Colombia boundBY MOLLY RYANHOUSTON BUSINESS JOURNAL

Strictly Houston . Strictly Busin ess.Week of November 9-15, 2012

Houston manufacturers, service companies see new frontier

Forget the days of peril-ous drug trade, the image of Colombia has changed to that of a land of oppor-tunity for Houston com-panies looking to export products and services.

Last week, a group of about a dozen Houston-area manufacturing and service companies trav-eled to the Expo Oil and Gas Colombia 2012 in Bogota to build new customer relation-ships with the help of the Houston District Export Council, an export facilitator agen-cy. With the imple-mentation of the U.S.-

Colombia Free Trade Agreement in May and

continued interest in oil and gas activity, Houston companies say there is a lot of money to be made in this emerging market.

Even before the free trade agree-ment, Texas exports to Colombia increased by 203 percent between 2006 and 2011 to a value of $5.1 billion, according to the Foreign Trade Division of the U.S. Census Bureau. At the Port of Houston in

particular, Colombian trade increased by 55 percent between August 2011 and August 2012. Add the immediate reduction of tariffs, which will gradually be eliminated with the free trade agreement, and Houston manufacturers and service providers stand to make millions off this market, which could lead to more local jobs and expanded local operations.

“I think it’s an exciting time for Colombia,” said Bill Prout, senior vice president of commercial and international banking at Bank of Houston and vice chair of the Hous-ton District Export Council. “There is an explosion of activity in the oil and gas sector, and you also have

the free trade agreement implemented this year. This makes U.S. prod-ucts made in Houston even more attractive to Colombian companies.”

Although larger oil and gas companies have been active in Colombia for many years, Prout explained the smaller and midsize Houston-area manufacturing and service companies have been slower to enter the market — in part because of tariff barriers.

“I believe Colombi-an companies (were) paying an average of 9 percent in tariffs …. When that drops to zero, the (cost sav-ings) are substantial if, say, you are buying a $1 million piece of equipment,” Prout said.

This cost savings could influence more Colombian companies to buy more goods, he explained.

Furthermore, Colombia as a whole has a much friendlier business envi-ronment than in the past, said Steve Recobs, director of the Houston U.S. Export Assistance Center.

“A lot of changes took place in

Five years ago, Houston bankers caught wind of a game-changing opportunity.

Th ey found many local investors eager to back startup community banks, perceiv-ing an opening in the market for responsive lenders off ering personalized service that was lacking in their billion-dollar national peers.

Led by industry veterans, 10 banking teams each raised between $10 million and $30 million to found 10 of these fl edgling banks in Houston from 2006-2008. It was part of a wave of startup banks — known in the industry as “de novos” — that saw 163 created nationwide in 2007 alone.

Some bank executives thought they could build up the young banks’ assets to $200 mil-lion to $300 million and sell them in half a decade. But the fi ve-year ride has been far diff erent than any expected: Th e fi nancial system collapsed, real estate lending tight-ened, and a slew of new regulations in-creased costs and pushed down margins.

As a result, industry observers say the market for de novo banks in Houston and the rest of the country has dried up, chang-ing the face of competition in the industry and halting the once frenetic pace of new branch construction. Only three newly char-tered banks were created in all of 2011, ac-

cording to the American Bankers Associa-tion.

“Th ere wasn’t any good business plan that could have foreseen 2008 and the impact it would have,” said Steve Bertram, CEO of Houston-based Oasis Bank SSB. “You had a lot of people scrambling, trying to fi gure out how to survive.”

Oasis, founded in 2007, received a cease-and-desist order from the Federal Insurance

Deposit Corp. in October 2009, which alleged the bank had engaged in unsafe or unsound banking practices. It wasn’t until 2011 that the bank made a turnaround and became profi table with a net income of $854,000; af-ter that, Oasis struck a deal in August to sell itself to Spirit of Texas Bank SSB.

In 2007, Allegiance Bank Texas, Icon Bank

Colombia boundHouston manufacturers, service companies see new frontier

BY MOLLY RYANHOUSTON BUSINESS JOURNAL

Forget the days of per-ilous drug trade, the image of Colombia has changed to that of a land of opportunity for Hous-ton companies looking to export products and services.

Last week, a group of about a dozen Houston-area manu-facturing and service companies traveled to the Expo Oil and Gas Colombia 2012 in Bogota to build new customer relation-ships with the help of the Houston Dis-trict Export Council, an export facilitator agency. With the im-plementation of the U.S.-Colombia Free Trade Agreement in May and continued interest in oil and

gas activity, Houston companies say there is

a lot of money to be made in this emerg-ing market.

