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BP plc And Royal Dutch Shell Plc: Opportunity or Threat?

royal dutch shellFor many, BP (LSE: BP) (NYSE: BP.US) and Royal Dutch Shell (LSE: RSDB) (NYSE: RDS-B.US) are two investments that look too threatened by political risk to bother with right now.

With BP’s 2010 oil spill in the Gulf of Mexico still looming something in the region of $42-odd billion-big over the company’s balance sheet, and Shell’s boardroom mouthing off at government policy wonks the whole time, anyone in their right mind should steer clear of these two toxic twins, so the thinking goes.

For this reason alone, despite recent better-than-expected earnings news from both companies, and some clear, decisive management leadership displays in the past month from what amount to two great chief executives, these companies are both dragging their heels, selling for a measly P/E of 12 amid peers in their 20s (some even higher).

A Special Situation

That’s a shame, and not because profit at Shell was up nearly 45% last year to $6.1 billion, or because BP expects a similar bump in its earnings come end of 2014, forecasting a healthy $30 billion of net cash flow.

It’s a shame because with Russia becoming an even more central political hot potato, making an investment in two of Britain’s oil giants right now is actually more exciting than ever before.

For investors, it’s a chance to safely hone a strategy that makes money managers millions every year: spotting what are known as “special situations” – unique storms of all the ingredients you can use to reap rare windfall one-time gains. It’s the only opportunity you’ll ever get to share in a deal where your side got the upper hand over Vladimir Putin, too.

From Russia With LNG

Foremost right now, politicians in Westminister and Washington DC from both sides of the aisle seem fairly united in their opinions of Putin. While some investors might feel similarly sickened by the political affairs in Ukraine recently, it’s hard to deny that both Shell’s CEO Ben van Beurden and BP’s chief executive Bob Dudley haven’t taken extra special vigilance when it comes to looking out for the interests of the stakeholders whose money they handle.

As a result, both CEOs have barraged governments in the west with stinging criticisms every time they have made noises about embargoes and heavy sanctions. That has stirred up fuss at home, especially as it’s all for the sake of corporate profits.

But when it comes to investing your hard-earned cash on what is in large part a gamble on someone else’s leadership approach, it’s sure nice to know these gentlemen think of it as your money!

A Corporate Rocket Launcher

But the real gem is in the fact that essentially, both firms are handing Putin his ambition of building out Russia’s territory in the form of oil and gas networks across central Asia.

Since BP and Shell have their own lucrative stakes in the Russian economy as it is, these are only about to leap in value. In fact, the signs are there that this is already under way.

BP’s investment in Russia is the single biggest of all oil companies in the world. With  £7.67 billion invested in a joint venture with the Russian state company Rosneft, there were rumours that plans to extract shale in the Volga-Urals might be blighted as a result of the Ukraine situation spiralling out of hand. BP, however, waved off the concerns over the summer, claiming that “the arbitration does not concern BP and neither is Rosneft actually a party to it”. Permissions to drill, it seems, were forthcoming from the Russian officials.

Meanwhile in the case of Shell, which has a 10 million metric tonne LNG claim in the country, van Beurden recently seems to have secured an additional 5 million metric tonnes. 

These are the first of many treats in store of shareholders of BP and Shell in the coming years.

How To Get One Over Putin

Both van Beurden and BP’s chief executive Bob Dudley know exactly what they are doing: seizing a once-in-a-lifetime opportunity.

That opportunity? It’s the chance to get one over on the man who wins hands down at every negotiation. By assisting President Vladimir Putin at a time as politically delicate as this, there’s no way both fat cats don’t come out of this deal grinning from ear to ear with more expedited projects and hand-me-down profit sources than they know what to do with. And that’s wonderful news if you are one of the beneficiaries!

As America and Europe emerge from the subprime crisis into a new period of growth, this market is going to fill up with a number of unique event-driven opportunities such as this one that are easy to miss if you don't know how to spot them. It'll also hand you a fair share of duds, too, disguised as nice, safe, household brands.

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Daniel Mark Harrison has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.