December 21, 2015 EAB File #: Transaction #: Re: Rush Lake Commercial Phase 2 SAGD Project at NE W3M

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1 Ministry of Environment Environmental Assessment Branch 4 th floor, 3211 Albert Street Regina, Saskatchewan S4S 5W6 Phone: (306) Fax: (306) December 21, 2015 EAB File #: Transaction #: Jonelle Pike, Thermal Development Coordinator HOG Thermal Assets Husky Oil Operations Ltd th Street LLOYDMINISTER SK S9V 0Z8 Dear Ms. Pike: Re: Rush Lake Commercial Phase 2 SAGD Project at NE W3M The Saskatchewan Ministry of Environment (the ministry), Environmental Assessment Branch (the EA Branch), has received your Application for Ministerial Determination and has completed a screening of Husky Oil Operations Ltd. (Husky) proposed project, entitled Rush Lake Commercial Phase 2 SAGD Project (the project). The proposed project is described in the following documents, collectively termed the Application : Rush Lake Commercial Phase 2 SAGD project technical proposal dated September 2015 with appendices; Letter from Husky dated November 19, 2015, with attachment, in response to EA Branch request for information. Based on the information presented in the Application, it is our determination that the project does not meet the criteria of section 2(d) of The Environmental Assessment Act (the Act) and, therefore, is not a development that is required to undergo an Environmental Impact Assessment (EIA). This determination is provided under the authority of section 7.3 of the Act and grants the proponent authorization to proceed with the subsequent regulatory approvals for this project. The project is deemed not to be a development as per the attached Reasons for Determination. In addition to advising of our determination, this letter also includes the following terms and conditions. 2

2 Jonelle Pike Page 2 December 21, 2015 The decision to not require an EIA pursuant to the Act is contingent on compliance with the following terms and conditions: 1. The project must be undertaken and environmental protection measures implemented in the manner described in the Application, except where alterations are required for compliance with other regulatory requirements. 2. The Branch must be advised if you plan to alter the project significantly from that described in the Application. 3. The Branch must be advised if work is not commenced within two years of the date of this letter. The Application s environmental acceptability would be re-examined in light of the circumstances of the day. 4. You must comply with all other federal, provincial and municipal regulatory requirements including those from the ministry. 5. You must comply with all reasonable follow up Ministerial requests to monitor compliance with these conditions. 6. When work is required outside of winter conditions, Husky will conduct rare plant and bird surveys on any native habitat potentially disturbed by the project prior to construction utilizing ministry survey protocols. Results must be submitted to the EA Branch and the Saskatchewan Conservation Data Centre using the appropriate data loadforms by October 1 st of the year they were conducted. Should any rare species be located during surveys, the report must include a mitigation plan showing how impacts to rare species will be avoided. Please also be advised that: 1. This letter is NOT an approval to proceed with construction activities, it is simply provided by the Branch to inform you that you may proceed to obtain other permits and approvals that may be required. Additional approvals from the ministry and other agencies may be required. 2. As noted above, the Branch has made a determination that the proposed undertaking is not a development. The purpose of providing a determination is to provide some certainty that the ministry will not initiate any action to require an EIA pursuant to the Act. 3. The province recognizes its constitutional obligation to consult with potentially affected First Nations and Métis communities when making decisions that may adversely impact the exercise of Treaty and Aboriginal rights. If the project may have an impact on Treaty or Aboriginal rights, decisions by other government agencies during permitting may trigger the Crown s duty to consult. 3

3 Jonelle Pike Page 3 December 21, 2015 Should you have any questions regarding the content of this letter, please feel free to contact Brianne England, Senior Environmental Assessment Administrator at (306) Sincerely, Original Signed By Sharla Hordenchuk for Erika Ritchie Commissioner Acting for and on behalf of the Minister of Environment Phone: (306) Enclosure: Reasons for Determination cc: Sharla Hordenchuk, Environmental Assessment Branch, Ministry of Environment Brady Pollock, Environmental Assessment Branch, Ministry of Environment Brianne England, Environmental Assessment Branch, Ministry of Environment Robert Bewer, Environmental Assessment Branch, Ministry of Environment Vern Doell, Landscape Stewardship Branch, Ministry of Environment Jeff Hovdebo, Water Security Agency Brendan Hysuik, Petroleum Development Branch, Ministry of the Economy EA Records 3

