South Dakota is the No. 1 place in the world for oil and gas investment, according to the Global Petroleum Survey 2010, an annual survey of international petroleum executives and managers conducted by the Fraser Institute, one of the world’s leading free-market think-tanks.
Results of the survey include:
· South Dakota, which was ranked seventh out of 143 jurisdictions in 2009, vaulted into the No. 1 spot out of 133 jurisdictions included in this year’s survey results.
· Along with South Dakota, American states claimed eight of the top 10 spots this year: Texas (second), Illinois (third), Wyoming (fourth), Mississippi (sixth), Utah (seventh), Oklahoma (ninth), and Alabama (10th).
· New York is the lowest ranked state at 102nd.
· Austria, ranked fifth, is the only jurisdiction outside North America to make the top 10.
· Manitoba is the highest ranked Canadian jurisdiction, placing eighth after ranking 21st in 2009.
· Among the remaining Canadian provinces, Saskatchewan is ranked 17th overall, Ontario ranked 28th, Newfoundland and Labrador ranked 50th, British Columbia 52nd, Nova Scotia 53rd and Alberta, considered the home of Canada’s energy sector, 60th. Quebec was the lowest ranked province at 77th.
· Globally, three Australian jurisdictions (South Australia, Northern Territory, and Victoria) ranked in the top 20, along with New Zealand.
· The lowest ranked jurisdictions are: Bolivia, Venezuela, Russia, Ukraine, Iran, Turkmenistan, Ecuador, Nigeria, Iraq, and Kazakhstan.
Background
The Fraser Institute’s 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. The exploration and development budgets of participating companies totaled about $161 billion in 2009, representing more than 60 percent of global upstream expenditures last year.
A total of 645 respondents completed the survey questionnaire this year, providing sufficient data to evaluate 133 jurisdictions.
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, legal process, and political stability, among others.
Analysis
The survey results indicate that American states remain favorites for oil and gas investment because they offer the stability and clear, transparent regulatory framework that petroleum investors value most.
Jurisdictions known for high royalty fees and tax rates, inadequate infrastructure, price controls, labor shortages, and uncertain environmental regulations are the places petroleum investors say they most want to avoid. Regions offering competitive tax and regulatory regimes, on the other hand, attract highly positive attention, fostering investment and economic benefits for years to come.
Sudden changes in royalties or environmental regulations have resulted in Colorado and Alaska losing favor within the petroleum industry, although regulators in both states have since taken steps to improve the situation.
Colorado. After being ranked as the worst state for oil and gas investment in 2009, Colorado showed signs of regaining investor’s favor, vaulting to 61st in this year’s survey from 81st last year.
Colorado is improving its reputation among industry executives, but the state still has a long way to go. In 2007, it was ranked No. 1 in the world, but environmental regulations introduced since then continue to discourage investors.
Alaska. Alaska, which respondents ranked the third least attractive state for oil and gas investment in 2009, climbed to 68th from 78th this year, but respondents remain critical of Alaska’s fiscal regime and environmental policy.
U.S. Gulf of Mexico. The survey, which was conducted before the recent oil spill in the U.S. Gulf of Mexico, shows that region in 11th place overall, up from 14th in 2009, and the most attractive of all the purely offshore regions ranked in the 2010 survey.
The U.S. Gulf of Mexico has been seen as having a relatively attractive regulatory climate, but if more stringent, and therefore costlier, regulatory requirements are imposed in the wake of the BP Deepwater Horizon oil leak, the U.S Gulf of Mexico is likely to lose ground to other jurisdictions in next year’s survey.
New York. New York is the worst ranked state, plummeting to 102nd after placing 29th last year.
Respondents cited the increasing cost of regulatory compliance, as well as issues of regulatory duplication and inconsistency, as strong barriers to investment in New York. New restrictions on natural gas shale drilling, based on fears of water supply contamination, are also major deterrents to investment in New York.
Respondents’ comments about jurisdictions in the United States ranged from quite favorable to negative:
United States Overall. “Simple tax and royalty [regimes], long exploration phases with no commitments, simple bid rules, availability of infrastructure and skilled labor, non-bureaucratic processes, affordable living, stable, secure.”
“Politically stable; corruption in check; tax & royalty system; equity ownership in reserves.”
“Stable socio-economic and political environment with little to no corruption.”
“Established law, proven exploration and production potential, established infrastructure and regulatory regimes.”
“Fair and transparent processes. Simple tax/royalty system.”
Kansas. “Very open to new development, and regulatory approval is quick.”
Texas. “No dedication to growing the local bureaucracies and commitment to free market mechanisms.”
“Favorable tax and fiscal terms structure, favorable security characteristics, solid political support for industry, and predictable regulatory structure.”
US Gulf of Mexico. “This jurisdiction has a simple low tax rate and still has potential.”
Louisiana. “Litigation abounds, high severance tax rate. “
New Mexico. “The current state policies are not conducive to oil and gas exploration and development. Government very bureaucratic and not supportive of oil industry activity.”
North Dakota. “North Dakota has a competent, fair, and efficient Board of O&G.”
New York State. “The pressure to constrain drilling and fracturing in relation to recovery of shale gas is a major source of uncertainty here and else where in the US north east.”
Oklahoma. “The state no longer maintains online data bases. Such data has all been sold to companies that now charge for basic information that should be of public record. This discourages small companies from entering into projects in new areas.”
“Strong legal and regulatory establishment combined with a long, active, prolific petroleum system.”
Conclusion
The survey results indicate that American states remain favorites for oil and gas investment because they offer the stability and clear, transparent regulatory framework that petroleum investors value most.