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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the Radio plus Mobile Act and on your radio.

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Speaker 1: This is a Bloomberg Business Flash and I'm Karen Moscow.

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Speaker 1: This updates brought to you by Sector Spider, a t

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Speaker 1: F s by by a single stock. When you can

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Speaker 1: invest in the entire sector. Visits Sector spd r s

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Speaker 1: dot com are called six sector et F stocks are

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Speaker 1: falling from six week highs. His investors assess global growth

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Speaker 1: prospects and earnings while oil prices retreat, and we check

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Speaker 1: the markets every fifteen minutes throughout the trading day. On Bloomberg,

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Speaker 1: the S and P five is down three tens per cent,

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Speaker 1: down six points to nineteen thirty eight. Dow Jones Industrial

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Speaker 1: average down three tens per cent, or forty seven points

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Speaker 1: to sixteen thousand, five hundred seventy four. NAS backed down

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Speaker 1: four ten percent or seventeen points to forty five fifty

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Speaker 1: two ten. Your treasury is down thirteen thirty seconds. The

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Speaker 1: yield one point seven nine percent yield on the two

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Speaker 1: year point seven six percent nine make screwed oil down

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Speaker 1: two and a half per center eighty two cents at

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Speaker 1: thirty two fifties seven of Arrel Comes Gold up one

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Speaker 1: per cent or eleven dollars ninety cents to twelve twenty two.

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Speaker 1: Announced the euro dollar oh nine nine seven agen one

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Speaker 1: twelve point to eight. The London Stock Exchange Group is

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Speaker 1: in murger talks with Deutsche Boors, a tie up that

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Speaker 1: would create one of the biggest exchange companies in the world.

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Speaker 1: Western Digital to buy Sandis for fifteen point eight billion dollars,

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Speaker 1: Sticking with plans to combine the makers of memory chips

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Speaker 1: after a potential Chinese investor backed out of another deal

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Speaker 1: amid a national security probe. And that's a Bloomberg business flash.

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Speaker 1: Tom and Mike Karen, thanks so much. Every once in

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Speaker 1: a while there's a research piece that jumps out and

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Speaker 1: hit you over the head. After I picked myself up

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Speaker 1: all the off the ground, I said to Rachel worst

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Speaker 1: Span and our team, would you please find Josh Silverstein.

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Speaker 1: He's with Deutsche Bank out of Lehigh and he covers Parsley, Permium,

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Speaker 1: Newfield and conna Q and p Resources in oil. Josh,

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Speaker 1: good morning. You call the opportunity curve. Is the opportunity

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Speaker 1: upon us? Hi? Good point, Tom Uh. There is some

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Speaker 1: certain certainly some opportunities to the outside in the energy

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Speaker 1: sector right now, but we do find it to be

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Speaker 1: a challenging investing environment and until we find at least

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Speaker 1: a little bit more clarity in terms of oil price direction,

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Speaker 1: we want to stay more nimble. We want to focus

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Speaker 1: on our deepest, high highest quality inventory assets and really

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Speaker 1: have a balance sheet focus as well. Well. Um, these

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Speaker 1: are all, you know, investments that have been affected by

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Speaker 1: the price of oil. Do you have an underlying call

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Speaker 1: that then makes them worth looking at? Sure? You know

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Speaker 1: we're at roughly thirty dollars of barrel right now, and

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Speaker 1: you know we don't see this as a sustainable price.

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Speaker 1: In our longer term forecast rise to roughly sixty per

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Speaker 1: barrel and twenty eighteen uh and that's really what we

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Speaker 1: see some of our investments predicated on. However, we do

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Speaker 1: like some of the downside protection that these that these

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Speaker 1: companies offer in terms of lower leverage than average and

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Speaker 1: really a deep, high quality inventory that can sustain lower

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Speaker 1: prices for for a period of time. And that's why

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Speaker 1: we feel more comfortable and owning companies that are exposed

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Speaker 1: to the priming basin and the end darker basin. Well,

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Speaker 1: certainly lower leverage is key. We have the big bank

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Speaker 1: reset coming up in a month or show, and a

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Speaker 1: lot of companies may not be here anymore. You're five,