Even before the free trade agreement, Texas exports to Colombia increased by 203 percent between 2006 and 2011 to a value of $5.1 billion, according to the For-eign Trade Division of the U.S. Census Bu-reau. At the Port of Houston in particular, Colombian trade increased by 55 percent between August 2011 and August 2012. Add the immediate reduction of tariff s, which will gradually be eliminated with the free trade agree-ment, and Houston manufacturers and ser-vice providers stand to make millions off this market, which could lead to more local jobs and expanded local op-erations.

“I think it’s an exciting time for Colombia,” said Bill Prout, senior vice president of commer-cial and international banking at Bank of Houston and vice chair of the Houston District Export Council. “Th ere is an explosion of activ-ity in the oil and gas sec-

tor, and you also have the free trade agree-ment implemented this year. Th is makes U.S. products made in Houston even more attractive to Colombian companies.”

Although larger oil and gas companies have been active in Colombia for many years, Prout explained the smaller and midsize Houston-area manufacturing and service companies have been slower to enter the market — in part because of tariff barriers.

“I believe Colombian companies (were) paying an average of 9 percent in tariff s …. When that drops to zero, the (cost savings) are substantial if, say, you are buying a $1 million piece of equip-ment,” Prout said.

Th is cost savings could infl uence more Colombian companies to buy more goods, he explained.

Furthermore, Co-lombia as a whole has a much friendlier busi-ness environment than in the past, said Steve Recobs, director of the Houston U.S. Export As-

sistance Center. “A lot of changes took

place in Colombia — it went from a very diffi -cult to a very business-friendly environment,” Recobs said. “As their economic climate gets stronger, there is an incentive to trade a lot more.”

With new Colombi-an oil and gas discov-eries and exploratory licenses available both off shore and onshore in shale for-mations, Houston manufacturing and service companies supplying the oil and gas industries are seeing more busi-ness in the South American country.

“With all the projects going on and the industry intelligence that we are getting, we see the potential of

Market for new startup banks tightens

SEE DE NOVOS, PAGE 47

SEE COLOMBIA, PAGE 46

2 www.houstonbusinessjournal.com Week of November 9-15, 2012

2ND FRONT

$6b

$4b

$2b

Increase in exports from Texas to Colombia

2009 2010 2011

$2.8

$4.4

$5.1

SOURCE: Foreign Trade Division, U.S. Census Bureau

10 startup community banks were created in Houston in the two years before the recession changed the game for the fi nancial services sector. HBJ reporter Collin Eaton examines how those banks have fared and what challenges remain.

The 2007 “de novo” wave in Houston: banks’ asset growth since then

Bank Founded Assets in Assets in Assets in Q2 2007 Q2 2012 Q2 2011 or at foundingAllegiance Bank Texas 2007 $688,022 $488,677 $53,609Icon Bank of Texas NA 2007 $403,541 $317,977 $30,409Integrity Bank SSB 2007 $367,578 $237,649 $37,917Texas Citizens Bank NA 2006 $296,068 $280,424 $71,729Third Coast Bank SSB 2008 $230,761 $210,066 $21,069Westbound Bank 2007 $137,821 $144,544 $44,073Lone Star Bank 2006 $113,661 $130,236 $41,607Texas Advantage Community Bank NA 2006 $83,663 $81,548 $16,318Oasis Bank SSB 2007 $76,952 $80,494 $14,567Texan Bank 2007 $64,630 $43,491 $9,551

SOURCE: FDIC

Reprinted for web use with permission from Houston Business Journal © 2012. Reprinted by Scoop ReprintSource 1-800-767-3263.

Colombia — it went from a very difficult to a very business-friendly environment,” Recobs said. “As their economic climate gets stron-ger, there is an incentive to trade a lot more.

With new Colombian oil and gas discoveries and exploratory licenses available both offshore and onshore in shale formations, Houston manu-facturing and service companies supplying the oil and gas industries are seeing more business in the South American country.

“With all the projects going on and the industry intelligence that we are getting, we see the potential of growing our business even more,” said Geber Urbina, the Latin Amer-ica and Caribbean sales manager for Hydratight Ltd., an international manufacturer of bolting equipment for the oil and gas and power indus-tries. A subsidiary of Milwaukee-based Actuant Corp. (NYSE: ATU), Hydratight’s North American head-quarters are in Houston with a staff of about 25 employees.

Hydratight’s products are consid-ered new technology in the emerg-ing market of Colombia, Urbina explained.

“With all the new discoveries there, we are classified as a new tech-nology,” he said. “The old methods are using a wrench (to bolt), so in some countries (our products) are a new technology. We will definitely be manufacturing more products for Colombia (out of Houston) in the future.”

