Oil & Gas M&A


I've got the opportunity to join the M&A team of a Non BB bank in the Oil & Gas sector. I'm sure everyone is aware of the transition oil and gas is undergoing, but I spoke to a couple analysts who said the deal flow is still there and will be there for the foreseable future. Does anyone have any further insight into the sector, is it something I should do? Also, will I be branded as a Energy/O&G banker if I do join this team or is it easy to move groups? (Might be worth mentioning that I dont plan to stay at this bank for long). Alternatively, I can join a Corporate Banking (CIB) team in Healthcare and then hope to move to an M&A team that interests me?

Any advice is highly appreciated. 

Comments (30)

Most Helpful
Jul 12, 2021 - 9:19am
caymanoffshoremaster, what's your opinion? Comment below:

Oil and Gas in my opinion is one of the most exciting industries, as well as a bedrock of American high finance. Hydrocarbon resources are a staple of the investment banking landscape, and will be for the foreseeable future. Liquefied Natural Gas is transforming the way energy is bought, sold and transported around the world and subject to some of the most sophisticated feats of engineering. Oil and gas is the best industry by far, and i am not even an oil banker but i respect the shit out of the industry as a whole. it is actually really cool and complex

Jul 12, 2021 - 11:22am
caymanoffshoremaster, what's your opinion? Comment below:

it dominates the international playing field completely. Daniel Yergin's The Prize, is a great history of the oil industry if anyone is interested in Oil and Gas. Also, John D. Rockefeller's biography Titan is excellent, one because he is a fascinating character and hallmark capitalist and two it goes in depth on Standard Oil's history and Rockefeller's domination of the early industry. Love it 

Jul 15, 2021 - 10:13am
mind the GAAP, what's your opinion? Comment below:

There is such a book, The Prize by Daniel Yergin. From the first wildcatter in western PA until the Gulf War. The book is a mix of evolution of capitalism, Middle East history, geopolitics, and world conflict (WWI was won by British navy switching to oil from coal, WWII by the US producing 90% of Allied oil and keeping Germany from getting Middle East oil).

I buy The Prize for other people to read, if that's any indication of an endorsement.

The sequel is The Quest which goes from the fall of the USSR to 2011. I'm going through that now and a third came out last year, called The New Map.

(edit: missed cayman's comment, sounds like he's on top of it)

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Jul 12, 2021 - 9:31am
SKEET SKEET MOTHERFUCKER, what's your opinion? Comment below:

What's your favorite gas to drink? I personally like a smooth Canadian Light Sour. And I like my women like I like my oil - Arkansas Extra Heavy. Salivating rn just thinking about drinking a big barrel of that 

Jul 12, 2021 - 4:57pm
Anonymous244729, what's your opinion? Comment below:

OG is prob still a good industry. Not sure how many buyers there are out there for these assets, which is maybe why OG bankers are pretty busy these days. Hopefully with oil prices coming up recently the sector can do well. Not sure what is the long term outlook for oil as a commodity. But prob still good to be an energy banker long term if it interests you. Good luck!

Jul 12, 2021 - 5:06pm
kingb, what's your opinion? Comment below:

I think the biggest problem with the sector is the monoculture that is O&G banking in Houston. I have a lot of friends there who just atrophied any other skills and interests between how specialized the sector is and how obsessed everyone in Texas becomes about relative lifestyle achievements.

Jul 14, 2021 - 11:18am
Geralt of Rivia, what's your opinion? Comment below:

What do you mean by Houston bankers being obsessed with relative lifestyle achievements? What makes it different from the clout chasing cultures of most other banks? 

Jul 14, 2021 - 11:51am
kingb, what's your opinion? Comment below:


What do you mean by Houston bankers being obsessed with relative lifestyle achievements? What makes it different from the clout chasing cultures of most other banks? 

It's a Houston thing - its really hard to leave because you get enamored with the lower cost of living combined with high earnings potential of energy and energy adjecent jobs. While the city is diversifying, you just don't really have many alternatives to move away from energy so people naturally shift their focus on how big their McMansion are vs. what they would get in NYC to justify staying in an industry they might not enjoy as much anymore.

It's a perfectly fine career/life trajectory but its just worth being aware how difficult it is in practice to leave once you're in it, more so than other regions/specialties.

  • VP in ER
Jul 12, 2021 - 5:28pm

Oil & Gas is absolutely the worst sector now and has been for the last 5 years. The future looks pretty bleak due to ESG pressure and Energy Transition. However, energy transition won't happen overnight and oil demand will likely continue to grow for another decade or more. Low capital investment in the last 3 years and the next 2 years will likely lead to a call for short-cycled US shale production growth to meet demand. So right now might be a good time to enter the industry. It is really hard to predict the future, and maybe I am biased.  

  • Associate 3 in IB-M&A
Jul 12, 2021 - 8:52pm

The non-BBs are less of a strong bet in O&G unless you're at Jefferies or Evercore. Would try to feel out how seriously your bank is taking the ESG stuff as there will be a lot of work to come there, and a potential place to move to at a BB as tons of slots are opening up for that. If you're interested in ESG I'd do a year or two in O&G and then lateral to one of the new ESG groups at a BB.

Corp bank to M&A isn't a super common jump unless it's in the same coverage universe, so make sure you're really interested in healthcare if you pursue that.

