WEBVTT - PWC U.S. Energy Advisor Reid Morrison

0:00:02.440 --> 0:00:05.800
<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

0:00:05.840 --> 0:00:08.920
<v Speaker 1>dot com, the radio plus mobile last and on your radio,

0:00:09.200 --> 0:00:12.920
<v Speaker 1>this is a Bloomberg Business Flash and I'm Karen Moscow.

0:00:12.920 --> 0:00:16.120
<v Speaker 1>There's updates brought to you by National Realty Returns on

0:00:16.200 --> 0:00:18.200
<v Speaker 1>cash and rented real estate. Find them at n r

0:00:18.280 --> 0:00:21.759
<v Speaker 1>i A dot net. US stocks are following crude oil

0:00:21.840 --> 0:00:25.200
<v Speaker 1>prices lower, pairing the strongest weekly gains this year, with

0:00:25.280 --> 0:00:28.800
<v Speaker 1>investors reassessing the path for interest rates after data showed

0:00:28.880 --> 0:00:31.680
<v Speaker 1>stirring signs of inflation. We checked the markets every fifteen

0:00:31.680 --> 0:00:35.000
<v Speaker 1>minutes throughout the trading day on Bloomberg down Jones Industrial

0:00:35.040 --> 0:00:37.559
<v Speaker 1>Average down the six tenths percenter ninety five points to

0:00:37.600 --> 0:00:40.640
<v Speaker 1>sixteen thousand, three hundred fourteen s and P five hundred

0:00:40.640 --> 0:00:43.480
<v Speaker 1>down six tenths percent or eleven points to nineteen o six.

0:00:43.680 --> 0:00:46.120
<v Speaker 1>The NASDACS down four tenths per cent or fifteen points

0:00:46.120 --> 0:00:49.000
<v Speaker 1>to forty four seventy one. Ten year Treasury down three

0:00:49.000 --> 0:00:51.519
<v Speaker 1>thirty seconds, the yield one point seven five percent. The

0:00:51.640 --> 0:00:54.600
<v Speaker 1>yield on the two year points seven four percent. NIMEX

0:00:54.600 --> 0:00:57.600
<v Speaker 1>scrude oil down three percent or ninety seven cents to

0:00:58.520 --> 0:01:01.520
<v Speaker 1>a barrel Comex gold two tens percent or two dollars

0:01:01.560 --> 0:01:05.800
<v Speaker 1>thirty cents eight announced the euro and dollar ten nine

0:01:05.840 --> 0:01:09.800
<v Speaker 1>again one thirteen. North Strom the worst performer in the

0:01:09.959 --> 0:01:13.639
<v Speaker 1>SNP five this morning, it's down ten percent. The largest

0:01:13.720 --> 0:01:16.920
<v Speaker 1>US luxury department store chain, reporting holiday results that missed

0:01:16.959 --> 0:01:20.520
<v Speaker 1>analysts estimates, and the company gave a week earnings forecast.

0:01:20.920 --> 0:01:24.000
<v Speaker 1>Deer In Company, the world's largest agricultural equipment maker, cut

0:01:24.040 --> 0:01:27.480
<v Speaker 1>it's fiscal full year profit in sales forecast. Its shares

0:01:27.520 --> 0:01:30.560
<v Speaker 1>are down three point nine percent, and that's a Bloomberg

0:01:30.640 --> 0:01:34.800
<v Speaker 1>business flash. Tom and Mike Karen, thank you very much. Uh.

