Oil and Gas IB in a Blue Wave
With the house, senate, and president both blue, what can we expect for the banking industry in Houston? Please no tangents regarding the validity of the elections here, thanks.
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I find it hilarious that you mention this. I think anyone rational would not drive the conversation this way.
But to answer your question. I would not want to be a junior staffer on an O&G team right now. Personally I think we have have still a few more decades of the industry before it dead (as in gone). Granted valuations are already shit and they probably wont bounce back to any level, however we haven't seen the investment in renewables that are needed to fully replace O&G which might be a good transition for O&G teams (rebrand them as energy teams). however there are still large players in the space OPEC players that I doubt will let the market die under the Biden administration.
edited
I would be grateful that
1. I have a great internship
2. I have an inside look to how Senior MD are looking at the market and handling things.
I wouldn't be to concerned with the market forces as an Intern. I would just focus on doing a good job and learning as much as possible. Make a decision after your internship. Worst case scenario, you don't even a return offer and then worrying about getting stuck in O&G is already solved for you. Best case scenario you do an analyst stint and then lateral to a different market group if you don't like the way your team is going.
You can expect aoc herself to jam the largest dildo money can buy into your oil and gas deal flow anus.
She is coming for you.
I think the oil would help out.
As a Houston IB professional, I can speak to how my team / my peers are looking at the O&G space. In short, the sector has been under enormous pressure for almost two years now and the bottom line is the government cannot fix the fundamental flaws in the shale business model. I think a shift towards an unfriendly regime will only hasten the pace of consolidation and increase investment in renewable energy companies, which will be extremely beneficial in the short term for the best positioned banks. In addition, the restructuring wave is FAR from over and I could see it accelerating as some of these energy companies try to tap the disinterested capital markets and refinance debt over the next 3 years.
If I were a junior banker with any interest outside of O&G, I would start pursuing that path ASAP because the longer you stay in energy the harder it is to leave. Rising to the ranks of MD at an energy bank will still be a thing, but there are simply going to be less seats in the future. In addition, energy PE has been getting absolutely CRUSHED so there will be fewer buy-side exit opps.
Summary:
Winners - banks focused on alternative energy, restructuring shops and the sierra club
Losers - VPs, young MDs with big mortgages, and product groups
do you imagine analysts will continue to be referred only energy pe shops when headhunting? It's hard to imagine that there will be enough demand from pe firms.
I imagine if you play your cards right infrastructure could be in your cards.
Generally yes but some head hunters will show you other opportunities if you indicate interest outside of energy. That being said, the non-energy opportunities they show you will certainly be worse. A BB O&G analyst will not be given looks at the top MMs or MFs by head hunters, the candidate will have to do the leg work to get invited to those processes (network)
Have these guys ever won?
As a second year at a “top shop” in Houston, I’ll give you the advice I wish I got: get out before you get in, if you can help it.
Morale is so low right now (even before COVID and the blue wave). Deal flow is fine but the problem is that O&G deals just aren’t as transferable to a generalist model as any other industry.
I echo your sentiment but would also say it depends on your circumstances. I would rather be at an EB in Houston working on RX deals for energy companies than be working at a MM sell-side shop, even if the latter gives you more exposure to generalist business models.
Can see the appeal but I’m just tired of the process heavy nature of it all. No thought process behind the consolidation wave and don’t get me started with cap raises. With restructuring, while each situation may have their own unique dynamics, you can’t fix a shitty business model (i.e. every shale / OFS company in existence)
edit: apologies for the negativity
any other thoughts from houston analysts/associates?
Someone please tell me if/where I'm wrong, but here's why I think O&G is screwed in the US:
1. Each shale oil well produces lots of oil in a very quick period of time (~6 mos.), after that point very very little oil per well. That's every well in the US. Let's ignore shale gas for now.
2. So to produce a lot of oil so that you have sizeable revenues over many many years, you're probably going to have to drill a lot (assuming you don't expand)!
