"George Mitchell remembers how Houston's oil men used to do business. It was 1946 and the war had not long ended. Every morning at 9am, brokers gathered in the Esperson Drug Store and struck deals over coffee for money and acreage to drill wells.

Mitchell, who had a degree in petroleum engineering from Texas A&M, worked for oil group Amoco for a year and a half before serving in the US Army Corps of Engineers. After a five-year tour of duty building gun plants, airfields and other military facilities in Texas and Louisiana, he returned to the oil patch and looked for work. It was then that Mitchell started an oil company, acting as geologist and engineer, with his brother as broker, and a secretary to do the paperwork. The business was small, but, like Texas, determined to make something of itself.

By the time Mitchell retired in 2002, following the sale of Mitchell Energy to Devon Energy, he had built his dream into an exploration company with 2,000 employees. Mitchell Energy had also pioneered a new technology for extracting gas from shale, which opened up the Barnett Shale in north Texas to development, making it the largest gas field in north America and making Mitchell a billionaire.

This sharp and thoughtful man is number 135 on the Forbes 400 list of the richest people in America, with an estimated fortune of $2.8bn. Yet, at the age of 88, Mitchell sees a disquieting trend. He is no longer surrounded, on these rich lists, by his friends and associates from the Esperson Drug Store days. In 1982, there were 65 Texans on the Forbes 400 rich list. In 2006, there were 36. While the southern state is still considered the energy capital of the world, Mitchell notes that some of its richest beneficiaries now live in London, in large part because of laws (which, to much uproar this month, the British government had proposed changing) excusing them from paying tax on business done outside the UK.

''That's a totally unfair advantage for London - I have to say that this country better wake up,'' he says. London is not the only rival. Dubai is also fighting hard for business. Last year the oilfield giant Halliburton made the first high-profile move there, establishing dual headquarters in Houston and Dubai, with its chief executive, Dave Lesar, relocating to the United Arab Emirates.

''The Middle East is where all the money is. That is where all the action is going to happen,'' Mitchell says in a skyscraper office towering over downtown Houston. The room has the trimmings one might expect of a self-made man from Texas: a plaque marking his induction into the All-American Wildcatters Association; an oil drop sculpture from the American Society of Mechanical Engineers for distinguished and significant contributions to the petroleum industry; a bust of Albert Einstein designating his membership in the Einstein Society of National Academies; and a sculpture anointing him as a National Master Entrepreneur of the Year. But his mind is set on threats to Houston's future, not the glories of the past.

''[Dubai] is a terrible climate to have companies - in the heat of the desert, the temperature is 125 degrees in the summertime.'' But, he says, ''they are going to fight like hell to get an empire built in that area.''

In 1901, at Spindletop Hill, Texas, a newly discovered geyser of oil gushed out enough black liquid to fill 80,000 barrels every day. More than a century later, the extraordinary scenes that marked the beginnings of the US's petroleum empire are gone. ''Easy'' reserves have been tapped. Instead, companies are gnawing and splitting into shale rock to get oil and gas out, or searching deeper under the Gulf of Mexico, hoping to strike new reserves.

''The state is kind of picked over,'' says Amy Myers Jaffe, energy expert at the James A. Baker III Institute for Public Policy at Rice University in Houston. The oil and gas that is left requires millions of dollars to exploit, using state-of-the-art technology. That means it is mostly well-funded corporations - not individuals - reaping the profits. ''You're not going to have an individual going out and drilling in the deep water,'' says Jaffe.

The ''wildcatters'' of the past had far greater freedom, doing deals on a smile and a handshake. T. Boone Pickens, another Houston wildcatter turned billionaire, once put it this way: ''Keep things informal. Talking is the natural way to do business. Writing is great for keeping records and putting down details, but talk generates ideas. Great things come from our luncheon meetings, which consist of a sandwich, a cup of soup, and a good idea or two. No Martinis.'' (Pickens is 117th on Forbes' richest Americans list, with a $3bn fortune.)

That is how Texas built its oil industry. And while many of the wildcatters have died, retired, or sold their discoveries to the majors, some of the wells they found can still be seen pumping oil by the side of lonely Texas highways, amid the bluebells, grazing cows and, increasingly, windmills generating electricity for nearby farms.

John Walker, president and chief executive of EnerVest, a manager of oil and gas assets for institutional investors, says there are still a number of small-time investors, or entrepreneurs, with an oil well here and there, and they are still able to make money, but it is just ''a few quibbling million dollars''. That is not enough to enable them to compete with the richest of the rich on the Forbes list, many of whom are benefiting from other growth areas in the economy.

The natural decline of Mitchell and Pickens' informal, oil-abundant age may help to explain the decline in Texans on the Forbes richer-than-rich list. But it leaves unanswered the question of what the future holds for the US oil kingdom and the Bush heartland in light of the potential exodus to Dubai and London. Will Texas still make people rich in 20 years' time? And if so, how?