0:01:34.959 --> 0:01:38.000
<v Speaker 1>We're gonna be speaking now with Read Morris, and he's

0:01:38.040 --> 0:01:42.880
<v Speaker 1>a principal in the advisory group for Price Waterhouse Cooper's

0:01:42.959 --> 0:01:46.800
<v Speaker 1>in Houston, covering the energy industry, and he's the US

0:01:46.840 --> 0:01:50.440
<v Speaker 1>advisory Energy sector leader. And Read, Um, we've talked to

0:01:50.440 --> 0:01:52.400
<v Speaker 1>a lot of people who say, basically, these days, we

0:01:52.440 --> 0:01:54.680
<v Speaker 1>have no idea where oil prices are going because they

0:01:54.760 --> 0:01:57.160
<v Speaker 1>keep fooling us. We keep thinking we're in the bottom

0:01:57.200 --> 0:02:02.800
<v Speaker 1>and we're not. Uh said, somebody has to make a

0:02:02.800 --> 0:02:07.600
<v Speaker 1>decision in April when all the energy company bank loans

0:02:07.760 --> 0:02:12.440
<v Speaker 1>come up for their quarterly review. And I think that

0:02:12.600 --> 0:02:15.040
<v Speaker 1>the key question for everybody these days is how many

0:02:15.080 --> 0:02:17.280
<v Speaker 1>companies are going to go out of business, how many

0:02:17.320 --> 0:02:21.919
<v Speaker 1>companies are going to uh be bought out? How big

0:02:22.040 --> 0:02:25.919
<v Speaker 1>is the carnage going to be when these loans come due.

0:02:26.840 --> 0:02:29.600
<v Speaker 1>It's an interesting dynamic because when you see a lot

0:02:29.680 --> 0:02:32.320
<v Speaker 1>of times is a moment of trout between both the

0:02:33.040 --> 0:02:36.000
<v Speaker 1>financial institutions and the operators, and a lot of times

0:02:36.040 --> 0:02:38.919
<v Speaker 1>in this case, you'll see a new degree of flexibility

0:02:38.919 --> 0:02:41.960
<v Speaker 1>come into the conversation where if the operator is willing

0:02:42.000 --> 0:02:45.079
<v Speaker 1>to take a long term on that payment but pay

0:02:45.160 --> 0:02:48.120
<v Speaker 1>more interest in the bank is looking at the situation

0:02:48.160 --> 0:02:50.400
<v Speaker 1>of do we want to actually become an operator? And

0:02:50.639 --> 0:02:52.360
<v Speaker 1>they've learned their lesson a lot of times that they

0:02:52.360 --> 0:02:53.800
<v Speaker 1>don't want to be the operator. They just want to

0:02:53.800 --> 0:02:55.720
<v Speaker 1>get a fair and safe return on that. So what

0:02:55.800 --> 0:02:59.359
<v Speaker 1>we're seeing is a lot of redeterminations are triggering restructuring

0:02:59.400 --> 0:03:02.240
<v Speaker 1>of those debt covenants, and that just kind of allows

0:03:02.320 --> 0:03:05.280
<v Speaker 1>more time for the operator to get their house in order. Read.

0:03:05.360 --> 0:03:07.680
<v Speaker 1>Let me answer the question with p WC and with

0:03:07.760 --> 0:03:10.160
<v Speaker 1>your history and energy and oil and gas, I think

0:03:10.160 --> 0:03:13.320
<v Speaker 1>it's critical my answers. I always go to the Houston Chronicles.

0:03:13.480 --> 0:03:15.560
<v Speaker 1>They know a lot more than I know about the

0:03:15.639 --> 0:03:19.720
<v Speaker 1>dynamics in the Houston Chronicle. Today, Shell Oil wants to

0:03:19.760 --> 0:03:23.240
<v Speaker 1>sub lease three d fifty tho square feet one Shell Plaza.

0:03:23.600 --> 0:03:25.560
<v Speaker 1>Chrishman and Wakefield is going to help him with the

0:03:26.160 --> 0:03:28.960
<v Speaker 1>wake Um. You know there's a lot of empty office

0:03:28.960 --> 0:03:32.920
<v Speaker 1>space in Houston. Is this like Middland twenties someomething years ago?

