Tomball, Magnolia experience effects of oil declineAs layoffs and instability in the Houston oil industry continue, Tomball and Magnolia are feeling the trickle-down effects of the market decline in supporting industries and development projects.

On Dec. 7, the Greater Houston Partnership released the 2016 Employment Forecast, which indicated the region has cut 1 in 7 jobs across multiple industries since the price of oil dropped from $105 per barrel in June 2014 to $35-$40 per barrel in December 2015. The dramatic price drop resulted from an increase in domestic oil production, said Patrick Jankowski, senior vice president of research at the Greater Houston Partnership.

The consequences of the price drop quickly reached surrounding communities in the Greater Houston area.

“I think we’re seeing [the effects of the decline] from all levels whether it’s just industry or retail,” said Kelly Violette, Tomball Economic Development Corporation executive director. “It’s just a product of the environment that we’re in right now.”

Tomball effects

With layoffs continuing in the industry, developers have become cautious when considering future projects in the area, Violette said. Companies looking at the city for new development projects have become markedly less aggressive moving forward with plans, she said.

Peck Station—a proposed $50 million upscale multifamily and retail development near FM 2920 and FM 2978—is now on hold indefinitely until confidence rebuilds in the oil market, Violette said.

“We are kind of seeing the ripple effects of projects that were in the works, particularly with Peck Station, because of the reliance upon the success of the Baker Hughes campus [in Tomball],” she said. “I think they’re still interested, but everybody is still in this wait-and-see mode to try and figure out how long this recession or slump is going to last.”

With a still-pending billion-dollar acquisition of Baker Hughes by Halliburton, both companies have remained tight-lipped about what will become of the Baker Hughes campus along
FM 2920, Violette said.

“The No. 1 question I get is, ‘What’s going on with Baker Hughes and Halliburton?’” she said. “Nobody [from either company is] talking, and I think it’s just because the reality is they really don’t know right now.”

Tomball, Magnolia experience effects of oil declineSupporting industries

Measuring the full effect of the oil decline extends beyond employment and production numbers for oil and gas companies.

One in every 25 jobs in the Greater Houston area is directly related to the oil and gas industry, Jankowski said. In addition, a large number of jobs are indirectly tied to the oil and gas industry, he said.

“The act of digging a well permeates the entire Houston economy,” Jankowski said. “If you’re going to drill a well, you’re going to need engineering studies and manufacturing jobs. The engineers and manufacturing workers are going to shop in grocery stores, go to the movies, eat out at restaurants—it extends to them as well.”

Peripheral businesses around the oil industry have suffered the effects of the oil decline for more than a year, said Preston Benditz, managing partner with Magnolia-based Legacy Tubular. The company, which is located along FM 1774, distributes piping materials to oil field companies.

“Around November of [2014], there was a noticeable decrease in business,” Benditz said. “It’s been in decline from that point, and it’s kind of plateaued out on our side. That seems to be  trending across the industry.”

While Benditz said his company is small enough to avoid layoffs, several companies across the Greater Houston area have had to cut back on staffing to stay afloat.

Keith Jennings, president of manufacturing company Crow Corporation in Tomball, said production was down about 25 percent in 2015, a number he believes is common in the industry.

“Many of our customers were doing weekly business with us, and now some of them have gone down to ordering almost nothing,” Jennings said. “After you have a boom of three to six years, sooner or later everybody starts overproducing and overdoing everything. Then the demand starts to lessen, and you end up with too much [supply].”

He said the company has laid off about 27 percent of its workforce during the past year due to a slowdown in production and orders.

“I think the city and the [oil] industry learned its lesson from being so reliant on oil [in the past]. That’s why our economy is continuing to be pretty strong despite these ups and downs.”

—Kelly Violette, Tomball Economic Development Corporation executive director

“We’ve trimmed down throughout the year, but we didn’t do all of that at one time,” he said. “As a 54-year-old company, we’ve been through this so many times, and it’s frustrating to go through the roller coaster of the market and having to make changes like that.”

Future outlook

In 2016, new job growth in the Greater Houston area will fall well below the recent five-year average of 98,000 jobs created per year and likely below the 20-year average of 52,800 per year, according to the GHP.

“Even if oil prices went up to $80 a barrel tomorrow, the [production] ramp-up period would delay the comeback [for companies] by at least a few months,” Benditz said. “I think the consensus across the industry is the beginning of 2017 is when people are anticipating it going back up.”

Many companies are minimizing the negative effects of the decline by using the downtime in production to prepare for when business picks up again, officials said.

“There can be some good things that come out of it too,” Jennings said. “You use that time to retrain, make repairs and get certifications in various things. You have to use this time to get something positive out of the downturn by getting leaner or better in general.”

While the continuing industry slump has had long-reaching effects, the economy will be able to recover more quickly compared to past downturns due to a broader range of industries in the area, Violette said.

“I think the city and the [oil] industry learned its lesson from being so reliant on oil [in the past],” she said. “That’s why our economy is continuing to be pretty strong despite these ups and downs. We have such a diversified economy with the health care industry, advanced manufacturing and technology components that have come into play in the last 30 years.”

Officials agree that booms and busts in the oil industry are cyclical events. However, as global trade increases, the effects of each bust are likely to become more widespread, Jennings said.

“Personally, I didn’t believe at the beginning of 2015 that it was going to get to this degree,” he said. “This has been more of an international event than in the [1980s]. This is impacting countries around the world, not just Texas.”

Tomball, Magnolia experience effects of oil decline