Houston, the centre of Texas's energy industry, recognises that it has a problem. The Greater Houston Partnership, the region's business advocacy organisation, has appointed a committee, the Energy Collaborative, with the express purpose of sustaining Houston's status as the energy capital of the world. Lane Sloan, director of the University of Houston's Strategic Energy Alliance, was its second chairman.

''We're in the middle of a phase change,'' he said, just before stepping down at the beginning of this year. ''Before the industrial revolution, wood was the main source of energy. Then came coal. Hydrocarbons have dominated for the past 100 years, but they now comprise only about 55 per cent of the overall energy supply. Energy demand is expected to double by 2050, and yet oil and gas are becoming increasingly harder to come by.''

Alternative sources of energy are needed to meet demand and, concurrently, to hold on to the city's reputation. ''The idea behind perpetuating Houston as the energy capital has been perpetuating its technological development,'' Sloan says. So Texas has become the biggest producer of wind energy in the US, and is building a portfolio of other technologies involving solar, biofuels, coal and carbon dioxide capture. Its rush into technology has been made easier by the energy infrastructure already here. There are more than a half dozen top-notch universities, each of which features energy courses in its curriculum. But, says Sloan: ''There is no one, single answer.''

Almost 50 per cent of the Houston region's $325bn economy is energy related. To put that in perspective, Houston has what amounts to the world's 21st largest economy - one so big it was the only US city invited to the World Economic Forum to represent its business community at a summit last year in China. On Thusday, Houston is due to host a summit on energy at which the US presidential candidates will discuss energy issues.

''We can slice the data a lot of different ways,'' says Jeff Moseley, president and chief executive of the Greater Houston Partnership. ''The bottom line seems to be that while the number of billionaires from Texas may be shrinking, companies here are doing very well and can contribute to its future.'' Look no further than ''Opportunity Houston'', a marketing effort to raise $40m over the next five years to create 600,000 jobs, $60bn in capital investment and $120bn in foreign trade, increasing to $225bn during the next 10 years. There are more than 3,600 energy companies in Houston to help meet these targets.

Yet the clock is ticking at all energy companies in the US, where the average worker is 54 and approaching retirement. Houston is desperate to attract more young people into the sector, dispatching oil executives to speak to school children and, in a more aggressive push, opening the Academy of Petroleum Exploration and Production Technology at Milby High School this year. It is the first of four public high-school learning centres focusing on the petroleum industry. At the inauguration, Mayor Bill White said: ''Investing in minds is the way Houston will continue to be one of America's great cities for opportunity and growth, especially in the petroleum industry.''

Even as some companies, or their bosses, leave Houston, others continue to be drawn to it for the businesses - and the people - who are here. ''There is certainly an historic tie to doing business on a handshake that goes back to the wildcatter days,'' says Moseley from the Greater Houston Partnership. Kenneth Mackie, president of Rotech Subsea, an exploration company, says that establishing headquarters in Houston is integral to international success. ''You have to be here. Houston is at the heart of the world's oil industry.''

Alex Archila, chief executive of Madagascar Oil, is another example of someone who felt he ''had to be here'' to get anything done. He moved his headquarters from London to Houston at the end of 2006. Houstonites, he says, not only understand the heavy oil he is producing in Madagascar, but also have crucial professional experience in oil and gas finance, accounting and logistics.

''Much of the equipment can be designed and constructed in north America - it is so much easier when you can meet with people face to face,'' Archila says. Tim Vail, president and chief executive of SES, moved his coal-to-gas headquarters to Houston from China, where the work is being done. The company needed more skilled engineering and energy technology personnel to help it take waste and low-rank coal and gasify it to create chemical products: ''SES needed solid process engineers and technologists, and they congregate where the big firms are, and that is Houston.''

To keep businesses coming here, Houston's leaders have ensured the economy is diversified beyond oil and gas, with aggressive lobbying and flexible funding for relocating businesses. It also has one of the lowest tax burdens in the US - 28 per cent less than the national average, with no personal income tax, no state tax on property used for pollution control, no state tax on goods in transit and no state tax on machinery and equipment used in manufacturing.

Houston is home to the Texas Medical Center, the world's largest concentration of healthcare and research institutions, as well as Nasa's Johnson Space Center. Texas also has strong biotechnology, high-tech and aviation industries. Dell is based here, as are Continental, American Airlines and Southwest. Dr Richard Murray, director of the University of Houston's Center for Public Policy, said that while the number of billionaires may be dropping, many people are still doing very well: ''We're still selling many $200 bottles of wine in high-end restaurants.''

Yet for all the diversification, Mitchell believes Texas's future depends largely upon its ability to maintain its standing as energy capital of the world - and not to give in to challenges from London and Dubai.

''[We have to convince] companies that we have good travel options to Dubai and to other places, we have more comfortable living conditions here. We have action with all the other companies here. We have to show them what is already here. And I think that other companies will begin to move their business in, and their companies in, and maybe their headquarters in.''

The octogenarian oil man pauses, then finishes: ''Houston has got to fight back.''" (Sheila McNulty, The Financial Times, February 22, 2008)