4 Reasons for Determination Project Title: Rush Lake Commercial Phase 2 SAGD Project at NE W3M Proponent: Husky Oil Operations Ltd. (Husky) Date: December 21, 2015 EAB File #: Transaction #: Proposal: Husky is proposing to construct and operate a steam assisted gravity drainage (SAGD) thermal oil recovery project approximately 20 km east of Maidstone, Saskatchewan in the Rural Municipalities of Turtle River No. 469 and Payton No The Rush Lake Commercial Phase 2 SAGD Project (Rush Lake II) is located in an area supporting several SAGD thermal oil recovery projects including the adjacent Rush Lake project and nearby Edam East and Edam West SAGD projects. The SAGD thermal recovery process allows for recovery of 50% of the original in-situ heavy oil as opposed to the 10% recovery seen with cold heavy oil production. The Rush Lake II project includes: Central oil processing facility (CPF) for water treatment, steam generation and oil processing; Paynton water supply wellfield expansion and a tie into the existing raw water supply line to bring raw water to the CPF; Six salt water disposal wells (SWD) on one pad site and an associated pipeline from the CPF; Two SAGD well pad sites with six SAGD well pairs per site (24 wells) and associated above ground pipelines and utility corridors connected to the CPF; and A 1.2 km sales oil pipeline connecting the CPF to the previously approved Rush Lake I CPF, which brings sales oil from Rush Lake II to the existing gathering system. Raw water for Rush Lake II will come from the Payton water supply wellfield. To accommodate the water requirement of Rush Lake II, Husky will institute the Payton Phase II Drilling Program to expand the number of raw water supply wells supporting other projects in the area including Rush Lake I, Edam West, and Edam East SAGD projects. The Rush Lake II project is expected to produce 10,000 bbl/day of sales oil employing up to 160 people during the construction phase with 15 permanent operational staff and 5 6 support staff. The information provided in the project proposal has led to the determination that the described project does not trigger the criteria of section 2(d) of The Environmental Assessment Act (the Act) and therefore is not considered a development and will not require an Environmental Impact Assessment (EIA). 1

5 The determination that this project is not a development is based on the potential to meet the following criteria of section 2(d) of the Act being met: a) have an effect [sic] on any unique, rare or endangered feature of the environment; The total area directly affected by the project is 34.7 ha (85.75 acres), of which 57% is cultivated, tame pasture or hay land and 20% is native grassland. There are 17 wetlands potentially impacted by Rush Lake II. One permanent dugout/class IV wetland and five temporary/seasonal wetlands will be impacts by CPF construction. There will also be temporary disturbance to several wetlands during pipeline installation. Husky has committed to avoiding wetlands to the extent possible and utilizing low impact construction techniques to minimize impacts to wetlands that cannot be avoided. Husky will also be required to comply with Aquatic Habitat Protection Permit terms and conditions to further mitigate effects to wetlands. An initial review of historical rare plant records indicated 12 provincially tracked plant species have been identified in the regional project area (within 25 km of the site) and five within the local study area (within 5 km of the site). No plant species protected by federal or provincial legislation were identified during surveys conducted for the project. Additional rare plant surveys will be conducted in areas with potential to support rare species prior to construction and a mitigation plan to avoid impacting species will be required if located. An initial review of historical rare wildlife records indicated four provincially tracked animal species have been identified in the regional project area: Piping plover (Charadrius melodus circumcinctus) (S3B), great blue herons (Ardea herodias) (S3B), lake sturgeon (Acipenser fulvescens) (S2), and Sprague s pipits (Anthus spragueii) (S3B) (Threatened-federal), and two within the local study area: common nighthawks (Chordeiles minorand) (S4S5B, S4S5M) (Threatened-federal) and Canadian toads (Anaxyrus hemiophrys) (S4). Common nighthawks and Canadian toads were observed during 2015 field surveys. Impacts to identified species will be avoided through project siting and timing construction outside of the breeding season. Should construction activities occur during the nesting season (May1 to August 31) Husky has committed to undertaking additional surveys, adhering to appropriate setback distances if a nest or sensitive species is located, and halting activities and developing mitigation plans for approval by the ministry if species are identified by the onsite environmental monitor. No impacts to cultural or heritage resources are anticipated for the Rush Lake II project. Husky submitted a project description to the Heritage Conservation Branch for approval and received clearance on July 13, Husky has committed to halting work and developing an appropriate mitigation plan if any previously unidentified heritage resources are located during construction activities. Adverse effects of the project on rare or endangered features of the environment are not anticipated based on the results of the survey work, the requirement to complete additional surveys, and the measures proposed to prevent, avoid or minimize impacts. 2

