Major oil companies are looking to invest in increasingly risky corners of the world, as high oil prices and tightening access to oil reserves make these regions more attractive.
As oil prices have increased, resource-rich countries such as Venezuela and Russia have tightened their grip on oil and gas assets, shrinking the pool of available reserves for companies such as Exxon Mobil Corp, Chevron Corp, and ConocoPhillips.
The companies also have to contend with security problems in West Africa and in Iraq, which could soon attract investment. "Oil is not always located in the most stable of environments," said Amy Myers Jaffe, an energy research fellow at the Baker Institute in Houston.
"If a company was going to take a perspective that it was only going to invest in exploration in countries that have totally stable fiscal regimes and democratic governments, it'd be pretty hard to find someplace to explore," she said.
Oil companies have long examined environmental and political risk in addition to geological, technological and commercial risks before investing in an assets.
But Frank Verrastro, director of the energy program at the Center for Strategic and International Studies, said the political and environmental challenges facing oil companies have gotten much more complex in recent years.
"There are all sorts of new challenges," he said, including a renewed push for nationalisation of energy assets by some countries, terrorism and the emergence of national oil companies as more formidable competitors.
RUSSIA AND IRAQ:
Despite a recent move by Russian gas monopoly Gazprom to take a majority stake in the huge Sakhalin-2 gas project away from Royal Dutch Shell and its Japanese partners, Chevron has said it is looking at long-term investment opportunities in Russia. Exxon, which already has its own multibillion dollar gas project in Russia, has also said it is considering expanding its presence in the country.
And in what could be viewed as an even riskier move, ConocoPhillips is mulling investment in Iraq - talking with Lukoil about a potential stake in the country's West Qurna oil field and with Iraq's oil ministry about other opportunities.
Fadel Gheit, an oil analyst with Oppenheimer & Co, said he expects any oil company considering assets in a country as dangerous as Iraq to look for a 35 to 40 percent possible return on capital before deciding to invest.
That investment would need to have the potential to be more than twice as profitable as a project under consideration in a stable country such as the United States.
"They better have a very big cushion embedded into the original economics. Otherwise the project could go bust," if laws change or security deteriorates, Gheit said.
Big oil companies look to balance their portfolio between their low-risk projects, which tend to have lower returns, and these higher-risk, higher-return projects.
"Most of the multinationals that are everywhere are everywhere for a reason," said Howard Weil analyst Gene Gillespie. "You go where the oil is. You don't go where there's no risk. It's not really risky to drill wells in Iowa, but there's nothing there."
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