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Today, we'll discuss how patients can now get Eli Lilly's blockbuster weight loss rug at nearly fifty percent discount plus.
We'll look at a slew of US retail earnings that are painting a mixed picture of the consumer.
But first we dive into the earning from AI giant n Vidia. This week, the chipmaker gave a revenue forecast that fell short of some of the most optimistic analyst expectations.
The outlook threatens to tamp down an AI frenzy that has transformed in Vidia into the world's second most valuable company.
For more, Emily and I were joined by kun John Sobani, Bloomberg Intelligence senior semiconductor analysts.
We first asked Koon John for his take on the company's results.
Look, this not enough negatives.
Fundamentally, they are a victim of their own recent success and strength and really unrealistic expectations.
I'm wondering, this is a company where a lot of their their customers are highly concentrated. Something like forty percent of the customer base is just a few big tech companies. What are the risks associated with that?
I mean, the concentration has been a significant risk. It's sort of a double eds. You know, by the function of spending. These customers are the ones who really spend major I app capex dollars, So you do want them to be your biggest customers. Because that's who are really creating the market. At the same time, we have seen signs like over the last two quarters, the cloud players make up about forty five percent of its data center revenue, which is down from its peak of mid fifty percent
over last year, so that's a good sign. Over the last few quarters, we have seen enterprises and the consumer internet and vertical companies growing faster for NVDA data center revenues compared to the cloud revenues for NVDA data center, so that's again a good sign. Another third sign that shows that ditaversification is happening and that risk is easy is what we have seen in front of geographical demand perspective.
So over the last few quarters, we have seen rest of the world outside of US continue to sustainably keep growing sequentially. In fact, this quarter was the first time we ever saw US decline slightly quarter work quarter.
So Kunjan, can those new types, new verticals of customers, can they offset what might be slowing demand from the Amazons of the world, the Googles of the world who are developing their own chips.
So we have not seen signs of slowing demand from the Amazons and Googles of the world. You know, when you look at quarter to quarter things can look lumpy, but from a year and perspective, annual perspective, we are not seeing slowing demand. In fact, when we look at these earning seasons, all of these customers beat their capex estimation and guided for more capex spending, most of it going to a Yeah, most of it going to in media. Yes, the risk is there of these customers using their own chips,
but that's more of a out year risk. They still do are not slowing down or stopping purchasing in media chips.
What do investors need to know about the Blackwell processor lineup? Ian King of Bloomberg News said this is in Nvidia's next big cash cow exactly.
I mean, from our perspective, the biggest question or the risk going into the earnings was what's happening with the Blackwell delay? Is it going to ramp? And if so? When I think the comment that Jensen made about seven billion dollars shipment in their fiscal four Q should put a lid on these uncertainty around Blackwell. And yes, Blackwell is supposed to be the next growth driver. Specifically, most of the twenty twenty five growth is hinged on Blackwell's success.
Layout for US kind of how the competitive environment looks at their Kunjan. I'm thinking about advanced micro devices, broad coom, maybe to Qualcom to less extent Intel. I guess where are all these competitors here? Why can't they do this stuff?
I mean, and Media has almost more than a decade of R and D behind them in this arena. Right, they are the ones who, for the most part, invented GPUs. They have been working on GPUs for like I said, investing in it more than a decade. These other companies that we talked about I have not been investing in this area. So it's not as easy to come in and immediately replace someone who has been ahead of you by multi years. Second, there's a lot other entries to barrier.
It's not just about creating comparable chips, their software, system their systems. They're not a chip solution provider anymore. They are a system solution provider. So you don't need a comparable chip. You also need the software, you need the ecosystem, you need the vertical integration and the system integration capabilities. At the same time, they are not just sitting right, they are running much faster than they have in the past.
So it's not just about catching up to in Media, which is already two plus years ahead of its closest competitor. It's also trying to catch up when they are even running faster. One example of that is they are now launching new products at a cadence of twelve months. This is unprecedented in the semi conductor world for this complex technology. Usually you see eighteen to twenty four months of a product lon cycle.
