Halliburton Co., Dallas, said Thursday that it plans to split its oil field services business from its engineering and construction operations.
While discussing third quarter earnings, Halliburton said it was concerned about the poor near term market outlook for the downstream engineering and construction business.
It said a consolidating customer base, difficult relationships with certain customers, some financially stressed competitors, and a fiercely competitive environment are all factors influencing the reorganization.
But it said its upstream energy services businesses, especially in North America, remains very strong.
Halliburton said in the future, it would operate both the Halliburton Energy Services Group and the Engineering and Construction Group.
The Halliburton Energy Services Group will include Halliburton Energy Services, Landmark Graphics, large integrated projects that include both surface and sub-surface components, and several businesses that were formerly part of Brown & Root Energy Services�Halliburton Subsea, Wellstream, Production Services, Granherne, the Bredero-Shaw joint venture, and the EMC joint venture.
All engineering and construction activities will be consolidated under the Engineering and Construction Group. The upstream oil and gas engineering and construction, fabrication capabilities as well as the traditional engineering and construction business will be under Kellogg Brown & Root management. Individual brand identities will be maintained.
It said, "Current business conditions require us to focus on our core engineering and construction competencies of serving the energy, civil and government markets. Our goal is to deliver consistent, predictable, and profitable results. This will result in recording approximately $120 million after tax charges in the fourth quarter related to restructuring and charges on projects of the engineering and construction businesses. Both Brown & Root Energy Services and Kellogg Brown & Root are impacted by the charges and reorganization."
It said the portion of the charges related to reorganization costs is expected to be about $25 million after tax.
During the quarter, several large fixed fee engineering and construction projects, including two projects where Kellogg Brown & Root participates as a member of a construction joint venture, incurred significant additional costs related to projected completion of the projects.
It said much of the additional costs relate to labor disturbances in Venezuela and West Africa that have significantly affected productivity on the projects.
The company said its goal for the engineering and construction business is to earn a 3% margin in 2001 and a 3-5% margin in the longer term given the expected market conditions.
"We believe this new structure will allow us to meet that goal. Our total backlog at the end of November 2000 was $9.7 billion. Approximately $6.5 billion relates to the backlog in the new Engineering and Construction Group businesses, and we expect that backlog to be stronger at the end of 2001. We anticipate working off 60-65% of that level of backlog during 2001."
It said due to the ongoing strength of its upstream energy services businesses, fourth quarter 2000 earnings are expected to be 25-27�/diluted share, including discontinued operations.
Dave Lesar, Halliburton's chairman, president and CEO, said, "We are very disappointed that the high price oil and gas environment has not yet translated to increased spending by our customers on engineering and construction projects. The overwhelming majority of our projects are executed efficiently and profitably. We continue to identify ways to mitigate increased costs and aggressively negotiate claims resolution with our customers. This new structure will allow us to leverage our businesses more effectively as additional oil and gas engineering and construction project opportunities are planned by our customers.
"On a more positive note, we are very pleased with the continuing strong performance at Halliburton Energy Services, Landmark, and Dresser Equipment Group. Our efforts on selling the Dresser Equipment Group are proceeding with bids due this week. We plan to be in negotiations with leading bidders by early in January.''