How are things going generally? BB? EB? MM?
Are hours rough or light without as much activity? Are people looking to exit or waiting it out? Have a buddy who is an associate in industrials hoping to head back home to O&G coverage but no idea what that outlook and experience looks like right now.
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Idk if this is just an assumption that deal flow must be light after the collapse in oil prices last year but that’s not really the case at all, lots of banks are extremely busy right now. Particularly the top shops in Houston are all very busy, imagine the backlog of deals that didn’t get done in 2020 as companies/PE sat on the sidelines and now that the market is looking a lot better, they’re bringing deals to the market. I’m at a BB and it’s been brutal the past few months - working on 3 live M&A deals, some debt financing stuff, and the usual market update/pitch decks and internal stuff. Maybe banks are hesitant to fully staff their Houston offices after 2020 but we have zero capacity to spare.
Can confirm this in our houston team talking to my old buddies. Glad I moved out
This is really helpful, thanks.
That makes a lot of sense, but is there the idea that after this backlog and "new normal" flurry there will be a negative outlook? I guess the question is better put: did firms overreact to the oil price crash or is their reluctance to hire a sign that they don't see as much action in the near/mid term (2-4 years)?
I wouldn’t say there is too much of a reluctance to hire. Many shops didn’t cut hiring and the shops that did lower hiring, did it by a person or two, not by that much. Overall at my boutique, we have seen unbelievable deal flow and deal flow on both the M&A and RX sides have been nonstop since last summer. In general, I think we are seeing a split in deal flow where the top shops are getting unbelievable activity and the middle of the road shops are barely getting anything.
Fair question to ask since they are reluctant to pick up the hiring. I think the thing that drives oil and gas M&A above all else is stability in commodity prices. Doesn’t matter as much if prices are low or high, what matters is that buyers and sellers agree on the outlook and that there isn’t a huge spread between what buyers will pay and what sellers will accept. 2020 was so volatile that it was tough to get a deal done, sellers refused to sell at a cyclical low in commodity prices so they expected to get a bump in valuation above what prices implied. But if you were a buyer looking to deploy capital or scoop up a company for cheap, you’re not willing to pay a big premium above the shitty valuation that the current commodity pricing would imply.
So, what feels good about activity going forward, is that commodity prices seem to have settled in the $55-65 range and if both sides are generally in agreement, deals get done. And there’s also a natural catalyst for consolidation, there are currently way too many small, inefficient, sub-scale operators and the general expectation is that at the end of this wave of consolidation, there will be just a few large public operators per basin remaining. I think the market will be active in the coming years. Whether banks choose to stick around in the face of ESG pressure though is another question, and that’s why I think they’re reluctant to hire - not the market outlook.
Following
Morale is very low. Strongly recommend looking at renewables and project instead
Can you explain a little further? Is morale low because of the longer term outlook? I understand there is likely a flurry of consolidation and reorgs happening but can't see if there will be opportunities to climb the IB ladder 3-5 years down the road.
Speaking from CB side. You can just feel pivot to more "selective" lending, which is tough when the IB folks are pitching for business but not tons comes in. Industry evolution is interesting and ESG is a hot button for new deals and for sure creates opportunities there if groups want to adapt. But Houston being center of that remains TBD
There have been a few mentions on this thread of "top shops in Houston". Can anyone define those shops? Is it just Evercore, TPH, and JPM?
There have been a number of threads recently on this that go in depth but I’ll provide a high level overview. Among the BBs, JPM, GS, BarCap, CS, and Citi are good. Among the boutiques, EVR, MoCo, Intrepid, TPH, HL, and PJT are good.
Thoughts on Gugg’s Houston group? Have heard good things from multiple people but don’t see them on this list.
Thanks for all of this. How do BofA, Lazard, and Simmons fair these days?
Surprised that Lazard doesn't get mentioned. Why is that?
airline shop
Would also add Jefferies to the list of top shops. Have seen them on some good RX advisories over the last year (Valaris, Gulfport, EP energy, Foresight Energy), have been getting deals in A&D (albeit nowhere close to 3-5 years back), and have also seen them on M&A deals in upstream and midstream. Also heard that the office has been getting traction in the renewables space.
Yea good call. I knew I was forgetting someone. Jeff is still very solid in the O&G space despite the A&D space not doing too great. I wouldn’t include Laz. Get the occasional large RX mandate but not enough consistent deal flow. Gugg Houston is very new. Have met some smart people from there but I wouldn’t say they’re established enough to be considered a top shop.
Would agree morale is pretty low among juniors, primarily because while near term outlook for deal flow is good, exit opps are severely limited. Usual exits to O&G PE aren't there (have seen a lot of good investors close up shop) and exits to industry portcos are non existent - and not where I'd want to be personally.
Personally at my BB no one has struggled at all to get PE offers (non-energy exits still rare though). It’s just that those jobs are looking less and less attractive. As you rise through the ranks of PE and a larger percentage of your comp is tied to carry, who wants their comp to be tied to funds that are failing to meet their hurdle rate? I think energy IB is still an attractive career path, but wouldn’t say the same about energy PE. And as I said, those non-energy exits are somewhat rare. People having difficulty getting the exit they want, and less excited about the exits that they can actually get.
Are you referring to 2nd years or 1st years (started last July) who are having no difficulty with PE offers?
When you say non-Energy PE, is that directed to ops for NY PE shops? Have juniors had any success with non-Energy LMM/UMM/MM shops in Texas?
Those poor Houston energy IB analyst/associate/VP guys and gals are getting crushed right now I think.
