Future of Oil & Gas Banking

From Texas, plan on going the Associate route after my MBA.

Is it still prudent to go into O&G banking if you want to be a career banker? Won't the industry keep fighting an uphill battle that gets steeper and steeper every year? Is this on the back of the minds of current bankers in O&G?

I'd like to remain in Texas for personal reasons. I would say this is a big reason why I am leaning towards O&G, along with interest in the field. However, it's equally important that I am able to have a long career, may it be another city/vertical than a career in a vertical that may be "diminishing". What are your thoughts?

Thanks.

Comments (23)

Most Helpful
May 24, 2019 - 11:07pm
wsoquestion54, what's your opinion? Comment below:

I'll take a stab at this. Short answer is yes, a career in O&G banking is still a great path.

Starting FT in July, so here are my thoughts. I'll break up the answer into two considerations:

  1. The viability of the O&G industry and its firms,
  2. The viability of IB within the O&G verticals.

1) The viability of the O&G industry and its firms:

Nowadays all the talk about alternative energy, climate change, slowing global economic growth etc. have cast doubt around the long term viability of energy commodities. However, oil and gas will continue to drive gentrification and economic growth and will still make up the lion's share of all energy production for at least the next 30-40 years. Don't get me wrong, the industry is undergoing a significant shift and renewables and alternative fuels will definitely have their place in the energy mix, but they won't replace conventional fuels. That brings me to my second point; the incumbent oil and gas firms (with whom these banks have long-standing relationships) will not just cease to exist -- they will continue to operate as going concerns and will diversify their asset bases accordingly. This extends beyond just renewables, but also to things like LNG, which represents the next step in "cleaner" power generation.

2) The viability of IB within the O&G verticals:

As for the banking side, I think it's an extremely fascinating time to get into oil and gas IB. As mentioned before, the industry is undergoing a structural shift. The crappy firms (and there are lots) will be squeezed into bankruptcy (creating restructuring deal flow) and the good firms will capitalize on opportunities to add to and / or diversify their asset bases to remain competitive (creating M&A / A&D deal flow).

Energy capital markets have been very slow lately but the capital intensive nature of the industry hasn't changed, and when they open up again, bankers will be there to benefit. Near-term drivers for M&A activity in O&G include consolidation, the buildout of new LNG infrastructure and assets, and the integration of technology and big data.

Summary:

Overall, you've got nothing to worry about imo. And on another note, Houston is a great location to start a career in IB (no state income tax and a relatively low cost of living allow you to live it up and actually save money from each paycheck).

Interested to hear others' perspectives.

Array
  • 27
May 28, 2019 - 10:49am
InVinoVeritas, what's your opinion? Comment below:

Just spoke with my buddy over at Tudor Pickering who is on the energy services team. He makes good money but says that group is the toughest place to be because of the reduction in capital targeting this incredibly volatile space. His feedback is that upstream and/or midstream is a much better place to be, and affords better exit opportunities.

May 28, 2019 - 10:47pm
ogbanking713, what's your opinion? Comment below:

I keep hearing great things about TPH/PWP (culture and deal flow). Do associates preference whether they would like to do downstream/OFS vs. upstream/midstream? I guess this would also depend on the particular bank.

May 25, 2019 - 8:08am
chromium73, what's your opinion? Comment below:

I have opposite perspective, couldn't sleep at night being completely levered to O+G and moved out of coverage banking to a broader infrastructure investing role. Not only for long term prognosis but even in short term it has vastly underperformed all major industry verticals since the financial crisis and investors are fed up. I'm happy to still cover it as part of a wider mandate because it's essential and interesting but never in a million years would I go back to it as a specialist. Very asymmetric risk profile.

That being said Texas is awesome and has a diverse economy, even within energy landscape. Biggest wind producer in the country and solar is about to explode. No reason you can't build a finance career in the state. I'm a transplant and hope to never leave!

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
May 26, 2019 - 11:34am
fraciswacc, what's your opinion? Comment below:

When you say underperformed, are you talking about the capital markets? Public energy companies haven't been doing the best lately, but there's still a lot of high risk/high reward plays in the private energy sector, especially A&D. Also, midstream companies generate a lot of cash flow for investors due to their MLP structure.

In terms of banking, revenue is generated by fees, not really performance. More deals = better for O&G banks. And a lot of deals are large just due to the sheer nature of the capital intensive O&G industry.

May 26, 2019 - 1:23pm
chromium73, what's your opinion? Comment below:

Public and private investors have both been equally burned. Look no further than huge drop in fund sizes for First Reserve, Riverstone, Apollo NR and on and on. MLP model has completely failed and equity issuances in the sector cratered 90%+ in 2018 and still frozen. Many upstream companies are starting their second round of bankruptcies in 5 years. Major institutional investors who have been the lifeblood of shale growth are, by policy, freezing new energy commitments or worse starting to divest.

Deal flow for bankers in M&A setting should be good for a few years as the shitcos consolidate and the PE backed companies exit. The majors will diversify overtime and continue to be relevant no matter what the future of energy holds. Not sure if this leadership will come from the US but more likely Europe.