How about valuation here again, you know, you look at it and it's like seventy times trailing forty five times this year, is thirty times next year? Is this a stock that real, realistically with a straight face you can say to clients is earning its way into its multiple.
Also, we look at forward looking multiples and when you still compare it today compared to most of its peers, right, it's still growing faster than most of its peers, even at this large scale, which is very important that people forget when you look at other fundamental metrics, the gross margin, the earnings growth, the free cashual generation still top of the list. So I mean that does demand a certain premium versus its peers, right, And when you look at
the other air peers. It doesn't seem that expensive on a relative basis.
Give us some final thoughts on is this a market that is only going to be powered by in video or are we going to see more trading days The tech trade is kind of you know, in the green without Invidia.
I would say both.
I mean you have to really separate out right. We think if if there is fundamental weakness or concern coming out of in media, which did not happen, by the way, we think there will be a broader impact to the market. But in the absence of that, right, there was no real concerns, There was no real flag risks that were macro risks outlined here that the demand is slowing, the spending is slowing. So I believe until and unless we don't see those risks come out, the impact should be
limited to Invidia. But when, if, and when we do see those come out, it could spread across.
Thanks to Kunjhan Sobani, Bloomberg Intelligence senior semiconductor analysts.
We move now to the media space.
Pretty sure, David Ellison Skydance Media looks set to become the new owner of Paramount Global.
That's after seacrem air. Edgar Bronform Jr. Dropped his bid for Paramount this week. Paramount said it now expects to complete a deal with sky Dance in the first half of twenty twenty five.
For More and All This, host Alex Steele and Bailly Lipschaltz were joined by Keitha rung Anathan Bloomberg intelligence analyst on US media.
They first asked Etha for her take on the latest news.
This one's been a tough one, right, It's not over until it's over. I think Skydance does seem to be, you know, the only bidding party here for Paramount, and you know, the Edgar Braffman bid, and you know, we were talking about this last week, Alex. It was really a little bit of a head scratcher because they made
that eleventh hour move. He cobbled together something like twenty outside investors and then when you know, kind of push came to shove, he really couldn't find the equity financing required to back his six billion dollar offer.
Am I reading too much into it to question why the eleventh hour offer, Like if if it seemed like there wasn't enough time early, enough time, and you're trying to find people and get funding. It kind of I.
Don't know, Yeah, I think, you know, a couple of different things. Maybe he had difficulty kind of finding all the different parties interested. Obviously he didn't you know, there was a ghost shop period that was a forty five day period and he literally submitted it on August twentieth. Then August twenty first was the end of that forty five day go shop period. One could argue that maybe he didn't want to, you know, kind of show his hand too early so that there, you know, would be
other parties kind of jumping in. But at the end of the day, you know, he obviously does not have the financial firepower of the Allison family, and that's something I think investors are going to have to come to terms with.
So all right, let's just walk it forward. You get Skuidance, gets paramount, et cetera. There were some reports that maybe some of the TV networks I'm assuming Local would be spun off or sold, etc. What are we expecting of that sort to unfold?
So they right now have three co CEOs and this kind of structure, this temporary structure, is going to continue till this Guy Dance deal closes, which might happen sometime towards the latter half of twenty twenty five. Until then, what they're really trying to do is number one is make streaming profitable. They already did do that in the second quarter. So they're really kind of cutting down on marketing spend, they're cutting down on content expenses, They're doing
everything they can to write the ship. They're also kind of trying to undertake cost cuts across the whole enterprise and get rid of non core assets. So the news that we got about them looking to divest some of their low local TV stations exactly kind of goes to that strategy. You know, they could potentially end up with about five hundred million, I mean about half a billion or a billion dollars for those you know, TV stations. Again, that's going to help them pay down debt. And debt
has been a huge problem for Paramount. They have almost about fourteen and a half billion dollars in debt, and that has really kind of complicated the whole story because it you know, they have low ebit, low free cash flow, and then very high debt.
And what does the path forward look like. I'm just looking through your latest note kind of looking at strengthening the balance sheet. To your point, more than fourteen a half billion in debt. Market cap is seven point six billion dollars, so you never really want to see numbers that stretched. But what does Ellison's d pockets bring to the table, Like, how does this potentially revamp Paramount if at all?
