If you want to dip your toes into international investing, why not start with a hot sector? Energy has been one of the strongest plays over the past few years; high oil and gas prices have enriched energy producers, drillers, and a host of related service companies. While many investors are content with U.S. energy companies, why not consider some of the foreign companies that are also benefiting from this boom?

First, though, let's answer one of the biggest questions regarding overseas energy investment: Why bother? After all, aren't there more than enough U.S.-based ideas to fill a portfolio?

There are several valid reasons to look abroad for energy ideas. First, because many investors are jittery about investing abroad, you can sometimes find foreign assets trading more cheaply than their U.S. peers. Second, investing in non-U.S. companies can offer up some unique growth prospects. U.S. companies are restricted from investing in Iran, Cuba, and other countries biased against U.S. interests, but some foreign players have no such restrictions.

It's also true that foreign companies are often better-positioned to take advantage of opportunities in their own backyards. If you want to profit from growth in Chinese gasoline demand, why not go with the companies that actually own the refineries and gas stations in China?

The investment possibilities in international energy are extensive. You can choose companies that produce oil and gas, or companies that provide drilling or other services. There are also foreign companies focused on energy transportation and alternative energy technologies, plus foreign trusts that can offer above-average income potential.

Energy producers
The large multinational oil and gas operators are one of the first logical stops for foreign energy investing. There are well-known European giants like BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS-A), as well as emerging-market ideas like Petrobras (NYSE:PBR) and PetroChina (NYSE:PTR). There are also companies farther off the beaten path for most American investors, including Italy's Eni, Austria's OMV Aktiengesellschaft, and Canada's Petro-Canada.

There's nothing especially exotic about assessing these production companies. I believe investors would do well to focus on companies with good production growth or prospects of improved growth, solid management from a return-on-equity standpoint, and reasonable valuations. While stocks like BP and Shell will be better suited for income-oriented investors, others, like PetroChina and Petrobras, offer a mix of growth and income that might appeal to more risk-tolerant investors.

Service providers
Oil and gas companies don't do it all themselves -- they often call on a host of drilling and service companies to help them make the most of their assets and efforts. When times are good for the producers, they often soon improve for these ancillary companies as well.

The biggest oil services company in the world, Schlumberger (NYSE:SLB), is actually technically a foreign company, since it is incorporated in the Dutch Antilles. While the company invests a startling amount of money in research and development, which could help it keep a lock on the top spot, it is nevertheless beholden to the larger cycle of oil-industry activity.

Other operators are a bit more obviously foreign -- seismic data companies like Petroleum Geo Service, and service company Technip. As a group, these companies are currently seeing solid growth. But investors should note that the companies aren't proven cash flow producers over the long haul; their investment attractiveness is tied to a hot market for energy-related shares.

Energy technology and alternative energy
Foreign energy investment doesn't have to be all about traditional oil and gas operations. South Africa's Sasol has some of those traditional oil/gas and chemical businesses, but also some less-than-traditional efforts to convert coal and natural gas into synthetic fuels.

It's also possible to move entirely away from hydrocarbons and fossil fuels, yet still invest overseas. Wind power is a clean and increasingly popular energy source, and Vestas is one of the leaders in this market. You also have research-stage companies like Canada's Ballard Power engaged in high-risk/high-reward projects like fuel cells.

Getting gritty up north
One of the more interesting and unusual overseas energy investment opportunities lies in Canada's oil sands (also called tar sands). Estimates vary, but most experts seem to agree that the tar sands in Alberta represent a considerable fraction of the world's remaining unexploited oil deposits. Although getting the oil out of this gunky mixture of clay, sand, water, and bitumen takes some doing, the process has become increasingly efficient.

There are several companies with their hats in the ring here, including large players like American ConocoPhillips (NYSE:COP), France's Total SA (NYSE:TOT), and a host of Canadian interests like Petro-Canada, Nexen, Suncor, and Canadian Oil Sands Trust. As promising a source of oil as these tar sands are, investors should remember that the same old rules still apply: Fools still need to focus on identifying solid companies trading at reasonable prices before investing.

Fuel for Foolish thought
While we at The Motley Fool generally prefer investments we can buy and hold for many years, the energy sector doesn't always allow for that. It's characterized by cyclical fits and starts, with few companies able to earn consistently strong returns on capital.

International investing may help Fools even out the bumps. The development of the Canadian oil sands will likely be a multi-decade process, as will the growth in energy demand in regions like India and China. Although future energy prices are anybody's guess, I think there is a legitimate chance that global demand will keep prices high enough for these sorts of overseas opportunities to produce profitable growth.

Some may think that investing in foreign energy is simply compounding risk upon risk -- entering a risky and volatile sector while leaving the safety of U.S. investing behind. But I believe that investing in overseas energy companies, within the context of rigorous due diligence and informed stock selection, can actually boost overall returns without adding an undue amount of risk to the equation.

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