Elsewhere within the Arctic, activity has been heating up as well. In February, the Interior Department gave tentative approval to Royal Dutch Shell (NYSE:RDS.A, RDS.B) to begin drilling in Alaska’s Chukchi and Beaufort Seas. The potential here is equally as huge, as the USGS predicts that the Arctic Ocean’s outer continental shelf holds reserves of nearly 27 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas.
Playing the Arctic Rush
A variety of nations, including the United States, Russia, Canada, Norway and Greenland, all have Arctic ambitions in mind, and drilling activity certainly will surge during the next few years as oil prices stay elevated. Nonetheless, investors have been slow to realize the region’s potential. For portfolios, the Arctic poses a unique high-risk/high-reward proposition. And two of the best ways to play the surge in icy water drilling come from Scandinavia.
Viking energy powerhouse Statoil (NYSE:STO) already has a huge Arctic presence that’s getting bigger. The company continues to find mammoth-sized reserves in Norway’s Barents Sea. Last April, Statoil announced a 250 million-barrel discovery called Skrugard in Northern Norwegian waters. Most recently, it announced its Havis prospect may hold up to 300 million barrels of recoverable oil equivalent. These major finds coupled will the firm’s continued earnings prospects make it a great way to play the future of Arctic drilling.
The more interesting route for investors could be in rig owner/operator SeaDrill (NYSE:SDRL). The company’s rig fleet is basically a proxy for deep harsh-water drilling and has been seeing increased demand and day rates in recent years. Run by the Warren Buffett of Shipping, John Fredriksen, SeaDrill also maintains a 75% stake in Norwegian rig operator North Atlantic Drilling (PINK:NATDF). North Atlantic focuses exclusively on drilling in the North Sea/Norwegian Continental Shelf and will be a direct beneficiary of Statoil’s mega-finds, and analysts at Barron’s predict a 50% upside over the coming year for NATDF. Overall, the pair offers pure-play exposure to the rigs directly needed to tap into icy deep waters.
As energy demand and prices continue to rise, unconventional sources will see their fortunes rise as well. For investors willing to take the gamble, the Arctic offers great reward and the Scandinavian trio offer a great way to play that gamble.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.