3. But there's only so much land...more importantly, there's only so much profitable land (like Permian) when oil is below $50-60/bbl
4. So you end up drilling wells that are closer and closer together. So each incremental well produces less oil. Things get crowded.
5. Fast forward to the present day, and after 10 years, a lot of the most profitable land in the US has been drilled out or occupied. And what's left isn't profitable unless prices skyrocket (cartel's block that) or costs plummet (won't happen if it hasn't already)
So your left with a sector with few growth options on US soil. At least in oil.
So why in the world would you want to be a banker covering a sector with few growth opportunities. The O&G sector was not exciting because of the XOM, CVX and BGHE's of the world (they were around in 2000-2010 when O&G banking was pretty bare)...it was because of APC/CHK/etc. (which emerged during the shale boom from 2010 onwards when O&G banking became a huge thing). So when that group begins to dwindle or run out of growth, or restructure, you've got nothing except the slow bleeding that we have today.
To me, that's the key structural issue that precludes the emergence of enough new issuers/companies for there to be a meaningful O&G sector to cover as a banker. But please tell me where I'm off, or if you agree.
corp bank side is kind of stale mated right now. all these banks came with capital to do all these RBL deals for junior E&P companies because RBL was regarded as "king" of structures. SO FLAWED as this pandemic and low valuations have shown to where banks have now lost noticeable $$$$ on smaller producers, mostly ones backed by equity sponsors too......what a shocker. the cycle of equity wanting as much bank $ as possible, record loan losses, now banks reassessing strategies and wanting to trim lesser rated names. translates = "IG and diversified" energy focus that is a dense space with every bank in town wanting these relationships, fewer new financings, and all this money lost in interim with very little gained on IB mandate side vs loan losses sustained. YEP, totally logical. Fun stuff
I lateraled out of oil and gas banking to an infrastructure fund in 2018. Thank god I did. Institutional investors are totally done with shale.
+1 here. Found a lateral opportunity and got the hell out last year. Very satisfied with the decision.
Any tips for incoming analysts and interns?
You lateral outside of banking? you stay in TX? starting to see the writing on the wall where Im at....
I'm interested in learning more about your o&g experience, can I PM you?
Hey, do you have any tips for O&G peeps to lateral to infrastructure funds? Should we be doing anything specifically? Reach out to infra funds? Thanks
it's funny because that's literally the value prop now, NOT squandering endowment $ on oil and gas financing that sucks money like a vacuum. Amazes me how some of these schools and LPs are still putting some equity back to the same funds. "but if I just put a bit more in I'll offset the losses and it'll be great"
What’s happening at the top banks like Evercore, TPH, and Jefferies?
Honestly not well. Bonuses are down and exit opps are limited, and the worst part: we’re still getting crushed.
First years taking a while to ramp up and have had a good amount of turnover which makes QoL worse.
When you say crushed, what's the average amount per week you've worked wfh?
Are there any banks in Houston that are insulated from the O&G fallout? I've heard second-hand stories of there being Renewables / Energy Transition focused groups, but don't have specific insight.
Pretty much all covered out of the power groups in NY sadly
This is right. A few banks are trying to say they run energy transition groups out of Houston but mostly just marketing at this point
Believe JP/GS have run a few renewables / SPAC deals out of their Houston office. Know a few legacy O&G SPAC teams/sponsor trying to get into clean tech - with O&G bankers following their trail.
Very depressing thread. Permian basin basin turned perma bear
Have any Houston banks already begun downsizing, aside from the BMO shutdown?
BMO shut down after a few other moves happened. Jefferies closed Energy ER this week which is a sign for Jefferies IB.
MM energy IB is worst place to be. No piece of RX pie there really
Why did JEF ER shut shop?
yeah. add to the growing list of banks waking up and weighing risk reward
Recruiting happening as we speak. Any Jones or Mccombs people care to chime in?
At a BB, only taking 2 this year
Got a friend that is a 2nd year at Rice. They placed 17 compared to 20+ last year. He said that in general summer associate internship spots were either the same as last year (EBs, Simmons, Barclays) or down (most BBs and MMs).
