I don't need to tell you that the United States is a good
place to do business in general. (We rank No. 4 in the World
Bank's rankings behind Singapore, New Zealand, and Hong
Kong). What may be less well-known is what a fantastic place
it is to be in the oil and gas business.
Given the antagonism the industry faces from certain
political corners, that statement might surprise you. But one
feature of the U.S. regulatory regime is so favorable that it
trumps all of the bad will toward Big Oil.
The key is our country's treatment of mineral rights. To
the best of my knowledge, the United States is unique in the
world in that oil, gas, and other subsurface goodies belong
to private individuals, rather than the state or sovereign.
(There is a great short paper posted on the website of
Swift Energy (NYSE: SFY) about the history of
mineral rights ownership in this country, detailing Texas
salt wars and the Fremont family's tussle with the courts in
California). Hard as it may be for us Yanks to believe,
Canada and Australia's mineral rights technically belong to
Queen Elizabeth II. In reality, that means the rights are
controlled by government bureaucrats.
Canada and Australia are fine places to do business, as
ExxonMobil (NYSE: XOM),
Apache (NYSE: APA), or
Quicksilver Resources (NYSE: KWK) would
attest, but they both happen to have low corruption and
conducive regulatory environments. As you get further away
from the most business-friendly countries, mineral rights
sitting in state hands can lead to real uncertainty for
companies and their investors.
Ask
Harvest Natural Resources (NYSE: HNR) about
that one some day. The company has had an "interesting"
experience in Venezuela (is there
any other kind?), and investors have heavily discounted
the firm's reserves as a result. Harvest is understandably
redirecting its cash flow to exploration activities elsewhere
in the world to try and redefine the company.
When weighing whether to invest in a domestically-focused
E&P like
XTO Energy (NYSE: XTO) or a
traveling manlike
Talisman Energy (NYSE: TLM), this matter of
mineral rights is an important one to keep in mind.
Harvest Natural Resources is a Fool favorite, ranking a
full five stars in
Motley Fool CAPS. Think the firm's poised to make a big
splash in a new hydrocarbon basin? See what other Fools have
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here.
This article was originally published as
A Great Place to Hunt for Oilon
Fool.com
Copyright 2009 The Motley Fool, LLC. All rights
reserved.
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