All of this didn't matter for me though. I didn't have the stomach to endure working in an industry that is so reviled by the press and is being slowly regulated out of existence. Life is too short and there are enough passionate people in TX that love oil and gas as much as anything so didn't want to try to live up to that. It really hit me on a spiritual level that no amount of money or data could overtake.

May 27, 2019 - 1:32pm
high hopes, what's your opinion? Comment below:

Lol at the college students weighing in here versus some of the experienced industry guys.

MLPs generate a ton of cash flow due to the corporate structure? I guess Kinder, Williams, and Enbridge don't generate cash flow because they're C-Corps.

I'll loosely give my thoughts here. Look at upstream valuations in the DJ versus other basin. There's a bunch of "headwinds" for the industry coming from different angles.

May 27, 2019 - 1:36pm
globalmacro, what's your opinion? Comment below:

I've tried to post this a few times and have lost the post each time. The short version is: Global oil and gas demand is still growing but location matters. From Houston there are certain comparative advantages and 'moat' that provide very good long term prospects regardless of the macro environment. Shale oil continues to grow, Texas has the largest NGL hub in the world and the USGC has ~11% of the world's refining capacity (with the US as a whole having ~21%).

Your concerns are valid, and you should think carefully about it because there are many other good industries in Houston as well. Climate change and it's many tangential societal problems are quite complex, but ironically enough imply that O&G will continue to thrive for some time.

Natural gas and NGLs can form part of an overall approach to climate change, but even if you view the industry on a long term decline, Houston will continue to be a powerhouse and will be among the last standing in the industry. For good or bad, the world is still a very long ways away from that decline.

May 27, 2019 - 5:29pm
high hopes, what's your opinion? Comment below:

What are the other industries in Houston? In terms of banking and finance it seems to all be oil focused or linked.

Obviously there's a large amount of healthcare and that stuff...but people won't transform from bankers to doctors

May 28, 2019 - 2:54pm
globalmacro, what's your opinion? Comment below:

Thinking about it, you are correct. Other industries won't have nearly as large a representation in banking, which means it would be limited mostly to O&G and related industries. Doesn't mean it's not possible to branch into something different, but your point is valid and well-taken.

May 27, 2019 - 7:51pm
lordxenu33, what's your opinion? Comment below:

Also, considering the ongoing structural shifts in the energy industry, certain sub-sectors will impacted more so than others. Upstream is entering another phase of bankruptcies and Companies with viable assets in premier regions who've achieved capital discipline will survive. OFS companies have been taken to the woodshed in public markets and I think many will be forced to integrate into broader industrial companies. Imo, midstream is the place to be in O&G, the major basins still dont have the appropriate infrastructure even at $50 - $60 oil, and even with the recent FERC regulatory changes, private midstream companies have been trading at robust multiples thus far in 2019.

May 28, 2019 - 4:47pm
biscuitsandgravy, what's your opinion? Comment below:

Kind of pinballing off this thread, does anyone have any experience in RX O&G banking as a career path? Exits, long-term advancement ops, what it looks like VP+, etc? Thanks!

Apr 26, 2021 - 4:32pm
TheEmperor, what's your opinion? Comment below:

Molestiae expedita sit aut est pariatur. Alias aut optio iste eum ut soluta error officia. Numquam quod illum dolor ut possimus dolorum. Consequuntur nihil et voluptas minus ex. Eos perspiciatis ipsum quaerat iste voluptatum voluptas. In molestiae ipsum vel voluptatem doloribus. Et voluptatem expedita expedita soluta placeat.

Modi pariatur quisquam sed corporis. Eum modi iure non doloribus voluptas. Autem ab asperiores et sapiente suscipit est inventore.

Est laudantium velit quia. Sint architecto voluptatem excepturi aut earum. Mollitia quae quis eos.

Start Discussion

Career Advancement Opportunities

November 2022 Investment Banking

  • Jefferies & Company (▲08) 99.6%
  • Lincoln International (= =) 99.3%
  • Financial Technology Partners (+ +) 98.9%
  • Evercore (▽01) 98.5%
  • Bank of America Merrill Lynch (▲01) 98.1%

Overall Employee Satisfaction

November 2022 Investment Banking

  • PJT Partners (= =) 99.6%
  • Evercore (▲02) 99.3%
  • Greenhill (▲06) 98.9%
  • Canaccord Genuity (▲15) 98.5%
  • William Blair (= =) 98.1%

Professional Growth Opportunities

November 2022 Investment Banking

  • PwC Corporate Finance (▲14) 99.6%
  • Lincoln International (▲03) 99.3%
  • Jefferies & Company (▲04) 98.9%
  • William Blair (▽02) 98.5%
  • Evercore (▽01) 98.2%

Total Avg Compensation

November 2022 Investment Banking

  • Director/MD (10) $613
  • Vice President (38) $392
  • Associates (219) $256
  • 2nd Year Analyst (139) $163
  • 3rd+ Year Analyst (19) $160
  • 1st Year Analyst (463) $153
  • Intern/Summer Associate (88) $151
  • Intern/Summer Analyst (335) $92