WEBVTT 1 00:00:08.265 --> 00:00:11.415 Hello and welcome to this Vidcast, which is dedicated 2 00:00:11.595 --> 00:00:15.495 to the wave of oil acquisitions currently 3 00:00:15.855 --> 00:00:17.055 observed in the United States. 4 00:00:17.755 --> 00:00:21.775 We will discuss some financial metrics around the valuation 5 00:00:21.795 --> 00:00:24.775 of reserves, but also turn our attention 6 00:00:24.875 --> 00:00:26.775 to the probable consequences 7 00:00:27.035 --> 00:00:29.215 of these operations on the economic 8 00:00:29.505 --> 00:00:30.895 governance of the country. 9 00:00:32.815 --> 00:00:34.415 A few announcements to start with. 10 00:00:35.015 --> 00:00:39.335 A few days ago, the 23rd of October, 2023, 11 00:00:39.645 --> 00:00:42.095 Chevron announces buying Hess 12 00:00:42.475 --> 00:00:45.015 for 53 billion US dollars. 13 00:00:45.765 --> 00:00:47.255 It's an all stock transaction. 14 00:00:47.525 --> 00:00:51.135 It's paid in shares, not a dollar of cash out. 15 00:00:51.615 --> 00:00:53.495 A few days before the 11th of October, 16 00:00:54.085 --> 00:00:58.215 ExxonMobile announced buying Pioneer Natural Resources 17 00:00:58.275 --> 00:01:02.295 for $60 billion again, paid in shares. 18 00:01:02.805 --> 00:01:05.255 Both are all stock transactions. 19 00:01:06.405 --> 00:01:08.615 When you observe the evolutions as stock prices, 20 00:01:08.925 --> 00:01:11.815 it's absolutely clear that the capital markets don't like 21 00:01:11.865 --> 00:01:12.895 these operations. 22 00:01:13.685 --> 00:01:15.815 When ExxonMobil makes the announcement, 23 00:01:16.075 --> 00:01:18.535 the stock price is down by 4.1%. 24 00:01:19.165 --> 00:01:22.455 When Chevron makes its own announcement a few days later, 25 00:01:22.875 --> 00:01:26.815 the stock price is immediately down by 5.5%, then it's going 26 00:01:26.815 --> 00:01:28.095 to stabilize more or less, 27 00:01:28.635 --> 00:01:31.975 and then there's another drop by 7%. 28 00:01:32.155 --> 00:01:35.935 So definitely capital markets don't appreciate very 29 00:01:35.935 --> 00:01:37.015 much these strategies. 30 00:01:37.665 --> 00:01:40.455 ExxonMobil and Chevron belongs to the same industry, oil 31 00:01:40.455 --> 00:01:42.855 and gas, and they don't share only that. 32 00:01:42.855 --> 00:01:44.975 They also share their financial strategy. 33 00:01:45.755 --> 00:01:48.455 Low debt, marginal debt, equity, finance 34 00:01:48.975 --> 00:01:52.015 companies returning cash to shareholders, uh, 35 00:01:52.045 --> 00:01:54.375 massive dividend growing dividend 36 00:01:54.435 --> 00:01:57.575 and also massive share buybacks. 37 00:01:58.275 --> 00:02:00.215 As far as ExxonMobil is concerned. 38 00:02:00.215 --> 00:02:03.575 In 2022, the company paid a dividend of $15 billion 39 00:02:04.195 --> 00:02:06.935 and bought back its shares for another 15 billion. 40 00:02:06.935 --> 00:02:09.735 So you return $30 billion to the shareholders. 41 00:02:10.685 --> 00:02:12.975 Chevron 2022 dividend, 42 00:02:13.075 --> 00:02:16.015 11 billion shares buyback five billions. 43 00:02:16.435 --> 00:02:19.935 So these returns to the shareholders are quite significant. 44 00:02:21.145 --> 00:02:23.295 Let's start with a little bit of history. 45 00:02:23.725 --> 00:02:27.175 Chevron is a result of the merger between standard 46 00:02:27.315 --> 00:02:29.855 of California and Gulf Oil, 47 00:02:30.105 --> 00:02:32.175 which happened in the mid eighties. 48 00:02:33.245 --> 00:02:34.775 This is one of my favorite studies 49 00:02:34.835 --> 00:02:39.735 and this is why in February, 2020, I produced AT cast on 50 00:02:40.255 --> 00:02:43.655 T-Bone Pickens, who had passed away, uh, shortly before, 51 00:02:44.035 --> 00:02:46.335 and Pickens was more 52 00:02:46.335 --> 00:02:49.735 or less the initiat of the merger between SoCal and Girl fod 53 00:02:49.735 --> 00:02:51.735 because he tried to make a takeover. 