Responsible Canadian Energy Oil Sands Progress Report 2010

RCE Responsible Canadian Energy Oil Sands Progress Report for the year ended December 31, 2009

Oil Sands

:

This report has been produced in conjunction with the Responsible Canadian Energy Progress Report for the year ended December 31, 2009. The Responsible Canadian Energy Progress Report provides information on the environmental, health, safety and social performance of the Canadian Association of Petroleum Producers (CAPP) membership, representing 90 per cent of the oil and gas produced within Canada. If you would like a copy of the Responsible Canadian Energy Progress Report, please contact communication@capp.ca. Both reports are also available on the CAPP website at www.capp.ca/rce.

Canada has roughly 175 billion barrels of oil that can be recovered with today’s technology, the second largest reserves of oil in the world after Saudi Arabia. Of that number, 170 billion barrels are located in the oil sands. Oil sands are a mixture of sand, water, clay and bitumen – oil that is too heavy or thick to flow or be pumped without being diluted or heated. Canada’s oil sands are found in three deposits: the Athabasca deposit in Alberta and part of Saskatchewan and the Peace River and Cold Lake deposits in Alberta. The largest quantity is found in the Athabasca deposit.

There are two different methods of producing oil from the oil sands: open-pit mining and in situ (Latin, meaning “in place”). Bitumen that is close to the surface is mined. Bitumen located deeper underground is produced in situ using specialized extraction techniques.

Open-pit mining is similar to many coal mining operations – large shovels scoop the oil sands into trucks that then take it to crushers where the large clumps of earth are broken down for processing, the various components are separated and the bitumen is ultimately upgraded into crude oil.

About 20 per cent of the oil sands can be recovered through open-pit mining. The mineable oil sands deposits comprise only about three per cent of the total surface area underlain by oil sands.

Eighty per cent of oil sands reserves (which underlie approximately 97 per cent of the total oil sands surface area) are recoverable using in situ technology with limited surface disturbance.

The majority of in situ operations use steam assisted gravity drainage, or SAGD. This method involves pumping steam underground through a horizontal well to liquefy the bitumen that is then pumped to the surface through a second well. Advances in technology, such as directional drilling, enable in situ operations to drill multiple wells (sometimes more than 20) from a single location, reducing the surface disturbance.

Responsible Canadian Energy:  Approach to Reporting

The cornerstone of the Responsible Canadian Energy program is our commitment to continuous performance improvement.

As an industry, we strive to continually improve our performance in the areas of environmental, health, safety and social responsibility. We challenge ourselves to reduce air emissions, safety incidents in the workplace and our footprint on the land and water, and to improve the ways in which we communicate with and engage the public and our stakeholders. ďƒ

The Responsible Canadian Energy program represents an evolution of the Canadian Association of Petroleum Producers’ (CAPP) prior Stewardship program. In light of increasing focus on the upstream oil and gas industry’s environmental and social performance at the local, national and international levels, it is increasingly important for the industry to demonstrate and communicate its performance in an aligned and consistent manner. Simply stated, the objective of the Responsible Canadian Energy program is to provide focused, aligned and transparent information on industry performance, as well as to highlight performance improvement across CAPP’s member companies.

The Responsible Canadian Energy program highlights the highlevel, strategic performance indicators in the areas of greatest relevance to our industry and to our stakeholders. Specifically, the Responsible Canadian Energy program currently focuses on indicators that provide a strategic assessment of industry performance in the important environment and social measurement areas: air, water, land and people. The key performance indicators align with the guiding principles for oil sands development.

This is the first Responsible Canadian Energy report using the focused set of key performance indicators and, as with any “first”, the data and reporting will be refined and improved with time. This report will serve as industry’s baseline year, as companies begin to use Responsible Canadian Energy metrics and align their internal management systems. Development of the program is ongoing and future reports will reflect enhancements in both the metrics and the supporting analysis and interpretations.

As part of the program’s development, our objective is to ensure that our performance reporting is both credible and transparent.

To that end, CAPP intends to create an independent advisory group – a body of objective stakeholders from a range of fields representing Aboriginal peoples, academia/research, communities, contractors, investors, government/regulators, non-government organizations, labour and business. One of the roles of the committee will be to review this report, and its recommendations will be incorporated into next year’s and subsequent reports.

 The Athabasca River with mining operations in the background.

Responsible Canadian Energy : Oil Sands Progress Report

3

« The challenge we have

is to advance oil sands development to provide jobs, economic benefits and secure and reliable energy supply, while at the same time continuing to ensure responsible environmental and social outcomes.

»

A Conversation About the Oil Sands In an era of heightened public awareness and expectations around corporate social responsibility, few energy-related issues currently have the national and international profile of Canada’s oil sands. This is in part due to the broader global discussion about climate change and the future role of fossil fuels in meeting our energy requirements.

The second largest reserve of oil in the world, representing about one half of the global oil reserves fully accessible to private-sector investment, this valuable resource is a vital source of secure energy supply and economic growth across Canada and North America.

The development of the oil sands also brings with it environmental and social challenges. The challenge we have is to advance oil sands development to provide jobs, economic benefits and secure and reliable energy supply, while at the same time continuing to ensure responsible environmental and social outcomes.

The oil sands industry understands that its reputation is dependent on both ongoing performance improvement and effective communication regarding its activities. Reporting on the environmental, health, safety and social performance of its members has been a CAPP mandate for over a decade. This year CAPP members adopted an evolved, more strategic approach to data collection aimed at focusing on those indicators that address the key issues of interest to Canadians. Under the auspices of the Responsible Canadian Energy program, this oil sands report is taking an in-depth look at the performance of CAPP members operating in Canada’s oil sands industry. This is one element of a broader portfolio of activities addressing both performance and communications.

Our industry aims to achieve continuous improvement by committing to Guiding Principles, improving systems and processes, developing new technology and enhancing operational practices. The oil sands Guiding Principles listed below were developed by Canada’s oil sands producers and are aligned with the Responsible Canadian Energy program. The Oil Sands Guiding Principles represent a specific, consistent and aligned response from the oil sands industry as a whole.

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Responsible Canadian Energy : Oil Sands Progress Report

Oil Sands Guiding Principles People :

We will provide a safe environment for our employees, contractors and the communities where we operate.

:

We will provide employment and business opportunities for regional communities, including Aboriginal peoples.

:

We will consult with directly affected stakeholders through all stages of our operations.

Land :

We will mitigate our impact on the land while maintaining regional ecosystems and biodiversity.

:

We will progressively reclaim all lands affected by oil sands operations, returning them to self-sustaining landscapes.

Air :

We will design and operate our facilities to ensure that regional air quality continues to exceed provincial air quality objectives.

:

We will continue to reduce greenhouse gas emissions per barrel of production by improving our energy efficiency and by developing new technologies.

Water :

We will continue to reduce the amount of fresh water required per barrel of production by improving water recycle rates, using non-potable water sources where feasible, and by developing new technologies.

:

We will safeguard the quality of regional surface and groundwater resources.

Canada’s oil sands industry is responsibly unlocking our country’s natural resources, providing economic growth, energy security and reliability, and a strong focus on environmental, health, safety and social performance. This Responsible Canadian Energy oil sands report provides an opportunity to demonstrate our progress, be candid about our challenges and encourage a collaborative approach in pursuit of solutions.

Sincerely,

Dave Collyer, President Canadian Association of Petroleum Producers October 2010

Responsible Canadian Energy : Oil Sands Progress Report

3

Since the 1960s, when Canada’s first oil sands project began operation, thousands of people have been involved in developing this massive and valuable resource. The benefits associated with oil sands development are enormous, from the thousands of employees at the companies owning the leases and developing the resource, to the many investors, contractors and local businesses who provide specialized services, to Aboriginal peoples, communities, governments and the people of our country, who benefit through taxes and royalties that support health care, roads, education, arts and culture, and the national infrastructure that contributes to the high quality of life in Canada.

 Barb Penton, Maintenance Planning Assistant, Nexen Long Lake Project.

In 2009, the oil sands industry employed 112,000 Canadians (direct, indirect, induced), invested over $11 billion in the Canadian economy and paid in excess of $2 billion in royalties. Given the lifespan of many of the oil sands projects – 10 to 50 years – these benefits will continue to accrue for decades.

The oil sands industry clearly understands its challenge to minimize social and environmental impacts, while contributing to the economic well being of Canadians. We believe these two aims are compatible. For example, consulting with affected stakeholders is not only a regulatory requirement, it also helps improve our understanding of the local environmental conditions. Contributions to local communities help improve the lives of workers living in these operating areas.

Industry is determined to ensure that people and communities continue to be a primary consideration in oil sands activity. To that end, in 2009, the oil sands companies within CAPP formalized Guiding Principles with regard to People:

:

We will provide a safe environment for our employees, contractors and the communities where we operate.

