Not all oil exploration and production companies are created equal -- and that's something to remember as oil prices skyrocket north of $100 per barrel and you and every other individual investor is seeking out exposure to the commodity. The key, of course, is to invest in a company with a good operating track record and high-quality reserves that's also a bargain.

That's easier said than done, of course, because that combination rarely -- if ever -- exists. But for investors looking to get a start judging the best potential investments in this space, there are four critical questions to ask of any company:

1. How much oil does it have?
2. What kind of oil is it?
3. How difficult and expensive will it be to get the oil to market?
4. Where is the oil located?

No more easy money
The best scenario is that you've found a company with gobs of light, sweet crude located just below the surface in a politically stable place near major markets -- like Texas. But again, the world has been drilling for oil for more than 150 years now, and that combination is unlikely to exist anywhere.

Instead, the odds are you will have to compromise, ending up with heavy, sour crude instead of light and sweet, or getting the enhanced cost and risk-profile of drilling in very deep water, or taking the chance that the collapse of a government in Africa won't lead to a renegotiation of your ownership rights or halt in production. Because at higher and higher prices of oil, every one of these situations -- or even heavy, sour crude in very deep water in anarchy -- becomes a potentially profitable investment.

And while the market has become savvy about assessing oil reserves relative to their size, type, and cost of production, too many investors are still underestimating the range of political risks associated with owning assets in countries such as Brazil, Russia, Nigeria, and so on. So where are the best places to be investing if you believe in a future of higher oil prices?

A disturbing reality
Take a look at 10 countries with the highest proved oil reserves: 

Country

Reserves (BBbl)

Government Type

Corruption Rank*

Saudi Arabia 264 Monarchy 50/178
Canada 175 Parliamentary Democracy 6/178
Iran 138 Theocratic Republic 146/178
Iraq 115 Parliamentary Democracy 175/178
Kuwait 104 Constitutional Emirate 54/178
United Arab Emirates (UAE) 98 Federation 28/178
Venezuela 98 Federal Republic 164/178
Russia 74 Federation 154/178
Libya 47 Authoritarian State 146/178
Nigeria 38 Federal Republic 134/178

Sources: CIA World Factbook and Transparency International. *Higher number indicates most corrupt.

When there are only two democracies (one of which is Iraq) and two countries that rank among the top 20% least corrupt places on this list, it's time to be worried about the stability of the world's oil supply. Frankly, unless the NHL moves all of its teams to the U.S. Sun Belt, there's only one country on this list not at-risk for some type of political chaos over the next decade.

Now consider the largest current exporters of oil, the countries that stand to benefit most from rising oil prices:

Country

Exports (KBbl/day)

Government Type

Corruption Rank*

Saudi Arabia 7,322 Monarchy 50/178
Russia 7,194 Federation 154/178
Iran 2,486 Theocratic Republic 146/178
UAE 2,303 Federation 28/178
Norway 2,132 Constitutional Monarchy 10/178
Kuwait 2,124 Constitutional Emirate 54/178
Nigeria 1,939 Federal Republic 134/178
Angola 1,878 Republic 168/178
Algeria 1,807 Republic 105/178
Iraq 1,764 Parliamentary Democracy 175/178

Additional data from U.S. Energy Information Administration. *Higher number indicates most corrupt.

One country sticks out from the rest. If -- after reading all of this -- you're suddenly thinking about Canada and Norway as very attractive potential long-term investment opportunities, then we are on the same page.

The market is catching on
It was with this idea in mind that I purchased shares of Canadian Oil Sands Limited back in December. Although I didn't foresee the political unrest that would rattle North Africa and send oil prices higher, that turned out to be a near-term catalyst for a still-promising long-term investment. My thesis was (and remains) that oil prices, driven by unceasing demand in the U.S., Europe, and Japan, and growing demand in China and India, are going higher over the long-term and that oil situated in politically stable places is worth a premium. Based on the recent relative performances of E&P stocks, that market is coming around to the same conclusion.

First, take a look at the five best-performing large E&P companies over the trailing-three-month period and their returns during the prior three-month period.

Stock

Trailing-three-month return

Prior three-month return

Marathon Oil (NYSE: MRO) 46.9% 10.8%
Imperial Oil (AMEX: IMO) 39.7% -2.7%
Suncor Energy (NYSE: SU) 24.3% 8.6%
ConocoPhillips (NYSE: COP) 23.0% 18.9%
Devon Energy (NYSE: DVN) 22.9% 16%

Returns calculated to 3/8/11; data from Capital IQ.

Now, the five worst-performing:

Stock

Trailing-three-month return

Prior three-month return

CNOOC (NYSE: CEO) (1.1%) 32.9%
Ecopetrol (1.0%) 9.4%
Apache 4.0% 23.5%
Sinopec 6.8% 13.3%
PetroChina (NYSE: PTR) 7.9% 16.3%

Returns calculated to 3/8/11; data from Capital IQ.

What's clear is that investors have soured on companies such as China's CNOOC that not only operates in but has been aggressively buying assets in more politically risky places and have instead embraced companies that may have higher extraction costs, but operate in more stable places -- particularly the Canadian oil sands. Yet despite this recent outperformance, this sub-segment of the energy sector continues to look most promising to me.

The global view
What the recent events in North Africa prove is that change is ultimately coming to corrupt and/or authoritarian regimes that previously promised investors certainty or stability. Further, many of those regimes are currently in control of top 10 global oil reserves or are top 10 oil exporters. As these countries work through political change, that will not only put additional pressure on oil prices, but it may change the status of the agreements that govern oil ownership and production in these countries.

That's a massive risk for investors and for E&Ps currently buying assets in Africa and Latin America, and a good reason why Foolish investors should consider adding politically stable oil exposure to their portfolios.

Get Tim Hanson's top global stock picks by joining Motley Fool Global Gains. Tim's "Global View" column appears every Thursday on Fool.com.

Tim Hanson is co-advisor of Motley Fool Global Gains. He owns shares of Canadian Oil Sands Limited, which is a Global Gains recommendation. CNOOC is also a Global Gains pick. The Motley Fool owns shares of Devon Energy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is winning.