What does the collapse of O&G mean for Houston Biglaw

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lawlo

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What does the collapse of O&G mean for Houston Biglaw

Post by lawlo » Wed May 13, 2020 6:07 pm

Is deal work going to be dead there for a long time? What should incoming associates be thinking/feeling about all this? Any Houston/Dallas associates want to chime in with what's going on at their firms?

LBJ's Hair

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Re: What does the collapse of O&G mean for Houston Biglaw

Post by LBJ's Hair » Thu May 14, 2020 12:09 pm

Don't work in the industry, but FWIW this isn't unusual: O&G is cyclical. When oil's up, everyone makes a shitload of money. When it's down, the bankruptcy lawyers jump in and M&A dies. Take that how you will (on the one hand, sorta scary that this isn't a once-in-a-generation thing, on the other hand maybe comforting to know that this has happened before and people are ok)

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nealric

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Re: What does the collapse of O&G mean for Houston Biglaw

Post by nealric » Thu May 14, 2020 1:03 pm

lawlo wrote:
Wed May 13, 2020 6:07 pm
Is deal work going to be dead there for a long time? What should incoming associates be thinking/feeling about all this? Any Houston/Dallas associates want to chime in with what's going on at their firms?
In-house energy, so I've seen it directly. This isn't the first oil bust Houston has seen, and it won't be the last. We can only hope it's not at the level of the 1980s, although that one was made even worse by the collapse of the local banking industry (essentially a localized financial crisis from before the days of dominant national banks). The good news today is that Houston industry is more diversified than it was during the 1980s and we haven't yet seen a banking system collapse. As they say, the cure for low oil prices is low oil prices. Supply/demand will eventually balance and the supply reductions will likely overshoot, which will set up the next boom.

As far as deals are concerned, you are correct they are dead as a doornail at the moment. Very few buyers of assets, and the deals that are happening are small. However, I expect a few megadeals over the next year or two as industry consolidation occurs. The sweet spot for deals will be the point where there's a clear light at the end of the tunnel, but the distressed companies are at the end of their rope. Buyers who still have capital or access to financing are waiting for their chance to pounce. Financing for distressed companies will likely be hard to come by, but many are hoping that can last just long enough for the upturn- quite a few won't.

As far as firms are concerned: there will be belt tightening, but the extent will depend on the specific firm. Some firms have a lot more national business than others, and some are more energy exposed than others. I wouldn't expect to see much corporate hiring for a while.

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