There is a significant valuation gap between the American majors, ExxonMobil and Chevron, and the European majors, Shell, BP and TotalEnergies.
As of June 15, 2024, ExxonMobil’s market cap had reached $490 billion, more than twice that of Shell ($220 billion), three times that of TotalEnergies ($156 billion), and five times that of BP ($98 billion). Chevron, at $279 billion, has firmly established its position as the second-largest international oil company in the world and the only oil stock listed on the Dow Jones. If its pending acquisition of Hess closes, its market cap will reach more than $300 billion.
The two biggest value drivers for these IOC’s stock prices are traditionally 1) market oil and gas prices, and 2) current and future oil and gas production. SEC filings for Q1 2024 indicate current conditions are following these trends: Each company’s volume is proportionate to its market size. ExxonMobil produces 3.7 million oil-equivalent barrels per day, Chevron 3.3, Shell 2.9, TotalEnergies 2.5 and BP 2.4.
“One of the biggest differences is the U.S. majors’ portfolio strength in the U.S. unconventionals, especially in the Permian,” said Andrew Dittmar, principal analyst for Austin, Texas-based Enverus. He added that ExxonMobil and Chevron have portfolios capable of producing more than one million oil-equivalent barrels per day from U.S. unconventional assets.
BP has established a special arm called BPX, which produced about 400,000 barrels per day in Q4 2023 – less than half the production volume of ExxonMobil or Chevron. Shell tried to grow its U.S. shale position unsuccessfully, eventually selling its Permian business to ConocoPhillips in 2021. TotalEnergies wants to grow in the United States but plans to focus on integrated power and liquified natural gas businesses over unconventionals.
Strategic emphases have also played a role in the growing valuation gap. Unfortunately for the European majors, investments in new energies have not generated the value they had hoped. Some have led to significant losses and tax write-offs, including investments in offshore wind. According to an analysis by energy insight company Energy Intelligence, between 2015 and Q1 2024, TotalEnergies led IOCs in low-carbon investments with close to $70 billion, followed by Shell and BP with about $40 billion each, then ExxonMobil with $12 billion. Chevron did not make the top 10 list with below $8 billion.
Growing Pains
“[Some] corporate leaders for European majors have struggled to clearly articulate a consistent growth strategy,” says Monica Enfield, managing director of the Research and Advisory groups at energy insight company Energy Intelligence. These companies often waffle between focusing on traditional oil and gas or leading the way toward becoming an integrated energy company.
Investors, especially those in the American markets, have shown a clear preference for companies with a streamlined focus on their core business.
“The American investors in oil and gas stocks are more interested in value and dividends now,” added Tom Ellacott, senior vice president, corporate research at Wood Mackenzie. Bigger companies with a diversified portfolio have a better chance of having a stable cash flow for dividends, appealing to American investors.
According to editorial leaders at Energy Intelligence Casey Merriman and David Pike, more than 85 percent of ExxonMobil and Chevron’s accredited investors are U.S.-based, while 60 percent of accredited investors for BP, Shell and TotalEnergies are based in Europe. TotalEnergies has considered listing in the American markets but is still analyzing its next move.
“I am not sure how much relocating to the U.S. could really help close the value gap,” Dittmar said.
Leaders of European IOCs are highlighting the value gap now, possibly to help gain shareholder support as they pivot back to some oil and gas projects.
Lower stock prices and valuations make it challenging for European majors to compete against their American peers in upstream growth and close the valuation gap. Since 2020, ExxonMobil and Chevron have used their balance sheets and high stock prices to beef up their portfolios. In 2023, ExxonMobil announced plans to acquire Pioneer Natural Resources for $60 billion and Denbury for $4.9 billion. The same year, Chevron acquired PDC for $6.3 billion. They then announced plans to begin their ongoing acquisition of Hess for $53 billion. The Europeans have their hands tied in the current upstream M&A wave, as their undervalued stocks cannot be used for these large-scale, all-stock transactions.
From a pure size point of view, it might be out of reach for the European IOCs to catch their American peers, especially ExxonMobil, in the foreseeable future; however, they could make gains in related metrics such as price/earnings ratio. As of June 19, Chevron has a price/earnings ratio of 14.1, ExxonMobil 13.4, Shell 12.7, BP 10.1, and TotalEnergies 7.5. Only time will tell whether the integrated energy growth model could outperform the big oil model, as the world continues navigating a path to address energy transition.