope Borough. A traditional use finding is not formally required for sites located within a borough. Waterbodies The site is bordered by East Creek, which is to the east of the existing boundary. Access Legal access is via the existing North Slope Road system, established under oil and gas lease operation permits held by Hicorp and other leaseholders. Access to the oilfield area is regulated by a checkpoint in Deadhorse. Page 2 of 10

3 Environmental Risk Hilcorp submitted an Environmental Risk Questionnaire with its application. There are no known environmental contaminants within the proposed material site. Other than fuels, coolant, lubricants and hydraulic fluids normally contained in a piece of equipment for its basic operation, the applicant will not generate, use, store, transport, dispose of or otherwise come in contact with any materials considered toxic or hazardous. Compliance with standard material sale contract operating requirements regarding environmental operations and procedures will minimize environmental risks. Survey and Appraisal A survey for this material site is not required as the site is surrounded entirely by state land and surveying the boundaries would not provide any benefit to material site management, though the State reserves the right to require a survey in the future if needed. The price for this sale will be $3.00/cy, which is DNR s representative sales price, established per 11 AAC (c). Deposit and Performance Guaranty Deposits and Performance bonds are not required for the proposed action. Hilcorp has provided a deposit and has a performance bond on file that is associated with their current material sale contract, ADL Agency Comments and Public Notice The DMLW conducted an agency review from November 10 through November 28, The following agencies were solicited for comments regarding this proposed material sale: DNR, DMLW Water Section, DNR Division of Oil and Gas (DOG), DNR Office of Project Management and Permitting, DNR State Historic Preservation Office, DNR State Pipeline Coordinator s Section (SPCS), Alaska Department of Fish and Game (ADF&G), Alaska Department of Environmental Conservation (ADEC), US Army Corp of Engineers (USACE), and US Fish and Wildlife Service (USFWS). The North Slope Borough was also provided notice, though they will receive additional notice under AS Additionally, the DNR, Division of Geological & Geophysical Surveys reviewed the Mining and Reclamation Plan. The following comments were received: DOG No Objection. The mine site falls within Hilcorps Milne Point Unit and within oil and gas leases (ADLS and 28231) administered by DOG. Page 3 of 10

4 ADF&G ADF&G provided comments to address concerns regarding slope stability along the littoral zones, as well as concerns about placement of the overburden stockpile which maintains the separation of the northeast corner of the site with East Creek. ADF&G notes that the placement of the littoral zones along the northeast and eastern sides of the site rather than on the western side should provide additional site stability, particularly if shallower side slopes (3H:1V) are implemented. These comments echo the ADF&G comments provided in 2008 when BP Exploration (Alaska) Inc. (BPXA) proposed to expand the mine site. (BPXA later withdrew the application to expand the mine site.) The 2008 ADF&G comments identified concern about saline intrusion from the East River to the mine site after the mine site is rehabilitated and filled with water, stating that would likely lead to a lake with very limited benefits or even adverse impacts to freshwater and possibly marine fish during winter if saline water enters the site. Hilcorp response Hilcorp s concerns with ADF&G s comments is that adhering to them would greatly reduce the amount of material that would be accessible and make the project uneconomical. Hilcorp contends that hanging the littoral zone to the east side isn't practical from a mining perspective. Leaving the littoral zone on the east side of the mine site would require stockpiling all 200,000+ cyds of overburden and then moving it back into the pit when done. By the time a 3:1 slope was created, a minimal mining "zone" would be available. The other option would be to leave the gravel in place underneath that area, which would greatly reduce the amount of recoverable material. The pit expansion is already marginal from a stripping ratio perspective, and narrowing the pit due to 3H:1V slopes may make material extraction in an already marginal site no longer economical. Furthermore, the area between East Creek and the pit that has about 10 of elevation difference between the normal creek level (about 2') and the edge of the pit (about 12'), which appears empirically sufficient to separate flooding from the creek into the mine site during routine flooding events. ADF&G response ADF&G recognizes that Hilcorp has proposed mining the Milne Mine Site North Pit Expansion with 1.5:1 slopes to maximize gravel extraction within the 22-acre site footprint. Additional information provided by Hilcorp indicated existing site elevations would not require additional overburden be placed along the southeastern segment of the site expansion to protect the site from flooding by East Creek. The original intent for expansion of this material site was to have more littoral zone created with this northern cell than is currently present in the original site. Approximately 15% of the site expansion is proposed as littoral zone. ADF&G s recommendation for littoral zones for flooded mine sites would be on the order of 20 to 25%. Since, as indicated in the reclamations plan, the majority of the overburden will be stored in the existing mine cell, ADF&G requests that some of that material can be placed to enhance or expand the proposed littoral zones within the original cell rather than spreading it across the bottom of the site; therefore, it could serve to expand the total area of littoral habitat for the entire site. ADF&G also notes that future expansions or final site closure should consider expanding the area of littoral habitat if the desire at that time is to provide a site that has greater potential for use by wildlife, primarily waterbirds. At final site closure, a design should be in place to connect the site at its northernmost point to the creek in the event the creek breaches the site further upstream. A flow-through site would have the potential to minimize saltwater lens formation within the deep site that would likely be detrimental to the creation of viable fish habitat. Page 4 of 10