54 00:02:51.945 --> 00:02:55.575 Horse style takeover on girl foil, I think observed 55 00:02:55.575 --> 00:02:59.925 that the value of the oil reserves was significantly more 56 00:02:59.925 --> 00:03:03.165 than the enterprise value than what you do. 57 00:03:03.385 --> 00:03:06.685 You buy the company, you extract, you produce, 58 00:03:06.785 --> 00:03:08.605 you generate revenues out of that, 59 00:03:08.905 --> 00:03:11.165 and for the rest of it you simply abandon 60 00:03:11.345 --> 00:03:13.925 and you cash in the value of the reserves. 61 00:03:15.025 --> 00:03:18.645 But I have to add some additional historical comment about 62 00:03:18.645 --> 00:03:19.925 what happened before. 63 00:03:20.905 --> 00:03:24.725 Before standard dollar of California, it was standard dollar 64 00:03:25.075 --> 00:03:26.205 with a very, um, 65 00:03:26.565 --> 00:03:28.565 I would say specific gentleman whose name was 66 00:03:28.795 --> 00:03:30.485 John Davidson, Rockefeller. 67 00:03:30.485 --> 00:03:35.205 Rockefeller was obsessed by customers quality pricing 68 00:03:36.005 --> 00:03:37.205 services and so on and so forth. 69 00:03:37.225 --> 00:03:39.325 So he wanted to create value for the customers, 70 00:03:39.625 --> 00:03:42.565 but at the determined at the expense of the value 71 00:03:42.665 --> 00:03:44.645 and the relationship with the stakeholders. 72 00:03:45.665 --> 00:03:50.325 In fact, the business practices of standard oil with uh, 73 00:03:50.425 --> 00:03:54.045 the partners, with the suppliers, with the competitors were 74 00:03:54.925 --> 00:03:58.445 absolutely questionable, very much criticized. 75 00:03:58.865 --> 00:04:01.605 And at the end of the day, the Court of Justice decided 76 00:04:01.635 --> 00:04:03.285 that there should be a stock split. 77 00:04:03.545 --> 00:04:06.365 It was implemented in 1911 78 00:04:06.825 --> 00:04:09.405 and there was a dissolution of the 31 firms, 79 00:04:09.495 --> 00:04:13.645 which these 31 firms became autonomous on the legal 80 00:04:13.785 --> 00:04:15.085 and financial point of view. 81 00:04:15.865 --> 00:04:20.005 And then we're created standard, all of Ohio standard, all 82 00:04:20.005 --> 00:04:23.045 of California standard, all of New Jersey. 83 00:04:23.545 --> 00:04:27.645 And by the way, Exxon was standard oil of New Jersey. 84 00:04:28.345 --> 00:04:30.205 As a matter of fact, the Empire was 85 00:04:30.765 --> 00:04:32.725 absolutely split dismantle, 86 00:04:33.225 --> 00:04:36.045 but what we can observe at the moment is kind 87 00:04:36.045 --> 00:04:38.885 of reconstitution of this empire. 88 00:04:39.455 --> 00:04:41.405 Let's go back a minute on the reserves 89 00:04:41.475 --> 00:04:44.565 because it's going to have a huge impact on the valuation. 90 00:04:45.265 --> 00:04:49.965 Before the hostile takeover of pecans on Gulf Oil, 91 00:04:50.385 --> 00:04:52.365 the companies were just providing 92 00:04:53.085 --> 00:04:55.805 physical communication on their reserves, the number 93 00:04:55.805 --> 00:04:58.845 of barrels, the number of cubic meters of gas, 94 00:04:59.065 --> 00:05:00.085 and so on and so forth. 95 00:05:00.905 --> 00:05:05.405 But the tricky part of the takeover launch by Pickens 96 00:05:05.405 --> 00:05:09.445 and Gulf Oil, it made a bit based on their financial value, 97 00:05:10.125 --> 00:05:11.405 discounted cash flows. 98 00:05:12.185 --> 00:05:15.525 The stock price of Gulf Oil at the very beginning 99 00:05:15.525 --> 00:05:18.085 of the process is about $40 per share. 100 00:05:18.265 --> 00:05:19.325 If you decide only 101 00:05:19.385 --> 00:05:23.285 to extract the oil reserve without investing a dollar in 102 00:05:23.525 --> 00:05:24.965 renewing the reserves, 103 00:05:25.625 --> 00:05:29.965 the value which you get is about 100 plus dollars per share. 