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Halliburton job bigger than thought
Army says $7 B contract to repair Iraq's oil fields includes operations and oil distribution.
May 7, 2003: 3:12 PM EDT

WASHINGTON (CNN) - Halliburton Co.'s $7 billion contract, awarded without competition, to make emergency repairs to Iraq's oil infrastructure also gives it the power to run all phases of Iraq's oil industry, according to U.S. Rep. Henry Waxman, D-Calif.

Waxman said, based on a letter he received May 2 from the Army, that "the contract with Halliburton -- a company with close ties to the administration -- can include 'operation' of Iraqi oil fields and 'distribution' of Iraqi oil."

Officials previously had said the contract dealt only with putting out oil well fires and performing emergency repairs as needed.

"These new disclosures are significant, and they seem at odds with the [Bush] administration's repeated assurances that the Iraqi oil belongs to the Iraqi people," Waxman said in a May 6 letter to the Army.

Halliburton said these duties are not inconsistent with its previous statements that it was hired to "provide services for the continuity of operations of the Iraqi oil infrastructure."

"As directed by the US Army Corps of Engineers, KBR is assisting the Iraqi oil workers in the operation of their facilities," Halliburton spokeswoman Wendy Hall said. She deferred questions about the possible length of the contract to the Army.

The awarding of the contract in March prompted some lawmakers, along with watchdog groups, to question whether the administration's deep ties with Halliburton helped secure the contract.

"There don't seem to be any criteria [for picking the contractor], other than the close connections a company might have with the administration," said Charlie Cray, director of the corporate reform campaign at Citizen Works, a Washington watchdog group founded by Ralph Nader. "The fact that the contracts are secret enhances the appearance of handing out contracts to cronies."

The White House has denied any accusations of favoritism, and the Army said Halliburton was chosen because it won a competitive bid last year to prepare a contingency plan for shoring up Iraq's oil production after the war.

A Cheney spokeswoman denied the Vice President, who was CEO of Halliburton from 1995-2000, had anything to do with the contract.

Cheney sold all his Halliburton shares during the presidential election of 2000, and he has promised to give to charity any profit from Halliburton stock options he still owns. He still is paid a set amount by Halliburton every year, but he's guaranteed that money even if Halliburton goes bankrupt.

The Army has promised it will soon issue a new contract, subject to an open bidding process, for longer-term work in Iraq.

This opportunity for future work could be one reason why Halliburton's competitors, such as Schlumberger Ltd. (SLB: Research, Estimates), Baker Hughes Inc. (BHI: Research, Estimates), GlobalSantaFe Corp. (GSF: Research, Estimates), Nabors Industries Ltd. (NBR: Research, Estimates) and Weatherford International (WFT: Research, Estimates), have chosen not to join the chorus of critics accusing the Bush administration of favoritism.

"Because the companies haven't complained is not to say they are not well positioned," said Prabhas Panigrahi, director of research at Kevin Dann & Partners. "They will get involved later. To complain right now would sound like sour grapes."

Panigrahi and other analysts say there are many stages still to come in boosting Iraq's oil production back to its pre-war capacity of about 2 million barrels per day and to its potential capacity of more than 3 million bpd.

So, even if they're shut out of the work now, they still could have plenty to do in the months and years to come.

"We're still interested in any work that ends up being put out for bid," said Fluor Corp. (FLR: Research, Estimates), which also could be in line to work on Iraq's oil fields.

Schlumberger and Baker Hughes had no comment about the Halliburton contract or their potential roles in Iraq. The other companies mentioned in this article could not be reached for comment.

Waxman had written to Lt. Gen. Robert B. Flowers of the Army Corps of Engineers seeking answers as to why the contract, which could be worth up to $7 billion over two years, netting Halliburton a $490 million profit, "is apparently structured in such a way as to encourage the contractor to increase its costs and, consequently, the costs to the taxpayer."

Flowers responded that the sum was based on the "worst scenario" that a large proportion of Iraq's 1,500 wells would be set ablaze, and that there would be "massive intentional oil spills and pollution resulting from the fires." It turned out only a few oil wells were set ablaze during the war.

Flowers said "task orders are placed only for work that is required in the near term." He did not give an overall dollar amount on the contract.  Top of page

-- Additional reporting by CNN/Money Staff Writers Mark Gongloff and Andrew Stein

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