European energy companies considering relocating their primary listing to the bright lights of New York may find it "counterproductive", UBS thinks, though undoubtedly there are some short-term valuation benefits.
The US market "carries a lower discount on oil & gas assets, provides more access to capital with fewer ESG constraints", the Swiss bank acknowledged.
This is reflected in the 35%-plus premium at which the US oil majors like Chevron and ExxonMobil trade compared to their European counterparts such as Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.).
However, partly this is due to US-based energy companies having a better track record of shareholder returns, higher production growth potential, and low carbon strategies that are considered less dilutive to returns than their European peers.
UBS notes that achieving full valuation benefits from a US listing requires meeting several requirements, including being included in key equity indices, which necessitates having headquarters in the US.
This may be impractical for European companies due to the significant costs and disruption involved in changing office and tax residency.
Furthermore, UBS highlights that European energy companies already have substantial US investor ownership and sufficient liquidity in their shares.
"Although a move of listing location to the US would likely support valuation in the near-term, we think some level of discount will remain for fundamental reasons," wrote Joshua Stone an analyst on the UBS energy team.
"The full valuation benefit of relisting in the US is likely to only come once a company is accepted into one of the key equity indices, enabling access to more capital especially from passive money."
In the long-run, the UBS team think "any move may prove to be counterproductive ahead of the low carbon businesses becoming FCF positive in the late-2020s".