Shell and Total Plot Move to NYC: Because When You’re Desperate, Anything Sounds Like a Good Idea!

Posted by John Donovan: 9 May 2024

Alright, folks, gather ’round for a classic tale of “The Grass is Greener in the U.S.,” starring none other than Shell and TotalEnergies, the European oil megastars. In their latest “poor us” saga, they’re eyeing New York like it’s the promised land of stock market valuations. Oh, the excitement!

Now, don’t get too teary-eyed, but Shell’s Chief Executive, Wael Sawan, dropped a little hint on his earnings call that if Europe keeps treating them like the ugly ducklings of the stock market, they might just take their ball and go play in New York by the end of 2025. TotalEnergies’ big boss, Patrick Pouyanné, isn’t sitting quietly either. He’s been tasked by the board to mull over this geographical leap of faith and spill the beans by September.

Here’s the punchline: Europe’s oil giants are sulking because their shares are in the discount bin, trading at a jaw-dropping 45% discount to their American cousins when it comes to cash flow multiples. Ouch! And despite throwing money at shareholders like it’s Mardi Gras, the situation hasn’t perked up since the early days of 2021. These guys have even promised to hand out an average of 11% of their market value in dividends and buybacks next year. Talk about trying to buy love!

The drama doesn’t stop there. Low stock prices mean buying U.S. assets with shares is as likely as a snowball’s chance in, well, a refinery. And why the cold shoulder in Europe? Alastair Syme from Citi hints that European investors are basically giving the stink eye to any growth plans these fossil fuel aficionados might have.

Adding to their list of woes, next year France is planning to slap a ban on “socially responsible” funds from investing in oil-and-gas firms that dare to increase production. TotalEnergies, hoping to up its output by 2% to 3% annually through 2028, might just feel the sting.

But let’s be real: A hop across the pond isn’t the magic fix. Shell and BP, the drama queens of dividend cuts during the 2020 pandemic, are still nursing their reputations back to health, unlike their steady-handed American peers Exxon Mobil and Chevron. Plus, with their climate pledges tying their hands from boosting output, how are they supposed to fund those generous shareholder treats?

Lower exposure to shale oil doesn’t help either. Shell waved goodbye to its shale assets in 2021, selling them to ConocoPhillips, and BP’s shale game is more minor league compared to the U.S. big leagues, which enjoy juicy tax breaks and massive scale.

And then there’s the mysterious world of trading. Shell and BP are like the magicians of the energy trading sector, moving volumes that would make Vitol or Trafigura blush. But with profits as unpredictable as a plot twist in a telenovela, and their love for keeping secrets, analysts like Irene Himona from Bernstein reckon there’s a “secrecy discount” on their earnings. Who knew mystery could be so expensive?

While Europe’s eco-anxiety might contribute to the local valuation blues, simply crashing the American party won’t turn Shell and Total into the belles of the Wall Street ball. Different business models, folks. So, as our European friends contemplate their New York dreams, remember, changing your address doesn’t always fix your problems—it just gives you new ones to post about.