:

We will provide employment and business opportunities for regional communities, including Aboriginal peoples.

:

We will consult with directly affected stakeholders through all stages of our operations.

The Responsible Canadian Energy program is intended to provide a window on how well we are meeting these principles. In some cases, we have been collecting data for years under our Stewardship program that helps us understand our performance. In other cases, we needed to modify what we asked our members to report. From this data, we have developed a number of key performance indicators, including the number of fatalities and the total injury frequency rate. Other indicators measuring our impact on people in the communities where we operate require further development and will be considered for future reports.

Tapping Canada’s vast oil sands is a complex endeavour involving far more than equipment and technology, experience and expertise. Underpinning every step in the process are policies, procedures and programs geared to cultivating effective relationships while safeguarding the people we work with, and the people who are affected by our work.

Value of Contracts with Aboriginal Companies*

[$ millions]

05 312

06 418

07 632

08 601

09 810

* Source: Oil Sands Developers Group

« Oil sands companies make

a concerted effort to employ Aboriginal workers and to foster and hire Aboriginal businesses. Between 1998 and 2009, Aboriginal companies earned more than $3.8 billion in oil sands contract work.

»

 Paula McMillan, Aboriginal Affairs Advisor of Esso’s Cold Lake Operations with Dan Prevost, Production Operator and a graduate of Esso’s Native Internship Program.

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Responsible Canadian Energy : Oil Sands Progress Report

Responsible Canadian Energy : Oil Sands Progress Report

7

810

million $

Industry Contracts with Aboriginal Companies

Esso’s Native Internship Program A few short years ago, Dan Prevost was logging long, lonely hours on the road.

As a 31-year-old truck driver with a high school education, he sacrificed family and time with his two young children – his career options limited – with no real idea what his future would hold.

Then he found Imperial Oil’s Native Internship Program, and began training as a field production operator at their Cold Lake operation.

“The internship program changed my life,” said Prevost. “I knew I wanted to do something more challenging, but I couldn’t realistically go back to school and become a student with a family at home.”

While Alberta’s oil and gas industry has provided many with employment opportunities over the years, those from local Aboriginal communities were often left behind. People such as Prevost experience a number of challenges associated with leaving home – and their existing social and community network – to obtain the necessary education and experience needed to benefit from “the boom” and become gainfully employed.

That’s why Imperial Oil founded the Imperial Native Network in the early 1990s to develop supportive relationships with Aboriginal communities.

The Native Internship Program is an initiative that helps Aboriginal people obtain the necessary education and training for long-term careers. It was created in 1998 by members of the Network in collaboration with management and with the First Nations and Métis communities in the Cold Lake region. The program provides paid on-the-job training for Aboriginal people for up to two years with graduates gaining valuable technical experience working in field or plant operations. Interns complete a comprehensive program including on-site training and a post-secondary power engineering course.

Prevost is now able to earn a living to support his family while building his career.

Since the program was introduced, Imperial has hired all 16 of the program participants, including Prevost, who will start his full-time position in September once his internship is complete.

“Imperial’s Native Internship Program is a unique training initiative that breaks down barriers by eliminating common challenges experienced by Aboriginals who want to obtain technical careers in the oil and gas industry,” says Rick Janvier, Human Resources Manager, Cold Lake First Nations and a program partner.

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Responsible Canadian Energy : Oil Sands Progress Report

It is a program developed and managed by Aboriginal people for Aboriginal people within their community. Formal mentorships from Aboriginal employees throughout the participants’ training help them adjust to the workforce environment and culture and contribute to the successful completion of the program.

“One of the most rewarding benefits is the positive impact program graduates have on their local community by being role models. The opportunities that Imperial Oil brings to the region have helped decrease our local unemployment rate. I’d definitely call that progress,” said Janvier.

The stability provided by long-term employment positively impacts the whole community. Participants are paid to learn, and this education leads to their future employment and growth. Local communities benefit from the employment opportunities and corporations tackle the labour shortage issues head on. Many of Imperial’s current and past interns are active in their own communities, sharing their experiences and encouraging others to follow in their footsteps.

“Imperial values the opportunity to build long-term relationships with Aboriginal peoples and this program provides a context for mutual respect and benefit,” said Fred Cardinal, production operator, Cold Lake Operations, network member and program mentor.

One unique feature of the program is that it allows Aboriginals to continue to reside in their local communities throughout the training process and provides the ability to earn while they learn.

“We see the change in interns every year – in how they view themselves and in how they are viewed by the community – earning a steady income to provide for their family and gaining oil and gas experience and knowledge,” said Paula McMillan, Aboriginal Affairs Advisor, Cold Lake Operations.

Current program partners include Cold Lake First Nations, Elizabeth Métis Settlement, Kikino Métis Settlement and Métis Nation of Alberta Region II. The Alberta Government also supports Imperial’s Native Internship Program by providing financial support.

Imperial recently received the Rewarding Partnership Award from the Alberta Chamber of Resources and the Alberta Ministry of International, Intergovernmental and Aboriginal Relations for its collaborative partnership with First Nations and Métis communities.

“It’s a very worthwhile initiative and one that offers career choices, opportunity, a better lifestyle and a better life,” said Janvier.

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Responsible Canadian Energy : Oil Sands Progress Report

Total Recordable Injury Frequency Total Recordable Injury Frequency (TRIF) is a measurement widely used by many industries to evaluate the frequency of injuries that occur in an operation. The total number of fatalities, permanent total disabilities, lost workday cases, restricted work cases and medical work cases are combined for every 200,000 hours worked, providing a ratio that is used to benchmark performance. In 2009, TRIF reported by CAPP oil sands members declined to 0.71 – a 29 per cent improvement over the 1.00 recorded in 2005 and

down almost 24 per cent from 2008. This downward trend can be attributed to a number of factors: companies have emphasized the safety culture within the operating and contracting community, companies are learning from incidents that do occur, and a reduction in activity has concentrated the remaining pool of workers who are among the most highly skilled and trained members of the workforce.

[injuries/200,000 hrs]

Employee Contractor Total oil sands

05 06 07 08 09 0.97 0.79 0.71 0.64 0.58 1.01 1.36 1.12 1.02 0.76 1.00 1.18 1.01 0.93 0.71

 In response to concerns from local residents, Esso replaced globe lighting with truckmounted lights for working on wells at their Cold Lake operations.

You Spoke, Esso Listened The breathtaking night sky is a big reason people love living in the North. But oil sands production facilities operate on a 24/7 basis and typically use extensive lighting at night.

Imperial Oil’s Cold Lake Operations, the largest in situ oil sands project in Canada, introduced a new lighting initiative in 2009, after hearing the concerns local residents expressed about their facility’s lighting.

Jennifer Haverhals, Environmental Team Leader at Imperial Oil Resources in Cold Lake, Alberta says: “Our neighbours spoke and we listened.

We brainstormed and were able to identify a solution that worked for our operations and that we could quickly implement.” As a first step, globe lighting was replaced with more directional focused spot lighting in the design for well pads. After testing, Imperial then implemented truck-mounted external lighting, where only the wells being worked on are lit and overhead light standards remain off. In addition to dramatically reducing artificial nighttime light, Imperial has reduced electricity consumption by approximately 1,855,000 kWh, equivalent to about 1,800 tonnes of greenhouse gas emissions.

« Crane Lake is now in a

more natural state for wildlife and for residents and visitors who are drawn to this area because of its natural beauty, including the spectacular night sky.

»

Gord Coulman, President Crane Lake Advisory and Stewardship Society (CLASS)

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Responsible Canadian Energy : Oil Sands Progress Report

 Nexen works with Alvena Strasbourg, a 77-year-old Métis elder to provide their employees a first-hand account of Métis culture and history.

Nexen: Sharing Aboriginal Culture Nexen operates on or near the traditional lands of Canada’s Aboriginal peoples and considers consultation an essential component of responsible development. The company also maintains that good relationships are built on understanding, which is why they introduced mandatory Aboriginal awareness training for employees who work at the company’s Long Lake Project, located south of Fort McMurray.

Since 2008, approximately 600 employees from all parts of the operation have taken the training.

Developed in consultation with local First Nations, the training focuses on Nexen’s principles and commitments to Aboriginal stakeholders. It reviews the unique role of Aboriginal peoples in Canada’s history and their treaty rights. A local Métis elder provides a first-hand account of Métis culture and history.

The objective is to equip Nexen employees with a more thorough understanding and appreciation of Aboriginal history and culture, laying the foundation for building strong relationships.

