Alberta Energy Regulator Suite 1000, Street SW Calgary, Alberta T2P 0R4 Attention: Steve Thomas, P.Eng., Section Leader In-Situ Oil Sands

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1 East Tower, 5 th Ave Place Suite 800, st Street S.W. Calgary, Alberta T2P 3L8 Tel: Fax: August 7, 2013 Alberta Energy Regulator Suite 1000, Street SW Calgary, Alberta T2P 0R4 Attention: Steve Thomas, P.Eng., Section Leader In-Situ Oil Sands Mr. Thomas, Re: Saleski Pilot - Application to Amend AER Approval No Laricina Energy Ltd. (Laricina) hereby applies to the Alberta Energy Regulator (AER) to amend the current Saleski Pilot Approval No to add a horizontal injector well in the upper Grosmont C Formation within the approved development area. This amendment does not adversely and materially affect resource conservation, stakeholders including other mineral rights holders or the environmental, socioeconomic impacts predicted and assessed in previous amendment applications. Correspondence respecting this application should be directed to: Salima Loh Regulatory Specialist Laricina Energy Ltd. East Tower, 5 th Ave Place Suite 800, st Street SW Calgary, Alberta T2P 3L8 Phone: (403) Fax: (403) sloh@laricinaenergy.com Sincerely, Laricina Energy Ltd. Salima Loh Regulatory Specialist cc: Deepa Thomas, Director, Regulatory and Environmental Performance Jim Hand, Senior VP and COO, Laricina Energy Ltd. Bruce Thornton, Development & Regulatory Manager, OSUM Oil Sands Corp.

2 Application for at the Saleski SC-SAGD Pilot Submitted to the Alberta Energy Regulator August 2013

3 1. INTRODUCTION Laricina Energy Ltd. (Laricina) as the operator herby applies on behalf of Laricina and OSUM Oil Sands Corp. (OSUM) to amend the Saleski Steam-Assisted Gravity Drainage (SAGD) Pilot (Pilot), Alberta Energy Regulator (AER) Approval No by adding a horizontal injector well in the upper Grosmont C Formation. The Pilot site is situated within the Municipal District of Opportunity and is located approximately 80 km north-east of the community of Wabasca-Desmarais and targets the Grosmont carbonate reservoir. The Pilot was granted initial approval from the AER (Approval No ) in June The Proponents Under a joint venture partnership, Laricina and OSUM are advancing the Pilot. Laricina will act as operator for the joint venture partnership and is responsible for seeking regulatory approvals for development of the Pilot Laricina Energy Ltd. Laricina is a privately-held, Calgary based, oil sands company focused on exploration and enhanced recovery of in situ oil sands resources in the Athabasca Oil Sands deposit of Alberta. Laricina has an experienced management team with a proven track record in oil sands development. Collectively, Laricina engineers and geologists have direct experience on multiple oil sands projects through various stages of development. Company contact for this application is: Salima Loh Regulatory Specialist Laricina Energy Ltd. East Tower, 5 th Ave Place Suite 800, st Street SW Calgary, Alberta T2P 3L8 Phone: (403) Fax: (403) sloh@laricinaenergy.com OSUM Oil Sands Corporation OSUM is a privately-held, Alberta based, company focused on acquiring significant land positions within top-tier reservoirs located close to infrastructure. OSUM s management team and board of directors are comprised of veterans in the oil business having experience in developing in situ oil sands reserves, creating strategic alliances and leading technical innovation. OSUM and Laricina are committed to being a leader in the production of bitumen from the carbonates in Alberta. Page 1 of 11

4 1.2 Purpose The content of this document has been prepared to provide the AER with the information required to evaluate the proposed T1C well in the Grosmont C Formation at the Pilot. 1.3 Amendment Proposed In 2008 and 2010, Laricina drilled and completed three horizontal well-pairs at the Pilot, P1D/I1D, P2D/I2D and P1C/I1C. A fourth well- pair, P2C/I2C was drilled during February and March On March 1, 2012, Laricina applied to the AER with application No to recomplete up to three injection wells to facilitate production tests. On March 26, 2012 Laricina received approval to conduct only one production test at each of the following injection wells for up to a 6 week period: I1C UWI 100/ W4M I1D UWI 104/ W4M I2C UWI 107/ W4M On June 29, 2012, Laricina applied to the AER with application No for flexibility to continuously inject and produce from all of the Pilot horizontal wells for the life of the approval. On July 27, 2012, Laricina received approval from AER to have the flexibility to inject and produce all horizontal wells at the Pilot. With this application Laricina hereby requests the approval to drill and operate a horizontal well in the upper Grosmont C Formation (T1C). The T1C and P1C wells will be operated below the fracture pressure and similar to a typical SAGD well-pair. The placement of the proposed T1C well will be approximately 30 m to the west of current 1C/1D well-pairs (Figure 1). Laricina intends to sidetrack from the I1D intermediate section and the targeted well depth is 3 m below the C/D marl. Page 2 of 11

