Halliburton Reaches Deal with Petrobras on Deepwater Project

Halliburton's KBR subsidiary has reached an agreement in principle with Petrobras that will resolve outstanding issues regarding the Barracuda-Caratinga project. The agreement in principle, which is also subject to project lender approval and final agreement, will settle outstanding claims and extend project deadlines.

Halliburton also announced that it will take additional operating losses on its Barracuda-Caratinga project in the first quarter of 2004 of approximately $62 million or $0.14 per share after tax. The additional charges follow a thorough review of the project indicating higher cost estimates, schedule extensions and other factors.

"The agreement in principle with Petrobras, if consummated, would significantly reduce remaining risks associated with this project, provide resolution to our claims and reduce the potential for significant late-delivery penalties," said Randy Harl, president and chief executive officer of KBR.

If the parties are unable to reach final agreement, then Halliburton will pursue arbitration of its claim. Although this would be a long process, the company believes there is strong support for the claim. In the absence of an agreement with Petrobras, the company would also evaluate whether the increased costs accrued in the first quarter of 2004 would increase its claim.

The agreement in principle, if completed, would amend the existing agreements and release both parties from all existing claims including the pending arbitration proceedings in New York. Further, the agreement would resolve KBR's disputed claims and reduce KBR's scope of work to be performed after the two vessels sail-away which is now scheduled for August 1, 2004 for Barracuda and for September 28, 2004 for Caratinga. Contract liquidated damages would be replaced and based on the new terms and schedule under the new agreement.