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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools 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!