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From 'Business Friendly' to 'Corrupt,' Upstream Rates Jurisdictions

Nine U.S. states made the top 10 in a ranking of 143 jurisdictions worldwide based on their openness to upstream oil and gas activity, according to survey results compiled by the Fraser Institute in its "Global Petroleum Survey 2009." Jurisdictions in North America, Europe, Australia and New Zealand generally were the most open, according to the 577 industry executives and managers who responded to the survey.

If it had not been for Austria, which charted at No. 4 on the survey's all-inclusive composite index, U.S. states/jurisdictions would have swept the top 16 places. In order of industry preference the top 16 jurisdictions are Arkansas, Alabama, Kansas, Austria, Mississippi, Nebraska, South Dakota, Texas, Oklahoma, Indiana, Nevada, Illinois, Utah, Offshore Gulf of Mexico, Louisiana and Wyoming. The next North American jurisdiction to show up on the ranking is Canada's Manitoba at No. 21, followed by Michigan at No. 22.

The U.S. states charting the lowest in the composite index are Alaska, No. 78; California, No. 79; and Colorado, No. 81. Alaska's 2009 rank represents a fall from No. 46 last year. California dropped from No. 74 last year, and Colorado fell from 61 in the 2008 survey, making it the lowest-ranked U.S. state in the 2009 survey.

"This study demonstrates the harsh reality of an inconsistent regulatory regime, and these numbers run contrary to the belief of some policymakers that Colorado's energy industry will grow no matter the constraints placed upon it," lamented Colorado Oil & Gas Association President Meg Collins. "It is clear from this survey that the COGCC's [Colorado Oil and Gas Conservation Commission] regulations and other political influences have seriously diminished the industry's willingness to invest in Colorado..."

Worth noting is that Arizona, which ranked No. 2 in 2008's survey, and Florida, which ranked No. 71, were not ranked in the 2009 survey. The 2008 survey ranked 81 jurisdictions.

What the popular Zagat restaurant ratings are for diners, the Fraser survey is for oil and gas executives, who were encouraged to share their comments on jurisdictions.

"Easy regulations, business friendly, low royalty rates, competitive labor costs," offered one respondent commenting on Texas.

"Notoriously corrupt government. Essentially a Third World country," someone said of Alaska.

California has "overbearing and overly influential regulatory agencies, from the local level on up to the state level," someone said. But Louisiana offers "access to and field potential in the adjacent Gulf of Mexico; plus technological experience, expertise and a good safety record," it was noted.

In the opinion of at least one respondent, New Mexico's government is "corrupt," and in Colorado "rules and regulations are being instituted at a dizzying pace."

If one state has anyone in the industry waiting to exhale, it's probably Pennsylvania, home to much of the Marcellus Shale, one of the next big unconventional gas plays. "Not sure yet if the industry is to be accepted there by the general public," commented one survey respondent. "Water use issues, cumbersome regulatory structure and lack of historical production database and well histories/logs are hindering exploration and development." Pennsylvania ranked at No. 51, up from 55 in the 2008 survey.

Canada was viewed as "safe, stable, and close to the world's largest energy market," but Alberta has a "populist anti-energy ambiance copied from Alaska; unskilled, uneducated and inaccessible leadership with out-of-control regulatory expansion."

Alberta has been the leading energy province in Canada, but British Columbia's (BC) gas and oil plays, which include the Horn River Basin and the Upper Montney, are drawing producers and pipeline developers (see NGI, March 9). Producers also are drawn to BC's "attractive tiered royalty structure that recognizes depth and therefore cost," according to the Fraser survey, as well as "knowledgeable regulatory personnel with authority to act."

For perspective, rounding out the bottom of the survey's composite index ranking from the bottom up are Bolivia, Niger, Venezuela, Ecuador, Sudan, Russia, Bangladesh, Nigeria, Kazakhstan and Ethiopia.

The Fraser Institute is an international research and educational organization with offices in Canada and the United States. Survey results are available at www.fraserinstitute.org/researchandpublications/publications/6765.aspx.

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