Company News - Halliburton issues payment for alleged overbilling

Halliburton Co. reported Jan. 23 the issuance of a $6.3 million payment to its customer, Army Materiel Command, to cover "the potential overbilling charges" made by a Kuwaiti subcontractor on one of the company's contracts to restore war-torn Iraq's oil infrastructure.

"We will bear the cost of the overcharge—not the government," said Halliburton unit KBR Pres. and CEO Randy Harl in a statement released Jan. 23.

In other recent upstream news:

• China National Petroleum Corp. subsidiary Sapet Development Corp. agreed to buy 45% of Argentina's Pluspetrol SA's oil reserves and production in Blocks 1AB and 8 in Peru's northern jungle for $200 million.
• Range Resources Corp., Fort Worth, acquired oil and gas properties for $85 million. The properties are adjacent Range's Conger field properties in Sterling County, Tex.
• Fort Worth-based Quicksilver Resources Inc. reported the acquisition of a 50% working interest in 76,800 acres of mineral rights, 10.5 net wells, 550 Mcfd of net natural gas production, and 5 bcf of net proved gas reserves in central Alberta. The assets were purchased for $54 million.
• Houston-based Oceaneering International Inc. has finalized its $45 million acquisition of 50% ownership in Medusa Spar LLC, which holds 75% undivided ownership in the Medusa truss spar production platform (see illustration, p. 35).
• Affiliates of Kerr-McGee Corp. agreed to acquire rights in leases in the North Slope basin of Alaska and in the Campos basin off Brazil. Terms of the leases were not disclosed.

Meanwhile, in recent midstream and downstream news:

• Plains All American Pipeline LP, Houston, reported that its subsidiary, Plains Marketing Canada LP, is acquiring the South Saskatchewan Pipeline System (SSPS) from South Saskatchewan Pipe Line Co. for about $47 million.
• El Paso Corp., Houston, announced that FPL Group Inc., Juno Beach, Fla., acquired an option to purchase rights to an LNG terminal in the Bahamas and a related pipeline to transport natural gas from the terminal to Florida.
• Holly Corp., Dallas, announced that the trial in the pending litigation between itself and Frontier Oil Corp. has been rescheduled to begin on Feb. 23 in the Delaware Chancery Court.
• Sunoco Inc., Philadelphia, has finalized its purchase of the Eagle Point refinery from El Paso Corp., Houston, for $111 million plus $138 million for inventories.

Halliburton woes

Halliburton is grappling with fresh criticism in Washington, DC, after its reported disclosure last month to the Pentagon that two employees, now terminated, had taken kickbacks totaling as much as $6 million in return for awarding a Kuwaiti-based company with work supplying US troops in Iraq. There were no further details available about the accused employees, Halliburton said.

Speaking on the Senate floor earlier Jan. 23, Senate Democratic Leader Tom Daschle (D-SD) called attention to a front-page story in that day's Wall Street Journal, which was one of the first to break the kickback story.

"These charges in this new report are terribly disturbing," Daschle noted. "Ubecause there have already been serious concerns raised about the lack of scrutiny, auditing, and transparency with regard to the billions of dollars that are now being committed in Iraq." Daschle added that the Defense Contract Audit Agency "has now been charged not only with taking responsibility for an audit, but they have also begun consideration of a criminal investigation.

"Clearly, if there is the possibility of a kickback, a criminal investigation is certainly warranted," he said.

"I do not think we have any choice but to investigate this matter ourselves, to ask the appropriate committees, perhaps Government Affairs, Armed Services, Foreign Relations, to look into these issues, to ask the tough questions, and to have a somber appreciation ourselves of what is going on, why is it that we are reading for the first time reports of kickbacks when we have taken so little effort to understand the magnitude of the problem, the depth and scope of the issues that these allegations represent," Daschle recommended.

Daschle called for a halt in all further contracts with Halliburton until the issues were clarified. "For the life of me, I cannot understand why we would reward corporations or organizations of any kind that face such serious allegations of fraud and corruption, that are under investigation for perhaps overpricing the American taxpayer by $61 million, at least with regard to the gasoline sold. Why we would award one more contract until these matters have been resolved?" he asked.

"Lack of transparency above and beyond anything else will generate stories and situations like this over and over again," he said. "When the American people hear that much of that money may now be under a cloud, it is all the more imperative that we act to remove that cloud, to provide the confidence, the transparency, the oversight, and certainly the corrective actions required."

Halliburton's response

Daschle's response seemed to reach an "uninformed conclusion," Halliburton spokeswoman Wendy Hall told OGJ.

"We've been saying all along we think political influence is best kept out of the contracting process," she said. "We understand it is an election year, and the war will be an important part of that election. But worrying about election coverage doesn't repair oil wells or feed soldiers. That is our job, and that is what we are concerned about."

Hall added, "Regardless of the party in power, Halliburton has been there. We have 60 years' experience in assisting soldiers while they protect people."

Halliburton credits "strong internal detective work" in the discovery of the possible overcharges. "We have diligent internal controls and a strong corporate code of business conduct," Hall said. "We have a fiduciary responsibility to our clients to carefully monitor every transaction. I am extremely proud of the work the auditors did in this particular case."

Halliburton said it employs 54 auditors, who audit financial aspects of the company operations continually. In addition, it employs 300 warranted procurement specialists supporting its government business.

"There are many checkpoints within the system," said Hall. "Our people operate like forensic auditors. If there is a problem with an invoice, a contract, or an agreement, they will find it. In this case, once they found the problem, an internal investigation started immediately."

When asked whether the latest development would place any existing awarded contracts in jeopardy, Hall said, "The key issue here is self-disclosure and self-reporting. Halliburton internal auditors found the irregularity, which is a violation of our company's philosophy, policy, and our code of ethics. We found it quickly, and we immediately reported it to the Inspector General. We do not tolerate this kind of behavior by anyone at any level in any Halliburton company."

Halliburton said that for more than 60 years it has a record of service to the defense to the US. "We built war ships for the Navy in World War II, and we have supported troops in Somalia, Rwanda, Haiti, the Balkans, and Afghanistan. In the first Gulf War, we helped bring under control half the [wild] oil wells in Kuwait," it said.

CNPC acquires Peru acreage

Pluspetrol will continue to operate the blocks. Last year, Block 1AB averaged 36,197 b/d of crude oil, and Block 8 averaged 21,381 b/d. Peru's overall 2003 crude oil production averaged 91,350 b/d.