Speaker 1: Global business news twenty four hours a day. If Bloomberg
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Speaker 1: this is a Bloomberg Business Flash and I'm Karen Moscow.
Speaker 1: There's updates brought to you by National Realty Returns on
Speaker 1: cash and rented real estate. Find them at n r
Speaker 1: i A dot net. US stocks are following crude oil
Speaker 1: prices lower, pairing the strongest weekly gains this year, with
Speaker 1: investors reassessing the path for interest rates after data showed
Speaker 1: stirring signs of inflation. We checked the markets every fifteen
Speaker 1: minutes throughout the trading day on Bloomberg down Jones Industrial
Speaker 1: Average down the six tenths percenter ninety five points to
Speaker 1: sixteen thousand, three hundred fourteen s and P five hundred
Speaker 1: down six tenths percent or eleven points to nineteen o six.
Speaker 1: The NASDACS down four tenths per cent or fifteen points
Speaker 1: to forty four seventy one. Ten year Treasury down three
Speaker 1: thirty seconds, the yield one point seven five percent. The
Speaker 1: yield on the two year points seven four percent. NIMEX
Speaker 1: scrude oil down three percent or ninety seven cents to
Speaker 1: a barrel Comex gold two tens percent or two dollars
Speaker 1: thirty cents eight announced the euro and dollar ten nine
Speaker 1: again one thirteen. North Strom the worst performer in the
Speaker 1: SNP five this morning, it's down ten percent. The largest
Speaker 1: US luxury department store chain, reporting holiday results that missed
Speaker 1: analysts estimates, and the company gave a week earnings forecast.
Speaker 1: Deer In Company, the world's largest agricultural equipment maker, cut
Speaker 1: it's fiscal full year profit in sales forecast. Its shares
Speaker 1: are down three point nine percent, and that's a Bloomberg
Speaker 1: business flash. Tom and Mike Karen, thank you very much. Uh.
Speaker 1: We're gonna be speaking now with Read Morris, and he's
Speaker 1: a principal in the advisory group for Price Waterhouse Cooper's
Speaker 1: in Houston, covering the energy industry, and he's the US
Speaker 1: advisory Energy sector leader. And Read, Um, we've talked to
Speaker 1: a lot of people who say, basically, these days, we
Speaker 1: have no idea where oil prices are going because they
Speaker 1: keep fooling us. We keep thinking we're in the bottom
Speaker 1: and we're not. Uh said, somebody has to make a
Speaker 1: decision in April when all the energy company bank loans
Speaker 1: come up for their quarterly review. And I think that
Speaker 1: the key question for everybody these days is how many
Speaker 1: companies are going to go out of business, how many
Speaker 1: companies are going to uh be bought out? How big
Speaker 1: is the carnage going to be when these loans come due.
Speaker 1: It's an interesting dynamic because when you see a lot
Speaker 1: of times is a moment of trout between both the
Speaker 1: financial institutions and the operators, and a lot of times
Speaker 1: in this case, you'll see a new degree of flexibility
Speaker 1: come into the conversation where if the operator is willing
Speaker 1: to take a long term on that payment but pay
Speaker 1: more interest in the bank is looking at the situation
Speaker 1: of do we want to actually become an operator? And
Speaker 1: they've learned their lesson a lot of times that they
Speaker 1: don't want to be the operator. They just want to
Speaker 1: get a fair and safe return on that. So what
Speaker 1: we're seeing is a lot of redeterminations are triggering restructuring
Speaker 1: of those debt covenants, and that just kind of allows
Speaker 1: more time for the operator to get their house in order. Read.
Speaker 1: Let me answer the question with p WC and with
Speaker 1: your history and energy and oil and gas, I think
Speaker 1: it's critical my answers. I always go to the Houston Chronicles.
Speaker 1: They know a lot more than I know about the
Speaker 1: dynamics in the Houston Chronicle. Today, Shell Oil wants to
Speaker 1: sub lease three d fifty tho square feet one Shell Plaza.
Speaker 1: Chrishman and Wakefield is going to help him with the
Speaker 1: wake Um. You know there's a lot of empty office
Speaker 1: space in Houston. Is this like Middland twenties someomething years ago?
