Energy Trading Losing Luster With New MBAs

Riding the boom in power trading, almost 8% of business school graduates at Rice University last year took jobs with Enron Corp., lured by first-year compensation of more than $100,000.

Just a few months later, the graduates of the Houston-based school were out of work and the luster of the once-highflying industry, still reeling from Enron’s collapse into Chapter 11 proceedings late last year, was tarnished.

As a result, there is a revival of interest in old-line oil companies such as Royal Dutch/Shell Group, Exxon Mobil Corp. and BP among graduates of Rice’s top-tier master of business administration program.

“This has been a year when the Shells and Exxons and BPs of the world have been interesting to our students because they have stronger balance sheets and are here for the long run,” said John Miller, associate director of career planning at Rice’s Jones School of Management.

“I wouldn’t have said that two years ago,” said Miller, who also lectures on risk management at the Jones School.

Hiring in general has fallen because of the economy and local mergers, Miller said.

This year, slightly fewer than 70% of Rice graduates were placed, compared with 90% last year.

In the absence of Enron, Duke Energy Corp., another top trading company, has become the leading recruiter this year at Rice, hiring 11 students. It’s no coincidence that Duke is an investment-grade company and is perceived to have a strong balance sheet.

More students are taking sales and trading jobs at Wall Street firms than at energy companies, Miller said, noting, “That’s been a little bit of a twist.”

With the collapse of Enron, once the world’s No. 1 power trader, business school graduates are scrutinizing potential employers more closely. Some at Rice are looking at industries outside Houston’s lifeblood energy sector.

“There are some concerns about whether a company is solid or not,” said Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas. “It’s an issue of reputation.”

Houston is famous for its boom-and-bust energy cycles. During the most recent uptick, record profits pumped up the prospects of such energy traders as Enron, Dynegy Inc. and Mirant Corp., prompting a surge in jobs beginning about 1997.

New graduates and traders with more traditional Wall Street backgrounds alike were attracted by the challenge of working in the volatile power industry and by the competitive salaries.

Starting salaries at energy trading companies are as competitive as those at investment banks. Base salaries are in the $80,000-to-$85,000 range and are boosted by signing bonuses in the tens of thousands along with guaranteed first-year bonuses and stock options of $10,000.

But things have changed. In the fallout from Enron’s collapse, other energy traders--including Dynegy, Mirant, Aquila Inc., NRG Energy Inc. and Reliant Resources Inc.--have faced questions about their financial strength.

The major credit raters also have downgraded, or threatened to downgrade, the debt of some of the companies to “junk” status, making it more difficult for them to borrow money, raise cash and operate their businesses.

At the same time, many energy traders have been less aggressive about recruiting students, often because of restructuring programs that put a premium on cutting expenses, including jobs.

“We’re not hiring as much as we were in the past,” a Mirant spokesman said, acknowledging that hiring is not a priority after the company cut 7% of its global work force this year.

In contrast, jobs in risk management are on the rise--no surprise, given the problems that have hit the industry.

“We have seen a pretty significant increase in hiring in the risk-management field,” said Ron Lumbra of recruitment firm Russell Reynolds, noting that there are more jobs for people to assess the risk of trading with certain counterparties and the risk of having surplus power generation in certain markets.

But Brown said interest in energy trading won’t go away any time soon.

“Some of the alternative careers that were real strong a couple of years ago, like telecom or high tech, aren’t quite as strong,” he said.

“So energy trading might be relatively more attractive among the careers that have developed over the last 10 years.”