The Fraser Institute

The Fraser Institute

November 18, 2013 06:15 ET

The Fraser Institute: Oklahoma and Mississippi Have Best Policy in U.S. for Oil and Gas Investment but Texas Earns Top Spot When Proven Reserves Taken Into Account

CALGARY, ALBERTA--(Marketwired - Nov. 18, 2013) - Oklahoma and Mississippi may have the best policies in America for attracting oil and gas investment but when proven reserves are included, Texas is the top dog in the world for investment, according to the Fraser Institute's annual Global Petroleum Survey.

The Global Petroleum Survey uses the opinions of petroleum executives and managers to rank jurisdictions for their relative attractiveness for investment. But the rankings don't factor in proven oil and gas reserves or petroleum resource potential. That changes this year with the addition of a new index that segments jurisdictions into tiers based on proven oil and gas reserves and overlays their ranking from the Policy Perception Index.

"Decisions to invest in petroleum exploration and development are largely based on a jurisdiction's available oil and gas resources, not just the policy environment," said Kenneth P. Green, Fraser Institute senior director of natural resources studies.

"While jurisdictions with relatively small proven oil and gas reserves and relatively little petroleum production such as Mississippi, Kansas, and Alabama may achieve a high ranking, they cannot be expected to attract nearly as much investment as jurisdictions with similar attributes that also have much larger petroleum reserves."

Among jurisdictions with the largest proven reserves (representing 92.1 per cent of proven reserves among jurisdictions included in the survey), Texas earns top spot globally as the best jurisdiction for oil and gas investment. Qatar ranks second overall with Canadian province Alberta third.

Among the second tier of jurisdictions, representing 6.8 per cent of total proven reserves, Oklahoma earned top spot followed by Arkansas then North Dakota.

The third tier of jurisdictions, representing just 1.1 per cent of total proven reserves, was topped by Mississippi, followed by Canadian province Saskatchewan, Kansas, Alabama, Canadian province Manitoba, and Netherlands/North Sea.

"North American jurisdictions overall benefit from providing a secure environment in terms of the physical safety of personnel and assets, having a fair and transparent legal system, and for the quality of geological databases," said survey co-author Alana Wilson, Fraser Institute senior economist in natural resource studies.

Survey rankings of U.S. states

Looking strictly at survey responses and not accounting for level of proven reserves, oil and gas executives and management ranked Oklahoma and Mississippi as one and two globally out of 157 jurisdictions. Texas ranked third in the U.S. and fourth overall, followed immediately by Arkansas, Kansas, Alabama, and North Dakota-all in the top 10 globally.

Other U.S. states in the global top 25 are Louisiana (14th), Wyoming (15th), Montana (21st), and West Virginia (22nd).

"These states are paving the way for a prosperous future for Americans and their families by establishing policies that will encourage oil and gas exploration and create jobs," Green said.

"To be views among the top 25 jurisdictions for investment in the world, they must have tax, regulatory, and labor terms that are clear, consistent, and competitive internationally."

Least popular jurisdictions

Among nations with the largest proven reserves, Venezuela, Iran, and Russia/Offshore Arctic were the least favourable for investment. Among tier two jurisdictions, Ecuador, Bolivia, Uzbekistan and South Sudan are the least favourable while Argentina/Salta and Kyrgyzstan are the least favourable and among tier three jurisdictions.

Ignoring proven reserves and looking at only survey responses, the 10 least attractive jurisdictions are Venezuela, Ecuador, Iran, Bolivia, Russia/Offshore Arctic, Uzbekistan, Russia/Eastern Siberia, South Sudan, Iraq, and Russia/other.

"Political stability was the factor most deterrent to petroleum investment for Venezuela, followed by trade barriers and labor regulations. For Russia overall, the largest percentage of investment deterred was due to the legal system and the quality of infrastructure," Wilson said.

The 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. A total of 864 respondents representing 762 companies completed the survey questionnaire this year, providing sufficient data to evaluate 157 jurisdictions. The exploration and development budgets of participating companies account for more than 50 percent of the $619 billion spent in 2012 on petroleum exploration and production among international oil companies.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 80 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research.

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