Prices Natural gas prices have been exceptionally strong in North America due to demand being outpaced by supply. Search did not have any natural gas financial hedges in place in the first three months of 2001. This increased differential has impacted Search's overall realized oil price due to a higher proportion of Search's oil being lower API gravity in 2001. The proportion of heavy oil has increased as a result of the acquisition of Palliser Energy in August of 2000. Royalties Royalties represent Crown, freehold and overriding burdens on the Company's production.
Royalty rates fluctuate with prices, with higher prices leading to higher crown royalty rates.
In the first quarter of 2001 Search's royalty rate increased to 22 percent of revenue as compared to 14 percent of revenue in the same period of 2000. The increased rate is a direct result of the 214 percent increase in Search's average natural gas price realized in the first quarter of 2001. Per unit operating costs increased over the first three months of 2001 due to the increased proportion of heavy oil in Search's production profile. Additional heavy oil production is attributable to the acquisition of Palliser Energy in August of 2000. Higher operating costs are also the result of increased power and fuel gas costs in the first quarter of 2001.