Houston firms’ outlook slumped as did oil
The overall performance of Houston’s public companies slumped with oil prices in 2019, leaving them in a weakened position for the one-two punch of the 2020 recession and oil bust.
The region’s top-performing public companies saw revenues fall by 6 percent to $714.2 billion from $760.9 billion in 2018, according to data collected for the Chronicle 100. In 2018, when oil prices spent most of the year on the rise, combined revenues of the Chronicle 100 jumped 20 percent.
Oil prices fell to an average $57 a barrel in 2019 from $65 the previous year. Nearly half the Chronicle 100 companies, including the exploration and production company ConocoPhillips and the petrochemical company LyondellBasell Industries, reported lower revenues than in 2018.
The Houston refiner Phillips 66 generated the highest revenues among local public companies in 2019, but it nonetheless declined by nearly 4 percent, or about $4 billion, to $107.3 billion.
The declines are likely to get steeper in 2020 following the crash in oil prices, which briefly dove below zero, and plunge in demand, as social distancing measures associated with the pandemic keep people at home.
Houston’s economic fate is closely tied with that of the energy industry. Eleven of the city’s top 12 companies by revenue were energy-related. The food-supply company Sysco Corp. was the exception.
“Houstonians have a love-hate relationship with energy,” said Patrick Jankowski, an economist with the business group Greater
Houston Partnership. “When oil prices are booming, everyone loves it because there’s lots of money flowing into this town. But when oil prices are down, everyone hates energy. We need to get over that and accept that energy is a big part of Houston.”
Loss leader
The region also needs to accept that prices are likely to remain low. The Energy Department forecasts that crude will average $35 a barrel over the course of 2020, well below the $50 a barrel considered the point at which most companies can make money. The U.S. drilling rig count, a proxy for activity in the oil and gas industry, has fallen well below 300, down from roughly 900 last year.
“The critical and expensive nature of oil and gas extraction means that this sector dominates our lostrevenue projections,” said Fitch Ratings in an assessment of the damage caused by the recession. (Fitch is owned by the Hearst Corp., the parent company of the Houston Chronicle.)
Fitch forecasts the sector’s revenues will plunge by $1.8 trillion in 2020 — “six times greater than the impact on the more visibly affected retail sector.”
But whether oil booms
“Houstonians have a love-hate relationship with energ y. … We need to get over that and accept that energ y is a big part of Houston.” Patrick Jankowski, Greater Houston Partnership economist
or busts, the city’s top companies, by revenue, have remained consistent. Year in and year out, Phillips 66, Sysco Corp., the chemical maker LyondellBasell Industries, ConocoPhillips, the pipeline company Plains All American and the oil field services companies Schlumberger and Halliburton Co. rank in the top 10.
“The names on the list don’t change that much, just the order in which they’re listed,” said Jankowski.
“In a time like this, maybe we can take a little bit of comfort in that stability there.”
While many of Houston’s top companies saw revenues slump with oil, others had a strong year.
The utility CenterPoint Energy more than doubled its earnings in 2019. A hot summer, marked by several days of triple-digit temperatures, drove up electricity bills as air conditioning systems worked overtime. Population growth increased demand for both power and gas.
Changing world
The revenues of Woodland homebuilder LGI Homes increased 22 percent in 2019 as it expanded operations within California, Florida and South Carolina. Despite the recession, the company is off to a stronger start in 2020; LGI’s home sales jumped 58 percent in first quarter of 2020 from the same period a year earlier.
Sharps Compliance Corp., a company that collects medical waste such as single-use syringes and expired drugs, saw revenues increase 19 percent in 2019. The company expects an even better 2020 because of the surge of COVID-19 patients.
Expect energy companies to remain the region’s biggest by revenues, analysts said. But it will likely be Houston’s less celebrated businesses, such as homebuilders and medical suppliers, that stand to profit from the world being turned on its head in 2020.