Shale boom draws foreign investors

Overseas companies have poured billions into Texas projects
Publication Date: May 11, 2013  Page: D01  Section: BUSINESS  Zone: STATE Edition: 1

The hotel ballroom off Interstate 635 is set up like a speed dating event.

At small black tables spread across a patterned carpet, South Korean manufacturing executives wait quietly with their translators to pitch representatives from the U.S. oil and gas industry on import deals and joint ventures for new plants.

“The Koreans are almost unknown in this industry,” explained Roy Shockey, a manager at an Arlington parts distributor, as he moved between tables. “But I’ve been getting lots of calls from them. It’s a worldwide business now, and everyone is watching what’s happening here.”

Since the oil and natural gas boom made household names of the Eagle Ford and Barnett shale plays, foreign companies have been flooding into Texas bringing billions of dollars of capital.

From financing drilling projects to billion-dollar steel and plastics plants along the Gulf Coast to supplying production operations, companies from Asia and Europe are investing heavily in the U.S. shale boom.

Carlton Schwab, president of the Texas Economic Development Council, said business recruiters along the Gulf Coast were being inundated with phone calls as foreign executives jockeyed to locate close to U.S. oil shale fields.

“The shale plays are the difference maker,” he said. “Without them, we look a lot more like the rest of the country.”

According to the U.S. Energy Information Administration, more than $20 billion in foreign capital has been invested in U.S. drilling projects since 2010 – about half of it in Texas.

Dallas-based oil driller Pioneer Natural Resources recently partnered with Indian industrial conglomerate Reliance in the Eagle Ford and has another deal pending with Chinese oil and chemical giant Sinochem. Chief financial officer Richard Dealy said the $1.3 billion Reliance put up allowed Pioneer to develop its fields far faster than it would have with its own money.

“We didn’t have the cash flow to move that fast,” he said. “Of every dollar invested in that project, 85 cents of it came from” Reliance.

Coastal boom

Along the Gulf Coast, which had seen its industrial economy shrink dramatically in recent decades, international firms are now announcing one new plant after another.

On Thursday, Exxon Mobil and Qatar Petroleum International announced plans to build a $10 billion liquefied natural gas facility in the port town of Sabine Pass if the U.S. government opens up LNG exports – a contentious issue with the petrochemical industry.

But it’s just one in slew of major deals over the past six years.

Italian plastic manufacturer M&G Group is getting ready to build a $1 billion plant in Corpus Christi. China’s Tianjin Pipe Co. expects to begin operations later this summer at a sprawling new $1.3 billion plant outside Gregory that will supply pipe to drillers in the Eagle Ford.

Driving the industrial boom in large part is the abundant supply of cheap natural gas, which as one executive put it, petrochemical and industrial operations need like bakers need flour. At the same time, the decline in interest rates in U.S. treasury bonds is also pushing foreign corporations to find new avenues for investment, said John Doggett, a senior lecturer at the University of Texas’ McCombs Business School.

“In the past they were buying treasuries, and their return is abysmal right now,” he said. “If you look at the return on investment in Eagle Ford from the beginning, it’s 600 to 700 percent and Treasuries would have been 15 percent. You don’t need an MBA to make that call.”

New players

But competition is fierce, especially among smaller firms.

Indian and Chinese manufacturers have begun to make inroads in supplying industrial parts for the U.S. oil and gas industry. But there remains skepticism about those countries’ quality control – a potentially expensive problem if a part breaks in the middle of drilling.

At the meet and greet in Dallas on Thursday, the Korean firms were eager to tout their country’s reputation for quality in auto and electronics manufacturing as setting them apart from their counterparts in India and China – even if they were more expensive.

Wang Ki-hyung, the president of a small firm that manufactures metal fittings used in oil production, said he had been looking for a U.S. distribution partner for over a year and was hoping a deal was close.

“The U.S. market is very tight. It’s hard to get in,” he said. “But there are so many [oil drilling] projects now, I think it is better.”

Follow James Osborne on Twitter at @osborneja.