Four Oil Stocks Facing Potential Political Risks
Oil and politics are intrinsically tied together, and these four oil stocks have tricky political waters to navigate in the years ahead.
Politics have played a heavy role in energy production in the U.S. and the result is rarely good for investors and U.S. job creation. The bottom line is that politics looms large when answering the question of why the U.S. must import a huge majority of its oil needs.
Investors in the oil patch must be aware that the U.S. isn't the only home to tricky political roads for oil companies to navigate. In fact, the U.S. actually looks appealing compared to some of the unsavory locales in which major Western oil companies must operate to produce more black gold. Political risks or not, energy giants have to go where the oil is and investors need to know the oil stocks that are vulnerable to potential political issues in the years ahead.
Here are four big oil stocks that may need to negotiate choppy political seas in the years ahead. In alphabetical order:
Anadarko Petroleum (APC): Despite a recent, nasty tumble, the news flow surrounding the second-largest U.S. independent oil and natural gas producer has been excellent lately. In November alone, Texas-based Anadarko said it might be sitting on 1 billion barrels of oil in Colorado and then said a test well in Mozambique shows the company might have access to 15 trillion to 30 trillion cubic feet of natural gas off the coast of the African nation.
The risk with Anadarko is that it has a heavy footprint in always politically volatile Africa. Anadarko's Africa exposure isn't limited to Mozambique. The company also operates in Algeria, Ghana, Ivory Coast, Liberia and Sierra Leone. Those are some dicey locales, politically speaking.
Chevron (CVX): The company's recent spill in Brazil not withstanding, the Dow component and second-largest U.S. oil company faces potential political risks in other corners of the globe, too. Chevron has potential to bolster its status in Russia, but the company has already faced some issues there, not of its fault I should add. The California-based company also has an impressive African presence in Angola, Chad, Democratic Republic of Congo, Liberia and Nigeria, among others.
That's a lot of potential risk just on one continent. And there is still the matter of Brazil. Chevron probably won't be banned from Brazil, but it does have some fences to mend in the oil-rich South American country.
Exxon Mobil (XOM): As the largest publicly traded oil company in the world, Exxon Mobil operates in scores of locations that bring political risk, but one leads us to include the company on this list: Russia. Yes, the profit potential of partnering with OAO Rosneft to drill in the Russian Arctic is too alluring to pass up. Problem is drilling the Arctic might be less treacherous than dealing with Russian politicians when it comes to oil.
Petrobras (PBR): Brazil's state-run oil company's inclusion on this list has nothing to do with Brazil itself. Overall, Brazil is rather hospitable to oil production. Rather, Petrobras makes the list because it is Brazil's state-run oil company. That means the Brazilian government is the company's largest shareholder and the political issues the company faces are almost entirely domestic.
Petrobras' ability to take advantage of rising oil prices is hampered because the government limits gas price increases in order to fight inflation. As a state-run enterprise, Petrobras is the worst dividend payer among comparable integrated oil and gas stocks. Plus the government has no problem with allowing Petrobras to regularly tap the capital markets to pay for its ambitious exploration plans and some of those efforts have previously diluted shareholders.
Bull case: Oil prices rise, obviously. Politics change for the better in Africa and Russia truly warms to working with Western oil firms. Or none of the speculation set forth here ever becomes reality.
Bear case: Beyond falling oil prices, it can take years to produce oil in some of these far-flung locations. If it takes a long time to get the first barrel out of the ground, it can also mean costs are running too high to warrant the risk. In addition, Africa's history of political instability and violence in oil-producing nations cannot be ignored.
Editor's Note: This content was originally published on Benzinga.com by Gordon Wilcox.
Below, find some more great ETF and market content from Benzinga:
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