0:03:33.360 --> 0:03:37.120
<v Speaker 1>Is there something new this time? Is sub industries adapt

0:03:37.400 --> 0:03:40.520
<v Speaker 1>to the energy collapse? As you talk about Houston, if

0:03:40.520 --> 0:03:42.400
<v Speaker 1>you talk to the commercial real estate folks, I'll tell

0:03:42.400 --> 0:03:44.480
<v Speaker 1>you when all prices are high, the west side of

0:03:44.520 --> 0:03:47.560
<v Speaker 1>Houston where the expression companies, they do really well. When

0:03:47.560 --> 0:03:49.800
<v Speaker 1>all prices are low, east side of town doesn't really

0:03:49.800 --> 0:03:52.320
<v Speaker 1>well where the refiner and chemical plants are. And that's

0:03:52.360 --> 0:03:54.240
<v Speaker 1>what you see and what you're seeing a lot of

0:03:54.240 --> 0:03:57.240
<v Speaker 1>times these companies you had a portfolio of things that

0:03:57.320 --> 0:03:59.760
<v Speaker 1>spread across the value chain and their weathering the storm

0:03:59.760 --> 0:04:02.520
<v Speaker 1>because are able to on a side. But that kind

0:04:02.520 --> 0:04:06.280
<v Speaker 1>of those companies that have plays in different basins, they're

0:04:06.280 --> 0:04:08.480
<v Speaker 1>having to re evaluate which ones they want to been

0:04:08.520 --> 0:04:11.320
<v Speaker 1>on long term, and that's causing some structural changes. When

0:04:11.360 --> 0:04:13.320
<v Speaker 1>does the balance She's clear I mean, we've been on

0:04:13.440 --> 0:04:17.000
<v Speaker 1>surveillance for the last my year and a half. Everybody

0:04:17.040 --> 0:04:21.159
<v Speaker 1>said spring spring of what's the temperature today in Houston?

0:04:21.240 --> 0:04:25.400
<v Speaker 1>It's like eight degrees right, you're killing me? Is spring

0:04:25.480 --> 0:04:27.240
<v Speaker 1>here yet? I mean, are we going to start to

0:04:27.279 --> 0:04:30.160
<v Speaker 1>see the good will that's bad will become no will?

0:04:31.279 --> 0:04:34.000
<v Speaker 1>Well we're looking at closely is the reserver placement ratio

0:04:34.279 --> 0:04:37.200
<v Speaker 1>and the demand cycle as well. We had historical demand

0:04:37.200 --> 0:04:40.799
<v Speaker 1>growth last year in a stagnant economy, and the reserve

0:04:40.920 --> 0:04:43.240
<v Speaker 1>placement ratio was at an all time low last year

0:04:43.240 --> 0:04:45.320
<v Speaker 1>and this year. You can look at the expiration companies.

0:04:45.360 --> 0:04:47.839
<v Speaker 1>They're not gonna be drilling new wells and it's simply

0:04:47.880 --> 0:04:49.960
<v Speaker 1>the matter of the inventory of wells that they can

0:04:49.960 --> 0:04:52.320
<v Speaker 1>produce from are going to be depleted at a steady

0:04:52.440 --> 0:04:55.039
<v Speaker 1>rate and they're not bringing new wells online. So you

0:04:55.040 --> 0:04:56.839
<v Speaker 1>look at that demand side, you look at the reserve

0:04:56.920 --> 0:04:59.800
<v Speaker 1>placement ratio, and those inflection points are on the horizon,

0:05:00.160 --> 0:05:02.599
<v Speaker 1>and you look at the trading market in the future

0:05:02.680 --> 0:05:08.240
<v Speaker 1>prices of these oil contracts for two or thirty above

0:05:08.240 --> 0:05:11.159
<v Speaker 1>where the art today. So people see it coming. When

0:05:11.320 --> 0:05:13.440
<v Speaker 1>is it December of this year? Is that July of

0:05:13.520 --> 0:05:16.320
<v Speaker 1>next year. You know that's the guess. Well, there's a

0:05:16.400 --> 0:05:18.840
<v Speaker 1>question though that comes up when we talk about this,

0:05:18.880 --> 0:05:21.839
<v Speaker 1>and to get to what you said earlier in the show,

0:05:22.040 --> 0:05:25.440
<v Speaker 1>the cure for rising prices is rising prices. The feeling

