No more Mr Daredevil

Failed petrostates threatened by new oil bounty

Swashbuckling oil majors are beginning to find the costs of political risk and corruption prohibitive. That's bad news for nations like Nigeria, where thieves steal five per cent of the nation's crude, or violence-prone Libya. But with safer oil increasingly accessible in US and elsewhere, troubled states risk an exodus of expertise. Nigeria has become a poster child for failed petrostates, with widespread corruption and lackadaisical security. Organised criminals are siphoning off 100,000 barrels of the country's oil each day, according to a study published by the Chatham House think tank. That robs the industry - and Nigerians - of billions of dollars a year.

For decades big oil firms turned a blind eye, tolerated and even profited from political disintegration, graft and corruption. Attractive deposits were rare. Oil had to be extracted wherever it could be found. Today, hydraulic fracturing and deep-sea drilling have opened up new resources in more stable nations.

Investors themselves are pushing the industry to reduce its exposure to volatile places. Occidental Petroleum and Apache, two US firms with heavy exposure to Libya and Egypt, command enterprise values of five times and 4.4 times 2014 EBITDA estimates, based on Thomson Reuters data. Texas and North Dakota-focused rivals Continental Resources and EOG Resources trade on around six times. Sunlight campaigns such as the Extractive Industries Transparency Initiative also add to the push to end the status quo. Big Oil appears to be getting the message. Shell, Eni and Total recently shed Nigerian assets. Conoco Phillips sold its entire Nigerian business to Oando Energy Resources, a tiny local rival. Apache's shares rallied sharply after it sold a third of its wells in Egypt to China's Sinopec last month. Occidental Petroleum, expert in navigating politically troubled waters, is expected to sell part of its Middle Eastern assets.

There are exceptions to this flight to safety. Most Western majors are eager to work with Rosneft in Russia - where corruption, at least, remains under government control. Chevron has bulked up in politically capricious Argentina and Venezuela. In the main, though, volatile nations, where government finances depend heavily on oil revenues, risk being stuck with second-rate producers and lagging output.