Speaker 1: Is there something new this time? Is sub industries adapt
Speaker 1: to the energy collapse? As you talk about Houston, if
Speaker 1: you talk to the commercial real estate folks, I'll tell
Speaker 1: you when all prices are high, the west side of
Speaker 1: Houston where the expression companies, they do really well. When
Speaker 1: all prices are low, east side of town doesn't really
Speaker 1: well where the refiner and chemical plants are. And that's
Speaker 1: what you see and what you're seeing a lot of
Speaker 1: times these companies you had a portfolio of things that
Speaker 1: spread across the value chain and their weathering the storm
Speaker 1: because are able to on a side. But that kind
Speaker 1: of those companies that have plays in different basins, they're
Speaker 1: having to re evaluate which ones they want to been
Speaker 1: on long term, and that's causing some structural changes. When
Speaker 1: does the balance She's clear I mean, we've been on
Speaker 1: surveillance for the last my year and a half. Everybody
Speaker 1: said spring spring of what's the temperature today in Houston?
Speaker 1: It's like eight degrees right, you're killing me? Is spring
Speaker 1: here yet? I mean, are we going to start to
Speaker 1: see the good will that's bad will become no will?
Speaker 1: Well we're looking at closely is the reserver placement ratio
Speaker 1: and the demand cycle as well. We had historical demand
Speaker 1: growth last year in a stagnant economy, and the reserve
Speaker 1: placement ratio was at an all time low last year
Speaker 1: and this year. You can look at the expiration companies.
Speaker 1: They're not gonna be drilling new wells and it's simply
Speaker 1: the matter of the inventory of wells that they can
Speaker 1: produce from are going to be depleted at a steady
Speaker 1: rate and they're not bringing new wells online. So you
Speaker 1: look at that demand side, you look at the reserve
Speaker 1: placement ratio, and those inflection points are on the horizon,
Speaker 1: and you look at the trading market in the future
Speaker 1: prices of these oil contracts for two or thirty above
Speaker 1: where the art today. So people see it coming. When
Speaker 1: is it December of this year? Is that July of
Speaker 1: next year. You know that's the guess. Well, there's a
Speaker 1: question though that comes up when we talk about this,
Speaker 1: and to get to what you said earlier in the show,
Speaker 1: the cure for rising prices is rising prices. The feeling
Speaker 1: is the price goes up. The fractors just turned the
Speaker 1: taps on again. If it was only that easy. But
Speaker 1: the swing producer rolled that the shill players are going
Speaker 1: to have is legitimate. There's a significant number of oils
Speaker 1: have been drilled but not completed, and also there's a
Speaker 1: significant amount of world that's in storage these days. What
Speaker 1: that does for the overall economies that flattens out that
Speaker 1: price spike that we may have had in the past
Speaker 1: because the only swing producers were the large national companies.
Speaker 1: So the actually when we're talking to dark clients, we're
Speaker 1: saying that the forward look isn't going to have that
Speaker 1: hockey stick effect, but it's gonna be have a more
Speaker 1: of a saw tooth effect. And you know, with a
Speaker 1: slow walk up as opposed to the spike, you have
Speaker 1: perfect preparation for this. You have a degree in psychology
Speaker 1: from Southwestern University. What is the psychology of independent oil?
Speaker 1: I mean, I understand exons a bank, etcetera, etcetera. And
Speaker 1: there's all the big companies, we know, mid tier and
Speaker 1: small guys. What's their psychology now? They they love to
Speaker 1: be in the growth mode and this mode is where
Speaker 1: the hard ware has to get done. There's at least
Speaker 1: twenty cost involved in the total life cycle of these
Speaker 1: wells that can still be leaned out. But that's nickels
Speaker 1: and dimes, and it's ironic wind oils around and two
Speaker 1: thousand and fourteen, we were talking to our clients, not
Speaker 1: saying we're going to predict the price, but pressure testing.
