 Okay, welcome back to the podcast and if you are watching the conversation. I do go into the office here I am it's not a virtual background. I think people are only ever used to seeing me at home But here we are you're at home. I'm in the office. So there you go. Yes Yes, indeed So we are recording this on Wednesday the 25th of October the episode is not going out though appears until Friday So just to view and everyone a bit of a heads up We are going to be talking about this episode what has been fresh off the press at least at the point We're talking Microsoft and Alphabet earnings We're going to take a bit of a deep dive because they've had completely opposing Reactions in terms of stock market price in terms of their shares ones skyrocketed and one's fallen Somewhat off the cliff and so we'll look to draw some parallels But some differences as well between what's been influencing that market reaction at least in the short term That does then front run some of the other earnings we get we're going to have by the time you listen to this Facebook and Amazon would have come out as well But then we're also going to pivot and talk a little bit about M&A deals There's been another mega one in the energy space in the US So following on from Exxon's deal for pioneer this week We've had Chevron making its move on Hess corporation in a fifty three billion dollar all-stock deal So we'll talk about quite a few different things in that story actually of interest all the way through from not just the numbers and the Financials but also the way of which the deal is being composed and also the context that it comes in Both for each company in terms of the energy sector, but also politically as well But to kick things off Pierce perhaps before we dive into those Microsoft and alphabet or Google numbers We are talking about here the mega cap tech stocks the magnificent seven So maybe you could just provide us a bit of color again about what is the magnificent seven and why are they so Magnificent or I so important and influential for global equities Yeah, I mean so the well firstly the seven. I think most people will know apple Microsoft meta Amazon alphabet Nvidia and Tesla So these have kind of been it's not a new thing to kind of group together big tech stocks. I think Fang was the first sort of for a down that path of right who are the big tech giants and Let's group them together because whilst There's a lot of differences between What these companies actually do? Although some have similarities We're going to talk about Microsoft and Google now and certainly, you know, one part of their business is kind of direct rivals But yeah, it's kind of just grouping together the big tech stock. So we have seven Nvidia and Tesla have been added remember Fang Used to include Netflix, which was always a little bit of a weird addition given the size of the Netflix company was way way Way smaller than the others and the f of Fang was obviously when meta used to be called Facebook and so on but So, yeah, it's not a new thing to group these things together But you know in the last why you'd probably say 20 years big tech has Risen to dominate You know the the world of Corporations and have become the biggest companies on the planet and therefore become the dominant Sort of proportion of stock indices and so when often we're kind of trying to judge You know, even like at a macro level, how's the economy performing? You know one of the key parameters is the stock market, of course But because of the dominance of these tech firms, you know, when you're looking at just Headline stock market performance these days. It doesn't really tell you the full story Now it's been well known this year and I would say really since back to back to kind of June It became apparent that If you took the magnificent seven stocks out of the S&P 500 So you're left with 493 other companies then actually That index would be down on the year So on average 493 companies on average share prices are negative for the year add in the seven and fine The stock index overall has boosted nicely higher, right, but it's just those seven Now what grabbed my attention was a an article in the FT Yesterday, which is quite sensationalist and kind of makes you go wow That's that's amazing. But then kind of when you think about it, it's kind of obvious But the headline was magnificent seven Tech stocks drive US equity domination to new highs and there's two parts to this story firstly number one It's talking about the MSCI Whole world index or sorry, that's not the right name MSCI is benchmark all country world index, okay This is taking the largest 3000 companies and You know, it's a global index right and it's now the same thing So as of last week basically same thing if you took the magnificent seven out of that index the 2000 what is it? 993 other companies on average are down on the year but add in the magnificent seven and the index is nicely higher That's number one. The other interesting point about it. So that's quite obvious, right? I mean, it's the same story