2011 Global Petroleum Survey: Top North American Jurisdictions for Oil and Gas Investment

The Fraser Institute, an independent Canadian public policy research and educational organization, released its Global Petroleum Survey 2011 which helps measure and rank the investment climate of oil and gas producing regions around the world.  The results are based on the opinions of senior executives and managers on a range of issues, including royalties and taxation, the cost of regulatory compliance, trade and labor regulations, legal system fairness and transparency, and political stability, among others.

For North American investors, when you choose to invest in a producing region, you need to take into account 2 important factors:

  1. A competitive tax regime: as an investor, you are looking for a decent return on your money since you’re taking all the risk. A fair royalty framework is of paramount importance.
  2. Regulatory certainty: you want the regulations on all levels to be established and clear. A stable policy environment will attract money as risks of negative regulatory surprises (usually environmental) are low.

Thankfully, we don’t have to worry about political stability and security threats. There’s plenty of oil and gas exploration and production in both Canada and the USA that we can afford to ignore international plays if we chose to.

Canadian Overview

The Fraser Institute: Canadian Composite Index

Saskatchewan and Manitoba are once again the top 2 Canadian jurisdictions as in 2009 and 2010. They also rank 11th and 12th worldwide. Both provinces have a good fiscal regime with a favorable, clear regulatory environment. As for Alberta, it ranked 6th because the government has not been consistent on royalty policies (improved last May in 2010) and environmental regulations (hopefully this will remain a mild deterrent as I believe it mostly impacts oil sands exploitation).

Being a resident of Quebec, it saddens me to see it in the bottom list of Canadian provinces. Some people are surprised that I don’t even hold 1 share in a Quebec based petroleum company and this is for a very good reason.

In Quebec, overzealous environmentalist groups were able to halt shale gas development in the province through a loud PR campaign. I don’t know why the government doesn’t sit down and talk with the industry in order to put a regulatory framework in place which would satisfy all parties. Quebec is synonymous with regulatory uncertainty right now which is a shame since shale gas here would fetch higher rates than AECO due to its closeness to the US north eastern market. It could take up to 2 years before any exploration resumes as a new environmental study is underway. Until this environmental uncertainty dissipates, I will gladly keep my money in western Canada.

US Overview

The Fraser Institute: US Composite Index

Mississippi, Ohio, Kansas, Oklahoma, Texas and West Virginia are not only the top 6 jurisdictions in the US, they also rank as the top 6 jurisdictions in the world composite index as they are regarded as having few investments barriers which makes them very attractive to the petroleum industry.

North American Overview

The Fraser Institute: North American Jurisdictions

Final Thoughts

According to a report from Barclay’s Capital, global 2011 E&P spending may surpass $500 billion dollars this year. In North America, spending will surge 16% this year with oil and gas companies drilling like mad on the back of strong and sustained oil and liquids prices. It’s certainly not the green jurisdictions above who will be getting the lion’s share of the money. This shift to liquids drilling will make investors in the oil services sector very happy as it is driving up activity, tightening capacity and increasing daily rates.  Talk about profiting from the boom without carrying the same amount of risk we usually carry when invested in exploration and production companies, something to think about…

The complete report can be downloaded from the Fraser Institute’s website.