Another aspect of relationship-building involves working to share the economic and societal benefits of resource development with Aboriginal stakeholders. Since 2008, Nexen has invested more than $122 million – including $19.3 million in 2009 – with Aboriginal businesses at Long Lake that provide labour, carpentry, road construction and maintenance, security and other site-related services.

Nexen’s tendering practices help ensure local Aboriginal contractors are aware of upcoming work. Opportunities are posted on the Northeastern Alberta Aboriginal Business Association website, as well as the regional economic development website.

Responsible Canadian Energy Key Performance Indicators :

The Responsible Canadian Energy key performance indicators provide a window on the oil and gas industry’s performance, but by no means do they generate a complete picture. Readers are invited to review the data published in this report and on our website (www.capp.ca/rce), where there are links to additional sources of information.

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9

: Land Reducing the footprint in areas we operate and returning the land to equivalent capability are key drivers for the energy industry. This requires continuing to evaluate how we operate, develop and apply new technologies and rigourously measuring our impact and improving our performance.

10 Responsible Canadian Energy  : Oil Sands Progress Report

 Researchers conduct ongoing monitoring of Syncrude’s fen reclamation research plot.

Syncrude is constructing the first reclaimed fen in the oil sands industry. Fens are basically wetlands consisting of peat (mosses), sedges and grasses and a water table that fluctuates within 20 centimetres of the surface. Fens are often referred to as muskeg in Canada’s Boreal region. When construction of Syncrude’s Sandhill Fen Watershed Research Project is complete in 2012, the 50 hectare northwest corner of Syncrude’s former east mine will consist of hummocks, fens, a water storage pond and islands of peat and clay all sculpted atop a base of sand-capped soft tailings. Syncrude will then begin a 10-year study as part of a watershed and research pilot project.

The oil sands are developed using two techniques: open-pit mining and in situ development.

The largest amount of reserves and land area is expected to be developed using in situ or underground development that has less impact on the land surface.

Although Alberta’s oil sands underlie 142,200 square kilometres of land, much of this resource is too deep to be mined. In fact, only about three per cent or 4,802 square kilometres of oil sands land is mineable. Currently, about 662 square kilometres is undergoing mining development – an area slightly larger than the city of Toronto.

Regardless of how much land is involved, the industry recognizes that land is a critical resource.

In 2009, the oil sands companies within CAPP formalized a set of Guiding Principles around land:

:

We will mitigate our impact on the land while maintaining regional ecosystems and biodiversity.

:

We will progressively reclaim all lands affected by oil sands operations, returning them to self-sustaining landscapes.

The data we gather identifies how well we are meeting these principles. With this first Responsible Canadian Energy report, we are measuring the number of annual certifications or releases received for oil sands operations. Given the relatively early stages of oil sands operations – a typical oil sands mine has a 25- to 50-year lifespan and an in situ operation runs on average for 10 to 15 years – much of this activity is still in the early stages of development. Most important, all of this land will be reclaimed and returned to a self-sustaining condition, as our principle states.

In this report, we have described how companies are evolving how they operate and some of the technology being developed to reduce our footprint. We recognize, however, that this is a journey and we will continue to pursue ways to minimize impact on the land.

Responsible Canadian Energy : Oil Sands Progress Report 11

Active Mining Footprint* The active mining footprint of 662 kilometres² is made up of land that is cleared, disturbed and has been or is being reclaimed. For mining operations there can be a span of decades from when the land is disturbed to when reclamation begins. For in situ operations this timeframe is shorter and the land disturbed is much smaller. The final step in reclamation is obtaining certification from the government. To date, one kilometre² has been certified.

[kilometres²]

Active mining footprint (includes area under reclamation) Area under reclamation Area certified

09 662 065 001

* Source: Alberta Environment

« Reclamation work is staged throughout the life of a project. Implementing the entire reclamation plan can take decades.

»

 Robert Vassov, Reclamation Scientist for Syncrude Canada

12 Responsible Canadian Energy : Oil Sands Progress Report

Responsible Canadian Energy : Oil Sands Progress Report 13

662 kilometres² Active mining footprint

Syncrude: Bringing back the land Alberta’s landmass is approximately 662,000 square kilometres in size. Of that, about 0.1 per cent or 662 square kilometres currently contains oil sands mining operations.

Oil sands mining operators must progressively reclaim all of the land they disturb. Syncrude, one of Canada’s largest crude oil producers, has disturbed about 22,000 hectares and reclaimed close to 4,600 hectares or about 21 per cent.

Syncrude Canada Ltd. reclamation scientist Robert Vassov says, “When we reclaim land, we’re bringing it back to its equivalent capability prior to development. Post-reclamation, our vision is to leave behind an area comprised of forests, parkland, wetland and lakes, capable of supporting a new generation of traditional, economic and recreational uses.”

In 2010, Syncrude will spend about $180 million on reclamation.

The process starts with backfilling a mine pit with tailings mixtures and capping it with soil and peat. Millions of tonnes of earth are moved, contoured and leveled, topsoil is placed, fertilized and spread with materials from the forest floor containing seeds and stems. This valuable bio-matter promotes propagation of a wider variety of plant life. More recently, the company has been spreading coarse woody debris – the material left after logging – to aid in moderating temperature and protecting young seedlings. Aspen, white spruce and jack pine are the species of trees most frequently used in replanting efforts.

“We like to wait at least 20 years before applying for final certification from the regulators on the forested areas we reclaim,” says Rob, “as it gives us the confidence and certainty that we’ve established trees to an acceptable state and that the area will continue to flourish.”

More challenging still is the replication of wetlands. Syncrude is now involved in a major wetlands reclamation initiative known as the Sandhill Fen, in an effort to gain a clearer understanding of how these dynamic and complex systems work. Rob explains: “We’re researching the interaction between uplands and lowlands areas and capturing a tremendous amount of data on the rain, snowmelt, changes in water chemistry and how water moves throughout the area. It’s all part of advancing our knowledge base so we can continually improve our reclamation practices.”

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Canada’s Pioneer in Reclamation Terry Macyk grew up on a farm where he cultivated a deep and abiding love for the outdoors. As a reclamation scientist who worked with the Alberta Research Council for over four decades and recently retired, he has been fortunate to be able to work outdoors for most of his career, while pioneering reclamation practices that were in their infancy when he became involved in 1971.

“I’ve been involved in reclamation for 39 years and have monitored the success of a number of efforts in the oil sands, conventional oil and gas and mining industries. Over the years we’ve learned a lot about soil replacement, moisture regimes and vegetative covers. We’ve seen practices evolve, from more of a mono-culture approach to one where greater diversity is applied to the reclamation effort,” he says.

Today, scientists are working on creating wetlands, fens and other specialized habitat. It’s also now standard practice to reclaim land with native species. Time and a thoughtful, measured and scientific approach remain an essential part of the reclamation process.

Terry explains, “Each tree species has its optimal lifespan and it takes at least two decades for a forest to reach the point of canopy closure. Over the years we’ve demonstrated that reclamation is possible. It takes long-term involvement, but as long as people do what they are supposed to do, it will be successful. Patience is the key.”

 Terry Macyk, Retired Reclamation Scientist, Alberta Research Council

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Annual Certification or Release Received

Oil Sands Deposits Although Alberta’s oil sands underlie 142,200 square kilometres of land, much of this resource is too deep to be mined. In fact, only three per cent or 4,802 square kilometres of oil sands land is mineable. Currently, 662 square kilometres is under development, which includes 65 square kilometres that has been or is being reclaimed.

Certificates are given for sites that have been reclaimed and approved by provincial authorities. The 2009 number, which reflects a CAPP methodology update, includes facilities and individual wells. Prior to 2009, numbers reflect wells, facilities and Oil Sands Exploration (OSE) programs that often included multiple wells under one certificate.

Peace River

[number]

05 75 |

06 13

07 40

08 3

Canada’s boreal forest: 3,200,000 km² Canada’s oil sands: 142,200 km² Alberta protected areas: 90,464 km² Oil sands mineable area: 4,802 km²

PEACE RIVER AREA

Fort McMurray

ATHABASCA AREA

Grande Prairie

Cold Lake Industrial Heartland Edmonton

09 53 |

COLD LAKE AREA

Calgary

|

 Suncor’s TRO process helps separate the water and clay particles, accelerating tailings pond reclamation from 30 years down to 10 years.

Suncor: Accelerating Reclamation Suncor has developed an industry-advancing technology called Tailings Reduction Operation (TRO) to significantly shorten the time it takes before tailings ponds can be reclaimed. Tailings ponds are basins used as an interim reclamation step to settle the water, clay, sand and residual bitumen resulting from oil sands mining and extraction processes.

Typically, tailing ponds naturally divide into three layers, with the heaviest materials falling to the bottom and water rising to the top. The middle layer, referred to as mature fine tailings (MFT), is generally 70 per cent water and 30 per cent fine clay particles and has the consistency of yogurt. The particles carry a slight electric charge and are constantly repelling one another, resulting in suspension for years, sometimes decades.

