City holds its breath as Shell hints at move to New York

Oil giant’s exit would be a body blow for the London Stock Exchange and UK, find Jonathan Leake and Michael Bow

Endless hours have been expended imaging a world without oil as net zero looms decades in the future. In London, however, stock exchange chiefs face the prospect of a more immediate – and more worrying – oil crisis: a world without Shell.

Just two years after ditching the Dutch and delighting Britain’s Brexiteers by moving to the UK, Britain’s biggest company is now discussing leaving – for New York.

London, says chief executive Wael Sawan, is devaluing his company. It can’t provide the capital, its politics are too turbulent and its taxes are too unpredictable. Just having a London address is pulling his share price down.

“I have a location that clearly seems to be undervalued,” he said in an interview published by Bloomberg on Monday. He pledged to keep cutting costs to try to boost the company’s share price but added that if that did not work “we have to look at all options. All options”.

This is not the first time he has hinted at a move. Last July he reflected on the warm welcome extended to him by the New York Stock Exchange (NYSE) when he met investors to set out Shell’s plans to cut costs and maximise profits. “The welcome we had there was exemplary. The Shell flag was waving next to the New York Stock Exchange flag,” he said.

Sawan’s peers think the idea of moving to the US is outlandish. Ben van Beurden, Sawan’s predecessor, told the FT Commodities Summit in Lausanne last week: “The company is massively undervalued. The share price today is at an all-time high, but it could be significantly higher from where it is today.” He said a host of factors “conspire against the [companies] listed in Europe”.

A Shell spokesman said Sawan’s comments about moving to New York were “very similar to those he made in a high-profile interview nine months ago” but that “a change of listing is not a priority”. They added: “That remains the case. Shell’s leadership is focused on delivering our strategy with continued operational improvement, and simplification of the business and financial discipline, and won’t be distracted by this debate.”

Sawan and Van Beurden’s key complaint is that Shell is undervalued compared with its American peers.

On the face of it, he is right. Shares in US oil majors such as Exxon and Chevron listed in New York are valued at 12 to 13 times their earnings, while Shell is valued at a multiple of just nine. “Shell is attracting lower valuation due to negative sentiment towards oil and gas companies and an aggressive green agenda in Europe,” says Panmure Gordon analyst Ashley Kelty. “An anti-business environment is growing and the demonisation of energy companies does not help investment.”

Many UK equity funds now have rules on environmental governance that prevent them from investing in oil and coal stocks. The US market, by contrast, is generally more supportive of fossil fuel companies. More broadly, international investors have been shunning the UK markets, leaving Shell with a smaller pool of money managers it can appeal to.

“One of the reasons why Shell is where they are is purely and simply because the UK market has been a no-go area for international investors,” says a Shell investor.

Low share prices make companies vulnerable to criticism, shareholder unrest and even takeovers. Shell’s great rival BP recently attracted takeover interest from UAE’s state oil company, it was revealed last week.

Of course, a bombed-out share price also threatens the legacy of chief executives who want to be remembered as titans of industry, not the losers from London, as another analyst puts it.

Shell is valued at £185bn in London. If its share price had traded in line with US rival ExxonMobil, the group would be worth nearly £260bn — a 40pc increase, according to AJ Bell investment analyst Dan Coatsworth.

The analysis is simplistic – it doesn’t account for differing assets and different accounting standards, among other things – but it is instructive.

Shell has long had divided national loyalties. The company was founded in 1907 through a merger of Shell Transport and Trading, a UK company, and Royal Dutch Petroleum. Some of its management remained in Europe for decades after.

That led to an awkward few years during the 1940s when the UK company strongly supported the Allied war effort, while a key German subsidiary supplied Hitler’s military.

More recently, Shell has decided to end its identity confusion. In 2021, the group scrapped its dual Anglo-Dutch share structure and ditched “Royal Dutch” from its name as it moved to London. For a government in the throes of Brexit it seemed like a massive show of support. Kwasi Kwarteng, business secretary at the time, hailed it as a “clear vote of confidence in the British economy”.

Since then, however, the company’s commitment problems have re-emerged. Its ownership structure means the group is anything but British. Around half of its institutional shares are now owned by American fund managers, with only 29pc held in the UK. When retail shares are taken into account the UK holding is even lower at 17pc, while US owners account for 56pc, according to Bloomberg data.

Two US funds alone – BlackRock and Vanguard – hold 15pc of Shell’s shares – nearly as much as the entire UK. Shell’s sheer size means that any move out of London would matter not

‘The share price is at an all-time high, but it could be significantly higher from where it is today’

‘What happens if BP then does the same, or perhaps Astra? This is a big moment’

just for the company but Britain as whole. It is the largest company by value on the British stock market and generates 9pc of all the dividends paid by FTSE 100 companies, second only to HSBC. Its shares are held by money managers across hundreds of different UK funds, which are ultimately used to pay UK pensioners and help the next generation save for retirement. These funds rely on the company’s steady flow of dividend payments. Switching to New York could possibly deprive funds of this income stream because many UK-focused funds have rules in place that prevent them from investing too much outside of the FTSE indices.

“For many income funds it’s big. This is a moment for them to really think about: what happens if BP then does the same, or perhaps AstraZeneca? This is a big moment,” a second Shell shareholder says.

Sawan’s comments when London is already grappling with fears that its stock market is in a “doom spiral”. Major companies are quitting: building materials suppliers Ferguson and CRH shifted to New York in 2022 and 2023 respectively, while Paddy Power owner Flutter is plotting a similar move and Tui has decamped to Germany. Arm Holdings, a prominent UK chip designer, opted to list on the NYSE instead of London only last year.

Shell’s departure would be a body blow. “The dam would be broken,” the second shareholder says. “If you’re thinking of listing, why would you consider listing in the UK if everyone is leaving. Why jump into a ship that appears to be leaking?”

A moribund stock market is not just a concern for the City. As John Foster, chief policy officer at the CBI, points out: “Having large thriving companies list and base their operations in the UK is critical to the success of our economy. They innovate, drive investment and deliver the tax revenues we need to fund public services.” Moving across the Atlantic would not be a sure fire win for Shell. Oil and gas stocks are only 3.5pc of the US index, versus 10pc or 11pc in the UK. That would make Shell a less important player on a bigger stage.

Litigation risks are also higher in the US. Some analysts suggest Sawan’s sabre-rattling could be a clever double bluff to boost the group’s share price.

The first Shell investor says: “If you think your share price is very undervalued, why not just give people the impression that you’re thinking about moving to New York? If you’re thinking about selling Shell, it’s going to make you think twice.”

Shares are up nearly 5pc since the comments were made. If Shell did opt to push the button on its New York plans, it would have to win the backing of more than 75pc of shareholders.

In his Bloomberg interview, Sawan admitted the high hurdle meant “we didn’t think it was the battle to go into”.