THE YEAR IN BUSINESS
The past 12 months were filled with hope and malaise for Houston as the business world soldiered through a swamp of uncertainty. Here’s a look at some of the top business headlines of 2016:
THEOILBUST
If you want to know how Houston’s economyis faring, check the price of oil. Asthe year got underway, falling oil prices plunged the city’s biggest business deeper into a downturn that cost Texas one in three oil workers.
Wildcatters began calling it the worst oil bust in a generation, andfor mostof the year, hopes of a recovery in 2016 looked dim, a dispiriting prospect for anindustry that had helped Texas out pace the nation in job growth after the Great Recession.
The industry, in away, was undo ne by its own drilling surge in U.S. oil patches, which eventually overwhelmed the world’s appetite for oil andsent domesticcrude pricesfrom $107 a barrel in the summer of 2014 to as lowas $26 a barrel in February.
For a few months, it became virtually impossible for all but the mostnimble drillers tow ring a profit out of once lucrative oil fields in Texas. U.S. crude output fell by more than 1 million barrels a day since April 2015, and the downward spiral of oil prices andproduction forced morethan105oil producers and energy service companies in Texas,including the Houston’sonce high-flying L inn Energy, into bankruptcy court. The industry cut more than 100,000 jobs across the state, and more than 150,000 across the nation.
Still, the broader Houston economy didn’ t suffer nearly as much as it did int he1980s. The city’s banking industry andreal estate market didn’t collapse, but merely cooled, and growing petrochemical andhealth care industries helped support the challenged economy. Collin Eaton
THECOMEBACK
Both the oil market and the industry have begun what analysts believe will be a slow recovery, as crude prices climbedabove $50 abarrel in recent weeks. In 2017, U.S. drillers are expected to boost spending byat least a quarter to morethan$82 billion, which is expected to benefit oil field services companies and slowly bring back energy jobs. Collin Eaton
AREA’SWOBBLY ECONOMY
After many years of soaring above the national economy in terms of new jobs and population growth, Houston turned into a dudin2015, as the oil bust robbedthe city ofall momentum. Thesituation still looked dire at the beginning of 2016, with unemployment spiking above thenational average — but oil prices bottomed out in February, stabilizing the local economy. While Houston lost one in five oil andgasjobs, employers in the medical, retail andleisure andhospitality sectors continued hiring, allowing the metropolitan area to finish November with 0.5 percent more jobs than it had a year previously. That’s quite a bit behind the national jobgrowth rate of 1.6 percent, but not bad for the worst local recession in 30 years. Lydia DePillis
OPEC’SDEAL
Thefortunesof Houston’s oil industry next year depend greatlyonOPEC. TheSaudiled cartel madeasurprise return to its role of supporting oil prices in November, perhaps the most crucial moment in the oil market in more than 2½ years.
The group, which has recruited the help of Russia and others outside of OP EC, has agreed to curb oil production by more than 1 million barrels a day, andanalysts believe the movecouldbring global oil supply and demand back into balance in the first half of 2017.
The November surprise defied market observers who believed differences between Saudi Arabia and Iran, which derailed previous oil production deals, would be insurmountable.
The question now is whether the cartel follows through with proposed cuts incoming months.
Meantime, rising oil prices have added nearly $35 billion in stock market value to the two energy companies in the Dow, Exxon Mobil Corp. and ChevronCorp.
Houston’s five largest oil companies—ConocoPhillips, Ana dark oP et role um Corp ., Occidental Petroleum Corp., EOG Resources and Apache Corp.—together gained more than $30 billion in stock-market value since OP EC announced its pact. Collin Eaton
DOW20,000?
Wall Street set records this year, propelled bygains in financial andenergystocks that accelerated after the U.S. presidential election.
The Dow, S& P500 and Nasdaqindices all closed at record levelsin December amidinvestor speculation the incoming Trump administration will expand the economy through pro-business policies including corporate tax rate cuts, increased infrastructure spending and reduced regulation.
