The higher cost estimates and schedule delays are primarily attributed to a significant reduction in shipyard subcontractor productivity in completing the projects in Brazil. In addition, the integration of equipment modules onto the vessels has identified the need for some rework. The productivity decline and the vessel rework, now factored into the future projections, adversely impacts total costs and extends the completion schedule into periods when liquidated damages would be incurred.
KBR and Petrobras are continuing to work towards finalizing the previously announced agreement in principle that would resolve certain contract issues and amend existing agreements regarding the Barracuda-Caratinga project. In determining the amount of the charge described above, the company has assumed that the agreement with Petrobras will be successfully finalized.
The company also announced that under the terms of the previously announced insurance settlements, Halliburton expects to receive cash proceeds with a present value of approximately $1.4 billion for the asbestos and silica related insurance receivables. As a result, the company will reduce the amount recorded as insurance receivables and take a charge from discontinued operations in the second quarter of 2004 of approximately $615 million or $1.40 per share after tax.
The amounts and terms of these agreements with insurance carriers are in the process of being finalized by definitive agreements.
"The Barracuda-Caratinga charge was not anticipated and is disappointing," said Dave Lesar, chairman, president and chief executive officer of Halliburton. "Given the slip in schedule, we are placing more resources on the project to complete it as soon as we can under the difficult circumstances. I am pleased with the progress made on the agreements with insurance carriers. These insurance settlements, if consummated, will resolve disputes between us and our carriers, forestall further appeals, and allow the bankruptcy proceedings to be completed expeditiously. Despite these charges, we are getting closer to having both our asbestos liability and the Barracuda- Caratinga project behind us."
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