Suncor’s TRO process works by adding a binding agent to the tailings which the clay particles adhere to, resulting in a quicker and more efficient water and clay separation.

Using the TRO drying process, Suncor expects to reduce the time span required for tailings pond reclamation from 30 years to 10 years.

The company plans to spend over $1 billion on tailings reclamation efforts over the next two years.

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Oil Sands Reclamation: Here’s How A typical oil sands mine operates for 25 to 50 years. As required by law and included in all project approvals, all lands disturbed by oil sands operation must be reclaimed. For oil sands mines, reclamation planning begins before the first shovel of earth is moved. The reclamation plan is modified as mine planning is advanced, to ensure it will result in the desired end land use. Once the oil sand has been removed and the area has been backfilled, the physical reclamation work begins. The area is contoured as required to ensure proper drainage, topsoil is replaced and then the area is replanted with trees, shrubs and appropriate reclamation species. Ongoing soil and vegetation assessments are undertaken and the reclamation program refined if needed.

Oil Sands Reclamation Twenty per cent of oil sands reserves lie sufficiently close to the surface to be developed using mining techniques, accounting for three per cent of total surface area of the oil sands region in Alberta. Mines are developed in stages and reserves are depleted before development of the next site begins. Reclamation is the first process to be initiated in a new project, with the surface of the land removed and stored to be replaced when reclamation is underway.

The mining process systematically removes the oil sand deposits and transports the mixture to an upgrading site.

When the reserves have been depleted, the stored surface material is replaced, including micro-organisms and original plant material.

Vegetation like the original growth is regenerated, often over a period of years. Once reclaimed, the area will be returned to an equivalent capability.

12 3

Reclamation work is staged throughout the life of a project. Implementing the entire reclamation plan can take decades. Companies cannot apply for certification of these lands until the land is no longer in use and has been fully reclaimed and vegetation is mature enough to demonstrate long-term productivity. Because an area is not certified does not mean it is not “reclaimed”. Large areas of uncertified, reclaimed land can be occupied by wildlife and native plant species.

A typical in situ well operates for 10 to 15 years, with reclamation similar to that of conventional oil and gas facilities. In situ central plant facilities are constructed after vegetation and soils are removed. The soils are stored for use in future reclamation. In situ well pads often remove only the vegetation and leave soils in place, as pads are constructed on top of the in-place soils. Once bitumen recovery has been exhausted from a well pad, the pad materials are removed and the area re-vegetated.

Responsible Canadian Energy : Oil Sands Progress Report 15

Oil Sands Reserves*

Oil Sands Surface Area*

Mining is used to recover oil sands that exist close to the surface. About 20 per cent of Canada’s oil sands reserves can be recovered through mining.

Only three per cent of Alberta’s total oil sands lands are suitable for mining. The remaining 97 per cent will be developed using in situ technologies with limited surface disturbance.

[billion barrels]

[kilometres²]

Mining In situ

09 035 135

* Source: ERCB

09 Mining 004,802 In situ 137,398 * Source: Alberta Environment

 Canadian Natural’s LRAD laser bird-deterrent system responds to as many as 35,000 objects per day with 97.5 per cent detection effectiveness.

Canadian Natural: Protecting Waterfowl Similar to systems deployed at airports to enhance aircraft passenger safety and to prevent birds from colliding with airplanes, Canadian Natural’s Long Range Acoustic Devices (LRAD) and laser systems identify birds at a distance of approximately 2.8 kilometres and activate bird-deterrent systems to harass birds using humane methods, including acoustic or visual deterrents. Four linked stations provide complete radar coverage of the tailings pond and radar detects objects that are defined through recognition software. According to Calvin Duane, Manager, Environment, at Canadian Natural, “During the spring 2010 migration peak periods, the LRAD system responded to as many as 35,000 objects per day, and proved effective in detecting 97.5 per cent of the birds. Most importantly, not a single bird landed on our pond.”

Syncrude: Ensuring Waterfowl Safety Syncrude has improved the deterrent system it uses to prevent waterfowl from landing on its tailings ponds following an unfortunate event in 2008. More than 1,600 birds died

16 Responsible Canadian Energy : Oil Sands Progress Report

after landing on a settling basin and becoming coated in bitumen. This improved system incorporates ideas from wildlife scientists, Aboriginal advisors and deterrent equipment specialists. The enhanced system includes year-round deployment of deterrents on areas that are not frozen, year-round staffing, monitoring for open water and responding to any risks. These deterrents include the use of noise cannons and scarecrows. In addition, Syncrude has installed a radar monitoring system similar to those used at many airports.

It assists in researching and monitoring bird migration patterns.

ConocoPhillips Faster Forests :

ConocoPhillips is one of several producers piloting aggressive reclamation processes on land used for steam assisted gravity drainage (SAGD) production in an initiative called “Faster Forests”. Since the program was first introduced in the summer of 2009, close to 130,000 trees have been planted, with plans to continue this progressive reclamation in the coming years.

Species at Risk CAPP fully supports the goals and objectives of the Species at Risk Act (SARA) and has been engaged in the development of this legislation since its inception in 2002. The purposes of SARA are to prevent the loss of wildlife species and to provide for the recovery of wildlife species that are endangered or threatened as a result of human activity, and to manage species of special concern to prevent them from becoming endangered or threatened.

These goals are reflected in the operating practices of companies working in the oil sands. Operators respect wildlife and their habitat and work to ensure they understand

and maintain movement corridors where possible. Operational practices have evolved to minimize the impact of seismic lines, pipeline corridors, rights of way and road work.

Reclamation activities are clearly a broad and sustained response to returning the land to a condition capable of supporting wildlife. One of the key areas of focus is employee safety training aimed at avoiding vehicle collisions with wildlife.

CAPP is also involved in making recommendations to improve the quality of information available and the development of better measures to protect all species.

Responsible Canadian Energy : Oil Sands Progress Report 17

Reducing greenhouse gas (GHG) emissions and air pollutants such as nitrogen oxides and sulphur dioxide is a global challenge. Like other industries today, the oil sands industry is constantly seeking ways to reduce its air emissions. Our actions are steered by the oil sands Guiding Principles: :

We will design and operate our facilities to ensure that regional air quality continues to exceed provincial air quality objectives.

:

We will continue to reduce greenhouse gas emissions per barrel of production by improving our energy efficiency and by developing new technologies.

Our members are committed to these principles and we are monitoring our performance by gathering data from our members on key performance indicators including: GHG emissions intensity, sulphur dioxide (SO ² ) emissions intensity and nitrogen oxides (NO x ) emissions intensity.

Ongoing monitoring allows us to better understand our year-over-year performance and footprint.

At the same time, we work with stakeholders to manage and address issues, such as odour, that occur.

During 2009, the Alberta Energy Research Institute commissioned two reports on the Life Cycle Analysis of North American and Imported Crude Oils that examined and compared Alberta’s oil sands to a variety of other oil sources worldwide on a wells-to-wheels basis.

Jacobs Consultancy Canada Inc. and TIAX LLC. worked with an international panel of experts to develop two life cycle research reports. The independent reports indicated that life cycle GHG emissions from oil sands-derived crude oils are similar to those of many other crude oil supplies into the United States.

18 Responsible Canadian Energy : Oil Sands Progress Report

 Cenovus maximizes oil recovery in SAGD operations by using solvent aided process (SAP) technology at its Christina Lake oil sands facility located in the Athabasca region in northeast Alberta. Injecting steam, combined with solvents, such as butane, helps bring the oil to the surface.

The life cycle emissions studies also revealed that the majority of emissions are produced during the consumption of the fuel. Consumption represents 75 per cent of the GHG emissions and is the same regardless of source.

It is also important to keep in mind what this represents in terms of total impact. Canada’s oil sands produce five per cent of the total GHG emissions in this country and Canada is responsible for two per cent of global energy-related emissions. Overall, Canada’s oil sands industry represents 1/1000 of total global energy-related GHG emissions.

As an industry we are focusing on reducing the intensity of our emissions and our performance is improving. According to Environment Canada, since 1990 GHG intensity per barrel of oil sands produced has been reduced 39 per cent. By investing in and applying new technologies to our operations, we will continue to find new ways to reduce emissions.

