MEMO

To: Tracy Johnson
From: Michael Smith
Date: April 20, 2017
Subject: Lexin Resources Ltd. email of April 15

 

There was a period of six months in late 2015 and 2016 during which Lexin
was not injecting anti corrosive chemicals into the pipeline system that fed
into the Mazeppa plant. What did that happen? What was the issue since it
led to the lower production at the plant as some pipelines need to be shut in?

In October of 2015, Lexin Resources conducted an In Line Inspection (ILI) of its
sour gas pipelines. During that inspection, several areas of greater than 25% of
line thickness corrosion were identified. The Main North South Supply line was
subsequently repaired. Lateral pipelines, which were effected by corrosion issues
were shut in until it could be determined that they could be operated in a safe
manner. The Lateral Pipelines that provided connectivity within the fields were
assessed in terms of risk, repair cost and production loss prior to the shut in
decision being made. The high cost of Corrosion Inhibition Chemicals was a key
consideration, but not the major issue in overall economic considerations regarding
the Pipeline Integrity Management Programme.

During the period in question, our Chief Operating Officer, Field Superintendent
and other Lexin personnel were in frequent contact with Jodi Halpin, Field
Inspector for the Alberta Energy Regulator, and Ron Wagener, then the Director
of Enforcement Surveillance for the Alberta Energy Regulator. In April of 2016,
there was a pipeline gas leak, which was categorized as a "Medium" risk leak in
another of Lexin Resources pipelines. That pipeline was also shut in until the
cause of the leak could be identified and the pipeline repaired. This leak was
reported along the Standard Incident Reporting and Investigation Channels and
the AER was involved at all stages of the containment and shut in.

In June of 2016, Ron Wagener, issued an order requiring Lexin Resources to shut
in the North Sour Gas pipeline which runs to the Mazeppa plant until several repair
digs, including the one at the site of the April 2016 leak, could be completed. The
North Sour Gas Pipeline had been previously shut in due to mechanical issues at
the Mazeppa plant and, to the best of our knowledge, continues to be shut in at
this time.

We are convinced that no pipeline was operated in an unsafe condition. The
monitoring systems were in place and backed up by increased frequency physical
operator inspections. The LeXin Emergency Response Plan was still in place and
was revised to ensure that even given financial restraints, the critical contractors
would still respond to an incident in the interests of public safety. A meeting was
conducted with the AER to inform them of the status of the Emergency Response
Plan.

The AER was informed of the status of the pipelines and the measures
taken. Lexin?s Chief Operating Officer and other personnel met frequently with
AER either telephonically or at their offices and always brought them up to speed
with the situation at that time. The AER also conducted numerous field inspections
and facility inspections. Any pipelines identified as a possible risk were
depressurized and purged so they were put into a safe state. Physical Monitoring
in the areas was increased, homeowner notifications were conducted and the
operation of visible H28 alarms in the areas was ensured.

Safety was always the highest priority in all of Lexins undertakings.