Almost concurrently, the winds of political change have recently swept across governments-legislatures and/or executive branches-of most of the Western hemisphere's largest oil-producing countries, and investors are advised to take heed.

Four of these countries-the U.S., Mexico, Canada and Ecuador-accounted in 2005 for 20% of the hemisphere's 21 million barrels per day of oil production, or 25% of world oil output, notes Bernard J. Picchi, senior managing director and energy equity research analyst for Wall Street Access in New York.

"Of these four, the one energy investors should watch most closely is Mexico," stresses Picchi. He points out that its new leader, Harvard-educated Felipe Calderon, won a Bush/Gore-like victory over his leftist opponent and stands for privatization, flat taxes and free trade.

Since 40% of Mexico's budget revenues come from oil, the fortunes of that industry will be central to that country's fiscal health. "And therein lies the problem: the country's largest oil reserve, the offshore Cantarell Field, is in fast decline."

When that field was discovered in 1976, it was one of the world's 10 largest, and in 2005 it accounted for 2.1 million barrels per day, or 55%, of Mexico's total daily oil output of 3.8 million barrels a day.

"Within two years, however, Cantarell production could fall by 30% to 75%, or 600,000, to 1.6 million barrels per day. In a worst-case scenario, Mexican oil exports could be halved. That could cut budget revenues by 10% or more."

The cure for this problem? "It's easy to see but hard to implement: amend the Mexican constitution to end Pemex's (the state-owned oil company) legal monopoly on ownership and control of the country's petroleum resources," he says.

There is little doubt that Mexico has the resources to hold production steady, but it cannot do this without help from foreign oil companies, he adds. The Mexican constitution, however, prohibits foreign ownership of hydrocarbon resources. "We will know within the next several months if Calderon can succeed where his predecessor, Vicente Fox, failed to effect energy reform."

Elsewhere in the hemisphere, investors should look for potential royalty changes in Alberta's oil-sands projects in western Canada, says Picchi. Alberta's newly elected premier, Ed Stelmach, has signaled that his government will review the royalty rates that Alberta's oil-sands producers-the like of Suncor, Imperial Oil and Shell-pay to the province. "Rates will not go down as a result of this 'review,' of course."

Regarding the new U.S. Congress, the Democrat leadership is not yet talking about windfall-profits taxes or price controls. "So far, so good," Picchi says. (For more on Picchi's views, see "Global-Minded Guru" in this issue.)