Texas ranks No. 1 globally as the best jurisdiction for oil and natural gas investment, followed by Qatar and Alberta, according to the Fraser Institute's annual Global Petroleum Survey.
The annual survey, published on Monday by the Calgary firm, is based on opinions of petroleum executives and managers, ranking jurisdictions for their relative "attractiveness" for investment using a Policy Perception Index. For this survey, Fraser also added an index to segment jurisdictions into tiers based on proven reserves.
"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, 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."
The annual survey of industry executives is used to measure and rank the barriers to investment of oil- and gas-producing regions. A total of 864 respondents representing 762 companies completed the latest questionnaire, providing sufficient data to evaluate 157 jurisdictions. The exploration and development budgets of participating companies account for more than half of the $619 billion spent in 2012 on exploration and production among international oil companies.
Of the jurisdictions with the largest proven reserves, representing 92%-plus of total proven reserves included in the survey, Texas took the top spot. Among the second tier of jurisdictions, representing about 7% of total proven reserves, Oklahoma was No. 1, followed by Arkansas and North Dakota.
The third tier of jurisdictions, with an estimated 1.1% of total proven reserves, was led by Mississippi, followed by Saskatchewan, Kansas, Alabama, Manitoba and a tie between the Netherlands and the 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, who is Fraser's senior economist in natural resource studies.
Not accounting for the level of proven reserves, Saskatchewan led Canadian provinces and was No. 3 of 157 jurisdictions worldwide. Manitoba was ranked second in Canada and ninth globally, followed by Alberta in 19th place.
Political uncertainty in British Columbia (BC), particularly because of pipeline proposals to carry oil from Alberta to the Pacific coast, proved a negative factor for Alberta. However, Alberta's geological and technological know-how was a positive.
"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.
Alberta's natural gas royalties, a health benchmark of the Canadian supply industry, plunged to their lowest level in a generation in the government fiscal year that ended March 31 (see Daily GPI, July 2). The 2012-2013 Alberta gas royalties were 89% less than their peak of C$8.3 billion in 2005-2006.
Fraser's survey found Newfoundland and Labrador ranked 24th in the latest survey, versus 47th a year ago, on improved scores for labor regulations and employment agreements.
Even with the big focus in BC to find takeaway solutions for natural gas -- including a long list of proposed liquefied natural gas export schemes -- the province fell to 47th of 157 jurisdictions surveyed, down from 39th of 147 in 2012. The reason, said those surveyed, was uncertainty concerning environmental regulations, political stability, taxation in general and the province's carbon tax in particular, according to respondents.
"Overall, uncertainty in BC 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.
Elsewhere in Canada, the Northwest Territories ranked 61st, while New Brunswick rose one spot globally to 81st from 102 on an improved regulatory environment.
"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," Fraser noted. Quebec fell to 141 (of 157) from 101 (of 147) "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."
Close to two-thirds (62%) "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.'"
Among nations with the largest proven reserves, Venezuela, Iran and Russia/Offshore Arctic were the least favorable for investment. Among tier two jurisdictions, Ecuador, Bolivia, Uzbekistan and South Sudan are the least favorable while of the tier three jurisdictions, Argentina/Salta and Kyrgyzstan are the least favorable.
"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," said the authors of the report.
"Political stability was the factor most deterrent to petroleum investment for Venezuela, followed by trade barriers and labor regulations," Wilson said. "For Russia overall, the largest percentage of investment deterred was due to the legal system and the quality of infrastructure."