Halliburton Surges After Bush Re-Election

Halliburton Surges After Bush Re-Election

Reuters | Nov 4 2004

Shares in problem-plagued Halliburton Co. rose to their highest level in more than three years on Wednesday, carried by a rally in oil-related stocks after President Bush's re-election.

Halliburton, whose KBR engineering and construction unit is the largest private contractor in Iraq, responsible for everything from preparing meals for U.S. troops to repairing Iraq's oil infrastructure, saw its shares jump more than seven percent to their highest mark since June 2001.

The company, headed by Vice President Dick Cheney from 1995 to 2000, had drawn criticism from Senator John Kerry and other Democrats during the election campaign because of the no-bid contracts it received for much of the Iraqi work, especially after military auditors found evidence of possible overcharging for some work.

Halliburton executives have said previously they expected criticism to die down after the election and that the company's share price, which trades at a discount to its peers such as Schlumberger and Baker Hughes Inc. , would rebound.

But the company still faces a number of problems over its Iraq contracts.

In the latest move, the U.S. Army Corps of Engineers' top contracting official last week called for an investigation into the award the of multi-billion dollar contracts to Halliburton, calling it the worst case of contracting abuse she had seen.

Bunnatine Greenhouse, in a television interview, said, "It was misconduct, and part of the misconduct was blatant." At the center of Greenhouse's complaint is a no-bid contract worth $7 billion awarded last year to KBR to rebuild Iraq's oil industry.

U.S. auditors have also accused KBR of being unable to account for over a third of the items it handled in Kuwait under a work order for the U.S. occupation authority in Iraq.

In addition, the U.S. Army is threatening to withhold payment of 15 percent, or about $600 million, of Halliburton's bills because of a dispute over whether KBR properly documented its bills for feeding and housing troops in Iraq and Kuwait.

Halliburton has consistently denied any wrongdoing in its work in Iraq, where KBR's contracts have brought in $5.2 billion in revenues so far this year and about $8.8 billion since the start of the war last year.

In a presentation to analysts at a Merrill Lynch conference in New York on Wednesday, Halliburton executives said the company's prospects were bright because of the bullish oil services market.

Record high oil and gas prices have prompted oil companies to increase spending to raise output levels, benefiting the energy services sector and allowing Halliburton to raise its prices.

We expect to see sustained activity levels" into 2005 in energy services, Jim Renfroe, senior vice president for production optimization told the conference.
Chief Financial Officer Christopher Gaut reiterated the company had launched a restructuring at KBR to create two separate units for energy and government services.

The company has said it could spin off KBR into a separate company or sell the business, which is currently in Chapter 11 bankruptcy proceedings to facilitate its settlement of asbestos lawsuits.

KBR is near to funding the remaining $2.3 billion of a settlement for its asbestos lawsuits.

Halliburton shares closed up $1.54, or 4.3 percent, at $37.08 on the New York Stock Exchange.