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US Holds Near Monopoly on Top Plays for Oil and Gas Upstream Investment

The US holds nine out of the top 10 global locations for investment in the upstream oil and gas sector in 2018, according to a wide-sweeping survey released Thursday by Canada’s Fraser Institute.

In last year’s survey the US represented six of the top 10 spots.

The organization surveyed more than 250 individuals in the oil and gas industry, including CEO’s, vice presidents, division managers and various specialists to discover what barriers might cause companies pause before investing in certain regions or plays. Those barriers include issues such as tax rates, regulatory obligations, uncertainty over environmental regulations, and the interpretation and administration of regulations governing the upstream industry. The survey also covered concerns of political stability and security of personnel and equipment. For the first time in five years no Canadian province made the top 10 with the top two producing provinces in the nation, Alberta and British Columbia, ranking 43rd and 58th, respectively, of regions to invest out of 80 worldwide locations. The ranking is based on the policy perception index, which is created by compiling respondents’ answers to the various potential barriers to investment facing each region. The highest score a region can score is 100, which was only achieved by Texas this year, followed closely by Oklahoma.

“Onerous regulations, higher taxes and a lack of pipeline capacity are taking their toll on Canada’s energy sector, and as a result, investors are looking elsewhere to invest,” said Kenneth Green, research chair in energy and natural resource studies at the Fraser Institute and co-author of the 2018 Global Petroleum Survey.

US states and regions scoring high enough to make the top 10 in the policy perception index included Texas, Oklahoma, Kansas, Wyoming, North Dakota, Alabama, Montana, Gulf of Mexico and Louisiana. The UK’s offshore development in the North Sea was the only non-US area to crack the top 10. “Investors are saying very clearly they prefer the competitive taxes and regulatory regimes of the energy-producing American states over Canadian jurisdictions,” said Ashley Stedman, Fraser Institute senior policy analyst and study co-author. “Policymakers at the federal and provincial levels must be aware of the impact their decisions have on attracting or deterring valuable investment dollars.”

Said one of the survey respondents: “As long as the current administration maintains its tax and regulatory policies new capital will to flow to the United States.”

Although almost every US producing state saw an increase in its policy perception index score. Colorado was the only state to drop in the index, falling from 55th to 59th year over year. Even California improved from its 91st ranking in 2017 to 67th in 2018.

When it comes to regulatory enforcement, 14% of all respondents said Colorado’s regulatory climate would deter them from pursuing any oil and gas investments in the state. This was even higher than California where only 9% said regulations would prevent any investment.

“Colorado is becoming more difficult to operate in as political activism directed towards the oil and gas industry increases,” according to one of the survey respondents.

Much of the concern in Colorado stems from a 2018 ballot initiative to drastically increase drilling setbacks. Although the measure failed during the November 6 elections, its passage would have eliminated nearly all new drilling locations in the Piceance and Denver-Julesburg basins. Also, proponents of the initiative said they would continue efforts to increase drilling setbacks in the state.


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