The Dow Jones industrial average hovers around the 20,000 mark, up 16 percent since the beginning of the year. Other indices also hit newheights, including the S& P 500, up 13 percent this year, andthe Nasdaq, up11 percent. Collin Eaton
NOTABLEDEALS
2016sawtheannouncement ofan$85billionmergerofTime WarnerandAT&Tandthe$57 billiontakeoverofMonsanto byGermanymedicineand farm-chemicalmakerBayer. The$100billiontakeoverof SABMillerbyBudweisermaker Anheuser-BuschInBevwas alsocompleted. Associated Press
STUFFED MATTRESS
After a massive buying spree, Houston-based Mattress Firm sold itself to South African retail conglomerate Steinhoff International Holdings in September.
Steinhoff paid $2.4 billion, or $64 a share in cash, a substantial premium on Mattress Firm’s stock value before the announcement in August. Including debt, the value of the deal reached $3.8 billion.
The acquisition immediately granted Steinhoff a significant foothold in the U.S. mattress market. Mattress Firm had snapped up a number of its competitors in the years prior to the deal and now operates more than 3,480 stores across the nation.
Now, many markets including Houston are densely packed with Mattress Firm locations. CEO Ken Murphy told the Houston Chronicle last month that the company will “prune and optimize” its store fleet as certain leases expire. Katherine Blunt
BIG FIND
The announcement that Apache Corp. had discovered 15 billion barrels of oil and gas in an overlooked corner of West Texas’ Permian Basin surprised the industry and environmentalists alike. Apache, based in Houston, worked for two years to test the find and lease 350,000 acres along a southern sliver of Reeves County, paying an average of $1,300 an acre, far less than the $30,000 its Permian neighbors were shelling out. The company named the play Alpine High, and estimated it held more than 75 trillion cubic feet of natural gas and 3 billion barrels of oil, one of the top global finds of the past several years. But environmentalists and some residents of the small city of Balmorhea, on which the find was centered, soon voiced concerns that Apache drilling could contaminate the San Solomon aquifer, the source of the famous Balmorhea State Park pools.
RISINGRATES
The Federal Reserve has raised interest rates for the first time in a year to .50 percent. Some expect the central bank to raise them three times in 2017, a potential headwind for the stock market. It’s also a signal that the long era of zerointerest rates that followed the 2008 financial crisis is coming to and end. Collin Eaton
BREXITFOR BREAKFAST
It wasn’t supposed to happen, but it did: On June 23, in defiance of polling and pundit predictions and the warning cries of a thousand economists, Britain voted to leave the European Union after 41 years of membership. The outcome of the referendum forced the resignation of Prime Minister David Cameron and sent financial markets into a tizzy, as investors reckoned with the implications of severing trade ties and throwing up barriers to immigration between the U.K. and continental Europe. Although no concrete action has yet been taken while diplomats negotiate the terms of Britain’s departure, the vote has been interpreted as a turning point in the worldwide backlash against globalization and a rejection of the flood of migrants from war-torn nations in the Middle East. Lydia DePillis
STOPTHEWORLD
Globalization, the path that the world economy has largely followed for decades, took some hefty blows in 2016.
The election of Donald Trump as U.S. president and Britain’s decision to leave the European Union have raised questions over the future of tariff-free trade and companies’ freedom to move production to lower-cost countries.
Borders are back in vogue. Economic nationalism is paying political dividends.
“Wewant our country back” was the rallying cry of those backing Brexit, a sound bite that had echoes in Trump’s “Make America great again.”
The rise of Trump and the triumph of Brexit had their roots in the global financial crisis of 2008. Eight years later, the world economy has still not yet fully gotten past that shock to its confidence — people are nervous, some are angry, and many are seeking novel solutions to their problems. Associated Press
MASSIVE SCANDALS
John Stumpf resigned as Wells Fargo CEO amid the bank’s sales tactics scandal. Bank employees opened accounts without customers’ authorization, and at least 5,000 were fired over the practice. Also, an emissions cheating scandal uncovered last year has damaged Volkswagen’s reputation and hurt its sales. The company reached a $1.2 billion deal with its U.S. car dealers and is still facing potentially billions more in fines and penalties and possible criminal charges.
PIPELINE PROTESTS
Call it the year where the “Keep it in the Ground” movement found its foothold.
What had been a fringe anti-climate change coalition became a serious antagonist to the oil and gas industry when activists started targeting pipelines and other infrastructure projects designed to get fossil fuels to customers.