Full Cycle GHG Emissions* [g CO ² e/MJ gasoline]

120 Range of common U.S. imported crude oils 102

102

106

104

114

108

105

116

113

No current production (likely future scenario)

102

Approximately 6% of 2009 oil sands production

98

Approximately 43% of 2009 oil sands production

080

Approximately 51% of 2009 oil sands production

100 102

107

060 040 020

000 Saudi Mexico Iraq Venezuela Nigeria US Gulf California Oil sands In situ oil In situ oil In situ oil Imported Oil sands Arabia Coast thermal mining - sands - sands - sands - Wtd. Wtd.

upgraded diluted upgraded bitumen average average

GHG emissions from production and refining GHG emissions from gasoline consumption

* Source: Jacobs Consultancy. Life Cycle Assessment Comparison for North America and Imported Crudes, June 2009

Responsible Canadian Energy : Oil Sands Progress Report 19

Canada’s GHG Emissions by Sector*

[per cent]

Residential Service industries Other fossil fuel Conventional oil & gas production Oil sands Electricity Manufacturing & heavy industry Transportation Agriculture

08 07 08 05 12 05 16 15 22 10

* Source: Environment Canada – National Inventory Report 1990-2008

« Canada, with 0.5 per cent

of the world’s population, produces two per cent of global GHG emissions. Oil sands account for five per cent of Canada’s total GHG emissions or 1/1000 of global GHG emissions.

»

 Mark Bilozir, Team Lead for Technology & Diluents Strategy and Subodh Gupta, Technology Enhancement Advisor, Cenovus Energy

20 Responsible Canadian Energy : Oil Sands Progress Report

Responsible Canadian Energy : Oil Sands Progress Report 21

1/1000 global GHG Industry GHG Emissions

Cenovus: Initiatives to Reduce Air Emissions Cenovus Energy, an industry expert on SAGD technology, is applying its expertise to a critical area of extraction, and one that will potentially have the greatest impact on air emissions. “Cenovus has been using SAGD longer than any other company,” says Subodh Gupta, Cenovus’ technology enhancement advisor. “We have a lot of experience and we know we need to continually improve our technology to keep making our environmental footprint smaller.”

Subodh is responsible for Cenovus Energy’s “portfolio of technologies”, which includes roughly 50 different projects, most of which are still in the development phase. The common thread among them is that they all focus on developing technology to reduce the environmental impact and the energy intensity required in the company’s oil sands recovery process.

At the core of Cenovus’s technology research is the attempt to reduce SOR (steam-to-oil ratio). SOR represents the amount of steam required to extract a barrel of oil from the resource and is a key measure of efficiency for operations using SAGD technology. At a SOR of 2.5, Cenovus has the lowest SOR in the industry. While SOR is relevant to water usage, it also applies to lower energy usage: the water is heated into steam by burning natural gas, so the lower the ratio, the fewer emissions into the atmosphere.

“Basically SOR is important because the less steam required leads to less GHG emissions, less water usage and finally, less water to treat,” says Subodh.

Several projects within Cenovus’s “portfolio of technologies” target GHG emissions reduction. Some probe the potential of better water usage, better heat delivery to the reservoir and low-pressure SAGD; others examine ways to improve the performance of specific reservoir-tailored processes.

Several companies are exploring Solvent Aided Process (SAP) technology – a process where solvent is injected into steam to further reduce SOR. “We have conducted two field tests of SAP at Senlac, Saskatchewan and Christina Lake, Alberta,” says Mark Bilozir, Team Lead, Technology & Diluent Strategy for Cenovus. “We are currently evaluating our third SAP test with an isolated SAGD well pair at Christina Lake. We have demonstrated that production can be improved by

22 Responsible Canadian Energy : Oil Sands Progress Report

30 per cent and the SOR reduced by as much as 25 per cent with SAP technology. SAP will be an important tool in Cenovus’s future commercial operations.”

Continually improving the delivery of steam to the reservoir is paramount to the SAGD process and reduction of SOR. Maximizing the amount of steam that stays in vapour form rather than liquid is the goal to an effective SAGD process.

“Our motivation at Cenovus is to have as little impact possible on the environment in our resource recovery operations while delivering industry-leading metrics,” says Subodh. “We will continue to invest in developing technology so we can proceed to develop our energy resources in an environmental and socially responsible way.”

20 Responsible Canadian Energy : Oil Sands Progress Report

Oil Sands GHG Emissions

Oil Sands NO x Emissions

The deployment of new technology has seen the intensity of greenhouse gas emissions generated from oil sands production decrease 39 per cent since 1990* – while an increase in absolute GHG emissions can be attributed to increased production. Intensity levels are the best measure of the benefits realized from technological advances and the ongoing improvements to which the oil and gas industry is committed.

NO x emissions intensity in the oil sands has increased primarily due to increased fuel consumption, from mine trucks and other mobile equipment, which are the primary source of NO x emissions. As mines grow, trucks are required to travel greater distances to move raw materials. Industry recognizes this is an issue and is focused on introducing new low NO x engine technology currently under development.

* Source: Environment Canada

Absolute [millions of tonnes/yr]

05

06

07

08

09

05

06

07

08

09

28.5 33.6 34.5 37.3 40.0

[thousands of tonnes/yr] 38.4 46.0 54.6 58.3 68.6

0.48 0.48 0.47 0.52 0.49

[tonnes/10³m³ OE]

Intensity

Intensity [tonnes/m³ OE]

Absolute

Wood Buffalo Air Monitoring In the northeastern region of Alberta, where oil sands production is concentrated, producers have helped advance an integrated, science-based, cooperative air monitoring effort through their funding of the Wood Buffalo Environmental Association (WBEA).

The WBEA, an association that operates independently of industry, and whose board and members are comprised of representatives from environmental, governmental, regulatory and community organizations, monitors air quality and its effects in the Regional Municipality of Wood Buffalo on a 24/7/365 basis. This is accomplished through a variety of air, land and human exposure monitoring programs, including a network of 84 air analyzers located around the region.

The information collected from 15 ambient air monitoring stations between Anzac and Fort Chipewyan is openly and continuously shared with stakeholders and the public and posted in real time via the WBEA website (www.wbea.org).

Carna MacEachern, WBEA’s Executive Director, says, “Our programs are forward-looking, innovative and science-based and it is likely the most intensive focus on air and terrestrial monitoring in one area.”

22 Responsible Canadian Energy : Oil Sands Progress Report

0.66 0.65 0.74 0.83 0.84

« Our programs are

forward-looking, innovative and sciencebased and it is likely the most intensive focus on air and terrestrial monitoring in one area.

»

Carna MacEachern, Executive Director Wood Buffalo Environmental Association (WBEA)

WBEA monitors air quality for a variety of compounds including ozone (O ³ ), nitrogen oxides (NO, NO ² , NO x ), sulphur dioxide (SO ² ), hydrogen sulphide (H ² S), total reduced sulphur (TRS), total hydrocarbons (THC), fine particulate matter (PM2.5), ammonia (NH ³ ), and carbon monoxide (CO).

According to the WBEA 2008 Annual Report, ambient air concentrations have remained relatively steady in the Wood Buffalo Region despite increasing oil sands production in the region.

Oil Sands SO ² Emissions A decrease in sulphur dioxide emissions intensity from oil sands production can be attributed to better sulphur control and recovery technology at new facilities coming on stream.

Absolute

05

06

07

08

09

[thousands of tonnes/yr] 106.4 119.5 124.9 116.4 131.2

Intensity [tonnes/10³m³ OE]

1.83 1.73 1.69 1.64 1.60

In December 2009, the University of Alberta’s School of Public Health, Department of Public Health Sciences, published the results of a long-term analysis of the air quality monitoring data collected by the WBEA, entitled Ambient Air Quality Data Summary and Trend Analysis, 1998 – 2007. The study stated: “In

 Meteorological towers located outside of the Athabasca River valley produce continuous meteorological and air pollution data to improve accuracy in dispersion modeling.

general, what was observed in this analysis was positive as it is apparent that changes to regional air quality in the WBEA air shed – where observed – were either negligible or small for most of the air pollutants at most of the stations.”

Responsible Canadian Energy : Oil Sands Progress Report 23

« In combination with existing

emission reduction technology, the scrubbers are expected to reduce total site emissions of sulphur compounds by more than 50 per cent from current levels.

»

Syncrude Canada: Emissions Reduction Project Syncrude Canada Ltd. is an example of how companies are thinking about – and taking action on – how their operations contribute to air quality. The company’s Mildred Lake facility produces sulphur dioxide (SO ² ) in its refining process.

For many years, Syncrude has been using a “scrubber” device which removes sulphur from the production’s exhaust gas before it reaches the atmosphere. This device has had a measurable impact in reducing the resulting sulphur emissions.

« According to Environment Canada, since 1990 GHG intensity per barrel of oil sands produced has declined 39 per cent.

»

24 Responsible Canadian Energy : 2010 Oil Sands Progress Report

John Ellingsen, Syncrude’s Environmental Services Team

Now, Syncrude is taking a further step to significantly impact sulphur emission reductions.

