I was Goldman Sachs' chief geologist. This is why investment banks are desperate for my skills
Bill DeMis had been exploring the oil fields of Texas for nearly 30 years by the time Goldman Sachs came knocking. A random call from a headhunter early last year informed him that the U.S. investment bank was seeking a chief geologist for its natural resources group in Houston, and - despite never having stepped foot on Wall Street - that he would be an obvious choice.
“I’d never harboured much ambition to work for an investment bank, but even if you work outside of the industry, the name Goldman Sachs gets your attention,” he tells us. “It seemed pretty cool, so I thought ‘why not?’”
Investment banks are desperately seeking technical specialists to enable them to take advantage of the surge in oil and gas deals over the past 12 months in the U.S. In particular, ‘Permania’ – a term coined to explain the rush of deal-making in the Permian Basin in Western Texas and New Mexico – has driven a renewed demand for geologists to support investment bankers based in the region.
Teaming up sharp-suited investment bankers with geologists more at home in cargo shorts might not seem like a marriage made in heaven, but DeMis insists that this expertise is increasingly needed in a region where acquisitions and divestitures are reaching fever pitch. Bankers, engineers and geologists all work together to ensure IPOs, asset sales and M&A deals get over the line.
“Dealmakers are great at the classic side of banking and valuation, but most of their analysis is above ground,” says DeMis, who joined Goldman as chief geologist in July last year. “Actually, there’s a whole complex system of layers, different rock formations and other factors that can affect the drilling capacity of a particular plot of land. Without this analysis, valuations can be way off.”
Last year, there were $147.5bn worth of M&A deals in the U.S. oil and gas sector, according to data from Dealogic, up from $104bn in 2015. So far in 2017, there have already been $95.2bn worth of deals.
The Permian basin is big business. In February, for example, Parsley Energy spent $2.8bn to acquire Midland Basin Assets from Double Eagle Energy Permian LLC. Meanwhile, ExxonMobil paid $6.6bn to buy companies with drilling rights for around 250,000 acres in the Permian basin in January. The size of the deals is reflective of a swell in the value of land in the region. Prices have gone from $1,000 an acre in 2012 to a maximum of $50,000 for the same patch in 2016 within the Permian basin, according to figures from research company Wood Mackenzie.
Insiders suggest that Jefferies has one of the biggest teams of geologists and technical specialists within the Houston region, with a team of 20-30 people. There are close to seven people working in these roles at J.P. Morgan within its 60-strong North American oil and gas team in the U.S. Barclays, Perella Weinberg and Scotiabank have all been involved in some big transactions this year.
The oil and gas industry isn’t exactly shy at handing out six-figure packages to its specialist employees, so investment banks have had to compete. If you’re a junior geologist at an investment bank in the U.S., salaries come in at around $100k, while senior people can expect $250k. Banks are still willing to pay bonuses, which come in at 10-100% of salary, depending on how generous your employer is feeling. Right now, bonuses are big.
But investment banks don’t just hire anyone. Usually, geologists landing at bulge brackets come armed with 10 years of experience, are experts on geophysics and petroleum geology, as well as data analysis, digital mapping and computer modelling and Geographical Information Systems. They support the deal process, but geologists are also expected to be thought-leaders, creating insights into how the industry is developing for banks’ clients.
“Investment banks only want the best of the best,” says DeMis. “I’ve been in the business for a long time, and won various AAPG [American Association of Petroleum Geologists] awards. It’s an interesting job, but not as exciting as other geology roles because it’s entirely desk-based.”
Right now, J.P. Morgan and RBC Capital Markets are recruiting geologists in Texas, and DeMis says the job market remains healthy, despite his decision to leave Goldman Sachs in April to set up his own consultancy.
Maybe now’s the time to capitalise on the boom while it lasts. The latest frenzy of activity in the Permian basin, spurred by relatively cheap production costs and estimates of up to 200 billion barrels of oil available across 75,000 square miles, is viewed by some as a bubble that will inevitably burst.
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