Natural Resources Groups

I'm currently an undergrad looking to get into IBD and I am interested in the natural resources space.

From what I've read, this is a hot industry at the moment, so I was wondering how the different nat res groups in NY across the different banks compare? I guess since boutiques don't split clearly into industry groups, this is more catered towards the BBs, but if any boutiques are active in this space, please do let me know.

Thanks!

 

There are a lot of good energy only boutiques currently. Do a search, this has been discussed ad naseum.

Also, there are some good energy bankers in NY, but all the real Wildcatters are in Houston. For energy: HOU >> NY (sans power)

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Banana Butt:
How does it come out when we compare the nat res groups for GS/MS/JPM? In terms of the prestige of the group on the street and within the bank? Do they differ at all in exit opps?

GS/MS/JPM do not hold the same prestige in energy as they do generally. Barclays and Credit Suisse seem to be the top in Oil & Gas which I think is the majority of Nat Res since some banks group power and metals and mining differently.

Citi is another one supposed to be strong in Houston as well but I've heard they are really overstaffed.

 
rufiolove:
JeffSkilling:
RainMaker13:
Jefferies is arguably one of the best upstream sell-side players.

Not sure that's accurate...certainly strong in A&D stuff but not sure they've been on anything of note really since Exxon XTO.

KKR / Samson? Biggest Energy LBO of all time and largest LBO of 2011, they were sole sell side advisor

Jefferies is without question one of the best in sell-side... you could make a case for TPH as well

 
rufiolove:
JeffSkilling:
RainMaker13:
Jefferies is arguably one of the best upstream sell-side players.

Not sure that's accurate...certainly strong in A&D stuff but not sure they've been on anything of note really since Exxon XTO.

KKR / Samson? Biggest Energy LBO of all time and largest LBO of 2011, they were sole sell side advisor

Yeah I totally forgot about but still don't think they're that strong in upstream. TPH seems stronger.

 
Best Response
JeffSkilling:
rufiolove:
JeffSkilling:
RainMaker13:
Jefferies is arguably one of the best upstream sell-side players.

Not sure that's accurate...certainly strong in A&D stuff but not sure they've been on anything of note really since Exxon XTO.

KKR / Samson? Biggest Energy LBO of all time and largest LBO of 2011, they were sole sell side advisor

Yeah I totally forgot about but still don't think they're that strong in upstream. TPH seems stronger.

Disagree on TPH for corp M&A, at least for E&P (can't recall the last big sell side they did sans A&D and JVs). Would say EVR is in the #2 spot, possibly #1 adj. for the KKR / Samson deal (of which Jeff had in the bag to start). Solid move on EVRs end bringing all the A&D wizs from Scotia, it's all about knowing the assets in sell-side.

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There are about ten energy boutiques that I can think of. Most if not all are Houston/New Orleans based but may also have an NYC presence. Despite the strength of the energy sector, I can''t quite comprehend how all of those shops profit and exist. Seems like there's a tremendous amount of unneeded overlap in the energy boutique arena.

 

^They can exist because there is a ton of fragmentation within the energy space in terms of assets and businesses. As a result, smaller shops can build relationships with the "smaller" guys because the bulge brackets are looking to do the big deals.

 

Jeffco kills it in upstream/asset deals. Buying Randall Dewey got them Eads and that guy has done extremely well.

Deals mentioned above + chevron acquiring atlas for $4b+ (lead to atlas)

~$5b Fayetteville shale assets sale from chk to BHP (sole advisor to CHK...Eads was aubrey's college roommate..which probably helps).

Also advised Hillcorp (KKR) on sale of eagle ford assets to MRO. That was over 3b.

Won't see them elsewhere across the value chain but certainly doing just fine in that silo.

Agree on EVR rise...they have come on strong.

 

Most BB have good Nat Res groups (mature but dynamic industry with great and relatively constant deal flow), UBS's is rebuilding theirs (I think it was absorbed by Citi). Barcap is generally recognized as the strongest, but groups are solid all across the street.

Of the MM/ boutiques I know that RBC and Jefferies have solid groups. EVR has made something of a push last year through very competitive pricing; don't know how sustainable that is though.

A couple of specialized boutiques to keep in mind: Scotia & Waterous: strong for small/medium upstream A&D. They work on some corporate deals also. Simmons & Co. one of the strongest players (if not the leading) in the oil field services industry. Tudor Pickering & Holt (TPH): really strong energy (mostly oil&gas) boutique, most of the time they will be leading mandates working alongside BB on the bigger deals in the industry.

One thing to keep in mind, especially in BB, is how they group the industries they cover from "Nat Res", as you will see a wide variation in if they include/don't include O&G, Power, Mining, Utilities, Chemicals, etc... Also keep an eye about how they divide execution and marketing between their NY and Houston offices. Another thing is that most of the banks support deal teams worldwide from their NY & Houston offices and this provides an interesting international scope to the work you would be doing.