104 00:05:30.585 --> 00:05:34.325 So you buy at 40, you extract your cash in 105 00:05:34.545 --> 00:05:38.925 and you make $60 abandoning the company at the end. 106 00:05:39.315 --> 00:05:42.085 This is why after this big financial battle, 107 00:05:42.785 --> 00:05:44.085 the company's in the oil 108 00:05:44.085 --> 00:05:47.365 and gas business started communicating not only about 109 00:05:47.835 --> 00:05:51.965 barrels and cubic meters, but about discounted cash flows. 110 00:05:52.395 --> 00:05:53.965 What is the net present value 111 00:05:53.985 --> 00:05:56.285 of the reserves if we simply extract? 112 00:05:56.785 --> 00:05:59.005 And of course, to calculate a net present value, 113 00:05:59.005 --> 00:06:01.205 you calculate cash flows, but you discount them. 114 00:06:01.545 --> 00:06:03.725 And the weighted average cost of capital, which is used 115 00:06:03.725 --> 00:06:06.765 by ExxonMobil and Chevron today is 10%, 116 00:06:06.975 --> 00:06:08.925 which is normal business practice. 117 00:06:10.105 --> 00:06:12.365 Now, to evaluate a campaign to evaluate business, 118 00:06:12.365 --> 00:06:16.365 to calculate an enterprise value, you have to sum the value 119 00:06:16.365 --> 00:06:19.125 of the existing assets inside the company 120 00:06:19.785 --> 00:06:22.845 and add the present value of what's going to be generated 121 00:06:22.905 --> 00:06:24.165 by the future assets. 122 00:06:24.505 --> 00:06:27.325 The existing assets, very simple, straightforward, 123 00:06:27.675 --> 00:06:30.605 it's about the oil reserves, what about future assets 124 00:06:31.425 --> 00:06:34.725 or it's going to be about new businesses, diversification, 125 00:06:34.905 --> 00:06:36.925 new vertical business segments 126 00:06:36.925 --> 00:06:39.925 and so on so forth, plus the result of future 127 00:06:40.515 --> 00:06:44.205 exploration investment in the renewing of the reserves. 128 00:06:45.065 --> 00:06:47.205 Now, what is interesting in the reserve is 129 00:06:47.205 --> 00:06:50.125 that there is a kind of optional dimension. 130 00:06:50.625 --> 00:06:54.205 The oil reserves are real options. 131 00:06:54.515 --> 00:06:57.325 When you want to calculate value creation, 132 00:06:57.465 --> 00:07:00.005 you calculate a net present value, the present value 133 00:07:00.005 --> 00:07:02.965 of the cash flows net of the CapEx, 134 00:07:02.985 --> 00:07:04.445 the investment and so on and so forth. 135 00:07:05.065 --> 00:07:08.285 But there is another concept in real option thinking, 136 00:07:08.285 --> 00:07:10.605 which is the augmented net present value. 137 00:07:10.755 --> 00:07:14.485 Augmented means that you can add some value just being 138 00:07:14.665 --> 00:07:16.565 clever in management of the project. 139 00:07:17.505 --> 00:07:19.845 In the case of oil reserves, you're not supposed 140 00:07:19.845 --> 00:07:21.005 to extract each 141 00:07:21.005 --> 00:07:23.965 and every day same volume, no, you are going 142 00:07:23.965 --> 00:07:26.525 to adjust the rate, the rhythm of extraction 143 00:07:26.525 --> 00:07:28.445 to changes in market prices. 144 00:07:29.515 --> 00:07:33.365 Very simply, if the oil prices are higher, you accelerate. 145 00:07:33.945 --> 00:07:36.885 If it is lower, well you slow down 146 00:07:37.035 --> 00:07:38.085 because you don't want 147 00:07:38.085 --> 00:07:40.325 to spoil your reserves selling at the low price. 