They are making a $1.6 billion investment under the Syncrude Emission Reduction Project (or SERP) to retrofit two flue gas scrubbers into the operation of their two original cokers at the Mildred Lake facility.

Brian Sinclair, the RFO Production Area Leader, says: “To my knowledge, this is the first time this technology has been applied on cokers in the oil sands industry anywhere in Canada.”

The new facilities are expected to be operating to specification after 2011. In combination with existing emission reduction technology, the scrubbers are expected to reduce total site emissions of sulphur compounds by more than 50 per cent from current levels. Emissions of particulate matter and metals also will be significantly reduced, falling by as much as 50 per cent.

John Ellingsen, a member of Syncrude’s Environmental Services team says efforts to reduce SO ² and particulate emissions are imperative as Syncrude’s operations expand. “As we grow, our emissions reduction program needs to grow with us.”

: Water How much water do we use, what kind of water is it, where does it come from, and can we reduce and recycle more?

These are the questions our industry is asking.

Water plays a critical role in the development of oil sands.

The major uses of water in the oil sands industry include: hot water treatment process in oil sands mining operations (to extract oil from the sand and clay); upgrading bitumen in oil sands mining operations (to decrease viscosity for refining); steam generation for in situ oil sands operations (to heat bitumen allowing it to flow to the surface); and well drilling and completion operations.

Water is taken from either surface water or groundwater (underground) sources; groundwater sources consist of both fresh and non-fresh water. For the purposes of this report, fresh water is defined as water containing low concentrations of dissolved salts. By extension, non-fresh water is high in dissolved salts and is not of suitable quality for domestic or agricultural uses.

Efforts to reduce fresh water usage and protect water quality are at the core of the Guiding Principles for Oil Sands Development, established in 2009:

:

We will continue to reduce the amount of fresh water required per barrel of production by improving water recycle rates, using non-potable water sources where feasible, and by developing new technologies.

:

We will safeguard the quality of regional surface and groundwater resources.

The oil sands industry regularly participates in hundreds of credible scientific investigations by the Regional Aquatics Monitoring Program (RAMP), Alberta Environment, Environment Canada and university researchers to monitor the effects of oil sands development in the region. While a tremendous amount of study has already been undertaken, industry is a proponent and supporter of new sources of information on water quality in the region.

Our industry is continuously measuring the amounts of fresh and non-fresh water used. The primary source of fresh water for oil sands mining projects in the Wood Buffalo region is the Athabasca River. According to Alberta Environment, in 2009, oil sands mining projects used 106.5 million cubic metres of fresh water from the Athabasca River, which represents less than one per cent of the Athabasca River’s 22.3 billion cubic metres of average natural flow. To further protect the ecological integrity of the river, industry is restricted in when it takes water from the Athabasca such as during winter when the flow levels are low.

26 Responsible Canadian Energy : Oil Sands Progress Report

 Water testing at a Suncor consolidated tailings pond.

Mining projects used 106.5 million cubic metres of fresh water from the Athabasca River to produce 47.9 million cubic metres of mined bitumen in 2009 or 2.2 barrels of fresh water per barrel of bitumen production. While river water was the primary source, secondary sources of fresh water include precipitation that is captured in the active mine area and groundwater that is pumped to prevent the mines from filling with water. It is also important to note that water use is typically highest during mine start-ups and fresh water use declines and efficiency improves as a mine matures.

Oil sands in situ projects do not use any water from the Athabasca River. In situ projects used 16.7 million cubic metres of fresh water from other surface water and groundwater sources to produce 33.0 million cubic metres of bitumen in 2009 or half a barrel of fresh water per barrel of bitumen production. Close to 50 per cent of the water used for in situ operations in 2009 was non-fresh water – saline water unfit for domestic or agricultural use. In some projects, fresh water has been entirely replaced by non-fresh or saline water. Efforts to minimize fresh water use over the last two decades have resulted in increased bitumen recovery without proportional increases in fresh water use, and this trend is expected to continue in the future.

One of the key techniques employed by oil sands operators to reduce the amount of fresh water used is the process of treating and recycling the same water for use, and reuse in their processes until its quality does not allow further recycling. Oil sands operations currently recycle 80 to 95 per cent of the water they use.

Given the significance of water in the production of bitumen, safeguarding the quality of regional surface and groundwater resources is also of critical importance to the oil sands industry. Oil sands projects are required to conduct extensive hydrological and/or hydro geological studies as part of the Environmental Impact Assessment process. Companies perform ongoing monitoring of surface and groundwater resources which may be impacted by operations. This data is submitted to the Alberta government and can be audited at any time. Also, Alberta Environment is developing surface water quality and groundwater management frameworks for the Lower Athabasca Region. These tools will assist the government in managing the cumulative effects of all activity in the area, including oil sands operations, and thereby protect groundwater across the region and the water quality of the Lower Athabasca River sub-basin. The oil sands industry is a proponent and participant in these and other initiatives which are aimed at reducing impacts and achieving sustainable water use and quality.

Responsible Canadian Energy : Oil Sands Progress Report 27

Alberta Water Allocations – 2009* Total annual water allocation for oil sands in Alberta is currently 672.8 million cubic metres, or 6.8 per cent of Alberta’s total water allocation. Actual water use is less than one-third of the allocated amount.

[per cent]

Agriculture & irrigation Commercial Oil & gas Oil sands Municipal Other

09 44 30 02 07 11 06

* Source: Alberta Environment

« Oil sands projects recycle 80 to 95 per cent of the water they use. »

 Gordon Lynch, Shift Supervisor, Devon Energy

28 Responsible Canadian Energy : Oil Sands Progress Report

Responsible Canadian Energy : Oil Sands Progress Report 29

80to 95% Industry water recycling

Devon Energy: Quenching the thirst As Canada’s oil sands industry grows, so will its demand on water resources. The innovation and leadership at work today in the oil sands industry are coming from a need and a desire to reduce fresh water usage and preserve our valuable water resources.

Companies are adapting and reusing water in greater quantities in their daily operations; many are tapping non-fresh sources from deep underground aquifers. In some cases, even these alternative sources have become entirely recyclable.

With extraction activities increasing in the Athabasca oil sands area, Devon Energy recognized the potential strain on fresh water resources. The company designed a SAGD facility that would use no fresh water in its steam generation process. The resulting Jackfish project, Devon’s 35,000 barrel per day thermal heavy oil facility near Conklin, Alberta, became the first commercial SAGD operation to rely solely on saline (non-fresh) water for production. Devon is pursuing similar principles in its proposed duplicate project, Jackfish 2.

Gordon Lynch, shift supervisor at Jackfish, attributes the technology to a growing commitment to responsible water management and conservation. When the plant hit the drawing boards, water management had long been a challenge for industry. Devon was in the midst of framing its approach to water across the organization, guided by the principles of minimization of use, conservation and recycling in all aspects of its operations.

“As a company we decided that if this is what we stand for, we’ve got to walk the talk,” says Gordon. “It’s a relatively new technology but any time you can reduce impact, it’s a positive thing – not only for Devon but for the industry as a whole.”

Cenovus Energy is also increasingly targeting fresh water and make-up water intensity in its operations says Jason Abbate, head production engineer for the oil company’s enhanced oil project at Christina Lake in northeast Alberta. In an effort to minimize fresh water with majority saline water use, Cenovus is recycling blow down water from its steam generation facility back into its produced water train – and employing reboiler technology to further reduce brackish water make-up requirements in its process. “Cenovus recaptures and utilizes over 95 per cent of the water returning from the SAGD process.”

30 Responsible Canadian Energy : Oil Sands Progress Report

“Water continues to be an issue to communities,” Gordon says, “and it is critical that we continue to communicate what we are doing to reduce water consumption.”

“It’s about engaging in conversations and communicating the responsibility we accept as oil sands producers,” adds Jason.

“We’re striving to be the best project, to create the best story for our stakeholders. The fact is, for myself and for the guys I work with out here, there’s a real sense of ownership and pride in minimizing the environmental impact of what we do.”

28 Responsible Canadian Energy : Oil Sands Progress Report

Fresh Water Used by In situ Projects*

Fresh water accounts for 88 per cent of the total water used by oil sands projects, with non-fresh water representing the remaining 12 per cent.

Fresh water used by in situ projects has grown commensurate with the increasing number of projects.

The ratio of barrels of water used to barrels of production has been declining since 2002, reflecting increasing efficiencies as well as the increasing use of non-fresh water.

[million m³/yr]

Fresh Non-fresh

09 136.2 018.9

18

0.75

12

0.50

06

0.25

00

0

[barrels]

[millions m³]

Fresh and Non-Fresh Water Withdrawal

2000 2003 2006 2009 Total fresh water used Barrels of fresh water used per barrel of bitumen produced * Source: Alberta Environment and CAPP

Canadian Natural: Making More Water Canadian Natural Resources Limited has developed a technique that increases the available water for recycling and reuse at Horizon, its oil sands facility located 70 kilometres north of Fort McMurray.