Whether through litigation, protests or social media campaigns, groups like Greenpeace made it longer and more expensive to get pipelines and LNGexport facilities built — and in a couple cases might have even helped get them stopped all together.
Built on the concept that a pipeline that handles half a million barrels of crude a day is infinitely more impactful to climate change than individual drilling projects, the strategy gained an even larger platform this fall when the Standing Rock Sioux tribe fought to block a pipeline running near its reservation in North Dakota.
The movement won its larg- est victory to date when the U.S. Army Corps of Engineers announced in December it would not grant a critical easement along the planned route, putting the $3.8 billion project, led by Kelcy Warren’s Dallas-based Energy Transfer Partners, on hold. James Osborne
CRIMPING DEVELOPMENT
Astate appellate court reversed a key portion of a 2014 judgment that awarded $1.2 million in damages to residents opposing a high-rise residential tower near Rice University. The summer ruling was a big win for Houston’s development community, which had begun to see copycat lawsuits from others trying to stop real estate projects in their neighborhoods. The reversal came more than two years after a jury sided with residents whoclaimed the building, nicknamed the Ashby highrise, would be a nuisance to surrounding property owners. The judge concluded there was no way to legally stop the project. The controversy dated back to 2007 when residents first expressed concerns over Buckhead Investment Partners’ plans to build the high-rise at 1717 Bissonnet at Ashby. What followed was a yearslong effort to quash the project through rallies, neighborhood signs and protests. The case spawned a new ordinance in the way high-rise properties are built in Houston. Nancy Sarnoff
OFFICE SPACE
The oil bust resulted in a huge downsizing trend, with energy companies putting millions of square feet of office space onto the sublease market. The tally grew to some 12 million square feet in 2016, the equivalent of more than eight Williams Towers. Downtown and Houston’s west side saw the worst of it, with companies like Shell, BP and ConocoPhillips contributing to the glut. Other energy companies announced plans to shed company-owned real estate. Halliburton, for example, said in the fall it would sell its 48acre campus in west Houston. Nancy Sarnoff
BEERKEEPS FLOWING
Houston’s beer boom continued apace in 2016, with six craft breweries opening over the last half of the year and one of the city’s most popular announcing it was being acquired by the global Goliath best known for Bud Light.
In late June, the Chronicle published a comprehensive list of 36 breweries operating between Galveston and Bryan-College Station, including 12 in Houston proper. Since then, six more breweries have opened within the city limits, prompting another round of questions on how much room is left.
“How many people can you fit in the boat?” is how one local brewery executive put it.
Karbach Brewing Co. made the year’s biggest splash, announcing in November that it was selling to Anheuser-BuschInBev’s High End division for an undisclosed amount. With access to the resources of the world’s largest beer conglomerate, Karbach is already expanding production capacity to at least 150,000 barrels annually by 2019.
But the news didn’t go over well with many local Karbach fans, who excoriated the company on social media as “sellouts” and led a couple of prominent beer bars to boycott its products. Ronnie Crocker
UN-AFFORDABLE CAREACT
Year six of the Affordable Care Act was one where the dire predictions that many of the health care law’s critics have long predicted finally came true. Or at least came closer, with the 2016 pullout of most every major insurer from the federal exchange in Texas and eye-popping rate hikes for most of those who remained.
And then there was Donald Trump, who pledged throughout his campaign to repeal Barack Obama’s legacy legislation as quickly as possible. With his surprise win, the insurance industry ends the year very much in limbo.
The first blow to the exchange came in April when UnitedHealthcare, after broadly hinting it would do so for months, announced it was
leaving the exchange in more than a dozen states, including Texas, because of losses it sustained from having to cover people who were sicker and used more health care than expected. In August, Aetna followed suit, and then Cigna, all calling the losses on ACA plans unsustainable. Humana also pulled out of much of Texas, including Houston.
That left only three carriers in Houston when the exchange opened Nov. 1, down from seven the previous year. The number of plans by those remaining also plunged by half, dropping to 26 from 52.
Still, the uninsured rate continued to drop both nationally and in the state.
