Alaska reputation low but improving

Annual Fraser Institute report tracks industry opinion of oil producing region but doesn’t account for growth in exploration

Eric Lidji

For Petroleum News

Alaska remains one of the least attractive places in North America for oil and gas investment, but its reputation compared to other hydrocarbon provinces improved slightly over the past year, according to recent survey of global petroleum industry executives.

The State of Alaska ranked 61st out of 147 jurisdictions while the federal Alaska Outer Continental Shelf ranked 52nd, according to the 2012 Global Petroleum Survey by the Fraser Institute, a right-leaning Canadian think tank. In the 2011 survey, respondents placed the State of Alaska at 83 and the Alaska OCS at 78 among 135 jurisdictions.

The annual survey gauges how decision-makers in the oil and gas sector view the business climate in countries, provinces and states around the world. The respondents measure regions on 18 factors, including taxation, regulation and political stability.

The ranking for the Alaska OCS rose because of improvements to “regulatory administration in general, and uncertainty over protected areas specifically,” according to the survey. But Alaska remained one of only four states — alongside Utah, California and New York — to get a vote of “would not pursue investment” from any respondent.

The most attractive areas for investment appear to be North America and northern Europe, with 11 U.S. states and two Canadian provinces making the top 20 alongside six regions in the Netherlands, Norway, Denmark and Ireland, according to the survey.

Oklahoma led the list, followed by Mississippi, Texas, North Dakota and Manitoba.

The five least attractive jurisdictions cover the globe, but contain familiar faces. Bolivia is at the bottom of the list, followed by Venezuela, Iran, eastern Siberia and Libya.

The rankings place Alaska in odd company.

In the United States, only New York — where unconventional gas development is currently off limits — ranked lower than Alaska. Unlike last year, Alaska did not beat out California or the Pacific OCS, the former a region with some of the strictest environmental laws in the country and the latter a region not included in the Bureau of Ocean Energy Management, Regulation, and Enforcement 2007-12 five-year program.

Among hydrocarbon-rich regions of North America, Alaska beat out Quebec and New Brunswick, but fell several spots below the Yukon and the Northwest Territories.

As it did last year, though, the survey continues to reveal a contradiction between the perception of industry leaders about Alaska and the actual investment in the state.

The rankings show a growing love affair with domestic unconventional resources.

The survey shined favorably on Oklahoma, Texas, North Dakota and Colorado — home to such hot unconventional oil plays as the Mississippi Lime, the Eagle Ford, the Permian, the Bakken and the Niobrara. It also gave high rankings to West Virginia and Ohio, home to the liquids-rich regions of the Marcellus and Utica shales, respectively.

After several years near the middle of the pack, Pennsylvania jumped more than 30 places to 34th. The state at the heart of the Marcellus recently passed a regulatory overhaul containing provisions favorable to industry and not imposing a traditional severance tax. The primary complaint remaining about Pennsylvania was the relatively thin and discontinuous legal history to help govern disputes over mineral leasing.

The U.S. Gulf of Mexico bounced back in the eyes of the industry this year after getting pounded last year because of the reforms and delays enacted in the wake of the Deepwater Horizon oil spill. The survey ranked the region 26th this year, considerably better than its 60th place finish last year, but below its ranking at 11th place in 2010.

Alberta, another common competitor for Alaska, jumped to 21st this year after ranking 51st in 2011 and 60th in 2010, largely because of the back-to-back decisions to abandon its New Royalty Framework proposed in late 2007 and to streamline its regulatory processes.

And while the developed world ranked high in the overall index, as well as most of the constituent factors contributing to that ranking, the respondents appeared to favor the environmental regulations of the developing world, placing Somaliland in the top position, followed by Ethiopia, Bahrain, Cyprus, Manitoba and North Dakota.

The survey also included thoughts about various regions from anonymous responders.

For Alaska, those included:

•“Punitive government regulations; anti-business environment in press and government; excessive taxation”

•“Ridiculously high production taxes. Constant government interference in our business”

•“Heavy NGO involvement — lawsuits to prevent/delay project developments”

Despite those harsh sentiments, the North Slope recently completed one of the busier exploration seasons in recent memory. At the start of the season, nine operators planned to drill as many as 34 wells, which would have made 2012 the most active on record.

The companies ended up drilling only 15 wells, but the decrease came largely from operator problems and rig shortages, rather than regulatory delays or high taxation.