Halliburton Going Strong Amid Clamor
The headlines haven’t been particularly kind to Halliburton Co. recently. But flip back to the stock tables and you’ll get a whole different story.
The world’s second-largest oil services company, Hallliburton was the No. 6 performer on the S&P; 500 last year, and its shares this year have risen 24% on the New York Stock Exchange, closing Friday at $23.87, not far from its 52-week high of $24.67.
The strong performance has come in spite of the revelation that Halliburton paid a multimillion-dollar bribe to a Nigerian official and the controversy surrounding the company’s no-bid secret contract to extinguish oil well fires in Iraq. What’s more, Halliburton is under investigation by the Securities and Exchange Commission, which in December started a probe of some of the company’s accounting practices in the late 1990s. Just Friday, Halliburton agreed to pay $6 million to settle 20 shareholder lawsuits that accused it of using deceptive accounting practices back then.
The Iraq contract has drawn the most bad press. Critics have been vocal about the link they see between the lucrative, hush-hush deal and the fact that Houston-based Halliburton was headed by Vice President Dick Cheney before he resigned in August 2000 to become George W. Bush’s running mate.
Army Corps of Engineers officials acknowledged last month that they had downplayed the scope of the contract and that what was billed as an emergency pact to put out anticipated fires in wartime was in fact an assignment to kick-start Iraq’s oil industry. And that disclosure came on the heels of an admission that the contract’s value could go as high as $7 billion, outraging members of Congress and others who said the Army misled the public into thinking the amount would be in the mere millions.
But Wall Street simply isn’t troubled: Halliburton shares have gone up 15% since the contract became public March 24.
“Halliburton is a big, diverse company,” said Bill Miller, a political consultant and lobbyist in Austin, Texas. “It takes more than one storm for them to get wet.
“You have to take threats seriously when you’re a publicly traded company and the government’s looking into you. But the company’s doing a good job of explaining their position to shareholders.”
The company was founded by Erle Palmer Halliburton, a young ex-Navy man with an attitude, the kind that got him fired in 1919 from his first job at a California cement company. Determined to do things his way, he pawned his wife’s wedding band, headed to Oklahoma and set up his own cement mixing firm.
By 1922, Halliburton had a U.S. patent for his “jet-cement” mixer, and his 17 trucks were rumbling across the muddy oil fields of four neighboring states, sealing up leaky oil pipelines. Getting to those jobs was so harrowing that his drivers invented the firm’s first slogan: “We will get there, somehow ... safely.”
They got there and then some. With 85,000 employees in more than 100 countries, Halliburton’s oil drilling, engineering and other operations are expected to pull in more than $13 billion in revenue this year.
Halliburton aims to be one-stop shopping for the expensive and complex process of finding, extracting and transporting crude oil. Among its many units are entities that conduct exploration, erect offshore oil and gas facilities, rent out massive drill bits and clean pipelines.
Major oil and gas companies, such as Exxon Mobil Corp. and ChevronTexaco Corp., used to have labs that did research, but the majors’ belt-tightening in recent years means oil-patch technology has fallen to companies such as Halliburton and its larger rival, Paris-based Schlumberger Oilfield Services, and smaller competitors Baker Hughes Inc. and Weatherford International Ltd.
It’s a global business, and usually profitable: Analysts predict that Halliburton’s earnings this year will hit $1.05 to $1.10 a share, up from 89 cents last year.Halliburton’s success is maddening for critics such as Rep. Henry Waxman (D-Los Angeles). He says Halliburton and its large subsidiary, Kellogg Brown & Root, have a history of getting special treatment from the Pentagon.
“It’s amazing to me that with all the audits they’ve undergone that have recorded a history of overcharging the government, Halliburton and its subsidiaries still get picked for very lucrative contracts,” he said.
A September 2000 report from the General Accounting Office, for instance, took issue with KBR’s $2.2-billion contract to provide logistical and engineering support in the Balkans, saying the Army should be more vigilant about reviewing costs submitted by KBR. In February 2002, KBR paid $2 million to the government, but admitted no wrongdoing, to settle claims that it improperly billed Uncle Sam for work it did at what formerly was Ft. Ord near Monterey.
