A northern Alberta oilsands project has been approved by the Alberta Energy Regulator over the objections of local

Indigenous people who say it will encroach on sacred lands and poses a risk to their drinking water.

The 10,000-barrel-per-day steam-driven Rigel oilsands project proposed by privately held Prosper Petroleum Ltd. of Calgary is in the public interest, the AER said in a decision posted on its website.

Construction is expected to cost $390 million, with an additional $50 million to be spent on drilling and completing wells before startup.

"Our plan is to start construction in Q4 of this year and we believe we can have it built and in operation in 2020," said

Prosper CEO Brad Gardiner.

The project is being built with the support of partner Petrolama Namur Oil Sands Energy, a subsidiary of Czech Republic-based Lama Energy Group, as its first investment in the oilsands, he said.

The Fort McKay Metis Community Association board will meet to discuss the decision and to formulate a response, executive director Eddison Lee-Johnson said Wednesday.

'A sacred place'

"It's close to a sacred place, Moose Lake, which the community has used for centuries and continues to use and this project is definitely going to affect that traditional and cultural use," he said.

In hearings earlier this year, the Metis group and the Fort McKay First Nation told the three-member AER panel that they oppose the development because it would come as close as 1.5 kilometres to Moose Lake.

The panel wrote in its decision that it accepts that oilsands development has raised fears of a loss of connection with the land with Fort McKay residents.

"The fear expressed is genuine. What is missing is evidence that the Rigel project itself will cause a loss of connection and relationship," it wrote, explaining that the operating Sunshine Oilsands project and exploration projects by other companies are also located nearby.

Social and economic issues and potential impacts on Indigenous and treaty rights were considered in its decision, the AER says in the decision.

However, it added it could not consider whether government consultation was adequate. Nor could it account for a provincial proposal to create an access management plan for the Moose Lake area because that plan hasn't been implemented.

Legal action started

The Fort McKay First Nation said it isn't surprised by the approval and has started legal action against the government of

Alberta and the AER.

"The AER interprets its mandate very narrowly with respect to protecting our rights as Cree and Dene people," Fort McKay First Nation Chief Jim Boucher said in a statement Monday night.

"It dismissed the cumulative effects of the project and the constitutional promises made by the premiers of Alberta to enhance the protection of the Moose Lake area."

Prosper Petroleum, for its part, is committed to address its neighbours' concerns, Gardiner said.

"We have tried to design our project to minimize impact and their ability to practise traditional rights and we will continue to work with them as we go forward with the project," he said.

Canadian oilsands production is expected to rise by 58 per cent rise to 4.2 million barrels per day by 2035, according to the Canadian Association of Petroleum Producers in its annual forecast released Tuesday.

The Rigel project would use steam injected into shallow horizontal wells to melt the heavy, sticky bitumen crude and allow it to drip into a parallel well to be pumped to surface, where it would be transported by truck to a buyer or pipeline.

It would employ up to six well-pads with eight well-pairs drilled from each pad, with an impact on 106 hectares of its total lease area of 768 hectares, and an expected production life of about 24 years.