Starting at energy IB at BB in 3 weeks but no knowledge of energy

Ex Houston O&G banker here.

First of all, you are fine. I came in knowing nothing about energy whatsoever. They will not expect anything of you as an intern. The only exception is if you claim to know things, be prepared to back that knowledge up.

That said, I can give a quick overview and point you in a few directions with regards to energy. Assuming this is oil & gas. If you are power or renewables, then someone else can help more. I'll talk more about upstream and OFS, don't know a lot of midstream and downstream.

Upstream:

Business model is to buy land for the oil / gas underneath. An upstream / exploration & production company ("E&P") will pay for speculative land (riskier but cheaper) or more developed land (more expensive but more likely to have more resource). Once the E&P has the land, they spend cash to drill wells, then spend additional cash to "complete" wells (frac it, etc, additional stuff to make more oil come out). Then, the well starts producing. The E&P gets ~80% of the production from it (the original land owner takes ~20% across the top).

An E&P adds value in one of three ways. These are as follows: (A) expertise at finding speculative land that contains oil; (B) expertise at drilling wells and developing land; or (C) expertise at getting oil out of the ground cheaply once the wells are producing oil. Most E&P companies add value in a combination of all three, but I'll take about the three ways here as if they are separate companies. An "A" company captures value by buying land for the cheap, proving that there might be oil there, and selling the land at a higher value than it paid). A "B" company captures value by buying risky land from "A", proving it up quickly (by drilling good wells), and selling it to a "C" company for more than it paid. A "C" company adds value by holding onto land through its production and enjoying the cash flows from the production. As you go from "A" to "C", the cost of capital decreases. Also, note that an "A" company trades on acres, a "B" company trades on resource / reserves and a "C" company trades on production / EBITDA. All three can trade on NAV (Net Asset Valuation, an asset-life DCF)

Walking through cash flow now: Multiply production by commodity price (adjusted for the "differential", the difference between the benchmark price (i.e. WTI) and the realized price in the area), and that is revenue. Subtract typical operating expenses (lease operating expenses - costs for materials needed to make wells go like water and also expenses for people needed; production taxes; gathering and transportation; etc), and you get EBITDA. E&Ps hardly pay any taxes because they can expense most of their capex, but these companies are fairly levered (2-4x EBITDA is typical) so interest is material. In a bullish cycle, companies try to outspend their cash flow (capex > EBITDA). In a bearish cycle, companies try to conserve cash (Capex EBITDA).

Midstream:

An E&P (upstream co) gets oil and gas out of the ground. A midstream company transports that oil / gas from the wellsite to a refiner. These can be pipelines, gathering lines (smaller lines for grouping natural gas), rail, trucks and others. Assets that store oil and gas are also classified as midstream.

A good way to think of midstream is to think about commodity risk exposure. Assets can be used for oil or gas. Beyond that, some assets are structured with longer term contracts and others aren't. For example, long-haul pipelines typically have long (I think 10+ year) contracts.

The most interesting thing about midstream from a junior banker perspective is probably the level of modeling. The assets aren't all that complicated to understand, but the financial engineering for midstream is pretty intricate. Most midstream companies are structured as MLPs, which have a general partner and a limited partner. This is essentially a way to provide multiple tiers of equity into assets, similar to multiple liens of debt. I won't go super in detail here, but I would recommend trying to get exposure to MLP modeling quickly because it is the best way to ramp up your modeling skills.

Downstream:

These guys buy oil and gas from the midstream companies, do a bunch of chemical reactions on them, and sell the end products. I.e. They will take oil and turn it into jet fuel, or potentially feeders for the petrochemical industry. The big macro indicator for them is the spread between input and output prices. Downstream also includes retail gas stations and stuff like that. Most O&G banking is not downstream, but there is a transaction every now and then.

Oilfield Services:

This is the fourth and last big sector in oil and gas. It consists of companies that sell products and services to upstream / midstream / downstream companies (most Oilfield Services "OFS" companies cater to upstream companies). Subsectors of OFS consist of drillers (onshore / offshore), completions providers (pressure pumping, sand, coiled tubing, etc.), equipment providers, exploration services (seismic, etc.).

Many OFS companies are the most similar to your classic "normal" company in terms of being able to be valued off of your classic 5-year DCF.

When looking at OFS, a good way to understand a company is to understand the underlying drivers. Is it levered to upstream or midstream / downstream? Is it onshore or offshore? Is it exploration levered, development levered, or production levered? Is it equipment (a big asset + people making smaller assets for customers) or a service (lending big assets + people to customers)?

The following are ideas for prep. None of these are necessary for your summer, but if you are anxious to get going, here is a list: *Look at an E&P 10k. Understand the E&P specific footnotes (reserves, etc) *Learn how an E&P NAV works (probably some sort of precedent online) *Try to understand the MLP and GP tiers (governed by incentive distribution rights). See if you can model them: With $X DPU at an MLP, and a given tier structure, what is the % sharing to the GP? *Read some articles on fuelfix.com *Take a look at some recent M&A deals; read the transaction overviews in the S-4s