of the S&P the other interesting thing was What proportion of this index is made up by US companies? and so it is the case now that There's 3000 companies in that all world index, but it's now 61 percent US now the thing about that is that's an all-time ever high, you know, you go back like if you went back 15 years it was like 40 percent and It's now up above 60 and trending higher So it's quite interesting that just on that whole point around well, you know, the US is a superpower It's peaked and you know, you talk about Ray Dalio's kind of big shifting cycles And how now the US is in decline and blah blah blah, but I'll not metric on it from a corporation point of view It's never been more dominant and it's trending to become even more dominant and obviously the the magnificent seven which are Which are obviously all US companies are obviously at the forefront of that move before you talk up your US exposure Can I just ask then of what proportion of that 60 odd percent are tech oriented names? So therefore they're getting a better bump if you like on their valuation that actually Artificially makes that 60 look more buoyant than actually perhaps more spread and diversified across industry. Yeah, that doesn't change the values No, I think that then it's not quite as like black and white. It isn't but you know technology has been the secular shift in the last few decades and the US have been at the forefront of that innovative cycle so Yes, you can say well, hang on, you know Not you can't really compare like for like if all the US companies are tech and then the companies from other countries aren't tech And so valuations are different. It's a bit unfair. Well, it's Yes, there is an argument to say that but I counter. Well, you know It's the innovative nature of the US as an economy and and the company in the so the companies and the people within it I'd say a much more entrepreneurial and we're at the cutting edge And so you could say that's been an advantage for them in the last few decades But that advantage is going to continue, right? So but you're right say that if you but if you take the the other point is about if you took the largest 10 stocks Then they now make up 19 percent of the index so it's not just It's it's particularly the largest of the large that have been growing the fastest and you know I've taken this kind of outsized portion of these kind of major indices So, yeah, that's why kind of coming back to the earnings reports this week You know when you're looking at the earnings season as a whole then for sure You know the tech stocks the kind of and the big giant tech stocks the magnificent seven You know, they're always a kind of top of people's lists as right the ones to kind of really be looking out for and so Apple and Alphabet as in Google announced last night. We've got Microsoft. So we've got Meta tomorrow Hang on Microsoft and Google last night Meta tomorrow Meta tonight and then Amazon tomorrow. Yeah So they're all kind of coming in a big dump This week so in terms of the the numbers then I'm not I don't particularly want to dive into EPS and revenues. I want to jump straight into the kind of highlights and the highlights being I guess around AI Around monetizing that in the case of Microsoft and how they are first to market kind of advantage And how is that looking at at the moment? And then talk about cloud Yeah, that's the the big area of course that definitely AWS coming down the pipe as well and Amazon will be in focus So it's a good context there And and then we can talk about just yet the advertising side of things as well I mean much more prevalent of course for for Alphabet or Google in that respect but to give you a Quick some summation of how the markets received it without even looking at numbers The market liked Microsoft about seven percent Upside it so after market once these numbers hit whereas Alphabet dropped about six Talking about kind of peak and trough in terms of those two price reactions They obviously have seen movement thereafter, but really positive response to Microsoft quite a negative one for Alphabet So perhaps we could start with the Cloud let's start with cloud given that they both have a cloud division Yeah, so that's where really they're kind of direct rivals And I was actually just kind of stepping back a second with the cloud a whole cloud computing thing Amazon are the biggest Right, and so in terms of market share AWS clocking in at about thirty three percent of the global market is Amazon. Okay now Microsoft with their Azure Like computing service they're clocking in at twenty two percent okay, but One thing about Amazon and Microsoft the difference between the two they're converging Microsoft is Marching higher. They've been and actually for the last five years Consistently winning more market share. Okay, Amazon's kind of they're kind of winning more market share Yes, a little bit off Amazon. I mean Amazon's Market share has been above 30 for that whole period Microsoft's gone from about twelve percent to twenty two percent So who