Market Overview

Skirt South America With These Oil Stocks


For Western oil companies looking to tap bountiful reserves of crude, South America is a prime destination. After all, the continent is home to two OPEC members, Ecuador and Venezuela. And if that's not reason enough, South America's second- and third-largest oil producers, Brazil and Colombia, are two of just five countries in the world that are actually increasing their oil output because they have access to the fields that afford this luxury.

Still, the South American oil game is a double-edged sword for Western companies. It's hard to ignore the promise and potential the region holds, but it's also foolhardy to ignore the risks that come along with exploring for oil there.

Here's just a brief recap of the trials and tribulations faced by U.S. oil majors in South America in recent weeks: Exxon Mobil (NYSE: XOM), the largest U.S. oil company, was recently awarded $746.9 million by the International Chamber of Commerce as compensation for the assets it lost in Venezuela when Hugo Chavez nationalized his country's oil industry several years ago. Exxon wants to be compensated to the tune of $12 billion.

Chevron (NYSE: CVX), the second-largest U.S. oil company, has to contend with an $18 billion judgment in Ecuador even though it does no business in the country. While it can be argued that Chevron won't have to pay $18 billion to Ecuador, the company is still facing millions of dollars in fines in Brazil and along with Transocean (NYSE: RIG), Chevron is the target of a $10.6 billion suit in Brazil.

Maybe it's time to look for big oil stocks that are slim on South America exposure. Try these on for size.

ConocoPhillips (NYSE: COP) Here's an interesting fact about the third-largest U.S. oil company: According to the ConocoPhillips Web site, the company's South America operations are concentrated solely in Peru. Of course, that can change and Peru's president, Ollanta Humala, may yet show a tendency to nationalize industries, but Conoco's South America exposure isn't a major concern at the moment. Plus, the shares yield 3.6% and the company is preparing for the spinoff of its downstream business later this year.

Occidental Petroluem (NYSE: OXY) A visit to Occidental's Web page shows barely more South America exposure than rival ConocoPhillips has. Occidental, the fourth-largest U.S. oil company, sold off its Argentine assets in a deal that was completed early last year. Now, the California-based company's South America assets are found in Bolivia and Colombia. Bolivia isn't a major oil producer and its political regime isn't all that friendly to U.S. Interests, but Colombia is one place oil companies do want to be in South America.

Occidental's Colombia exposure could prove beneficial going forward as the country is eager for more investment from the West and is increasing oil production.

Apache (NYSE: APA) Apache, the largest U.S. independent oil and gas producer, does business in Argentina. When it comes to the energy business in South America, there are probably better places to be from a political standpoint, but there are definitely worse ones as well. Argentina may prove important to Apache going forward, but at the moment, the stock price is determined more by assets and production in other locations. The stock can be had below $97 today and that's not bad considering some analysts seeing going to $130 or beyond.

Devon Energy (NYSE: DVN) Devon sold its Brazilian assets to BP (NYSE: BP) last year as part of its plan to get out of the international and offshore exploration games. The company has been stashing cash through asset sales, which could lead to more buybacks, and if the stock can reclaim its 200-day moving average around $72, it could be off to the races from there.

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