Costs Escalate For Iraq
Contracts Of Halliburton 

JOHN M. BIERS / Dow Jones Newswires 12sep03

• Also read Halliburton Swings to Profit, Boosted by Iraq Contracts 1aug03

HOUSTON—Halliburton Corp.'s U.S. government contracts to restore Iraqi oil production and provide support services to troops will cost taxpayers an estimated $2 billion and are expected to rise, Army spokesmen said.

An Army Corps of Engineers contract to rehabilitate the country's oil fields, controversial because it wasn't competitively bid, now is valued at $948 million, more than $200 million above the level projected last month. One particularly expensive item: importing fuel to the oil-rich country, at a cost of as much as $6 million a day.

Halliburton's separate Army Field Support Command contract, which it won in 2001, now is estimated to cost $1 billion in Iraq alone. That is up more than $400 million from the level in late May.

In the Army Corps contract, fees for Halliburton subsidiary Kellogg Brown & Root could range from 2% to 7% of the total contract cost, depending on whether the company receives a performance reward of as much as 5% on top of its 2% base fee. In the field-support contract, that percentage is lower—a 1% base fee, with a performance reward that could increase it to 3%.

The rising price tags could renew challenges for the Bush administration because Vice President Dick Cheney previously was the company's chief executive. Halliburton's work in Iraq has become a focus of attacks from Democrats criticizing the expense of the reconstruction plans. "These costs are rocketing up, and I will be examining them closely," Rep. Henry Waxman (D., Calif.) said.

In a debate among Democratic presidential candidates this week, Sen. Bob Graham of Florida said he might support the administration's request for $87 billion in new funds for Iraq, but added: "I will not support a dime to protect the profits of Halliburton in Iraq."

A White House spokeswoman referred questions to Army contracting staff.

As with the cost of the overall U.S. effort in Iraq, the Halliburton contracts have escalated as Iraqi infrastructure continues to be plagued by looting and sabotage. "We keep adding task orders, so the likelihood of them going up is probably fairly legitimate," Field Support Command spokesman Dan Carlson said.

The Army Corps also expects the value of its contract to rise. "It's going up pretty fast," said Scott Saunders, a spokesman for the Army Corps of Engineers. "The big increases are due to imports of products, and it's largely due to looting and sabotage."

The Army Corps, with the task of restoring Iraqi oil production to prewar levels, last month projected the cost of work to be completed by Sept. 30 at $716 million. But Mr. Saunders said the Halliburton unit had billed for $948 million of work as of Sept. 8. The agency has yet to adjust the project's $1.14 billion estimated cost, he said.

The Army Corps is evaluating bids for two contracts that could replace the no-bid contract. Kellogg Brown & Root is among the bidders for the new contracts, which would be expected to begin in November or early December. The Army Corps has yet to evaluate whether the company merits a performance reward for its work, Mr. Saunders said.

For the field-support contract, a contracting team is evaluating Halliburton's performance, Mr. Carlson said. Although that contract so far has generated more revenue for Halliburton than the oil-field award, it has garnered less scrutiny because it was competitively bid.

In 2001, the Army selected Halliburton to provide support services world-wide as military needs arise. The one-year contract, which has nine one-year renewal options, has no price limit. Halliburton spokeswoman Wendy Hall said the company also has deployed staff in Afghanistan.

Halliburton reported $292 million in Iraq-related revenue for the quarter ended June 30. Analysts said the Iraq work added two or three cents a share. Halliburton reported second-quarter net income of $26 million, or six cents a share.

Halliburton Iraq Contracts At
$2 Billion And Growing

JOHN M. BIERS / Dow Jones Newswires 11sep03

HOUSTON—Halliburton Corp.'s U.S. government contracts to restore Iraqi oil production and provide support services to troops will cost taxpayers an estimated $2 billion and are expected to rise further, Army spokesmen said Wednesday.

An Army Corps of Engineers contract to rehabilitate the country's oil fields is now valued at $948 million, more than $200 million above the level projected last month. Halliburton's Army Field Support Command contract is now estimated to cost $1 billion in Iraq alone, up more than $400 million from the level in late May.

Although only a small fraction of the value of the contracts will end up as Halliburton profits, the higher price tag could pose political challenges for the Bush administration because Vice President Dick Cheney was previously the company's chief executive.

As with the cost of the overall U.S. effort in Iraq, the Halliburton contracts have escalated in value as Iraqi infrastructure continues to be plagued by looting and sabotage.

"We keep adding task orders, so the likelihood of them going up is probably fairly legitimate," Field Support Command spokesman Dan Carlson said.

The Army Corps also sees the value of its contract rising. One particularly expensive item has been fuel imports, which are needed to make up for reduced output by Iraq's refineries. Halliburton subsidiary Kellogg Brown & Root is spending up to $6 million per day importing fuels, according to an Army Corps spokesman.

"It's going up pretty fast," said Scott Saunders, a spokesman for the Army Corps of Engineers. "The big increases are due to imports of products, and it's largely due to looting and sabotage."

The Army Corps, tasked with restoring Iraqi oil production to prewar levels, last month projected the cost to be $716 million for work completed by Sept. 30. But Saunders said the Halliburton unit had billed for $948 million worth of work as of Sept. 8. The agency has yet to adjust the project's $1.14 billion total estimated cost, he said.

The Army Corps has yet to evaluate whether Halliburton merits an award fee of up to 5%, Saunders said. The contract has a base fee of 2%.

The Army Corps is currently evaluating bids for two contracts that could replace the Kellogg Brown & Root award, which has been controversial because it wasn't competitively bid. If new contractors are selected, the Army Corps expects them to begin work in Iraq in November or early December.

The Field Support Command contract, which was competitively bid in 2001, has 1% base fee plus the potential for an award up to 2%. A contracting team is currently evaluating Halliburton's performance, spokesman Carlson said.

As of Aug. 15, the Field Support Command had issued Halliburton 67 task orders projected to cost just over $1 billion, Carlson said. Since then, the Army has issued three more task orders but hasn't released cost estimates for the additional work.

Halliburton reported $292 million in Iraq-related revenues for the quarter ended June 30. Analysts said the Iraq work added two or three cents per share. Halliburton reported second-quarter net income of $26 million, or 6 cents a share, compared with a net loss of $498 million, or $1.15 a share, in the same period the year before.

A Halliburton spokeswoman said the company wouldn't comment on the future earnings impact of its Iraq-related work.