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Houston, We Don’t Have a Problem: Why the Mood is so Different This Slump

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Why is the mood in Houston today so different from the depression of previous slumps?

BY CURTIS GILLESPIE

The jukebox was playing twangy country. The lighting was dim. The sticky tabletops were evidence that the bar was retreating from the frontline of germ warfare. Only half the tables were occupied, but the horseshoe bar was two deep with types you’d expect to find in a downtown Houston bar famous for serving industrial-size cocktails and situated near the big oil towers and the city’s main daily, the Chronicle. Florid oil execs in Canali, brassy women in heels and power suits, tweedy journalist types, bearded IT millennials. The noisy conversation from the bar seemed to indicate some sort of shared purpose or at least a community of like-minded souls. I decided to wedge myself into the civitas to see if I could begin to find an answer to a simple question: What is Houston’s state of mind in the age of sub-prime oil prices?

A bar is, perhaps, not the ideal location to take the pulse of a city, in that it would seem self-evident that the patrons could be less-than-fully coherent, not to mention that, if regulars, they are unlikely to give a damn about the pulse of anything other than the bartender serving them. Still, from the moment I first stepped into Warren’s in downtown Houston last year, it was clear that the place had some kind of link to the zeitgeist. The pulmonary flow of people in and out of the door was fascinating simply for the diversity. I sat in a corner drinking a huge vodka martini, watching it all happen, assessing the mood, wondering who amongst this panoply might be worth talking to so as to set me off in my search to assess Houston’s state of mind in the age of cheap oil, or the End Times as some were saying. But there didn’t seem to be any palpable depression in the group. In fact, it seemed the opposite. People seemed giddy, even when they walked in, so I knew it wasn’t because of the obscenely large drinks. I wandered over to the bar and stood next to a guy in his mid-thirties, bearded, funky glasses, wrinkled shirt. I took him to be a graphic designer, though possibly in oil marketing, single but committed, a hiker and culture advocate — the future of Houston. He was with a group of four or five similarly-coded millennials, and they seemed to be enjoying a pre-party outing of some sort. I stood next to him. He nodded to me.

“Fun crowd tonight,” I said. “Is everybody always this happy in this bar?”

He grinned. “What’s not to be happy about?”

“Good attitude.”

After some general chitchat, I asked my new friend about the current mood of Houston. Was it downbeat because of the depressed oil price? He laughed.

“Hell, no! Houston is badass, man. You can make money here. Everybody can still work. Everybody can get a job. This city is not just oil, even though, yeah, oil drives everything.” He pulled on his scruffy lower beard and took a slug of what looked like straight bourbon. “This downturn is no big deal because you just got to leverage, that’s all. Everybody does that here. You work in the industry, you save up. You save up, because you know it’s going to go down. And then it’ll go back up. And so on. I mean, I live in The Heights, great neighbourhood. I’m an analyst and Houston is just badass. I’m from Sacramento and there’s no way I’d ever go back there.”

For a minute I wondered if somehow the Greater Houston Partnership (GHP) – their version of our municipal Economic Development organs – hadn’t managed to transplant someone into this bar and lure me into chatting with them. This thought ended after I asked him my next question.

“So what are you and all your friends up to tonight? You seem ready for a party.”

He raised a fist in the air, which was when I noticed the tattoos covering his arm. “We’re hitting a metal concert tonight. My bud’s in the band.”

“Cool,” I said. “What’s the name of the band?”

“Venomous Maximus!” His friends at the bar whooped and hollered and shrieked at the mention of the band’s name. With that, they downed their drinks and were gone.

Ten or fifteen blocks south of Warren’s is the triple highrise Allen Center complex. The GHP occupies the seventh floor and it was there that I met with Patrick Jankowski, the Senior VP of Research. He’s been with the GHP for three decades, and after we were seated in his large corner office, I asked him what his take was on the current downturn. He laughed. “I was around for the big downturn in the early ‘80s. Trust me, this is not that!”

But, as Jankowski pointed out, the city was devastated by the oil bust of the mid-80s, when a Saudi glut (not unlike today’s) precipitated a drop from about US$35 a barrel (around a US$100 in today’s prices) to under US$10 a barrel. The difference is that back then Houston had nothing else going on but oil. Today’s price is obviously less than desirable for the industry, to be sure, but it’s easier to adapt given that the Houston metro, were it a country, would have the world’s 30th largest economy. It’s a highly diversified economy, with major educational, health and medical sectors. Oil remains the dominant industry, of course, but, Jankowski says, there isn’t the hubris there was in the ‘80s. “People are more cautious now.”

Still, added Jankowski, “We’ll weather the storm, hunker down, get through this. It’s just about changing the way we do business, that’s all. No one’s panicking. People are getting more efficient all the time. Did you know, for instance, that in 1985 there were about 4800 oil rigs operating in the United States. Today, we produce roughly the same amount of oil, but with somewhere in the vicinity of 800 rigs. And in the 1980s downturn one out of seven jobs in Houston were lost, whereas today we’ve only lost about 7,000 jobs out of three million. So, really, what we’re seeing today, even with low oil, is just part of an evolution.”

What Jankowski failed to mention is that there were well over double the current number of rigs operating a year earlier, which may be why Arthur Berman has a somewhat different take on things. Berman is an influential consultant in the energy industry, a person sought as often for his interpretations of specific shale data streams as for his opinions on where we’re all headed with this resource in the bigger picture. I sat down with him in his office near Houston’s giant Galleria mall and asked him what the true meaning of the shale boom was in the U.S., especially now that the economics of lower oil prices were setting in.