  • Analyst 1 in IB - Cov
Jul 13, 2021 - 12:25pm

This is blatantly false. O&G is one of the sectors where boutiques absolutely crush it. Jefferies is decently solid but not even close to where it was a few years ago. Strong O&G boutiques include EVR as mentioned, MoCo, TPH, Intrepid, and HL

  • Intern in IB-M&A
Jul 13, 2021 - 12:32pm

Agree with this - Oil and Gas is generally very balance sheet heavy so non-BBs don't do as well. Jefferies, Evercore and a couple of other boutiques such as Intrepid (more so for RX) and TPH do really well outside of the BBs. Jefferies is the king of A&D and while that market has been relatively slow for the past couple of years it has started picking back up this year due to a combination of high prices and companies reallocating their portfolios (which almost always leads to divestitures). 

  • Associate 3 in PE - LBOs
Jul 13, 2021 - 11:16am

There's a longer thread on this somewhere, but the energy/O&G pigeonhole is very real - it's more akin to infra modelling/diligence which can be fundamentally different from vanilla buyouts.  I would think long and hard about your interest in the space before jumping in. 

As far as long term outlook, O&G isn't going to just disappear.  The industry is facing lots of headwinds but LNG, CCGT power to balance out renewable generation, and other niche adjacencies like biofuels are likely here to stay.  

  • Prospect in HF - Other
Jul 13, 2021 - 3:50pm

I mean, intuitively, O&G isn't going anywhere. If you were thinking about going for, say, Coal M&A, that would of course be a sector to stay away from as its been under severe pressure for decades. However, O&G are here to stay for quite a few years. 

Let's just take the example of oil first. 66% of US oil consumption goes towards transportation. Now, while the trend of EVs may put severe pressure on the gasoline segment, some of the more niche segments will continue to persevere. For example, around 10% of oil consumption in the US transportation sector as of 2020 is aviation fuel (keep in mind, air travel was very low in 2020 as well), and it's highly unlikely that airplanes will transition en masse to non-oil fuel sources anytime soon. Around 25% of US transportation oil consumption was in the form of distillates like diesel, which is primarily used in heavier vehicles like trucks, boats, heavy construction equipment, etc. Once again, the increasing prevalence of non-oil fuel for buses and trucks will result in headwinds for this segment, but demand will not go away at all. 

Also, nearly 30% of US oil consumption in 2020 was for industrial purposes - how long do you think it will take for us to wean off of hydrocarbon-based plastics, oil-based lubricants in factories, etc? A pretty long time. 

Let's not even start talking about natural gas - the rise of LNG, as another poster mentioned, shows how much more potential there is for LNG as a transitionary fuel as we move towards renewables. 

Now, I obviously can't speak to the investment banking specific environment. However, the O&G industry as a whole isn't going anywhere. Sure, traditionally niche segments may start to form a larger portion of the total oil market, but oil companies are still pursuing growth strategies such as asset sales and investment in renewables. There are still plenty of opportunities, especially with natural gas. 

I could be entirely wrong though lol

  • Associate 2 in IB-M&A
Jul 13, 2021 - 7:53pm

Correct me if I'm wrong or tell me what I'm missing, but:

1. Shale oil has had its run and that the future won't be as bright unless oil prices skyrocket or costs dramatically drop? It feels like the best fields have been picked off and any incremental production will lead to less productive wells or high COGS.

2. Shale gas is a little different since supply is plentiful and future demand has many positive tailwinds, but there's not a ton of money in that.

So I don't think we'll see a new crop of healthy and investable O&G companies pop up (i.e. no more Anadarko's, EOG's and Chesapeake's). I'd instead guess that consolidation amongst strongly-performing O&G companies will continue albeit at a slower pace, that the US shifts from oil exporter to oil importer, that we depend more and more on offshore drilling and Arctic drilling (this is where we might see some activity, though it's rather capital intensive so won't look like the shale boom and won't be as many new companies emerging) and that unless gas price or oil prices skyrocket and remain at elevated prices, we won't see much M&A because untapped land isn't as attractive. We drilled out shale in the 2010's.

I am sure that there are major holes or gaps in my thinking, but I don't know what they are. Would welcome anyone who can tell me where I may be off.

Jul 14, 2021 - 10:51am
miketyson´s broker, what's your opinion? Comment below:

I think oil&gas is a great start, you can easily change to renewables and thats a booming industry

  • Analyst 1 in IB-M&A
Jul 14, 2021 - 8:15pm

Go O&G to capitalize on the M&A activity that'll be happening over the next few years then transfer your m&a experience to renewables

  • Associate 2 in PE - Other
Jul 15, 2021 - 9:18am

I think O&G would be a very interesting place to work as an M&A analyst for a few years...the pigeonhole is only as real as you make it. 

The trend in O&G M&A right now is consolidation of production, not new exploration focused. On top of that, no one has cash for M&A (or at least, a desire to use it) and debt financing is not cheap unless you are a scale player with like > 10-20mboe/d. The result is that you have a lot of cash flow focused deals going on with nuanced equity structures that get pretty complex. Personally, I think that's an interesting thing to work on. Particularly if the transaction focus is a PDP roll up or optimization game then you don't really need to dive into complicated geology, etc. Its just finding the best structure for the cash flow PV. 

Additionally, larger guys are carving off non-core assets left and right...BP, Shell, Exxon etc are all sellers which can make for interesting counterparties. Lots of post-reorg bondholders and even bank lenders are stuck in equity of some of these things too and are looking for an exit. 

I think this sets things up nicely to get some complicated and creative transaction experience without necessarily getting so bogged down in the geology that you forget how to underwrite a non-O&G business.

Sep 21, 2021 - 10:09pm
mo_problems, what's your opinion? Comment below:

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Jan 14, 2022 - 12:19am
jaketell, what's your opinion? Comment below:

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