Exxon Mobil Corporation (XOM), Royal Dutch Shell plc (ADR) (RDS.A), Chevron Corporation (CVX): Bad Omen for the Future of Mega-Oil Projects

Page 2 of 2

Also, with the government mandating that Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) be the primary operator in the entire field and have a minimum 30% working interest in each project, any oil company that wants to be part of the field will have to submit to having Petrobras call the shots. Petrobras has plans to spend more than $230 billion alone to develop these fields, which dwarfs almost any other major project planned today. If we see the cost overruns in the Brazilian offshore as we’ve seen in the other parts of the world, then the company could be in for some financial pain.

What a Fool believes

There is still lots of oil out there, but it’s in increasingly challenging environments. Getting several players involved may help spread the costs out so no single entity bears the burden, but it also makes it more difficult to make investment decisions. Ultimately, the high costs for these major projects will become more the rule rather than the exception as we continue to explore further offshore and deeper underground.

For investors looking at companies that have major projects on the books, look to see whether there’s one company that is clearly the lead of the project and has the operational history of executing on these types of major projects. Such projects are more likely to remain on schedule, which should lead to a slightly more predictable outcome even if costs aren’t what they were originally budgeted to be.

The article Bad Omen for the Future of Mega-Oil Projects originally appeared on Fool.com and is written by Tyler Crowe.

Fool contributor Tyler Crowe has no position in any stocks mentioned.  You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool.The Motley Fool recommends Chevron and Petrobras.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2