Raising Fair Value Estimates on Shell, BP and Total

With an updated oil forecast, we have increased our fair value estimates for Shell SHEL, BP BP, and TotalEnergies TTE by 18% on average.

Our stock valuation models now include Brent crude oil prices of $101 per barrel and $95 per barrel in 2022 and 2023, respectively, while our long-term midcycle price assumption remains $60 per barrel for Brent.

Total now trades at the greatest discount at 0.74 of our fair value estimate. All three remain rated as no-moat firms.

For Total and BP, which has a 0.80 price/fair value estimate, their relatively high Russia exposure appears to be an issue. While BP plans to exit its 20% holding in Rosneft, Total intends to stay, but curtail future investment. Russia accounts for about 17% of Total’s production and includes direct stakes in two liquid natural gas, or LNG, projects and a 19% holding in Novatek. The Russian uncertainty for both companies has weighed on shares, but we think it's adequately priced in both cases.

For BP, we have marked to market its Rosneft stake as of Feb. 28 resulting in a valuation of $3.6 billion. However, if we mark it at zero, our fair value estimate only falls 3%. For Total, we have left its Russian production and earnings in our model. If we were to remove them completely, our valuation would fall 16%, which still leaves shares at a discount. That said, the uncertainty will likely be an overhang on shares for some time, especially Total, as clarity on Russian investment is unlikely to emerge soon.

The group as a whole trades at a discount to U.S. majors Exxon XOM, a price/fair value estimate of 0.87 and Chevron CVX, with a price/fair value estimate of 1.17. While Shell has a similar discount to fair value of 0.89, like Total and BP it trades at much lower forward multiples. This reflects our no moat rating for the group compared with our narrow moat for Exxon and Chevron.