5 Figure 1 Planar and Cross Sectional View of the Proposed T1C Well at the Pilot 1.4 Background and Implication to the Saleski Pilot In the Grosmont reservoir, initially the injected steam travels preferentially through the high permeability fractures and conductively heats the matrix during the cyclic process. The main recovery mechanisms are thermal expansion and gravity drainage in both the fracture and matrix systems, but the main contributor of oil production is from the fractures (Figure 2). In the later stages of cyclic operation, increasing volumes of steam are required in each subsequent cycle to re-heat the cooling reservoir rock from the previous production cycle. Laricina postulates the implementation of a continuous steam injection well placed above the producer will maintain the later life Steam-to-Oil Ratio (SOR) and maximize ultimate bitumen recovery. More details on this process are presented in Section Justification. Page 3 of 11

6 Figure 2 Recovery Process for the Grosmont Carbonate Reservoir I1D, which is currently idle, will be used to drill T1C. Since there are no plans to re-activate I1D as an injector, the use of this wellbore will not negatively impact the long term recovery of the resource from the Grosmont D at the Pilot. The T1C well will be used to test the concept of continuous injection at the top of the zone to support production from P1C. P1D is currently being operated cyclically to progress recovery of the Grosmont D zone. It will also be used to further understand the effect of temperature and pressure communication as a result of T1C operation. Recent observations at the Pilot indicated there is localized steam communication at the toe of P1C and P1D. P1D will be closely monitored during the operations of T1C as this injector will provide additional data to understand the competency of the C/D marl. Laricina intends to continue cyclic operations in I2D to understand and progress the recovery strategy for the Grosmont D zone. Testing with the T1C well is not expected to directly impact the cyclic operations at the I2D well. Cyclic operations of P2C will remain uninterrupted to better understand the later stages of cyclic operations. Laricina will continue to use P2C to provide insight into the timing of top injection implementation for future phases of Saleski development. 1.5 Current Pilot Operation As shown in Figure 3, there are four wells currently under cyclic operations (P1D, P1C, I2D and P2C illustrated in green) and four wells that are idle (I1D, I1C, P2D and I2C illustrated in yellow) at the Pilot. The proposed T1C will be sidetracked from the intermediate section of the existing idle I1D Page 4 of 11

7 downwards into the upper Grosmont C Formation (Figure 4). T1C will be steamed continuously while P1C is being produced. Figure 3 Current Pilot Operation Status Figure 4 Proposed T1C Well Re-entry Page 5 of 11

8 1.6 Justification The objectives of T1C at the Pilot are: Test continuous steam injection as a post cyclic operation strategy to improve overall recovery factor (RF) Test lateral fracture connectivity throughout the Grosmont C Formation and across the C/D marl Optimize open hole horizontal drilling techniques for future phases of Saleski development Continuous steam injection in T1C will maintain steam in the fractures while continuing to drain matrix oil through gravity. There are three main factors that contribute to oil drainage by gravity: 1. Maintaining a fluid density difference (i.e. steam to bitumen) 2. Viscosity (temperature dependent) 3. Vertical permeability With continuous steam injection, steam remains in a gas phase, as opposed to condensing in later production cycles under cyclic operations, causing a drastic density difference between the steam and the bitumen leading to gravity drainage (Figure 5). Operating under constant temperature with continuous steam injection will also assist in lowering the bitumen viscosity. Laricina s internal analysis and various external studies show that fractures within the Grosmont reservoir are very well connected. The exceptional vertical permeability will ensure the steam column stays within the fractures while draining the matrix oil. Favourable results from T1C will support the concept of using a top injector with continuous steam injection to optimize the overall recovery in the later life of cyclic operations based on gravity drainage. It is important to note that the fracture system is prevalent in the Grosmont Formation, but does not extend into the overburden formations. Steam is injected below fracture pressure and is contained by a thick, competent caprock. Page 6 of 11