5 Having provided the comments above, ADF&G had no objection to ADNR authorizing the expansion of the Milne Point Mine Site as requested by Hilcorp. DMLW response DMLW supports the recommendations by ADF&G to move the overburden into the original cell to provide additional littoral zone and to create a northern connection between the pit at the East river to allow for drainage potential influxes of saline waters. DMLW will continue to work with Hilcorp to incorporate these two items into the final Mining and Reclamation Plan for the mine site prior to any mining in the new area. USFWS No objection. No additional comments were received. Public Notice Pursuant to AS (b)(3), public notice describing this proposed action will be posted on the Alaska Online Public Notice System for 30 days. Notice will be sent to the Barrow, Nuiqsut, and Prudhoe Bay postmasters for posting. Pursuant to AS (c)(1), the North Slope Borough will be given notice for 30 days. Per , Hearings, the North Slope Borough will also be notified that they may hold a hearing within 30 days after receipt of the notice. Notice will also be sent to BP. The public is invited to comment on this proposed action. Comments should be submitted to DNR, DMLW, Northern Region Office (NRO), at 3700 Airport Way, Fairbanks, Alaska Kimberley Maher can be contacted for further information at or at kimberley.maher@alaska.gov. Additional copies of the decision and copies of the standard material sale contract may be obtained from the NRO. Interested parties have the right to comment during the public notice period and the commenters who are aggrieved by the final finding and decision will have the right to appeal it. It should be noted that in order to be able to appeal the final finding and decision, a person must provide written comments during this comment period. A copy of the final decision will be sent to any person who comments during the comment period, and will include an explanation of the appeal process. The State is prepared to accommodate individuals with disabilities by providing auxiliary aids, services, or special modifications in order to participate in this review. Individuals who may need such assistance should contact the Department s Public Information Center in Anchorage between the hours of 10:00 am and 5:00 pm, Monday through Friday, at by telephone or by TDD at Reclamation Plan The oldest mining and reclamation plan on file for Milne Point Mine Site is dated In 2013, an updated mining and reclamation plan was approved. Both plans were submitted by BPXA. DNR will continue to work with Hilcorp to develop a mining and reclamation plan for the expanded site that incorporates the two comments provided by ADF&G, specifically moving the overburden into the original cell to provide additional littoral zone and to creating a northern connection between the pit at the East river. No mining in the new area will take place until a mining and reclamation plan is approved. Page 5 of 10

6 Discussion USACE initially permitted Milne Point Mine Site in 1982, and a number of material sale contracts have been issued that provide for the sale of material from the Milne Point Mine Site, though many of the contracts included multiple mine sites. Early material sale contracts were issued to Conoco, Inc. and BPXA. The site has been extensively used in the past, and the proposed expansion would allow for continued use of the mine site for upcoming projects within the Milne Point Unit, including the new Moose Pad Development and additional pad expansions for drilling new wells. In 2008, BPXA applied for a permit to expand the footprint of the mine, which was withdrawn by BPXA in December Hilcorp assumed ownership and operations of Milne Point Unit on November 18, Hilcorp proposes an expansion to the permitted area of acres. Approximately acres of the new pit expansion will be mined to obtain additional gravel material. Approximately 2.5 acres will be used for overburden storage with a 3.4-acre buffer around the overburden storage area. Approximately 1.32 acres is for the Haul Road along the western side of the new north pit expansion. The state goal of the Milne Point Mining and Rehabilitation Plan submitted is to establish productive, diverse, and self-sustaining plant communities on terrestrial areas upon final mine site abandonment. The area to be mined is 1,170 feet long and between 490 feet to 830 feet wide. It is located directly north of the previous mine excavations in the area identified as a future potential mine boundary expansion in the December 1995 Milne Point Gravel Mine Site Mining and Rehabilitation Plan. The existing mine site has been segregated from East Creek by a 20-foot-high flood dike along the eastern boundary to avoid a potential breach between the mine and the creek during periods of high flow. The buffer along the eastern perimeter of the material site will be maintained. Hilcorp has requested expansion of the site to support its Moose Pad Development project in addition to additional planned pad expansions within the Milne Point Unit to enable drilling of new wells. By expanding the existing material site, material extraction activities will be consolidated to an already impacted area. The proposed slopes described within the mining and reclamation plan (1:1.5) are steeper than what is typically prescribed for side slopes within material sites, though it will allow for more available gravel from a smaller foot print. Additionally, this site does not pose a safety hazard to the general public since it (1) access to the area is regulated by a checkpoint in Deadhorse which limits access to the general public and (2) is will be filled water post-mining activity. Additionally, it is in an area that is not limited by wildlife habitat at this time. If, in the future, additional wildlife habitat is desired in the area, future expansions or final site closure should consider expanding the area of littoral habitat, as recommended by ADF&G. The final site closure design should include a connection between East Creek and the pit at its northernmost point to the creek to allow for saline water to drain in the event the creek breaches the site further upstream. Page 6 of 10

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8 Attachment A Page 8 of 10

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State of Alaska Department of Natural Resources Division of Mining, Land and Water Northern Regional Office. Preliminary Finding and Decision

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