By Gerry Angevine, Senior Fellow, the Fraser Institute
Saskatchewan ranks as the most attractive Canadian jurisdiction for upstream petroleum oil and gas investment according to participants in the Fraser Institute’s 2013 Global Petroleum Survey. Saskatchewan dislodged Manitoba from the top spot—regaining the position that it held in 2011. Both provinces have consistently placed either first or second in Canada since 2009.
In addition to its favourable performance in the survey, which assesses jurisdictions on the basis of regulatory climate, business environment and geopolitical risk factors, but ignores their resource endowments, Saskatchewan has proved oil and gas reserves close to one billion barrels of oil equivalent or about 30 times greater than Manitoba’s. Consequently, Saskatchewan can be expected to attract considerably more investment in petroleum exploration and development.
The 2013 Fraser Institute Survey results reflect responses from 864 petroleum industry executives, managers and experts to questions regarding barriers to investment in oil and gas exploration and production development in 157 provinces, states and countries. The survey questions focus on 16 important factors impacting petroleum companies’ willingness to invest in upstream oil and gas activities (as opposed to downstream activities such as oil refining, transportation and marketing). These include fiscal terms, taxation and other factors affecting the bottom line, such as the availability of skilled labour; quality of and access to essential infrastructure; the regulatory framework which investors must face, including factors such as the cost of regulatory compliance, duplication, inconsistent interpretation and enforcement of regulations, and uncertainty pertaining how environmental regulations may be altered; and a number of other important issues such as land-claim disputes, political stability, and security of personnel and equipment.
A jurisdiction’s survey score is based on the percentage of negative responses, such as “a mild or strong deterrent to investment” or “would not invest” received with regard to each factor. For this reason, jurisdictions with the lowest scores are considered to pose lower or fewer barriers to investment and, therefore, be the most attractive for investment.
Table 1 shows that among Canada’s seven most significant oil and/or natural gas-producing provinces, Saskatchewan, Manitoba and Alberta ranked first, second or third for the second year in a row. However, some changes occurred in the rankings in addition to Saskatchewan and Manitoba changing places. Newfoundland and Labrador’s improved score allowed it to move from sixth spot to fourth, while British Columbia’s less-attractive score resulted in that province slipping to sixth place from fifth. Nova Scotia dropped to fifth position from fourth.
Saskatchewan displaced Manitoba in 2013 for a number of reasons. For example, Saskatchewan jumped from 16th place (of 147) to eighth place (of 157) with regard to the cost of regulatory compliance issue, while Manitoba tumbled from fifth position overall to 22nd place on the same issue. In addition, Saskatchewan achieved an improved score when compared with 2012 with regard to uncertainty pertaining to environmental regulations—moving to top place in the world from 15th position while Manitoba slipped from fifth place overall to 27th place. Saskatchewan also performed more strongly versus Manitoba than in 2012 on survey questions pertaining to a number of other issues including regulatory inconsistency, uncertainty with regard to protected areas, quality of infrastructure and regulatory duplication.
Newfoundland and Labrador’s improved standing mainly resulted from a much-improved score on the labour regulations and employment regulations question. That province also achieved lower percentages of negative responses than in 2012 with regard to the questions dealing with labour availability, uncertainty regarding protected areas, and database quality, as well as in relation to a number of regulatory climate factors such as regulatory uncertainty and the cost of compliance. British Columbia’s less attractive score than a year earlier resulted mainly from greater percentages of negative responses with regard to a number of factors including: political stability (reflecting the fact that a change of government was being anticipated by many pollsters at the time of the survey), disputed land claims, taxation in general, and uncertainty with regard to environmental regulations.
Table 2 shows how Saskatchewan improved from 2012 to 2013 on the global scale—achieving third place (of 157) in terms of attractiveness for investment. Manitoba, the only other Canadian jurisdiction among the top 10 worldwide, slipped slightly. Alberta has continued to improve from a global perspective since the provincial government’s announcement in 2010 that it would revert to a royalty structure closely similar to the scheme that was in place prior to the highly unpopular “new royalty framework” that was imposed in 2009.
While Saskatchewan, Manitoba and Alberta each appear very attractive for upstream investment on the basis of the survey, participants’ assessments of regulatory climate, business environment and geopolitical risk factors, the rankings don’t reflect the scope of any of the jurisdictions’ known oil and gas resources. When an indication of the extent of their resources is considered, the results are somewhat different. For example, when grouped with 26 other jurisdictions, each holding at least one per cent of the total proved petroleum reserves of the 138 (of 157) jurisdictions ranked in the survey with at least some proved reserves, Alberta—the only Canadian jurisdiction in the group—is indicated to be the third most attractive jurisdiction for investment, behind only Texas and Qatar.
In a group of 41 jurisdictions each holding at least 0.1 per cent of total proved reserves, but less than one per cent, British Columbia ranks as the 14th most attractive jurisdiction for investment according to the 2013 survey. In a third group comprised of 70 jurisdictions with yet smaller reserves, where all of the remaining Canadian jurisdictions fall, Saskatchewan is in second place, after Mississippi but ahead of Kansas, Alabama and Manitoba, which fall in third, fourth and fifth place, respectively. Clearly, Saskatchewan and Manitoba both have very attractive rankings compared with most of the jurisdictions in this group.
Saskatchewan’s high ranking both overall and within the group of jurisdictions with relatively small reserves reflects a number of very positive factors. For example, survey respondents indicated no concerns whatsoever about investing in the Saskatchewan on the basis of five of the 17 factors addressed in the survey: political stability, security of personnel and equipment, quality of the database, fiscal terms, and uncertainty with regard to environmental regulations. Moreover, the province scored very high with respect to all other factors, except disputed land claims on which it ranked approximately in the middle of the group of 157 jurisdictions.
In order to maintain its position as one of the most attractive jurisdictions for upstream investment, Saskatchewan will need to ensure that its oil and gas royalties remain highly competitive. Further, the cost of regulatory compliance and uncertainties with regard to environmental and other regulations must continue to be minimized to ensure that the province’s favourable regulatory climate does not deteriorate. In addition, efforts will be required to defuse investors’ relatively high level of concern with regard to the barrier posed by land claim disputes.
The Fraser Institute is a non-profit research and education organization. The full report on the results of the 2013 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-2013.pdf. The 2014 survey will be launched during the summer and results will be available early in 2015.