Shell’s top executives explored moving the Anglo-Dutch energy group to the US in a proposal that threatened to deliver a hammer blow to the City of London.
Wael Sawan, the oil and gas group’s new chief executive, was among a group of top managers who in 2021 discussed the advantages of shifting the company’s listing and headquarters to the US, according to people familiar with the talks.
The executive team — where Sawan oversaw oil, gas and renewables before his move to the top job this year — ultimately decided to leave the Netherlands but consolidate its base and stock market listing in London.
“During formal discussions about the HQ relocation, Wael did not advocate for a move to the US,” Shell told the Financial Times.
Shell is the UK’s largest company, with a market capitalisation of £176bn and revenues of £316bn. Its loss to the US would crystallise fears about London’s status as a financial centre, with a dearth of new listings and a series of takeovers risking hollowing out the UK’s equity markets.
Although the US idea was ultimately rejected, the motivation that led to the potential move remains: Sawan is concerned about the yawning valuation gap between Shell and US-listed rivals ExxonMobil and Chevron.
On the US market, Exxon and Chevron are valued at about six times their cash flow, compared with about three times for Shell.
Since his promotion to chief executive in January, Sawan — who met investors in New York this month — has appointed a team of executives to review parts of Shell’s business as it seeks to win back American investors, according to people familiar with his plans.
Adjustments could include dropping the commitment made by previous Shell boss Ben van Beurden to allow the company’s oil production to decline by 1-2 per cent a year from 2019 as part of its plan to cut emissions, the people said.
Sawan and other Shell executives are said to have been impressed by the 10 per cent jump in UK rival BP’s shares this month after it stunned the sector by paring back its plans to reduce oil and gas production by 40 per cent by 2030.
Asked on a recent investor call about Shell’s commitment to reducing oil output, Sawan said the “longevity” of the group’s upstream oil and gas business was “a core part of our focus”.
Shell said it remained committed to the energy transition strategy, adding that it would update investors in June.
The strategy discussions at Shell come as energy companies wrestle with how to maximise returns during the energy transition, after the upheaval wrought by Russia’s assault on Ukraine revived fears about energy security and delivered record profits for the industry.
In the past three years, Shell and other European oil companies have pledged to overhaul their businesses to cut emissions but struggled to convince investors that they can deliver attractive returns from their low-carbon investments.
Sawan has said divisional heads will have to justify the cost of running their businesses and defend the potential returns, according to people familiar with the matter.
“We won’t be as benevolent as before,” said one person familiar with Sawan’s approach to investments in renewables.
In a recent internal memo, he announced organisational changes that will result in a reduction in the number of executive vice-presidents responsible for the renewables and energy solutions business, according to people with knowledge of the plans.
The possibility of renewed emphasis on fossil fuel production has sparked concern among European staff and questions about how the company would meet its obligations to slash emissions following a Dutch court’s landmark ruling against it in 2021, Shell employees said.
But any shift back to oil and gas would be greeted by US staff with “cautious optimism”, one employee said. Shell remains one of the largest producers in the country and recently brought on stream a new deepwater platform in the Gulf of Mexico.
Oswald Clint, a Bernstein analyst, said US investors “love the high returns potential with oil investing” and would welcome the company slowing its transition to renewables. “You’ve seen the playbook from BP . . . so if he walks back that commentary a little bit it’s preaching to the converted.”