In 1924 a new business, Compagnie française des pétroles, was created to tackle France’s oil security problems. It looked east, to Iraq.
One hundred years later, the group — now called TotalEnergies — is looking west to try to solve another puzzle: the valuation gap between European and US oil majors. This time, it might not find the answer abroad.
Chief executive Patrick Pouyanné will report in September whether he thinks the French oil major should shift its primary listing to New York. Shell’s former CEO Ben van Beurden has said it may benefit from moving its listing from London, despite deciding against a transatlantic move in 2021. Current boss Wael Sawan, having made similar noises, says it is not a live discussion.
Total’s examination partly reflects its shifting shareholder base. Two-fifths of its share capital is held by North American investors versus 30 per cent in 2012.
But the bigger impetus is valuation. Although the transatlantic gap has narrowed since the start of 2023, on a forward/price earnings basis Shell, Total and BP trade at an average 32 per cent discount compared with ExxonMobil and Chevron on FactSet numbers.
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What this doesn’t capture is an even wider strategic gap. European majors are taking a more aggressive approach to the energy transition.
Total will this year allocate $5bn of $17bn-$18bn capital expenditure, or approaching 30 per cent, to its lower carbon, integrated power business. Only 12.5 per cent of Chevron’s 2024 planned capex budget is for lower carbon activities.
Shareholders have struggled to buy into how lower carbon assets will generate comparable returns to hydrocarbons. Companies would have no easier ride convincing them stateside.
Every year that European majors are spending 20-30 per cent of group capex on low carbon growth, US peers — who aren’t doing the same — have 10-15 per cent more operational cash flow for shareholder distributions, says Bank of America analyst Chris Kuplent.
A New York listing won’t change that without a strategic shift. Yet Pouyanné insists Total will “be consistent” with its strategy. Shell’s Sawan has tweaked its approach but the group is still allocating a large chunk of investment to lower carbon businesses.
Admission to US equities indices such as the S&P 500 isn’t a given. Rules around US domicile look challenging, says Jefferies’ Giacomo Romeo, based on factors including where headquarters are located and the proportion of a company’s US assets.
Difficulties at home will always push companies to eye solutions abroad. But unless a move to New York explicitly comes with a significant strategic shift, it is fanciful to think that it offers an easy fix for Europe’s majors.