Not going to say too much but pretty sure that UT sent a similar amount as last year 12-15. McCombs has stronger consulting and tech placement so IB recruiting isn't as popular.
Also northeast schools had low interest in Houston this year. Think Booth sent a couple.
Recently lateraled from a MM energy shop to an industrials group at another shop. As others said, getting crushed hours wise with very little MM M&A activity. Just didn’t make sense to stay on. Happy I’m gone.
I’m not quite as bearish as others on this thread but either way covering a cyclical industry in the middle of a downturn is not ideal. Assuming US shale gets smaller and smaller down the road and same with the energy groups. The returns aren’t there for investors, and won’t be surprised with other banks trying to start close out energy loan portfolios. Didn’t BMO buy DBs book if I remember correctly? And that didn’t work. Most banks have a ton of exposure to energy and I bet would love to get out of a lot of it if it wasn’t for ruining relationships and losing what fees are left. Time will only tell and I’m assuming the US O&G industry will look much different in 10-15 years. Downturns force change. In terms of bankers covering renewables that was done out of our Power group. From what I’ve seen in tombstone I feel like that space is very green, didn’t seem like a lot of M&A to go around but more on the financing side (tax-exempt, etc). I feel like most banks are trying to figure out a way to cover it, especially given ESG trends and pure play utilities that have focused on renewables have benefited it from a stock performance/valuation perspective. But since it’s so new, not a lot of bankers out there with knowledge of the space and very small pie of M&A to go around. At least that’s been my takeaway from when our group discussed it
How difficult was it lateralling out to another office?
Not too difficult. Same difficulty as any other lateral analyst jump. You’ll just need to craft your story right but usually most people understood my urge to get out of O&G
Would also note to any incoming SA or An1s, avoid Jefferies Houston at all costs. I know a few people there and I can confidently say it sounds like one of the worst banks in America to work at right now. Analysts consistently pulling 100+ weeks for stupid work that clearly isn't going anywhere, moral is low with a lot of talent fleeing the scene. They used to be the kings of energy and pay analysts $200,000+ and associates $400,000+, now I think those numbers are closer to $140,000 and $250,000, and when you combine that with horrible hours and a mediocre analyst program (no first year modelling) I think you are looking at a pretty raw deal. If energy rebounds I am sure they will resume their status as a juggernaut, but until then I would avoid unless you are an energy hardo.
Bump
Would love to hear any further thoughts from an associate perspective.
As an analyst at least you have better (and assumed) exit opps, but I'm curious what the sentiment is for the post-MBA crowd. If you actually wanted to climb the ranks in O&G IB, is that still reasonable or are there going to be fewer and fewer seats/promotions? If you want to leave as an associate/vp are there decent corp dev openings within the space still up for grabs?
may be best to start a new thread, this thread isn't being updated and pinged
Way too many people are way too confident that Energy investment banking is on the decline. The industry has always been cyclical and also Energy does not equal O&G. The people who work at these banks are grown men who are trying to make money just like any other investment banker. They won’t just sit there and watch their careers disappear. Royalty interest asset backed securities, carbon capture technology, carbon credit investment, flare mitigation technology, liquified natural gas, obviously restructuring, direct foreign investment, and many other opportunities.
In addition, many of the Houston groups are already committed to the renewables space. Goldman, Citi, and Lazard I know all have renewables/energy tech focused MDs in Houston. I imagine others will do the same or already have. Also, I know of 3 banks that have power and utilities bankers in Houston (wouldn’t be surprised if that number doubles by end of 2021).
Very frustrating to hear analysts or salty “I got burned last downturn” bankers come on here and pretend that Houston finance or banking is doomed. Energy sector will outperform the S&P in 2021 and 2022. Renewables and O&G will grow together as the global energy mix shifts over the next few decades.
Realized I didn't answer your question. I think now is a great time to enter the O&G banking industry. Tons of opportunity coming up.
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