By Dr. Gerry Angevine
Senior Economist, Global Resource Centre
Since 2007, the Fraser Institute’s Global Resource Centre has been undertaking an annual survey of petroleum explorers and developers around the world. The primary objective is to determine which provinces, states, territories and countries are judged by survey participants to pose the lowest barriers to investment in oil and gas exploration and development.
Based on the survey results, jurisdictions are ranked according to their attractiveness for upstream investment. Year-to-year changes in the rankings provide valuable feedback to governments, as when Alberta decided to increase petroleum royalties in 2009 via a so-called “New Royalty Framework,” apparently oblivious to impact that the revenue grab would have on the province’s attractiveness for investment. The survey results also allow companies examining jurisdictions for possible new ventures the opportunity to corroborate their own information.
The scores from the 2011 survey, which was undertaken from February through April 2011, indicate that Saskatchewan was more highly regarded by investors than any of the other Canadian provinces or territories. Moreover, Saskatchewan was ranked as the eleventh most attractive jurisdiction for upstream petroleum investment out of 135 jurisdictions around the world.
While Saskatchewan moved slightly ahead of Manitoba in comparison with the 2010 standings, there is little apparent difference between the two in terms of their attractiveness for investment. Saskatchewan moved to the top position in Canada only because of a slight deterioration in how Manitoba was perceived by survey respondents compared to the year before. Manitoba falls just below Saskatchewan in the rankings but the difference is insignificant in statistical terms. The scores obtained by both provinces indicate that investors have little concern about entering into exploration or development commitments in Saskatchewan or Manitoba.
By way of comparison, the oil- and gas-producing provinces and territories of Newfoundland and Labrador, Alberta, British Columbia, the Northwest Territories, and would-be shale gas producers New Brunswick and Quebec achieved scores indicative of significant investment barriers and were ranked well below Saskatchewan and Manitoba, as well as Ontario and Nova Scotia, in terms of relative attractiveness.
The rankings are based on the scores received on 17 questions dealing with the commercial environment (e.g., fiscal terms applicable to the oil and gas industry; general taxation; quality of infrastructure; labour availability; and trade barriers); regulatory climate issues (e.g., cost of compliance; regulatory uncertainty, especially in relation to environmental regulation but also regarding administration, interpretation and enforcement; duplication and inconsistency; and legal system fairness); geopolitical risk (e.g., political stability and security of personnel and equipment); and other matters affecting the decision to invest, including disputed land claims and quality of publicly available geological data.
Saskatchewan performed well in the survey largely because the respondents perceived neither the commercial environment nor the regulatory climate there to pose significant barriers to investment. For example, Saskatchewan ranked first in Canada and ninth (out of 135) globally in terms of commercial environment factors, outperforming Ontario, New Brunswick, Manitoba, Nova Scotia, and Alberta and obviously much more attractive in this regard than the remainder of the Canadian jurisdictions, especially Quebec and the Northwest Territories.
Only Manitoba achieved higher marks than Saskatchewan in terms of regulatory issues and there was a large difference between the performances of both provinces, as well as in the remaining provinces and territories, in this regard. In Alberta, British Columbia, New Brunswick, Quebec, and the Northwest Territories, the cost of regulatory compliance and regulatory uncertainty were seen to be of much greater concern than in Saskatchewan, which penalized those jurisdictions in both the Canadian and the global rankings. While land claim disputes were seen to pose somewhat of a barrier to investment in Saskatchewan, this factor is of much greater concern in other parts of Canada, especially British Columbia and the Northwest Territories. In Quebec and the NWT, regulatory duplication and inconsistency was seen as major negative factor—much more so than in Saskatchewan, Manitoba, or the other Canadian jurisdictions that were ranked.
The 2012 Global Petroleum Survey is now underway. It will be interesting to see whether Saskatchewan and Manitoba can improve upon their 2011 performances, perhaps moving into the top 10 in the global rankings. Also, will Alberta or British Columbia be able to move closer to Saskatchewan and Manitoba in the Canadian comparison? Judging by the extent of the concern over regulatory issues in both Alberta and British Columbia that was indicated by the 2011 survey results, any near-term improvement in those provinces’ scores is likely to be modest at best.
The full report on the results of the 2011 petroleum survey is available at: http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/global-petroleum-survey-2011.pdf