Can you tell us a little bit about Houlihan Lokey’s history on the North American continent?
Houlihan Lokey was founded in 1972, originally as a valuation-focused financial advisor. In the 1980’s the firm added traditional investment banking services including M&A, Corporate Finance Advisory, Capital Markets, Financial Restructuring, etc. For the past several years, per Thomson Reuters, Houlihan Lokey is the #1 global M&A advisor in terms of number of annual transactions, the #1 global provider of Fairness Opinions, the largest Financial Restructuring group globally and the #1 global provider of advice to private capital providers, including placing approximately $13 billion in private debt and equity capital in the past 12 months.
In the 1990’s, as the investment banking market evolved and in response to our clients’ needs, Houlihan Lokey began developing specialized industry dedication, including Oil & Gas; although until 2011, the effort focused primarily on lower middle market transactions and/or just specialized services. Since 2011, the Houlihan Lokey E&P Group has dramatically expanded its services to the industry by adding a 10 person traditional A&D team, as well as specialized, dedicated M&A, Corporate Finance and Capital Markets bankers and as a result has climbed steadily up market in terms of size and scope of transactions. Today, Houlihan Lokey’s E&P Group comprises 46 oil & gas industry dedicated professionals, including the 10 person technical A&D team and 36 investment bankers across our Houston, Dallas, New York, London, Dubai and Hong Kong offices, all focused on middle market transactions (sweet spot of $100 million to $2 billion transaction size) in the upstream, midstream and downstream sectors.
What would you say Houlihan Lokey´s competitive advantage is when it comes to differentiating yourselves from the rest of the field?
There are several differentiating factors, such as:
- Unlike our competitors, Houlihan Lokey’s E&P Group is a truly seamless cross-product team of oil & gas dedicated professionals such that all investment banking services (A&D, M&A, Capital Markets, Valuation, Financial Restructuring) are found within one industry group. This means that we can provide a full spectrum of the best, most creative, industry-based advice to our clients without the need to turn engagements over to professionals who may be product specialists, but which lack any requisite oil & gas industry experience.
- Our E&P Group is also a global investment banking industry team with professionals in North America, Europe, Middle East and Asia, which coordinates and can source buyers and sellers, capital providers and investment opportunities on a global scale through one seamless team.
- Our A&D Team is fully integrated within the E&P Group so that it acts as not only a traditional sell-side and buy-side advisory team, but also as a technical unit for all E&P investment banking services. As a result, we staff all engagements with a cross-section of both investment bankers and A&D professionals to ensure each client’s financial and technical needs are met with cohesive advice.
- Houlihan Lokey’s world-leading broad strengths as an independent investment banking advisor in valuation, corporate finance, M&A and bespoke capital solutions allows us to be a creative partner to capital providers, private equity, management teams and corporate boards in ways that are far from cookie cutter.
You are attending & speaking at North America Assembly for the third consecutive year. Can you tell us how important the North America Assembly is as a meeting platform for the industry and why you choose to attend year on year?
The Oil & Gas Council’s North America Assembly has become one of a handful of industry-leading annual conferences. Year after year, the speaker line up is top of its class, the topics covered are timely and the networking platform both during the conference and the dinner affords the opportunity to gather with industry colleagues, clients and friends and share pertinent ideas.
Where do you see the opportunities for growth within the industry in the next 5 years and how are you positioned to support this?
Public equity markets have allocated capital away from E&P over the past couple of years for a variety of reasons, which has both resulted in a backlog of M&A&D assets, as well as having opened a further window for private capital. I believe that as the industry adjusts, we will see over the next 5 years three key trends:
- An increase in M&A activity (in addition to traditional A&D asset transactions), as stock-for-stock mergers will allow companies the ability to gain economies of scale and further contain cost creep, as well as shareholders, and will retain the opportunity to participate in upside returns. This obviously will require working through social issues that are always present in M&A transactions, but I do believe that there is an opportunity to consolidate the industry and thereby further maximize value and returns.
- A further maturation of unconventional plays will result in companies demonstrating the ability to generate and live within cash flows. The industry is at an inflection point where several onshore basins are becoming delineated and reaching a maturity level where breakevens are known and D&C + LOE costs can be managed in a way to generate meaningful cash margins. Those companies of size and scale that can demonstrate a consistent level of cash flows will attract public capital and become consolidators within their respective basins, thus furthering the M&A activity mentioned above.
- I’m fairly constructive on commodity prices, particularly oil as year-over-year global demand continues to outpace supply, which will further bolster investor returns and provide options for both private and public capital providers.
Given the breadth of industry-dedicated investment banking services provided by Houlihan Lokey’s E&P Group, we remain well positioned to advise corporate management teams, boards and capital providers in achieving their goals and maximizing value through the cycle.
What game-changing discovery/ project/ technology is currently making waves in the industry?
Although the latest generation F&D&C technologies can’t be overlooked as improved generation techniques have obviously not only enhanced but revived several domestic basins, I think the even more impactful near-term projects for the industry are resolving midstream capacity to meet upstream production growth. Differentials have widened in several basins, the most widespread of which is the prolific Permian. The questions around processing and transportation issues currently create an overhang on both in-basin producers, as well as the industry as a whole as uncertainty in future supply across the commodity spectrum makes long-term domestic pricing difficult to forecast, thus impacting not only near-term domestic prices but also corporate planning.
What insights are you most looking forward to debating and discussing at the 10th North America Assembly?
- What does the near and long-term future hold for the industry and how will companies and capital providers (both public and private) react?
- What catalysts exist both in the near and intermediate terms to re-attract public equity capital allocations to the industry?
- Given how active Houlihan Lokey has been in the GOM recently, what role will GOM production play in the total domestic landscape and how will development and production evolve to meet global demand?
About JP Hanson
Mr. JP Hanson is a Managing Director, Head of Houlihan Lokey’s Oil & Gas Exploration and Production (E&P) Group and Co-Head of the Energy Group. He is dual-officed in New York and Houston.
During his career, Mr. Hanson has worked on numerous financing, M&A, and financial restructuring engagements. In addition to domestic transactions, he has been involved in transactions for several Latin American-, European-, and South African-based companies, advising companies and stakeholders regarding the structuring and implementation of financings, M&A transactions, out-of-court exchange offers, and “pre-arranged” reorganizations in local jurisdictions. In financial restructuring engagements, he has advised companies, secured and unsecured creditors, and other stakeholders in both out-of-court and in-court restructurings, including “pre-packaged,” “pre-arranged,” and “free-fall” Chapter 11 bankruptcy cases. His notable engagements include: SandRidge Energy Corp.; Magnum Hunter Energy; Swift Energy Corp.; BPZ Energy, Inc.; ATP Oil & Gas Corp.; Chesapeake Energy Corp.; Quicksilver Resources, Inc.; and Samson Resources, among others. Find out more about Mr. Hanson here