An op-ed, short for “opposite the editorial page”, is a written prose piece, which expresses the opinion of an author usually not affiliated with the publication’s editorial board.
Stampede Drilling Rig 7 working near Lampman for Whitecap Resources on Feb. 28, 2026. Photo by Brian Zinchuk
Over the past number of weeks, the subject of provincial royalties has once again entered into public debate. The discussion remains fixed along a familiar divide: those who want better returns, and those who want to protect the investment environment.
Both the provincial government and its opposition have repeatedly refused to endorse any royalty review, citing a need to maintain predictability and stability.
Predictability and stability are undoubtedly important, but they mean little when the underlying tax regime is itself inefficient and uncompetitive.
That has unfortunately become the case for Saskatchewan’s oil sector.
The competitiveness of a tax system is best captured by the marginal effective tax and royalty rate (METRR), the share of an investment’s pre-tax return consumed by taxes and royalties. The higher the METRR, the less projects meet the hurdle rate, the less wells get drilled.
Research by economist Jack Mintz has revealed that Saskatchewan’s METRR for oil has rapidly become one of the highest in the world.
In 2016, Saskatchewan’s METRR for oil was 32.6%, lower than Alberta’s for conventional crude and below the U.S. average.
That competitive edge quickly disappeared. In 2017, Alberta overhauled its royalty, slashing its METRR for conventional crude to 27.1% and putting Saskatchewan at a clear disadvantage.
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2018 was the nail in the coffin. The United States overhauled its corporate tax regime, and Canada responded with accelerated depreciation, but Saskatchewan moved in the opposite direction. The 2017 provincial budget hiked the PST on capital inputs for the oil sector, offsetting federal tax relief and pushing Saskatchewan’s METRR to 35.9%, the highest in North America.
Today, Saskatchewan is the least tax competitive jurisdiction for investment in oil and gas on the continent, and among the least tax competitive globally. For instance, Norway, known for its extreme tax rates, had a METRR for oil of 32.4% in 2018 and has since reduced that rate with immediate expensing of investment costs.
While differences in geology undoubtedly play their part, both light and heavy crude production have lagged their conventional counterparts in Alberta. Between 2018 and 2025, daily production of light crude in Saskatchewan fell by more than 30%, while it rose in Alberta by over 2%. Daily heavy crude production rose 3.5% in Saskatchewan, dwarfed by a 45% increase in Alberta. Total daily production in Saskatchewan is down by nearly 52,000 barrels, while Alberta’s conventional crude production is up by nearly 60,000. Production is effectively shifting west. Status quo “stability” clearly has not worked.
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On top of all of this, the province has a goal of increasing production to 600,000 daily barrels by 2030. Despite that goal, the provincial budget forecasts production falling more than 125,000 barrels short, and that forecast assumes Saskatchewan’s currently stagnant production reverses direction in spite of no major gains in policy competitiveness.
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The province has layered its royalty regime with various incentives aimed at raising production. For instance, incentives for horizontal wells have often been credited with the province’s near universal shift towards that well type. That conclusion confuses correlation with causation. It may well be that horizontal wells are simply more economical than their vertical counterparts. It is industry that takes on risk and makes investments. It is industry, not government, that knows what well is best to drill in what location.
Rather than having politicians attempt to direct capital in the oil sector, Saskatchewan and its producers would be better served by a shift towards a system that treats all investment equally, and taxes oil profits only when projects hit payout.
The Alberta oilsands royalty, for example, applies up to a 40% tax on net profits after projects deduct investment costs. Before projects hit payout, the province receives some extent of revenue stability from a base tax on sales, which is then credited against any profit tax owing to reduce the tax burden on investment. All unused deductions and credits are then preserved against inflation by a fixed index like the provincial bond rate.
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Admittedly, introducing such a royalty for conventional crude production might prove difficult. Saskatchewan may not have the administrative capacity to track capital and operating costs on a well-by-well basis, but that challenge is exactly what a royalty review is meant to address.
