Lateral into O&G / Houston - What to Expect?

Current associate in a solid industrials group with some M&A processes on the resume. I find the general IB work to be fine but am extremely interested in O&G / energy and my wife and I want to put roots down and live in Houston long term

Given that I'm coming from a non-O&G group and with limited hardcore modeling experience, what would I be expected to do from a technical standpoint in the lateral process? I have been following the industry at a high level given my interest, so while I don't have the background of a lot of post-MBA houston guys (such as petroleum engineering, etc.), I know about the overall market, trends, and a handful of key differences in valuation, etc. I would be more than willing to lose a year when lateraling given the lack of background

Basically, I want to know if a) I will be taken seriously so long as I can convey my genuine interest and desire to be in Houston and b) given my lack of O&G background, what would I expect from a technical evaluation process and how can I do my best to prepare?

Comments (15)

DayMan247, what's your opinion? Comment below:

I think I would be moderately skeptical but if you have a good story and any connections that would go a long way.

Given that the industry is generally out of favor with talent that might help, but agree with your points about lack of O&G specific technical background. My stance is if we liked you well enough that would be overlooked since that aspect can be picked up more easily than the other characteristics that make a strong associate and beyond

  • 1
Walker Texas Banker, what's your opinion? Comment below:

General industry knowledge likely to be sufficient. You can also learn a lot of the valuation differences from publicly available information.

I think it is probably easier to teach a banker O&G mechanics than it is to teach an engineer the banking stuff so doubt you will have much difficulty.

  • 2
  • Associate 3 in IB - Gen

Houston banks are pretty fit focused but I would expect questions like:

What are some industry specific multiples (TEV / production, TEV / net acreage) 

What are the three verticals and what is their role in the value chain (oilfield services, upstream, midstream) 

What are some industry trends (e.g. for upstream growth within free cash flow and continued restraint given market skepticism of the past half dozen times companies used high prices as an excuse to let it rip on capex spending, for everyone an emphasis on having an "ESG story" investor emphasis, with carbon capture and storage being a common example)

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  • Associate 3 in IB - Gen

Very few people want to be in Houston from other groups and a ton want to leave so if you genuinely like it you should be able to land a spot. Last year you could have moonwalked into multiple offers. 

From a modeling perspective the most unique vertical is upstream. There isn't much like an ARIES database NAV in other industries. That said they're also straightforward once you've done a couple. The other big difference is the wide range of industry specific data services and industry research providers (Enverus, WoodMac, Rystad and like five other more niche ones). 

Oilfield services is the most comparable to your group and is basically oil industrials. It also blows as an industry (don't do this). Upstream is more interesting and the groups tend to have more chill people. Midstream is more technical from a modeling standpoint and the groups tend to be more analytical (because the clients are too). 

Houston is cool and if you find a group you like you can coast and make a killing in a low cost of living city for probably a decade. But I wouldn't bank on making MD - the groups are selling the idea of transitioning to being broad "energy" groups that also do energy transition stuff and renewables but there isn't enough deal flow there to make careers for the hundred plus associates/ VPs currently in Houston. 

  • Intern in IB - Gen

Oilfield services is the most comparable to your group and is basically oil industrials. It also blows as an industry (don't do this). Upstream is more interesting and the groups tend to have more chill people. Midstream is more technical from a modeling standpoint and the groups tend to be more analytical (because the clients are too). 

As I'm still in college, my knowledge of the industry obviously pales in comparison to yours. From my outside perspective, it seems clear the upstream would be the sexiest. What makes oilfield services so unappealing, though? - Is it just because the "action" is where the upstream is, where all the money is being made, where the focus is, where the OIL comes from, etc.

  • Analyst 2 in IB - Gen

It's all depends what type of experience you are looking for. If you plan on being in O&G for your whole career upstream and midstream groups are the way to go. The volatility goes up as you hit things ancillary fields like OFS. The OFS shops in Houston (TPH,Piper , PPHB, Moelis, and sometimes JPM) can be great spots to get experience on EBITDA generating business. Which would be experience that will easily transfer to other industries.

  • Associate 1 in IB - Cov

OFS is the butt of every oil & gas joke, sometimes unfairly though. Basically its a vicious race to the bottom when it comes to pricing their services & products (Operator: "oh you won't give me a deal? Let me just call your arch-rival competitor with perfectly identical service who will do it for 20% less"). Its getting better now as OFS co's are clawing back some COVID price cuts but boy howdy was it tough sledding there for a while.

On the flip-side, OFS is great because its a more typical widgets/services biz model and I've always heard it prints a lot of millionaires whereas upstream takes some real technical expertise to be a leader.

  • Associate 1 in IB - Cov

Honestly I think a brief description of what group you're current in, whats attractive to you in O&G and desire to be in Houston checks a lot of first screen boxes. At this stage resume is a formality such that you can clearly articulate your past experiences (ability to do the job) and why you want to make the switch (desire to do the job). From there it comes down to fit.

  • Teller in PE - Other

As mentioned by others, it's very dependent on prevailing market conditions given the talent pool is quite small and whenever there is a crunch for junior-mid level candidates the bar gets lowered substantially. I remember a long time ago considering the move and going from no replies to aggressive offers within span of 6 months as the recruitment environment shifted. 

Key is fit so if you can articulate why Houston and O&G you will bridge any technical gap substantially (nothing you can't pick up quickly on the job at the Analyst/Associate level anyway). 

  • 2
professionalape, what's your opinion? Comment below:

Piper Sandler, from what I recall, is a pretty good OFS shop

  • Associate 2 in IB-M&A

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