Lehman Recruit Trades I-Banking for Shale Wildcatting

NEW YORK (TheStreet) -- As the son of a United Nations diplomat to Haiti, Ivory Coast, Chad and Madagascar, and a Lehman Brothers recruit, Farid Guindo, 26, knows he can't take anything for granted.

Because of his father's U.N. dispatches, Guindo spent much of his childhood moving from country to country amid regime change and unrest. He'd lived in about a dozen countries by the time he was ready for college. Those travels amid instability may have also prepared Guindo for a career in finance that began with an investment banking internship at Lehman Brothers in the summer of 2008.

After a few years as an investment banking analyst in the natural resources group at Barclays Capital (BCS) and a stint as an energy analyst at commodities hedge fund Ospraie Management, Guindo struck out on his own in August 2012 to found Drill Capital, a fledgling money manager focused on energy investments.

Drill Capital is currently in the process of completing its first investment -- a $5.2 million project to build an 83-room Wyndham (WYN)-branded hotel in Carrollton, Ohio.

The hotel, which serves a 3,200 community tucked midway between Cleveland and Pittsburgh wouldn't appear to be an auspicious start, except that it sits on the fringe of Utica Shale basins in Carroll County that are increasingly in the gaze of drillers as large as Chesapeake Energy (CHK). Guindo expects that his small Wyndham could serve what may become a burgeoning shale drilling hub, and could lay the foundation for Drill Capital as an energy investor.

Stories like Guindo's may be indicative of the types of wildcatting careers that were started and began to flourish the aftermath of the financial crisis. Drill Capital's strategy to target infrastructure gaps in what many call a shale drilling revolution in the United States may also be a trend for energy-sector investors to watch in coming years.

By all accounts, Guindo, the former I-banker and hedge fund analyst, has spent the better half of 2013 negotiating licenses and building plans for his hotel, while also procuring its sinks, showers, televisions and beds. He is Drill Capital's only full-time worker.

TheStreet spoke to Guindo as he was in Carrollton to oversee the installation of the hotel's roof. It's a far cry from his former life on Wall Street.

The Buildup

Despite taking a summer internship with Lehman Brothers, a firm that would fall into bankruptcy within weeks of his return to McGill University for a final undergraduate year, Guindo's career in finance began with a strong start.

Barclays extended job offers to summer analysts after taking over Lehman's North American investment banking operations. The firm's natural resources investment banking team, built up by current investment banking head Skip McGee, is also a true Wall Street powerhouse.

Stationed in Barclays' Calgary offices, Guindo said he worked on a lot of joint venture deals that involved the firm's banking relationships around the world. By the end of his tenure at Barclays, the firm's natural resources group was also in the process of advising Kinder Morgan's (KMI) takeover of El Paso, a deal McGee said signified the bank could compete with the "big boys" on Wall Street.

In May of 2011, Guindo was poached from Barclays by hedge fund Ospraie Management, the Dwight Anderson-run firm that had been among the biggest players in the commodities industry before falling on hard times during the crisis and closing its flagship commodities fund. Guindo worked as an energy analyst for a long/short equities portfolio and says the role helped him build relationships on Wall Street and gain better insight into the opportunities in the energy sector.

By 2012, Guindo was preparing to stake out on his own after gaining support from colleagues at Ospraie, personal friends and some of his contacts on Wall Street. After sketching out plans for a first investment, Guindo raised capital in early 2013. In the summer, Drill Capital closed on its Carrollton Wyndham project and Guindo expects the hotel will open its doors in the spring of 2014.

If the project is successful, Guindo aspires to raise as much as $100 million for a next slate of investments in the second half of 2014.

The Strategy

What is interesting about Drill Capital is the firm's reluctance to invest directly in firms that Guindo might have become familiar with as either a banking or hedge fund analyst. Instead, Guindo thinks private shale infrastructure investments are currently a better risk-reward opportunity than direct investments in publicly traded firms.

Shale drillers continue to struggle with overly expansive drilling plans and a commodity price environment that is lowering the returns of drilling projects. Put simply, firms are continuing to manage their way through a supply scare. However, infrastructure investments may benefit where drilling plans remain irrational as workers flock to new basins. For now, that's where Drill Capital is putting its money to work.

Guindo, however, is also preparing to become more engaged with the stock picking in the energy sector. In January, Drill Capital launched a research arm that provides a few energy-based stock picks. Currently, the firm sees opportunity in Antero Resources (ARAR), Comstock Resources (CRK) and Bonanza Resources (BCIE), while recommending a short of the Oil Exploration& Production Index and the Energy Select SPDR (XLE) as hedges.

At first, Drill Capital hopes its research arm can get the firm's name out and illustrate its shale energy-focused strategy. That research arm could also be helpful if Drill Capital ever decides to begin investing in publicly traded energy stocks.

"The problem with Farid was his timing," Mark Emrich, a former director of institutional equities at Scotiabank and a Drill Capital investor, says of Guindo's time on Wall Street.

Emrich, however, has been impressed with Guindo's ability to manage what amounts to a real estate construction project on time and on budget. "He was able to put a project together without any help whatsoever... Farid's a young kid, but he doesn't act like that at all in his dialogue with investors," he says.

Emrich, a handful of Guindo's other contacts on Wall Street, and a Chicago-based family office have invested in Drill Capital. The firm expects to break ground on a second hotel this year and funds its projects on a deal-by-deal basis.

"We got into finance in a weird time," Guindo says of his experience as an analyst in the post-crisis years on Wall Street. "It was really about making the best of what you got," he adds.

For now, Drill Capital has a half built hotel in Carrollton, Ohio. If the firm hits pay dirt in its strategy to fill small gaps in the infrastructure of a shale drilling boom, bigger deals may lie ahead.

-- Written by Antoine Gara in New York

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