Trump's Second Term: The Shifting Landscape for Oil and Gas in America

Source: Streetwise Reports 11/25/2024

European oil giants are weighing a move to the U.S. for higher valuations and investor enthusiasm. Could this reshape the global energy landscape?

European oil companies have increasingly signaled interest in relocating their stock listings to the United States. This move is largely driven by valuation concerns and a more favorable investment climate. As CNN reported, Shell Plc. (SHEL:NYSE; SHEL:LON; SHELL:AMS), TotalEnergies SE (TTE:NYSE; TTE:EPA), and other major players have publicly acknowledged frustrations with lower valuations on European exchanges compared to their American counterparts. Analysts point to European oil majors’ price-to-cash flow ratios (Shell at 5.2 and TotalEnergies at 4.7) trailing significantly behind ExxonMobil’s 8.4 and Chevron’s 7.6.

Shell’s former CEO, Ben van Beurden, underscored the issue during a summit in Lausanne, Switzerland, as cited by The Guardian. Van Beurden stated that the company is “massively undervalued” in the UK market compared to U.S.-listed rivals. His successor, Wael Sawan, echoed similar concerns in an interview with Bloomberg, noting that while relocating to New York is “not a live discussion at the moment,” the company continues to evaluate all options if valuation gaps persist. According to the CNN article, TotalEnergies CEO Patrick Pouyanne has also confirmed board discussions about a potential U.S. listing, citing growing interest from American investors and challenges with European shareholder preferences.

The U.S. market offers distinct advantages for energy companies. These include deeper capital pools, higher valuations, and investor enthusiasm for traditional fossil fuel industries. As noted by Rigzone, analysts such as Alastair Syme from Citi argue that U.S. exchanges provide a better environment for energy stocks. Meanwhile Enverus Director Patrick Rutty highlighted the appeal of Wall Street’s “relatively fossil fuel friendly investors.”

Despite these potential benefits, relocating is not without challenges. European companies face political resistance at home, as seen with France’s Finance Minister Bruno Le Maire’s opposition to TotalEnergies’ possible departure, according to The Business Times. Additionally, corporate culture and regulatory hurdles may complicate full relocations. Frederick J. Lawrence, former Chief Economist of the Independent Petroleum Association of America, told Rigzone that European companies often have climate-related commitments and investor expectations that differ from their U.S. peers, making transitions complex.

Nevertheless, the lure of the U.S. remains strong, particularly given its dominance in global energy production. According to the U.S. Energy Information Administration, the United States produced more crude oil than any other country in 2023, averaging 12.9 million barrels per day. This robust energy infrastructure, combined with regulatory advantages and a more welcoming investment environment, continues to draw attention from European oil majors.

As Energy Voice reported, companies like Shell and TotalEnergies have not made definitive decisions about relocation, but their openness to the idea reflects broader dissatisfaction with European markets and a recognition of the strategic benefits of a U.S. listing. The debate over whether to move underscores the growing divide between Europe’s focus on energy transition and the U.S.’s enduring support for traditional fossil fuels.

Under Trump, Oil Companies Find the US Even More Appealing

With Donald Trump’s return to the presidency in 2025, the oil and gas industry is poised to benefit from policies that favor deregulation and expanded production. As Forbes reported on November 7, Trump reiterated his support for traditional energy in his victory speech, emphasizing the United States’ dominance in oil production.

The President-elect stated, “We have more liquid gold than any country in the world.” Analysts predict that his administration will build on policies from his first term, such as opening federal lands to exploration, advancing offshore drilling projects, and facilitating pipeline expansions like the Keystone XL.

The Center for American Progress has raised concerns over Project 2025, a conservative energy policy roadmap that closely aligns with Trump’s priorities. According to Cap 20 on October 24, the plan proposes removing methane waste safeguards, reducing accountability for polluters, and prioritizing oil and gas leasing on public lands and waters. These measures would reinstate many of Trump’s earlier initiatives, with an expanded focus on leasing federal lands and waters for energy development, including previously protected areas such as the Arctic National Wildlife Refuge.

CNBC reported that Trump’s administration has already signaled plans for stricter sanctions on Iranian and Venezuelan oil. This move could potentially tighten global supply and drive prices higher. However, Goldman Sachs analysts noted a mixed outlook for the market, warning that increased trade tensions under Trump could negatively impact global GDP and reduce long-term oil demand. Despite these concerns, industry leaders remain optimistic. As CNBC highlighted, TotalEnergies CEO Patrick Pouyanne praised the U.S. for maintaining a “clear competitive advantage” in energy production, urging the Trump administration to continue fostering growth.

According to the Forbes report, U.S. producers are especially hopeful for deregulation. This could sustain elevated production levels. Industry insiders attending ADIPEC 2024 in Abu Dhabi described Trump’s policies as a welcome development for both major integrated oil companies and independent shale operators. However, CNBC pointed out potential challenges, noting that increased production could push prices lower, creating difficulties for companies with higher production costs.

With Trump’s focus on bolstering domestic oil production and easing regulatory barriers, the United States has become an even more attractive environment for the energy sector. As Cap 20 observed, these policies are expected to significantly benefit oil and gas companies while reshaping the landscape of global energy production and regulation.

Important Disclosures:

1) James Guttman wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.

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( Companies Mentioned: SHEL:NYSE;SHEL:LON;SHELL:AMS, TTE:NYSE;TTE:EPA, )

Source: https://www.streetwisereports.com/article/2024/11/25/trumps-second-term-the-shifting-landscape-for-oil-and-gas-in-america.html