Halliburton Swings to a Loss,
Names New CEO of KBR Unit

By RUSSELL GOLD
Staff Reporter of THE WALL STREET JOURNAL
July 23, 2004 12:07 p.m.

Halliburton Co. reported a second-quarter loss as revenue from its U.S. government contract work in Iraq began to ebb and the company recorded two hefty charges related to an offshore construction project and mounting costs for its asbestos-litigation fund.

The company also promoted Andrew Lane to chief executive of its troubled Kellogg, Brown & Root engineering and government contracting unit. The previous unit chief, Randy Harl, was promoted to KBR chairman, a position recently vacated when the company fired Albert J. "Jack" Stanley for receiving "improper personal benefits" in connection with a massive natural-gas complex in Nigeria.

The Houston energy-services and construction giant said revenue from U.S. government contracts in Iraq was $1.7 billion, well above a year ago, but below the last two quarters. And it is expected to continue to decline. The U.S. government has begun to re-bid work previously performed under Halliburton's contingency contract, with awards going to other companies.

Halliburton has spent $1.1 billion in Iraq that the government hasn't reimbursed yet, the company said, due to delays in providing expense details. This is slightly down from the $1.25 billion owed at the end of March and a "general decline" is expected through the end of the year, said chief financial officer C. Christopher Gaut. Still, company-wide receivables, or money owed to Halliburton by customers, was up 57.6% to $5.8 billion in the second quarter.

Overall, Halliburton reported a net loss of $663 million, or $1.51 per share, compared to a profit of $26 million, or six cents a share in the year-ago quarter. Revenue in the quarter was $5 billion, up 37.7% from $3.6 billion a year ago.

The period included $809 million in after-tax charges. The largest, $609 million, or $1.39 a share, was related to a payment made to increase the size of Halliburton's asbestos-litigation fund after the company was reimbursed less than it had expected from its liability insurance carriers, and had to make up the difference. It also recorded a $200 million charge related to the construction of an offshore-drilling platform for the Brazilian state oil company that is 18 months behind schedule and beset with numerous cost overruns.

Halliburton's oilfield service unit, its core business that provides the bulk of its operating income, grew as the company benefited from increased oil and natural gas exploration and better pricing power. But the company confronts a growing list of investigations into its global KBR operations.

Halliburton announced this week that it faces a Justice Department criminal probe of whether a subsidiary violated U.S. trade restrictions against Iran. Also this week, a congressional committee held hearings on KBR's military contracts. The Pentagon has a criminal investigation into whether the company fraudulently overbilled for fuel delivery into Iraq, and government auditors are scrutinizing excessive dining-hall charges.

In addition, the Justice Department and Securities and Exchange Commission are trying to determine whether as much as $180 million in payments related to a Nigerian natural-gas complex were legitimate business expenses or intended as bribes.

Halliburton chairman and chief executive Dave Lesar said the company continues to "be a political punching bag" due to its ties with Vice President Dick Cheney, a former Halliburton CEO.

Schlumberger Net Surges

Schlumberger Ltd.'s second-quarter net income more than tripled, helped by higher oilfield-service revenue and North American pricing.

The New York-based company said its net rose to $355.6 million, or 59 cents a share, from $112.1 million, or 19 cents a share. Revenue climbed 12% to $2.88 billion from $2.58 billion. Oilfield-services revenue increased 15% to $2.54 billion.

The company said activity remained strong across a wide range of markets and technologies. The company said it had continued growth in Russia and the Caspian region, as well as strong performance across Asia and the Middle East.

--Dow Jones Newswires contributed to this article.