Construction is set to start soon on a project being developed by Hines for a Houston energy company relocating its headquarters about 7 miles west to reduce commute times for employees as well as save money.
Marathon Oil Corp., a publicly traded producer, plans to start building its 15-story headquarters in CityCentre at 990 Town & Country Blvd. this month, said Curtis Ryland, vice president of special projects at Marathon Oil. When the tower is completed at the end of 2021, Marathon Oil expects to relocate into the roughly 440,000-square-foot building from its current home at 5555 San Felipe St. in the Uptown-Galleria area, where it’s been for 35 years.
The new multimillion-dollar project comes as energy companies are under pressure to ratchet down spending amid falling oil prices and concerns of a slowdown in the energy sector and the economy at large. However, Marathon Oil officials say building a new tower from the ground up is actually more cost effective than staying in the current office and will boost efficiency and shorten commute times for hundreds of their employees in the Houston area.
While the move provides a glimpse at the steps companies under pressure take to cut costs, it also gives an insight into the decision facing all growing corporations at some point on whether to expand or relocate. The Marathon situation is a study how companies look at a transforming city, an industry facing fluctuations and the challenges in trying to project industry and economic trends for the next 35 years.
With Marathon Oil’s lease at 5555 San Felipe set to expire at the end of 2021, the energy firm evaluated options and decided it was more cost-effective to relocate rather than pay for renovations of their space and deal with the disruption of construction, Ryland said.
The new location in CityCentre at the southeast corner of Interstate 10 and Beltway 8 will also drastically reduce commute times for many of its employees, Ryland said. More than half of Marathon Oil’s nearly 1,000 local employees commute to the Uptown-Galleria area from the quickly growing west side of Houston and Katy.
CityCentre will also give employees access to restaurants and other amenities, he noted. The 50-acre mixed-use district developed by Midway Cos. has 400,000 square feet of restaurants and retail space, a movie theater, a gym, and a bowling alley.
"We wanted an environment to provide balance to employees and CityCentre is highly sought-out in terms of its connectedness," said Ryland in an interview.
It will also give Marathon Oil a chance to create a more modern workspace to improve efficiency, promote collaboration and give employees better access to upgraded and reliable technology, executives said.
"The building we are in was built in the 1980s and it's very much a traditional office that was designed before the internet and before computers were on every desk," Ryalnd said. "Now when you have teams at work and the types of spaces they need, we’re trying to create a more active workspace. Flexibility and choice are key aspects of our design."
`Project Thunder' Estimate
Marathon Oil held a groundbreaking ceremony earlier this month commemorating the start of the project and the selection of its general contractor, D.E. Harvey Builders, but the project's construction will start sometime this month. Kendall/Heaton Associates Inc. is the architect on record for Marathon Oil's new tower.
Last year, Marathon Oil purchased the land for the new tower from Midway through a financing agreement known as a synthetic lease. In that type of deal, Marathon Oil leases the land from SMBC Leasing and Finance Inc. but essentially acts as the owner, Ryland said.
Marathon Oil did not provide an estimate for the total construction costs, but initial filings with the state for a project at the same address called "Project Thunder" show the shell of the building was estimated to cost $109.6 million and the interiors were estimated to cost $60 million.
Marathon Oil had a blockbuster year for earnings in 2018 when capital efficiency and a 24% jump in oil production boosted its profits from $1 billion in 2018, compared to posting a $5.7 billion loss the year earlier. But like the rest of the oil sector, tepid crude prices this year have dinged Marathon Oil’s profits, which fell 35% year-over-year in the third quarter to $165 million, according to its latest earnings report.
The phrase "capital discipline" was cited often on company earnings calls with investors as executives emphasized their efforts to keep spending in check. Despite planning to boost oil production by 10% this year, Marathon Oil has planned to keep its capital budget flat at $2.6 billion.
Meanwhile, at Marathon Oil's space at 5555 San Felipe, the owners of the 41-story tower are in the midst of significant remodeling to modernize the building, which is known as Marathon Oil Tower.
Elsewhere in CityCentre, Midway is planning to build a 300,000-square-foot office tower called CityCentre Six directly south of the Marathon Oil project. A Midway spokeswoman told CoStar News that Midway has launched the CityCentre Six project, but did not immediately respond to a phone call and email requesting more information about the project's timeline. Midway recently sold a majority stake in CityCentre Five, a 15-story office tower anchored by Amazon Web Services at 825 Town & Country Lane.
Farther west down I-10, Harvey Builders has reportedly halted construction on the buildout of McDermott International's space at 915 N. Eldridge Parkway in the Energy Corridor, according to the Houston Business Journal. McDermott, an oil field services company, leased the entire 525,000-square-foot office building last year for its headquarters.
Harvey Builders filed a lien against the property in October, citing McDermott owed the contractor $14.2 million in unpaid bills, according to a filing with the Harris County Clerk.
Another lien was filed in October against the property by Trio Electric, an electric subcontractor, citing the owner of the building, TCH Energy Corridor Venture LLC, owed Trio Electric $4.7 million for unpaid work for McDermott's space, according to the Harris County Clerk. TCH Energy Corridor Venture is a joint venture between Dallas-based Trammell Crow and Des Moines, Iowa-based Principal Real Estate Investors. It was not immediately clear what company owed Trio Electric the funds.
CoStar News reached out to McDermott, Harvey Builders, TCH Energy Corridor Venture and Trio Electric for additional comment.