The loss of human life in Algeria at an energy installation was a sad example of the risks companies are taking to find oil and natural gas. These are important fuel sources, but some are questioning if the risks being taken to acquire more oil and gas outweigh the benefits. Giving up access to politically hard to reach oil and gas could be costly for some companies, but others would likely benefit and so can investors.
People Can Do Awful Things
Human created disasters are, perhaps, the most difficult to deal with. The most recent example being the now ended crisis in Algeria. An al-Qaeda related group is accused of taking control of the Sharan In Amenas facility run by BP plc (NYSE:BP) and Statoil ASA (NYSE:STO) with the hope of stopping France from continuing its military operations in Mali. After the country’s military ended the situation, more than 80 people were dead. The event is clear evidence of the risks that companies are taking to gain access to oil and natural gas.
Norway, the home of largely government controlled Statoil, has an increasing chorus of residents suggesting that the risks of being in nations like Algeria simply aren’t worth the benefit. In a nation that has managed to stay out of the financial crisis on the strength of its oil and gas reserves, that’s a pretty notable statement. And it sets up some interesting scenarios.
If more western countries decide to get out of or simply avoid dangerous regions, what does that do for profitability? If they stay, what increased costs are they going to face for security, wages, and insurance? The choice to stay or go is going to be a tough one and it might boil down to politics and social issues rather than money.
If the West Pulls Out?
The collection of integrated oil companies large enough to travel the world looking for new sources of oil and natural gas isn’t all that large. The more places like the Middle East and Africa heat up, the more likely it will be that companies like Statoil, Exxon Mobil Corporation (NYSE:XOM), and Chevron Corporation (NYSE:CVX), among others, will have to second guess their commitment to such areas or by government fiat be forced out. That said, if companies like these pull back, someone will step in to take their place. Here are a few that could benefit from risk avoidance:
BP plc (BP)
BP was involved in the massive spill in the Gulf of Mexico that quite literally had industry-wide repercussions, but most of the haze surrounding that event has passed. There are still lawsuits to face, at likely massive costs (the company recently settled one for some $4.5 billion), but at least the final repercussions of the spill are starting to be known. Indeed, the company’s future now appears much brighter than it did in the days and weeks after the spill.
BP, however, will not be the same company it was prior to the incident. While it will still be a massive industry participant, it has had to sell off assets to help pay for the costs of the spill. This has put BP in a position to be even more aggressive than it was prior to the spill. The company’s risk taking, however, has been a bit different of late. For example, it is making a foray into Russia, a country that isn’t known for being business friendly with outsiders.