148 00:07:40.385 --> 00:07:44.565 You prefer to maximize your revenues, then you understand 149 00:07:44.565 --> 00:07:46.525 that to evaluate the reserves, 150 00:07:46.795 --> 00:07:51.245 they are very important factors including price 151 00:07:51.265 --> 00:07:55.085 of oil and interest rates, the price for the cashflow, 152 00:07:55.265 --> 00:07:57.205 the interest rate for the wac. 153 00:07:57.535 --> 00:08:01.565 Let's starts with the WAC for the calculation of the wac. 154 00:08:01.565 --> 00:08:04.005 The weighted average cost of capital, ExxonMobil 155 00:08:04.025 --> 00:08:07.005 and Chevron as debt is absolutely negligible. 156 00:08:07.225 --> 00:08:10.285 In both cases, the cost of capital is the cost 157 00:08:10.285 --> 00:08:11.405 of the one unique 158 00:08:11.405 --> 00:08:15.245 and phenomenal financial resources, which is equity. 159 00:08:15.665 --> 00:08:17.245 So it's a cost of equity capital 160 00:08:17.825 --> 00:08:19.845 and then cost of equity capital is supposed 161 00:08:19.845 --> 00:08:23.005 to be 10% using the capital asset pricing model. 162 00:08:23.105 --> 00:08:26.005 The cost of equity is long-term government bond rate plus 163 00:08:26.345 --> 00:08:29.685 the beta systematic risk coefficient multiplied 164 00:08:29.705 --> 00:08:32.085 by the equity market risk premium 165 00:08:32.985 --> 00:08:36.325 equity market risk premium is about 6% in New York stock 166 00:08:36.565 --> 00:08:38.805 exchange and the beta is one 167 00:08:38.805 --> 00:08:40.845 or a little bit more than one for ExxonMobil 168 00:08:40.945 --> 00:08:45.365 and Chevron, roughly 1.5 for Hess 169 00:08:45.625 --> 00:08:48.805 and Pioneer, because they are smaller, there's kind 170 00:08:48.805 --> 00:08:51.445 of premium for the size in the beta, 171 00:08:52.065 --> 00:08:54.525 but what is quite difficult to assess 172 00:08:55.185 --> 00:08:58.445 is which interest rate do we take For the government born 173 00:08:58.445 --> 00:09:01.165 rate today it's about 5.5%, 174 00:09:01.625 --> 00:09:04.005 but a couple of years ago it was close to zero. 175 00:09:04.625 --> 00:09:05.765 And what about tomorrow? 176 00:09:05.955 --> 00:09:09.125 What a kind of long-term perspective for this interest rate. 177 00:09:09.785 --> 00:09:14.085 Now let's make the calculation again, what equals cost 178 00:09:14.085 --> 00:09:15.605 of equity raise premium? 179 00:09:15.905 --> 00:09:17.805 New York Stock Exchange 6%. 180 00:09:18.665 --> 00:09:21.485 If we take 5.5% as a risk-free rate, 181 00:09:21.985 --> 00:09:26.405 the WAC will be 5.5% plus 1.1, a bit more than one 182 00:09:26.965 --> 00:09:29.925 multiplied by 6%, and you get a bit more than 12%. 183 00:09:30.985 --> 00:09:34.685 Now, it should communicate the value of the reserves at 10% 184 00:09:34.905 --> 00:09:36.645 and the cost of capital is 12. 185 00:09:37.515 --> 00:09:39.365 Well, the discount rate is too low, 186 00:09:39.625 --> 00:09:42.445 and in fact you have over evaluated the reserves, 187 00:09:43.385 --> 00:09:45.405 but 5.5 might be a kind 188 00:09:45.405 --> 00:09:48.045 of short term evolution of interest rate. 189 00:09:48.225 --> 00:09:49.445 And what about the long term? 190 00:09:49.465 --> 00:09:53.685 You understand that the objective of the Federal Reserve is 191 00:09:53.685 --> 00:09:55.965 to bring the inflation down to 2%. 192 00:09:57.165 --> 00:09:59.925 Historically, when you observe the bond rates, 193 00:10:00.595 --> 00:10:03.605 it's about inflation plus 1% more 194 00:10:03.605 --> 00:10:06.565 or less, then two plus one is about 3%. 195 00:10:06.625 --> 00:10:11.165 And if you add 1.1 times six to 3%, you get 9.6 196 00:10:11.265 --> 00:10:12.805 and it's quite close to 10%. 197 00:10:13.265 --> 00:10:15.445 Uh, no big deal about the discount rate. 198 00:10:16.665 --> 00:10:19.285 The big question is definitely about the oil price. 199 00:10:20.065 --> 00:10:21.205 If you look at the evolution 200 00:10:21.205 --> 00:10:25.485 of oil prices over the last 20 years, beginning of the 2000, 201 00:10:26.065 --> 00:10:29.685 we are in a range between say 10 and $30. 