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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Why TotalEnergies’ Potential U.S. Listing Makes Little Sense

  • Europe’s Big Oil companies have expressed ambitions to delist from European bourses and list on American ones.
  • TotalEnergies CEO Patrick Pouyanné has announced that the French oil and gas major is "seriously" considering a possible primary listing in New York.
  • TotalEnergies' unique business mix makes it challenging to relocate to the U.S.
Wall St

Last month, we reported that scores of beleaguered solar companies in Europe were looking to abandon their home countries and set up shop in the United States amid intense competition from Chinese solar manufacturers as well as favorable solar and clean energy policies in the U.S. To wit, Swiss solar module maker Meyer Burger has revealed plans to stop panel production in Germany and relocate to the United States after failing to garner support from Berlin. Similarly, Norway’s Freyr Battery has stopped work at a half-finished plant near the Arctic Circle and plans to move to the U.S.

And now another offshoring trend is emerging: Europe’s Big Oil companies have expressed ambitions to delist from European bourses and list on American ones. TotalEnergies (NYSE:TTE) CEO Patrick Pouyanné has announced that the French oil and gas major is "seriously" considering a possible primary listing in New York, adding that the board has told him to investigate the merits of a U.S. listing and report his findings in September. 

Speaking at the company’s latest earnings conference call, Poyounne pointed out that 47% of the company’s institutional shareholders and 39% of all its global shareholders are located in the U.S., so a New York listing "makes sense [given our] growing U.S. shareholder base." For years, large, European oil and gas companies have lamented that they are undervalued compared to American brethren due to higher investor apathy to fossil fuels in Europe. Related: Governments Deliver Blow To EV Darlings

With a market cap of nearly $170 billion, a listing of TotalEnergies on the New York Stock Exchange would mark one of the highest profile European companies to move across the Atlantic for a listing venue. However, such a move would not only be fraught with challenges but would likely prove pointless, as Pouyanné is likely to soon find out. Total’s strong existing U.S. investor base suggests that fund managers already have ample access to the company’s shares, and nothing is stopping them from buying TTE. 

To be fair, Total’s market cap easily qualifies it for a spot in the S&P 500, meaning index-tracking funds would be forced to hold the stock, potentially boosting the shares. 

But here’s a small problem: companies in the S&P 500 are required to be domiciled in the United States. Unfortunately for Total, its unique business mix makes it challenging to relocate to the U.S. First off, roughly 35% of the company’s 100,000 employees are based in France, making it hard for the company to move its headquarters to the U.S. Second, less than 10% of the company’s revenue comes from North America compared to 23% from France and 41% from the rest of Europe. Third, it would be hard to work out the logistics of Total’s growing electricity unit--a part of the company’s green-energy strategy--because unlike oil, which is priced and traded globally, the power business is inherently local in nature. TotalEnergies has set an ambitious target to produce more than 100 TWh by 2030, thanks to a 4 to 5-fold increase in renewable production (19 TWh in 2023) and a 2-fold increase in flexible assets production (15 TWh in 2023).

Shell Seeking U.S. Listing

TotalEnergies is not the only European energy company contemplating coming to America. British multinational oil & gas giant, Shell Plc (NYSE:SHEL), CEO Wael Sawan recently told Bloomberg that the company also seeks to list on the NYSE because it’s grossly undervalued in London. Sawan has expressed deep frustration by investors' under-appreciation of the company’s impressive financial performance, as well as the British government’s over-taxation of its profits. Sawan says a New York listing would help to close the valuation gap with American Big Oil companies Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX). The company’s share price is now close to a record high at £29.08 on the London Stock Exchange; still, Sawan believes the shares are undervalued.

European energy companies, including Shell and TotalEnergies, have traditionally traded at a discount to their American peers. However, that gap has only grown bigger in recent years. For instance, in 2018, Shell’s value including debt was around 6x EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) while Exxon was valued at 7x EBITDA. Shell is currently valued at 4x EBITDA compared to 6x EBITDA for Exxon. 

Different business strategies could be part of the widening valuation gaps. In 2021, former Shell CEO Van Beurden predicted that oil prices would remain low forever, and aimed for an expected reduction in oil production of around 1% to 2% each year until 2030. Obviously, that prediction did not pan out and oil prices are much higher today than they were four years ago. Unfortunately, policies adopted by the company during Van Beurden’s time will keep its total oil and gas production in 2030 roughly the same as in 2022. In contrast, Exxon’s oil output alone is set to grow at a 7% compound rate, thanks in large part to its investments in Guyana as well as its recent $60 billion takeover of Pioneer Natural Resources. 

Meanwhile, Europe’s Big Oil continues investing heavily in renewable energy compared to their American counterparts. Last year, Shell invested ~20% of its cash capital spending on low-carbon assets, compared to just 2% of cash that Exxon spent on low-carbon solutions, despite Shell scaling back on its renewable energy investments.  Unfortunately, Europe’s Big Oil has little choice in the matter thanks to higher levels of climate activism in the continent compared to the U.S.

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By Alex Kimani for Oilprice.com

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