46 www.houstonbusinessjournal.com Week of November 9-15, 2012

growing our business even more,” said Ge-ber Urbina, the Latin America and Carib-bean sales manager for Hydratight Ltd., an international manufacturer of bolting equipment for the oil and gas and power in-dustries. A subsidiary of Milwaukee-based Actuant Corp. (NYSE: ATU), Hydratight’s North American headquarters are in Hous-ton with a staff of about 25 employees.

Hydratight’s products are considered new technology in the emerging market of Colombia, Urbina explained.

“With all the new discoveries there, we are classifi ed as a new technology,” he said. “Th e old methods are using a wrench (to bolt), so in some countries (our products) are a new technology. We will defi nitely be manufacturing more products for Colom-bia (out of Houston) in the future.”

Although Urbina did not disclose how much additional revenue Hydratight ex-pects from the Colombia market, he did say that the free trade agreement should help increase business.

Auge International, a Mexican steel com-ponents manufacturer for the oil and gas industry with manufacturing operations in

Houston, said it has done small sales in Co-lombia in the past, but now, especially after attending the expo in Bogota, the company is extremely interested in expanding its Co-lombian sales.

“Th e products that we manufacture are directly related with the need that the Co-lombia market will have in the upcoming years,” said Juan Munoz, a Houston-based procurement engineer for Auge. “It’s a new market that is slowly starting to get notice around the world, and we want to be part of this wave of new business that is coming.”

Even though Colombia is an emerging market full of possibilities for Houston ex-porters, trade experts admitted it will never eclipse other major South American mar-kets — mainly Brazil.

“Certainly Brazil is a much bigger mar-ket, and Mexico and Argentina are much bigger,” said Bank of Houston’s Prout. “How-ever, with the potential for growth, the ease of access and reduced tariff s, Colombia is a much more open market.” �

MOLLY RYAN covers manufacturing, the port and tech-nology for the Houston Business Journal. Reach her at mryan@bizjournals.com, 713-395-9638 or twitter.com/HBJ_MollyRyan.

COLOMBIA: ‘We want to be part of this new wave of business,’ Houston companies sayFROM PAGE 2

panies that make that cash outlay are saving in the long term.

“Right now, with off shore oil and gas — es-pecially deepwater developments — we see the need for exotic alloys, like nickel alloys,” said Curt Kates, president and CEO of Alloy Metals and Tubes. “If they are putting some-thing in the Gulf under 8,000 feet of water, they don’t want to have to go out and fi x it. It needs to be something that lasts.”

Products made with specialty metals, like nickel, molybdenum and chrome, experi-ence less corrosion and operate more effi -ciently under high-pressure environments, Kates said, but that comes at a price.

“Compared to regular stainless (steel), some (specialty metals products) may be two or three times the price and others may be 10 times the price,” Kates said. “Th e ini-tial investment is higher, but over the long run, it is aff ordable because you won’t have to go replace tubes because of corrosion or failure.”

Products, like pipes and valves, made without specialty metals or without special-ty coatings begin to corrode immediately upon use due to exposure to issues such as friction or hazardous materials, said Wil-liam Howard, CEO of Houston Plating & Coatings.

SAFETY CONCERNSOil and gas companies concerned about

the safety of their materials may be more willing to invest in specialty metals compo-nents, in light of the 2010 Deepwater Hori-zon Gulf of Mexico oil spill, Kates noted.

“My sense is after the Macondo incident, people tightened up in their sense of quality,” he said. “Th ey are taking a little extra care these days.”

In addition to its expanded offi ce, which has fi ve times the storage space for tubes, Al-loy Metals plans on increasing its staff from fi ve to seven in the fi rst quarter of 2013.

About 85 percent of Alloy Metals and Tubes’ business is oil and gas-related, Kates

said, and the company distributes products supplied mainly by U.S. metal mills to global destinations.

“At the end of October, we are about 9 per-cent ahead of last year’s (revenue),” Kates said. “By the end of the year, we expect to be up close to 20 percent — and the growth from our new facility won’t even kick in until next year.”

Houston Plating & Coatings is also experi-encing unprecedented growth. Over the last two years, the company has seen revenue grow by about 100 percent. Th e company expects $42 million in revenue in 2012 and a bump to $60 million in 2013.

Along with the revenue increase, Howard said the company is opening its fi rst location outside of the Houston area in Louisiana — an 80,000-square-foot plant — next year.

Although about 85 percent of Houston Plating & Coatings’ business is oil and gas-related, most of it comes from drillers work-ing onshore unconventional shale plays, Howard said. Th ere has been so much de-mand for specialty metals plating that he said the company has sometimes had to turn away work.

“We service manufacturers (of pipes and valves),” Howard said. “All of the work that has been done in the Barnett, the Bakken, that’s what’s fueling our growth. Th ey need pipes.”

