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It’s about that time now for quarterly earnings calls. Let’s see what the leaders have been saying...

Shangyou Nie

Editor, Well Read

Exploring the “Atlantic Gap”

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There is a substantial gap between the valuations of American and European oil and gas companies: I call it the Atlantic Gap.

What caused the gap: The gap could have been influenced by several factors over the years, including:

1. Investor behavior: American investors are more willing to invest in the oil/gas companies listed in New York, an argument recently spotlighted by former Shell CEO Ben Van Beurden.

2. Portfolio structure: ExxonMobil and Chevron have a bigger Permian and U.S. shale position than their European counterparts.

3. Shift to renewables: The Europeans’ more extensive investments in renewable energy have not been rewarded by the market.

4. Environmental and climate regulations: Europe is more prone to litigation due to environment and climate laws.

5. Crisis fallout: BP’s Deepwater Horizon oil spill in the Gulf of Mexico in 2010, and Shell’s reserve crisis in 2004 certainly didn’t help their valuations.

Gap facts:

• The five supermajors used to be BP, ExxonMobil, Shell, Chevron, and Total. Around 2000, BP and Shell were about the same size as ExxonMobil—not now, though.

• As of April 29, these companies’ market caps were: ExxonMobil $474 billion; Chevron $308 billion; Shell $234 billion; TotalEnergies $173 billion; and BP $111 billion.

• Other companies are catching up, too. ConocoPhillips, America’s third-largest oil company, is now bigger than BP with a market cap of $153 billion.

Would listing in the U.S. be an effective way to help close the gap?

Total, BP, and Shell are mulling it over. 

What’s new: On Friday, TotalEnergies announced during its Q1 analyst call that it is considering listing on the U.S. stock exchange.

• During the call, TotalEnergies’ CEO Patrick Pouyanné said that the Board has requested an analysis be completed before September 2024 to determine whether it would make sense to list in New York.

• TotalEnergies is currently listed in Paris and London, with American Depositary Receipts trading in New York.

• Former U.S. undersecretary of energy Paul Dabbar is calling publicly for Shell and BP to relocate to Houston.

What to watch:

• Expect fewer upstream divestments from TotalEnergies and European majors and more investment in oil/gas.

• The Atlantic Gap may widen if American and European attitudes and approaches toward the energy transition and climate continue to differentiate.

Q1 Results: ExxonMobil

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Speaking of supermajors, let’s look at how ExxonMobil performed in its latest quarterly earnings. CEO Darren Woods and CFO Kathy Mikells held the company’s Q1 analyst call last Friday.

Catch up fast:

• ExxonMobil announced Q1 quarterly earnings of $8.2 billion, on the basis of $83 billion revenue.

• Though a solid performance, ExxonMobil’s stock dropped 3 percent following the call, as analysts were expecting earnings to be 6 percent higher.

• Exxon’s closest competitor by size, Chevron, reported $5.5 billion in Q1 and missed analysts’ estimates by 2 percent. Its stock remained flat after its Q1 results call.

What went well for ExxonMobil:

• ExxonMobil is producing 600,000 b/d in Guyana and plans to bring a gas-to-power project on stream there.

• ExxonMobil said its proposed $60 billion acquisition of Pioneer is going well and expected to close this quarter.

• ExxonMobil has $33 billion in cash and an industry-leading 3 percent debt ratio.

What could have gone better:

• ExxonMobil’s production dropped roughly 50,000 boed quarter-over-quarter.

• Q1 earnings were 28 percent lower quarter-over-quarter, mainly due to lower gas prices and refining margins.

What’s next for ExxonMobil:

• ExxonMobil’s capital investment and exploration spend was $5.8 billion, $1 billion lower than its distribution to shareholders, which the Biden Administration has been trying to discourage by collecting a 1 percent tax on stock buy-backs.

• Exxon’s multibillion-dollar Baytown hydrogen project is waiting for clarity from regulators.

• ExxonMobil is positioning itself to lead deployment of new energy technology such as direct air capture, but the company thinks current costs are too high to have commercial-scale projects.

Why it matters:

• Service companies might have an opportunity to help ExxonMobil reduce costs with automation and AI. CFO Kathy Mikells highlighted during the Q&A that “we are too heavy on manual activities relative to what we would consider best in class.”

• ExxonMobil is continuing to divest some downstream assets in Europe. This offers a potential buying opportunity.

Is Namibia the “New Guyana” of oil discovery?

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Portuguese exploration company Galp Energia announced last week that it has found more than 10 billion barrels of in-place oil offshore Namibia.

The South African country is on the verge of becoming a “new Guyana” with multiple oil discoveries by Shell and TotalEnergies in recent years.

Catch up fast:

• Galp announced last week that it successfully tested the Mopane-1X exploration well. The well flowed 14,000 b/d of high-quality oil, while flow rate was constrained by equipment.

• Galp’s partners in PEL 83 are Namibia state company Namcor and local company Custos Energy. Each holds 10 percent equity.

• PEL 83 is located immediate north of multiple recent oil discoveries by Shell and TotalEnergies in the same Orange Basin.

What’s new:

• Galp’s stock price jumped more than 20 percent after news broke of the positive flow test.

• Last Friday, TotalEnergies’ CEO Patrick Pouyanné announced that Total plans to take FID by the end of 2025 for its 2 billion barrels in the nearby Venus oil discovery with 150,000–180,000 bopd FPSO.

• Pouyanné said that it would not surprise him “if there are six or seven FPSO projects in Namibia in the future.” This is similar to the activity in Guyana, led by ExxonMobil.

• As of Monday, Chevron has taken 80 percent ownership and operatorship for PEL 82 in offshore Namibia, with NAMCOR and Costos Energy each owning 10 percent. Chevron is an old hand in Namibia, having discovered the Kudu gas field 50 years ago.

Why it matters:

• Galp has hired Bank of America to divest up to 50 percent of its equity in PE 83. It is interesting that Galp is divesting equity now, as normally companies would drill a few more appraisal wells to beef up the value before diluting.

• Huge opportunities exist in offshore Namibia for drilling and service companies. 

• Significant growth opportunities have also emerged for exploration and field development, even though close to 30 exploratory wells drilled in northern Namibia offshore basins have been unsuccessful so far.

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