Saturday, July 2, 2011

Alaska near bottom; State ranks below most North American jurisdictions for global investment

By Eric Lidji, for Petroleum News

Alaska is one of the least attractive places in North America for oil and gas investment, according to recent survey of international petroleum industry executives.

The State of Alaska ranked 83rd out of 136 jurisdictions while the federal Alaska Outer Continental Shelf ranked 78th, according to the Global Petroleum Survey by the Fraser Institute, a right-leaning Canadian think tank.

In addition to its low ranking this year, Alaska “slipped considerably” from its rankings last year, when survey respondents placed the State of Alaska at 68 and the Alaska OCS at 57 among 133 jurisdictions.

The annual survey gauges how higher-ups in the oil and gas sector view provinces, states and countries around the world by measuring 17 factors, including fiscal systems, regulatory certainty, political stability, local infrastructure and outstanding land claims.

The most attractive areas for investment are almost entirely in North America, Europe or Australia and New Zealand, according to the survey. Mississippi topped the list, followed in the top five by Ohio, Kansas, Oklahoma and Texas. The Dutch North Sea ranked highest of regimes outside North America.

The five least attractive jurisdictions are all in South America or the Middle East: Venezuela, Ecuador, Bolivia, Iran and Kazakhstan.

The rankings place Alaska in odd company.

In the United States, only California — home to some of the strictest environmental laws in the country — and the Pacific OCS — a region not included in the Bureau of Ocean Energy Management, Regulation, and Enforcement 2007-2012 five-year program ranked below Alaska.

For North America, Alaska joins Quebec and Northwest Territories at the bottom of the list.

Ranks poorly against shale

Alaska also fared poorly against its traditional and emerging competitors.
With expanding development of the Bakken Shale, North Dakota is poised to push Alaska out of the second place spot for oil production in the United States and that momentum helped North Dakota rank 10th this year, after ranking 24th in 2010.

The U.S. Gulf of Mexico, previously a darling among investors, took a major hit this year because of a federal drilling moratorium and new regulations enacted after the BP oil spill. But even though the Gulf fell farther down the rankings than any other regime in the world — from 11th place in 2010 to 60th this year — it still ranked higher than Alaska.

While Alberta ranked 51st this year, it jumped 11 spots from the 2010 ranking after the provincial government abandoned the New Royalty Framework proposed in late 2007.

Alberta began debating its new royalty structure around the same time Alaska officials debated and passed Alaska’s Clear and Equitable Share, or ACES, the current oil production tax. During those debates, many in Alaska pointed to Alberta as proof that the state could change its production tax and still remain competitive compared to other regimes around the world.

Now, as a way to increase investment, some Alaskans want to change ACES to remove a progressivity feature that increases the tax rate as the price of oil increases.

Perceptions, not investments

Because the survey only measures perception, not actual investment, it only does little to clarify how ACES is or is not harming the investment climate on the North Slope.
While the North Slope majors have said they have significant investment on hold until the fiscal climate improves in Alaska, critics continually note rising industry profits.

The major oil companies mostly released flat spending plans for the coming fiscal year in Alaska, but the State of Alaska has issued nearly $4 billion in tax credits since 2006.

And that debate also does not cover other factors that respondents pointed to in giving Alaska a low ranking, including environmental regulations and Native land claims.

The survey includes “horror stories” from particular regimes. For Alaska, those included the five years one company — unnamed, but undeniably Shell — has been waiting to get air permits from the U.S. Environmental Protection Agency for exploration drilling.