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Oklahoma No. 1 Worldwide for E&P Investments

Oklahoma is better than OK after vaulting into the No. 1 position worldwide for natural gas and oil exploration and production (E&P) investments, according to Fraser Institute's sixth annual Global Petroleum Survey.

The state ranked first of 147 jurisdictions worldwide in the Canadian public policy think tank's survey, moving up from fourth place among 135 jurisdictions in 2011. Fraser tallied the responses of 623 petroleum industry executives and managers regarding barriers to upstream investments in various jurisdictions around the world based on tax rates, regulatory regimes, environmental regulations and security threats.

The exploration and development budgets of participating companies accounted for more than half of the annual spending on E&P among international oil companies, Fraser said.

The United States dominated the top 10 rankings, with Mississippi at No. 2, falling from the top spot in 2011. Texas moved into third place, up from fifth in 2011, while North Dakota rose to fourth place from 10th. New Mexico jumped to seventh from 41th a year ago; Kansas fell to eighth from third; and West Texas, which counted as a jurisdiction, fell to 10th from sixth place.

The Canadian province of Manitoba (fifth), the Netherlands (sixth), and Denmark (ninth) rounded out the global top 10.

Fraser senior economist Gerry Angevine, who coordinated the survey, credited the U.S. leaders with implementing "safe and sensible sensible petroleum development" regimes. "Their tax, regulatory and labor terms are clear, consistent and competitive. They are in a great position to attract and reap economic benefits from petroleum investment, including the development of shale gas and tight oil resources through the application of hydraulic fracking technology."

Ohio, which was ranked second for E&P investments a year ago, fell to 14th place in the latest tally, the "result of increased concerns about the cost of complying with state regulations, uncertainty over environmental regulations, and the interpretation and administration of regulations," the survey said.

Several U.S. states dramatically improved their scores from a year ago. California moved to 45th place from 91st a year ago, which at that time had been the lowest of any U.S. state, based on improved "fiscal terms, taxation, labor availability and regulatory issues." Year/year New Mexico vaulted from 41st place; Colorado moved to 16th from 53rd; and Pennsylvania rose to 34th from 65th. Alaska and New York were the worst-ranked U.S. states in this year's survey from a year ago, at 61st and 68th, respectively.

U.S. offshore-Gulf of Mexico, which had fallen to 60th in the 2011 ranking following the 2010 Macondo well blowout, improved to 26th in the latest ranking. "Respondents indicated that they are now less concerned about regulatory duplication and uncertainty in the Gulf of Mexico," the survey said.

Within Canada Saskatchewan fell to No. 2 among the provinces and territories after ranking as the top jurisdiction in 2011; Saskatchewan was ranked 13th overall from 11th a year ago. "While Saskatchewan outperformed Manitoba in some important areas (e.g., fiscal terms), Manitoba's improved scores on questions pertaining to taxation in general, the cost of regulatory compliance and uncertainty over environmental regulation propelled the province to the top of the Canadian rankings," according to the survey.

Alberta climbed to third from sixth in Canadian-only rankings; it climbed to 21st from 51st in Fraser's global rankings, mostly because of improved scores pertaining to the regulatory climate. "Two years ago Alberta ranked 60th in the world for oil and gas investment, the result of what the industry saw as an unexpected royalty grab by the provincial government," said Angevine. "Today investors say they are less concerned about regulatory uncertainty, the cost of regulatory compliance, and regulatory duplication and inconsistency."

British Columbia was ranked the fifth most-attractive Canadian jurisdiction, up from eighth in 2011, while Newfoundland and Labrador dropped to sixth from fifth in the Canadian rankings. The Yukon, which was not ranked in 2011, finished seventh, the Northwest Territories rose to eighth from 10th, and Quebec's ranking remained at ninth. New Brunswick rounded out the Canadian list in the 10th spot.

The "10 least attractive jurisdictions are Bolivia, Venezuela, Iran, Russia-Eastern Siberia, Libya, Ecuador, Uzbekistan, Argentina-Santa Cruz, Iraq and Russia-other," the survey said. "Investors say they will continue to turn away from jurisdictions with onerous fiscal regimes, political instability, land claim disputes, and corruption," Angevine said. "Similarly, investors prefer to avoid jurisdictions with costly, time-consuming, and uncertain regulations."

The jurisdictions were assigned scores for each of 18 factors that affect investment decisions, and the scores were based on the proportion of negative responses received. The higher the proportion of negative responses for a jurisdiction, the higher were its perceived investment barriers and, therefore, the lower its ranking.

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