202 00:10:30.435 --> 00:10:33.165 Then the prices are going to go skyrocketing, 203 00:10:33.345 --> 00:10:35.925 and in the middle of the subprime crisis it's going 204 00:10:35.925 --> 00:10:37.765 to be 140. 205 00:10:37.915 --> 00:10:40.645 Then there is a massive drop, and they zip again 206 00:10:40.705 --> 00:10:44.725 and back down and down to $20 in 2020 207 00:10:45.465 --> 00:10:47.325 and then up to 110. 208 00:10:47.345 --> 00:10:49.165 And it seems to be quite stabilized 209 00:10:49.425 --> 00:10:52.645 around 80, 81, 80 $2. 210 00:10:53.625 --> 00:10:56.285 Of course, I'm not going to make any forecast on the future 211 00:10:56.385 --> 00:10:58.405 of the oil prices, but what's interesting is 212 00:10:58.405 --> 00:11:01.685 to observe the last two years, it's about $80 at the end 213 00:11:01.685 --> 00:11:05.845 of 2022, when the companies are producing the annual report. 214 00:11:06.355 --> 00:11:07.645 It's about the same today. 215 00:11:07.945 --> 00:11:10.965 So there is no significant change between 2022 and today, 216 00:11:11.545 --> 00:11:15.565 but there is a very significant increase from 20 20, 20 21 217 00:11:15.665 --> 00:11:16.685 to 2022, 218 00:11:16.705 --> 00:11:19.485 and this shows in the value of the reserves, 219 00:11:19.495 --> 00:11:22.525 which is produced and communicated by these two companies. 220 00:11:22.935 --> 00:11:24.845 Let's start with ExxonMobile. 221 00:11:25.345 --> 00:11:27.685 The value of the reserves for ExxonMobil 222 00:11:27.705 --> 00:11:32.605 as it shows in the annual report 2021 is $153 billion. 223 00:11:32.995 --> 00:11:37.685 It's going to go up to 259 in 2022. 224 00:11:37.685 --> 00:11:41.605 It's an increase by 69% pioneer. 225 00:11:42.355 --> 00:11:47.125 It's a lower value of course, but the growth rate is 36%. 226 00:11:47.355 --> 00:11:51.205 Chevron, 64%, the same as ExxonMobil 227 00:11:51.205 --> 00:11:52.445 and private for the same reasons. 228 00:11:52.745 --> 00:11:53.805 And what about Hess? 229 00:11:53.995 --> 00:11:57.645 Hess, it's going to move up from 11 to 21. 230 00:11:57.795 --> 00:12:02.605 It's an increase by 91%, so it's a dramatic increase. 231 00:12:02.785 --> 00:12:04.765 Why not because of interest rate? 232 00:12:04.795 --> 00:12:05.925 It's a dramatic increase 233 00:12:05.925 --> 00:12:08.005 because of increase in the price of oil. 234 00:12:08.545 --> 00:12:10.565 But what is very interesting now's 235 00:12:10.565 --> 00:12:13.205 to relay the enterprise value of the companies 236 00:12:13.865 --> 00:12:15.565 and the value of their reserves. 237 00:12:16.545 --> 00:12:19.765 For ExxonMobil, the enterprise value today is about 238 00:12:19.795 --> 00:12:21.525 435 billion 239 00:12:22.585 --> 00:12:25.285 and the value of the reserves is 259. 240 00:12:25.385 --> 00:12:29.925 So enterprise value divided by value of the reserves is 1.7, 241 00:12:30.255 --> 00:12:34.405 which basically means that $100 is due to the reserves, 242 00:12:34.405 --> 00:12:38.765 and $70 is due to future assets in a calculation 243 00:12:38.825 --> 00:12:40.605 of the total value of the company. 244 00:12:41.585 --> 00:12:44.365 The same indicator enterprise value divided by value 245 00:12:44.365 --> 00:12:48.445 of reserves is 1.6 for Pioneer, quite the same as ExxonMobil 246 00:12:48.905 --> 00:12:51.525 for Chevron's 1.4 a bit less, 247 00:12:51.585 --> 00:12:54.285 and for S it's 2.5. 248 00:12:54.985 --> 00:12:59.445 So Chevron is paying $52 billion to buy 21 billion 249 00:12:59.745 --> 00:13:03.045 of reserves and 31 billion of 250 00:13:03.755 --> 00:13:06.005 something which is not identified today. 251 00:13:06.395 --> 00:13:10.485 This is very likely one of the reasons why Chevron is going 252 00:13:10.485 --> 00:13:12.845 to be very much penalized by capital markets. 