0:05:25.560 --> 0:05:28.719
<v Speaker 1>is the price goes up. The fractors just turned the

0:05:28.720 --> 0:05:32.200
<v Speaker 1>taps on again. If it was only that easy. But

0:05:32.720 --> 0:05:35.320
<v Speaker 1>the swing producer rolled that the shill players are going

0:05:35.360 --> 0:05:38.919
<v Speaker 1>to have is legitimate. There's a significant number of oils

0:05:38.920 --> 0:05:41.120
<v Speaker 1>have been drilled but not completed, and also there's a

0:05:41.520 --> 0:05:44.160
<v Speaker 1>significant amount of world that's in storage these days. What

0:05:44.360 --> 0:05:47.480
<v Speaker 1>that does for the overall economies that flattens out that

0:05:47.560 --> 0:05:49.320
<v Speaker 1>price spike that we may have had in the past

0:05:49.320 --> 0:05:52.680
<v Speaker 1>because the only swing producers were the large national companies.

0:05:53.080 --> 0:05:55.120
<v Speaker 1>So the actually when we're talking to dark clients, we're

0:05:55.160 --> 0:05:57.599
<v Speaker 1>saying that the forward look isn't going to have that

0:05:57.720 --> 0:05:59.960
<v Speaker 1>hockey stick effect, but it's gonna be have a more

0:06:00.000 --> 0:06:02.080
<v Speaker 1>of a saw tooth effect. And you know, with a

0:06:02.160 --> 0:06:04.640
<v Speaker 1>slow walk up as opposed to the spike, you have

0:06:04.680 --> 0:06:07.599
<v Speaker 1>perfect preparation for this. You have a degree in psychology

0:06:07.680 --> 0:06:12.160
<v Speaker 1>from Southwestern University. What is the psychology of independent oil?

0:06:12.360 --> 0:06:15.479
<v Speaker 1>I mean, I understand exons a bank, etcetera, etcetera. And

0:06:15.520 --> 0:06:18.320
<v Speaker 1>there's all the big companies, we know, mid tier and

0:06:18.440 --> 0:06:24.080
<v Speaker 1>small guys. What's their psychology now? They they love to

0:06:24.120 --> 0:06:26.760
<v Speaker 1>be in the growth mode and this mode is where

0:06:26.760 --> 0:06:29.240
<v Speaker 1>the hard ware has to get done. There's at least

0:06:29.480 --> 0:06:33.000
<v Speaker 1>twenty cost involved in the total life cycle of these

0:06:33.000 --> 0:06:35.559
<v Speaker 1>wells that can still be leaned out. But that's nickels

0:06:35.600 --> 0:06:40.160
<v Speaker 1>and dimes, and it's ironic wind oils around and two

0:06:40.080 --> 0:06:42.039
<v Speaker 1>thousand and fourteen, we were talking to our clients, not

0:06:42.120 --> 0:06:44.679
<v Speaker 1>saying we're going to predict the price, but pressure testing.

0:06:44.680 --> 0:06:47.360
<v Speaker 1>Are you ready for a fifty environment? And I can't

0:06:47.360 --> 0:06:49.279
<v Speaker 1>tell him and my clients that are friends that just

0:06:49.279 --> 0:06:51.840
<v Speaker 1>told me, don't be dramatic read respect you too much,

0:06:51.839 --> 0:06:54.680
<v Speaker 1>but now you're kind of upsetting us. Flast forward a

0:06:54.760 --> 0:06:58.880
<v Speaker 1>year and after that price is now dropping fast and

0:06:58.920 --> 0:07:01.760
<v Speaker 1>they're able to actually pick it um. That's amazing to

0:07:01.760 --> 0:07:06.000
<v Speaker 1>see how this industry can really buckle down nine. When

0:07:06.000 --> 0:07:08.280
<v Speaker 1>all went to thirty eight, they survived because they know

0:07:08.360 --> 0:07:10.280
<v Speaker 1>how to rotate the business and get down to those

0:07:10.360 --> 0:07:12.400
<v Speaker 1>nickels and dimes. And that's what they're doing right now. Well,

