According to a Fraser Institute survey report released Dec. 10, Alaska ranks 14th for oil and gas investment out of 54 jurisdictions around the world.
“This means that Alaska was perceived by respondents as posing lower overall barriers to investment than 40 other jurisdictions in the ranking — ahead of all U.S. states but Colorado and Wyoming, and all Canadian provinces but Saskatchewan,” study co-author and senior economist Gerry Angevine told Petroleum News Dec. 13.
Global Petroleum Survey 2007, conducted this past spring and early summer, was designed to measure and rank the investment climate of various oil and gas producing regions. The Fraser Institute said the survey was “designed to determine in which jurisdictions public policy factors, such as taxation and regulation, and the business environment more generally, constitute significant barriers to investment in the upstream petroleum industry, specifically exploration and production development.” Survey results were “used to rank jurisdictions according to the barriers to investment.”
According to Fraser’s 86-page survey report, “fiscal terms appear to be of the least concern in Alaska, Kuwait and Australia, among others.”
Alaska scored better than all other states when respondents were asked if the State of Alaska’s “fiscal policies” encouraged investment, with 71 percent of the respondents saying yes. Fourteen percent said Alaska’s fiscal regime was not a deterrent to investment; another 14 percent said it was a mild deterrent.
When asked if the state’s “taxation regime” encouraged investment, only 33 percent said yes, but the other 67 percent said it did not deter investment.
The catch is, the survey was done months before a petroleum tax hike was passed in November by Alaska legislators in a special session called by Gov. Sarah Palin. (The new fiscal regime changed the version passed into law in mid-2006.)
Fraser’s survey was sent to “approximately 12,000 exploration, development and consulting companies” around the world, the institute said. Survey results “represent responses from 375 of those companies.”
The 2006 “exploration and production development budgets of companies employing people who responded to the survey” were “about US$85 billion, or approximately 31 percent of global expenditures of this kind in 2006,” Fraser said, basing its assumption on information published in Oil & Gas Journal on July 2.
Alaska ranked 14 in the survey’s “All-Inclusive Index that takes account of responses to all of the questions included in the survey,” Angevine said. “The reason for Alaska’s relatively strong performance is that it ranked among those with the best possible scores in the case of 12 out of 16 survey questions, including the important fiscal regime and taxation questions. What kept Alaska from ranking as high as Colorado and Wyoming was its relatively poor showing with respect to four factors: regulatory uncertainty, environmental regulations, business infrastructure and the local price of natural gas.” Alaska’s “poor performance in relation to the latter two items no doubt reflects continued frustration over getting an Alaskan pipeline constructed to take advantage of the increasing gap between gas demand and production in the Lower-48.”
In ranking of jurisdictions generated by the “Regulatory Climate Index,” derived from responses to the questions about regulatory matters, Alaska placed 19th out of 54 — second only to Colorado in the United States.
“Alaska would have performed better in that ranking were it not for its relatively poor performance with respect to the questions on regulatory uncertainty and environmental regulation,” Angevine noted.
Nonetheless, 67 percent of respondents said the cost of compliance with government regulations in Alaska was only a mild deterrent to investment.
In regard to regulatory uncertainties, 17 percent of respondents said they were a strong deterrent to investment compared to 33 percent who thought the state’s regulatory regime encouraged investment. Fifty percent said regulatory uncertainties were not a deterrent to investment.
Where Alaska fared the worst, relatively that is, was in a question about environmental regulations. Fifty percent of respondents thought the state’s regulations mildly deterred investment; 17 percent thought they encouraged it; 17 percent did not view the state’s regs as a deterrent to investment.
The “Commercial Environment Index” ranking — based on responses to five questions dealing with fiscal regime, taxation, labor availability, the local price of gas and business infrastructure — put Alaska in 30th place out of the 54 jurisdictions, Angevine said.
“The relatively poor performance resulted from the high percentage of negative responses received in relation to the business infrastructure and local price of gas questions” which Angevine said reflects “the inability to get incremental (North Slope) gas production volumes to market.”
In the area of labor, 17 percent said the state’s available labor pool encouraged investment, 50 percent said it did not deter investment and 33 percent thought it was a mild deterrent to investment. Forty percent said labor regulations and employment agreements encouraged investment in Alaska and 60 percent thought they did not discourage investment.
Native claims were a mild deterrent to investment for 67 percent of respondents; 17 percent said they did not deter investment; 17 percent said they encouraged investment.
Twenty percent said Alaska’s political stability encouraged investment while 80 percent said it did not deter investment. In regard to security, 83 percent said it encouraged investment.
When asked about Alaska’s “geological database,” 67 percent of respondents said it encouraged investment, 17 percent said it did not deter it and 17 percent said it was a mild deterrent.
The petroleum survey was the first for the Calgary-based Fraser Institute, and is modeled after Fraser Institute’s annual international survey of mining jurisdictions.
Petroleum News asked Fairbanks-based mining consultant and North of 60 Mining News columnist Curt Freeman his opinion of Fraser’s mining survey. Freeman said his only concern with Fraser’s mining survey is that “it is based only on those who are sent the survey and who respond to it. I personally have never been sent or filled out a FI questionnaire. Perhaps more important, I do not know anyone who has filled out a questionnaire. Since I know quite a few of the players in the Alaskan mineral industry, I have to wonder: ‘If people active in the mineral industry in Alaska are not filling out the FI survey, who IS filling out the FI questions on Alaska?’
“My point here is simple: if you are not actively working in Alaska but are asked to rate it against other jurisdictions, your opinions (correct or not) are likely to be heavily influenced by media coverage of the mineral industry in Alaska. Most of that coverage is negative, because that is what sells. I suspect that is the case with many who rate Alaska in the FI surveys,” Freeman said.
Steve Borell, executive director of the Alaska Miners Association, said Fraser’s mining survey is “an opinion poll, based on those who reply to the questionnaire,” which gives “an indication of relative feelings” for mining jurisdictions.
“I feel the survey is an indicator and can provide insights but one should be careful to not rely too heavily on it,” he said.
To read the petroleum survey online go to www.fraserinstitute.org/Commerce.Web/product_files/Petroleum2007.pdf