O&G Technical Prep - Need Urgent Help!
Landed an interview at one of the top energy shops in HOU so wanted to make some clarifying questions as I am not an energy expert by any means:
- I understand OFS as essentially providing maintenance, repair, production equipment / services across the energy value chain (upstream, midstream, downstream). Because it is tied to upstream production and the broader whims of commodity prices, it holds the highest beta and low margins (lower value-add service). Is this a correct assessment?
- Best energy vertical for an LBO? Preferably non-upstream; likely Midstream as it provides secure CFs (similar to dividends) as MLPs dominate the space and provide favorable tax treatment, financed by units (not debt)
- Is the valuation method for an MLP simply a dividend discount model (assuming two different growth rates)?
- Impact of higher oil prices on the economy / Disney? Higher oil prices imply rising transportation / feedstock costs for several businesses, thereby, rising prices, lowering consumer spending, and leading to a decline in GDP. Disney's expenses could see a commensurate rise in transportation / misc. uses of oil for its machinery and would see some form of decline in earnings (also consumer appetite might lower, thus, lowering revenues)
- DACF is calculated as CFO + After-tax financing costs + before tax exploration expense +/ change in working capital and is used in the context of valuation as a multiple of EV where it seeks to eliminate the impact of leverage distorting earnings / valuation. (Any reason why the pre-tax exploration expense is added back?)
Would love to hear if my assessment on these technical concepts is correct. Thanks!
Had 3 Superdays for energy, just to give clarity. And assuming your interview is for a Summer Analyst position, I wouldn't worry much about extremely difficult technicals. Maybe if the bank is notorious for hard techs, but having a firm understanding about a NAV model and Oil & Gas as a whole is the best advice I can give. Hardest things I got asked were NAV based. This is also just my advice and everyone's interviews are different, also it never hurts knowing more.
Would you mind expanding on the hard NAV questions? I have a very basic understanding of the model (sketch-out beginning 1P reserves, assume percentage increase/decrease for production curve, use a historical average realized price to reach revenue and then account for production expenses / development costs / cash taxes to reach after-tax CFs which you then discount with PV-10 for EV + valuing undeveloped acreage). But I haven’t really looked into the specifics of the decline curve or projecting out wells by region or accounting for 2P / 3P as part of the model. Is that what they’re looking for? Thanks for the help!
Where is your interview at? Might be able to give my interview experience for energy
Boutique
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