Would love people’s thoughts on this in terms of deals, exits, comp, and long term optionality. One thing that worries me is that being in energy in this climate is risky, but then I hear shops transitioning to a renewables group / doing more contemporary or relevant deals.
Any thoughts on this would be great.
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Sentiment is definitely a lot better than several months ago. Despite what some say, O&G not going anywhere anytime soon. If you’re looking for an immediate NYC MFPE exit, then it may not be the place. That being said, plenty of great opportunity at the right Houston banks. Lots of shops increasingly getting involved in renewables, too. At a group that is well positioned in O&G and getting involved in renewables all is well. Please don’t get scared away by people who don’t fully know what they’re talking about.
Makes sense I see a lot of top shop analysts end up in black stone, KKR, TPG for energy. A lot of PE firms are investing in renewables, so I feel like this is gonna be a great sector in the future ... does that make sense?
I would tend to agree with that. In the mid-longer term the Houston banks that are beginning to transition will be getting a majority of their fees from renewables or O&G clean tech type mandates. For the time being, its neat getting to be staffed on both O&G and renewable deals. And as you said, lots of the PE firms will be involved in renewables, too. I can’t speak as well to the outlook on renewables in PE, but I hope this was helpful.
I think renewables is going to deliver horrible returns over the next decade and oil and gas will outperform. One has a ton of over investment and the other under investment.
WTI has gone up and beyond $60/bbl and things are looking good, at least in the short term. As an incoming intern at a top shop in Houston, I know my firm went out and recruited more folks (after they had taken down the app. online) after the cycle during which I was hired and have heard similarly about other banks as well. This makes me believe that the banks themselves also hold a positive outlook on the future.
While everyone has their opinions and I know the general theme is flowing against energy (it's out of fashion, so as to speak), I think this is a great time to be joining as an analyst. IB will find business during every part of the cycle (refinancing, RX, distressed M&A during the down cycle, and A&D, M&A, ECM during upcycle). I understand some of the not-so-good IB energy teams have had layoffs (or have gotten out of the business [BMO]) but that shouldn't affect the top groups as much. Many of the energy companies used this as an excuse to clear/refinance debt, optimize productions to be more cash-flow positive at lower prices of oil (so now with the price back up, they will do even better than they did at the same price previously), so they should do better. Also, while demand in the US may go down due to a shift in consumer patterns, the US, which is a net exporter now, will benefit from an increase in demand in the emerging markets.
People in IB are undervaluing energy IB (which isn't going anywhere anytime soon) and this can be a great entry point for undergrads into IB. Less competition and you can always lateral to more traditional groups after a year or two in IB. The pay is the same as NY/SF but the cost is a fraction of the other cities. The only caveat is that if you are looking to go into the buy-side, you may find it a bit difficult to get into non-energy shops, although if you are willing to spend an extra year, you can recruit for the buy-side after you lateral. Nevertheless, there is also a growing number of non-energy MM shops in places such as Dallas. Thus, undergrads from non-traditional backgrounds (such as non-targets, people with other holes on the app.) should seriously explore the Energy IB scene. There's a great value play here that people are overlooking.
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As Warren Buffet says, be greedy when others are fearful and fearful when others are greedy. Mr. Buffet, by the way, also seems to be bullish on energy of late.
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I realized I didn't answer your question about the best banks, but I read a great answer by HTown+ the other day which I will copy below:
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Having gone through recruiting this past season, I can answer any recruiting questions that you might have.
This is great info thank you. If I’m interested in energy with little to no previous knowledge/experience, where do you recommend starting? I’m interning in a completely different group this summer but interested in energy for FT and want to research the industry.
I recommend starting off by reading about the basics of the energy markets. The primers from TPH and DB (RIP) are very accessible online. DB is much more in-depth (300+ pages) but both of them are great to get you started on the basics and the history. What I like about the TPH primer is that it gives you the coverage universes for the major players in each vertical and is more recent (the one I have is Jan 2020). There is also an energy banking IB interview guide that can get you into the technical sides of things and tells you about the basic differences (NAV, PV-10, etc.).
Other than that I realized that my energy IB interviews involved a lot of discussions at the macro level. What's happening around the world, what happened in 2020 (demand & supply shocks), and what's the outlook like for the future. So it's super helpful to be on top of what's happening in the markets, where the oil prices are at, and what the feel is like.
