Goodbye, Houston. Hello, Dubai

Time magazine reports:

While you weren't looking, the center of the oil world shifted several thousand miles to the east.

The Houston Petroleum Club, now high atop the city's ExxonMobil building, had always been where oil executives and adventurers gathered to discuss "bidness." But these days, more and more energy executives are meeting at the Emirates Golf Club in Dubai, where Tiger Woods recently played, to discuss their deals. So, it shouldn't have been too surprising when Halliburton Chairman and CEO David Lesar announced that he was moving the headquarters of the enormous oil construction and logistics company to the business capital of the United Arab Emirates. The rest of the industry was migrating that way already.

But some folks were badly surprised. The move prompted cries of outrage and calls for investigations from some in Congress. Was the move by Halliburton, the bete noire of left-wing blogs, an attempt to evade congressional inquiry? A move to dodge taxes? Halliburton and many business experts say no. But oil industry analysts say U.S. consumers and political leaders should be asking questions about the move, because the answers will inform America's energy policy — or lack of one. Halliburton is not running from its past, but toward the future.

Just look at other major players in Texas oil. Many Houston companies and law firms have already boosted their Middle Eastern presence, including Halliburton's business rivals, Baker Hughes and Schlumberger. Baker Hughes is building a regional headquarters and manufacturing center in the UAE and Schlumberger has a training center. Just one day after Lesar's announcement, Texas Gov. Rick Perry announced he will attend a three- day celebration marking the opening of permanent buildings at the Texas A&M University at Qatar, set to graduate its first engineering class in 2007 — evidence that the oil and gas industry will be relying on engineers trained in the Middle East as the number of U.S. petroleum engineers continues to fall.

Many of the city's oil and gas companies have a long symbiotic relationship with the Middle East. Indeed, Emirates Airline announced last month that it would set up daily direct flights between Dubai and Houston by the end of this year. The flights will utilize several of the Emirates' 44 recently purchased Boeing 777s and will come equipped with eight private first-class cabins. But that still places top energy executives 17 hours away from what is becoming the new center of the oil industry. Lesar's move shows Halliburton is aware of business customs in much of the Eastern Hemisphere. "It is very important in this part of the world to do business face-to-face," says Amy Myers Jaffe, a Princeton Arabic Studies graduate and current director of Rice University's Energy Program. She adds, "Halliburton is not deleting jobs. They are not closing the office in Houston. They are not moving to the Caymans to escape prosecution. They are adding new elements."

Apart from knowing their clients, says Jaffe, the company has recognized how the petroleum industry is going to look in the coming decades: "Halliburton is looking to the future. [The industry is] moving away from the Seven Sisters, the major oil companies, and towards national oil companies. Between 1970 and 2000, 40% of the increase in oil in the world came from the majors like Shell. [But] in the next 30 years, 90% of the new oil will come from the Middle East and Africa and will not be produced by Exxon and Shell, but by the nationally owned oil companies."

Halliburton's move is a clear sign that American consumers will be relying more and more on oil and gas produced by nationally owned companies, some in emerging democracies like Indonesia where bureaucracies are often unwieldy, others in strife-torn African nations or corrupt former Soviet republics. The move also puts Halliburton's CEO closer to emerging markets in fast-industrializing China and India.

In the past, oil services companies like Halliburton more typically served as subcontractors to the major oil companies, but as the nationally owned oil companies have gained greater market share, the service companies have contracted directly with them. That has boosted service companies' profits and prompted them to shift their operations to the east, closer to the action. Some 38% of Halliburton's $13 billion in oil services revenue came from its Eastern Hemisphere operations last year.

The move, which was greeted as a "powerful statement" by Merrill Lynch industry analyst Alan Lewis, overshadowed a second part of Lesar's announcement: Halliburton stock will be listed on one of the Middle East's stock exchanges. Most analysts believe it will be the Dubai Financial Market. That, says Jaffe, will enable the company to gain access to the vast amount of capital in the region. It also serves a wider purpose: giving regional investors a stake in the stability of global companies. When nationally owned oil companies have been listed on various exchanges, Jaffe says, it has generally led to greater transparency within those companies and motivation to avoid volatility and disruption in geopolitical affairs.

While the Gulf of Mexico remains a vital area for exploration, the shift eastward means the old Energy Capital must diversify. "A lot of us in Houston have been saying that the energy industry in Houston needs to be a lot more innovative," Jaffe said.
\Energy industry and political leaders are beginning to develop wind energy offshore in the Gulf, and look to other alternatives. From now on, the "bidness" discussions at the Petroleum Club are more likely to focus on new energy technologies like carbon sequestration than wildcatting.