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"The current regime views every well as being a success while the proposed changes to the current regime . . . appear to recognize the uncertainty and risk inherent in the industry." — MIKE LAFFIN, BLAKE CASSELS & GRAYDON LLP The New Royalty Framework includ- ed increasing the maximum royalty rate for conventional oil to range up to 50 per cent with rate caps raised to $120 per barrel from the old maximums of 30 and 35 per cent and increasing the maximum royalty rate for natural gas to 50 per cent with rate caps at $16.59 per gigajoule from five to 35 per cent. The aim of the new formulas is to charge a lower royalty rate for lower-producing wells when commodity prices are low and a higher royalty rate for higher-producing wells when commodity prices are high. What the New Royalty Framework did was scare off investors and provide a disincentive for oil and gas producers to drill new wells. Less drilling equals less royalties. The government quickly realized the damaging effects the New Royalty Framework had on the industry. Alberta could no longer claim it had a "competitive advantage" when it came to production of its fossil fuels. To rectify some of that damage, the government has introduced incen- tive programs. On March 3, 2009, it announced a three-point incentive pro- gram to encourage additional drilling activity in the conventional oil and nat- ural gas sectors. Then on June 25, 2009, it announced it would extend two of these programs by one year to March 2011. And on Feb. 16, 2010, based on a competitiveness review, the govern- ment announced further modifications to the New Royalty Framework "[t]o advance Alberta's competitiveness in the upstream oil and gas sector. . . ." These changes included reducing the maximum royalty rate for conventional oil at higher price levels to 40 from 50 per cent and reducing the maximum royalty rate for natural gas at higher price levels to 36 per cent from 50 per cent. The government was set to finalize all royalty curves by the end of last month. How do these changes affect lawyers in Alberta and what does it mean for their clients? Mike Laffin, an energy lawyer at Blake Cassels & Graydon LLP in Calgary who acts for many oil and gas compan- ies, says there is recognition in the New Royalty Framework that the oil and gas business is a risky business. "The current regime views every well as being a suc- cess while the proposed changes to the current regime that are expected by May 31 appear to recognize the uncertainty and risk inherent in the industry." There are many factors that can affect the industry's profit margins, including supply and demand, commodity prices, finding and development costs, operat- ing costs, production levels of wells, and royalty rates. Laffin says the proposed changes to the New Royalty Framework intend to address the risk inherent in the industry and adjust the risk-reward balance to allow investors to realize and capture more of the upside of a suc- cessful venture. "The current incentive program rate of five per cent on new natural gas and conventional oil wells will reflect positively on companies' rates of return. And a reduction at the top end of the royalty rate will provide for a more level playing field with other provinces and give investors a greater incentive to invest in the industry," says Laffin. Parallel Importation A controversial subject touching on international trade policy, competition law and intellectual property rights This unique and comprehensive tool for identifying and litigating parallel import cases uses an unbiased, multi- disciplinary approach to exploring the tensions, issues and arguments. Use it to negotiate the boundaries of intellectual property, competition and international trade law. ORDER your copy today Hardbound • 210 pp. February 2010 • $95 P/C 0177010000 ISBN 978-0-88804-492-1 Parallel Importation incorporates both practical and theoretical perspectives. Key cases are summarized and discussed with reference to relevant legislation from Canada, the United States and the European Union. This often murky area of law is addressed with reference to law, economics and business to provide a clear, incisive analysis. For a 30-day, no-risk evaluation call: 1.800.565.6967 CL0610 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. MacGillivray_Parallel Importation (CL 1-3sq).indd 1 www. C ANADIAN Law ye rmag.com JUNE 2010 51 5/12/10 8:42:40 AM Rose Ann MacGillivray