0:07:12.400 --> 0:07:14.960
<v Speaker 1>not that you're doing market economics, but it's Friday. Do

0:07:15.000 --> 0:07:22.680
<v Speaker 1>you p WC have a call on oil? No? Did

0:07:22.680 --> 0:07:25.400
<v Speaker 1>you ever? In other words, has everybody gotten out of

0:07:25.400 --> 0:07:28.800
<v Speaker 1>the business at this point of calling oil? Now, if

0:07:28.840 --> 0:07:30.600
<v Speaker 1>I was that good, I would be sitting on a

0:07:30.640 --> 0:07:33.400
<v Speaker 1>beach in the Caribbean. Well, I'm sure a lot of

0:07:33.400 --> 0:07:36.640
<v Speaker 1>people would if especially if you're figured out a way

0:07:36.680 --> 0:07:41.160
<v Speaker 1>to short it. Um. Interesting point that you make here

0:07:41.200 --> 0:07:47.120
<v Speaker 1>in your note is the contango market um suggesting that

0:07:47.520 --> 0:07:52.880
<v Speaker 1>traders know something about what's going to happen. But is

0:07:52.920 --> 0:07:57.320
<v Speaker 1>it a question of just thinking logically or do they

0:07:57.360 --> 0:07:59.680
<v Speaker 1>actually have a clue as to where we're gonna go.

0:08:00.520 --> 0:08:03.800
<v Speaker 1>Everyone has access to relatively the same data, and so

0:08:03.840 --> 0:08:06.920
<v Speaker 1>it's a matter of which pattern or cycle do you

0:08:06.960 --> 0:08:09.640
<v Speaker 1>want to put your money into. And there's really four

0:08:09.880 --> 0:08:14.520
<v Speaker 1>main drivers to this whole thing, separate from the government

0:08:14.600 --> 0:08:17.320
<v Speaker 1>side of things and the socio economic things and the

0:08:17.440 --> 0:08:19.640
<v Speaker 1>stability of the different regions of the world, and those

0:08:19.640 --> 0:08:23.120
<v Speaker 1>four things of the financial markets, the demand side operations,

0:08:23.120 --> 0:08:26.280
<v Speaker 1>and then the rocks and each one of us in

0:08:26.320 --> 0:08:28.040
<v Speaker 1>this industry you know that those four are the things

0:08:28.080 --> 0:08:29.640
<v Speaker 1>to pay attention to. And you just have your own

0:08:29.640 --> 0:08:31.520
<v Speaker 1>point of view. Run is the US dollar gonna get

0:08:31.560 --> 0:08:34.040
<v Speaker 1>stronger or weaker, And a lot of people in the

0:08:34.040 --> 0:08:36.200
<v Speaker 1>industry know the stronger the US dollars, the more the

0:08:36.240 --> 0:08:38.920
<v Speaker 1>price of wall gets traded down. And it's those types

0:08:38.960 --> 0:08:42.440
<v Speaker 1>of drivers that everyone is studying and everyone has their

0:08:42.480 --> 0:08:44.520
<v Speaker 1>own models to take a look at them. One final

0:08:44.600 --> 0:08:48.440
<v Speaker 1>question quickly, uh, would you advise a young upstart to

0:08:48.480 --> 0:08:55.680
<v Speaker 1>go into petroleum engineering? Absolutely widely, it's a it's a

0:08:55.720 --> 0:08:59.319
<v Speaker 1>fascinating industry and it's grossly underappreciated. But when you actually

0:08:59.320 --> 0:09:01.640
<v Speaker 1>get into the industreen, you see the goodness that the

0:09:01.679 --> 0:09:05.080
<v Speaker 1>industry does for all different parts of our our life.

