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$815-Million Charge to Be Taken by Halliburton

From Reuters

Halliburton Co. said Tuesday that it would take charges totaling $815 million in the second quarter due to further setbacks on an oil project in Brazil and lower-than-expected asbestos insurance recoveries.

The Houston-based energy services company said in a statement that it expected a charge of $200 million, or 46 cents a share, from additional cost overruns and schedule delays on the Barracuda-Caratinga oil drilling complex ordered by Brazilian state oil company Petrobras.

Halliburton blamed the cost overruns and delays on “reduced shipyard subcontractor productivity.”

Company executives were unavailable for comment.

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Halliburton also said it expected a charge of $615 million, or $1.40 a share, as it writes down the asbestos insurance recoveries to $1.4 billion.

This reduction follows recently announced settlement talks with its insurers. Analysts said the insurance write-down, while significant, was largely anticipated.

More important, it should help resolve disputes with insurers and expedite the emergence from bankruptcy protection of its KBR and DII Industries subsidiaries.

Halliburton intends to use insurance proceeds to offset the cost of settlements on hundreds of thousands of asbestos and silica personal-injury claims.

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The charges on the Brazil project come just three months after Halliburton recorded charges that it said would resolve its Barracuda-Caratinga woes once and for all.

“It’s pretty disappointing. Maybe they don’t have a handle on these things,” said Stifel Nicolaus & Co. energy services analyst Gary Russell. “This tells me maybe we should expect more charges.”

Halliburton also is involved in a dispute with the U.S. government over whether its KBR unit overcharged for work in Iraq and Afghanistan.

Analysts expect Halliburton to report earnings of 33 cents a share for the second quarter and $1.33 a share for the full year, excluding special items. Halliburton shares closed down 61 cents Tuesday at $29.88 on the New York Stock Exchange.

The news marks only the latest in a string of disappointments attributable to Barracuda-Caratinga.

In mid-2000, when Vice President Dick Cheney was Halliburton’s chief executive, Petrobras tapped KBR to help develop oil production platforms that would drill the Barracuda and Caratinga oil fields in deep waters off the coast of Brazil.

Halliburton’s woes largely stem from the fixed-price contract it signed with Petrobras. The energy services company has been forced to absorb the costs of delays and project changes. As part of its contract, it agreed to employ a Brazilian shipyard, analysts said.

Over the previous two years, Halliburton has recorded $355 million of charges related to the project. In April it absorbed an additional $62 million of costs, which was expected to settle its disputes with Petrobras.

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Halliburton said Tuesday that KBR, its engineering and construction arm, and Petrobras continued to negotiate an agreement to resolve contract issues.

The expected second-quarter charge assumes an agreement with Petrobras is reached, Halliburton said.


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