US States More Attractive for Petro Investment Than Canada, Oil Execs Say

Pumpjacks draw oil out of the ground near Olds, Alberta., on July 16, 2020. The Canadian Press/Jeff McIntosh

The United States is a more attractive environment for investment in the petroleum sector than Canada, according to a survey of industry executives.

Wyoming, for the second year running, was named the most attractive for investment in oil and gas exploration, beating out all of Canada’s provinces, according to the report from the Fraser Institute released on Jan. 9.

North Dakota took second place on investors’ wishlists followed by Saskatchewan in third. Alberta placed ninth behind Oklahoma, Kansas, Texas, the Gulf of Mexico, and Louisiana.

Newfoundland and Labrador placed 14th on the list while British Columbia took the 15th spot.

The survey of senior oil and gas executives, conducted between May and September of 2023, ranks 17 North American jurisdictions—13 in the U.S. and four in Canada—based on policies affecting oil and gas investment.

“The message from investors is clear—Canada’s onerous and uncertain regulatory environment continues to hurt the investment attractiveness of the country’s oil and gas industry,” study co-author Elmira Aliakbari, director of the Fraser Institute’s centre for natural resource studies, said in a news release.

The U.S. performed better than Canada in 13 of the 16 policy factors being considered by investors, the report found. Canada outperformed the U.S. when it comes to the quality of the geological database, security, and legal system.

The U.S. had the edge over Canada when it came to fiscal terms such licensing and royalties, taxation, regulatory enforcement, cost of regulatory compliance, uncertainty concerning wilderness and archaeological protection, trade barriers, labour regulations and employment agreements, quality of infrastructure, labour availability and skills, disputed land claims, political stability and regulatory duplication and inconsistencies, and environmental regulations.

Using various policy factors, the Fraser Institute assigned both countries a  policy perception index (PPI) score. Canada’s median PPI score is 61, more than 13 points lower than the U.S.’s score of 74.6. The think tank said this discrepancy demonstrated that “the US has a competitive advantage over Canada in most policy areas.”

One of the top issues, the report found, was “uncertainty” surrounding environmental regulations. This concern was cited among 100 percent of survey respondents regarding Newfoundland and Labrador, 93 percent for British Columbia, 50 percent for Alberta, and 29 percent for Saskatchewan, the report said.

The U.S. fared better with only 6 percent of respondents deterred by environmental regulations for Oklahoma, 8 percent for Kansas, and 9 percent for North Dakota.

“Policies matter, and when investors are indicating they would rather invest in American states instead of several Canadian provinces, policymakers should take note,” Fraser Institute policy analyst Julio Mejia said in a news release.

Impact of Carbon Pricing

Many survey respondents also said that Canada’s carbon tax was a substantial deterrent to investment.

“Swiftly rising carbon costs coupled with uncertain solutions for practical carbon storage serve as obstacles to investment,” one respondent said when asked about investing in Canada.

“The possibility of revoking oil and gas licences following discovery is a major deterrent to investment,” another potential investor said.

Alberta was singled out by another industry executive who said the province’s “consistent policy changes and discrepancies in carbon regulations across government jurisdictions” remain an investment deterrent. British Columbia was also cited for its “carbon taxes, emission regulations, and abrupt regulatory shutdowns.”

Levied by the Liberal government in 2019, Canada’s carbon tax is the price placed on the carbon content of fuels to reduce CO2 emissions. Prime Minister Justin Trudeau has described the carbon tax as a necessity not only to foster greener thinking but to achieve net-zero carbon emissions by 2050.

Carbon pricing kicked off in 2019 at $20 per tonne and rose to $50 per tonne in 2022. The price will rise $15 per tonne every year until it eventually reaches $170 per tonne in 2030.

Environment Minister Steven Guilbeault has not guaranteed the current $170-per-tonne cap on the carbon tax after 2030, saying it’s “a decision that hasn’t been made” yet.

How the tax is applied varies from province to province, but every jurisdiction must meet the minimum standards set out in the 2016 Pan-Canadian Framework on Clean Growth and Climate Change, and the 2018 Greenhouse Gas Pollution Pricing Act (GGPPA).

The GGPPA places a minimum price on carbon emissions which the government refers to as its “carbon pricing backstop.” As long as Canada’s provinces and territories meet the minimum, they are allowed to run their own carbon pricing scheme. The federal backstop kicks in if those minimums are not met.