are they winning market share off then because it's a little bit of Amazon But not much and it's actually the kind of big giant laggers like IBM the dying dinosaurs IBM's gone from in that period from eight percent down to about two So really it's kind of IBM that are suffering against Microsoft and then Ali Baba as well Actually in the last couple of years. They're trending down. They're pretty small though They're down around about three percent, but but yeah Microsoft are winning market share and Alphabet they've been winning market share as well, but they're only down at about twelve percent So here's the hierarchy just to repeat Amazon's at thirty three percent dominant big player Microsoft number two there at twenty two percent and and Amazon's about eleven twelve percent. That's right Google is about eleven twelve percent. Okay, so they're kind of your big three And so when we look at Microsoft and Google reporting earnings on the same night The direct comparison between the two businesses is their computer their cloud computing divisions because they both do that their direct rivals and you couldn't have seen a more kind of Different set of numbers that got reported last night And what you're seeing is Microsoft Very strong beating expectations in terms of their revenue growth for cloud computing and Google the opposite Disappointing and there you've seen the reaction in the stock market Diverging to the tune by the way, you put some small percentages on share price moves there, but Turn it into money Microsoft are up a hundred billion dollars on their valuation Alphabet so Google they're down a hundred billion So you've got a 200 billion dollar swing here off the back of this information announced last night That's crazy. And though in those terms. Yeah, the revenue just from a zoo Jumped 29 percent during the quarter for Microsoft The street was looking for a jump of just 26 percent On the flip side Google's cloud computing division was up 22 percent But the street was more hungry looking for a 26 percent gain So still growing phenomenally fast. It's does By being magnificent. Do you have to have magnificent earnings and anything but magnificent magnificence? Trying to create words here anything other than being magnificent is a failure So is the bar so high with these tech stocks now that That that's the issue right up on the pedestal And you could say there's only really one Direction from there and it's you've got to be absolutely smashing it to kind of stay on the pedestal And anything that's not extraordinary is disappointing. It's quite interesting. I was looking back at kind of Microsoft's history and it is a hell of a revival this so they've kind of gone through You know, obviously they're a very old company If you kind of put them alongside the googles and the metas Which are much newer, you know, these companies were born in this century whereas Microsoft of course hails back to the The the 1960s even right so Microsoft has been around a lot longer Microsoft kind of had its first glory days You might say in the 1990s And in the 1990s with windows you know became The absolute dominant number one player in the market and at the same time had some outrageous revenue growth figures Even though they were dominant and the big boys they were growing like 30 percent a year During that decade and they were on fire and they were the world's biggest company Okay, or technology wise anyway, okay biggest tech firm in the world Then they kind of I think with that comes a little bit of complacency And maybe you could maybe you could say apple are kind of going through a bit of complacency their iPhone dominance You know, what have they really done Since the iphone there's lots of analysts that would question Their ability to innovate in a way that they did in the past with that iphone thing So you could say apple are maybe going through their sort of Period of complacency that microsoft had in the naughties and microsoft got very big and a bit bloated and complacent and basically entirely missed the whole smartphone Revolution and didn't get on that bandwagon at all. Okay. Now nadella So satya nadella who's microsoft ceo. They had this big launch They had a big launch event back in september on september 21st in new york And one of his kind of opening lines at this big show piece event Nadella said it's kind of like the nineties are back And he's basically saying that yeah, we got bloated. We got complacent. We missed out on mobile But we and because of that they've kind of they've kind of got this sort of attitude now of you know, they're kind of I think be paranoid. I think is one of nadella's sort of Go to sentence phrases, which is be paranoid, right? What's happening out there? It doesn't matter how big we are How well we're doing We've got to be worried about right. What's next, you know, who's in the driving seat? Where can we position ourselves? How can we go again? And I think with that attitude they've been right at the very forefront of the ai revolution And and so this is why everyone's