Europe has become a hostile environment for energy companies.
By
Paul M. Dabbar
April 18, 2024 5:33 pm ET
96
A BP gas station in Durham, Britain, Sept. 23, 2021. PHOTO: LEE SMITH/REUTERS
The American energy industry has boomed over the past decade. The U.S. was the world’s largest energy importer in 2004 and is now the world’s largest exporter. The U.S. also leads the world in energy technology and capital markets. Meanwhile, the oil-and-gas sector in Europe has significantly underperformed.
European companies should consider moving their headquarters to the U.S. and shifting their main stock listings to a U.S. exchange. While many U.S. investors are still interested in energy, many Europeans shun the core business of oil and gas companies.
As a result, the difference between American and European companies in equity trading and multiples, a measure of how well the company stock is trading compared with its cash flow or earnings, is significant. Since early 2019, ExxonMobil has seen its share price rise almost 80%. Shares of Chevron, another American company, are up almost 50%. European companies have seen smaller rises, 22% for Shell and only 2% for BP. When it comes to trading multiples, major U.S. energy companies such as ExxonMobil and Chevron trade at an average value-to-cash-flow ratio of 7.7 while the European average is 3.7, a U.S. premium of about 108%.
Lower equity-trading multiples put European companies at a strategic disadvantage. Higher market cost of equity, which derives from poor trading multiples, makes spending on exploration, development and other areas more expensive. It also makes potential mergers and acquisitions more expensive.
European companies also feel pressure from governments and courts, leading to higher regulatory, statutory and litigation risks related to climate policy. In 2021 a Dutch court ordered Shell to reduce its corporate, supplier and customer carbon emissions by 45% by 2030. While U.S. companies also face local-government lawsuits, most market analysts see them as lower-risk than European litigation.
A further challenge in Europe is recruiting employees with industry experience and developing a new generation of energy-sector workers. The talent pool in Houston or Denver is more experienced than in London or Paris, with many young trade workers and graduates of U.S. universities eager to sign on with traditional energy companies.
One significant hurdle to relocating from Europe is opposition from corporate boards and local politicians. European corporate leaders have a hard time even considering moves from their home countries. Meanwhile, European governments likely are pressuring companies to leave their headquarters where they are—a mixed message from the same authorities often hostile to energy companies’ core businesses.
Still, the pressure to relocate to the U.S. could come to a head soon, as activist investors encourage such moves. A potential upside in a stock price of 100% is hard to ignore.
Before it comes to that, I’m inviting all European oil and gas companies to relocate to America. I’m sure the governor of Texas would clear his schedule to help make such moves go seamlessly.
By
Paul M. Dabbar
April 18, 2024 5:33 pm ET
96
A BP gas station in Durham, Britain, Sept. 23, 2021. PHOTO: LEE SMITH/REUTERS
The American energy industry has boomed over the past decade. The U.S. was the world’s largest energy importer in 2004 and is now the world’s largest exporter. The U.S. also leads the world in energy technology and capital markets. Meanwhile, the oil-and-gas sector in Europe has significantly underperformed.
European companies should consider moving their headquarters to the U.S. and shifting their main stock listings to a U.S. exchange. While many U.S. investors are still interested in energy, many Europeans shun the core business of oil and gas companies.
As a result, the difference between American and European companies in equity trading and multiples, a measure of how well the company stock is trading compared with its cash flow or earnings, is significant. Since early 2019, ExxonMobil has seen its share price rise almost 80%. Shares of Chevron, another American company, are up almost 50%. European companies have seen smaller rises, 22% for Shell and only 2% for BP. When it comes to trading multiples, major U.S. energy companies such as ExxonMobil and Chevron trade at an average value-to-cash-flow ratio of 7.7 while the European average is 3.7, a U.S. premium of about 108%.
Lower equity-trading multiples put European companies at a strategic disadvantage. Higher market cost of equity, which derives from poor trading multiples, makes spending on exploration, development and other areas more expensive. It also makes potential mergers and acquisitions more expensive.
European companies also feel pressure from governments and courts, leading to higher regulatory, statutory and litigation risks related to climate policy. In 2021 a Dutch court ordered Shell to reduce its corporate, supplier and customer carbon emissions by 45% by 2030. While U.S. companies also face local-government lawsuits, most market analysts see them as lower-risk than European litigation.
A further challenge in Europe is recruiting employees with industry experience and developing a new generation of energy-sector workers. The talent pool in Houston or Denver is more experienced than in London or Paris, with many young trade workers and graduates of U.S. universities eager to sign on with traditional energy companies.
One significant hurdle to relocating from Europe is opposition from corporate boards and local politicians. European corporate leaders have a hard time even considering moves from their home countries. Meanwhile, European governments likely are pressuring companies to leave their headquarters where they are—a mixed message from the same authorities often hostile to energy companies’ core businesses.
Still, the pressure to relocate to the U.S. could come to a head soon, as activist investors encourage such moves. A potential upside in a stock price of 100% is hard to ignore.
Before it comes to that, I’m inviting all European oil and gas companies to relocate to America. I’m sure the governor of Texas would clear his schedule to help make such moves go seamlessly.
