There's No Need to Run From Oil Companies

There's a lot we don't yet know about the disastrous oil rig explosion and ensuing oil leak in the Gulf of Mexico. Crews from BP (NYSE: BP  ) , Transocean (NYSE: RIG  ) , and other companies are toiling to stop the flow, while company executives and politicians mix it up in a game of who's to blame and who's going to pay.

But I think this much is clear: Exploration in the Gulf will prove more arduous and expensive as new permitting and safety standards -- some potentially draconian -- come out of the political arena. I foresee a strong potential for higher energy prices, and this makes me even more resolute in my recommendation that Fools include selected oil and gas producers in their investment portfolios.

In the water
If efforts to stem the leak fail, it could eventually rival -- or even exceed -- ExxonMobil's Valdez disaster of 21 years ago.

Crews have been using high-tech tools to try to stop the oil leaking since the massive April 20 explosion that killed 11 workers and destroyed the Transocean rig working the BP well. Minisubmarines manufactured by Houston-based Oceaneering International (NYSE: OII  ) have been serving as eyes and ears at the mile-deep well site for their land-based human operators.

These Remotely Operated Vehicles (ROVs) were used early on in an effort to activate the rig's malfunctioning blowout preventer, a high-profile piece of equipment on Capitol Hill. At a Senate hearing today, BP sought to turn attention to the blowout preventer, which is part of Transocean's equipment. Other members of the drill team are also in the spotlight, including Halliburton (NYSE: HAL  ) and Cameron (NYSE: CAM  ) , which provided the blowout preventer. BP's partners include Anadarko (NYSE: APC  ) and Mitsui (Nasdaq: MITSY  ) , which is a 10% participant via its Mitsui Oil Exploration subsidiary.

In the Beltway
If you were betting that an unplugged leak -- with oil globs now washing up on the Alabama shore -- wouldn't draw politicians like ants to a picnic, then you don't know Washington. I once wrote a thesis on what I still consider difficult-to-justify efforts in Congress to break up the major publicly held oil companies in response to OPEC's 1970s oil embargo, which pushed world oil prices considerably higher. Those efforts weren't successful, but they indicated the lack of logic with which the D.C. powers-that-be frequently approach the oil industry. 

Even BP's generous giving to the folks in Washington won't save it from political inquiry and action. President Obama was the top recipient of BP's political largesse in the last election, with more than $70,000 donated to the president by the company, but that didn't stop Interior Secretary Ken Salazar from using dramatic imagery -- "to keep a boot on the neck of [BP]" -- to describe the administration's job.

More immediately, while some say federal law could limit BP liability for economic damages to $75 million, N.J. Sen. Robert Menendez is co-sponsoring a bill to hoist that limit to $10 billion. On Monday, BP said its response to the incident so far had cost $350 million. Meanwhile, a couple of governors -- California's Arnold Schwarzenegger and Florida's Charlie Crist -- have done an about-face on their earlier willingness to permit drilling off their states' shores. So don't hold your breath waiting for new U.S. areas to be opened to exploration.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned in this article. He does, however, welcome your questions or comments. The Motley Fool has a disclosure policy.


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