Waste carbon dioxide (C0 ² ) is injected into the tailings slurry lines before entering the tailings pond, thereby changing the mixture’s chemical nature. This reaction allows the fine clays, silts and sand to settle quickly leaving clearer water which is immediately recycled for use in the bitumen extraction process.

Canadian Natural plans to further capitalize on waste CO ² at Horizon in a new tailingstreatment process. This will involve cyclone technology and thickeners to remove even more water from the clay, silts and sand.

Canadian Natural expects this process will significantly reduce the amount of new water withdrawals necessary in its bitumen extraction process. As an added benefit, the process will eliminate about 219,000 tonnes of CO ² emissions every year, the equivalent of taking 42,115 cars off the roads.

30 Responsible Canadian Energy : Oil Sands Progress Report

Suncor: Over 90 Per Cent Recycled Water Suncor Energy is close to being able to bring on a zero-liquid discharge and recycling system at its in situ facility at MacKay River north of Fort McMurray, Alberta. An extensive research and development program undertaken by PetroCanada (which merged with Suncor in 2009) has led to a process of treating and recycling “produced water” (condensed steam and saline water) from its SAGD process, resulting in more injection steam to bring bitumen to the surface.

In fact, 96 per cent of the facility’s injection steam is recycled continuously in this manner, requiring no surface water and very little water drawn from underground aquifers.

NPRI Inventory: More Data on Tailings The 2009 National Pollutant Release Inventory (NPRI) released August 6, 2010 by Environment Canada includes new data on the mining industry’s impact on tailings ponds, providing greater transparency and important context on oil sands mines. The new reporting requires mining facilities to report not only the quantities of NPRI substances released to air, water and land (as before), but also the quantities and concentrations of NPRI substances placed in waste rock and tailings containment areas.

Water Withdrawn from the Athabasca River* The Athabasca River is the primary source of fresh water for mining projects and the annual withdrawal represents under one per cent of the river’s average natural flow. Industry withdrawals from 2002 through 2007 reflect increasing efficiencies realized in terms of total and per barrel withdrawals. The increase in 2008 is directly attributable to a new project coming on stream.

Withdrawal rates are expected to moderate as that project reaches greater operating efficiencies.

Managing Tailings Ponds 4.0

125

* Source: Alberta Environment and CAPP

 The measures used to limit and manage seepage from tailings ponds are comprehensive and exacting. They begin with the construction of ditches and groundwater interception wells around tailings facilities to capture seepage and runoff, which is then pumped back into the tailings pond. Cut-off walls are built to prevent seepage migration.

Both industry and government routinely monitor water quality to detect and prevent any impacts that oil sands development may have on water quality. In addition, many oil sands companies are investing billions of dollars in technologies aimed at reducing the impact of tailings ponds.

The report lists over 50 elements and compounds from 85 mining facilities that generate tailings and waste rock. Of those, the oil sands produce about 10 per cent of the total.

sands industry is significantly increasing investments in technology to address the volume of tailings stored and to speed up reclamation of tailings areas.

The tailings substances reported originate in oil sands ore (clay, sand, water and bitumen) or are introduced during processing to improve bitumen recovery. While the NPRI numbers record increased percentages of some substances, these increases are the result of increased production as well as shifts in the make-up of the original substances.

As discussed in this report, tailings are not released to the environment. They are contained in ponds to allow the settling of sand and clay.

Clarified water from tailings ponds is recycled and the sand, clay and residual bitumen is later reclaimed. To protect land and groundwater from seepage, collection systems and groundwater monitoring wells collect and monitor any tailings that migrate through the dykes. Seepage collected is pumped back into the ponds. Any seepage detected but not collected is reported to Alberta’s Energy Resources Conservation Board.

3.0

075 2.0 050

[barrels]

[millions m³]

100

1.0

025

0

000

2000 2003 2006 2009 Athabasca River withdrawal Barrels of water used per barrel of bitumen produced

Only about 20 per cent of total oil sands reserves are recoverable through mining techniques, which require the use of tailings ponds. Currently, oil sands tailings ponds cover an area of about 170 square kilometres. Canada’s oil

Water for reuse Bird deterrent systems in place

Fluid fine tailings

Groundwater monitoring wells

Coarse sand Dyke wall

Seepage collection ditches

Low-grade oil sands

Responsible Canadian Energy : Oil Sands Progress Report 31

2009 Responsible Canadian Energy Oil Sands Aggregate Data This is the first Responsible Canadian Energy report using the focused set of key performance indicators and, as with any “first”, the data and reporting will be refined and improved with time. This report will serve as industry’s baseline year, as companies begin to use Responsible Canadian Energy metrics and align their internal management systems. Development of the program is ongoing and future reports will reflect enhancements in both the metrics and the supporting analysis and interpretations.

RCE Metrics

2009

2008

2007

2006

2005

2

5

3

Employee total recordable injury frequency [injuries/200,000hr]

0.58

0.64

0.71

0.79

0.97

Contractor total recordable injury frequency [injuries/200,000hr]

0.76

1.02

1.12

1.36

1.01

Worker total recordable injury frequency [injuries/200,000hr]

0.71

0.93

1.01

1.18

1.00

Safety and Well-Being Fatalities [number/yr]

First reported in 2007

Water Management Fresh water withdrawal [m³/yr] Non-fresh water withdrawal [m³/yr]

136,216,696

First reported in 2009

18,912,607

Air & Energy Management Direct CO ² equivalent emissions [tonnes/yr]

35,396,690

31,556,622

30,406,408

30,116,934

24,940,884

4,637,798

5,776,035

4,059,013

3,474,458

3,524,718

131,202

116,405

124,942

119,520

106,419

68,600

58,255

54,591

45,953

38,363

GHG intensity [tonnes per m³ OE of total oil sands production]

0.49

0.52

0.47

0.48

0.48

SO ² intensity [tonnes per 10³m³ OE of total oil sands production]

1.60

1.64

1.69

1.73

1.83

NO x intensity [tonnes per 10³m³ OE of total oil sands production]

0.84

0.83

0.74

0.65

0.66

53

3

40

13

75

225,436

195,282

202,056

192,552

163,146

Indirect CO ² equivalent emissions* [tonnes/yr] SO ² emissions [tonnes/yr] NO x emissions [tonnes/yr]**

Land Management Annual certification or release received*** [number] Production Total [m³OE/d] General Comments 1) Factors to convert different facilities’ products to an oil equivalent volume was based on the product’s energy or heating value to be consistent with CAPP’s Guidance Document for Calculating Greenhouse Gas Emissions (Pub No. 2003-003).

2) Yellow cells indicate calculated KPIs. White cells are absolute values.

3) Data may be impacted by fluctuations in CAPP membership year-over-year. * Indirect CO² Equivalent Emissions was a non-mandatory metric used to calculate GHG intensities. ** NOx became a mandatory metric in 2009. *** There was a CAPP methodology update for 2009 data. Refer to RCE 2010 Metrics Guide.

32 Responsible Canadian Energy : Oil Sands Progress Report

Here’s what we said, and how we are doing The oil sands are an important Canadian resource and vital source of reliable, secure energy for North America and the world. Their development has many benefits and challenges, including the social and environmental impacts that require a collective commitment to responsible, balanced development.

The Responsible Canadian Energy program has been initiated to help us meet that commitment.

CAPP and its member companies strive each day to improve our environmental, health, safety and social performance; and to openly address issues of interest to Canadians. By applying the Responsible Canadian Energy program’s Oil Sands Guiding Principles to our daily business, CAPP aims to ensure we as an industry always have that commitment in mind.

In setting measurable environmental, health, safety and social benchmarks and tracking industrywide performance, Responsible Canadian Energy encourages innovation and increases our accountability to the public. It establishes expectations for developing oil sands resources, shares best practices across the industry and allows us to report our collective performance in a meaningful way.

This first Responsible Canadian Energy report assesses oil sands industry performance according to key indicators in four areas: people, land, air and water. The stories and statistics in this report demonstrate that industry is making strides in each of those areas. Innovations in land reclamation, water recycling and emissions reduction are lessening our impact on the environment as we continue to engage with stakeholders and provide economic benefits to Canadians.

In summary:

People Here’s what we say:

:

We will provide a safe environment for employees, contractors and communities where we operate; employment and business opportunities for regional communities, including Aboriginal peoples; and consult with stakeholders through all stages of our operations.

Here’s how we are doing:

:

Our safety performance has improved with Total Recordable Injury Frequency dropping 29 per cent over the past five years and 24 per cent from 2008.

