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

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

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!