Last July, less than six months after KBR settled the Ft. Ord case, the Pentagon awarded KBR a $9.7-million contract to build 204 prison cells at Guantanamo Bay for suspected Al Qaeda members.
In all, Halliburton and its subsidiaries have received more than $3.5 billion in federal contracts over the last five years, about 75% of which came from the Department of Defense, according to the Center for Public Integrity, a nonpartisan watchdog group.
“The criticism is that they’re making too much money, but that’s not something that investors frown upon,” said Bill Allison, the center’s managing editor. “The bottom line is that they are pretty good at what they do. You can’t dispute that.”
There is, he added, the “appearance of conflict” because Cheney was Defense secretary before he became Halliburton’s chief executive and now is vice president. His is a classic example of the revolving door syndrome, whereby people who leave government posts for the private sector sometimes return to Washington.
The Corps of Engineers and Halliburton deny any favoritism. Halliburton’s KBR was selected for the $7-billion Iraq contract because of its experience and qualifications, the Corps of Engineers said, and because it already had developed a contingency plan for repairing and operating Iraq’s oil infrastructure under a separate contract.
“Given who my predecessor was, and given the bitter, partisan climate today, you see much media scrutiny on Halliburton,” said Chief Executive David Lesar. “It’s something we’ve had to learn to live with.”
In an interview with The Times on May 14, Lesar said the Iraq contract would be worth “no more than $100 million.” A week later, he raised it to “a couple of hundred million” in comments to reporters after Halliburton’s annual meeting. Even that amount would be less than 2% of the firm’s yearly revenue.
The company’s biggest money makers in the Middle East aren’t in spot contracts in places such as Iraq, Lesar said, but long-term projects in Saudi Arabia and other oil-producing countries that are not funded by the U.S. government.
“We’ve always had a good-sized business in the Middle East,” he said. “In any year, they’ve always been 15% of our entire portfolio. So this is not a springboard. We’re already there.”
Halliburton suffered a minor embarrassment last month when it disclosed in an SEC filing that one of its foreign subsidiaries paid $2.4 million to the company of a Nigerian government official last year to get favorable tax treatment.
Lesar said that several Halliburton employees were fired over the discovery, and no one in top management was involved.
Halliburton may have to pay an additional $5 million in taxes in Nigeria, not much for a company its size.
The company’s only flesh wound in recent years was asbestos liability stemming from its 1998 acquisition of Dresser Industries, which once employed the first President Bush as an equipment clerk.
A Dresser subsidiary used asbestos in making bricks and pipe coating. Dresser had severed ties with the subsidiary by the time of the acquisition, but the former subsidiary couldn’t pay the thousands of asbestos claims.
Ultimately, Halliburton became liable, and its shares took a dive when a Baltimore jury brought in a verdict against it in December 2001.
“From a stock perspective it was very serious. It took $8 billion to $9 billion off their market value for nine months,” said Jim Wicklund, an analyst at Banc of America Securities specializing in the oil field services sector.
Late last year, Halliburton announced a $4-billion settlement of the asbestos claims; the settlement must be approved by the court.
Lesar says finalizing the settlement will help the company focus on the future. While holding the short-term temporary contract for emergency oil services in Iraq, Halliburton is seeking the long-term contract for rebuilding the oil industry.
The company also is making a shift into high-tech work through its small but growing subsidiary Landmark Graphics Corp., which uses imaging technology to assess the profitability of oil pockets.
Last July, Landmark signed a five-year contract with Kuwait Oil Co., which gives that company access to all of Landmark’s geophysical, geological and economic modeling technologies.
Halliburton acquired Landmark in 1996, when Cheney was CEO, and it has grown to 2,000 employees whose work accounted for 15% of Halliburton’s revenue last year.
“We thought having more of a high-tech flavor to our product offerings would get us more attention on the Street,” Lesar said, “which it certainly did.”
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Associated Press was used in compiling this report.
