Houlihan Lokey's Strategic Move into Oil and Gas Midstream: A Shrewd Play on Energy Infrastructure Growth

Houlihan Lokey, a global leader in investment banking and financial advisory services, has expanded its energy sector expertise by hiring a seasoned professional to lead its oil and gas midstream coverage. This strategic move underscores the growing importance of midstream infrastructure—a critical link between upstream production and downstream consumption—in an era of evolving energy demand and infrastructure investments. As the world balances decarbonization goals with the ongoing reliance on fossil fuels, midstream assets are emerging as a resilient segment of the energy value chain. Here’s why this hire could position Houlihan Lokey to capitalize on a sector ripe for growth.

The Midstream Imperative: Bridging Energy’s Past and Future

The midstream sector encompasses pipelines, storage facilities, processing plants, and transportation networks that move oil, natural gas, and refined products. While often overlooked compared to flashy renewables or upstream exploration, midstream infrastructure is indispensable. Even as global energy transitions accelerate, the International Energy Agency (IEA) estimates that $1.2 trillion in midstream investments will be required through 2030 to meet demand for both traditional hydrocarbons and emerging energy carriers like hydrogen.

The Biden administration’s 2022 Inflation Reduction Act, which includes tax incentives for clean energy and infrastructure, has further buoyed midstream’s relevance. Provisions for carbon capture and hydrogen infrastructure—both reliant on midstream networks—are expected to drive demand for specialized assets. Meanwhile, the U.S. Energy Information Administration (EIA) projects U.S. crude oil production to average 12.7 million barrels per day in 2024, maintaining pressure on transportation and storage capacity.

Houlihan Lokey’s Play for Market Share

Houlihan Lokey’s decision to bolster its midstream team signals confidence in the sector’s deal flow. The firm’s advisory capabilities, including mergers, acquisitions, and restructuring, are now better positioned to serve companies navigating the sector’s complexities. Midstream firms often face challenges such as regulatory hurdles, capital-intensive projects, and the need to adapt to evolving energy policies—all areas where Houlihan Lokey’s expertise could provide a competitive edge.

HLI’s stock has outperformed the S&P 500 by 23% over five years, reflecting its success in high-demand sectors.

The hire also positions Houlihan Lokey to compete with rivals like Jefferies and Goldman Sachs, which have long dominated energy M&A. With midstream transactions accounting for 35% of total oil and gas deal value in 2023 (per Bloomberg data), the sector’s advisory fees could represent a significant revenue stream for the firm.

Data-Driven Growth Drivers

Midstream’s resilience is evident in key metrics:

• Pipeline Utilization Rates: The U.S. crude oil pipeline utilization rate remains above 90%, per the EIA, indicating robust demand.
• ETF Performance: The Alerian Midstream Energy ETF (AMZX) has returned 28% annually over the past decade, outperforming the S&P 500.
• Debt-Fueled Expansion: Midstream companies, such as Enterprise Products Partners (EPD) and Kinder Morgan (KMI), have leveraged low-interest rates to fund infrastructure upgrades.

AMZX and KMI have shown strong correlation, reflecting midstream’s consistent demand dynamics.

Risks and Considerations

While the sector’s fundamentals are robust, risks persist. Regulatory shifts—such as stricter permitting for new pipelines—or a rapid decline in oil demand due to electrification could disrupt cash flows. Additionally, midstream companies often carry high debt loads, making them vulnerable to interest rate hikes.

Conclusion: A Strategic Bet with Tangible Upside

Houlihan Lokey’s expansion into midstream advisory services is a shrewd move aligned with structural trends. With $1.6 trillion in global energy M&A since 2020 (per PitchBook), and midstream accounting for a growing share of that activity, the firm is well-positioned to capture fees from transactions in this critical segment.

The data supports this thesis:
- Midstream infrastructure investment is projected to grow at a 5.2% CAGR through 2030 (IEA).
- Houlihan Lokey’s existing energy practice has delivered 18% annualized returns for clients over the past five years, per internal disclosures.
- The firm’s cross-selling potential into adjacent sectors like renewables and carbon capture offers further scalability.

Investors should watch for Houlihan Lokey’s involvement in major midstream deals—such as pipeline expansions or consolidations—as a key indicator of this strategy’s success. For now, the move reflects a calculated bet on an energy subsector that remains vital to both current and future energy systems.