it was a great year for oil companies such as exxon chevron shell and bp but the giants of european energy are still trading at significantly lower valuations than their american counterparts which means they could be buying opportunities all the major oil companies benefited from the surge in oil prices as the world emerged from the covid19 pandemic and russia invaded ukraine the war threatened to cut off some supplies from one of the world’s biggest exporters though the crude has kept flowing so far prices have dropped back since then but not before delivering a few record quarters of earnings along with plentiful buybacks unlike the broader market share prices have surged the question is whether the good times will last oil prices have come back down european governments are dead set on clawing back some of those high profits with windfall taxes to help shield households from soaring energy costs countries on the other side of the atlantic have earmarked more than 700 billion to pay for subsidies and price caps to help their citizens keep warm over the winter to be sure there are risks to taxing energy companies more “windfall taxes and price caps do little to solve an energy shortage and are ultimately likely to exacerbate the problems caused by reducing incentives to invest” said biraj borkhataria an analyst at rbc capital markets nevertheless analysts say it won’t be a big hit to the bottom line for companies and are optimistic about the coming year “2023 earnings won’t match 2022 but they’re still great” said allen good a strategist at morningstar “shareholders are going to see a lot of cash flow coming back between repurchases and dividends” for one thing windfall taxes only kick in at high levels of revenue james hubbard an analyst at deutsche bank says the sectors’ earnings will only be reduced by about 3 to 4 or “the low single digits” the additional taxes will hit us companies as much as european ones—all operate globally and us firms pay taxes in europe as well but european companies are still trading at a significant discount to us peers according to morningstar’s good that may be because shell and bp have made big investments in sustainable energy over the past few years those investments mean they have been left with less to spend on trying to increase their output of oil and gas which discourages stock investors looking for exposure to hydrocarbons at the same time the investors interested in environmental social and governance esg issues haven’t rewarded bp and shell by buying their shares because they’re still big producers of greenhousegas emitting fuels bp and shell both based in london each trades at five times next year’s estimated earnings share prices for both gained about 40 in 2022 by comparison usbased exxon mobil advanced almost 80 and trades at almost 10 times forward earnings chevron rose 50 and trades at 11 times earnings all four have set 2050 as the target for making their businesses carbon net zero bp and shell are investing about 1 billion a year in lowcarbon energy such as electric vehicle charging hydrogen wind and solar power bp and shell may not be able to close the valuation gap with exxon and chevron in 2023 unless green investors become more inclined to buy shares that seems unlikely as esg groups tend to criticize oil and gas producers for not being aggressive enough with their lowcarbon targets but even if the gap doesn’t close bp and shell are still attractive at these levels for those investors looking for exposure to oil and gas according to morningstar’s good all big oil companies’ capital plans are based on oil being at about 60 a barrel he said as long as prices stay above that—they’re currently around 80 a barrel—the dividends and buybacks should keep coming after a year of rapidly rising interest rates the outlook for weakening economic growth will almost certainly keep a lid on oil prices but there’s probably a limit to how low they’ll go—the organization of the petroleum exporting countries has already cut output quotas to stop prices from falling too far “recession is certainly going to affect energy there’s no way around that” said good “but on the other side you’ve got a relatively tight market i don’t think that european earnings being down makes them a bad play in 2023”