Speaker 1: Are you ready for a fifty environment? And I can't
Speaker 1: tell him and my clients that are friends that just
Speaker 1: told me, don't be dramatic read respect you too much,
Speaker 1: but now you're kind of upsetting us. Flast forward a
Speaker 1: year and after that price is now dropping fast and
Speaker 1: they're able to actually pick it um. That's amazing to
Speaker 1: see how this industry can really buckle down nine. When
Speaker 1: all went to thirty eight, they survived because they know
Speaker 1: how to rotate the business and get down to those
Speaker 1: nickels and dimes. And that's what they're doing right now. Well,
Speaker 1: not that you're doing market economics, but it's Friday. Do
Speaker 1: you p WC have a call on oil? No? Did
Speaker 1: you ever? In other words, has everybody gotten out of
Speaker 1: the business at this point of calling oil? Now, if
Speaker 1: I was that good, I would be sitting on a
Speaker 1: beach in the Caribbean. Well, I'm sure a lot of
Speaker 1: people would if especially if you're figured out a way
Speaker 1: to short it. Um. Interesting point that you make here
Speaker 1: in your note is the contango market um suggesting that
Speaker 1: traders know something about what's going to happen. But is
Speaker 1: it a question of just thinking logically or do they
Speaker 1: actually have a clue as to where we're gonna go.
Speaker 1: Everyone has access to relatively the same data, and so
Speaker 1: it's a matter of which pattern or cycle do you
Speaker 1: want to put your money into. And there's really four
Speaker 1: main drivers to this whole thing, separate from the government
Speaker 1: side of things and the socio economic things and the
Speaker 1: stability of the different regions of the world, and those
Speaker 1: four things of the financial markets, the demand side operations,
Speaker 1: and then the rocks and each one of us in
Speaker 1: this industry you know that those four are the things
Speaker 1: to pay attention to. And you just have your own
Speaker 1: point of view. Run is the US dollar gonna get
Speaker 1: stronger or weaker, And a lot of people in the
Speaker 1: industry know the stronger the US dollars, the more the
Speaker 1: price of wall gets traded down. And it's those types
Speaker 1: of drivers that everyone is studying and everyone has their
Speaker 1: own models to take a look at them. One final
Speaker 1: question quickly, uh, would you advise a young upstart to
Speaker 1: go into petroleum engineering? Absolutely widely, it's a it's a
Speaker 1: fascinating industry and it's grossly underappreciated. But when you actually
Speaker 1: get into the industreen, you see the goodness that the
Speaker 1: industry does for all different parts of our our life.
Speaker 1: Those of us in the industry, we take a lot
Speaker 1: of pride in the fact that there's a lot of
Speaker 1: things that happen in this world because there's a reliable
Speaker 1: and safe supply of energy. And to be one of
Speaker 1: the young upstarts, she's learning their way through that. It's
Speaker 1: a great career to have. You get to learn a
Speaker 1: huge amount about the emerging technologies and then you get
Speaker 1: to go home and not knowing that you actually made
Speaker 1: a postive contribution. Read Morrison, thank you so much. With
Speaker 1: p WC. You know, Mike, I didn't get to the
Speaker 1: philosophical question the moment. Where did the Houston Astros go
Speaker 1: for spring training? It's already I think in Arizona. They
Speaker 1: go to Arizona. I've never done that. Have you gone
Speaker 1: to the not to the Cactus League. We should do
Speaker 1: that something it says remote. I mean, why you what
Speaker 1: do you think? Why it doesn't even know what baseball is?
Speaker 1: Very good? No, I am wrong, surveillance correction. The Houston
Speaker 1: Astros are in Kissimmee, Flora there in the Grapefruit I
Speaker 1: would have guessed Arizona, and I am I have been
Speaker 1: to the grape Fruit League. I haven't been to the Astros. Well,
Speaker 1: there we go baseball. It is exciting. Douglas cast out
Speaker 1: with timely notes on picture show with Doug cast spring Training.
Speaker 1: I think we should let's stick the message happy Happy Friday,
Speaker 1: Doug and everybody in the Phoenix area and in all
Speaker 1: over Florida in the Cacus League, UH and the grape
Speaker 1: Fruit League. We need to say thank you to our team.
Speaker 1: They've done a great job in a very odd and
Speaker 1: strange week. Of course, we leave it with oil barrel
Speaker 1: UH down a dollar in change. It's worth watching into
Speaker 1: the afternoon, but within the clumsiness of the week. We
Speaker 1: had a killer Friday thanks to our team, particularly this
Speaker 1: nine o'clock hour read Morrison Scott Galloway joining us and
Speaker 1: dig them from JP Morgan on short notice. We really
Speaker 1: appreciate guests who, particularly on short notice, can drop everything
Speaker 1: to come to you. Are global terrific, PERC just terrific.
Speaker 1: We are produced by Why You and our global technical
Speaker 1: director Ken Fallio. It's Bloomberg's surveillance