More stringent drilling requirements and other onerous regulations have cost Colorado its ranking as the most attractive destination worldwide for oil and natural gas investment, according to the Fraser Institute's Global Petroleum Survey 2008. Meanwhile, Saskatchewan is now the jewel of Canada's oil patch, surpassing Alberta as the preferred choice for upstream investment.
Modeled after the popular Fraser Institute Survey of Mining Companies, the global petroleum survey measures and ranks the investment climate of various oil and gas producing jurisdictions. A total of 396 respondents participated in the latest survey; companies represented account for more than one-third of the industry's global spending on petroleum exploration and production. The survey questionnaire sought the opinions of senior executives and managers on a range of issues, including royalties and licensing agreements, taxation, the cost of regulatory compliance, trade and labor regulations, and political stability, among others.
Colorado was ranked as the 29th worst jurisdiction for upstream oil and gas investment out of 81 international jurisdictions by petroleum senior executives and managers who responded to the annual survey of upstream petroleum companies by the Calgary-based institute. The ranking puts Colorado in the same league as Ukraine, Pakistan and Indonesia in terms of investment potential, the researcher noted.
"Survey respondents were very concerned with Colorado's changes to drilling permit requirements and other more stringent regulations," said Fraser's Gerry Angevine, senior economist and coordinator of the annual petroleum survey. "The Colorado Oil and Gas Association estimates the new rules could increase drilling costs by $60,000 to $600,000 per well," Angevine noted.
The Colorado Oil and Gas Conservation Commission in March unveiled draft regulations to restructure some of the state's energy rules, and statewide hearings are now under way (see NGI, June 23). The final rules could take effect Nov. 1.
Other U.S. states rated as poor risks for investment in the survey include Alaska, California, Florida, Montana, Pennsylvania and West Virginia. Alaska fell to the 22nd worst jurisdiction with California seen as the 11th worst, a ranking that groups it with other high-risk nations such as Russia and Sudan and with a worse ranking than Afghanistan, Pakistan and China. In last year's survey Alaska was ranked 41st worst out of 54 while California was ranked 31st worst of 54.
"California's expanded prohibitions on offshore drilling and concerns about environmental regulation are having a detrimental effect on the way the state is viewed by the petroleum industry, while Alaska increased its petroleum production tax," said Angevine.
However, the United States still secured nine of the top 10 jurisdictions worldwide for oil and gas investment.
Arizona, Arkansas, Oklahoma, Alabama and Ohio were ranked as the states with the lowest barriers for upstream oil and gas investment. They were joined by Texas, the U.S. offshore, Kansas and New York. Saskatchewan, which ranked sixth, was the lone Canadian province in the top 10.
"This year's survey results and the poor showing for Colorado, Alaska and California can be directly traced to state government decisions to add layers of new regulatory requirements and increase oil production taxes," said Angevine. The economist noted that oil and gas projects "require vast amounts of capital and long lead times. If governments are inclined to change the rules part way through the process, the risk for investors increases and they are likely to seek a more stable jurisdiction for investment."
Alberta was ranked 29th in the survey, and Angevine said the reason "can be traced directly to the Alberta government's decision to grab a larger share of oil and gas royalties" (see NGI, April 14). By comparison, "Saskatchewan offers a model of stability and a skilled work force right next door to Alberta."
The 2008 survey shows an increasing gap between how Alberta and Saskatchewan are viewed by the petroleum industry. In 2007 Saskatchewan was ranked 15th and Alberta 18th in terms of low barriers to upstream oil and gas investment.
Alberta, said Angevine, is facing a similar predicament as Newfoundland and Labrador did in last year's survey where it was ranked as the 10th worst place for petroleum investment, putting it in the same league as Russia, Iran and Pakistan. Newfoundland's low ranking was attributed to an ongoing battle between petroleum companies and Premier Danny Williams, who wanted to gain an equity position for the province in the Hebron oil project.
Although Newfoundland and Labrador improved in this year's survey, it still ranked poorly compared with all other Canadian provinces. The Northwest Territories ranked worst among all Canadian regions: 13th worst out of 81 jurisdictions. (The Northwest Territories ranked 21st worst of 54 in 2007.) Survey respondents cited regulatory costs and aboriginal land claims as barriers to investment.
Internationally, Bolivia was ranked as the worst country for petroleum investment and development, followed by Ecuador and Venezuela. Other nations considered to be the least favorable include Chad, Iraq, Nigeria, Argentina, Sudan and Russia.
In most cases, jurisdictions that have imposed heavier tax and regulatory burdens during the past year received more negative scores than last year.
"Policy makers would do well to recognize the consequences and weigh the costs of big government in terms of foregone investment, lost jobs, and corporate flight," Angevine said.
The Global Petroleum Survey 2008 may be downloaded at www.fraserinstitute.org.
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