European Oil Giants Eye Wall Street Move to Boost Valuations

Two of Europe’s largest oil companies, Shell and TotalEnergies, are contemplating a significant move to Wall Street, a decision that could substantially impact their home exchanges in London and Paris.

by Faruk Imamovic
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European Oil Giants Eye Wall Street Move to Boost Valuations
© Getty Images/Sean Gallup

Two of Europe’s largest oil companies, Shell and TotalEnergies, are contemplating a significant move to Wall Street, a decision that could substantially impact their home exchanges in London and Paris. Shell, a stalwart of the London Stock Exchange's FTSE 100, and TotalEnergies, a major player on Paris's CAC 40, are exploring this move due to the undervaluation of their stocks compared to their American counterparts.

Both companies have noted that their shares are trading at lower price-to-cash flow ratios compared to U.S. oil majors like Exxon Mobil and Chevron. Shell's stocks trade at a ratio of 5.2, and TotalEnergies at 4.7, significantly less than Exxon’s 8.4 and Chevron's 7.6.

Alastair Syme, managing director of global energy equity research at Citi, highlighted that European stocks have historically traded at a discount to U.S. stocks, a gap that widened around two years ago.

Strategic Moves Amid Market Challenges

The potential relocation of listings to the New York Stock Exchange is seen as a strategy to tap into a larger pool of capital.

Investors, according to Syme, would find it more appealing to invest in these companies if they were listed as part of the S&P 500 index, which commands a higher valuation. TotalEnergies CEO Patrick Pouyanne and Shell CEO Wael Sawan have both publicly addressed their concerns about their companies' valuations and the attractiveness of a U.S.

listing. Pouyanne spoke last month about seriously considering the New York move, aiming to discuss a pragmatic way forward with the board in September. Sawan has also expressed frustration with the undervaluation of Shell compared to its American competitors, mentioning that if efforts to boost the stock's value don't close the valuation gap, exploring all options, including relocation, would be necessary.

Despite this, Sawan clarified in a recent call that a move is not currently under active discussion but did announce a significant share buyback to improve stock value.

Impact on Home Markets and Climate Considerations

The mere possibility of such moves has already stirred concerns about the future of the London Stock Exchange, which has seen several high-profile departures and could face a "full-blown crisis" if Shell were to relocate, as noted by Chris Beauchamp, chief market analyst at IG.

The implications extend beyond financials; there are also environmental and governance considerations. European investors have increasingly pressured oil giants to enhance their commitments to climate goals, a trend that might not align with U.S.

market expectations. Moreover, the broader discourse around the energy transition as a valuable opportunity, rather than a cost, as articulated by former Shell CEO Ben van Beurden, reflects the complex interplay of market valuation, shareholder expectations, and climate commitments that these companies must navigate.

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