As someone who doesn't have previous knowledge and experience I think you'll have to really concentrate on selling your interest in Energy. O&G bankers want you to stay in Energy IB long-term and not use them as a springboard to other sectors so they really concentrate on that (if you look at Linkedin of those in energy IB, they all mostly have some or the other connections [they are from Houston, have previous exp., have fam in energy]). Thus, it's crucial to have them believe you when you tell them that you are truly interested. Having said, I had no experience in energy, wasn't from Texas, and still landed my internship so it is definitely possible.
I would read the book The Domino Effect. It provides an introduction to the history & economics of Energy Markets.
Couldn't agree more with this. Those who are entering energy IB at the lowest point in the cycle (classes of 2020,2021,2022) will be rewarded as the cycle shifts the other direction. I like to think of it as buying low, selling high. The market has assigned a "career risk" premium (or discount?) to energy and I think those that survive (I think this cycles downturn is mostly over) will do well.
The biggest indicator that the narrative was swinging too far in one direction was the increasing chants of "renewables are taking over" as energy stock prices decreased. The fundamentals of the energy industry will change much slower than the erratic stock prices of E&Ps.
I would also keep in mind that some shops are safer than others. EVR/MOE/LAZ/PJT are going to be able to tough out the troughs a lot better than other places.
And finally, is anyone going to raise their hand and say "yes, 20MM boe/d was the peak for US demand" or "we won't see 100MM boe/d globally again"... no, I doubt it. I still feel that Houston IB is a fine place to start a career, despite the negativity on this forum.
Can you comment on the interview process and maybe some the technicals you were asked? One of my friends who moved to energy IB internally was asked mostly fit questions since the senior bankers know most analysts are not interested in moving to TX let alone for energy.( I am looking at moving internally as well but for energy CB)
The short answer is, it depends. From my experience and those of my friends, there are some shops (like the one your friend is at) that concentrate on fit and there are some that really grill you on the technicals.
I would say that the fit questions will always be there and the most common ones are:
- Why Energy
- Why Houston
Coming to technicals, some of them will ask you just the basic non-energy technicals, but then there are some that will ask you energy technicals as a way to not only see if you are actually interested in energy but also because energy modeling is much more technical than any other industry (maybe except FIG). the most common ones are:
- Take me through a NAV
- Talk about the synergies in energy specifically
- how are O&G financial statements different from an industrial company
- Why PV-10
- what are 1P,2P,3P reserves
- what ratios/comps would you use to value a upstream company
Idk where to put these types of questions but they will also ask you about the industry:
- what are the major players in upstream/midstream/OFS
- why should a company buy acreage in Permian vs. Bakken
- what are the main types of resources found in different basins
More so than any other group, I think energy groups really want to see whether you are a flight risk or no. Having said that, this was all from my experience in IB recruiting not CB.
Hope this helps. let me know if you have any other questions.
Obligatory "equities in Dallas" joke that isn't really funny but for some reason given this audience everyone will SB (hopefully)
hmm... Evernote or gel morgan pen? Bull or Bear?
Heard during networking calls about GS having some sort of “Energy Tech” group doing deals out of Houston. Anyone have color on if it’s true or just green washing?
It’s actually ev related and emergent tech (spacs etc)
Must say the uplifted spirit of this thread is quite surprising. Understand where the prospects / newcomers of the industry are coming from but maybe let me offer a slightly sobering perspective.
- Oil has been at $60 / bbl for about 3 days, this rally is supply fuelled (OPEC has restrained supply) more than demand fuelled, and Saudia / Russia could pull the rug out from under this rally at any moment. I would be surprised if WTI stays above $60 / bbl for a sustained period of time
- Most energy companies have still struggled to generate free cash flow, and investors have generally lost their patience
- PE returns in the space have been TERRIBLE and the capital is just not flowing in like it used to
- ESG pressure and the new administration are going to be serious headwinds for traditional energy, while clean energy is still unproven
I do not mean to discourage those of you who want to join energy, it is still a fascinating space, but their are serious drawbacks everyone needs to consider before entering.
I think that’s why evercore is making their hub for green energy in Texas. Also, people are shifting from oil and gas to LNG — evercore has done quite a few deals in this space
Still, I have to agree with you, it is tough.
I’m going to have to concur with this - Dying industry long-term and comatose short-term. Renewables are def something to consider but it’s a field dominated by tech IBs in SF + Greentech/Marathon, and I honestly don’t see HOU becoming some kind of renewables hub on either the corporate or finance side.