6 b) substantially utilize any provincial resource and in so doing pre-empt the use, or potential use, of that resource for any other purpose; There will be no substantial use of a provincial resource pre-empting its use for other purposes. Rush Lake II will utilize up to 7,000 m 3 /day of raw water which will be within the existing water allocation license of 18,000 m 3 /day from the Water Security Agency (WSA). The Payton Phase II Drilling Program involves 23 new infiltration wells at 11 locations adjacent to the North Saskatchewan River. Raw water for the Payton wellfield originates from the North Saskatchewan River, as such no impact to shallow groundwater quality or quantity is expected. WSA has indicated that current volumes proposed for the project are not expected to have a significant impact on flows within the North Saskatchewan River. c) cause the emission of any pollutants or create by-products, residual or waste products which require handling and disposal in a manner that is not regulated by any other Act or regulation; The SWD wells will be approximately 600 m deep and will dispose of the water into the Dina Formation, which is a common disposal formation in the area. Injection water will be of equal or better quality than formation water and no impacts on the quality of deep groundwater are expected. All waste and debris generated by the project will be collected and disposed of off-site in an appropriate disposal facility, in accordance with The Litter Control Act. All drilling wastes will be contained and disposed of according to the provincial GL99-01 Drilling Waste Management Guidelines. Hazardous wastes will be collected and disposed of in accordance with The Hazardous Substances and Waste Dangerous Goods Regulations. Upstream oil and gas waste management is regulated by the Ministry of Economy. If waste meets the criteria defining a Waste Dangerous Goods, then The Environmental Management and Protection Act and regulations, The Clean Air Act and regulations and Transportation of Dangerous Goods Act and regulations may apply. The Saskatchewan Petroleum Industry/Government Environment Committee (SPIGEC) waste management guidelines also apply. All air emissions from the CPF will conform to Saskatchewan Ambient Air Quality Standards (SAAQS). Short duration air quality monitoring was completed for the project area indicating compliance with SAAQS. Modeling which considered the combined emissions of other current and reasonably foreseeable projects also indicate air quality will continue to meeting SAAQS. Husky will complete ongoing monitoring throughout the year in varying climatic conditions to ensure compliance with SAAQS. 3

7 d) cause widespread public concern because of potential environmental changes; No widespread public concern regarding environmental change has been identified with this project. The project will likely cause minor environmental change during the construction phase; however, residual effects will not be significant and therefore widespread public concern is not anticipated. Husky met with all landowners affected by the project prior to surveying and held an open house in Payton on July 16, This landowner input was incorporated into project design. e) involve a new technology that is concerned with resource utilization and that may induce significant environmental change; or No new technology is being used. Standard construction methods and equipment are expected to be used during construction. There are other SAGD projects in Saskatchewan regulated by the Ministry of Economy. f) have a significant impact on the environment or necessitate a further development which is likely to have a significant impact on the environment? The majority of the land affected by the project consists of previously disturbed agricultural land and tame grasslands. The impact to native grasslands, trees and shrubs and Class I and II wetlands will be minimized using best management practices, horizontal drilling, and siting considerations to the extent possible. An environmental monitor will be on site and Husky is employing a number of measures to avoid or mitigate impacts of the Project including: o Minimal disturbance methods and directional drilling flow line tie-ins to minimize disturbance to native habitat near the river; o Selecting project locations to reduce or avoid construction on native vegetation or in wetlands; o Conducting late season plant and bird surveys for submission to the ministry for further guidance regarding appropriate mitigations; o Conducting construction activities in or adjacent to native areas outside of the critical period for breeding birds and by conducting pre-construction surveys and submitting results to the ministry for further guidance; and, o Avoiding impacts on wildlife by scheduling construction during fall and winter season, where possible. The criterion is not met. Conclusion: Based on the above considerations, the ministry s review of the proposal concludes that the project is not a development that is required to undergo an EIA and require a Ministerial Approval as identified in Section 8 of the Act. The project is subject to all other regulatory requirements, the protection measures in the proposal, and the stipulations in the attached letter. 4