Jeremy Warner: BP and Shell struggle to keep up with Exxon

Outlook Should BP and Royal Dutch Shell redomicile and relist to the United States? The question is largely academic, for it is most unlikely to happen any time soon. Yet London-based oil chiefs sometimes look longingly across the pond at the apparently superior share-price performance of Exxon Mobil.

All three companies have been reporting first-quarter figures this week – BP on Tuesday, Shell yesterday and Exxon today. They all tell much the same story. Profits have collapsed since the oil price-induced boom of a year ago, but with now fast-falling costs there still seems to be enough money slopping around for the payment of decently sized dividends.

BP and Shell operate in dollars, but pay the bulk of their dividends in sterling. The effect is considerably to magnify the size of the sterling payouts, which in both cases are up by more than 40 per cent. Even so, it doesn't seem to have helped the relative performance of their share prices very much.

Over the past three years, both BP and Shell have done no more than perform in line with the oil price. As a consequence, both share prices are now lower than they were three years ago. Exxon by contrast seems to have been much more successful at capturing the supercharged returns of the sky-high oil price that ruled a year ago. In part this is simply because Exxon is better managed operationally.

The company has also been run for cash, with capital expenditure kept deliberately low right though the boom. The humongous size of the cash generation has enabled the company to engage in an unparalleled buyback programme, which if maintained at the rate of the past four years would mean Exxon would have repaid its entire share capital by 2017.

Both BP and Shell are taking steps to emulate these characteristics. Relatively low levels of spending make you wonder where Exxon is going to find its future growth. All the same, the company remains the pin-up boy of the sector. Yet Exxon has other advantages too, which are nothing to do with strategy and management.

Shell and BP are giants of the UK stock market, collectively accounting for some 20 per cent of its entire value. Despite its massive size, Exxon is a relatively much smaller part of the US market – no more than 3 per cent.

Any UK fund manager hoping to beat the index would be mad to be overweight in either BP or Shell, however promising he thought the companies' prospects. Such overweight positions are much more feasible for US investors in Exxon. This may sound like a somewhat implausible explanation for Exxon's outperformance, but it makes a real difference.

Exxon has an intensely loyal following of long-term investors, so the stock is in any case a lot less liquid than the London-listed oil majors, both of whom are bought as much for the purpose of riding the market as their underlying characteristics.

The best performer of the lot is BG Group. BG has a number of things going for it right now. It's had some exciting finds in offshore Brazil, and it is big in natural gas, a relatively low-carbon energy source expected to gain at the expense of oil in the years ahead. And of course, everyone loves Frank Chapman, the East End boy made good, who runs BG Group. Yet it is also because BG is a relative tiddler in the UK market compared to BP and Shell. This enables overweight positions to be accommodated without breaching allocation limits.

The bottom line is that it is easier and apparently more rewarding to be big in America than it is here, where there are comparative advantages in being smaller. BP and Shell are such giants relative to the size of the UK market that they are like whales in a fish bowl. Exxon has the entire Pacific to swim around in. The Exxon share price seems to be a whole lot healthier for it.

Start your day with The Independent, sign up for daily news emails
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before