With the depletion of oil resources in the Western Canadian Sedimentary Basin, new pools are becoming smaller and more difficult to find. The royalty formula for new oil is out of line with the economics of new pools in the current price environment. Therefore, lower royalties are needed for new pools to be consistent with the current realities. The rate cap which is the maximum royalty rate. The marginal rate which determines the price sensitivity of the royalty rate between the base rate and the rate cap.
Royalty rates rise with prices.
Changes Effective January 1, 1993. Increase price sensitivity between the base and rate caps for new oil and gas. Adjust select prices to reduce rates at current prices for new oil and gas. Introduce a third tier for oil pools discovered on or after October 1, 1992. The third tier would have a lower base rate, lower rate cap, higher select price than new oil, and a permanent exploratory well 12 month royalty holiday.