Refineries, pipelines and petrochemical companies ranked among the all-stars of 2012 among public companies.
The energy sector accounted for 18 of the top 20 revenue generators in Houston, with ConocoPhillips still bringing in nearly $58 billion in revenue, even after the spinoff of its refining division.
"The list is dominated by energy and energy services companies," said Patrick Jankowski, vice president of research for the Greater Houston Partnership. "Four out of five publicly traded companies are in the energy game, which has been true of Houston for the last 20 years. This has been an energy town for the last 100 years, and it probably will be for the next 100 years."
17 percent growth
Public companies listed in the Chronicle's top 100 list increased their revenue by an average of 17 percent last year, said Latha Ramchand, dean of the C.T. Bauer College of Business at the University of Houston. She said that was a slower growth rate than the 30 percent average among the top 100 in 2011.
This lower growth rate correlates with relatively stable West Texas Intermediate oil prices, which have hovered around $95, Jankowski said.
"If you go back and look at the 1990s, we had oil prices that were $20, and the economy still grew - it's just that the economy grows faster when the prices are high," said Jankowski, explaining that the Houston economy generates about 60,000 jobs a year when oil and gas prices are stable, and about 90,000 jobs a year when prices are rising.
"Prices are now leveling off. That is when we are going to return to our normal rate of growth."
Jankowski also expects that any rise in natural gas prices will lead to healthier cash positions for some of the exploration companies, which will in turn increase the capital investments these companies make in drilling.
Food distributor Sysco Corp. and waste disposal and recycling company Waste Management remained among the top 20 companies, indicative of the favorable business climate that continues to make Houston a desirable headquarters location.
"When the energy bust hit in Houston (in the 1980s), we had a collapse in real estate prices, but that bust also created the forces of our own healing," said Barton Smith, professor emeritus of economics at UH. "Companies were able to buy office space at a third of its replacement value. That was very attractive to firms considering coming to Houston."
Low overhead costs led to the creation of about 400 businesses each month in Houston during this time, which helped increase the non-energy sector to make up about half of Houston's economic base - a huge increase from about 20 per- cent in the early 1980s.
"Many of these companies were not just another Mexican restaurant," Smith said. "They are producing goods and services for export outside of the region and are part of our economic base."
Excess supply of unconventional oil in new plays helped both pipeline companies and refiners, which benefited from stable oil prices. The growth in the demand for pipeline infrastructure allowed midstream companies like Kinder Morgan and Plains All American Pipeline to further expand their networks, resulting in additional revenue.
"These pipeline companies are building and buying midstream assets at a torrid pace, and they aren't going to slow down," said Hinds Howard, chief investment officer with Guzman Investment Strategies. "I expect to see one of the three largest pipeline operators take over the top spot in the next few years."
Refineries benefited from domestic inland crude oil prices that continued to be lower than international prices, resulting in larger refining profit margins in 2012. For example, CVR Energy, a Sugar Land-based company that owns two Midwest refineries, boosted revenue to $8.6 billion, from $5 billion in 2011, benefiting from both increased efficiencies and the relatively cheap price of West Texas Intermediate crude.
Two sides to low prices
Independent exploration and production companies like Anadarko Petroleum Corp. and EOG Resources benefited from stable oil prices but took a hit from low natural gas prices, which averaged about $2.75 per million British thermal units for 2012, and accounted for a nearly 60 percent drop in profits for oil and gas companies, according to an Ernst & Young study.
The low natural gas prices, however, are also driving a historic boom in the petrochemicals business, which will benefit the Port of Houston and generate hundreds of new jobs, Smith said.
"Low natural gas prices are on the verge of creating a renewed growth in downstream energy we haven't seen in a long time," Smith said. "Companies are building billion-dollar plants to produce polyethylene for plastics. Natural gas is the main input for that process, and it will help reinforce Houston as the center for the energy industry as a whole."