Oil and Gas Careers You Didn’t Know Existed—Investment Banking and Private Equity: Increasing demand for Energy Sector Graduates
For petroleum engineering graduates, the job profile in investment banks and private equity firms start with the common technical knowledge of the petroleum world but slowly expands to economics, management, and global energy situations.
Continuing the series of Oil & Gas Careers You Didn't Know Existed! here is another article that presents an exciting new venture—investment banking and private equity (PE). Not known widely, but the investment banking sector has an increasing demand for petroleum engineering graduates or energy sector graduates. Interestingly the profile starts with the common technical knowledge of the petroleum world but slowly expands to economics, management, and global energy situations.
To know more about this, we approached Avinash Mohapatra, senior associate and geoscientist for acquisitions and divestitures (A&D) at Houlihan Lokey and is responsible for geological and petrophysical evaluation. He has engaged in several notable A&D and merger and acquisitions (M&A) transactions over $3 billion.
Mohapatra holds a bachelor’s in chemical engineering from the National Institute of Technology, Rourkela, India, and a master’s degree in petroleum engineering from the University of Oklahoma, Norman. His technical expertise includes integrated petrophysics, log analysis, and rock physics. He has published several papers on his research work. Mohapatra has chaired sessions for Society of Petrophysicists and Well Log Analysts and was a technical editor for SPE and Society of Exploration Geophysicists publications.
Before we dive into the interview, here is a small gist of what A&D means in the world of investment banking and PE.
A&D is a management term that has two parts. Acquisition, which means acquiring or purchasing another firm or entity. A divestiture is the partial or full disposal of a business unit through sale, exchange, closure, or bankruptcy. A divestiture most commonly results from a management decision to cease operating a business unit because it is not part of a core competency or in case of intending a profitable/minimal loss exit. While purchasing or selling an entity, firms would like to precisely know the value of the investment they are selling out or acquiring. In the world of oil and gas, the majority of these A&D deals are to acquire the rights to develop the land pieces (pertaining to oil/ gas reservoirs). This is where investment banking firms require petroleum experts to help the firms understand the value of the assets (or investment or equity) they are trying to buy and sell and its long-term financial effect. In simple words, they need to assess the amount of money generated from this oil/gas asset with risk and probability.
How did you stumble upon this job as a career opportunity?
Right after my master’s degree from the University of Oklahoma, I started my career as a petro-physicist with an oil and gas consulting firm. During the peak of the shale revolution and when A&D was picking up in the US, around 2015, I happened to find this opportunity with an investment banking firm that needed expertise similar to mine. By the time I joined Houlihan Lokey I transitioned through another organization, and slowly increased my knowledge base to geology, reservoir engineering, and economics as well.
In 2019, there was a surge in A&D deals after the 2018 low oil prices, with banks getting busier with every passing day. In the midst of this, I landed at my current position where they focused on A&D.
I guess I actually did stumble upon these opportunities as I was trying to get beyond my saturation point in the career.
What are your key roles and responsibilities in this position?
My key role is to identify and add value to clients' assets during the evaluation processes. I happen to work with a team of reservoir engineers, geologists, and petrophysicists who provide the necessary support.
My deliverables include estimated petrophysical parameters, acreage valuation, oil/gas in place, and well-based ultimate recovery with proper justification. In addition, I investigate well-performance, forecasting well production behavior, providing engineering and business development support that helps evaluate client acreage, supporting sales pitch, and facilitating transactions. I am responsible for handling non-public information with absolute leak-proof security mechanisms and, hence, bear significant responsibility.
How did you perceive this career opportunity before joining? What were the points that attracted you and what scared you?
The career opportunity was unique, and I had never heard of it. I was curious about my role and responsibility in an investment bank. Since I was not living in Houston at that time, moving to Houston was a priority as it is considered “Oil and Gas Capital” due to the presence of large oil companies.
The world I was entering was unexplored and full of new opportunities. As a petrophysicist, I would get many opportunities to introduce new products into the financial world. I could imagine that adding well log analysis, correlations, and geological mapping will add value and quality to the financial processes and transactions.
Work at an investment bank starts on Day 1. There is no time to settle in or training to catch up to their speed. So, I was preparing myself for a steep learning curve and grasping, and a question that used to cross my mind was “Will I be able to cope with such a fast-paced environment?” I think I have been able to do it.
What are your everyday responsibilities in your job? “A day in the office,” if you may.
A day in the office: I guess I can say I have three major responsibilities:
Consulting and Advisory: The top priorities are the live deals. Next are the upcoming pitches or marketing materials and the last but not the least is to work on regional or basin studies. Each category has extensive work on petrophysics, geology, and engineering altogether. This involves integrated log analysis on public and client data, creating petrophysical and geological maps for formations of interest, and correlating wells on a regional basis. It is fast-paced work since the amount of information to process is very large and time is always never enough.
Housekeeping: Part of my work is to also review the work of other team members. As a team, there is always room for innovations and implementing ideas that differentiate us from competitors. I must find time to validate our work, plan the ideas forward, and implement them in presentation format.
Self-Grooming: As the industry moves faster than before, I must evolve and proceed with the technology continually. I deal with data daily and moving with upcoming technologies can create better work products, more efficient data processing, and high-quality interpretation of subsurface reservoirs. It is also my responsibility to introduce those new technologies to my firm as financial bankers are normally not aware of them.
Do you think you are able to use your full potential in this job? What are the critical challenges that you like solving in your role?
