Nigerian Oil Spills Will Not Damage Exxon Stock

| About: Exxon Mobil (XOM)

Each time I read a new article about Nigeria's oil spills and disasters, it makes me want to scream out loud and declare that enough is enough. Nigeria has some of the worst safety records when it comes to oil spills and leaks. Before activists take cudgels against foreign companies like Exxon Mobil (NYSE:XOM) and Royal Dutch Shell (RDS.A), one must know what exactly is happening in this oil rich West African nation. 50.4% of Nigerians are Muslims, 48.2% are Christians and the rest follow various animist beliefs and tribal religions.

The Nigerian government follows a secular policy and has inherited its constitution from the British colonial constitution. On the exterior, Nigeria seems like a demographically and religiously diverse nation governed by a responsible and secular government. Unfortunately, the reality is something that is completely different. The northern half is dominated by Muslims and Islamic militants virtually rule the north. They seek to uproot the secular government and establish Sharia law across the country. To support this agenda, the terrorists in the north recruit militants and rogues from various neighboring countries like Niger, Burkina Faso, Algeria and even countries far away in the Middle East, Russia and Eastern Europe.

The militants regularly attack innocent people, both Muslim and Christian, and ransack houses, kill and maim whoever they see. This may seem like something that is not related to oil and gas stock. Unfortunately, the Nigerian oil and gas industry is inescapably influenced by the ruling government, local militia and terrorists from the north. Militants and terrorists have regularly attacked oil and gas pipelines in order to steal crude and finance their operations. Once they steal what is required, they flee the scene leaving associated oil companies taking in all the blame. Parallel to this, self styled rebels who claim to be revolutionaries have begun to fight and terrorize people, demanding autonomy or complete independence for Niger and Nigeria's delta region.

The government has been particularly apathetic towards its own slow annihilation by the militants and also towards environmental damage that these broken pipelines have caused. Who is to blame, if not for the government and local leaders then? Nigeria is consistently ranked as one of the most corrupt countries in the world. Bureaucracy and corruption exist at all levels, and foreign companies like Exxon Mobil have to either choose to wade through the cesspool or just walk out. Nigeria has some of the most valuable oil fields in the world and a company like Exxon Mobil just cannot walk out after investing in ships, infrastructure, human resources and capital. The company has no choice but to meekly take what comes along, even if it means watching armed vagabond rogues passively, who cut open pipelines in the dark of the night to steal crude oil.

While popular perception has always been against companies like Exxon Mobil, the reality is something more sinister. Instead of populist accusations against foreign oil companies, one may need to criticize the Nigerian government and local authorities for the increasing security problems and environmental issues. The government practically has no environment protection laws and it offers no safety net to foreign companies. Mobil Producing Nigeria is a joint venture between the Nigerian government oil agency and Exxon Mobil. It has now offered to clean up the latest oil spill, though the cause behind the spill is not known. Most people have chosen to blame Exxon Mobil without realizing that armed gangs have regularly sabotaged infrastructure, broken pipelines that carry oil and set oil rigs on fire. By agreeing to clean up one of the oil spills in Nigeria, Exxon Mobil is helping thousands of fisher folk who live nearby and consume contaminated water and seafood.

It is not just Exxon Mobil that has been affected by mysterious oil spills. There was a leakage at one of Shell's pipelines in Nembe Creek, Bayelsa State and it has begun its own investigations to find out the root cause. I have a strong feeling that it is one of those armed gangs who broke the pipeline in order to steal crude oil. Nembe Creek is home to endangered species of flora and fauna, and Shell has insisted that it does not know what caused the spill. Brazil's National Petroleum Agency fined Chevron (NYSE:CVX) a whopping $25 million for the infamous Rio oil spill back in July. Around 3,000 barrels of oil entered the Atlantic Ocean and the accident has been attributed to a drilling miscalculation. Chevron was earlier fined by Brazil's environmental protection agency, in November 2011.

The U.S. federal government has accused BP (NYSE:BP) of a culture of corporate recklessness in its 37-page accusation. The federal court filing insists that the 2010 Deepwater Horizon disaster continues to ravage Gulf of Mexico. BP has struggled to pay compensation to victims and has suffered a lot of negative press. Anadarko Petroleum (NYSE:APC) on the other hand has remained free from oil spills and has been very successful in its ventures in Mozambique and South Africa. Probably, Anadarko is the only competitor that may cause a little bit of rivalry to Exxon Mobil with regard to oil spills. Chevron and BP have been blamed for their own errors of judgment but Shell sails in the same boat as Exxon Mobil, having to deal with violent armed gangs in Nigeria.

Exxon Mobil's earnings increased from $10.68 billion in second quarter of 2011 to $15.91 billion in the second quarter of 2012. This is an incredible 49% increase in earnings, and only shows that the company is investing and exploring in the correct places, which includes Kurdistan. The company's earnings per share were $3.41, which is again an increase of 56%. With a cash flow of $13.9 billion, Exxon Mobil has a lot of money to fall back upon, even if it has to spend money in its cleaning operations in Nigeria. With $0.57 dividends per share, one could notice an increase of 21% when compared with second quarter of 2011. The company is doing well financially and it will be able to handle the crisis in Nigeria, without it affecting its overall valuation. Exxon Mobil is one of the companies that are safe to invest in at the moment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.