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Given the host of uncertainties facing energy, it’s not intuitive that firms serving the oil and gas sector would be announcing expansions. But the rising need for E&P restructurings, coupled with an opportunity to marry deep energy expertise with renowned restructuring skills, has led to Petrie Partners and Rothschild joining forces to provide debt advisory services to the energy sector.
Debt advisory represents an additional arrow in the quiver of Petrie Partners, whose existing suite of services comprises strategic advisory, M&A, divestitures and private placements. Focusing on how best to optimize the “right-hand side of the balance sheet,” the debt advisory services “will be on par” qualitatively with its strategic advisory work, according to Petrie CEO Jon Hughes.
“Rothschild’s a great fit,” he said. “We now are able to provide the energy industry the same world-class advice on the liability side of the balance sheet as we already do on the asset side.”
Rothschild’s global reach includes 51 offices in 40 countries. As with competitors such as Lazard and Evercore, Rothschild is highly regarded for its restructuring expertise. However, while it is active in the energy sector in Europe, Rothschild has, to date, not been active in the U.S. upstream market, which has seen growing demand for restructuring expertise as prolonged lower commodity prices have pressured U.S. E&Ps.
In forming their partnership over a period of months, Petrie Partners and Rothschild found themselves to be “very much aligned philosophically,” according to Hughes. Both parties offer independent advice and have “continuity” in terms of senior executives working together, in many cases, for decades. Another common trait is “senior level execution” of transactions as opposed to deals being pitched by senior bankers and then passed down the chain for execution. These and other shared values made for a “very good match,” said Hughes.
The partners also share an optimistic perspective, with an emphasis on working with clients from an early stage, and heading off the eventuality of a “zero-sum game” in a bankruptcy.
“We like to get in early with companies, helping them think through the challenges they face so that they can end up much stronger,” said Hughes. “If you let it get to the bankruptcy stage, it tends to be a zero- sum game. Ours is a positive perspective; we work hard to achieve constructive outcomes for our clients and their stakeholders. We want to help companies best position themselves for a recovery.”
The downside of working with an industry that is inherently optimistic, typically confident that better times are just around the corner, is that “it takes real self-discipline to be proactive,” according to Hughes. Selling an asset at a weak point in the commodity cycle may initially have little appeal, for example, but in reality may prove prudent if it lengthens an E&P’s runway to survive an extended downturn and positions it well for a stronger price environment.
“It’s important for companies to be proactive,” said Andy Rapp, another Petrie co-founder, “for example, to be thinking now about how they want to be positioned for 2017, not just for the April 2016 borrowing base redetermination. And for them to ask, ‘What do I want to look like coming out of this industry downturn? What steps can I take now to get there?’”
In just a few short months, the Petrie-Rothschild debt advisory partnership has already secured a number of formal mandates, according to Hughes. He noted, “We work with Rothschild to identify and implement specific transactions within companies’ capital structures that can increase liquidity and overall equity values. We tell clients, ‘Here are tangible steps you should be considering now so you’re optimally positioned as the commodity cycle turns back up.’”
Given the many challenges in energy last year, it is noteworthy that other players in energy-specific equity research and investment banking also are taking measures to strengthen their product offerings. Simmons & Co. recently announced its combination with publicly traded investment bank and asset management firm Piper Jaffray.
For Petrie Partners, the partnership with Rothschild comes on the heels of a record year in 2015. The firm served as exclusive financial advisor to Noble Energy Inc. in its acquisition of Rosetta Resources Inc., a merger valued at about $4 billion. Petrie also had a leadership position in terms of upstream divestitures in 2015, according to PLS.
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