BREAKINGVIEWS-"America First" leaves European oil majors last

By Yawen Chen

LONDON, Feb 5 (Reuters Breakingviews) - Shell SHEL.L, BP BP.L and TotalEnergies TTEF.PA have a bit of a problem. For much of the second half of 2025, the European oil majors’ share prices outpaced those of U.S. rivals Exxon Mobil XOM.N and Chevron CVX.N as investors warmed to the pivot of BP in particular back towards fossil fuels. But since the new year that trend has inverted: Exxon and Chevron are up by over a fifth, while BP and Shell have only risen 13% and 5% respectively. Shell boss Wael Sawan needs a new trick.

The valuation gap between U.S. and European oil majors has long been stark. Even when the latter were outperforming last year BP, Shell and TotalEnergies collectively traded around 10 times expected earnings for the next 12 months, while Exxon and Chevron were at 16 times. Technical factors like deeper U.S. capital markets and clearer, oil-focused strategies explained why.

After the last month Shell, BP and TotalEnergies trade at 12 times forward earnings – but Exxon and Chevron are now over 90% higher at 24 times. That’s partly because the Americans have less exposure to weaker international natural gas margins, and have smaller volatile trading operations and stronger balance sheets. Crude prices have also hovered above the $60-to-$65 a barrel levels that encourage new U.S. shale drilling. But the widening gap also reflects a surprising new paradigm: U.S. President Donald Trump is in effect moonlighting in their business development departments.

After last month’s shock deposing of Venezuelan Nicolas Maduro, Trump urged American oil companies to help revive the country’s vast reserves. The point is less that U.S. majors charge to Caracas – in fact, Exxon boss Darren Woods said Venezuela was “uninvestable”. But the signal that Washington will openly back U.S. energy firms in resource diplomacy puts a new twist on what is now oil’s main event – where the new production hotspots are, and who’s going to get them.

With 25 years of proven and probable reserves, per WoodMac estimates, Exxon has a big lead over Shell, which has 15. It also expects to hike oil and gas output by 20% between 2025 and 2030, while Shell expects minimal growth. Both via new production hotspots like Latin America and in the scope for drilling partnerships with Gulf states that are close to Trump, U.S. groups would seem to have an advantage.

Sawan’s multi-year process to cut costs and debt continues to deliver. In the latest quarter, cash generation supported a 4% dividend increase and another $3.5 billion share buyback. Yet weaker trading and chemicals also meant fourth-quarter profit missed expectations and was 11% lower than a year earlier. Faced with being on the wrong side of “America First”, Sawan could do some M&A. But he missed the boat on plausible options like Galp, and may also have done so on BP. The lack of other obvious options looks like another reason for investors’ relative downer.

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CONTEXT NEWS

Shell’s net profit for the quarter ended in December came in at $3.3 billion, below analysts' average estimate of $3.5 billion in a company-provided poll and 11% lower than the same quarter in the previous year, the company said on February 5.

Shell kept its share buyback programme steady at $3.5 billion for the next three months. The buyback pace, together with $2.1 billion in dividends, lifts shareholder payouts over the last four quarters to 52% of operating cash flow, above Shell's 40% to 50% target range. Shell also increased its quarterly dividend by 4% to $0.372 per share.

Shell’s shares were down 2% as of 0920 GMT on February 5.