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Inquiry Puts Halliburton in a Familiar Hot Seat


A version of this article appeared in print on October 29, 2010, on page A20 of the New York edition.

Halliburton is back in the spotlight, and once again, in an uncomfortable way.

In recent years, the giant energy services company has found itself under scrutiny over allegations that it performed shoddy, overpriced work for the United States military in Iraq, bribed Nigerian officials to win energy contracts and did brisk business with Iran at time when it faced sanctions.

On Thursday, a government investigation panel said that Halliburton might have played an important role in the April explosion of the Deepwater Horizon platform in the Gulf of Mexico by supplying cement that the company knew was unstable to BP, which used it to seal the well. Halliburton has repeatedly blamed BP, the owner of the well, of failing to test the cement and making other errors that led to the accident, which killed 11 people and spewed millions of barrels of crude oil into the gulf.

“Halliburton has a history of walking on the energy high beam without a net,” said Chris Ruppel, managing director of capital markets at Execution Noble, an international investment bank. “Because they have been very aggressive, working on very high-profile types of projects, when anything goes wrong, they will be front and center.”

The company, which was led by former Vice President Dick Cheney from 1995 to 2000, has drawn repeated fire for some of its past actions, mostly involving its Kellogg Brown & Root subsidiary, which it finished selling in 2007. Last year, for example, Halliburton and KBR agreed to pay $579 million to settle charges brought by the Justice Department and the Securities and Exchange Commission in connection with bribes that KBR had paid to top Nigerian officials over a decade. The companies still face criminal liability in Nigeria over the episode, which involved contracts to build a liquefied natural gas complex.

Several experts said on Thursday that the report by the staff of the commission investigating the accident could have legal and business consequences for Halliburton, which is based in Houston. Investors were certainly concerned, sending the company’s stock plunging 16 percent in the minutes after the report was released. The shares ended the day at $31.68, down 8 percent.

In a statement late Thursday, Halliburton said that it believed there were significant differences between its own tests and those performed by the commission.

“The commission tested off-the-shelf cement and additives, whereas Halliburton tested the unique blend of cement and additives that existed on the rig at the time Haliburton’s tests were conducted,” the company said.

In its report, investigators said that internal tests run by Halliburton found that the cement mixture it had developed for use at BP’s well, called Macondo, did not meet industry standards for stability. Halliburton had shared some but not all of the test results with BP, and the companies proceeded to use the faulty mixture.

The report did not conclude that the problems with the cement caused the disaster, but did say that they raised the likelihood that a blowout would occur.

Lawyers suing BP, Halliburton and other companies on behalf of workers killed or injured in the disaster seized on the report, arguing that it would expand Halliburton’s potential liability.

“The report makes clear for all to see that, by rushing the cement job, BP and Halliburton put their corporate profits ahead of worker safety,” Paul Sterbcow, a plaintiffs’ lawyer in New Orleans, said in a statement.

Cement failure is a frequent cause of deepwater oil well blowouts. And Halliburton, which is one of the world’s biggest producers of oilfield cements, also provided the material used in an offshore well near Australia that blew out last year.

Oil industry experts were split on the report’s business implications for Halliburton. “It’s going to make people take a second look for other options, other cement companies,” said Donald Van Nieuwenhuise, director of petroleum geoscience programs at the University of Houston.

But Robert MacKenzie, managing director for energy and natural resources research at FBR Capital Markets, had a different view, calling the stock market response an overreaction. “I don’t think a report written by nontechnical people is going to affect industry perception,” he said, adding that Halliburton “does billions of dollars of work every year, and one job doesn’t make a reputation among their customers.”

Indeed, Halliburton, a global company with $14.7 billion in revenue last year, has weathered a string of public controversies.

While KBR was still part of Halliburton, it came under intense scrutiny for large cost overruns and was accused of shoddy work in construction projects for United States military operations in Iraq. In 2003, the Halliburton subsidiary had received a multibillion-dollar, no-bid contract from the American government for work in the war-torn country.

In 2007, Congressional Democrats criticized Halliburton for moving the offices of its chief executive from Houston to Dubai, charging that it was an effort to lower its taxes. The company countered that the second headquarters allowed it better business opportunities.

That year, Halliburton also said that it was ending its business dealings in Iran. Under longstanding American sanctions, American companies are forbidden from conducting most business with Iran.

Lee Hunt, president of the International Association of Drilling Contractors, said harsh criticisms of Halliburton were based on “attitudes that harken back to the Cheney connection and the Bush years that make them convenient punching bags.”

“They are worldwide giants in what they do, and they are thoroughly reputable,” Mr. Hunt said. “They have a strong, proven record of quality work.”

But Representative Edward J. Markey, a Massachusetts Democrat, said the company resembled Zelig, the fictional Woody Allen film character who repeatedly turned up unexpectedly at events.

“Except Zelig was innocent,” Mr. Markey said. “Halliburton thinks cutting corners is good business.”


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