Houston Strategies

Houston heating up

No, I'm not talking about global warming or lamenting our usual summer heat and humidity. A trio of recent Wall Street Journal articles all point to the rising heat generated by Houston's economy (sorry, but all the links require a subscription). The first ranks Houston the 11th most inventive city in the country with 1,071 patents in 2005, more than San Francisco, Seattle, or New York. California is clearly king, with 8 of the top 10 cities, but Texas comes in a reasonable second with Austin, Houston, and Plano (telecom corridor) in the top 20.

The second has Houston as the only major city in America bucking the national housing slowdown with a decline in housing inventory of 3% over the last year, vs. increases and softer sales in other cities (table).

"Among the strongest markets overall are Houston, Dallas-Fort Worth and Seattle. All three areas are benefiting from robust job markets, and modest home prices are drawing investors and new residents to Texas."

Finally, there's this page one story from last week:

Bubbling Crude
As Oil Prices Rise, Investors
Pour Into Risky Energy Plays
Hedge Funds, Private Equity
Steer Billions to Startups;
Bulls Cite Feverish Demand.
Exotic Loans, New Managers
...

Here in Houston, the boom's U.S. epicenter, veterans of major oil companies and their bankers are abandoning longtime employers for startups. Eric Mullins, a former investment banker at Goldman Sachs Group Inc. in Houston, recently persuaded some big endowments and pension funds to sponsor his career change -- to the tune of $450 million. Now Mr. Mullins, 44, hunts for oil and gas assets as co-head of Lime Rock Resources; the other co-head has an exploration background.

The fevered pitch reminds some of the Silicon Valley boom a few years back. "Energy's about as hot right now as tech was in 2000," says Ben Dell, an energy analyst with Sanford C. Bernstein & Co.

Bullish investors say this isn't another dot-com bubble. The energy industry is built on hard assets. Tight supplies and voracious demand from emerging economies such as China point to the need for more investment, they say.

Jeffrey Currie, head of commodity research at Goldman Sachs in London, says participants are taking more risk now because the energy industry long underinvested in new capacity and supplies have grown extremely tight. "We believe it could take more than a decade to resolve these supply problems before commodity prices can retreat on a more persistent basis," Mr. Currie argued in a recent piece. "Do not expect this investment phase to end soon."

One popular trend: management teams with virtually no assets other than big and costly ideas.

Joseph Bryant, a former top executive with BP PLC and Unocal Corp., is creating an elite team of deep-water oil explorers to hunt the last frontiers of the Gulf of Mexico and other hard-to-reach environs. Searching such virgin territory is mainly the province of big oil companies. Before Mr. Bryant's Houston startup, Cobalt International Energy, drills for his first drop, he must acquire seismic data and state-of-the-art software to research the ocean floor, purchase exploration rights and lease floating rigs that cost as much as $500,000 a day -- all for naught if he hits dry holes.

Yet Mr. Bryant had his pick of sponsors. "It wasn't a question of whether we could get money, but which to take," he says.
...

Others already have made millions. The Platinum IPO's underwriters were paid about $7 million. Mr. Kostiner and other organizers got 20% of Platinum's stock. After nearing $9 this spring, the combined value of each Platinum share and warrant is now about $8.04. Today, Mr. Kostiner's grant of Platinum stock is worth $6.4 million. He hasn't drawn a salary yet, but the company says he will make market rates as chief executive.

He has picked out a house to buy in Houston and recently got his 2-year-old daughter a pink cowboy hat.

It's all good. Well, except maybe for the increased traffic... and the pink cowboy hats.

posted by Tory Gattis @ 6:01 PM