so excited About microsoft and it's kind of now You know, you would say that like from as a business. So not only with ai, of course, they're cloud computing Division is becoming bigger and bigger and bigger and what that does for the company Is that they're operating margins? Really radically improved because the cloud computing business is something like 60 margin or something. It's crazy, right? So actually over the last decade The company as a whole has gone from an operating margin of 29 percent in 2014 up to now 43 percent So not only are they growing revenue? like really strongly The margins on those new revenues are phenomenal So net what does that translate to while the profitability is growing even faster? And it does seem like the The ai kind of tip for tat has kind of come off the boil a little bit in the last couple of months But they did say that their zoo open ai service now has 18,000 customers And that's up from 11,000 customers in just july That's paying so that's paying custom paying your 20 bucks a month for whatever it is. Yeah So I guess that's it. Well, that's probably even more. I'm thinking enterprise that kind of level packages but yeah, the the idea there being I guess that At the moment it looks like there isn't really a credible competitor within that space who not only has the tech But has it integrated into an efficient ecosystem of which is already a matured form of work practices in most industries i.e. office And so they've got this foundation that's firm and this platform and ecosystem that's already there And then they get the users in and if you can't then there's a business access ai in any other way You get sucked into that ecosystem and then get monetized throughout the entire product suite so You can see where the growth is coming. It's genius and The deal, I mean, that's right. They're so So ahead of the race like with the whole ai thing and I think the other thing they realized probably again from going through their bloated period because they're a bit older A bit longer in the tooth. They've maybe learned More lessons along the way and another one was you don't need to do the inventing yourself Because if you go and have a look at google and google that they've been I mean They've been embarrassed a bit By microsoft this year and they're really far behind on ai but google have that attitude I think well, we've got we've got to make it. We've got to invent it We've got to do it ourselves and they're plowing crazy amounts of money You know into that whereas microsoft are like well Do we we can accelerate this by buying stuff like like open ai, of course And the great thing just finally back on that the last piece of the jigsaw for the cloud computing part So microsoft because we're in that macro cycle Where enterprises companies are trying to Tighten the belt a little bit and they're trying to reduce some of their cloud computing costs Which is why google's growth is disappointing. We're going to see from amazon Later this week. They're the big boys aws. So they're aws figures later this week. It will be hugely Interesting to see but microsoft's cloud computing numbers are wow great growth faster than expected the exact the opposite Of what we were expecting from that kind of macro point and there the thing is The deal they did with open ai Means that all of this kind of chat gpt traffic all of it the deal they did with open ai was that any user of open ai has to use azure So it's that direct throughput onto the microsoft cloud computing service and so The the the news is that the ai Uptick has outweighed that macro down tip Which is why their division has act performed and google's hasn't That's super interesting. I think you made a really good point there Just to re-emphasize about the idea of The person who creates the product or the idea and then the person who has the business Mindset to go to market and successfully develop a strategy to sell the product You know even apple in history With the nokia having the first touchscreen phone Thank you very much We'll take that and we'll make a Phenomenal product out of it through our marketing engine, but let's just talk about advertising for a moment I know not so much then so stepping away from microsoft a little bit the Revenue hang on wait wait wait Let's can I just finish on microsoft? Okay, before we go to google because they did have good advertising numbers over at google But this I just want to So this I mentioned that they had that launch event in september. Well, what were they launching? They were launching their copilot So this is finally getting the whole ai thing, you know into enterprise software That kind of everyone's already using when I say everyone's already using well, here's a question for you pop quiz How many people Use microsoft 365 So microsoft office they've rebranded it to microsoft 365. How many users of microsoft office. Do you think there are? Paying subscribers. This is So this is individuals as well as companies. Yeah talking. Yeah It's got to be a humongous figure Let's have