But those successes did little to counteract the big story late in the year of sticker shock. Nationally, the average rate of premium increase for a benchmark plan was 25 percent. But, as always, things are bigger in Texas. In May Blue Cross and Blue Shield of Texas, the state’s largest insurer, asked for a nearly 60 percent rate increase on some of its plans but later reduced that to a range of 44 to 48 percent. Molina Healthcare’s rate jumped modestly from 9 percent to 11, but Community Health Choice first asked for a 6.9 percent increase but later upped it to 21 percent after the rapid exit of the other carriers.
Jenny Deam
TAKATAAIRBAG RECALL
Houston drew particular attention from the National Highway Traffic Safety Administration this year in its ongoing Takata air bag recall. About 300,000 of the most at-risk models for a ruptured airbag, and those with the highest fatality rate, remain on the streets with many in Houston. At least 11 deaths and more than 150 injuries have been linked to the recalled air bag inflators. The agency said about 70 million inflators will need to be replaced in the U.S. by the end of 2019, making it the largest recall in the industry’s history. Cities like Houston are a top priority given that high humidity can cause the inflators to degrade at a faster rate. The agency found that Houston has one of the lowest repair rates in areas with high humidity. Due to the massive scope of the recall, consumers are left with little recourse as there’s a backlog of replacement inflators. Many waiting for replacement air bags are told to drive around with no one sitting in the front passenger seat. Wes Ball, a Houston lawyer who has handled injury cases related to the air bags, said automakers haven’t done enough to prevent injuries. They would rather pay off lawsuits.
“It’s corporate greed at its finest,” he said.
PANAMACANAL WIDENS
The expanded Panama Canal began welcoming larger container ships in June, and Port Houston officials are optimistic it could help boost the port’s trade with Asia.
The $5 billion-plus expansion was completed nearly two years behind schedule and wrought with conflict over concrete quality, design and budget. ANewYork Times investigation also raised other serious concerns, from whether the project has enough available water to doubts about its ability to facilitate the biggest ships as promised.
But the expansion was necessary as the industry turns toward larger ships carrying more containers. Before its expansion, the Panama Canal could accommodate ships with 5,000-TEU capacity. It can now handle ships with up to 14,000 TEUs. TEU is an industry measurement that refers to the equivalent of 20foot containers.
Port Houston has spent hundreds of millions of dollars since the early 2000s to prepare for these leviathans, both those coming from Europe and those that could traverse the Panama Canal. The Port Authority installed bigger cranes, reinforced docks and deepened and widened channels to its container terminals. Andrea Rumbaugh
DALLASBEATS HOUSTON
Dallas swiped Houston’s longstanding position as the nation’s No. 1 market for homebuilding in 2016.
New campuses by companies such as State Farm and Toyota in North Texas pushed home starts in Dallas-Fort Worth to a peak of 29,492 annually through the third quarter, according to housing consulting firm Metrostudy. Starts in the Houston area shrank to 25,809 during the period, down from 27,899 at the end of 2015 when Houston topped Dallas by nearly 1,000.
“Certainly, our volumes have declined because of economic turbulence around upstream energy,” said Lawrence Dean, Houston division president for Metrostudy. Also, until recently, builders had focused heavily on moveup buyers and the luxury market, leaving behind a big segment of the market, Dean said.
Houston had been the top market for home building for about a decade, propelled by robust job growth, ease of developing quickly since much of the building lies outside of municipalities, and affordable prices, although that has changed, Dean said. New home prices have risen between 10 percent and 18 percent a year in 2014 and 2015. Katherine Feser
UNIONSUEDINTO BANKRUPTCY
Adecade after scoring one of the biggest wins for labor in Houston when it organized low-paid janitors, the Texas chapter of the Service Employees International Union filed for bankruptcy protection. The union took the extreme — and unusual — measure after a jury in Harris County slapped the union with a $5.3 million judgment for going too far during an aggressive organizing campaign. Professional Janitorial Service sued the union nine years ago for trashing the company’s reputation in an effort to drive it out of business. Since the jury’s decision in September, the total amount the union owes Professional Janitorial Service has grown to $7.8 million, including interest of $2.5 million over the past nine years. The debt continues to grow by more than $1,000 a day. The union’s bankruptcy filing halted the janitorial company’s efforts, at least temporarily, to collect on the debt. L.M. Sixel