253 00:13:13.675 --> 00:13:16.525 Financial markets are to say the least, quite 254 00:13:17.045 --> 00:13:18.565 skeptical about value creation. 255 00:13:19.505 --> 00:13:21.725 And what's interesting to observe is that Shell 256 00:13:21.865 --> 00:13:24.885 and British Petroleum, they are not going to move at all. 257 00:13:25.275 --> 00:13:28.005 They are going to say, we are not going to follow the crowd. 258 00:13:28.625 --> 00:13:30.605 We manage our existing assets. 259 00:13:31.025 --> 00:13:34.125 We don't want to enter this kind of acquisition game, 260 00:13:34.415 --> 00:13:35.845 which is destroying value. 261 00:13:36.915 --> 00:13:38.565 That was about the financial metrics. 262 00:13:38.705 --> 00:13:41.805 Now let's move to the other item, which is quite important, 263 00:13:42.195 --> 00:13:43.485 economy, governance. 264 00:13:44.385 --> 00:13:46.805 In fact, when you see all these companies in the oil 265 00:13:46.805 --> 00:13:49.045 and gas industry, which are growing and growing 266 00:13:49.145 --> 00:13:52.405 and growing, it's a kind of return to standard oil. 267 00:13:52.945 --> 00:13:55.645 Of course, you don't return fully to standard oil 268 00:13:55.645 --> 00:13:58.845 because it would be absolutely unsinkable 269 00:13:58.845 --> 00:14:02.525 to consider a new standard, always this power and size, 270 00:14:03.225 --> 00:14:05.925 but it is a reconstitution of the empire. 271 00:14:07.035 --> 00:14:09.565 It's very interesting to observe business economics 272 00:14:09.565 --> 00:14:11.565 and the evolution of industry organization 273 00:14:11.625 --> 00:14:12.685 In the United States. 274 00:14:13.345 --> 00:14:15.845 You very often start from monopolies, 275 00:14:15.955 --> 00:14:18.565 then you fragment the monopolies, you split the monopolies, 276 00:14:18.905 --> 00:14:22.885 and then little by little there will be a change 277 00:14:23.225 --> 00:14:26.645 and you get back to a kind of restricted, oligo, 278 00:14:26.645 --> 00:14:29.005 poly American telephone. 279 00:14:29.005 --> 00:14:31.045 And Telegraph was the one 280 00:14:31.145 --> 00:14:33.405 and unique company operating in 281 00:14:33.425 --> 00:14:35.285 as a telecommunication operators 282 00:14:35.305 --> 00:14:36.485 at the beginning of the eighties. 283 00:14:36.875 --> 00:14:37.965 Then there is a split, 284 00:14:38.705 --> 00:14:42.165 and these company is split into the regional Bell operating 285 00:14:42.165 --> 00:14:46.525 company, and then progressively, little by little the new at 286 00:14:46.545 --> 00:14:49.005 and t, much smaller than the initial one is 287 00:14:49.005 --> 00:14:50.125 going to grow again. 288 00:14:50.655 --> 00:14:53.325 There will be another player in the game whose name is 289 00:14:53.555 --> 00:14:56.605 Verizon, very big player in mobile business. 290 00:14:56.895 --> 00:14:59.925 Third one, which is smaller, but growing by merger 291 00:15:00.025 --> 00:15:02.045 and acquisition, whose name is Sprint. 292 00:15:02.745 --> 00:15:04.965 And then you understand that you have a very limited number 293 00:15:04.965 --> 00:15:07.205 of players for a very big market. 294 00:15:08.155 --> 00:15:10.925 What is the impact on the quality? 295 00:15:11.075 --> 00:15:12.845 What is the impact on the prices? 296 00:15:13.395 --> 00:15:15.005 What is impact on the quality 297 00:15:15.145 --> 00:15:17.205 and the diversity of services which are 298 00:15:17.205 --> 00:15:18.365 offered to the customers? 299 00:15:19.145 --> 00:15:21.325 You understand that with a limited number of player, 300 00:15:21.585 --> 00:15:25.845 it looks like a kind of gentleman sport rather than 301 00:15:26.885 --> 00:15:28.365 TAF competition so 302 00:15:28.445 --> 00:15:30.965 that you can create more value for the customers. 