Investment banks expect more than 100% from you. Financial institutions are habituated to investigating the bigger picture and the overall value of clients. As a petrophysicist, the goal is to correlate rock qualities to well performance (and indirectly leading to the cash flow). The correlated petrophysical parameters can provide insight into future drilling prospects (where wells are not drilled) and provide additional value. This needs a lot of work but, if successfully implemented, can transform the A&D market with big jumps.
Although financial organizations deal with enormous amounts of data daily, data science technologies are still in their fancy stage. There is enormous potential for artificial intelligence, machine learning, big data, Beyond Limits technology, and so on. However, financial firms will invest only if they see significant returns by deploying such technologies. It's a constant learning process where I have to catch up with the technologies beyond the financial world.
What kind of expertise and background is required for this profile—qualifications and skills —young professionals (YPs) should aim for?
All major financial institutions have two main teams in the energy group: finance/banking group and the technical team. Ideally, a well-suited profile for investment banking or PE should have an engineering, geology, or petrophysics degree (bachelor’s or master’s) with an additional degree in MBA. However, the MBA degree requirement is relaxed in most of the firms' eligibility criteria to be part of their technical team. Moreover, experience in exploration and production companies brings brand value to investment banking and a handful of other connections that can be tapped later.
The financial institutions have a skinny technical team multitasking and handling multiple projects. They can regularly take part in the sales pitch, management presentations, and data room visits to improve their quick and precise communication skills. There are slight variations between the institutions, be it PE or investment banks. Investment banks look for data analytical skills and strong technical and communication skills. A better understanding of financial models (such as cash flow, economics, rate of return, and risks) is always appreciated. However, energy-focused PE firms choose candidates with experience in some elite financial institutions (mostly investment banks), management, and leadership skills. Candidates entering PE firms should have interpersonal skills, team management, and networking skills.
How can YPs prepare themselves for this career path? What skill sets are required apart from the regular petroleum engineering knowledge?
YPs need a thorough understanding of oil and gas operations, mathematical analytics, and well data understanding. He or she should enjoy processing information and interpretation, problem-solving, writing skills, articulation, and formulation, all of which are imperative in thoughtful client presentations, managing and creating pitch books, meeting critical deadlines, and efficiently managing internal processes.
It is also crucial to develop leadership skills, take initiatives, and be able to interact with clients both in the US and abroad. Developing in-depth industry knowledge on oil and gas basins, validating work and doing quality checks, solving challenges in data analysis (finding patterns and correlation between parameters), finding out-of-the-box solutions in the process, and creating presentation-quality technical visuals are key skills. This may involve high-end graphics such as merging well paths and production graphs.
The development of communication skills with investment banking clients or with PE management firms is crucial to operate efficiently and keep parties informed online. Hands-on experience in identifying risks and upsides and gaining colleagues’ trust are key requirements to be handed significant responsibility. All the above skills will be necessary to take the next career-step in investment banking successfully. Once you are independent enough to transact deals single-handedly, you can move to PE firms with higher skill sets.
Where can they find more useful information and opportunities in this field?
Any financial institution that deals with A&D in the energy space plans to keep a small team of engineers, geologists, and petrophysicists. Some of those institutions, such as investment banks, PE firms, and their managed portfolio companies, can provide similar opportunities in their close-knit small teams. You can be an absolute value addition to their team. The career opportunities vary by the deal and its outcome. Any open position in petroleum engineering, petrophysics, or geology is not limited to that subject only. For example, an engineer from operations or production can apply for reservoir engineer positions, if he/she has acquired sufficient knowledge. Later, financial firms often use this cross-disciplinary expertise to their advantage to maximize their employment value. Once you enter the banking world, it is relatively easy to switch between jobs with better opportunities in a good market. Once you have gained enough experience, you can move to the next level as a director of the technical team or as a vice president in the PE firms.
There is not a lot of published information about the opportunity in the petroleum arena. MBA candidates get to know such opportunities (although I don't have an MBA degree yet!) when they join financial firms. Financial firms have strict compliance and confidential agreements that keep a cap on the published information. Only recently, technical personnel from such firms can speak in SPE Gulf Coast Section business development and A&D events. Also, big investment banks organize yearly conferences exclusive for prospects and current clients. Some of the conferences are open to the public where YPs can get more information:
- Hart Energy
- SPE GCS–A&D Symposium
- Mergers & Acquisitions in Energy Conference
- A&D Strategies and Opportunities
- North American Prospect Expo
- Louisiana Energy conference
How do you envision this career may grow in the future for YPs?
The opportunities are growing with financial institutions realizing the value of having a technical team within their energy group. The rise in oil prices tends to increase the M&A activity. Oil and gas producers need to raise capital for their drilling and completion. Due to pandemic, demand for restructuring, fairness opinion, and valuations are at an all-time high. Financial firms hire conservatively with better pay packages and are somewhat insulated from layoffs that occur due to fluctuations in oil prices.
Post-pandemic, M&A activity is expected to increase (with oil prices), and so firms will require more professionals to help them with various processes. In Investment banks, they can broaden their expertise to evaluate oil and gas clients with a more significant outlook. On the other end, PE firms are deploying less capital during the pandemic. Post-pandemic, when business returns to normal with higher petroleum demand and higher oil prices, PE firms will fuel more funds into their portfolio companies with an expectation of higher returns. They will allocate G&A to grow and maintain management teams to manage their assets. Post-COVID-19, this career is expected to grow on multiple fronts.