Most Helpful

Overall, the industry is very attractive to banks for two reasons: O&G is incredibly capital intensive and project-based. In order for a firm to make money, firms need to first spend (raise) money. Because each well has a finite life, firms need to continue to drill new wells (which requires more capital). In order for a firm to drill a well, they must first own the acreage/mineral rights. This translates to repeat business for banks in the capital markets and high A&D activity as firms buy/sell acreage.

"Normal" levels of cyclicality in oil and gas commodity prices are actually good for banks because it stimulates M&A/Cap Markets activities, e.g. when prices are high, firms have excess cash for acquisitions, etc. and when prices are depressed, firms tend to divest non-core assets to create cash.

Obviously prolonged levels of depressed commodity prices and a bearish outlook on the industry is not good. If this slump continues, there will likely be a large slowdown in capital markets activity in the upstream vertical (as it is increasingly less economic to extract hydrocarbons) and overall slower M&A activity due to lower cash flows. These factors obviously hurt banks who primarily provide these services. E&P companies with higher breakeven costs and OFS companies will be hit the hardest; the lower cash flow stream might cause them to violate covenants, default on interest, etc. which leads to increased restructuring deal flow for key banks.

Array
 

Awesome overview. I'd just add that prices are still economic for most operators in the US. Drilling activity will slow but producers will be find (for the most part). Besides, its all OPEC BS anyway - prices will bounce back.

 

If my knowledge is correct, TPH launched a new Calgary office with like 15 people in the midst of the 2016 downturn.

The good banks will thrive on the volatility, the shitty banks will lay people off. Capital markets will be tough, especially oilfield services, for a good while. It could be a year before a relevant O&G IPO happens, but believe me there will be some decent M&A around the corner.

 

You’re a bit off. Over a career as a banker, volatility is expected, however deals are boom or bust for O&G.

2015 might have had 3 notable deals off the top of my head. One of them fell through and was cancelled.

2017 and 2018 each at least 10 +$5B.

 

pretty sure that's more of a knock on DB and not the space in general

midstream restructuring will take a pause because most of the restructuring has taken place, but as companies remove IDRs and start retaining more cash, there will be more capex and potentially expansion. maybe not a great time for RX and M&A unless we see a consolidation, but DCM should be just fine as well as the space in general

 

There is a shift in strategy in the O&G world. E&P companies are focusing on generating free cash flow rather than production growth, which means they can fund more of their operations internally. That is the goal at least. And that means less capital markets activity. M&A goes hot and cold, but if the industry is crap, that will decline as well. O&G was a honey hole for bankers for several years (2010-2015), deals deals deals, both M&A and cap markets, now it's coming back full circle. I think we are learning that shale companies generally don't create any value with crude

 

[quote="Texas Tea"] There is a shift in strategy in the O&G world. E&P companies are focusing on generating free cash flow rather than production growth, which means they can fund more of their operations internally. That is the goal at least. And that means less capital markets activity. M&A goes hot and cold, but if the industry is crap, that will decline as well. O&G was a honey hole for bankers for several years (2010-2015), deals deals deals, both M&A and cap markets, now it's coming back full circle. I think we are learning that shale companies generally don't create any value with crude PE has thrown so much money into this system that there are too many shale companies, too many shit management teams running them. There is no public market exit (used to be a problem for gas players, now its all players) and the private money is stuck with a buffet of portcos that they cannot sell and cannot merge unless someone blinks on valuation and takes a loss. At recent 60 dollar oil, you could stomach some div recap deals for the right companies, now even that option is toast. I guess we see another round of restructurings, more zombie co's and some M&A of higher quality companies. The institutional money for PE will have to say no mas at some point and stop this nonsense.

 
dutchduke] [quote=Texas Tea:
There is a shift in strategy in the O&G world. E&P companies are focusing on generating free cash flow rather than production growth, which means they can fund more of their operations internally. That is the goal at least. And that means less capital markets activity. M&A goes hot and cold, but if the industry is crap, that will decline as well. O&G was a honey hole for bankers for several years (2010-2015), deals deals deals, both M&A and cap markets, now it's coming back full circle. I think we are learning that shale companies generally don't create any value with crude PE has thrown so much money into this system that there are too many shale companies, too many shit management teams running them. There is no public market exit (used to be a problem for gas players, now its all players) and the private money is stuck with a buffet of portcos that they cannot sell and cannot merge unless someone blinks on valuation and takes a loss. At recent 60 dollar oil, you could stomach some div recap deals for the right companies, now even that option is toast. I guess we see another round of restructurings, more zombie co's and some M&A of higher quality companies. The institutional money for PE will have to say no mas at some point and stop this nonsense.

This guy gets it. Whoever is throwing monkey shit is just not there yet. I think there is one public (non-major) E&P I'd own right now with confidence.

 

But multiples are relative... when everyone's multiple is compressed it doesn't matter... no one has a premium currency. IF they do have that premium currency, means they have the best combination of management/balance sheet/asset quality. Because the management team is quality, they know that M&A doesn't work, especially in the E&P world. There is reason they trade at that premium multiple.. why mess it up with ill-fated M&A?

 

Culpa qui repellat consequuntur aut quas. Ratione et cum inventore molestiae. Esse molestias dolorem placeat iste eos. Consequatur quam nobis exercitationem error quibusdam vero dolorem. Maiores magni quas quas accusantium sunt sit et. Aliquam et et voluptas reiciendis iure delectus mollitia. Tempora assumenda ut voluptatem sunt occaecati aut beatae.

Rerum doloribus et blanditiis commodi qui eum. Repudiandae quae reprehenderit quia quis ut et. Ea maiores explicabo minima quam est.

Quasi cumque pariatur cupiditate deleniti fugit ut nihil. Saepe voluptates qui qui numquam veniam. Et voluptatem quae reprehenderit magni tenetur animi quae consequuntur. Labore vel possimus corporis quo qui non perferendis. Nesciunt et qui id laboriosam. Eius soluta labore omnis cupiditate quis modi facere.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”