European refining margins have averaged about $7.5 a barrel since the start of 2026 which is than 45% below the last year’s fourth quarter average and over 70% below the November peak.
As margins are pressured Bank of America prefers TotalEnergies among Europe’s Big Oil stocks given its earlier buyback resets and a coming free cash flow lift.
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BP remains Underperform rated at Bank of America as weaker refining margins drive sharp earnings cuts.
Despite more than $5 billion of disposal proceeds in 2025, BP’s year-end net debt is expected to be little changed.
The ongoing asset sales dilute cash flows, especially as recent disposals remove retail and midstream assets that provide longer-duration free cash flow. That raises BP’s organic breakeven oil price and limits scope to lift shareholder returns without higher oil prices.
BofA calls TotalEnergies as its top pick, which has a Buy rating. Buyback expectations have already been reset ahead of a free cash flow inflection in the power business, which should allow an increase in buybacks into 2027.
Consensus 4Q25 earnings estimates are down about 5% year to date, even as share prices are up roughly 2%, creating an earnings-price disconnect. BofA’s own revisions are steeper, with smaller cuts at TotalEnergies and Equinor than at peers.
Bank of America expects aggregate Big Oil net debt to fall by about $8 billion in 4Q25 versus 3Q25 due to disposal proceeds, with Shell the only company showing a quarterly increase.
Aggregate organic free cash flow is seen falling short of dividends and buybacks, leaving the sector reliant on working capital inflows and disposals to fund returns.
“Our PO of EUR66/share (ADR US$76) is based on our bottom-up cash flow model and resultant sum-of-the-parts valuation,” said BofA analysts on TotalEnergies.
“Sum-if-the-parts (SOTP) valuation uses discounted cash flow valuation for TotalEnergies’s sub-divisions based on differentiated discount rates: 9.1% for Refining and Marketing & Services, 5.2% for Renewables as well as 8.8% for Corporate, assuming a zero perpetuity growth rate for all.”
