Why try to make people panic, no not that many people are screwed. We are talking about oil here, prices go down- means cheaper oil for everyone. The only possible issue is if its SO prolonged that it literally takes down massive oil companies in the US (highly unlikely) THEN there will be effects in the credit markets which may impact other areas to a degree.

If you're in an oil/gas M&A/Coverage/Capital Markets roles then there might be a concern. As for other industries it will be fine.

 

Lolz at the current pricing environment being "highly unlikely" to take down large domestic E&Ps. Did you miss the large domestic E&Ps that filed in 2019 through YTD 2020 as a result of a pricing environment where oil prices were over 2x higher than they are now? This industry was already on the edge of the cliff, so there didn't need to be a pricing down-turn that was "SO prolonged" for it to fall over. Ffs', without a recovery from February prices in the next year there were already going to be a litany of filings.

This isn't even considering the OFS companies who are equally or more fucked as capex is slashed to sustenance levels?

 

The price slashing is scary but not new. Every now and then OPEC decides to rear it’s ugly head.

2014-2016 was one of those times and isn’t too far removed from us. Here are some reads to see how things shook out with industry M&A then.

Overview of what happened: https://blogs.worldbank.org/developmenttalk/what-triggered-oil-price-pl…

M&A activity 2015: https://www.ogj.com/general-interest/article/17249751/deloitte-global-o…

M&A activity 2016: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-reso…

 

The concerning differences to previous downturns is that right now we have an oil market problem (price war) AND broader capital market concerns. In previous downturns it has been one or the other, but never both at the same time. We could be in for a ride here. I wouldn't take anything off the table of possible outcomes yet. Stay tuned folks!

 

Agreed (currently work in oil and gas) and this is a very different downturn than 2014. Back then we as in industry were mid cycle meaning we had room to go up. Saudi's decided to tests production limits and ended up pushing crude below $30 in 2016 but we did not have fundamental problems with companies' balance sheets, a pandemic bending us over, and a big dick contest between two of the world's top 3 energy producers. Then it was a supply glut fixed by OPEC+ cuts. Fast forward to 2020 and we have all the problems I listed above. As many people are mentioning, RX will be the most promising division in EB as companies have massive debt loads that mature in 2020 and 2021 in which they will default on due to sub-par cash flow generation stemming from poor full cycle economics that did not match commodity prices. I read a report today stating energy makes up 11% of junk bonds in the US which is absolutely wild/terrifying.

 

I imagine EB groups in Houston O&G will get a good amount of restructuring work and be fine. It is also possible that Saudi Arabia and Russia come back to the table in April and realize neither can handle these low prices. They will agree on cuts, each taking a bit of the hit, and oil will back at $40+ by summer. That being said, a lot of shale E&P companies are gonna struggle at that price and the industry will likely see another round of bankruptcies. Hope not though.

 
chromium73:
Shale wasn’t making money at $50, they need $65. There is an insane amount of excess capacity in the system particularly on the finance side. Need to shrink A LOT regardless of what OPEC decides to do in 6 months

AFAIK E&Ps in the Permian were making money at $50....

Array
 

Any thoughts on how the crisis might affect corporate banks (and bankers) in Houston?

Presumably, some of the smaller, weaker E&Ps are going to go bankrupt, which might lead to defaults on loans. Could this hit to the banks be partially offset by other factors--e.g., by stronger E&Ps (or midstream groups) seeking new loans to support their operations over what they hope is a temporary downturn in revenue, or by bigger companies taking on debt in order to acquire new assets that struggling E&Ps are divesting themselves of?

In sum, is there any silver lining here for the corporate banking divisions, or are they looking at a bloodbath--with a commensurate degree of downsizing and job loss?

 

as someone looking to go this route post mba, can anyone explain a little deeper why ECM, DCM, and M&A are “screwed”? ECM/DCM I would have thought these companies would need to raise funds to weather the storm. clearly I’m not understanding. perhaps they’ve got too much debt with a poor outlook ahead. M&A- I would assume over the next year or two there would be a prime time to poach companies.

 

Which investor is going to want the bonds/shares of a shitty E&P company that cannot break even on a barrel of oil?

Same thing applies to M&A - how will a company raise funds for an acquisition? Unless that company has sufficient cash on hand, no seller will want stock either.

 
Most Helpful

In the industry and I am terrified. A few key points that made for a sleepless night:

  • RBL re-determinations this year are going to kill companies - financial system contagion
  • Significant possibility for protracted price war. I read somewhere that Russia has enough in reserves to weather a 2-3 year low price environment. I question the validity of the statement but when considering it as a possibility, very very frightening
  • Russia referendum on Putin staying in power in April: more so makes me thing the publicity of this is a political positioning maneuver and that no deal will get done, if any, until Putin solidifies his grip on power
  • Overall failure of the shale model: Wall St. was sold kick ass single well economics. All of the aforementioned pricing headwinds and debt maturities aside, what terrifies me the most is the combination of parent-child well interference and full-full cycle development economics, meaning land acq cost, facilities, gross underestimation of produced water and associated costs, AND EURs significantly below projections.
 

People say it's diversified- it's not. You really think MD Anderson will be enough to prop the city up when everything else is crumbling? The city is built on oil and that's clearly going to be operated at a much smaller scale going forward

 

It is possible that the incoming full time analysts get cut?

 

Are incoming summer analysts at risk? Will there be a lot less return offers at places with RX platform like LAZ/MC/HL/EVR?

 

Ut adipisci atque eum est recusandae. Est et in ducimus eos. Necessitatibus facilis qui exercitationem nihil vel ea. Velit magnam a totam voluptates.

Voluptatem error neque delectus distinctio eligendi mollitia commodi. Iusto laboriosam pariatur ipsa repellat est blanditiis voluptate. Ipsam quia omnis aut ea.

 

Veritatis odit qui id voluptates doloribus illum odit. Asperiores ut officiis magni soluta.

Est aliquam laudantium repudiandae id est. Saepe non nihil voluptatem aut similique. Placeat atque voluptatibus incidunt beatae. Maiores officia autem ab nostrum et tenetur aut. Rerum ex sapiente sunt ipsam doloribus sint.

 

Quia facere odio necessitatibus nam quia similique aspernatur. Eius est dignissimos magni ut autem accusantium sapiente. Facilis ipsum animi quaerat architecto.

Voluptatem perferendis quisquam mollitia ea quia cum. Eaque est architecto sit nostrum. Commodi dolores a ullam. Et natus cupiditate modi aut dignissimos voluptatum.

Qui eum earum cumque. Omnis debitis ipsum vel aliquam. Aut quia libero consectetur eos quidem. Optio voluptates et ut accusamus at delectus. Consequatur laborum pariatur rerum quidem. Quo iusto ut saepe temporibus voluptatem.

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
BankonBanking's picture
BankonBanking
99.0
3
Secyh62's picture
Secyh62
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
GameTheory's picture
GameTheory
98.9
8
CompBanker's picture
CompBanker
98.9
9
kanon's picture
kanon
98.9
10
Linda Abraham's picture
Linda Abraham
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...”