Absolutely, that's that's a great point, Bailey. So I think the main reason that Ellison has been chasing after Paramount for all these months is really his interest in kind of getting his hands on the studio. So he does have a long history with Paramount. They have, you know, the Ellisons have been a co financer on many of the Paramount TV and film projects, most notably a lot of the Tom Cruise movies. So they do kind of
know how, you know, that business works. They have a lot of expertise, so they are going to kind of double down on the Paramount studio business. The theatrical business is rebounding nicely, so I think it does make sense for them. And historically, if you just look at Paramount, this is you know, the studio has always kind of
been a step child. So it's nice that it's going to now come into focus, and then along with that, you have almost one thousand person animation team that Skuydance is going to bring to Paramount, so really kind of doubling down on the animation business. And this is important because we see studios kind of going deeper and deeper
into animation. This is animation is one of the most profitable genres across the whole movie space, so it makes a lot of sense for them to get into that in a bigger way because they can really kind of enhance the profitability of the studio business as a whole.
Our Thanks to Githa Ranganathan, Bloomberg Intelligence analyst on US Media.
Coming up a conversation with the executive director of the Port of Los Angeles on cargo volumes and the shipping industry.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries. You can access Bloomberg Intelligence via Bigo on the terminal.
I'm Paul Sweeney and I'm Emily Graffeo. This is Bloomberg.
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We move now to the biotech space. This week we heard the pharmaceutical company Eli Lilly is selling vials of its blockbuster weight loss drug to patients at a fifty percent discount to its shots.
Patients with a prescription for Zetbound can now purchase a month's supply of single use vials through Lily's direct to consumer site.
This is being done to help Eli Lily overcomes supply shortages of its widely popular shots. For more, hosts Alex Stale and Billy Lipschutz were joined by Michael Shaw, Bloomberg Intelligence Senior Pharma analyst.
They first asked Michael why it's easier for Eli Lilly to produce vials than actual shots.
They're providing a valve for relation. It's something that they've talked about, you know, for a while now on their calls.
Now.
The reason why these are easier to produce is, you know, the fill and finished capacity, so the capacity needed to actually put the drug in the pens and the capacity needed to manufacture at the pens of the subcutaneous ejection. So overall, I think, you know, the move is you know positive for Lily clearly broadens access or patients access you know, to zet bound and also from you know,
compounding pharmacy standpoint. The fact that they improved supply means it could you know, possibly combat you know, competition from you know, companies such as him, Hymns and Hers.
Yeah, Lily not so subtly saying that they want to aim to protect patients from quote counterfeit, fake unsafe for untested knockoffs. So how does that impact kind of the business and demand If we're seeing a cheaper version being sold and maybe trying to court some of those Hymns and Hers GLP one users, how does that impact kind of the total addressable market and expectations for sales of zepp out.
Well, I think if there's you know, if there's a branded vowel formulation out there and there's obviously guarantees around kind of purity, et cetera, I think that's going to be the preferred choice. The fact that you're introducing these valves into the market, would suggest that, you know, some of that supply burden and supply shortage which is needed for a compounding pharmacy to produce a drug that is on pattern, you know, some of that will be alleviated there.
So that's kind of why we think it's positive for Lily. As to whether you know, come to like him and hers will continue producing you know, their versions of the GEO beyond ones, I mean, that remains to be seen. But I imagine if they do, you know, Lily would you know, probably challenge.
It when people then do their own shots, like administer it, Like is there a risk in that? Like, well, what what kind of uptake are we expecting from that? Because I would be scared to do it. But maybe that's just me.
I mean, I think judging by you know, what we saw for uptake of these compounded drugs, there's clearly a appetite for injectable injections. Now, you know, we look to the diabetes market. You know, some of the incidents used to be injections, So I mean, I think it's not I mean, there's clearly kind of an increased kind of dosing burden associated within these injections, so they're probably not going to be suitable for all, but you know, I think there is going to be an appetite for it.
What does this mean for the competitive landscape? So you have Lily, you have Novo. To your point, you have hymns and hers like, is this going to create a pricing war? Am I reading too much into that now?