“Well, we should give ourselves credit for ingenuity,” he says. “But shale is not a revolution, it’s a retirement party. Sure, we have done something that a few years ago probably almost no one thought was possible, but we have to be realistic about what’s happening here in the U.S. This is the most mature petroleum province on earth. We are squeezing blood from a stone and as long as prices are high, we will squeeze a little more.” Berman leaned back in his chair and adjusted his glasses. “I think excitement around American shale production is just that kind of bittersweet celebration you have when you are almost out the door and are going to sit around the house and watch Duck Dynasty for your remaining days. It’s not really cause for a celebration. It is cause for some sobering concerns and taking stock about what does the future have in store for us as a country, as a world.”

Certainly, Houston seemed to be taking stock of the future on a daily basis and it didn’t particularly like what it was coming up with. There were signs everywhere. I had arranged to meet with Gene Stahl, the VP of Precision Drilling, for another story I was working on. When I arrived in Houston, he backed out of the interview with no explanation. I was left to assume it was because Precision has been hit by the downturn and felt they didn’t have a good story to tell. That was a guess, since he chose not to return follow-up emails. The week I was in Houston, there was headline after headline about bankruptcies, closures, layoffs. “Bankruptcy filing made by another oil company,” was one headline. A story the day before said the price slump had, “Houston’s once-sizzling job market in a holding pattern.” Every day it was the same, with the same words – dilemma, stumble, slump, low, write down, weakening – warning of a highly uncertain future.

On the same afternoon, I stopped in at White Hat Entertainment, a T-shirt and video production shop run by an amiable young Latino entrepreneur named Chris Gunnz. I asked him what lower oil prices meant in his neighborhood. He laughed. “Not much, man. I mean, Houston is chill. It’s a great place. I love it here. But seriously, nobody seems too bothered by the price of oil. It’s down, it’s up, yeah, but for most of us, it just means there’s work or there’s extra work, like more hours and overtime if oil is doing good. But either way, people are pretty chill about it. Nobody gets too bothered about it, or about anything really. Houston is super laid back.” So, no real effect, low oil? Nothing tangible? “Sure, you notice it. More oil means more business means more money, but to me the only thing that it really means, the only thing I actually see change, is that when oil is up there are more strip joints and megachurches.”

Driving away from the east end, still in the east of downtown, I could see just a couple miles away the shimmering office tower where I was headed next to meet with Bob Eury, the executive director of the Houston Downtown District. A measure of how a city is performing is often the health of its downtown core. In this regard Houston is not necessarily representative of the equation, in that it has typically represented a severe duality (not unlike Edmonton until the last decade or so) in that the level of business activity during the working hours was frenetic, but that activity dropped to a statistical zero after office hours. Eury told me that the price of oil, again, was not the determining factor in the revitalization of Houston’s downtown core. “It has to happen no matter what the price of oil is,” he says, as we sit in a boardroom on the 16th floor of the Fannin Street tower. “But today does not have the same gloom and doom as previous downturns. And we’re seeing that reflected in the downtown core. People are moving in. Empty-nesters, millennials. We have four new hotels going up. There was a kind of downtown neighborhood crisis eight years ago, when we realized the core was in trouble. But we’ve really turned around.” Part of the difference between today and the ‘80s, says Eury, was that there was a huge infrastructure overbuild coming out of that downturn, one the economy couldn’t incorporate. “Of course, it’s still hardly ideal,” he says. “The price of oil going up would certainly help. But we’re not overbuilt like we were in the ‘80s. And because we’re in the last years of living with a car it really means we’re going to have to have our downtown cores ready for people to live in.”

Arthur Berman also spoke about the end of cars, but he used slightly different language. “It’s kind a slow train wreck,” he says. I asked him if he would leave, if he felt Houston would not be Houston without oil and cars. “Oh, I’d never leave! I like it here a lot. You’ve got everything, the cultural diversity, the food, the arts, the easy access to other countries. It’s a business hub. It’s a can-do place. It’s a lot more than oil, and I can’t imagine a better place to be.”

Houston is not a particularly attractive city on the surface of things. It’s hot, muggy, polluted, decentralized, venal, concretized – everything you’d expect based on its reputation. But spending a few days talking to people, both in and outside the city’s dominant industry, reveals that Houston has a kind of laissez-faire attitude to the industry.

Houston’s one of the world’s most energetic cities. It’s energetic in every sense of the word, in that it is focused on energy, but also possesses an energy not linked to oil and gas. The city is about discovery, ambition, innovation, risk. Possibly risk above all else. The whole city is a gambit, a scheme, a shot in the dark, a wager still in play. Maybe that’s why people in Houston don’t seem overly worried about cut-price oil. Sure, it’ll hurt for a while, but then after another while, it won’t. And even if it all comes crashing to a smoldering pile of rubble, Houston will just get up, dust itself off and figure out what to do next. “An economy grows because of its risk-takers,” says Jankowski. “It’s been that way since this city was founded.”

My last night, I decided to revisit Warren’s Bar. I wasn’t surprised to see some of the same faces, and I didn’t doubt that were I to visit again a year from now, I’d see them again, probably propped up against the same stretch of stained oak around that horseshoe bar. When I went up to the bar to get a drink, I chatted with a middle-aged professional type for a moment or two. I asked him how he liked living in Houston. He leaned back on his stool to help convey his enthusiasm, and for a moment I thought that, in overstating his case, he might just tip backwards and fall over. He caught himself and in one motion regained his posture while making his final point. “Houston rocks.” With that, he returned to giving his full attention to the drink in front of him.

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