Halliburton's KBR to continue southern Iraq oil reconstruction work

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Jan. 19 -- Halliburton Co. subsidiary KBR will be continuing its work to restore Iraq oil infrastructure, but only in the southern part of the country under a new US Army Corps of Engineers contract awarded Friday.

USACE announced two new competitively bid contracts to replace KBR's controversial existing sole-source contract, in place since March 2003 (OGJ, Nov. 10, 2003, p. 30). US officials estimate the original KBR contract has netted the company about $2.3 billion to date.

Both new contracts are for 24 months with three 1-year options. Under the new award, KBR will continue to do oil reconstruction work in southern Iraq. In the north, a joint venture between Parsons Corp., Pasadena, Calif., and Australia-based Worley Group will take over from KBR within 2 months.

The two new contracts each have a minimum value of $500,000 but, as amended, the contract could reach as much as $800 million for the northern oil fields and $1.2 billion in the south, which includes Baghdad. The two contracts have no geographical overlap. Under the contracts, the contractor is guaranteed a 2% fee but can earn as much as a 7% profit margin, depending on performance.

USACE said it plans to continue assisting Iraq's oil sector until prewar production is maintained, with a goal of reaching 3 million b/d by January 2005. Coalition Provision Authority officials in Baghdad say it may cost as much as $16 billion to fully modernize the country's oil industry. Iraq's oil fields and refineries fell into disrepair following the 1990-91 Gulf War because of international sanctions.

The new contracts will cover a full range of services, USACE said. These include, but are not limited to, extinguishing oil well fires; environmental assessments and cleanup at oil sites; oil infrastructure condition assessments; engineering design and construction necessary to restore the infrastructure to a safe operating condition; oil field, pipeline, and refinery maintenance; technical assistance in marketing, sales, and export; and technical assistance and consulting services to the Iraqi oil companies.

USACE said that the contracts also include buying, importing, and distributing fuel products. But in the near future USACE will no longer oversee that task; it is being transferred to the Defense Energy Support Center. US lawmakers have criticized KBR's fuel costs under USACE's original sole-source contract, calling them excessive. KBR has denied wrongdoing, and USACE continues to allow KBR to use Kuwaiti supplier Altanmia Commercial Marketing Co.

DESC this month plans to issue its own bid for fuel suppliers; a separate unrestricted bid went out Jan. 16 for a contractor to manage those fuel suppliers; bids are due Feb. 17. The management contract terms will be from Apr. 1 through Sept. 30, with six 1-month extensions possible, according to DESC.

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