 

I just got a position as a first year analyst starting in May 2007 (BB), and they made it sound like most of their analysts either stayed on, went to PE or Hedge, went into industry (energy companies), or went to get MBA. From what I understand this is fairly standard stuff, but again I have no first hand knowledge beyond what I've been told by people in my future company, info sessions with other companies, and interviews.

 

Energy (Oil +Gas) + Metals & Mining + Timber. If the US had a large corporate farming segment, that would probably also fall under natural resources, but I don't think there's a single US or Canadian corp that grows grain.

I disagree with some of the other posters about how we divide up natural resources. IMHO, if the industry involves processing stuff from one form to another at a facility (IE: refining, traditional power generation, chemicals, and paper), that's not natural resources. That's generation/utilities, chemicals/basic materials. Natural resources, by definition, is stuff that can't be made in a factory.

 

I know that it was mentioned that some banks separate energy, but would alternative energy companies also be covered by Natural Resources? Or is it only Oil & Gas? I have a SA offer and am trying to find out more about Natty Res as it is a group I am interested in.

 

Some banks have cleantech groups..but .I've never heard of a nat resources team handling alt energy cos but that's probably also a function of their insignificance (from a size standpoint). Most large alt energy initiatives these days are parts of larger multinationals (GE EFS, big oil). I'm guessing the solar cos probably fall under industrials as they are in the manufacturing space more than the power generation space.

 

I don't know what you mean by restrictive. You obviously learn skillsets tailored very much towards mining. Opportunities aren't too bad. Obviously a lot of consolidation happenning lately and this will probably continue for quite some time.

What sort of deal? Rio/Alcan, BHP/Rio, Vale/Xstrata?

 

First, natres covers mining, oil, oilfield services, pipelines, sometimes power etc.

Second, the skills you will learn are tweaks of the same skills from other groups. For example instead of using a discounted cash flow model, we use a net asset value model. An NAV model is basically a blow-down model with no terminal value. You learn to project capital and operating costs, as well as slightly more complex revenue models given the various grades of commodities and pricing differentials.

You also learn to use comparable company analysis that is not unlike other industries. We have our own metrics and sometimes use them to the exclusion of more standard financial metrics, but there are reasons for that. Finally, you will learn precedent transactions and how and why certain deals are more and less comparable, particularly in different parts of the commodity cycles.

These are all valuable skills and some people say specialized or highly specialized because the industry jargon sometimes keeps other professionals from entering the sector. Basically, it creates a barrier to entry which often is good for natres bankers. The exit opportunities are PE and hedge funds, just like other sectors. The better news is, there are dozens of PE and VC shops that are wholly dedicated to the sector and the opportunity for people knowledgable in the sector, it can be very lucrative.

You would see M&A deals, equity deals, high yield as well as fixed income deals, commodity based lending, hedging, structured products, farm-ins, asset swaps, asset sales and so on. Deal size can run the gambit from tens of millions to hundreds of billions depending on the group and focus. Most of what I do is in the $500 mm to $15 billion range. Think 5-6 deals a year.

Future of the industry is probably pretty good. New, riskier and more challenging areas need to be accessed to satisfy demand, as well as new technologies (think green) that also need to be financed and sold. Also, natres can be seen as a defensive industry, so the chance of living through a downsizing is a little better than say Tech, real estate or something more levered to the economic outlook.

 

Not sure on this. I'm interning in a commodity trading house and they actually asked me which products I was interested in working with... It'd be reasonably difficult to learn about all of them at the same time too.

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glassjaw:
Based on what exactly?

I think when you look at Lehman as a global energy franchise across all banking activities they would be considered number 1. And by that I mean:

1) Research- very good industry research team 2) Trading- top 1 or 2 traders by volume for many of the largest energy firms 3) IPO placement 4) US M&A is very good 5) EU M&A is picking up steam

There may be an individual area where they are not #1 or #2, but across all of them they give the bank a strong energy platform.

My two cents

 

Not an industry I'm really involved with but the names that come to my mind are:

Lehman - Their name always seems to come up.  I think their also pretty big in resources-related S&T, which never hurts your banking franchise.

JPM - They advised Exxon during the Exxon-Mobil merger.

Goldman - Advised Mobil on the big merger.  Has to count for something.

CS - Again, I just hear this name come up a lot.

 

By " I think their [sic] also pretty big in resources-related S&T, which never hurts your banking franchise." I meant energy and resource-related EQUITY S&T -- the rationale being that it is to a client firm's advantage if it's advisor/underwriter has a large trading presence in their relevant industry (easier to place/stabilize new securities issues and highly correlated with the quality of equity research that the bank can/will produce).

 

Much below. A lot of their work comes out of Houston, as their Group Head works out of that office. While it is most definitely not a T5 group on the street, I think it is certainly a T10, T15 group on the street. Speaking from the Houston perspective, I have personally known several analysts to go onto First Reserve, Carlyle, Hicks Muse, and several other large PE Energy funds. Again, my experience is much more aligned with their Houston group than with their office in New York.

 

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