Halliburton

Type: Public
Founded: 1919, Dallas, Texas, U.S. by Erle Halliburton
Headquarters: Houston, Texas and Dubai, UAE CEO
Key people: David J. Lesar Chairman, President, and CEO
Industry:Oil well Services & Equipment
Products: Technical services to the petroleum industry; Construction
Website: www.halliburton.com

General Information

Halliburton Energy Services (NYSE: HAL) is an United States based multinational corporation with operations in over 120 countries. It has been at the forefront of several media and political controversies in relation to its work for the U.S. Government, its political ties, and its corporate ethics.

It is based in Houston, Texas in the United States. Halliburton opened its new headquarters in Dubai, in the United Arab Emirates, in March of 2007, where Chairman and CEO David J. Lesar will work and reside, to 'to Focus Company’s Eastern Hemisphere Growth'. Corporate offices will remain in Houston and the company will remain incorporated in the United States. The company will consider Houston and Dubai as dual headquarters.

Halliburton major business segment is the the Energy Services Group (ESG). ESG provides technical products and services for oil and gas exploration and production.

Halliburton's former subsidiary, KBR, is a major construction company of refineries, oil fields, pipelines, and chemical plants. Halliburton announced on April 5, 2007 that it had finally broken ties with KBR, which has been its contracting, engineering and construction unit as a part of the company for 44 years.

Business Model

Energy Services, the company's historical cornerstone, includes drilling & formation evaluation, digital & consulting solutions, production volume optimization, and fluid systems. This business continues to be profitable, and the company is one of the world's largest players in this industry; Schlumberger is the world's leading provider of oilfield services.

With the acquisition of Dresser Industries in 1998, the Kellogg-Brown & Root division (in 2002 renamed to KBR) was formed by merging Halliburton's Brown & Root (acquired 1962) subsidiary and the M.W. Kellogg division of Dresser (which Dresser had merged with in 1988). KBR is a major international construction company, which is a highly volatile undertaking subject to wild fluctuations in revenue and profit. Asbestos-related litigation from the Kellogg acquisition caused the company to book over US$4.0 billion in losses from 2002 through 2004.

As a result of the asbestos-related costs, Halliburton lost approximately $900 million U.S. a year from 2002 through 2004. A final non-appealable settlement in the asbestos case was reached in January 2005 which allowed Halliburton subsidiary KBR to exit Chapter 11 bankruptcy and returned the company to quarterly profitability. So, while Halliburton's revenues have increased because of war in the Middle East, its bottom line continues to suffer.

At a meeting for investors and analysts in August 2004, a plan was outlined to divest the KBR division through a possible sale, spin-off or initial public offering. Analysts at Deutsche Bank value KBR at up to $2.15 billion, while others believe it could be worth closer to $3 billion by 2005. KBR became a separately listed company on 5 April 2007.

Financial

The company's contracts in Iraq are expected to have generated more than $13 billion in revenue by the time they start to expire in 2006, but most offer low margins — less than 2% on average in 2003 and just 1.4% this year for the logistics work making these contracts less profitable than Halliburton's core energy business. The contracts in Iraq will be more profitable after the US Army reimburses them for costs that were originally investigated as potentially inflated. Meanwhile, KBR reconstruction contracts in Iraq 'tracked' by the US Department of Defense were shown to include as much as 55% of total project costs as overhead.

KBR has contracts in Iraq worth up to $18 billion, including a single no-bid contract known as 'Restore Iraqi Oil' (RIO) which has an estimated worth of $7 billion.

An audit of KBR by The Pentagon’s Defense Contract Audit Agency (DCAA) found $108 million in 'questioned costs' and, as of mid-March 2005, said they still had 'major' unresolved issues with Halliburton.