303 00:15:31.355 --> 00:15:34.205 Same story for the island gas industry. 304 00:15:34.785 --> 00:15:36.605 You start with standard oil 305 00:15:36.745 --> 00:15:39.885 and then progressively you create a picture 306 00:15:40.025 --> 00:15:42.085 of restricted oligopoly. 307 00:15:42.235 --> 00:15:45.325 Obviously, this has an impact on the intensity 308 00:15:45.545 --> 00:15:48.605 of competition and value creation for the customers, 309 00:15:48.625 --> 00:15:51.685 but this also has an impact on lobbying. 310 00:15:52.535 --> 00:15:54.485 There is a very limited number 311 00:15:54.625 --> 00:15:59.525 of actors in the fossil energy business in North America, 312 00:16:00.225 --> 00:16:02.045 and their power is very big. 313 00:16:02.255 --> 00:16:05.525 Their financial power is increasing. 314 00:16:06.825 --> 00:16:10.725 Now you understand that fossil energy is subject 315 00:16:10.725 --> 00:16:13.325 to negotiations, regulations 316 00:16:13.435 --> 00:16:16.245 because of their impact on climate change, 317 00:16:17.385 --> 00:16:20.245 but all these campuses are contributing to the financing 318 00:16:20.245 --> 00:16:21.565 of political parties. 319 00:16:22.105 --> 00:16:25.565 So they are quite strong in some decisions which are going 320 00:16:25.565 --> 00:16:29.205 to be taken by actors, by the lawmakers. 321 00:16:29.665 --> 00:16:31.605 So definitely in terms of low being 322 00:16:31.755 --> 00:16:34.485 what is currently happening has an impact on 323 00:16:34.635 --> 00:16:35.765 political decisions. 324 00:16:36.305 --> 00:16:38.645 It has an impact on climate change 325 00:16:39.025 --> 00:16:42.045 and a management of energy transition. 326 00:16:42.635 --> 00:16:46.405 This issue is so big that the New York Times decided to 327 00:16:47.055 --> 00:16:48.685 offer as a main title. 328 00:16:49.485 --> 00:16:51.645 ExxonMobil's Pioneer acquisition 329 00:16:52.585 --> 00:16:54.565 is a direct threat to democracy. 330 00:16:54.835 --> 00:16:56.925 This is a very violent statement, 331 00:16:56.925 --> 00:17:00.925 very brutal statement dated October, the eighteens. 332 00:17:01.555 --> 00:17:04.165 This is obviously linked with the fact that lobbying is 333 00:17:04.185 --> 00:17:08.445 so important for lawmakers and business operations. 334 00:17:09.425 --> 00:17:11.205 Now, behind that, there is a little bit 335 00:17:11.205 --> 00:17:15.205 of economic thinking, liberalism and competition. 336 00:17:15.225 --> 00:17:18.725 It has always been a very important economy issue, 337 00:17:19.205 --> 00:17:20.645 a very big economic subject. 338 00:17:21.305 --> 00:17:22.805 One of my favorite economies, 339 00:17:22.805 --> 00:17:27.125 maybe my favorite economist is Adam Smith, who was living 340 00:17:27.185 --> 00:17:29.205 during the 18th century. 341 00:17:29.785 --> 00:17:32.765 He was an economist, but he was also a moralist. 342 00:17:33.665 --> 00:17:36.005 Of course, people in charge of free trade 343 00:17:36.185 --> 00:17:40.205 and very tough liberalism, they all say he was in favor 344 00:17:40.385 --> 00:17:42.125 of the invisible hand. 345 00:17:42.345 --> 00:17:45.085 The invisible hand means that there will be a kind 346 00:17:45.085 --> 00:17:49.365 of stabilization of the market and it's supposed to be good. 347 00:17:50.225 --> 00:17:52.045 Now, at MPS used to take the example 348 00:17:52.045 --> 00:17:54.165 of the baker and the government. 349 00:17:54.855 --> 00:17:56.885 There are different kinds of bakers. 350 00:17:57.345 --> 00:17:59.125 The ones who produce good bread 351 00:17:59.545 --> 00:18:01.365 and the ones who produce bad bread. 352 00:18:01.705 --> 00:18:04.205 The government is not in charge of making the split. 