This trio of drillers from developed nations offers a great hedge against depreciating paper currencies, writes Paul Larson in Morningstar StockInvestor.

One of the easiest ways to invest in companies outside the United States—generating earnings in a currency other than American dollars—is through major oil companies. Not only do these firms provide a hedge against a tumbling greenback, but they produce hard assets that are an excellent hedge against all
fiat currencies. Plus, these companies tend to be large with stocks that provide excellent liquidity. Here is an overview of some of the options.

London-based BP (NYSE: BP, LSE: BP) is the third-largest integrated oil major behind ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-B, LSE: RDSA). BP’s business began in 1909 and evolved to its current form and name after the 1998 merger of British Petroleum and Amoco. BP operates across six continents, producing 3.8 million barrels of oil equivalent per day in 2008, operating refineries with 2.8 million barrels per day of capacity, operating petrochemical plants, and selling petroleum through 24,100 service stations.

What makes BP interesting, for better or worse, is that it has invested a major amount in Russia. Its TNK-BP joint venture in the country is responsible for about one-fourth of BP’s production. While Russia is a relatively attractive place for an oil company to operate geologically, it can often be a nightmare politically. In fact, the BP-appointed president of TNK-BP was expelled from the country in 2008 as part of the latest power struggle between BP and its local partners. While Russia is a major headache for the firm at the moment, it still provides a great deal of potential.

In August 2009, oil sands pioneer Suncor Energy (NYSE: SU, TSX: SU) merged with Petro-Canada to form an integrated oil and gas company. The newly formed company will primarily focus on oil sands production and development while retaining some conventional oil and natural gas assets. The combined companies produced 683,000 barrels of oil equivalent per day in 2008. The company also operates four refineries in Canada and the United States with total throughput capacity of 430,000 barrels per day.

The main attractions of Suncor are that there is very little political risk in Canada and that there is no exploration risk with the oil sands. (The huge resource has already been found; it’s just a matter of making it a marketable product in a cost-efficient manner.) On the other hand, the main risk is that Suncor, with its oil sands exposure, has relatively high fixed costs. This means it is exceptionally leveraged to commodity oil prices. Profits will be very anemic in an environment of low oil prices, yet this leverage could be a fantastic thing if we again get runaway energy prices and/or a bout of high inflation.

StatoilHydro (NYSE: STO) is a Norway-based integrated oil and gas company. Publicly listed since 2001, the Norwegian government still retains a 62.5% stake. Operating primarily on the Norwegian Continental Shelf, the firm produced 1.7 million barrels of oil equivalent per day in 2008 (59% oil) and ended the year with 6 billion barrels of proven reserves (41% oil.) Operations also include oil refineries, natural gas pipelines, and retail fuel outlets.

The good news is that, much like in Canada, there is relatively little risk in investing in Norway, as the country has comparatively stable economy and political system. In fact, when considering country-risk premiums, Norway is often considered just as safe as the United States. The bad news is that StatoilHydro has a concentrated portfolio of energy investments in the Norwegian Continental Shelf, an area that has been in slow, secular decline since 2001. And of course, with its majority ownership stake, the Norwegian government calls all the shots. The upshot is that Statoil’s assets are prolific producers, giving the company a ready source of cash that it is actively investing in new properties around the globe. Plus, after decades of operating in the arctic and undersea, Statoil has relatively advanced technical expertise, something not all overseas oil companies possess.

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