Thursday, August 14, 2003

Foreign and domestic companies yesterday bid on more than $1 billion in contracts to repair Iraq’s oil fields, though most of the work sponsored by the U.S. government likely will go to Houston-based Halliburton.

The Bush administration tasked the Army Corps of Engineers with putting out oil fires after major combat ended in the U.S.-led war, and later repairing oil fields damaged by years of neglect and ongoing sabotage.

Halliburton, which Vice President Dick Cheney once led, won the initial no-bid contract to extinguish oil-well fires through subsidiary Kellogg Brown & Root, which has worked closely with the Army to evaluate and repair oil fields.

The corps, which relies on private contractors to execute projects, last month laid out a three-phase plan totaling $1.14 billion to return Iraq to prewar oil production by the end of March. But the first phase will be complete and the second well under way when the newest contracts awarded in mid-October.

The first phase of contract work is the heftiest, valued at $716 million. It is scheduled for completion by Sept. 30. The second phase, valued at almost $251 million, should be completed by Dec. 31, and parts of it are up for grabs.

Phase three is the practical target for bidders. It is valued at $176 million, a small portion of the total oil award before the corps hands over contracting and repair responsibilities to the Iraqi Oil Ministry.

Despite the dwindling amount of contract work, companies are not complaining publicly and some see a chance to enter a potentially lucrative market.

The two, two-year contracts, one for northern and one for southern fields, have been put at between $500,000 and $500 million.

“That’s the big mystery: How much work will be in those contracts,” said Bob Faletti, a corps spokesman.

Companies bidding for the work are assuming it wall fall on the low end.

“The scope [of the contracts] has been reduced, but there is still some amount of work likely to be necessary between now and the time an Iraqi entity becomes responsible,” said Jerry Holloway, spokesman for Fluor, an Aliso Viejo, Calif.-based company that bid on the work with a British partner.

“And we know that the work being done under the corps is really just the beginning of a much longer process that will be necessary to modernize the Iraqi oil and gas infrastructure,” he added.

Parsons, an engineering firm with headquarters in Pasadena, Calif., partnered with an Australian firm to bid.

“Our team decided to go ahead and to bid given uncertainties and security issues. It would be a strategic win for our company,” said Erin Kuhlman, a Parsons spokeswoman.

Other firms felt differently.

The corps work plan is “effectively minimizing the scope of any new contracts. Given this plan, Bechtel has decided to focus our efforts on future opportunities with the [Iraqi Oil] Ministry,” the San Francisco-based company said in a statement.

Bechtel already has its foot in the door. The company won a contract from the U.S. Agency for International Development to repair electric, water and sewer systems, as well as some buildings and other public works.

The corps is not releasing the names or number of companies bidding, but some have publicized their interest in Iraq.

Halliburton spokeswoman Wendy Hall said KBR is evaluating the opportunity. “It is not known at this time how the future award of another Corps of Engineers contract will affect current KBR operations or the terms and conditions of its contract,” she said via e-mail.

As of Aug. 1, KBR had been paid about $640 million for operations in Iraq, and the firm helped write the corps’ work plan.

Iraq is home to the second-largest proven oil reserves in the world, after Saudi Arabia. But oil production was well below its potential before the March invasion, running at a little more than 2 million barrels per day.

War-related damage is not extensive, but the oil fields have been hit by looting and sabotage.

“Of particular note are the continued and continuing attacks on pipelines and the electrical grid which services production, refining, processing and distribution facilities. The attacks continue to lengthen the time required and increase cost to restore production capacity,” the corps said in its final work plan.

The country was not able to resume limited exports until June 21 and on Wednesday began pumping oil out of northern fields through Turkey.

The exports are the main source of funds for reconstruction. The U.S.-led Coalition Provisional Authority budget for 2003 plans on $3.45 billion from oil revenue, with total revenue from other sources estimated at $432.7 million.

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