An Oil Sands Inequity : Alberta's Outdated Bitumen Valuation Program

Canada’s oil sands accounted for 63 percent of oil production in Canada in 2019.Royalties from oil sands production have been the source of 7.7 percent of Alberta’s revenues since 2008 (Alberta 2020). Alberta regularly reviews the royalty regimes in place for oil and natural gas extraction, but there is some contention about the design of one particular component of the oil sands royalty: the Bitumen Valuation Methodology (BVM). The BVM is a government regulation that sets the price, and therefore influences the royalty paid, of bitumen that changes hands through non-market transactions – usually between affiliates, such as when oil sands production is sent to an upgrader owned by the same company. Our analysis shows, however, that the BVM leads to the payment of higher royalties than is the case for similar production not subject to the regulation. We argue that royalty price setting for all bitumen sales should be determined by market prices, not by administratively set formulas