O&G (E&P) Interview Questions

thanks man, good stuff

Stringer Bell:

No offense to nontarget, but that isn't a very good list.

Full-cost vs. successful efforts is fine, but there's a lot more to it accounting wise than just adding back exploration expense, and if you give the impression you're really familiar w/ upstream accounting they could drill into that.

NAV vs. DCF, what he said is misleading. An NAV is comprised of a particular portfolio's NPV-10 (or whatever disc. rate is being used as standard), which is simply just a discounted stream of cash flows via existing and future production, across it's different reserve classes (1P, 2P, 3P) engineered reserve reports.

Unless your valuing a large cap E&P, integrated O&G company or an E&P with non-upstream vehicles (e.g. EOG Resources has a LNG export facility and a sand mine, Sandridge has oil field services company and multiple royalty drilling trusts, etc.), terminal value is irrelevant for most independent E&P companies as all of their O&G assets have finite, calculated lives. Meaning, if let's say KOG stopped buying / leasing / additional properties whenever their last well currently producing or in their dev. plan shuts-in, the company has will have almost no value left aside from net debt, capitalized items, hedging and other misc. non-core BS items.

What he said about comps could be true, but likely not as new technologies can / will unlock resource potential that we're not even aware exist yet / currently possible to extract (Monterey Shale being case in point). Market comps in O&G work the same as any other comps set except you use industry specific multiples. Precedent trans for O&G are typically two fold: 1) corporate - where the whole company has been acquired (see Crescent Point x Ute Energy, Nexxen x CNOOC, XOM x Celtic) 2) asset - where one O&G company divests assets to another (Halcon x Petro-hunt, PXP x KNOC), this one is important for your NAV "football field".

You should be cautious with trying to get into too much detail with what he listed. I'd get more familiar with O&G's EBITDA / EBITDAX components (sales from oil and gas less LOE less prod'n / ad val taxes less non-capitalized G&A expense), what makes up DD&A (depletion, depreciation & amortization), basic familiarity w/ impact of a hedging program, what are the major reserve categories and why certain O&G assets go into each respectively.

Also, look into some of the deals I listed above, get familiar w/ what most O&G companies are trading at (~7.5x to 12.0x times currently, given the size of the company) and how recent deals multiples stack up against the market and why/or why not you think they where good deals.

Stringer Bell:

No offense to nontarget, but that isn't a very good list.

Full-cost vs. successful efforts is fine, but there's a lot more to it accounting wise than just adding back exploration expense, and if you give the impression you're really familiar w/ upstream accounting they could drill into that.

NAV vs. DCF, what he said is misleading. An NAV is comprised of a particular portfolio's NPV-10 (or whatever disc. rate is being used as standard), which is simply just a discounted stream of cash flows via existing and future production, across it's different reserve classes (1P, 2P, 3P) engineered reserve reports.

Unless your valuing a large cap E&P, integrated O&G company or an E&P with non-upstream vehicles (e.g. EOG Resources has a LNG export facility and a sand mine, Sandridge has oil field services company and multiple royalty drilling trusts, etc.), terminal value is irrelevant for most independent E&P companies as all of their O&G assets have finite, calculated lives. Meaning, if let's say KOG stopped buying / leasing / additional properties whenever their last well currently producing or in their dev. plan shuts-in, the company has will have almost no value left aside from net debt, capitalized items, hedging and other misc. non-core BS items.

What he said about comps could be true, but likely not as new technologies can / will unlock resource potential that we're not even aware exist yet / currently possible to extract (Monterey Shale being case in point). Market comps in O&G work the same as any other comps set except you use industry specific multiples. Precedent trans for O&G are typically two fold: 1) corporate - where the whole company has been acquired (see Crescent Point x Ute Energy, Nexxen x CNOOC, XOM x Celtic) 2) asset - where one O&G company divests assets to another (Halcon x Petro-hunt, PXP x KNOC), this one is important for your NAV "football field".

You should be cautious with trying to get into too much detail with what he listed. I'd get more familiar with O&G's EBITDA / EBITDAX components (sales from oil and gas less LOE less prod'n / ad val taxes less non-capitalized G&A expense), what makes up DD&A (depletion, depreciation & amortization), basic familiarity w/ impact of a hedging program, what are the major reserve categories and why certain O&G assets go into each respectively.

Also, look into some of the deals I listed above, get familiar w/ what most O&G companies are trading at (~7.5x to 12.0x times currently, given the size of the company) and how recent deals multiples stack up against the market and why/or why not you think they where good deals.