it 1.4 billion Oh, it's very good. It's it's 1.2 billion Okay, 1.4 billion is actually the number of windows. Oh, I got confused. That's all. Yeah, obviously But but the point is this is huge, right because they've launched copilot when I say launch copilot What does that mean? Well, they've got bots and ai to help with so there's a there's an office copilot There's a windows Copilot, you know, so that's for the operating system, right? So you'd be able to do things like changing computer settings Generate images Summarized web pages kind of all this stuff. They've got a copilot for their sales software They've just launched. They've just launched a copilot for their human resources software They've just launched their copilot for their cyber security software. Did you know? So I was I had no idea But I was reading today Cyber security microsoft is the biggest player in the world. In fact microsoft Generate more revenue on cyber security than the five Next biggest providers put together Anyway, they got a some a copilot for their cyber security stuff. Obviously they've plugged chat gpt into bing You know all this stuff, right? It's just being launched This is why people are so excited um, but also let me just add a dose of Reality It all sounds amazing. Oh my god by microsoft shares. They're gonna like quintuple or something But it doesn't come without risk Next year They've committed microsoft. This is to capital spending That's going to jump by Over 40 percent compared to this year. They're going to spend about 40 billion dollars Next year and they're going to spend it on building out their computer Sort of centers. They're buying chips off invidia basically. So the infrastructure to be able to support vast numbers of people Using these extra services that infrastructure build out Is going to happen. They're committed to it But of course what happens if they don't get the uptake that they want Well, then you're going to have a huge cost on building out the infrastructure with their know Ah didn't quite take on as we thought Number one, why might it not take on Like people thought because it's a bit of a no-brainer. Well google whilst they're way behind in the race here They're not out of the race. I mean write google off at your peril, right? They're just they've got off to a bad start So microsoft are going to get a lot more competition Further down the track. So there's a lot of spend going on here that People are aware of it's just right now. We really do need to see Copilot's out there. Well, what are the revenue figures for copilot? Whether microsoft actually report those I doubt it because they don't even split out. They don't even tell us what their azure revenue is So they're not going to be telling us at a granular level. You know, what did the office copilot? You know generate in revenue. They won't tell us that so Yeah, so interesting when you explain it like that and you hear numbers Incredibly large ones about the amount of money they're going to spend Yeah, it makes me think not about investing in microsoft in terms of like the future capture of more market share or anything like that And she makes me think about the supply chain And who's involved in supporting the infrastructure to build these facilities down to not just chips That's like one order dimension. It's more like, okay, so what frames do they sit? Yeah, right Do you need to lay what aircon machine do you need to cool these bad boys? Like there's got to be players in every single element and maybe get some exposure across the breadth of That play and that will serve then the same equipment surely. I'm probably if you investigate it Let's probably lead component manufacturers and all of that. Yeah that support all of the magnificent seven 100% Yeah, the infrastructure build out. That's a key investment area in the next sort of 12 24 months Yeah, okay. Well just to finish it microsoft did say It's very confidently that they're forecasting for next quarter 15 growth Overall. Hmm. So they're still on a pretty Pretty tasty, but I can't read that size Right 15th percent of the world's basically biggest company. Yeah Not bad pretty stellar So advertising at alphabet. Yeah, it's kind of more google. I would say yeah So revenues at alphabet were 76.69 billion that was above expectations YouTube ad revenue was above expectations clocked in at just below 8 billion So pretty decent on that side of things I have got a question for you though a bit of a quiz from my side this time So one of the ways of which ai is being deployed at google Or specifically youtube Is trying to optimize then user experience in terms of how they can manipulate videos on shorts YouTube shorts But also like we've heard from meta about optimizing for advertising opportunities as well Yeah and using ai so I want to ask you have a guess how many Daily views do you think there are Via shorts on youtube I'm gonna probably be embarrassingly way out. I got I got no idea But you're on your daily just think about your normal routine when you're sat looking at shorts on