"This continues to be a difficult project and exemplifies why I announced a year ago that we would not be taking on any more fixed-price offshore contracts in which the risks exceed the potential rewards," Halliburton CEO David Lesar said in a conference call Thursday to discuss second quarter results.
The loss was mainly due to a charge as a result of higher cost estimates, schedule extensions, increased project contingencies and other factors, the report said. Since the start of the project, Halliburton has recorded a pre-tax loss of US$345mn, with outstanding claims totaling US$182mn. It is potentially liable for liquidated damages of US$266mn, CFO Christopher Gaut said.
Halliburton subsidiary KBR estimates the project is 75% complete. "The scheduled extensions have no impact on the percentage completion as this is calculated on the physical percentage completed," Gaut said. KBR expects its Floating Production Storage and Offloading vessel - FPSO Barracuda - to arrive in Brazil in late September, he added.
The project has been heavily delayed. Halliburton and KBR dispute responsibility with the client, Brazil's federal energy company Petrobras. The three companies signed a non-binding heads of agreement (HOA) in June, aiming to resolve a number of issues.
Halliburton's Latin American operating income rose 13.2% to US$43mn in 2Q03 from the same period last year, the company reported in its second quarter results. Latin American revenue increased 1.8% from 2Q02 to US$226mn in the 2Q03 and 24% from 1Q03 "as we're finally seeing some improvement in Venezuela due to an increase in [state oil company] PDVSA's activity, as well as significantly higher activity in Mexico," Gaut said. "Mexico was a star this quarter, as revenues increased 48% sequentially for us," he said, adding increased profitability in Mexico and Venezuela helped the company's overall Latin American profit margin to rise 6%. Company-wide, 2Q03 net income was US$26mn, or US$0.06 per diluted share.
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