TWO European energy giants, TotalEnergies of France and Shell of Britain, are considering moving their stock listings to New York, as pressure mounts for them to improve their valuations, which lag their United States counterparts.
Shifting their listings to the US would be a blow to European exchanges, where they are among the largest listed companies.
In the past, it would have been almost unthinkable for TotalEnergies, one of France’s most prominent companies, to consider moving its primary share listing from Paris. But the company’s CEO, Patrick Pouyanne, discussed considering such a shift to analysts recently.
“There was a discussion with the board,” Pouyanné said on a recent call to discuss earnings. “We all agreed that we have to seriously look at it.”
Shell, Europe’s largest energy company, has said it might consider a similar move. But a shift is not currently on the table, said Wael Sawan, CEO of the company, which recently moved its headquarters from The Hague in the Netherlands to London, where it is the largest listed company by market value.
Any move would reflect the almost irresistible lure of the US as a centre of energy production and innovation as well as investment.
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The US has become the world’s leading oil producer and exporter of liquefied natural gas. Europe’s petroleum production, by contrast, is in decline, and many European governments are sceptical about the oil and gas industry, which remains crucial to global energy supplies despite concerns over climate change. The Biden administration’s Inflation Reduction Act may also confer an advantage to the US in cleaner energy technologies including hydrogen and electric vehicles.
A key factor making these companies restless is the large differential in the valuation that investors are willing to pay for the energy giants based in the US compared with their European counterparts.
The two largest US energy companies, ExxonMobil and Chevron, enjoy share price to earnings ratios, a valuation metric, that are at least a third higher than those of European rivals, according to a recent study by Giacomo Romeo, an analyst at the investment bank Jefferies. The debate over listing in New York is “becoming a key topic” among investors, he said.
A lower stock valuation not only is ego-deflating for executives, but it also puts these companies at a disadvantage in using their shares to participate in a wave of industry consolidation. ExxonMobil, for instance, recently bought Pioneer Natural Resources, a major shale drilling company, for US$60 billion, while Chevron reached a deal to pay US$53 billion for Hess, though legal issues over Guyana are complicating the sale. Their European peers have largely been left on the sidelines.
The European companies have come to view steps such as listings in the US as a potential way to bolster their valuation and close the gap with rivals. Pouyanne, for instance, said the number of North American shareholders in TotalEnergies was growing, but large investors faced hurdles in putting money into the French company’s shares, including time differences with the European markets and fluctuating foreign exchange rates.
But any move could face pushback. France Finance Minister Bruno Le Maire has vowed to fight a move by TotalEnergies. “I’m here to make sure that doesn’t happen,” he said.
It would be hard to overstate the importance of TotalEnergies to France. The company is a key domestic energy supplier and a major overseas investor, and it is leading France’s transition to lower carbon energy through investments in solar and wind power and other cleaner technologies.
A move by Shell seems more logical in some respects. It is one of the largest foreign investors in the US, with more capital there than in any other country.
Shell has suffered a series of setbacks in Europe in recent years, including a court ruling that said it needed to speed up its climate change efforts. There are also questions about whether the London Stock Exchange, which has lost favour since Brexit, is the right place for a large company such as Shell, which has a market value of about US$232 billion.
How effective a move to the US would be in closing the valuation gap is also open to question. Romeo said that shifting primary listings alone might not be enough to eliminate the differential, adding that companies might also need to move their headquarters to be included in US index funds, something Pouyanné has said he would not do.
Sawan has said he thinks Shell shares are cheaper than they should be. Yet he is focusing on efforts to bolster the shares through better financial performance and higher rewards for investors. If that effort does not pay off, Shell might look at a move.
“We have a duty of care to look at all opportunities to bridge that valuation,” he told analysts Thursday. NYTIMES