I mean when we look at the I mean, the headlines had fifty percent you know, discount, but we need to remember that, you know, on a net price basis, so you know, after taking account all the rebates and discounts, you know, the pricing is probably you know, fairly similar to the current net prices that we're seeing now at
the moment. You know, it's an underpenetrated market. You know, there's massive demand out there, there's tight supply, So I don't think it's gonna you know, change too much in terms of the dynamics between you know, Novo and Lily. I think I think prescribing decisions are you know, less about kind of the profiles of the drug at the moment and more about you know, what is ensured, what can people get their hands on? So near term, I don't see you know that that changing from a lily perspective.
You know, as they ramp up supply over the over the midterm of their you know, their pens. You could put GC patients switching from the injectable onto the pen as in when that supply comes on board.
All right.
Thanks to Michael Schap, Bloomberg Intelligence Senior Parma biotech analyst.
We move next to one of the world's busiest seaports and a leading gateway for international trade in North America, the Port of Los Angeles.
This week, co hosts Alex Steele and I were joined by Geen Soroka, Executive Director of the Port of Los Angeles. We discussed his forecast for cargo volumes, the shipping industry, and investing in ports moving forward, and we began by asking Gene what the traffic is at the Port of LA.
We're up eighteen percent year on year off of very modest comps, but we just crossed the five hundred thousand container unit mark last month and it's only the fourth time in our history we've had more than half a million imports coming through Los Angeles. Big number for US, and it continues the trend that we've seen thus far
this year. In addition, exports are now up fourteen consecutive months year on year, So the volume as a whole is really great, based mainly on a strong economy and then some geopolitical issues around around the world that I'm sure we'll talk about.
Yeah, So, Gin, I'm curious how much are your customers talking about the geopolitics abroad but also here in the US Anecdotally, I keep hearing that certain companies are just holding back on investments until we get clarity on who's going to be in the White House. Are you seeing any of that.
In just about every conversation, alex It is an election year and folks are looking to see and try to hedge as to what type of policies will be in place after inauguration.
You've got a protracted labor.
Negotiation on the East Coast with the Dock Workers and Employers Association that's coming up for expiry at the end of September. The Panama Canal drought issues have been in the news for well over a year and a half, and the ongoing security concerns in the Red Sea have stymied crossings at the Suez Canal for more than a
year as well. All of that put together fractionally, you see cargo coming to the West coast of the United States and specifically Los Angeles in addition to the strength of that economy.
That shows where the numbers are going.
Heyjean, just last week Bloomberg News published a really in depth big Take story. Now look at your world ports around seaports around the world and how some governments are using them as really strategic tools here because they're becoming so important for global trade. Just for the US, do you feel like our ports are where they need to be in terms of investments capacity or does the US, whether it's a public private partnership, need to invest more.
We absolutely need to invest more. But beginning with the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and now applications that are in front of the Environmental Protection Agency, we've seen a focus on ports over the last three and a half years here in the United States we haven't seen in a generation. We'd like to have this
type of federal investment budgeted annually. And I also know that the work here in California under Governor Gavin Newsom has the same bent paying attention to these ports, investing not only in the infrastructure, but digitalization as well as clean and green technologies. This has to continue. But I like the trajectory that we're on right now.
Going back to what you were mentioning about customers talking about election uncertainty, what's your best guess as to what happens after that. I'm trying to get a handle on, Like, Okay, now I know who wins the White House. Are we going to see a flood of money coming in like a flood of buying or is it just going to be incremental?
Well, Alex take away the politics.
The presumptive Republican nominee and now Republican nominee has said he wants to put a ten percent tariff on all three trillion dollars worth of imports that come to the United States, sixty percent on those emanating from China, and potentially sixty percent on automobiles and other products coming out in Mexico. That would change the landscape here at the Port of Los Angeles forever, and it would create inflation.
On the Democratic side.
What we've seen is a continuation of this teriff regime and get tough on China policy, but in very small targeted ways. What happens to investment after this has to revolve around international and trade policy. What are we going to do to stimulate not only the continuation of that government investment federal and state level, but how we can give confidence to the private sector to invest behind us.