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Speaker 1: you suggest are in pretty good shape. We shouldn't worry

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Speaker 1: about any of them. Yeah, most of these companies are

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Speaker 1: in fairly good shape. We're definitely seeing another round of

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Speaker 1: capital raises from the sector right now, very similar to

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Speaker 1: what we saw at this point last year. Uh, it

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Speaker 1: seems like most of these companies are finding opportunities to

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Speaker 1: issue equity and so they're going to enhance their balance

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Speaker 1: sheets from that standpoint. Uh, you know, we are really

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Speaker 1: you know, we want to go after these companies that

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Speaker 1: have the better balance sheets. If you were just to

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Speaker 1: take a spread of the kind of the the top ten

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Speaker 1: balance sheets in our coverage universe versus the the bottom

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Speaker 1: ten since December one, that's roughly a gap between the

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Speaker 1: two of those. So it really goes to show you

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Speaker 1: that balance sheets are the best drivers of equity performance

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Speaker 1: right now, Why is there balance sheets like they are

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Speaker 1: if so much of the industry is on the edge

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Speaker 1: of grim how do they pull that off? Yeah, it's

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Speaker 1: a combination of of how they wanted to set up

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Speaker 1: their assets over the last few years. Certainly when oil

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Speaker 1: was at a much higher prices at eight two, capital

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Speaker 1: was a lot easier to come by, and some more

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Speaker 1: companies were taking on debt versus acquiring with equity or

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Speaker 1: growing with equity. Uh. These companies have either grown with

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Speaker 1: the balance sheet in good position and have had the

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Speaker 1: assets that would allow them to do that, or, in

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Speaker 1: the case of some of the other companies that have

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Speaker 1: transitioned from more of a natural gas focus to an

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Speaker 1: oil focus over the past few years, they've sold off

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Speaker 1: assets and really focus their their capital deployment in their

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Speaker 1: best basins. Yeah. I look at this and it's remarkable.

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Speaker 1: What's the backstory you see in the action of executive

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Speaker 1: officers within the oil business? Now? Is it I got

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Speaker 1: to get the Memorial Day and clear my balance sheet?

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Speaker 1: Is it they're putting together their two thousand eighteen business plan.

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Speaker 1: What's the mood out there? Yeah? I think for them,

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Speaker 1: it's trying to figure out how how best we want

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Speaker 1: to attack six team but also preserve the option value

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Speaker 1: for teen when when prices come about. I think that's

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Speaker 1: why a lot of these companies are are seeing the

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Speaker 1: opportunity to go and an issue capital right now because

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Speaker 1: it helps them get through some of these these bridge periods. Uh.

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Speaker 1: The other option would be also divesting assets. And while

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Speaker 1: you may not want to divestment at today's prices, because

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Speaker 1: evaluations are certainly lower now than where they were a

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Speaker 1: year or two ago. Uh, it's it's necessary to go

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Speaker 1: and do that and you can come out stronger on

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Speaker 1: the other side. So that really seems to be the

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Speaker 1: mood right now. Which of these companies is best uh

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Speaker 1: position to pay off earlier? And people are going to

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Speaker 1: want to see progress before they you know, they want

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Speaker 1: to see somebody making money I think before they want

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Speaker 1: to go all in on any kind of energy play. Yeah,

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Speaker 1: that's right. You know, it's certainly more of a trading

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Speaker 1: environment than in investing an environment right now. You know,

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Speaker 1: amongst these companies, you know, one of our favorites right

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Speaker 1: now is Newfield Energy ticker NFX. Uh. They're one of

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Speaker 1: the biggest companies that flevered to the Anadarko basin. Uh.

