Industry expert Brian Williams of Carl Marks Advisors speaks with MMG from Houston
MMG | AUGUST 29, 2017
Hurricane Harvey made landfall near Corpus Christi, Texas, Friday night. The storm has caused deaths and property damage as rainfall and flooding continues. Its economic effects will likely be wide ranging, particularly for the state’s large oil and gas industry.
To understand how the energy sector is responding to the severe weather event, MMG spoke to Brian Williams with investment bank Carl Marks Advisors. Williams has decades of experience in the energy sector and was recently named a partner with the firm. He spoke with MMG from Houston, where he’s based. The interview has been edited and condensed for clarity.
Q. How are energy markets responding in the aftermath of Hurricane Harvey?
Brian Williams: They’re responding with some uncertainty. People are expecting gasoline prices to go up because of the refining capacity that’s shut down—that’s a natural reaction. I think you’ll see people concerned about crude supply, wondering who’s going to buy it. If refineries are down and they’re not buying anything, where does that crude go? Those are all temporary things that will work their way out in the coming weeks.
Q. What types of permanent effects should the industry be paying attention to?
BW: What really remains to be seen is if there’s permanent damage to the infrastructure and how fast that can come back. We’re still in the middle of it—it’s still raining, so it’s hard to know what the longer-term implications will be.
We’ve never had any significant long-term impacts in the Gulf of Mexico from hurricanes—they’ve been a known factor. But we had long-term implications from the BP Macondo accident. People just recalibrated the risks to life and environment from deep-water drilling. That had a change that was longer-term, but I don’t know that there will be anything structural that permanently changes for this region in terms of oil and gas activities.
I think the refining spreads will all come back around, unless there’s some significant damage that I don’t know about.
Q. What types of supply-chain disruptions do you anticipate?
BW: For the oil services industry, many of the companies that manufacture and supply products into the oil patch come through Houston, things like drill pipes and casing and tubing being imported into the country. You’ll see some disruptions on those items.
“What really remains to be seen is if there’s permanent damage to the infrastructure and how fast that can come back.”
As operators have gotten so efficient with their wallboard manufacturing and the unconventional horizontal drilling world of today, I do see some supply chain disruptions here in the near term, as people try to figure out how to get through this pinch point, which is going to be a flooded-out infrastructure challenge for Houston for quite some time.
Q. How will crude exports be affected?
BW: The U.S. had been moving toward becoming a crude oil exporter in many places. A lot of pipeline capacity is getting built from the Permian Basin down to the Texas coast, specifically Corpus Christi, which is where the storm hit. There will be implications for U.S. crude exports.
Q. What do you expect will be the storm’s near-term impact on middle-market M&A?
BW: Storms are not once-in-a-lifetime events, although this flood is a bit once-in-a-lifetime in terms of its magnitude and its impact on Houston.
The human side of the storm remains to be seen. M&A deals will be delayed: A significant portion of the accounting and lawyering and investment banking that goes on and drives capital into the industry and M&A activity, all of those things will become backed up and delayed.
It wouldn’t surprise me if you saw some acquisitions of exploration and production companies or assets end up getting delayed and maybe going away as a result of this. If you see crude prices soften and they can’t get the financing done—there are all kinds of externalities as a result of this that are possibilities. A lot of that is speculation at this point.
Q. What should middle-market companies and investors be paying attention to?
BW: Just being able to navigate short-term supply and logistics constraints. You’ve got an industry that used to be kind of just-in-time, low-inventory on the refining and product side, and that’s all still true. You’ve got to optimize your working capital usage, and increasingly the upstream drilling and completion industry has gone that way. I think you’re going to see disruptions and maybe some people blaming the storm for third-quarter production, for wells drilled or targets for wells completed for some of the public producers that fall short because their supply chains were impacted.
There was a growing level of activity in the Eagle Ford shale in southwest Texas; I think you’re going to see hurricane impacts on the Eagle Ford, which is not the largest oil field in the country, but it’s certainly a material player.
In terms of quantity and duration, it’s really hard to know how long that will be. But clearly disruptions will be happening and companies need to be thinking about that in their planning.
Brian A. Williams is a partner with investment bank Carl Marks Advisors. He has over 20 years of oil and gas investment banking, strategic advisory and operating experience focused on oilfield services mergers and acquisitions, public and private capital raises, restructurings, principal investing and executive management.