Getting Iraq’s Oil Pumping Again
With Iraqi oil-well fires extinguished and oil workers trickling back to their posts, Pentagon officials began laying the groundwork Monday for a potentially lucrative contract to rebuild the country’s tattered petroleum industry.
Officials with the Army Corps of Engineers and other agencies started sketching out broad terms of the contract and soon will set up a meeting with likely bidders. They are expected to include at least three from California: Fluor Corp. of Aliso Viejo, Parsons Corp. of Pasadena and San Francisco-based Bechtel Group Inc., which last week won a $680-million civilian reconstruction contract for Iraq from the U.S. Agency for International Development.
Houston-based Halliburton Co., which already has teams in Iraq and Kuwait, also is expected to bid. Halliburton’s KBR subsidiary, formerly Kellogg Brown & Root, on March 8 won a secretly solicited, no-bid contract for emergency oil-field services with a maximum value of $7 billion that has come under attack by congressional critics.
Because only a handful of oil wells were torched in Iraq, the emergency contract is now expected to be worth no more than $650 million. It will be replaced by the new contract being put out to competitive bid. But until the next contract is awarded, KBR will remain on the job.
And at this point, no one at the corps can estimate just how much work there will be for the next contractor. If enough Iraqi oil employees return to their jobs, one corps officer said, “we wouldn’t need much work at all.”
The corps defended its decision to award the no-bid contract to KBR, saying it had to move quickly and couldn’t advertise its intentions because of national security concerns. KBR was an obvious choice, having completed a study on the Iraqi oil industry under a previous contract.
The corps has dismissed allegations that the company received favored treatment because Vice President Dick Cheney headed Halliburton before resigning in August 2000 to be President Bush’s running mate.
Lt. Col. Eugene Pawlik, a spokesman for the corps, said Halliburton and its subcontractors would remain on call in Kuwait and on the job in Iraq for emergency repairs on “anything that looks like it’s going to cause a hazard when they hit the ‘on’ switch on the system.”
KBR has hired two subcontractors -- Boots & Coots International Oil Well Control Inc. and Wild Well Control Inc. -- to help put out the fires. Boots & Coots put out two of the nine oil and gas fires Saddam Hussein’s forces set in southern Iraq. Wild Well didn’t put out any. Firefighters from the state-owned Kuwait Oil Co. put out two others at no charge, including the toughest one last week.
The rest burned themselves out, according to spokesmen for Kuwait Oil.
Corps officials in Iraq have said it would take several weeks to get the oil pumping again, however, and Pawlik confirmed that Halliburton would do that job until the new contractor is chosen. Halliburton’s work orders, he said, include not just the fires but virtually any job the corps asks of it.
So far, Halliburton has received $50 million in work orders on the contract. On Monday, Halliburton spokeswoman Wendy Hall said KBR still has four teams of firefighting subcontractors “on location.”
The emergency subcontracting work has been particularly important for Boots & Coots, which has said in regulatory filings that it is considering seeking bankruptcy protection. Company executives have said they are making $50,000 a day on the contract. Two months’ worth of work would generate $3 million for Boots & Coots, which reported $9.2 million in losses on $14.1 million in revenue last year.
Rivals have complained that they weren’t given a chance to bid for the work.
“Everyone in the well-control industry was expecting a call about organizing a contingency plan,” said Bob Grace, whose Texas-based petroleum engineering firm, GSM Inc., designs strategies and hires contractors for just such emergencies. “Most tried to find out who was preparing such a plan, only to meet with closed doors and brick walls.”
Grace also said Kuwait Oil “would have extinguished all of the fires in Iraq at no cost to the American taxpayers” if the U.S. had let it do so.
Other industry insiders are not so certain.
“In this business, there’s only one sure thing,” said one executive in the business who asked not to be named. “Hindsight is 20/20.”