When Alberta overhauled its conventional crude royalty in 2016, it did not copy the oilsands royalty, but it did move the two systems closer together. Royalty rate discrimination by well type and geography was eliminated, and a post-payout system was introduced by creating a proxy system for the government to estimate the capital costs of new wells. The formula combines total vertical depth, lateral length, and proppant placed alongside a province-wide capital cost index to provide each well a more accurate deduction for costs than the simplistic volumetric incentives used in Saskatchewan today.
At the same time, the single largest driver of Saskatchewan’s weak investment competitiveness for oil is its application of the PST to capital costs. While certain exemptions do exist, the work of Jack Mintz and Philip Bazel in 2018 shows that the effective PST rate on capital inputs for Saskatchewan’s oil sector is 5.7%. Any royalty review should account for the elimination of this direct cost on investment. While this may cause short-run drops in revenue, a well-designed royalty would yield more total revenue over time, and of course no PST can be collected on the costs of wells never drilled.
On top of these direct concerns is a problem largely undiscussed in Saskatchewan’s current royalty debates: inter-industry distortions.
While Saskatchewan’s oil sector grapples with a METRR of nearly 36%, the aggregate provincial economy faces a METR of around 20.5%, the mining sector faces a METRR of 11% not accounting for royalty holidays, and the Potash sector has a METRR around 0%.
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The result is a tax system designed to direct capital and labour into some industries at the expense of every other. Instead of capital flowing to its most productive use, it flows to where the tax system tells it to. The result has been weakening levels of productivity to the cost of the provincial treasury and the overall economy. This is not to say investment in potash and other minerals needs to be deterred. An incentive designed to directly limit the tax burden on new investment is not the same as an incentive that acts like a subsidy. Not every incentive is coherent or efficient.
While the focus of advocates for royalty reform has been on securing fair returns, those interested in attracting and retaining investment, sustainably growing the economy, and supporting sound public finances should be seeking a review focused on delivering a system that treats all investment the same and welcomes it equally to every sector.
Concerns about uncertainty are not insurmountable. Any royalty review should be done in extensive and transparent consultation with industry, with its outcome tied to a system that ultimately keeps METRRs internationally competitive. As well, ongoing projects need not face upheaval if changes are phased in over time. For instance, when Alberta overhauled its royalty in 2016, the province allowed producers to opt-in early, with the full royalty to be implemented for all wells within 10 years.
Saskatchewan’s oil royalty is uncompetitive, and its potash and mining royalties are inefficient. Maintaining the status quo means continued stagnation for production and productivity, while public services and infrastructure crumble. The question is no longer whether Saskatchewan can afford to review its royalty structures, but whether it can afford not to.
Ty Thiessen is a University of Saskatchewan Student researching methods of public finance and economic development.
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Sources:
2016 Competitiveness (Includes Assessment of AB Royalty Changes):
https://www.policyschool.ca/wp-content/uploads/2016/11/AB-New-Royalty-Regime-Crisan-Mintz-final.pdf
2017 Competitiveness:
https://www.policyschool.ca/wp-content/uploads/2017/09/US-Tax-Reform-Crisan-Mintz-Final2.pdf
2018 Competitiveness:
Norway Tax Changes:
https://taxnews.ey.com/news/2021-1621-norwegian-government-proposes-changes-in-petroleum-taxation
CER Production Estimates:
Provincial Budget Production Forecasts:
Page 32, production forecast at 173.3 M barrels by 2030-31.
Aggregate METR:
https://www.policyschool.ca/wp-content/uploads/2020/03/2019-Tax-Competitiveness-Bazel-Mintz.pdf
Mining METRR:
https://www.policyschool.ca/wp-content/uploads/2016/03/mining-tax-chen-mintz.pdf
Potash METRR:
https://www.policyschool.ca/wp-content/uploads/2016/03/Potash-Taxation-Chen-Mintz.pdf