:

Aboriginal companies received contracts worth over $810 million in 2009 and have an accumulated value of contracts totaling over $3.8 billion between 1998 and 2009.

:

On an individual basis, CAPP member companies reach out to stakeholders through community consultation, community investments, reports and initiatives to establish and encourage open lines of communication.

Responsible Canadian Energy : Oil Sands Progress Report 33

Land Here’s what we say:

:

We will mitigate our impact on the land while maintaining regional ecosystems and biodiversity, and progressively reclaim all lands affected by oil sands operations returning them to self-sustaining landscapes.

Here’s how we are doing:

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Of the 142,200 square kilometres that contain oil sands, only three per cent have mineable deposits and only 0.47 per cent or 662 square kilometres is currently under development.

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The remaining 97 per cent is suitable for in situ development where technological advancements now allow up to 20 wells to be drilled from a single location, reducing surface impact.

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Reclamation is continuous and as more land is disturbed more is reclaimed. CAPP member oil sands companies have reclaimed 10 per cent of the land disturbed. This number is low because our projects are in early development stages. As the resources are depleted, the land will be reclaimed until 100 per cent is returned to a state as close as possible to an equivalent capability.

Air Here’s what we say:

:

We will design and operate our facilities to ensure that regional air quality continues to exceed provincial air quality objectives; and continue to reduce GHG emissions per barrel of production by improving our energy efficiency and by developing new technologies.

Here’s how we are doing:

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Independent air quality monitoring in the Wood Buffalo region has established that there have been “negligible or small” changes in air quality in that area over the past five years despite increasing oil sands production.

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Canada’s oil sands are responsible for 1/1000 of the world’s GHG emissions. GHG emission intensity – emissions per barrel of production – has decreased 39 per cent since 1990 and much new technology is aimed at continuing that trend. Absolute emissions have increased as production volumes increase.

34 Responsible Canadian Energy : Oil Sands Progress Report

:

Progress is being made to reduce SO ² emissions intensity, however industry recognizes more needs to be done to offset the absolute emissions associated with rising production volumes.

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Increasing NO x emissions remain a challenge. Fifty per cent of NO x emissions are associated with the increasing use of vehicles to move raw material. New engine technology, expected to reduce emissions, will be deployed as soon as available.

Water Here’s what we say:

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We will continue to reduce the amount of fresh water required per barrel of production by improving water recycle rates, using non-potable water sources where feasible and by developing new technologies; and we will safeguard the quality of regional surface and groundwater resources.

Here’s how we are doing:

:

With 2009 as the starting year for much of these measurements, our benchmark data is that oil sands mining operations in 2009 required 2.2 barrels of fresh water for every barrel of production. The primary source for this water is the Athabasca River and that amount represents less than one per cent of the annual flow of that river.

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In situ operations used 0.5 barrels of fresh water per barrel of production. The primary sources are underground aquifers. Non-fresh or saline water represents close to 50 per cent of the water used in in situ projects.

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Industry currently recycles between 80 and 95 per cent of the water required.

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New technologies are being developed to reduce fresh water requirements and in some instances the fresh water requirement is being almost totally replaced by non-fresh or saline water.

Going forward, the Responsible Canadian Energy program will continue to evolve. New key indicators will be added, and the report adjusted to capture and analyze the most relevant information possible. What will remain consistent is our determination to ensure oil sands development balances economics with positive environmental and social outcomes.

We are proud of our performance as an industry, but we know more can always be done. The Responsible Canadian Energy program challenges us all to ensure we are responsible developers of the oil sands, accountable to the public and steadfast in our commitment to continual performance improvement.

Responsible Canadian Energy : Oil Sands Progress Report 35

Glossary of Terms Annual certification or release received – the number of sites that received a type of closure certificate (or an equivalent recognition of release) from the certifying authority in the jurisdiction during the reporting year.

Carbon dioxide (CO ² ) equivalent emissions – a measure that accounts for the global warming potential (GWP) of each GHG, by relating each in terms of CO ² equivalent emissions, taking into account the longevity of the gas and its radiative forcing effect on the climate.

Reported as the annual gross weight of direct and indirect GHG emissions from all operated facilities; in CO ² E tonnes/year.

Contractor – non-employees contracted to perform services for the company on the company’s worksites during the reporting year.

Contractor recordable injury frequency (# per 200,000 hrs) – the number of contractor recordable injuries (fatalities + permanent total disabilities + lost work-day cases + restricted work cases + medical treatment cases) per 200,000 hours.

Direct carbon dioxide (CO ² ) equivalent emissions – annual gross weight of direct GHG emissions from all operated facilities; in CO ² E tonnes/year. Sources released on the site from combustion, venting, fugitive emissions, formation CO ² , etc.

Employees – individuals employed by the company and engaged in work-related activities during the reporting year.

Employee recordable injury frequency (# per 200,000 hrs) – the number of employee recordable injuries (fatalities + permanent total disabilities + lost work-day cases + restricted work cases + medical treatment cases) per 200,000 hours.

Fresh water – water low in dissolved salts as defined by the regulation in the jurisdiction acquired. Withdrawn from surface water or groundwater sources, either permanently or temporarily.

Fresh water withdrawal – the total volume of fresh water that is acquired through removal or purchase from any source, either permanently or temporarily.

Indirect carbon dioxide (CO ² ) equivalent emissions – annual gross weight of indirect GHG emissions from all operated facilities; in CO ² E tonnes/year. Sources may be associated with another party, such as a utility company; for the oil and gas industry, it most commonly means purchased steam, heat and electricity.

Medical treatment cases – injuries requiring treatment by a physician or medical professional (but are neither lost-time nor restricted-work injuries).

36 Responsible Canadian Energy : Oil Sands Progress Report

Nitrogen oxide (NO x ) emissions – formed during the combustion of fossil fuels. Nitrogen found in the combustion air or the fuel combines with oxygen under high temperatures to form oxides of nitrogen.

Reported as annual gross weight of nitrogen oxide (NO x ) emitted from combustion equipment or oil sands facilities during the year.

Non-fresh water – water high in dissolved salts as defined by the regulation in the jurisdiction acquired and unsuitable for either domestic or agricultural use. Typically from groundwater, formation water or sea water.

Non-fresh water withdrawal – the total volume of non-fresh water acquired.

Oil equivalents – oil equivalents (OE) is the most common way of reporting different hydrocarbon production (both oil and natural gas) in common units.

Recordable injuries – the sum of lost-time injuries, restricted-work cases and medical treatment cases resulting from an event in the work environment.

Restricted-work cases – cases in which an individual is unable to perform normally-assigned work functions or is assigned to another temporary or permanent job after the day of the injury.

Self-sustaining landscape – refers to the establishment of a landscape and associated vegetation that will naturally evolve over time, adapting to change while maintaining the native ecosystem.

Sulphur dioxide (SO ² ) emissions – a major component of a group of airborne contaminants termed “acidifying emissions.” Reported as annual gross weight of sulphur dioxide (SO ² ) emitted from combustion equipment from all operated facilities that individually emitted 20 tonnes or more of sulphur dioxide emissions during the year.

Tonnes emissions emitted per m³ of oil equivalent of production – the total (gross) weight of emissions emitted from oil and gas production activities or facilities per cubic metre of oil equivalent production.

Worker – the term used to address contractors and employees collectively.

Worker recordable injury frequency (# per 200,000 hrs) – the number of contractor and employee recordable injuries (fatalities + permanent total disabilities + lost work-day cases + restricted work cases + medical treatment cases) per 200,000 hours.

About CAPP The Canadian Association of Petroleum Producers (CAPP) represents companies, large and small, that explore for, develop, and produce natural gas and crude oil throughout Canada.

CAPP’s member companies produce about 90 per cent of Canada’s natural gas and crude oil.

CAPP’s associate members provide a wide range of services that support the upstream crude oil and natural gas industry. Together CAPP’s members and associate members are an important part of a $110-billion-a-year national industry that provides essential energy products.

CAPP’s mission is to enhance the economic sustainability of the Canadian upstream petroleum industry in a safe and environmentally and socially responsible manner, through constructive engagement and communication with governments, the public and stakeholders in the communities in which we operate.

For more information please visit our website at

Environmental Benefits Statement This report is printed on PC100 FSC Certified paper – Forest Stewardship Council certified paper containing 100% post-consumer waste fibres that is totally chlorine free. By using this environmentally friendly paper in a print run of 6,000 copies, CAPP saved the following resources: Trees 76 fully grown

Water 34,653 gallons

Energy 24 million BTUs

Solid Waste 2,104 pounds

Emissions 7,195 pounds

Calculated based on data research by Environmental Defenses Fund.

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October 2010 2010-0025