your way in to to the office I'm gonna go it's gonna be Uh Well, look there's seven billion people on the planet. Let's start with that figure smartphones probably what three Three three three billion. I mean i'm plucking numbers out of thin air here Let's say three and a half billion three billion. No a lot of kids in there I'm probably less than that. Let's just say three billion then Not everyone's going to be watching that kind of stuff but those that do or watch many I'm going to stick it one and a half billion. That's my number Okay, one and a half billion. Okay, so previously They had been clocking in at 50 billion per day Now gone up 20 billion To register at 70 billion daily views on shorts on youtube. You are kidding 70 70 i'm saying by the way seven zero billion Yeah That's just I can't even compute How that's possible but and just try to compute the advertising potential there. Wow I mean that's insane. Yep Um, anyway, well, we talk about you you mentioned what eight billion from youtube revenue Cube advertising revenue. That's exactly the same revenue as their entire cloud computing division Just to put it into perspective. Yeah one of the things that did come up was that obviously advertising Very influenced by economic headwinds. So the current macro situation companies ability to spend so on But actually one of the things that got highlighted was investors are a bit wary of an antitrust lawsuit at the moment just about Google's monopoly the u.s. Government are going after them again at the moment in regards to the online search business And I guess the last thing that you need is a business, right? It's to go into this big commitment of spending and then all of a sudden there's a disruption to that And so perhaps that's having a little bit of an elephant in the room Impeding a bit of spend at this point as well and back to the comparison with Microsoft again You got divergence there because Microsoft it looks like the Activision blizzard Deal is finally going to be allowed through by the regulator So you might say the kind of antitrust regulatory headwinds For Microsoft they've just gone away and they're going to be a tailwind whereas for google It's kind of very much still a thorn in their sight Cool. Well, let's move on and let's talk a little bit about this chevron deal Where they've agreed to buy us oil and gas producer hess corporation For 53 billion dollars in an all-stock deal that in fact would be the biggest in chevron's history If that deal does complete it's not the first one in the industry in terms of that magnitude I think it was just two weeks ago exxon announced their mega merger with pioneer That as well was an all-stock transaction Valued at just under 60 billion. So perhaps we could start there before we start talking about the specifics of The rationale behind the deal of why chevron are targeting this firm What's this all-stock business all about? Yeah, right. So if you're acquiring another company Well, then right you acquire all their shares Right if it's a full takeover But there's a there's a few different ways By which you can pay For those shares. So all of the shareholders all of the hess everyone who holds hess shares Those shares are now being bought Okay, so we how are you going to compensate the hess shareholders? I think the common misconception is Or you buy it with cash, right? So or you hess shareholders. Here you go. Here's some dollars. Thanks very much Off you go. See you We've bought your company. You're now no longer part of the story Okay, and you might think with oil majors while the oil price has been through the roof You know the energy sector has been one of the best performing sectors in recent months and over the last whatever 18 months or so because the oil price has been so high and right they must be Cash coming out of their ears right now. They're using this cash to buy stuff. It's not the case This is there's no cash in this deal at all. So how else can you do it? Well Well, you can do straight out cash. There's another way to do cash where you borrow the money As in the acquiring firm Uses leverage they borrow money and then they buy out the hess shareholders with cash It's just that that cash is borrowed, right? So that's a kind of leveraged or kind of fine, you know debt financed deal or There's what's called a stock Transaction and sometimes these big mega deals. It's kind of a combo. It can be a combination Right. Sometimes it can be part cash. It can be part stop With this deal chevron and hess. It's all stock. So there's no cash changing hands whatsoever And what happens is you take chevron And you take hess and the two parties agree A valuation of Of the two at that moment in time and that comparative valuation then sets the or how many chevron shares Or sorry, how many hess shares? Equals one chevron share Based on that comparative Valuation and then what happens is every hess shareholder their hess shares get swapped out For the equivalent amount of chevron shares. So hess shareholders just become shareholders In the merged