Totally agree. Very comprehensive.

Stringer Bell's post is solid, and he sounds more knowledgeable than me to be honest - definitely went into more detail.

but I had an interview that was primary O&G and what I listed is pretty much exactly what I got asked. just my two cents

arner23:

any chance they go into reserve ownership interests...i.e. working interests, royalty interests, overriding royalty interests

It depends, do you have previous O&G finance / accounting experience on your resume? If not, no. If you do, then yeah it's possible. Ownership interests only really start to get technical when you start working on joint ventures with carried interest, determining upfront %, reversionary interests, etc. Those are things you don't really get into until ~3-6 months on the job anyway.

[quote=Stringer Bell]For those interested, beneath are two pretty good primers on O&G industry fundamentals. Also, the DB primer is dogshit, but the UBS one is pretty solid however:

http://tudor.na.bdvision.ipreo.com/NSightWeb_v2.00/Handlers/Document.as…

http://tudor.na.bdvision.ipreo.com/NSightWeb_v2.00/Handlers/Document.as…]

do you have anything the investment banking side instead of investment management stuff?

[quote=Stringer Bell]For those interested, beneath are two pretty good primers on O&G industry fundamentals. Also, the DB primer is dogshit, but the UBS one is pretty solid however:

http://tudor.na.bdvision.ipreo.com/NSightWeb_v2.00/Handlers/Document.as…

http://tudor.na.bdvision.ipreo.com/NSightWeb_v2.00/Handlers/Document.as…]

Are you referring to the new DB primer? The old one was definitely a bit dated, but they just dropped a new one for 2013... I haven't had time to leaf thru it in too much detail but it may be worth a reference...

Check out the BIWS O&G interview prep.

-Know the MLP structure (http://www.investopedia.com/terms/m/mlp.asp#axzz2EC2EwdgD) -Realize that the majority of business in the current market is asset sales -If the group encompasses Cleantech as I know many do, be familiar with project finance. This will often times involve the creation of SPVs in order segregate certain assets from the rest of the company

-Know the difference between upstream, midstream, and downstream -Find out as much about their past deal transactions as possible. Nothing gets a bankers dick hard like talking to him about a deal they closed PM me so I can be more specific. Merchant banking and middle market banking can make a difference too. Good luck man

Know the basic valuation techniques and how they apply to O&G (ie. the intuition behind NAV models and the relevant metrics for O&G deals).

Be able to about a few of thier deals (specifically the rationale behind it).

Maybe have a stock pick ready. When I went through interviews, I always framed my stock picks as a takeout play by applying a trend in the industry. It usually leads into questions like "who do you think are likely buyers?" so be ready for that too.

Bump- (sorry to bump all my interview threads) If anyone else has advice on things to know for this sort of interview that would be awesome. The interview is with Simmons for what it's worth.

.

Financier4Hire:

1. What is NAV.

A: Net Asset Value ("NAV"). For O&G purposes, it's the discounted, total reserves value + any NOL & tax attributes + disc. hedging - disc. G&A = EV adj. for net debt and +/- W/C = Implied Equity Value / shares outstanding.

Financier4Hire:

2. Calculate Economic Ultimate Recovery (for a given co.)

A: Total hydrocarbons recovered from a type curve(s) before production is unable to support opex + prod.'n taxes + royalty payments + g&a (i.e. well shut-in).

Financier4Hire:

3. What class of securities are MLPs (i.e. equities, hybrid, or debt)

A: Trick question, none. An MLP is an LLC that has chosen partnership taxation via congressional tax codes. Publicly traded MLP "units" are technically classified as a form of equity ownership (albeit there is no company, technically, to own).

you didn't get sufficient response in your prior thread? if you study what Stringer told you, you should be in good shape...

http://www.fullermoney.com/content/2010-09-15/oilgas4beginners.pdf

That will keep you busy for awhile.

Yes you will require some energy specific knowledge. Aside from general why are you interested in energy, they will ask you what are the different type of oil, where do you think the energy market is headed, etc.

Most importantly, make sure you know how the basics of how Energy firm valuation differs from normal firms. Using a NAV model, with reserve ratios etc. PM me if you have additional questions.

Depends. Most won't ask too many in depth questions. Know the different sub-sectors. Know the prices of oil and nat gas going into interviews. Know that you use NAV instead of a DCF for E&P companies. Know midstream is less risky than OFS and E&P companies. OFS is the most risky because they don't hedge. JPM is the only bank I know that goes much more in depth than that.

Having a good answer for why you want to do O&G is extremely important, especially if you're not from Texas.