Gee, nobody has a better view of China than you. Guys in the Port of Los Angeles. Are the boats still coming? Are they loaded as much? Because there's real concern about the Chinese economy.
Yeah, a couple things, Paul. When we concluded calendar year twenty twenty two, fifty seven percent of our business portfolio here in Los Angeles was China cargo, imports and exports. Right now it's about forty three percent. Yet we're still growing. We've been nimble enough here in Los Angeles to attract the cargo in Southeast and South Asia. There are more NonStop services being put in place by the shipping lines.
Speed has always been.
Our selling point with cargo coming from Asia and distributing throughout the country. We keep these NonStop services in place, that speed variable remains in our favor.
What's your biggest problem right now, Gene, Like, what keeps you up at night?
Well, looking across the board, making sure we keep our costs in place. And we do that with a relatively expensive landscape on how we move cargo. But more volume means our unit cost becomes much more competitive, and we're trending in that direction nicely. We've got a very complex labor landscape. Our dock workers have a contract for another five years, but it's the trucker's warehouses folks in it and manufacturing. We've got to keep trained up and moving
with this economy. And then lastly along the regulatory environment. Got to make sure the clean air is a priority, but making sure that we're balanced, because every four containers here in Los Angeles creates a job.
Interesting, So, Gin, you mentioned some of your partners there, whether that or at the docks, the warehouses, the transportation, the rails and trucks. How is that supply chain, how is that the logistic chain performing in your area these days?
I look at the vital statistics every morning, and after just checking in with you all, I saw that they're at or better than where they were pre COVID, with one exception. Are on dock rail cargo sitting a little bit longer than I would like. We're working very closely with both the Union Pacific Railroad and BNSF to make sure we have railcars, engine power, and crewing to match this surgeon cargo that we have coming.
Now.
Nothing sinister is happening on the ground. Just need to keep that velocity going so the next ships, of which we have fifty six on the way from Asia, can be worked expeditiously by our long shore remembers and they gotten off into the American economy. And that's with all this data, Paul, we see these micro in many spikes or changes in the supply chain data, so we can act much quicker than we ever have before.
Our thanks to Gene Soroka, executive director of the Port of Los Angeles. Coming up on the program, we'll discuss how the impact of a declining recount in the US is impacting oil production.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing indepth research and data on two thousand companies and one hundred and thirty industries that can access Bloomberg Intelligence via BIGE on the terminal. I'm Paul Sweeney and.
I'm Emily Grafeo.
This is Bloomberg.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarplay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
I'm Paul Sweeney and I'm Grafo filling in for Alex Steele.
We move next to retail and the health of the consumer.
This week, we got earnings from retailers Coles, Abercrombie and Fitch and Nordstrom, among others.
For more, guest hosts Michael Reagan and I were joined by Mary Ross Gilbert Bloomberg Intelligence Senior Equity Animals. Covering retail, we first asked Mary for her take on the most recent results.
I would say mixed results coming out of retailers. So for example, on Coals, they missed on the sales line, so the comp sales came in down about five percent and analysts were expecting down two and a half percent. But the good news was that they beat on the bottom line and they raised their earnings guidance for the year, so they're now expecting something closer to two dollars whereas before they are expecting something less than a dollar eighty previously.
So while that is good news, they do need to get the top line right sided. And with Tom Kingsbury as the CEO, and he has an amazing track record. He's the one who took Burlington from sort of a mall based type discount retailer to an off price, fast growing company, so there's a lot of faith in him. He's bringing in a new categories that so Fara business did well. It was up load teens on a comp
basis with total beauty sales up forty five percent. But now we need conversion and yes there's headwinds from the consumer. So then if you take it over to Abercrombie on the other side of the picture, their customer base for both brands, Hollister and the Abercromby and Pitch brands, their household income is one hundred to one hundred and fifty thousand, not like Cohal's where you're under seventy five in household income,
and so you really have to be very discerning. So an Abercromby is executing very very well and that explains why they had double digit increases in comp sales. The Abercrombie brand was up twenty one percent on a comp basis, and you had a fifteen percent increase on Hollister and that on top of double digit increases a year ago. So that's a company that's executing very well with just great results. And then Nordstrom is sort of in that
similar category. The sales were a little lighter than consensus estimated, but they had strong full price sales. That's very encouraging and the fact that the business is actually generating positive sales something that we're not seeing really in department stores.
