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

Statoil’s expected production growth is not spectacular, but it is enough that it should allow cash flow to keep up with inflation. The company hopes to achieve a two percent to three percent compound annual growth rate (CAGR) from 2012 to 2016, and a three to four percent CAGR between 2016 and 2020 to reach their goal of 2.5 million barrel of oil equivalent per day in 2020. With a total debt to equity ratio of 0.36 its debt load is reasonable. Its return on investment of 19.3% is higher than Shell’s, and shows that not being the first to venture into the arctic has its advantages.

France

TOTAL S.A. (ADR) (NYSE:TOT) has followed the European tradition and been very open to clean energy investments. Its position in the solar manufacturer Sunpower helps to maintain its image as one of the more progressive major oil companies. Within this context it is not surprising that management has been willing to publicly criticize its competitors for arctic exploration because of the possible negative environmental effects.

Instead of looking at the further reaches of the arctic, the company is developing its upstream assets in the Gulf of Mexico, Argentina’s Vaca Muerta, Norway, Nigeria, and Uganda. Like Shell, Total is also making LNG a priority, and, including projects under construction, its capacity will expand to 17 metric tons by 2017.

Its total debt to equity ratio of 0.48 is the highest of any of these companies. Also, its return on investment of 10.5% is the lowest rate among these peers. Total is not perfect, but management’s awareness of resource constraints and willingness to continue investing in solar shows their willingness to think outside the box.

Conclusion

The arctic is a harsh environment, and Shell’s difficulties in the region should make investors think twice before investing. Temperatures continue to rise and ice continues to melt, but the polar caps are still formidable foes. Until the region sees more development, investors should take Shell and Statoil ASA (ADR) (NYSE:STO) with a grain of salt. Total is a good company to watch over the long run, as its investments should start to pay off.

The article Europe’s First-Mover Disadvantage in the Arctic originally appeared on Fool.com and is written by  Joshua Bondy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.