Europe’s First-Mover Disadvantage in the Arctic: Royal Dutch Shell plc (ADR) (RDS.A), TOTAL S.A. (ADR) (TOT), Statoil ASA (ADR) (STO)

Page 1 of 2

Royal Dutch Shell plc (ADR) (NYSE:RDS.A)Offshore drilling in the arctic has received a host of negative press. Governments have been prompted to reexamine firms’ operations, and environmental groups continue to raise their voices in protest against drillers. In the modern, technologically-oriented world, a first-mover advantage is seen as a great source power and profits. Recent difficulties show that investing after a dip has proved profitable, and can be a better approach.

Why is There Pressure to Drill in the Arctic?

The world’s energy companies see the impact of resource constraints on a daily basis. The world continues to heat up, and this will cause the melting of the ice caps. There is the idea that if a company is not the first to open up the arctic then other companies will gain the majority of new reserves. The replacement of reserves is a critical figure that investors watch, and upstream companies that are unable to replace reserves face decreased production volumes, decreased cash flow, and investor wrath.



RDS.A Total Return Price data by YCharts

The Netherlands

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is the most visible player in the arctic. The conditions in the arctic are strenuous, and the lack of infrastructure would multiply the impact of any accident. Recent tests of Shell’s safety equipment show that the technology leaves much to be desired. Shell’s drilling rigs have faced a number of failures, even after the firm has sunk more than $4 billion into the operation.

Shell has a number of redeeming qualities. It is highly involved with the world’s growing LNG market. In Canad, it is involved in an LNG export facility in Kitimat that will serve energy-hungry Asian economies. Additionally, the firm has interests in a number of offshore fields, and aims to increase production from 3.3 million barrels of oil equivalent per day in 2012 to approximately 4.0 million barrel of oil equivalent per day in 2017 or 2018.

The company is not overloaded with debt, as its total debt to equity ratio is just 0.20. Its return on investment of 12.5% is acceptable, but less than half that of Exxon Mobil Corporation (NYSE:XOM). If U.S. investors really want to invest in the arctic then the class B Royal Dutch Shell plc (ADR) (NYSE:RDS.A) shares offer a greater tax advantages than the Class A shares.

Norway

Statoil ASA (ADR) (NYSE:STO) has interests in the arctic, but after seeing Shell’s difficulties it is taking a more conservative approach. The firm’s Norwegian home and experience drilling in the Northern reaches of the world should provide it an advantage in arctic drilling, but it appears more prudent to focus on its other assets. Between Tanzania, the Gulf of Mexico, and Newfoundland, it has a number of promising fields.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!