0:09:06.080 --> 0:09:07.520
<v Speaker 1>Those of us in the industry, we take a lot

0:09:07.600 --> 0:09:09.120
<v Speaker 1>of pride in the fact that there's a lot of

0:09:09.120 --> 0:09:11.760
<v Speaker 1>things that happen in this world because there's a reliable

0:09:11.840 --> 0:09:14.480
<v Speaker 1>and safe supply of energy. And to be one of

0:09:14.520 --> 0:09:17.120
<v Speaker 1>the young upstarts, she's learning their way through that. It's

0:09:17.160 --> 0:09:19.800
<v Speaker 1>a great career to have. You get to learn a

0:09:19.880 --> 0:09:22.319
<v Speaker 1>huge amount about the emerging technologies and then you get

0:09:22.320 --> 0:09:23.800
<v Speaker 1>to go home and not knowing that you actually made

0:09:23.800 --> 0:09:26.520
<v Speaker 1>a postive contribution. Read Morrison, thank you so much. With

0:09:26.600 --> 0:09:29.200
<v Speaker 1>p WC. You know, Mike, I didn't get to the

0:09:29.200 --> 0:09:32.920
<v Speaker 1>philosophical question the moment. Where did the Houston Astros go

0:09:33.040 --> 0:09:38.240
<v Speaker 1>for spring training? It's already I think in Arizona. They

0:09:38.240 --> 0:09:40.320
<v Speaker 1>go to Arizona. I've never done that. Have you gone

0:09:40.320 --> 0:09:43.400
<v Speaker 1>to the not to the Cactus League. We should do

0:09:43.440 --> 0:09:45.840
<v Speaker 1>that something it says remote. I mean, why you what

0:09:45.880 --> 0:09:48.440
<v Speaker 1>do you think? Why it doesn't even know what baseball is?

0:09:52.800 --> 0:09:58.520
<v Speaker 1>Very good? No, I am wrong, surveillance correction. The Houston

0:09:58.559 --> 0:10:02.439
<v Speaker 1>Astros are in Kissimmee, Flora there in the Grapefruit I

0:10:02.480 --> 0:10:07.280
<v Speaker 1>would have guessed Arizona, and I am I have been

0:10:07.640 --> 0:10:10.439
<v Speaker 1>to the grape Fruit League. I haven't been to the Astros. Well,

0:10:10.440 --> 0:10:13.560
<v Speaker 1>there we go baseball. It is exciting. Douglas cast out

0:10:13.559 --> 0:10:18.040
<v Speaker 1>with timely notes on picture show with Doug cast spring Training.

0:10:18.120 --> 0:10:22.600
<v Speaker 1>I think we should let's stick the message happy Happy Friday,

0:10:22.640 --> 0:10:27.080
<v Speaker 1>Doug and everybody in the Phoenix area and in all

0:10:27.120 --> 0:10:30.640
<v Speaker 1>over Florida in the Cacus League, UH and the grape

0:10:30.640 --> 0:10:32.520
<v Speaker 1>Fruit League. We need to say thank you to our team.

0:10:32.559 --> 0:10:34.840
<v Speaker 1>They've done a great job in a very odd and

0:10:35.000 --> 0:10:39.040
<v Speaker 1>strange week. Of course, we leave it with oil barrel

0:10:39.480 --> 0:10:42.680
<v Speaker 1>UH down a dollar in change. It's worth watching into

0:10:42.679 --> 0:10:45.520
<v Speaker 1>the afternoon, but within the clumsiness of the week. We

0:10:45.559 --> 0:10:48.240
<v Speaker 1>had a killer Friday thanks to our team, particularly this

0:10:48.360 --> 0:10:51.720
<v Speaker 1>nine o'clock hour read Morrison Scott Galloway joining us and

0:10:51.840 --> 0:10:54.640
<v Speaker 1>dig them from JP Morgan on short notice. We really

0:10:54.679 --> 0:10:59.319
<v Speaker 1>appreciate guests who, particularly on short notice, can drop everything

0:10:59.720 --> 0:11:03.679
<v Speaker 1>to come to you. Are global terrific, PERC just terrific.

0:11:04.160 --> 0:11:06.840
<v Speaker 1>We are produced by Why You and our global technical

0:11:06.840 --> 0:11:10.559
<v Speaker 1>director Ken Fallio. It's Bloomberg's surveillance