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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, in hopes of redefining the company.
When weighing whether to invest in a domestically-focused E&P like XTO Energy (NYSE: XTO ) or a traveling man like 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 to say, and weigh in with your opinion right here.