All eyes on Halliburton as contacts turn into contracts
Reconstruction work after Katrina is going to be costly - and highly lucrative. Oliver Morgan reports
Sunday September 11 2005
With the floodwaters still high in New Orleans last week, with 25,000 body bags on their way to the city, with the Gulf of Mexico oil industry crippled - 160 platforms and 16 rigs still evacuated, oil refineries shut down - there was one group of people who, nevertheless, could see some good coming out of the wreckage. Who? Halliburton shareholders.
The Houston-based company - once headed by vice-president Dick Cheney, who was dispatched by George Bush to survey the damage - has been a star performer on the markets since the storm hit the Gulf. Its shares have risen by more than 10 per cent to $65. It has out-performed the Dow Jones Industrial Average, which itself recovered last week.
Concerns in the US are mounting that Katrina could prompt a round of 'pork barrel' contracts - rewarding companies with strong links in the area such as Louisiana engineer Shaw Group - which last week won a federal rebuilding deal. Meanwhile firms known for their close links with the White House are winning work. California-based contractor Bechtel won work from the Federal Emergency Management Agency to provide short-term housing, in the form of 'trailer' accommodation, to the homeless.
But eyes will be most closely fixed on Halliburton.Other companies have attracted attention for potential work in the southern states - including some outside the US - Aggreko, the UK-owned supplier of generators, and Wolseley, the plumbing group, for example. But Halliburton has shone in the markets partly because it is expected to do well out of the catastrophe. It has outperformed competitors in servicing oil infrastructure and engineering and construction work, such as Schlumberger and Fluor (which has also won work).
According to experts, Katrina was almost the perfect storm for Halliburton. Estimates of the cost of rebuilding the city range as high as £100 billion (£54bn). On 2 September, Congress voted $10.5bn for emergency relief. Last week the White House asked for $50bn more. Poe Fratt, analyst at AG Edwards in St Louis, says: 'Oil field services groups will get work on repairing the infrastructure. Halliburton would expect to win contracts on refineries and production facilities.' Fratt estimates that some $1bn will initially be spent on oil infrastructure.
'Other oil service groups don't have any engineering or construction like Halliburton's KBR subsidiary, which will benefit from the broader picture,' says Fratt. 'And the construction companies don't have oil services.'
But these observations will be of secondary importance to US politicians and the growing industry of Halliburton watchers. Many expect that Halliburton will use its legendary lobbying power and close relationship with the White House, via Cheney and others, to win big. The shadow of the last big win - Iraq - is already looming. Last week Bush was criticised for underspending on flood defences in New Orleans because of overspending in Iraq - and Iraq has made Halliburton an enormous amount of money.
Before war was even declared over, Halliburton was awarded, a non competitive contract to put out oil well-head fires. Along with this, it had a long-standing rolling cost-plus deal to supply the army with support from food to accommodation, known as LogCap. The oil contracts were extended to fuel supply. Halliburton reported making $10.7bn from Iraq work in 2004-05.
But there was controversy, not only because of how Halliburton won the contracts, but that it overcharged the army for food and inflated the price of fuel it bought in from Kuwait. Leading the barrage of criticism heaped on the company critics was Democrat representative Henry Waxman, a member of the Congressional Committee on government reform, who last week wrote a 17-page letter savaging the federal response.
Waxman's staff say it is too early in the reconstruction effort to decide if there has been any impropriety, but they confirm the committee will be keeping a very close eye on it.
There are differences from Iraq. For example, KBR, the subsidiary that did much work there, is now up for sale. As Fratt says: 'If they win a lot of work, it will help the price they finally get for it.'
The oil contracts will mostly be competitively tendered for by private companies owning the assets in the Gulf of Mexico. For non-oil contracts, instead of a single, shambolic agency, the Coalition Provisional Authority, acting as a central administrative point, there is likely to be a plethora of overlapping federal, state and local buyers.
According to Fema, which has born the brunt of criticism for the response, there are about 30 agencies currently involved. 'They are likely to be streamlined,' said a Fema spokesman. So far, the lack of clarity has been exacerbated by squabbling between the White House, the state government, and the New Orleans city authorities.
Will Halliburton benefit from such confusion? To date, there has been little major reconstruction work done while Fema has concentrated supplying water, ice, food and shelter.
Last week helicopters dropped sand bags and containers on the breached levees that allowed the city to be flooded. The work was overseen by the US Army Corps of Engineers (ACE), and carried out by local contractors Boh Brothers and CR Bittman. ACE is also in charge of contracts for removing storm debris. In Louisiana and Mississippi, this will be carried out by US contractor Ashbritt, and in Alabama by another, Phillips and Jordan.
ACE was the agency that offered Iraqi contracts. Earlier this year a ACE whistleblower, Bunnatine Greenhouse, criticised the contracts between Washington and Halliburton, saying the relationship between the company and ACE, was too close. She pointed to a revolving door, through which army employees moved over to Halliburton. And she called the oil contract 'the most blatant improper contract abuse I have witnessed in the course of my career'.
It is unclear how much work will be handled by ACE and how much will be done through the LogCap contract. In either case, Halliburton is highly likely to be a beneficiary. Charlie Cray, an advisor to Halliburtonwatch.org, a website that details the company's contracts in Iraq, says: 'If they have the relevant experience, they are well placed, because they certainly have the inside track.'
Halliburton also has strong connections with Fema. Joe Allbaugh, formerly chief of staff to Bush when he was governor of Texas and manager of the Bush-Cheney campaign in 2000, was appointed a director of Fema in 2001. According to Senate records, Allbaugh's Washington-based lobbying company, registered KBR as a client in March. Cray says: 'He is very close to Bush. This guy is the Karl Rove of contracting. It is unclear how much work will go through Fema, but having this guy lobbying for you is going to get all your calls answered.'
So far, the work Halliburton has done after Katrina has come from neither of these sources. The US Naval Facilities Engineering Command has awarded $17m of repair work at three naval stations in the region. This was part of a $500m contract with the Navy known as Concap - similar to LogCap - used for natural disaster recovery work.
According to Pratap Chatterjee of Washington-based CorpWatch: 'This is a large amount of work. It is under the ConCap, which is similar to LogCap. It shows Halliburton is in there already.' Chatterjee believes that whichever agencies end up running the reconstruction, the company will be able to take advantage.
Committees and watchdogs will be looking out for other key names. Some, such as Bechtel, the privately owned construction company that is close to Bush, are well known. Bechtel's work for Fema is not governed by a formal contract. There is a 'letter agreement', while Bechtel determines the scope of the work needed. In the meantime Fema is issuing instruction, or 'task orders', as the situation evolves. The value 'changes frequently' according the the comp[any. It could not say if these are cost plus agreements or not. According to Chatterjee, other, less recognisable, names are worth following for evidence of 'revolving door' syndrome. HNTB, an engineering company recently hired Lt-General Robert Flowers to head its federal services subsidiary - the part of the group that would bid for government work. 'If HNTB bids and wins, it will show that if you have the right connections, you get the work,' says Chatterjee.
But for the time being, as Chatterjee concedes, all eyes will be on Halliburton.
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