Halliburton wants to move past the election - East Valley Tribune: Business

Halliburton wants to move past the election

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Posted: Tuesday, October 12, 2004 7:06 am | Updated: 5:06 pm, Thu Oct 6, 2011.

On the presidential campaign trail, Democrat John Kerry scorns Halliburton Co. as the symbol of Bush administration cronyism and corporate greed.

Antiwar protesters wearing plastic pig snouts shout ‘‘Hoggyburton’’ and ‘‘Hallibacon’’ as they stalk Vice President Dick Cheney, Halliburton’s top executive from 1995 to 2000.

‘‘We are so inextricably linked into the campaign right now that the best thing we can do is just have November come and go,’’ Halliburton Chief Executive David Lesar lamented to sympathetic investors the other day.

As the Nov. 2 election approaches, years of controversy arising from business blunders, ties to Cheney and the war in Iraq are weighing heavily on Houston-based Halliburton.

Lesar contends politics are at the root of allegations of wrongdoing and other criticisms of Halliburton, a provider of energy, engineering and construction services. Most Wall Street analysts agree.

Federal investigators, angry shareholders and government oversight groups, however, say Halliburton is a victim of its own aggressive business tactics.

Fair or unfair, the harsh spotlight on Halliburton — and campaign rhetoric that has at times reduced the 85-year-old oilfield pioneer to a caricature — are legacies of Cheney’s high-profile tenure when the company was based in Dallas.

Although Halliburton executives speak fondly of their well-connected former chief executive officer, they are poised to take major steps to move the company beyond the Cheney era, including the possible sale or spinoff of its controversial governmentcontracting business.

Halliburton says it is close to settling thousands of asbestos claims for about $4.8 billion, which would eliminate a serious threat to the company’s future. Once the asbestos problem disappears, Halliburton has said, it will consider parting ways with its troubled KBR construction group.

The unit, formerly called Kellogg Brown & Root, is under investigation on accusations of overbilling the U.S. Army for meals and gasoline in Iraq. KBR’s no-bid contract to rehabilitate the Iraqi oil industry is another focal point of criticism.

On another front, Halliburton is attempting to settle a class-action securities fraud lawsuit stemming from the disclosure of an accounting change during Cheney’s tenure.

In all these disputes, Halliburton has denied wrongdoing. In a meeting with investors in late September, Lesar said his company was the casualty of a ‘‘vicious campaign’’ for the White House.

‘‘We clearly are the most scrutinized and high-profile company in corporate America today, no doubt about it,’’ Lesar said at a recent Lehman Bros. energy conference. ‘‘Maybe the most scrutinized company in the world. Today we’re defined by the media and by politicians one way, but I think the reality is quite different.’’

Some critics say Halliburton’s complaints of political persecution are disingenuous.

‘‘Blaming Halliburton’s problems on politics and not acknowledging the success that Halliburton has had because of politics is misleading,’’ said Dan Briody, author of ‘‘The Halliburton Agenda,’’ a book released in April. ‘‘Halliburton is reaping what they’ve sowed.’’

Whatever the reality, all the investigations, allegations, lawsuits and negative headlines are hurting the company’s stockholders: Halliburton shares, which closed Friday at $35.37, should be selling for nearly $40, some financial analysts say.

‘‘I think people are assuming there’s something out there,’’ said Michael Urban, who tracks Halliburton and its oilfield competitors for Deutsche Bank Securities. ‘‘People have lost sight of the good things that are going on in the oilfield business.’’

Halliburton was a global operator before Cheney arrived, but overnight he armed the company with toplevel access in the world’s oil capitals.

‘‘It’s not like Dick Cheney came in and said, ‘Here’s a nifty idea to revolutionize the interpretation of seismic data,’ ’’ said Allen Mesch, president of PetroStrategies Inc., a Plano, Texas, energy consulting firm. ‘‘He had contacts that would open doors for the company internationally.’’

Cheney also presided over changes in the company’s business practices, encouraged by the Arthur Andersen accounting firm and its philosophy of corporate ‘‘inventiveness.’’

In early 1998, with Andersen’s blessing, Halliburton quietly changed the way

it reported cost overruns on some of its big construction projects. Instead of waiting until a customer paid the disputed costs before claiming the revenue, Halliburton began reporting most of the cost overruns as pretax income.

The U.S. Securities and Exchange Commission recently concluded that Halliburton misled investors by waiting six quarters before it partially disclosed the change.

In August, Halliburton agreed to settle an SEC complaint by paying a $7.5 million fine without admitting guilt.

A class-action shareholder lawsuit against Halliburton stemming from the undisclosed change is pending in U.S. District Court in Dallas.

Cheney’s 1998 acquisition of Dallas-based Dresser Industries has also generated questions and controversy.

‘‘It’s hard to argue that the Dresser merger has created a lot of value,’’ said Urban, who has a ‘‘buy’’ recommendation on Halliburton stock. ‘‘It’s been pretty bad, actually.’’

Halliburton has struggled to overcome the costly asbestos claims it inherited from Dresser. And a Nigerian joint venture bequeathed by Dresser is the focus of ongoing bribery investigations in France, Nigeria and the United States.

As much as Cheney improved Halliburton’s position in government contracting, the company’s fortunes in that business have improved even more during the four years since President. Bush and Cheney won the 2000 election.

Company executives now describe Halliburton as the largest government logistics service provider in the world, with revenue from that work rising to more than $8 billion last year, up from $1.6 billion in 2001.

Among Halliburton’s billions of dollars in new contracts resulting from the Bush administration’s war on terror are awards to supply U.S. troops and build military bases in Afghanistan and Iraq and to construct detention cells at Guantanamo Bay in Cuba.

Those contracts, some awarded without competitive bidding, have prompted Democrats and government oversight groups to charge cronyism.

Lesar angrily rejects this criticism.

‘‘We get this work because we’re good at it,’’ he said at a recent investment conference.

Looking beyond the beating Halliburton is taking during the election campaign, Wall Street analysts are bullish.

Soaring oil prices and increased exploration work are allowing Halliburton to charge customers more for its equipment and services.

The lifting of U.S. economic sanctions on oil-rich Iraq and Libya offer the possibility of billions of dollars in new business.

‘‘The oilfield company is probably in as good a shape as it’s ever been,’’ said Urban.

In the near term, Halliburton is counting the days until the election.

‘‘Every one of the media consultants that we have talked to tell us that a lot of this issue will go away after the election, that the American public has a very short memory,’’ Lesar assured investors recently.

If the consultants are correct, ‘‘a year from now most people will not even know who Halliburton is,’’ said Lesar, ‘‘because we will disappear back in the corporate world.’’

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