Renewables don't have any fees right now. So "dominate" just means they are landing the work but I'm pretty sure the fees aren't there to justify a bunch of IB players. The groups will be in Houston long term. Just recruited and you can see the MD hires reflecting this priority. Texas is the #1 wind energy producer and that will continue.
This is a better description of things currently. A lot of interns up top in the thread that don’t know what they’re talking about. Let’s try not to overhype $60 oil, which was exactly where it was pre-COVID and things weren’t very good.
As you said, returns have sucked, and the pool of money interested in investing is getting smaller and smaller. In terms of the strategics, buyers ain’t willing to pay shit (before I left a few months ago buyers weren’t willing to pay more than PV-20 and sellers weren’t going to sell for anything less than PV-10) and what consolidations are left that make sense? Most don’t make sense (Ovintiv?) and others come with a hefty sticker shock after (shout out to our guys at OXY).
I agree that O&G isn’t going anywhere soon. Too much demand that can’t be replaced by renewables in a quick manner. Also, most renewables are intermittent, and can’t support a power grid 24/7. Also have to factor in the heavy subsidies these guys get and can it be done in a cost effective way to compete in a free market.
To me renewables are very over promised and undelivered. Certainly they’ll become a larger party of our energy mix over time but O&G not going to replaced anytime soon. With that said, the height of O&G M&A and capital raising is behind us. Some kid above talking about ECM in up-cycles? The equity faucet is off for good. There’s no appetite from equity investors for a part of the market that’s been the biggest laggard of any sector.
Also, green energy M&A is still such a tiny niche market. No way there’s enough fees to justify any type of large dedicated team to it and there’s not a ton of senior bankers with a lot of knowledge of the space out there. Most of the work to be done is on the financing side (tax-exempt, project financing, etc). So kids don’t get your hopes up that you’ll be working on a ton of renewables M&A out of Houston.
Anyways, I switched into another coverage group a few months ago and it was the best decision I could’ve made.
This is much more accurate. Agree with all of the above points.
Did a year in O&G and lateraled out a little while ago and haven’t looked back. Learned a lot but the work is very niche.
Think now is a fine time to get into O&G with the impending consolidation wave, but the other posters are way too bullish on prices, on capital availability and on the switch to renewables coverage. If you’re not 100% focused on a career in oil and gas, would recommend you prioritize other positions.
Agree with this - institutional investors won’t touch oil and gas equities in a meaningful way.
fund flows are trash for the industry
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Buy oil and help your future careers
You can't teach an old dog new tricks.
Houston is not going to become a renewables hub. Those hubs are going to sit in the cities where there are people, institutions/schools, think tanks, governments, and other like-minded companies that actually care about renewables. There's some activity in Houston, but it pales in comparison to what you find in other places like NY, SF, DC and perhaps other places. I would not be surprised if O&G companies set up renewables arms on the coasts.
Maybe, but I think you're too confident here. Texas is 1st for wind by a wide margin and 2nd for solar. Virtually all banks in Houston are talking about energy transition and renewables even if the fees aren't there yet. Most of the larger upstream/midstream companies are too. The lifelong wildcatter management at sponsor-backed Permian Shitco III probably aren't talking about it, but people at the larger companies are.
Sentiment is definitely better now than it was last year. Oil has always been a boom / bust industry, so makes more sense to start a career in an industry at the bottom and ride to the top than vice versa.
In terms of deals / exits / comp I think the best banks to be at (no particular order) are Citi / Evercore / TPH / Jefferies / RBC. JPM / MS / GS have also been on a tear recently but only on corporate M&A, not sure if that trend is going to continue. Evercore / Jefferies also pay the highest by far during good years (think it was insane for JEF in the past, 6 figure bonuses were a minimum, but last year analysts got screwed). Have heard good things about work-life balance at Jefferies recently too with mandatory time off every weekend
There are numerous recent threads about this but this information is inaccurate at best. RBC cut a ton of their staff and have not been doing well. GS and JPM have done well but MS has not. Jefferies has not been doing well but that comes as a product of the A&D space not doing well as whole. Also, despite what WSO says, I have not heard that their culture has improved much.
In regards to best banks to be at on the BB side, GS, JPM, Citi, CS, and BarCap are good spots to be. Whereas on the boutique side, EVR, MoCo, Intrepid, TPH, HL, and PJT are probably the best spots to be. Across the board, the cultures seem to be far superior at the boutiques in Houston than at the BBs.
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