Baltimore, MD--With the surge of investment money pouring into energy companies, there's a reason why some investors are able to sit back and count their profits. The more work you put into your research, the more likely you'll be the one smiling.

I had a conversation with a friend this morning over the latest news coming out of Canada. Now, I don't consider him a huge investor. He plays the market with what he can (something we all should remember).

The latest report released by the Alberta Royalty Review Panel gave some investors like my friend concerns about their companies. The report came down to one thing: Alberta wants a bigger piece of the action.

The panel expressed its views right from the start by stating, "Albertans do not receive a fair share from their energy development."

Here's an example of what they mean . . .

If you want to read the entire report for yourself, just click here. After the report was published, many oil sands companies fell lower. And this was the topic of my conversation this morning.

My friend was shaken. "Does this mean I should dump my position now, while I still can?"

The answer I gave him was simple enough. No.

You see, the report reminded me a lot of what happened to Canadian trusts in the fall of 2006. That was when the Canadian government announced that in 2011, the tax breaks that trusts enjoyed would be over. Almost overnight, a majority of Canadian trusts fell significantly, obviously because of panicky investors. My advice back then was similar: If your company is solid, it'll prosper no matter what the government throws at it.

A lot of trusts fell apart on the news, but many were able to increase distributions. Similarly, even if royalties to the Albertan government are raised according to the panel's recommendations, a solid company will still thrive. These guys aren't trying to nationalize the resources like Venezuela and Russia have done recently.

Like I said, they just want a bigger slice of the pie. And believe me, there's plenty of it to go around.

Over the next decade, hundreds of billions of dollars could potentially flow through Alberta. Before I go further into what I told my friend, I want to note that some of the revenue the government receives will be used to improve the region's infrastructure.

"The most important thing you can do when looking into these oil and gas companies is your homework. Make sure the company is not only heading in the right direction, but that it has the ability to do so." There are several aspects of a company that can tell you if it's the right one for you.

The Criteria

I've long felt that the single most important factor to look at is management. Even if a company has a massive amount of reserves lying beneath its properties, it can still flop if the management isn't worth its salt. Look at the experience they bring to the table. Have they led previous companies to success?

You'd be shocked at how many companies I've researched that held great potential in their properties, yet went belly-up because the management couldn't get the job done.

Just as a company with great resources and no team to lead it will founder, a company without resources to develop (or at least land to explore) isn't the best investment opportunity.

Once you dig around and find the right people with the right land, there are just a couple more things I would keep an eye out for.

For example, are they able to raise enough cash to bring their projects to fruition, or do they have a large amount of debt that will drag them down? Will they be able to promote themselves enough to get investors like us interested?

I remember speaking about this with a colleague. He commented, "Once I saw two companies that were nearly identical. They had the same reserves, similar properties as well as sufficient funds to finance their projects. Three months later, one company had doubled its share price while the other did horribly, cutting its share price in half." The only difference between the two was that one was able to promote itself dramatically better.

In the end, the success you achieve will reflect the research you conduct in building your portfolio.

Until next time,

Keith Kohl

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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Your article made two really good points: 1) Do NOT necessarily abandon Alberta Oil and 2) The criteria for selecting resouce companies.
Your #2 (criteria) sounds great - but is actually impossible for the small investor to do. Can can I possibly appraise management? If you believe this is important - then you you say EXACTLY how the small investor should go about appraising the management of a resource company! Jerry Stewart