Exxon Mobil Corporation (XOM), Royal Dutch Shell plc (ADR) (RDS.A): The Oil Major With The Best Risk/Reward Profile

The increased expense of such efforts will likely keep pressure on profitability. That’s an industry wide phenomena. However, individual project risk is something that can do severe damage to a company. Look no further than BP plc (ADR) (NYSE:BP) and its Gulf of Mexico oil spill for just how bad it can get. That company was forced to shed assets, materially changing its structure and outlook, simply to remain alive.

While BP’s dividend yield and dividend growth prospects rival those of Royal Dutch Shell plc (ADR) (NYSE:RDS.A), the risks associated with owning BP make it a less desirable purchase. But Shell’s history isn’t pristine, either. In fact, it had a ship run aground in Alaska last year, resulting in management putting its efforts in that region on hold and under review.

With 30 major projects going, execution is a big risk—but it’s one that has to be taken.

Energy Prices

No discussion of an energy company would be complete without examining energy prices. Oil and natural gas are commodities. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) can’t change that. At present the company’s projections call for oil to be in the $80 to $100 a barrel range and for natural gas prices to rise from their recent historic lows.

While those numbers sound reasonable, there is always the risk that the market doesn’t cooperate. Should oil prices fall below that range or natural gas prices not recover, the company’s profitability will suffer. Natural gas, because of the company’s aggressive push into the space, will be a key issue to watch.

Of course, the company’s expectation that energy demand will increase 80% by 2050 because of economic development around the world suggests that any short-term weakness could actually be a buying opportunity.

A Good Combo

No investment is without risk. Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s combination of risk and reward, however, make it a good option in the oil and natural gas space for income investors seeking a well-positioned energy play.

The article The Oil Major With The Best Risk/Reward Profile originally appeared on Fool.com and is written by Reuben Gregg Brewer.

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