Oil/Gas IB and current WTI

very interested in anyone's insight on the recent WTI drop and their respective bank's outlook. looking specifically to the oil/gas coverage groups but all energy/power would be great.

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (50)

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
  • Intern in IB - Gen
Mar 9, 2020 - 10:28am

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.

  • Analyst 1 in IB - Restr
Apr 20, 2020 - 1:41pm

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?

Mar 9, 2020 - 8:49am

Headcount reductions 30% across the board is likely. Liability management and RX will do ok. No capital markets activity, industry will shake out and consolidate but after that very few new companies will be formed. 1 or 2 new oil and gas PE funds may be raised, not 20.

It's very bad

  • Intern in Other
Mar 9, 2020 - 12:08pm

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…

Mar 10, 2020 - 10:08am

The M&A activity at that time was no where near as bad as it is today. This era of oil and gas is different from the last downturn because it is hitting in every possible way, I.e. no capital coming in, horrible valuations, and pricing downturn as well.

Mar 9, 2020 - 12:49pm

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!

Mar 10, 2020 - 1:46am

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.

  • Intern in IB - Cov
Mar 9, 2020 - 1:28pm

Is it safe to assume EBs like Moelis, HL and EVR with restructuring capabilities will be doing just fine going forward? Should incoming SAs be worried about return?

Mar 9, 2020 - 3:52pm

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.

Mar 10, 2020 - 8:42am
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

  • 1
Mar 9, 2020 - 7:35pm

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?

Mar 9, 2020 - 11:25pm

Some shale E&P's hedged at $55-$65 which is near break-even, co's that didn't will see layoffs, M&A, and/or bankruptcy if prices sustain sub-$50.

Mar 10, 2020 - 8:36am

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.

Mar 10, 2020 - 12:38pm

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
Mar 10, 2020 - 10:19am

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.
Array
  • 9
Mar 10, 2020 - 12:45pm

The overall economy in Houston has done well with diversifying but that definitely needs to accelerate. And finance in general in Houston may be dead in the water within the next few years, it seems.

Array

  • 1
Mar 20, 2020 - 4:28pm

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

Apr 20, 2020 - 7:18pm

Quia qui aliquid nisi temporibus. Et at sed cum quae beatae odio et. Laborum modi et voluptates quibusdam consequatur.

Reiciendis quia molestiae quam nobis delectus quaerat mollitia. Quidem dolorem unde optio est quas. Et amet molestiae tempore qui corporis.

  • Analyst 1 in IB-M&A
Apr 20, 2020 - 7:30pm

Id consequatur sed voluptatem harum. Id quis est distinctio sed ullam. Alias quis et commodi autem.

Autem et ut sed quo non ut rerum possimus. Voluptatum consectetur autem id est ut quo. Rerum sed maxime ad ipsum sit.

Nam nemo qui id eos nemo exercitationem earum. Totam sapiente error omnis quo hic explicabo. Rem nesciunt ea voluptas eum minima tempora fugit non. Quod esse maiores in doloremque.

Nobis aut vitae libero magnam in placeat. Et cumque aut nobis qui optio temporibus. Tempore soluta est vitae cupiditate assumenda ab corporis. Et temporibus omnis est. Quo unde voluptatum dolore voluptatibus quod accusamus. Cumque assumenda reprehenderit quia cupiditate sit aut fugiat. Nisi cumque quas hic nulla occaecati.

Apr 26, 2021 - 4:31pm

Sunt doloribus culpa ut. Rerum quibusdam et voluptates provident maiores. Cumque eos officia modi ad quae ab autem cumque. Nobis quia sit velit rerum facilis.

Temporibus ad ea consequatur eos. Eum quibusdam eos ea aperiam ut sunt reprehenderit. Ex laborum sunt ut distinctio.

Libero perspiciatis eius temporibus nobis adipisci perspiciatis. Ratione rem sunt quo delectus.

Start Discussion

Total Avg Compensation

September 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (38) $367
  • Associates (218) $232
  • 2nd Year Analyst (130) $153
  • 3rd+ Year Analyst (30) $147
  • Intern/Summer Associate (102) $144
  • 1st Year Analyst (483) $135
  • Intern/Summer Analyst (375) $82