You know, Mary, if I listen to everything you're saying from sort of a macro economics lens, I wonder if there's like a big theme to be taken away here, you know, excluding sort of the execution hits and misses from each company. But it sounds to me like, you know, those lower income consumers are struggling a little bit, the higher income consumers are still spending. I mean, is it
is that simple takeaway? Is that too simplified or is that really kind of the story that we're is emerging from the earning season for retailers.
Yeah, I think that's fair. And even you know, as we get up in to the higher income. They're also trying to save money too. I think that you saw that in the news out last week with walmartin Target, and so a lot of them are taking advantage of the better prices there, but that also keeps them in a good position to continue spending elsewhere, you know, so
for things that are more desirable. So yes, I think clearly the lower income, lower middle income consumer and even middle income consumer is just having a hard time dealing with high food and energy prices and that's showing up in their very discerning spending. That's exactly what you're seeing, you.
Know, Mary, I sent my youngest two kids off to the school back to school already, we started early in the touch in but it got me thinking about that whole that really important back to school shopping season, especially
for you know, your Abercrombie's of the world. What's the outlook there, I mean, if you could put, you know, break out your crystal ball and tell us what the next quarter numbers are going to look like, do you think, you know, is there going to be some weakness because of all these shoes you're describing.
Yeah, so it's a good question, I think, once again, well, we'll probably have some mixed results. But Abercromby is seeing very good reaction to some of the initial categories that they have. So for example, in Hollister, they've got their collegiate line that they've launched and it's more extended. It
covers about thirty two universities. If you look at on the Abercrome beside, they have the NFL line by Abercrombie and they've had that this is the third year running now, but each year they extend it further and further because the demand is so strong and that's sort of part
of their strategy. So we are seeing I think good results there now as we start to get more media coverage of the election uncertainty we have seen in past times around this election cycle where there is that uncertainty, it can sometimes have an impact on consumer spending, but generally, I think it's really going to come down to those that are executing and those that are skewing to more of a premium consumer or ones with greater discretionary income.
Our thanks to Mary Ross Gilbert Bloomberg Intelligence senior equity analyst covering retail, we have.
Something here at Bloomberg called Bloomberg New Energy Finance.
The idea behind it is to provide data on commodities, power, transport, industries, buildings, and agriculture.
Bn EF also talks about how businesses and governments can finance and navigate change as we transition to a green energy future.
This week, we looked at US oil supply. There is a falling redcount and the question is whether we'll see falling oil production moving forward.
For more, co host Alex Steele and I were joined by thy Lu bn EF global oil supply specialist. We first asked Ty to talk to us about the impact of a declining recount.
I think the declining ricont in the US that we've seen it's not going to have that much that big over for the impact as it seems as much as the headline numbers suggests. And part of the reasons is because, like if shoot a catch the premium where we have like the biggest all production region in the US the world completions, it's only done about four and a half percent compared to the recount which is done about fifteen percent.
And so and on top of that you have a lot of efficiency gains in the sector, so you are able to complete a lot more wells with much fewer freight crews across the industry. So I think the recont number could be a little bit misceding if you're focusing too much on that.
So I'm SPA just just looking at your report here and seeing how production in the US continues to increase, but maybe at a slower rate.
I don't know.
I got WTI Coroyal seventy seven bucks. Why don't I drill some more? I can make money. I mean, it only costs those guys forty fifty bucks to get it out of the ground, right.
Yeah, yeah, for sure.
Yeah.
So when we look at the bricks evens, especially in the Perman it's probably around in the low to mid forties for their Miden basin, and then for the Delrow basin it's probably even lower than that because they produce a lot more gas. But part of the reason is because the US all patch has really pivoted and transform itself in the past couple of years now. Before the pandemic,
oil producers were very much focused on production growth. But after the pandemic, the industry has changed and now they're focusing on financial returns. In order to improve the financial returns, they have to become more efficient. So in the past few years you have seen a lot of cost cutting initiatives, a lot of optimizations on logistics and supply chains, a lot of investments in infrastructures. So the entire industry has become a lot more efficient in the past couple of years.
