Russia Combines Oil and Gas

The invention of the American depositary receipt (ADR) was both a boon and a curse to U.S. investors. On the one hand, when foreign companies list their shares on U.S. exchanges, they make it a heck of a lot easier for the average investor to buy a piece of Nokia (NYSE: NOK  ) , Cable & Wireless (NYSE: CWP  ) , or SAP AG (NYSE: SAP  ) than it would have been if she had to figure out how to buy shares on the Helsinki, London, or Munich stock exchanges. But on the other hand, there are the -- to put it politely -- "inefficiencies" of buying ADRs.

The less polite way of putting it, of course, is to call it what it is: "price gouging."

The more in demand an ADR is, and the lower its U.S. float, the more the laws of supply and demand will distort the price of an ADR from the price of the underlying securities on their home market. And there are few instances of more egregious distortions than you will find with the ADRs of Russian gas giant Gazprom (OTC BB: OGZPF). Recently, the price of an ADR in the world's largest natural gas producer has run about 60% higher than the price of plain-vanilla Gazprom shares bought in Russia. The problem, of course, was that you couldn't buy the plain-vanilla Gazprom shares, even if you knew how. Because Russian law forbade foreigners buying Gazprom shares even in Russia and also limited foreigners as a class to owning no more than 20% of the equity in Gazprom.

Which is why energy sector investors should be jumping for joy today after hearing the news that (1) Gazprom will be acquiring the Russian government-owned oil company Rosneft and (2) as a result of the Russian state cementing its controlling stake over Gazprom through this deal, the Kremlin now feels sufficiently sure of itself to let Gazprom's shares trade freely abroad.

Over in Moscow, investors are already exultant over the news. In late Tuesday trading, the price of domestic Gazprom shares jumped 15%, and Gazprom ADRs rose in value as well. But in anticipation of a closing of the gap in pricing between domestic Gazprom shares and their foreign ADRs, the ADRs rose in price only about 5% -- narrowing the disparity in value from 60% to "just" 45%.

That's still a pretty big gap, however. Rather than being tempted to buy into the rapidly appreciating Gazprom, Foolish investors should consider sitting this oil rush out and waiting for the prices of the two equity forms to equalize.

Interested in finding bargain-priced equities in the Russian oil and gas industry? Read all about:

• Lukoil's efforts to build a U.S. retail gasoline empire.
• ConocoPhillips' likely investment in Lukoil.
• The continuing criminal and tax nightmare that is Russia's Yukos.

Fool contributor Rich Smith owns ADRs in Nokia but has no ownership interest in any of the other companies mentioned in this article.