OT - When Halliburton Co. said it would move its corporate headquarters to Dubai, the nation's biggest oil field service company was acknowledging a major structural shift taking place in the global energy market.
Why Dubai? Because the city, a growing hub for Western business and investments sandwiched between Saudi Arabia and Oman, is surrounded by the world's biggest proven oil reserves.
And the need to spend more time tending to the needs of the region's biggest producers is a now a pressing part of the business for Halliburton and others in the industry.
The region's vast reserves are also spurring an investment wave from big oil and gas users, such as Dow Chemical Co.
"The Middle East, in terms of reserves and production capacity, is becoming the center of gravity for the industry," said Peter Jackson, senior director of oil industry activity at the Cambridge Energy Research Associates (CERA).
"The focus of expansion in production capacity is moving eastward from the homeland of Houston," Jackson said. In Halliburton's case, the deployment of key staff to the Middle East amounts to a "shift in emphasis perhaps more than a shift in personnel."
On Sunday, Houston-based Halliburton said it would open a corporate headquarters office in Dubai, where its chief executive Dave Lesar will move in order to beef up customer relations with national oil companies. See earlier story.
The stakes are clear. Jackson, who authored CERA's study of global oil production through 2010, said the Middle East already accounts for 30 million barrels per day of crude oil and natural gas liquid production capacity -- a third of the world's capacity.
Global production capacity is seen rising to 110 million bpd by 2015, Jackson said, with the bulk of the gains coming from the Middle East and nearby regions in Africa and the Caspian Sea -- all located within time zones far closer to Dubai than Texas.
Meanwhile, production in the United States is in decline, dropping from about 7.2 million bpd in 2007 to 6.3 million bpd by 2015, Jackson said.
This trend can't be ignored by Halliburton (HAL : Halliburton
HAL32.19, +0.17, +0.5%) , which derived 50% of its oilfield service revenue last year in North America and only 38% from the Middle East, according to its 2006 earnings report.
Other U.S. companies in the oil service sector, including New York-based Schlumberger (SLB : Schlumberger Limited
have been aggressively building up overseas operations, boosting revenue abroad while a glut of natural gas has dampened drilling and slowed earnings at home.
"Halliburton has been seen as lagging some competitors because of overexposure to North America," said Brian Niemiec, a commodity and energy analyst at Susquehanna Financial Group. "Even though you'll get some kind of political backlash,
I think it's a fairly smart move."
By geographic region, North American revenue fell 4% to $1.6 billion in the fourth quarter from the third quarter.
Internationally, revenue rose 11%. See Halliburton earnings.
"With more international exposure going forward, Halliburton will get more growth out of the oil business rather than being bogged down by natural gas," said Niemiec. Such a move could also give Halliburton an edge over competitors like Schlumberger, he added.
Increasingly, the plum service contracts are coming from national oil companies, which are now looking far beyond their own borders for additional reserves.
While petroleum-poor nations like China and India are racing to secure supplies to fuel their booming economies, many of the big Middle East producers are leveraging their resources to build up downstream industries such as petrochemicals.
'Next Freeport, Texas'
The region's petrochemicals boom has also brought in investments from companies like Dow Chemical (lured by cheap raw materials and proximity to their Chinese manufacturing customers.
"Countries like Saudi Arabia, which are rich in resources, are providing incentives for various chemical companies to come in and invest in chemical infrastructure of their countries," said Mark Eramo, vice president of olefins and derivatives for Houston-based Chemical Markets Associates, Inc., or CMAI.
By 2011, the petrochemical industry will add an additional 35 million metric tons of capacity for its benchmark ethylene product -- and more than 50% of that additional capacity is under construction in the Middle East, says Eramo. Today, petrochemical factories can produce about 121 million metric tons of ethylene.
One attraction for chemicals companies is cheap ethane, a building block for chemicals that make plastics. Middle Eastern oil companies are capturing ethane from the natural gas that's produced alongside their crude oil operations. What sells for about 60 cents a gallon in North America, Saudi Arabia is selling for about 6 cents a gallon, says Eramo.
"The real incentive to being there is the low cost ability to produce the product," he said.
Dow Chemical is in the midst of negotiating over a proposed joint venture with Saudi Aramco, the world's largest holder of oil reserves, to make petrochemicals out of natural gas liquids.
Company executives say the complex, which would be added to a current refinery in the eastern Saudi province of Ras Tanura, could some day rival the petrochemical chemical capabilities of the U.S. Gulf coast.
"This site will become the Freeport, Texas of the emerging world," said Geoffery Merszei, Dow's chief financial officer, in February.
XOM70.87, -0.25, -0.4%) , which also has a chemicals division, is studying taking part in a $3 billion petrochemical complex in Qatar. Chevron Phillips Chemical Co., a joint venture between Chevron Corp.
