Exxon Mobil Corporation (XOM), BP plc (ADR) (BP): Costly Risk In New Oil Exploration

As Steve Coll highlights in his excellent recent book, Private Empire: ExxonMobil and American Power, the resource nationalism that emerged among the large oil-producing states in the world over the past few decades has forced the Western oil majors to embark on challenging journeys to all corners of the globe in search of oil.

But, like Kashagan, most of these projects require massive amounts of upfront investment, yet provide no guarantee about future returns. The bottom line is that, despite the fact that Exxon Mobil Corporation (NYSE:XOM) and some other integrated oil majors are exceptionally well managed, they’re still operating in an environment fraught with risk. Clearly, BP plc (ADR) (NYSE:BP) — still recovering from the Deepwater Horizon incident’s fallout — is a poster child for this harsh reality.

This inherent friction of balancing risk minimization with the need to explore for oil in some of the riskiest locales around the globe is one major reason why investors should be wary of the numerous countries these companies operate in, and the level of risk — weather-related, cost-related, political, social, and otherwise — that their operations pose.

The article Costly Risk In New Oil Exploration originally appeared on Fool.com and is written by Arjun Sreekumar.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Statoil (ADR) and Total SA. (ADR).

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