larger entity Um, so there's no cash changing hands here whatsoever Yeah, maybe you can tell me a little bit about then the before we go again. It's a specifics the um The actual kind of price that they're paying in terms of a valuation perspective What does this represent in terms of it's a bit abstract when you just hear these numbers, right? It's like 53 billion is like is that a is that a lot of money for that company? Is that a good value? Presumably they're paying what they feel is good value. So what does that look like? so So yeah in terms of value It's it's way better to think about valuation sort of ratios and metrics rather than just a headline 53 billion dollars um Stephen would be better place to talk about this, but the standout one here is their PE ratio So their price their share price to earnings um, it's 34 times what's called trailing PE Trailing PE just means the last 12 months behind us in the past. What was your profit? I'm right Given the valuation of the company today based on your share price. What's the ratio? And it's 34 times. So Chevron are paying 34 times PE. They're basically basically saying, right? We'll we'll pay we'll pay you Assuming profit stays flat And by the way, that profit's super up because the share price. Sorry the oil price has been through the roof, right? They're basically saying we'll pay you 34 years worth of future profit today To buy your company That's really high 34 times If you were paying in cash Which is why the deal's not in cash because They're paying in chevron shares, but chevron's share price is also Through the roof and their PE ratio is trading at You know way way higher than it was a couple of years ago So this whole PE ratio thing whilst 34 signs outlandish because it's an all stock deal It's less of a relevant metric, I'd say another thing When so if a company wants to acquire another one then So hess is the company being acquired and right the shareholders They have shares, okay, and the shares are worth a certain amount of money Well, how much well right now as I speak $154 per share. So that's the value. That's the money. They've got they could sell their shares now And get $154 per share, right? So an acquiring firm has to has to table an offer That's better Than what they could just get in the open market right now So there's normally a premium added to the price Okay, now the premium can often be pretty hefty like 25 percent 50 percent even right on top of today's share price But the premium here in this deal was quite low relatively very low. It was only 10 percent So the agreed valuation 53 billion basically says we'll buy your company at 10 percent premium above The 20 day average share price going back over the last 20 trading days So it's a 10 premium and you're like, well, that's not very much. Why have the hess Shareholders agreed to this. Well, then you go and look at the hess share price And you go, oh my lord because it's trading It's trading at 150 if you go back to if you go back to a couple of years We're trading at 35 And not only is it Whatever that is quintupled Significantly in the last few weeks it broke the 2008 all-time high Do you remember in 2008 anybody knows their oil markets will know that oil hit $150 per barrel In the kind of middle part 2008 and that's when the hess share price peaked to its all-time ever high and it got up to about $125 So since the last month or so it's broken the 2008 high and spiked And then chef gone and come in and said right we'll buy your shares 10 percent above the all-time ever spike basically so From that respect it looks like a pretty tasty deal Except that they're paying In chevron shares, which are also trading at an all-time high and have also Been incredibly elevated. So because it's an all-stock deal It's not quite all as good as it sounds on paper for a hess shareholder But nevertheless they got the deal They've agreed terms And it goes ahead Why I always find fascinating about these kind of natural resource deals Is that unlike innovation in let's say technology where you can come up with this absolutely brand new idea That could revolutionize things like generative ai for example Now yes, you can do that to a certain degree with perhaps the materials you use for drilling drilling methods But at the end of the day it's all to achieve the same goal. There's a deposit of resource Whatever it might be in this case oil or gas it's in the ground And the problem that you have with any natural resource whether it be fat or metals or Or soft agricultural goods if they're being grown It's about where it's located, right? And so the only way to get ahead Is to either partner up or Or take over firms rather than you can't just create oil Out of any piece of ground and so what was really interesting about this deal Was that chevron were talking about a unique and compelling opportunity to bulk up his offshore presence and in particular Guyana assets is what they were targeting Which is a country in south america has a population of less than a million people Oh, wow, really? You're