Offi cials with Corrotherm International USA, the Houston-based sister company of a U.K. nickel alloys sales and distribution company that just set up its fi rst U.S. offi ce in August , said it sees a future in supplying more nickel alloys pipes, fi ttings and fl anges

to the oil and gas industry.Piers Cooper, the U.S. company’s general

manager, said about 50 percent of Corro-therm’s worldwide business is oil and gas-related, and that percentage is climbing.

“Basically, around the globe on the off -shore side, there has been an increase in production equipment on platforms, and whenever you have production equipment, you have greater quantities of nickel alloys,” Cooper said. “We’re doing everything we are supposed to do (to meet demand). We’re employing more people and increasing U.S. exports.” �

MOLLY RYAN covers manufacturing, the port and tech-nology for the Houston Business Journal. Reach her at mryan@bizjournals.com, 713-395-9638 or twitter.com/HBJ_MollyRyan.

METAL: Deepwater Horizon spill prompted many companies to invest in safer materialsFROM PAGE 1

2011MerchandiseExports from

Texas to Colombia

PETROLEUM & COAL PRODUCTS $2,006,740,950

39.4%

CHEMICALS $1,370,743,927

26.9%

MACHINERY, EXCEPT ELECTRICAL

$702,772,97513.8%

All Others $721,173,672

14.1%

COMPUTER &ELECTRONIC PRODUCTS

$298,193,0895.8%

SOURCE: Foreign Trade Division, U.S. Census Bureau

Metal momentum: Exova expands Houston lab capacityBY MOLLY RYANHOUSTON BUSINESS JOURNAL

For one local testing company, ex-treme oil and gas exploration means ex-treme growth.

Exova’s Houston operations, which provide testing for specialty metals and make sure new alloys and alloy products meet standards for operating in harsh environments, is experiencing major growth in its local oil and gas division due to clients entering areas with more extreme conditions.

Th is part of the company’s Houston operations, which accounts for about 25 percent of its business, is one of its fastest-growing segments, said Bobby Archibald, vice president of Exova’s U.S. oil and gas group in Houston, and the company, which has a legal offi ce in the United Kingdom, has had to expand its operations to meet increasing demand.

Between 2010 and 2012, Exova, which

has locations throughout the world, said revenue at its Houston oil and gas operations grew by more than 155 per-cent. Th e entire Exova Houston facility plans to net around $10 million in rev-enue in 2012, Archibald said.

“Th ere is a big market for testing ca-pability,” Archibald said. “Th e materials have to be proved in order to start mov-ing oil.”

Starting in 2006, Exova invested $1.5 million in its Houston oil and gas corro-sion testing department. However, due to increased growth, the company re-cently decided to invest $600,000 more in the Houston facility, specifi cally to help Exova do pipeline corrosion test-ing. Th is expansion, which mainly con-sists of buying new testing materials, will allow Exova to increase its testing capacity.

In harsh, deepwater areas in loca-tions such as the Gulf of Mexico and off shore Brazil, pipelines are corroding

faster than ever, and manufacturers are scrambling for better, stronger metals to cope with this, Archibald said. Exova has found a niche market testing these metals and making sure they comply with new Environmental Protection Agency regulations.

Th is market will only get larger in the coming years, as oil and gas is harder to fi nd in easy-to-reach areas, Archibald said.

“If I am optimistic, I see a 20 to 40 per-cent revenue increase in the next three years,” he said.

Also, although Exova does not plan to have to move to larger space, it could have to add one or two employees to its lab team of fi ve in the Houston oil and gas department in the next year. In to-tal, Exova has 50 employees in Houston who work on projects for a variety of dif-ferent industries.

— Molly Ryan

Although Urbina did not dis-close how much additional revenue Hydratight expects from the Colombia market, he did say that the free trade agreement should help increase business.

Auge International, a Mexican steel components manufacturer for the oil and gas industry with manu-facturing operations in Houston, said it has done small sales in Colombia in the past, but now, especially after attending the expo in Bogota, the company is extremely interested in expanding its Colombian sales.

“The products that we manufac-ture are directly related with the need that the Colombia market will have in the upcoming years,” said

Juan Munoz, a Houston-based pro-curement engineer for Auge. “It’s a new market that is slowly starting to get notice around the world, and we want to be part of this wave of new business that is coming.”

Even though Colombia is an emerging market full of possibilities for Houston exporters, trade experts admitted it will never eclipse other major South American markets — mainly Brazil.

“Certainly Brazil is a much big-ger market, and Mexico and Argen-tina are much bigger,” said Bank of Houston’s Prout. “However, with the potential for growth, the ease of access and reduced tariffs, Colom-bia is a much more open market.”