Oil Sands - Royalty Authorities
Oil sands royalty is assessed and collected on a cash basis under one of four authorities:
- Mines and Minerals Act
- Oil Sands Royalty Regulation, 1984
- Oil Sands Royalty Regulation, 1997
- Experimental Oil Sands Royalty Regulation
A minimal amount of oil sands royalty is calculated under a separate authority:
- Petroleum Royalty Regulation, also
Mines and Minerals Act - unique royalty arrangements (Crown Agreements) entered into with individual lessees; royalty is generally based on a revenue-minus-cost formula using minimum royalty rates of 1% - 5% during pre-payout and maximum royalty rates of 25% - 30% after payout. A royalty volume is calculated but then is converted to cash.
Oil Sands Royalty Regulation, 1984 - clients must pay cash royalty to the Crown at the heavy oil rates (production based) prescribed in the Petroleum Royalty Regulation; unless the oil sands well is part of an approval granted under the Mines and Minerals Act, Oil Sands Royalty Regulation, 1997, or the Experimental Oil Sands Royalty Regulation.
Oil Sands Royalty Regulation, 1997 - this is often referred to as the generic royalty regime. Royalty volume is calculated using a revenue-less-cost formula. Royalty during the pre-payout stage is 1% of gross revenue; and royalty during post-payout is the greater of 1% gross revenue or 25% net revenue. Royalty is payable in cash. There are approximately 50 projects approved under this Regulation.
Experimental Oil Sands Royalty Regulation - if the oil sands well is part of an experimental scheme granted under an EUB approval pursuant to the Oil Sands Conservation Act prior to August 1, 1997, then the royalty payable to the Crown is a volume equivalent to 1% of gross revenue (i.e., sales revenue less handling charges and diluent costs). Royalty is paid in cash. There are two projects still paying royalty under this Regulation. No additional projects will be eligible for royalty rates under this Regulation.
Royalty is paid to the Crown monthly.
Petroleum Royalty Regulation - royalty is paid in-kind to the Crown. There are six rates for oil: old, new and third tier for either non-heavy oil or heavy oil. The royalty rate is based upon wellhead production, oil density, and vintage and is sensitive to market prices. In the case of oil sands, the royalty volume calculated is multiplied by the selling price of the non-royalty volumes in order to calculate a cash royalty. In the case of all other royalty volumes, the well operator delivers them to the Crown's marketing agents for sale on the Crown's behalf.
Royalty is paid to the Crown monthly.
