Why Foreign Companies Love Texas (Hint: Oil & Gas)

These days in Texas, you can’t go far without running into a billion-dollar industrial plant or drilling operation backed by some very non-Texan investors.

Dave Fehling / StateImpact

OCI's Omar Darwazah

“We’re very big fans of Texas,” said Omar Darwazah, a corporate development executive with OCI.

OCI is a fertilizer chemical company now based in the Netherlands but with roots in Egypt. A couple years ago it bought and rejuvenated an ammonia-methanol plant in Beaumont. A few weeks ago it announced it was building a new methanol plant next door that will cost at least $1 billion.

“And that’s the largest in the United States and arguably the largest in the world,” Darwazah told StateImpact.

Darwazah said his company normally looked to expand into emerging markets. But now he said natural gas is so cheap in the United States, it offsets the higher regulatory and labor costs found here.

Dave Fehling / StateImpact

The Tianjin Pipe plant in Gregory near Corpus Christi

“To be honest, looking back, we would have never thought that instead of building a plant in Angola or Nigeria or somewhere else in sub-Saharan Africa that we would actually be coming here to the United States,” Darwazah said.

The Chinese Pipe Plant

Go down the coast to Corpus Christi and you might bump into a delegation of Chinese executives heading into the offices of the Corpus Christi Regional Economic Development Corporation.

“They’re coming to South Texas to locate facilities to take advantage of our low cost and steady supply of natural gas,” said Roland Mower, the development group’s president.

The port city landed one of the bigger foreign catches: a Chinese company, Tianjin Pipe, is building a plant to make steel pipe for the drilling industry, an industry that’s booming in Texas and other energy states.

The plant — located just across the bay in the tiny town of Gregory — is expected to cost over $1 billion and will employ some 800 workers. Mower said Tianjin pledged to hire and buy local.

Dave Fehling / StateImpact

Roland Mower is president of the Corpus Christi Economic Development Corp.

“It’s going to have to operate like a U.S. business, they’re going to have to comply with all federal and state regulations,” Mower told StateImpact.

Both projects got the backing of Texas officials: the methanol plant in Beaumont received a $2.1 million grant from the Texas Enterprise Fund. The pipe plant near Corpus was touted by the Texas Comptroller as the “largest single manufacturing investment that a Chinese company has ever made in the United States” and it received “a variety of state and local incentives” according to the comptroller’s office.

Foreign Ventures in the Oil Patch

Since exploration and production of oil & gas in shale regions began surging around 2007, foreign companies began pouring billions into mergers with American energy companies. According to figures presented at the Deloitte Oil & Gas Conference in Houston, 40 percent of the deals involved foreign companies. China led the way accounting for 20 percent of joint ventures in shale operations, ahead of Japan, France, and the UK.

In 2005, Chinese oil company CNOOC dropped its bid for California-based Unocal after an uproar from politicians worried the deal threatened national security. Five years later, CNOOC succeeded in doing a $2.2 billion dollar deal to buy into Chesapeake Energy’s drilling operations in the Eagle Ford Shale in South Texas.

“They’ve learned to structure their deals in a way that’s more politically feasible,” said Lance Gilliland, Head of M&A for Houston-based investment bank Tudor Pickering Holt which advised the Chinese on the deal.

Gilliand said it’s no secret that the Chinese were looking to learn how to do hydraulic fracturing, the drilling technique pioneered in Texas and which led to the shale revolution in oil & gas production. But he said there’s little risk the Chinese are learning any secrets because he said there’s not that much left to hide.

“There is no real secret or something we need to hold close to the vest. This is a very known technology, a known process that people are quite comfortable with here in the United States,” Gilliland told StateImpact.

“They are not controlling the operations, they are not controlling where equipment moves…..They are just alongside the U.S partner in developing what the U.S. partner would otherwise be doing”

Gilliland said the foreign investment allows U.S. companies to do more exploring and to improve the technology.