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Speaker 1: It's more of a of an early stage play kind

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Speaker 1: of in its second or third to your pavelopment, with

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Speaker 1: plenty of resource upside there um. So that would be

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Speaker 1: the one that I would point to for that base,

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Speaker 1: and and we like most of the smaller cab prim

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Speaker 1: and focus companies. Uh. You know, they are certainly some

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Speaker 1: of the more expensive companies on a relative basis, and

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Speaker 1: they're the ones that hold up better. Just one final

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Speaker 1: question today, Josh, do you do you anticipate a feeding

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Speaker 1: frenzy if oil breaks down to whatever new level. There's

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Speaker 1: a raging debate about what oil does here is that

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Speaker 1: you know the resistance level Brent thirty four, nimax three

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Speaker 1: is you know, give or take a couple of dollars

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Speaker 1: if we break down to new lows. What happens. Yeah,

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Speaker 1: there's certainly going to be a lot more distress in

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Speaker 1: the system if that happens, and it may actually be

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Speaker 1: a good thing too to flush more capital out of

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Speaker 1: the system. Um. But I also think that that provides

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Speaker 1: some good opportunities if we really get down towards towards

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Speaker 1: those levels, because we're we're well below break even economics

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Speaker 1: at that point, and it while the pain make may

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Speaker 1: come on the way down, it certainly provides some of

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Speaker 1: the greater opportunity on the outside because at least then

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Speaker 1: you would have some some better clarity over direction of

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Speaker 1: grid just overseeing. Thank you so much with Deutsche Bank

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Speaker 1: this morning on oil. Really interesting folks, away from the

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Speaker 1: excens of the world, what some of small oil is

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Speaker 1: doing versus others out there. Michael, I'm I'm doing a

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Speaker 1: chart for tomorrow which is a hyper fancy pounds sterling

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Speaker 1: chart with the linear extrapolation out to what you and

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Speaker 1: I have heard today, which is one the end of

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Speaker 1: is a really sophisticated chart. The end of seventeen and

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Speaker 1: even into early spring two thousand nineteen is a lot

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Speaker 1: of My summary of that is a lot gotta happen

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Speaker 1: to get the news flow to get to the kind

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Speaker 1: of weak sterling that we're looking at. But the interesting

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Speaker 1: thing is a lot could happen. I mean, who knows,

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Speaker 1: but it supposed you have a Brexit vote, then you

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Speaker 1: have a Scottish exit from the UK vote. Um, there

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Speaker 1: would be ongoing in continuous pressure yeah on sterling. Now

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Speaker 1: then the knock on effects to the Bank of England

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Speaker 1: to inflation um, to policy there, the whole thing could

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Speaker 1: be absolutely fascinating. I don't agree there's a simplistic extrapolation

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Speaker 1: to some level based on a new trend. It's a lot.

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Speaker 1: This is trend going back to the autumn of two

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Speaker 1: thousand and fourteen, which I think is it's a lot

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Speaker 1: of data points and it granted, you know, we've really

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Speaker 1: broken down. We're almost down to two standard deviations going

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Speaker 1: back thirty years, which is like Thatcher like, I mean,

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Speaker 1: that's where you know we are. We're not there yet,

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Speaker 1: but we're getting there. But the idea of going from

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Speaker 1: one forty one, where are we know? And Sterling, I'm

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Speaker 1: looking at the call it one to go down eleven

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Speaker 1: big figures or I can't even do the math twenty

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Speaker 1: one big figures, twenty it's extraordinary, extraordinary what we've heard

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Speaker 1: on this show today, very very different folks. It's just fascinating.

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Speaker 1: And don't forget all of our media besides us live

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Speaker 1: on Bloomberg Radio Plus and the course on our Good

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Speaker 1: Signals UM nationwide and worldwide UM, all sorts of other

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Speaker 1: ways to listen to what we're doing, including Mike McKee

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Speaker 1: and myself on Twitter with our good team advancing some

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Speaker 1: of these interviews to you as well. Be Surveillance at

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Speaker 1: b Surveillance is right now, it looks like we have

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Speaker 1: opened the day down. It was a lot of questions

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Speaker 1: and what was gonna happen because oil was going up.

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Speaker 1: Right now, all you need to know now is oil

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Speaker 1: is lower. And then yeah, one thing different from yesterday,

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Speaker 1: a little bit of curve steepening. For is the Schakuau

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Speaker 1: of Kerr flattening yesterday The end one twelve twenty seven

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Speaker 1: Global Limbus paper also looking at US, Mike mentions the

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Speaker 1: doubt negative forty one. This is Bloomberg's surveillance