The oil services conglomerate Halliburton Co. will wind down its operations in Iran and seek to separate its engineering and construction subsidiary KBR from the parent, chairman and CEO Dave Lesar said Friday.
Lesar made the disclosures Friday to analysts in a conference call after the company disclosed its fourth-quarter loss narrowed to $201 million from a loss of $947 million in the same period a year ago.
Halliburton does business in Iran through a foreign-owned subsidiary, which is allowed as long as Americans don't participate in or direct that business. But a federal grand jury is investigating whether the Houston-based company or its executives deliberately violated a U.S. ban on trade with Iran.
Lesar said services the company provides in Iran aren't illegal, but they are "miniscule" in comparison with the company's other work and that Iran's business environment "is not conducive to our overall strategies and objectives."
"We have decided to wind down our operations there while fulfilling our existing contracts and commitments," Lesar said on the conference call.
Shares fell $1.76, or 4 percent, to $41.75 in afternoon trading Friday on the New York Stock Exchange - at the high end of their 52-week range of $26.45 to $43.58.
Lesar told analysts Halliburton will return to Iran if U.S. sanctions are lifted in the future and more of its major customers go there.
"It's not a huge market for them," Dan Pickering, an analyst with Pickering Energy Partners, said of the Iran pullout. "Halliburton's probably getting tired of being a punching bag on various issues and Iran was one that they could eliminate and are doing so."
Halliburton said in September the company would consider selling or spinning off KBR once its multibillion-dollar settlement of thousands of asbestos and silica claims was finalized. Lesar said Friday he would recommend to Halliburton's board that KBR be separated, but didn't say how or when.
KBR is the largest U.S. contractor in Iraq, with more than $10 billion in work orders from the Army to provide troop support and rebuild Iraq's oil industry. Various agencies are investigating allegations of overbilling and favoritism because Vice President Dick Cheney ran Halliburton from 1995-2000, but the company denies wrongdoing, calling itself a political target.
To maximize shareholder value and select the right kind of deal, "it may be necessary to establish a track record of solid earnings for several quarters and resolve government investigations and disputes, and to work out price, terms and structure," Lesar said.
The wrap-up of the asbestos and silica settlement led to the smaller fourth-quarter loss, though results fell short of Wall Street expectations.
Halliburton's fourth-quarter net loss amounted to 45 cents per share, included a $384 million loss, or 86 cents per share, which is a non-cash expense reflecting the increase in value of 59.5 million Halliburton shares involved in the settlement. In the fourth quarter of 2003, Halliburton posted a net loss of $2.18 per share which included a $1.1 billion charge related to the asbestos settlement.
Excluding the charge, Halliburton reported income from continuing operations of $183 million, or 41 cents per share, compared to $146 million, or 34 cents per share, in the fourth quarter of 2003.
Analysts surveyed by Thomson First Call had expected earnings of 48 cents per share.
Pickering called the results "slightly disappointing," noting a sale or spinoff of KBR would turn Halliburton into "a pure oilfield service company, which in the minds of investors is probably more valuable."
This week Halliburton began distributing $2.775 billion in cash to thousands of people who claim to have been harmed by asbestos and silica, and the 59.5 million shares, issued last week, have been placed in a trust to be sold over time. Together, along with notes with a net present value expected to be less than $100 million, the payouts will settle all current and future asbestos and silica claims. As the shares are sold, the proceeds forwarded to claimants will be the value of shares as of the day of sale.
Halliburton inherited the claims when the company acquired Dresser Industries Inc. for $7.7 billion in 1998, during Cheney's tenure as CEO.
Halliburton's revenues for the quarter reached $5.2 billion, down 5 percent from $5.46 billion a year ago because of KBR's reduced government contract work primarily in the Middle East.
For the year, Halliburton reported a net loss of $977 million, or $2.21 per share, compared to a net loss of $820 million, or $1.88 per share, for 2003. Revenues for 2004 were $20.46 billion, compared to $16.27 billion in 2003.
KBR reported fourth-quarter revenue of $3 billion, a 17 percent decrease from $3.66 billion in the year-ago period. The company said $1.7 billion of KBR's revenues stemmed from Iraq-related work.
KBR operating income for the quarter was breakeven, compared to operating income of $82 million in the year-ago period. Halliburton said those results reflected a $22 million restructuring charge. Operating income from KBR's Iraq work also dropped by $20 million year-over-year because the company completed its Restore Iraqi Oil, or RIO, contract, Halliburton said.
The company's energy services group reported fourth-quarter revenues of $2.2 billion, a 21 percent increase over $1.8 billion in the October-December period of 2003. The unit also reported a 54 jump in operating income, $370 million in the fourth quarter compared to $241 million in the same period last year.