Starting at a top shop this summer (EVR/TPH) - What would you guys say is the likelihood of Infra PE exits from these shops assuming Infrastructure/Renewables is what I am targeting and looking pivot towards long-term. Do the Houston EBs get any tractions for MF Infra roles of that sort at all? Have seen a few exits to MF Energy Groups to be fair
Genuine questions for folks on this thread - have a summer lined up at RBC Toronto in their Generalist M&A group which tends to get very strong deal flow/great PE exits (particularly canadian pensions, onex, altas etc.). That said, I have a close contact/alumni at a top EB in Houston (EVR/MO) through whom I have a strong chance of securing an FT role since I had an SA offer from this bank last summer but opted against it due to O&G sector issues being slightly magnified at the time due to COVID. Would it be worth lateraling in this case if my ultimate goal is to exit into PE in the US? How real is the O&G pigeonhole? Not as concerned about being in generalist PE since Infra PE is something I would seriously consider but would the Houston banks give a realistic shot at that? Also reckon that being the US would translate into a lot more finance type opportunities in comparison to Canada. Would really appreciate any suggestions here fellas!
At one of the “top BBs” listed above. The last 6 months have sucked because of the insane amount of energy transition SPAC IPOs and HY offerings on top of the normal M&A type work. Places like Moelis, Evercore, TPH are always going to be attractive since the restructuring and M&A combo will allow the groups to weather good and bad times in energy. However, if I’m a student at UT, Rice or SMU, I would look at which banks are doing more in the renewable energy space. Two reasons for this: it’s more interesting work in a sector that with a bullish long term outlook and it’s a nice hedge against only having traditional O&G deal experience.
The comment about the declining attractiveness of energy PE is definitely true, that’s why most of these firms are trying, somewhat unsuccessfully, to raise energy transition funds. Think about the deal experience you want to market yourself off of - the same as technical A&D, corporate upstream / midstream that everyone else in energy has (who are also probably looking to get out) or something more cutting edge in clean tech that maybe overlaps with something like project finance?
TLDR Prediction: the “top groups” in the not so distant future will be the ones that have a combined energy and P&U exposure. Would be wise to have your main transferable skills as an analyst, corporate valuation and industry knowledge, not tied to a commodity in secular decline.
If this mega consolidation boom happens, there will be a much smaller pool of companies to advise. Let’s say in 5 years it comes down to Exxon, Chevron, Oxy, Pioneer and EQT left standing. Do you think these majors will shell out fees if they already have in-house M&A teams? On top of that, there won’t be a universe of new PE-backed E&P and midstream companies ready to fill the gap this time around. Hedge your bets folks.
Thanks for the insight. If I were interested in being a career banker at a "top Energy BB," would you say one could still have a meaningful career. Or will there be less spots and thus harder to make it past ASO etc.?
On the contrary. Now is one of the best times to get into energy IB if your goal is to stick around and move up quickly. The talent currently in place is heading for green pastures and these banks still need solid headcount to push through deal flow. I would say CS, Citi or JPM are likely your best bet for the BBs and EVR, MOE or TPH on the boutique side.
I agree with this. I saw that at Jefferies, their current head of global energy banking, Peter Bowden, is now also the head of Power Investment Banking. I have also heard that they are getting more deal flow now in the renewables space. I think all the successful and forward thinking banks will be able to make a transition. Citi comes to mind when thinking of another bank that merged their chemicals, power and energy group. Like Jefferies, their current Global head of energy is the head of the new unit.
To be clear: this is a new title and in some respects org change for these firms, not a new combined coverage effort. O&G is fundamentally different from P&U
There might be a lot of pitching but it’s mostly going to amount to nothing. Sponsor backed activity in oil and gas is dead as a door nail and unlikely to come back.
Check out the recent financial times article on shale activity where the head of quantum energy recently said small to mid cap shalecos are going into rundown/bleed off mode.
I seriously can’t think of a worse coverage group to join than oil and gas. If you want energy transition or whatever the word is now, go to a power group in New York.
This is coming from a 10+ year veteran of energy/infra who at some point has worked in power, renewables, energy tech and midstream,
Agree with this 100%
the comments that there’s this huge oil and gas backlog of deals is hilarious - investors have shunned O&G, particularly upstream as the worst offender, for terrible acquisitions and growth projects with near zero returns
Hard to pay a premium for naturally declining wells and come out ahead.
For someone reason all the first years and interns hyping up O&G like crude is at $100. The second half of last year was a nice rebound, but at this point what good merger candidates are left especially in the Permian. Anadarko got OXY, Chevron picked up Noble, Diamondback acquired QEP and Guidon, ConocoPhillips got Concho and you had the Pioneer and Parsley merger. At a certain point there’s not going to be many merger partners left and the promise of combining for increase scale and better cost structures in order to focus on cash flow seems to get further and further away (and leave shareholders more and more disappointed)
So asset trades will increase driving A&D deal flow
Also agree 100%.
What people don't realize is that there are two structural headwinds in shale oil. First, most of the profitable drilling sites at sub-$50/bbl have probably been drilled. Second, 90% of the oil in those wells come out of the ground in the first year. 90%!!! Banking the shale oil industry is dependent on drilling for new wells, not producing oil out of existing wells. It's not like at current oil prices, shale oil is going to somehow pick back up. At $50/bbl there's no opportunities. It's drilled out. Simple.
Let's say oil prices go to $100/bbl. The party can't last longer than 10 years because you'll eventually drill out every profitable well and throw that oil on the market (ignoring any headwinds from oil demand at that high a price).
So why would you want to bank that kind of industry??? As an investment banker or a corporate banker?
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