9 Figure 5 Gravity Drainage Mechanism by Continuous Steam Injection in Grosmont Carbonate Reservoir During the early stage of T1C operation (both P1C and P1D will still be producing), Laricina will closely monitor any rapid temperature responses within the D zone using the observation wells in order to further characterize the C/D marl. The proposed T1C will be located in the upper Grosmont C Formation approximately 3 m below the C/D marl to limit steam breakthrough and offer the largest drainage area of bitumen between the T1C/P1C well-pair. The current observation data from P1Obs2 (6 m west to P1C) at the same depth as T1C, shows that the temperature is high enough to mobilize bitumen. Current temperature data at P12Obs2 (50 m west to P1C) indicates that the bitumen has not been mobilized. T1C will be drilled in an area between these two observation wells. T1C will also be offset by 30 m laterally to the west of P1C (Figure 6) to prevent direct steam communication with P1D. The offset distance of 30 m is half of the inter-well spacing (60 m) currently proposed at Saleski Phase 1 (AER Approval No ). This offsetting strategy will allow for testing the effectiveness of the lateral well spacing of the Grosmont D and C wells in Saleski Phase 1. Another advantage of locating the top injector offset from the current operations is to minimize the risks of drilling into a heated zone. The observation wells data confirm that the formation will not be close to steam conditions when drilling. Page 7 of 11

10 Figure 6 Cross Sectional View of the T1C Well Location T1C will be drilled at near balanced pressure. This method will limit drill cuttings and fluid invasion into the formation as well as test healing methods in the intermediate section. This will enable Laricina to compare and benchmark this drilling approach for Saleski Phase 1. T1C will also provide the opportunity to test an open hole completion, without acidizing, in a full well length of 725 m. 1.7 Well Completions T1C will be a single lateral horizontal well completed with the following design (see Figure 7): 1. Horizontal design a. Re-entry from the idle I1D intermediate section b. Horizontal section will be 725 m long due to the 30 m offset c. Drilled near balanced and completed open-hole d. Will not be acidized immediately following drilling e. Use a 7 secondary intermediate casing size f. Will be drilled 30 m west of P1C and 3 m below the marl 2. Instrumentation a. Single 3 1/2 toe injection string b. No down hole instrumentation will be required due to reduced borehole size Page 8 of 11

11 Figure 7 Proposed Completion Design of the T1C Well 1.8 Operating Plan Steam capacity for T1C is expected to be in the range of m 3 /d. This range is supported by the steam injectivity of P2C which is a shorter well at 450 m. However, the steam injection rate will depend on the production performance of the system. T1C will be licensed for the maximum wellhead injection pressure of 4,150 kpa as is the case for the existing Pilot wells. P1C will be operated at a pressure that will ensure steam conformance and oil drainage around the wellbore. The intention is to continually inject steam in T1C to test lateral fracture connectivity throughout the Grosmont C Formation and to establish a continual gravity drainage operating environment. Laricina anticipates drilling T1C in October 2013 with first steam commencing in November 2013 as P1C approaches the latter portion of the current production cycle. The proposed operating plan for T1C is as follows: Page 9 of 11

12 1) Warm-up Slowly introduce steam to warm-up the near wellbore zone around T1C. Continue to operate P1C under cyclic condition to optimize oil production. 2) Establish steam chamber between T1C/P1C well-pair Maximize injection rate in T1C to establish thermal communication between T1C/P1C well-pair. P1C bottom-hole pressure and temperature are declining when steam commences in T1C. Thermal communication between the two wells will be confirmed when an increase in pressure and temperature is observed along the lateral section of P1C. 3) Continual steam injection and production Once the steam chamber is established between T1C/P1C well-pair, steam injection rate will be balanced with the water production rate in order to keep the steam within the fracture system. Optimize production rates to maintain the liquid head for the pump. 1.9 Success Criteria As P1C reaches the end of the current production cycle, both bottom-hole pressure and temperature will be low. With the lower temperature, relative permeability results in preferential production of water; thus, it is proposed to commence steaming through T1C at this time. The success of continual steam injection in T1C will be measured based on: Temperature response in P1C (i.e. an increase in average horizontal temperature at the end of the production cycle) once thermal communication is established between the T1C/P1C wellpair. Indication of increased oil cut. Sustained oil production rates supported by continuous steam injection and production via gravity drainage. Page 10 of 11

13 1.10 Monitoring Laricina will monitor steam chamber growth through the use of thermocouples within the exiting observation wells at the Pilot. Monitoring of the steam injection process from T1C will be possible using 4D seismic evaluation at the Pilot in winter 2013/14. Seismic will also provide an indication of the extent of steam chamber growth from T1C into the surrounding reservoir. Page 11 of 11