And on top of that, they have also become a lot more resilient. And what that means is that nowadays the USR industry can produce a lot more oil with much lower capital investments compared to like just five years ago.
Also, what are the.
Cool things that oil companies are doing to extract more oil out of rock at the end of the day. I mean, I went to a conference but a year ago, and everyone was like, ooh, three mile laterals. And what that means is you basically drill pipe down and then you drill it across the rock basically lateral, and you fracture it. And the longer you go, in theory, the more rock you'll be able to access, and then in theory, the more oil you'll get out of that rock.
Wow, is that too nerdy?
No?
Okay?
Cool?
I wonder that frackening is short for fracturing.
Yes, I didn't know that good job.
We learned things here at Boomberg Intelligence. So based on that, what are the cool technologies that are coming up that's going to enable even more oil to come out of the rock.
Yeah, So during these longerleros is definitely like a big part of these efficiency gags because you're reducing a lot of the service costs when you're teing longer letros, And like you said, Alex, you're making a lot more contact with the sauce rock, so you can pull out a lot more resources from the same well. Had some of these, like I guess better practices would be having a lot
more building out the water handling infrastructure. Some of them will be optimizing your fractic size, some of them would be let me see what else I'm optimizing your spacing between the wells. So a lot of these, like see many small things on individually. When they act together, they
can have a big impact, especially over time. For example, one of the big producers in the perman I was looking at the data and they were able to reduce them courts per the well cause Perletto foot by about thirty percent between twenty yes between twenty nineteen and twenty twenty four, So there's a huge gains in terms of percentage.
All right, So I thought, if you go into like you find some shale somewhere, don't you don't you do your good wells, your easy wells first, and then shouldn't the productivity decline over time?
Yeah, that's exactly pretty mure. We've seen, like like you said, in the US, the OI and gas companies. So what they do is they drew the best say which first, because they want to realize that that person while you have better weals. And when we look at the data for the past five years, what we're seeing is that all production on a well level basis has been declining every year for the past three four years, pretty much across
the board. But what's interesting is that in twenty twenty four, the data that are coming in so far is they're looking different. Oil production on a well level basis is actually better for the weals the camera line in twenty twenty four compared to those last year. So what that means is that technology improvements could be turning back to tide. For this production declined on a well level basis.
Which is why it's so cool when we talk about laterals now we're talking about three miles. That's a lot, and a lot can go wrong in three miles. Now, just about five years ago, the talk was like, oh, well, if you frag here, then you're gonna hurt the rock over here, and then it's gonna mess up the oil distribution and all that kind of stuff. What are the problems that are emerging the longer out we go in these rocks.
I think one of the biggest risk rere factors, Like, like you said, if something goes wrong on alex, you lose production from three mileth worths worth of flat or so that's going to be a big opertun need opportunity costs for you. But at the same time, if things go right, you can save potentially save a lot of money.
I think not only during longer ledterals. Some of these companies they're actually making U turns under the ground so they can yeah, they can stay within the acreage and so they can make more contact with the source rock.
So if you do that, do they you turn into another layer of the rock or do you turn in the same layer the.
You turn in the same layer.
Oh my god, that feels like a lot can go wrong there.
Yeah, Well, what companies are doing that. I remember Metady Resources in the permit is doing our U turns on the ledterals, and there are a couple other ones. I don't become on top of my head.
Oh man, or is this nerdy enough for you?
Yeah?
That's really cool.
Well, here's my dumb question today. Never other than shale oil oil coming from shale, do we still drill old fashioned rigs and produce oil that way?
We do? We do?
We do.
We still do that quite a bit. But if you're talking about on shore, the productivities of this world is probably like ten percent or maybe twenty percent of these horizontal wells, So the impact is probably it's definitely a lot smaller than the horizontal ones.
Our thanks to taylou Bnf, global oil supply Specialist.
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