California native Jacob Nagy graduated from Rice University in Houston and began his career as an analyst in Merrill Lynch’s global energy and investment banking group in 2008, where he met Tom Petrie, Jon Hughes, Mike Bock and Andy Rapp. He joined them when they left Bank of America Merrill Lynch to launch the boutique investment banking firm Petrie Partners in 2011.

Nagy has completed more than 50 merger, divestiture, joint venture and financing transactions during his career. Signing on to help start Petrie Partners, with offices in Denver and Houston, was an “easy decision,” he said—a ground-floor opportunity to work alongside senior bankers he respected, each with decades of experience in the industry.

This past fall, Petrie Partners established a partnership with premier financial firm Rothschild & Co. to provide debt advisory services to upstream and midstream companies increasingly needing corporate restructuring in the downturn (see “On the Money,” January 2016 issue).

In his spare time, recently married Nagy plays on a hockey team and enjoys spending time skiing and cycling. In an interview with Investor, he reflected on the outlook for M&A transaction activity and financing for the oil and gas industry.

Jacob Nagy

Investor How has your work changed as the downturn has intensified?

Nagy We seem to get busier by the day. Last year it appeared to be a seller’s market for high-quality assets. We think we’ll continue to see that. It’s like a paradox, to call it a seller’s market when commodity prices are low, but it’s because there is so much pent-up demand and so much capital on the sidelines that is hungry to get to work. In second-half 2015, we closed five sellside A&D transactions, and we are entering 2016 with a number of active engagements.

We remain focused on the corporate merger side of our business and continue to have strategic dialogue with a number of public companies. The Noble Energy acquisition of Rosetta Resources, where we advised Noble, was the only upstream corporate merger in 2015. We anticipate similar transactions in this environment where shareholders of companies with high-quality but undercapitalized assets can really benefit from being a part of a larger organization.

Investor Another component of your deal flow is the partnership with Rothschild.

Nagy The decline in commodity prices has been so fast that most companies can’t generate sufficient proceeds from asset sales to adequately strengthen their balance sheets, as they would do in a more typical “down” market. With these clients, we’ve shifted our focus from the asset side of the equation to what we can do on the right side of the balance sheet for liability management. The past few months have been strong for the partnership in terms of capturing mandates, and we’re advising several E&Ps on how to optimally navigate this difficult market and manage their balance sheets.

Investor Do you think the A&D market will be more active this year?

Nagy I don’t think we will see as many broadly marketed properties as we have in previous years. There’s still a buyer-seller value gap, and to some extent, many companies are concerned about the stigma of a failed deal. Instead, we will likely see companies testing the waters with a handful of potential buyers to determine whether there are actionable structures and prices, without the process being broadly known.

It’s taxing on an organization—physically and mentally—to gear up for a sale and have it fail. So I think we’ll see a lot of negotiated deals, and those require a different, more finessed, approach to get done. It’s more like the complex negotiations you see in corporate mergers. Fortunately, our team has a lot of experience there.

Investor What upstream companies are best-positioned in the current environment?

Nagy A number of E&Ps made prudent investments and structured deals more conservatively in recent years. They are well-capitalized to take advantage and are going to be successful. It’s not easy, but those looking to sell quality assets will be able to make a decent return in this market because there are buyers who believe in a recovery and will pay up for that embedded warrant value.

Investor How are E&Ps coping?

Nagy For the most part, private companies are doing as little as they can while keeping their assets intact and preserving the option value for a recovery. Any way to monetize or tack that asset onto a bigger vehicle could be attractive.

For public companies with debt-heavy balance sheets, it’s difficult to effect a meaningful transaction absent a recovery or restructuring of that balance sheet.

Investor Any thoughts on when prices might turn around?

Nagy The recent volatility has made that difficult to predict. As a firm, Petrie Partners is in this business to help clients best position themselves for the long term. We’re not focused on band-aid solutions but rather on the bigger picture. Prices could say lower for longer, as many believe, but our advice is not focused on necessarily transacting in the near term or generating next-quarter revenue for our firm. We’re thinking holistically, in our clients’ best interests.

—Susan Klann

Comments