like Okay, so hang about this deal is 50 billion plus And the rationale is for a country with less than a million people like what on earth is under the ground here But here's here's a question for you What do you think the projected GDP rate is for guyana this year? What growth rate growth? Yeah Well, I know that One of the fastest growing countries is Is uh, I'm not not not kenya It's one of the african countries was somalia somalia or something. Yeah, um And I think that was like, I don't know Something like 15 percent or something. Um so unless But I I do know I think guyana they they've just discovered this offshore oil, haven't they so It probably has made their GDP figure fairly Crazy, which you see I don't know. Let's I'm gonna go for But but there's a it's one thing to say I found it Found it guys Oh, yeah, it's another thing to go Well, actually we've got to get it out of there and then And then we've got to sell it and only then do we kind of generate any money So, uh, I'm gonna say 20 22 percent growth. Okay 38 38 percent so Essentially so so one of the I guess countries And we're talking about oil on a global level one of the countries that has massive resources But as you rightly said just then It's not just about having the natural resources about being able to actually get it out of the ground And venezuela is one of those countries which has the world's largest resources But they're not the biggest oil producer on the planet by any means. Yeah, or the political unrest Geographically the equipment the the deals that happen. They're very different Um, however, gianna sits beside geographically oil-rich venezuela. And so What's happened is there's been a new discovery. You rightly said it's called Stab rook block And essentially It's uncovered 11 up to 11 billion barrels Of black gold right there, my friend So if you talk about winning the lottery that is the Willy Wonka ticket right there Um, and so yeah to give you an idea chevron is gaining a 30 stake in the block And that closes the gap with xon who has about a 45 stake in in the region. So yeah, definitely A big deal and one that i'm sure also factoring into this price I mean, I I guess xon can't be pursuing two deals of that magnitude at the same time So perhaps there is some logic here about the timing execution of this get in While while your main competitor is distracted It's both strategically and monetarily on something else Make the move while they cannot react essentially at this point in time. So Yeah, very interesting and 11 billion. I just did some quick math Like if if if the oil price is where it is, let's just say it's 90, right? That's a that's a trillion dollars That's a trillion dollars worth of goods Just just sat sat there and one thing that makes this this starbrook block so So interesting or compelling Um, is that it has the lowest break-even points for any offshore supply So it becomes profitable a lower global oil price that number that you just said You can achieve a bigger margin on it essentially. Yeah Yeah, exactly and the cut because yeah notoriously the offshore oil Deposits reserves are is way more expensive to try and get your hands on that stuff Which is one of the reasons why Saudi has been Such a dominant force in global oil production because all of their reserves are onshore and Super accessible and so the cost of extractions way lower Which is why Saudi have been of dominant force. They've been able to drill their oil for I think doesn't it cost Saudi something like six dollars a barrel It's it's basically just sat there just scoop it up and put it in a barrel and And flog it right, but yeah this offshore stuff. But yeah This particular reserve for offshore standards is actually really accessible And then just to conclude on this in case if you're a student in the application season you get asked about this deal It is Morgan Stanley who's acting as the lead financial advisor with Evercore for Chevron And on the Hess side Goldman's is the lead financial advisor with JP also on the ticket as well Yeah, well those fees coming back to life. Yeah. Well, yeah It's kind of kind of It's happening, isn't it and that kind of just what you said there makes it's an obvious point if you know But if you don't well, there's two companies here, right when you're in an acquisition like this There are two entities both of which need advisory services from the bank. So you'll have the buy side providers as in the acquiring firm so chevrons so the Morgan Stanley's and then and Evercore and then you'll have the sell side Of the deal the company that's being sold Yeah, so lots of fees. Yeah Cool. Well, the the bandage aid has been ripped off bankers bonuses are uncapped now. So Yeah, they'll be enjoying this new deal flow. So yeah, we'll end it there Thank you very much Piz and I hope everyone enjoyed the episode if you did and you haven't done so I would love it if you could leave us a rating or in fact a review really helps get the podcast out as many people as possible But thanks Piz No worries. Have a great weekend