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Release Date: November 18, 2013
CALGARY, AB—Saskatchewan may have the best policies in Canada for attracting oil and gas investment but when proven reserves are included, Alberta is once again top dog among all Canadian provinces for investment and number three in the world, according to the Fraser Institute’s annual Global Petroleum Survey.
The Global Petroleum Survey uses the opinions of petroleum executives and managers to rank jurisdictions for their relative attractiveness for investment. But the rankings don’t factor in proven oil and gas reserves or petroleum resource potential. That changes this year with the addition of a new index that segments jurisdictions into tiers based on proven oil and gas reserves and overlays their ranking from the Policy Perception Index.
“Decisions to invest in petroleum exploration and development are largely based on a jurisdiction’s available oil and gas resources, not just the policy environment,” said Kenneth P. Green, Fraser Institute senior director of natural resources studies.
“While jurisdictions with relatively small proven oil and gas reserves and relatively little petroleum production such as Manitoba and Mississippi may achieve a high ranking, they cannot be expected to attract nearly as much investment as jurisdictions with similar attributes that also have much larger petroleum reserves.”
Among jurisdictions with the largest proven reserves (representing 92.1 per cent of proven reserves among jurisdictions included in the survey), Texas earns top spot globally as the best jurisdiction for oil and gas investment. Qatar ranks second overall with Alberta third.
Among the second tier of jurisdictions, representing 6.8 per cent of total proven reserves, Oklahoma earned top spot followed by Arkansas then North Dakota.
The third tier of jurisdictions, representing just 1.1 per cent of total proven reserves, was topped by Mississippi, followed by Saskatchewan, Kansas, Alabama, Manitoba, and Netherlands/North Sea.
“North American jurisdictions overall benefit from providing a secure environment in terms of the physical safety of personnel and assets, having a fair and transparent legal system, and for the quality of geological databases,” said survey co-author Alana Wilson, Fraser Institute senior economist in natural resource studies.
Survey rankings of Canadian provinces
Looking strictly at survey responses and not accounting for level of proven reserves, oil and gas executives and management ranked Saskatchewan first in Canada and third out of 157 jurisdictions worldwide. Manitoba was ranked second in Canada and ninth globally, followed by Alberta in 19th place.
Political uncertainty in BC, particularly around proposals for two pipelines carrying oil from Alberta to the BC coast for export, was a negative factor for Alberta. Meanwhile, Alberta’s geological and technological know-how was a positive factor.
“Despite an abundance of resources, Alberta is only now regaining industry’s trust and recovering from what many saw as an unexpected royalty grab by the province in 2010,” Green said.
Newfoundland and Labrador ranked 24th compared with 47th one year ago with improved scores for labour regulations and employment agreements.
British Columbia, which is pursuing export market opportunities for liquefied natural gas, dropped from 39th (of 147) in 2012 to 47th (of 157) this year as a consequence of uncertainty concerning environmental regulations, political stability, taxation in general and the province’s carbon tax in particular.
“Overall, uncertainty in B.C. concerning disputed land claims, which areas will be protected, and the basis for or anticipated changes to environmental regulations pose the greatest barriers to upstream petroleum investment in BC,” Green said.
The Northwest Territories was 61st, New Brunswick 81st, a move up from 102nd last year that is attributed to improved performance on regulatory enforcement.
At the other end of the scale, Quebec stands out as the Canadian jurisdiction with the greatest barriers to investment, ranking in the fourth out of five quintiles — a grouping that includes Syria and Libya.
Quebec fell from 101st (of 147) in 2012 to 141st (of 157) in 2013 — due to poorer results with regard to the cost of regulatory compliance, taxation in general, uncertainty concerning protected areas and policies discouraging investment in hydraulic fracturing.
The majority of respondents (62 per cent) indicated that their assessment of Western Canada and Northwest Territories as investment venues would deteriorate if pipeline bottlenecks continue to constrain movement of oil to Eastern Canada, export markets overseas and U.S. refiners. One respondent described midstream or pipeline constraints as “the single biggest risk to the industry today in Western Canada.”
Least popular jurisdictions
Among nations with the largest proven reserves, Venezuela, Iran, and Russia/Offshore Arctic were the least favourable for investment. Among tier two jurisdictions, Ecuador, Bolivia, Uzbekistan and South Sudan are the least favourable while Argentina/Salta and Kyrgyzstan are the least favourable and among tier three jurisdictions.
Ignoring proven reserves and looking at only survey responses, the 10 least attractive jurisdictions are Venezuela, Ecuador, Iran, Bolivia, Russia/Offshore Arctic, Uzbekistan, Russia/Eastern Siberia, South Sudan, Iraq, and Russia/other.
“Political stability was the factor most deterrent to petroleum investment for Venezuela, followed by trade barriers and labor regulations. For Russia overall, the largest percentage of investment deterred was due to the legal system and the quality of infrastructure,” Wilson said.
The Global Petroleum Survey is administered each year to petroleum industry executives to help measure and rank the barriers to investment of oil- and gas-producing regions. A total of 864 respondents representing 762 companies completed the survey questionnaire this year, providing sufficient data to evaluate 157 jurisdictions. The exploration and development budgets of participating companies account for more than 50 percent of the $619 billion spent in 2012 on petroleum exploration and production among international oil companies.