353 00:18:04.785 --> 00:18:07.885 The government is not in charge of telling you how you have 354 00:18:07.885 --> 00:18:11.165 to produce, manufacture, and sell your bread. 355 00:18:11.595 --> 00:18:13.805 Then the market, the invisible hand, 356 00:18:13.895 --> 00:18:16.445 which is basically the customer will makes a difference 357 00:18:16.445 --> 00:18:18.125 between the good and the bad baker. 358 00:18:18.825 --> 00:18:21.645 The bad will disappear and the good will remain, 359 00:18:22.305 --> 00:18:26.645 but the invisible hand is not supposed to manage everything. 360 00:18:27.145 --> 00:18:30.405 Of course, each and every subject, which is relevant 361 00:18:30.405 --> 00:18:31.925 for the sovereignty of the country, 362 00:18:32.425 --> 00:18:33.765 is dealt by the government. 363 00:18:34.435 --> 00:18:37.325 It's about the army, it's about, uh, the police, 364 00:18:37.955 --> 00:18:39.525 it's about the justice. 365 00:18:40.025 --> 00:18:42.605 But this is very classical and traditional list. 366 00:18:42.675 --> 00:18:47.485 Adam Smith was adding education, health, and infrastructure. 367 00:18:48.635 --> 00:18:51.685 Education should be accessible to each 368 00:18:51.825 --> 00:18:53.725 and every person in the country. 369 00:18:54.225 --> 00:18:57.005 It should be affordable on a financial point of view. 370 00:18:57.465 --> 00:19:01.365 Health, exactly the same, accessible to everybody, 371 00:19:01.615 --> 00:19:02.925 affordable to everybody. 372 00:19:03.395 --> 00:19:04.845 Last but not least, the quality 373 00:19:04.945 --> 00:19:07.885 of the infrastructure is going to improve the efficiency 374 00:19:08.185 --> 00:19:10.045 of the economic life of the country. 375 00:19:10.785 --> 00:19:15.485 But a very important point, Adam Smith was extremely afraid 376 00:19:15.665 --> 00:19:19.325 of what he was naming the large corporations, 377 00:19:20.335 --> 00:19:23.685 these corporations which have a tendency to grow 378 00:19:24.025 --> 00:19:27.485 and to grow, to gain in power, to gain in influence, 379 00:19:27.625 --> 00:19:30.005 and to influence the decisions made 380 00:19:30.005 --> 00:19:32.085 by the lawmakers and the governments. 381 00:19:32.585 --> 00:19:35.965 It was very much afraid that large corporations 382 00:19:36.875 --> 00:19:38.525 destroy competition 383 00:19:39.265 --> 00:19:43.925 and impose their lobbying power to the lawmakers again. 384 00:19:44.385 --> 00:19:47.885 So you understand that Adam Smith had a very clear vision 385 00:19:48.015 --> 00:19:50.645 about the dangers, the threats 386 00:19:51.265 --> 00:19:53.165 of the evolution of liberalism. 387 00:19:53.705 --> 00:19:57.285 Now, you can take two perspectives on his operations. 388 00:19:58.245 --> 00:19:59.765 A perspective is about shareholders. 389 00:19:59.915 --> 00:20:02.445 What about value for the shareholders? Oh, it's great. 390 00:20:02.925 --> 00:20:06.365 A loss in value, a value distraction 391 00:20:06.665 --> 00:20:08.365 of $50 billion. 392 00:20:09.255 --> 00:20:12.805 Stock price, market cap evaporated in the sky. 393 00:20:13.465 --> 00:20:15.285 So as far as financial markets are 394 00:20:15.285 --> 00:20:16.605 concerned, this is no good news. 395 00:20:16.635 --> 00:20:20.005 What about the economic and ecological environment? 396 00:20:20.315 --> 00:20:22.725 There's a very, very big question mark, 397 00:20:23.395 --> 00:20:24.965 because when you create 398 00:20:25.385 --> 00:20:29.205 or recreate these large, big corporations, 399 00:20:29.875 --> 00:20:32.525 it's at the expense of economic efficiency 400 00:20:32.985 --> 00:20:35.965 and it is probably something at the detriment 401 00:20:36.025 --> 00:20:39.565 of the sustainability of the planet as far 402 00:20:39.565 --> 00:20:41.285 as climate change is concerned. 403 00:20:41.965 --> 00:20:44.775 A very big question mark. Thank you very much.