High oil prices have pumped billions of dollars into the coffers of OPEC and non-OPEC producers alike. Thanks to that, 2006 will go down in history as the year that governments got feisty. Some would say greedy; others would say patriotic.

Here in politically "safe" North America, we've watched with alarm the bold moves made by Venezuela's Hugo Chavez, Bolivia's Evo Morales and Russia's Vladimir Putin to more or less nationalize their oil and gas assets, whether de jure or de facto. We've even seen the U.K. change the tax regime for the North Sea, causing operators some consternation there. Internationally driven E&P companies are learning that the soft skills of negotiation and diplomacy are more important than ever, if they want to preserve their international oil and gas interests.

But you think there is no country risk if you stay in America? Think again. Country risk is relative. It can change in an instant, so let's not be too smug. Recent events remind us that game-changing political risk lurks here in our own backyard.

Louisiana Gov. Kathleen Blanco, an industry friend in the past, scored a direct hit when she successfully sued the federal government to stop OCS lease sales until an updated, full-blown environmental impact statement for her coastline can be completed. This will likely delay the March 2007 Central Gulf lease sale, usually the largest of any given year.

Decades of petroleum development onshore and offshore have scarred Louisiana's wetlands and made the state vulnerable to hurricane-induced tidal surges, according to Blanco. The U.S. Geological Survey said recently that Katrina and Rita wiped out 217 square miles of land that is now under water.

In the election season just passed, country risk grew as U.S. voters considered several ballot initiatives-not to mention the changes in Congress-that might deter the industry.

Alaskans were asked to impose a new tax on North Slope natural gas reserves until they are produced through the elusive Alaska gas pipeline. This was meant to be an incentive to get the oil companies to agree on terms and start building the line. (The latter has been repeatedly held up by the legislature, which has refused to approve a contract with the producers to build the $25-billion pipeline.)

Voters said no to the tax by a 66% to 34% margin. But now that Alaska has elected a new Republican governor, the pipeline negotiations may go back to square one and drag out another two years.

In California, Proposition 87 would have imposed a new 6% tax on production in a state where companies already are taxed heavily. The media campaigns, pro and con, spent nearly $157 million trying to convince voters one way or another-the most expensive ballot initiative in U.S. history. Fortunately, the proposal was defeated. Predictably, some 79% of voters calling themselves liberals voted for the measure.

So although the industry dodged a few bullets in November, more are headed our way in 2007 when the Democrat-controlled Congress convenes.

We are in for a bumpy ride, judging by the pledges of the incoming heads of key committees such as Energy and Commerce, Environment and Public Works, and Agriculture. Oil and gas producers will be targets for new taxes and regulation, and reductions in tax relief and incentives for deepwater offshore activity. Republicans wanted to increase oil and gas production and other traditional energy sources, but Democrats prefer incentives for alternative energy sources, drilling bans and conservation.

Then in Canada, considered a safe haven for oil and gas activity, Ottawa dropped a bombshell too. It proposes taxing distributions of all new income trusts now, and of existing ones starting in 2011. On this news, trusts' and juniors' equities tumbled. Observers say the price of energy assets in the ground will fall as well, opening up heartache for owners and opportunity for buyers.

Although the Canadian government had hinted at such a move for years, this was brought on by the fact that major telecom giants Tellus and Bell Canada, and even energy giant EnCana, were said to be considering becoming trusts.

"The regulators took to brute force," Don Garner, president and CEO of PrimeWest Energy Trust, a C$3-billion enterprise traded on the Toronto and New York exchanges, said at the New York Society of Security Analysts' oil and gas conference.

"It's like a private party that became a block party out of control, and then the police are called in."

More than 70% of his trust units are held by high-net-worth U.S. citizens, he said, mostly in California, New York and Florida. "Should we now convert back to being a traditional E&P company or to a U.S. MLP? I have an office in Denver and U.S. assets. My board is asking me a lot of questions."

Indeed, there will be a lot to talk about in boardrooms next year.

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