What could Shell and BP be worth across the pond? 

London was rocked this week when comments emerged from Shell chief executive Wael Sawan saying that his £184bn ward was “undervalued”.

His comments struck a nervy chord with those closely tied to the UK capital’s beating financial heart because, it’s no secret, London’s allure as a home for companies is disappearing.

This is partly evidenced by its failure to keep UK-grown multi-billion dollar semiconductor companies from flying the coop or the languishing performance of the AIM market, once the main exchange’s feeder tube of diamonds in the rough.

On the face of it, Shell’s performance as a London-listed company has been positive.

Shares have climbed around 70 per cent in value since November 2021 and it sits atop the FTSE 100 with a market capitalisation of £180.6bn.

But the permutations of Shell’s mooted move are underpinned by the seemingly un-squareable circle that is climate change, fossil fuel majors and profits.

Shell in the US

Inflation Reduction Act notwithstanding, the US is currently bathing in fossil fuels.

In 2023, it was the largest crude oil producer in the world, pumping out nearly 13m barrels on average every day in 2023, an all-time record, according to new data from the Energy Information Administration (EIA).

To this extent, and echoing comments made from former Shell chief Ben van Beurden last week, Shell would likely get better treatment across the pond compared to in Europe, where the immediacy of a green shift is more keenly felt, promoted and to those seen to be slacking in efforts, critical.

Exxon and Chevron, the US’ two petrogiants, are taking a strong stand on dirty energy, and their valuations reflect that.

While Shell’s $26bn (£20.6bn) profits topped those of Chevron in 2023, its value is dwarfed by the near-$300bn (£238bn) value of the US company. Exxonmobil similarly towers over Shell with a valuation of some $480bn (£382bn).

Exxon and Chevron have been bolstered by their nation’s voracious appetite for drilling, and both seem content to die on the hill that the green transition just isn’t profitable enough to invest in right now.

That sounds a lot like the noises made by Sawan and Shell, which is currently running a two-year “sprint” to maximise profitability through oil and gas ventures.

The crux of Sawan’s “undervalued” comments comes down to a fear of missing out on what Chevron and Exxon are enjoying, and the results are stark.

Bloomberg columnist Javier Blas recently noted that the firm currently trades at around a 12 per cent cash flow yield, almost double that which Exxon and Chevron enjoy, meaning much higher valuations for the two US majors.

And that’s based around its existing portfolio, what could happen if the firm decided to extend its fossil fuel drive beyond 2025 and dial back climate commitments further, from a safer haven in the US?

“It’s certainly another stick with which people could beat the London market, but Shell couldn’t simply turn up and perform to a lofty level,” AJ Bell’s investment director Russ Mould told City A.M.

“It could, however, rightly assume that the US market would be more open to hydrocarbon expansion given the uplift both and BP have seen in share price after reducing their hydrocarbon profile less aggressively.”

Panmure Gordon’s Ashley Kelty agrees, adding: “Shell wouldn’t come under the same amount of pressure around the environment and green-washing – they will be allowed to get on with what they do”.

Can BP Stay Green?

BP doesn’t appear to share Shell’s ‘one foot out of the door’ position, partly because its strategy is a lot more confused or balanced, depending on your perspective.

The firm is facing great investor pressure to follow Shell, Exxon and Chevron’s lead and ditch legacy green pledges that it seems committed to keeping.

But green seems to have become part of what BP does and will continue to do – its website tag reads “developing lower carbon energy” first, followed by “and keeping oil and gas flowing”.

That sets it apart from its supermajor peers.

But that doesn’t account for the growing pattern of departures from and reluctance to join Canada.

Shell’s departure would no doubt crystallise the worst fears of the London Stock Exchange and Treasury officials.

As Daniel Valentine of the Chartered Governance Institute told City PM last week, Shell’s departure “could kick off a domino effect,” and one of those could conceivably be BP.

Indeed BP sometimes takes flak for being the little brother to Shell in London as its aforementioned group of frustrated shareholders ask, ‘why can’t you be more like Shell?’

Furthermore, it, too, is trading at a huge discount to US peers at around seven times earnings.

Europe and its energy transition focus are constraining its own mainland energy giants, too.

French supermajor Totalenergies is also trading at seven times earnings, while Norwegian firm Equinor trades at eight times.

None are likely to see an easing of climate targets anytime soon, and if the US is seen as a safe space for companies like Shell to operate as they wish, then that’s a problem for London.

Ultimately, Shell and BP’s future in London rides on how patient investors are willing to be.

If a long-term valuation gap persists, they will face greater pressure to take drastic action to fix it.