Petroleum explorers and developers participating in the Fraser Institute’s latest Global Petroleum Survey indicated that Saskatchewan is the most favourable place in Canada for upstream petroleum exploration and development, repeating the province’s achievement in the 2013 survey. This marks the sixth consecutive year that Saskatchewan has placed either in first place or second place in Canada and also achieved a very high rating when compared with jurisdictions in the United States and other countries according to the all-inclusive Policy Perception Index scores. Manitoba ranked second in Canada for the second year running but the gap between its score and Saskatchewan’s has narrowed considerably.
The eighth annual Fraser Institute survey was conducted during the summer of 2014 and the results were published in November. The findings are based on responses from 710 petroleum industry executives, managers, and experts to questions regarding barriers to investment in petroleum exploration and production development in 156 provinces, states, and countries. As in previous years, the survey questions targeted 16 important factors impacting investment in upstream petroleum exploration and development. These include fiscal terms; taxation and other factors affecting the commercial environment, such as the availability of skilled labour; quality of and access to essential infrastructure; the regulatory climate which investors face including the cost of regulatory compliance, duplication, inconsistent interpretation, and enforcement of regulations; uncertainty regarding how environmental regulations may be altered; and a number of other important issues such as land claims disputes, political stability, and security of personnel and equipment.
The various jurisdictions’ survey scores are based on the percentage of negative responses such as whether or not a given factor posed “a mild or strong deterrent to investment” or is so onerous that respondents “would not invest” in a given jurisdiction due to that policy factor. Consequently, those jurisdictions with the lowest scores are considered to pose lower or fewer barriers to investment and, therefore, to be the most attractive for investment.
The “Policy Perception Index” rankings referred to earlier, in which all of the jurisdictions rated in the survey are included, don’t take the extent of their oil and gas resources into account. When an indication of their proved petroleum reserves is considered, the rankings are different. For example, when grouped with 27 other jurisdictions each holding at least one per cent of the total proved petroleum reserves (of the 140 jurisdictions ranked in the survey which have at least some proved reserves), Alberta – the only Canadian jurisdiction in the group – ranks as the second most attractive jurisdiction for investment, behind only Texas and ahead of Norway – North Sea, the United Arab Emirates, Qatar, and the 22 other jurisdictions in this group of large reserve holders. In this group, Alberta moved up from third position (of 26) in the 2013 survey.
In a group of 44 jurisdictions each holding at least 0.1 per cent of total proved reserves, but less than one per cent, Newfoundland and Labrador ranks as the 15th most attractive jurisdiction for investment. The only other Canadian jurisdiction in this group, British Columbia, dropped to 19th place from 14th position (of 40) in 2013. Newfoundland and Labrador was moved to this group in the 2014 survey as the result of an increase in the province’s estimated reserves.
All of the other Canadian jurisdictions with proved reserves fall in a group of 69 jurisdictions with relatively small reserves. Saskatchewan achieved second place in this group the 2014 survey, repeating the province’s 2013 performance. This time, Manitoba was very close behind, sitting in third position compared with fifth spot in 2013. The two provinces’ high rankings, both overall and within the group of jurisdictions with relatively small reserves, reflects their generally positive attributes with regard to most of the investment drivers addressed in the survey. The four other Canadian jurisdictions in this group – Nova Scotia, New Brunswick, Yukon, and Northwest Territories – all ranked near the middle of the group.
On the basis of the Policy Perception Index rankings obtained when all of the jurisdictions for which sufficient survey responses were obtained are included, regardless of the extent of their petroleum resources, Table 1 shows that the three prairie provinces were ranked higher by the survey participants in 2014 than Canada’s four other significant oil- and gas-producing jurisdictions in terms of attractiveness for upstream investment – repeating the success of this group in this respect during 2012 and 2013. Compared with Manitoba and Saskatchewan, Alberta has demonstrated the most improvement since 2009 and 2010 as the provincial government backtracked from the royalty hikes embedded in the so-called “New Royalty Framework.” However, Alberta received a less attractive overall score for the second consecutive year on account of less positive responses with regard to a number of factors including regulatory uncertainty, the increasing cost of regulatory compliance and infrastructure quality.
Manitoba gained considerable ground on Saskatchewan in the 2014 survey as the result of significantly more positive results (and more so than Saskatchewan’s) than in 2013 with regard to the disputed land claims and uncertainty with regard to protected areas factors. In addition, Manitoba achieved a much-improved score with respect to uncertainty surrounding environmental regulations and benefited from perceived improvements in factors impacting the commercial environment such as the fiscal regime, taxation in general, and the quality of infrastructure with respect to which that province outshone Saskatchewan. However the cost of regulatory compliance and uncertainty with regard to the interpretation and administration of regulations (as well as with environmental regulations) were again judged to be of significantly greater concern in Manitoba than in Saskatchewan. Moreover, Saskatchewan was perceived to be preferable to Manitoba in terms of the regulatory duplication concerns. As a result, Saskatchewan continues to have the most positive regulatory climate in Canada in the eyes of upstream petroleum investors. The fact that Saskatchewan outperformed Manitoba with respect to the labor regulations and agreements, labour availability, database quality issues also contributed to Saskatchewan’s first-place performance.
Newfoundland and Labrador, Nova Scotia, British Columbia, and the Northwest Territories each received significantly poorer scores in 2014 than in 2013 (Table 1). In all four provinces the deterioration in investor sentiment was broadly based, resulting in much less attractive Commercial Environment Index and Regulatory Climate Index ratings. In Nova Scotia, the percentages of negative responses recorded on the questions pertaining to land claim disputes, the cost of regulatory compliance and regulatory duplication increased significantly. In the three other jurisdictions in this group increased uncertainty pertaining to environmental regulation contributed to less favorable rankings than a year earlier, while in both British Columbia and the Northwest Territories greater concern with regard to the manner in which regulations pertaining to the upstream oil and gas industry are interpreted and administered was recorded. In British Columbia responses with regard to “taxation in general” also contributed to the deterioration in the province’s performance. In Newfoundland and Labrador much greater negativity was expressed regarding labor regulations and agreements and land claims disputes than in 2013.
Again on the basis of Policy Perception Index results for all jurisdictions regardless of the extent of their petroleum resources, Table 2 illustrates that third place Saskatchewan (for the second year) ranks among the top 10 jurisdictions worldwide in terms of attractiveness for upstream investment for the second year running. Manitoba, which has been among the top 10 for three consecutive years moved from ninth to fifth place. Although Alberta didn’t achieve a score as attractive as those posted by Manitoba and Saskatchewan, the province continued to improve its global position in the wake of its return to a more competitive fiscal regime. British Columbia, which slipped from 39th place (of 147) in 2012 to 47th place (of 157) in 2013, slid to 62nd spot (of 156) in the 2014 survey as a consequence of considerably less favorable scores on a wide range of factors.
In order to maintain its position as one of the more attractive jurisdictions for investment in petroleum exploration and production development, Saskatchewan will need to ensure that the fiscal regime applicable to crude oil and production and taxation in general continue to contribute to a competitive commercial environment. But more important, in light the 2014 petroleum survey findings, Saskatchewan must strive to reduce investors’ concerns with regard to infrastructure availability, access and quality, as well as with the cost of regulatory compliance and with uncertainty pertaining to laws and regulations pertaining to protected areas.
The Fraser Institute is a non-profit research and education organization. The full report on the results of the 2014 Global Petroleum Survey may be downloaded free-of-charge at: http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/global-petroleum-survey-2014.pdf The 2015 survey will be launched during the summer and results will be available in the fall.
– Gerry Angevine is a senior fellow at the Fraser Institute.