Two of Europe’s biggest oil companies, Shell and TotalEnergies, are considering abandoning their stock exchanges for Wall Street in a move that would deal a hammer blow to London and Paris.
Britain’s Shell (SHEL) is the second-largest company on London’s FTSE 100 index, representing 8.4% of its total market capitalization, while France’s TotalEnergies (TTE) is the fourth-largest on the CAC 40 index, accounting for 6% of its value.
Despite their local heavyweight status, both have recently expressed frustration with the low value of their stock compared with US oil majors, and floated the idea of moving the listing of their shares across the pond.
Shares of TotalEnergies and Shell trade on a price-to-cash flow ratio of 4.7 and 5.2 respectively, compared with a ratio of 8.4 for Exxon Mobil (XOM) and 7.6 for Chevron (CVX). The lower the ratio, the more likely a stock is undervalued.
Alastair Syme, managing director of global energy equity research at Citi, says Shell and TotalEnergies have long traded at a discount. But that gap reached its widest point around two years ago, reflecting a broader divergence between European and US stocks.
Companies listed on US exchanges enjoy access to a bigger pool of capital, he told CNN. Investors would “be much more comfortable” buying European energy companies if they were part of the more valuable S&P 500 benchmark index of US equities, according to Syme.
TotalEnergies CEO Patrick Pouyanne said last month that his oil firm was “seriously” exploring moving its listing to New York, and would discuss a “pragmatic way forward” with its board in September.
“There was a discussion… with the board on the matter of (a) US listing,” he told analysts on a call. “It’s clear that in the energy and the oil and gas field, US shareholders are buying the shares and European shareholders are not buying (in) the same way.”
Meanwhile, Shell CEO Wael Sawan told Bloomberg in March that his company was “undervalued” relative to Chevron and Exxon Mobil. If, after a multi-pronged effort to boost the value of its stock, “we still don’t see that the gap is closing, we have to look at all options,“ he said.
On a results call with analysts last week, Sawan said a move to Wall Street was “not a live discussion at the moment,” adding that Shell was focused on buying back its shares to help juice their value. The firm announced Thursday a $3.5 billion share buyback over the next three months.
London languishes
Still, the slightest hint that Shell may consider leaving London will have rattled the city’s beleaguered main stock exchange.
Several companies have already quit the London Stock Exchange for other cities or chosen New York for going public in recent years. That includes British chipmaker Arm (ARM), which notched the biggest initial public offering of 2023 when it listed on New York’s Nasdaq in September.
An exit by Shell and TotalEnergies would “spark a full-blown crisis” for their respective home stock markets but particularly for London’s, according to Chris Beauchamp, chief market analyst at trading platform IG.
“(Shell leaving) would deal a body-blow to the (FTSE 100) index. Losing such companies would only bolster the idea that there is essentially one stock market for the globe, the US, with everything else as an afterthought,” he told CNN.
And if Shell goes, BP (BP) — the FTSE 100’s sixth-largest constituent — may follow. “If Shell got a massive uplift in valuation (after re-listing in New York), they might look at it,” said Syme at Citi.
BP reported a lower-than-expected profit of $2.7 billion for the first quarter Tuesday, down 45% from the same period last year due, in part, to a drop in oil and gas prices.
The performance of the business, rather than a move away from London, is what the company is currently focused on, BP CEO Murray Auchincloss said Tuesday.
“It’s not on our agenda. We’re just focused on quarterly deliveries,” he told Reuters.
Climate considerations
Not so long ago, the idea of TotalEnergies re-listing in New York “would’ve been inconceivable,” Lindsey Stewart, director of investment stewardship research at Morningstar, told CNN.
Current discussions reflect the extent to which European shareholders “have raised the pressure on integrated energy companies (in Europe) to up their game on climate commitments and other (environmental, social and governance) issues in a way that perhaps isn’t the case in the United States,” he added.
Last month, former Shell CEO Ben van Beurden said the company was “massively undervalued” but that it had not given up hope of remaining in London.
“We have to continue to demonstrate what it is that we have to offer also for the future as European oil and gas companies,” he said during a discussion at the Financial Times’ Commodities Summit in Switzerland. “That the energy transition is actually a massive value opportunity and is not some sort of green cost that we have to pay because we happen to be in Europe.”
Syme at Citi says that ultimately the probability that Shell and TotalEnergies will jump ship is low.
“There is some advantage in having an association to a country,” he said, noting that some global energy producers would prefer to have several flags — not just the Stars and Stripes — flying over their industrial sites.
