Webdiary - Founded and Inspired by Margo Kingston

Every time such an infrastructure story appears I again wonder why Halliburton put its Global Infrastructure Headquarters into Adelaide. There's little doubt now that the details of Iraq invasion oilfied activities would have been sliding over desks on Greenhill Road long before Australian troops set foot on Iraqi soil.

One of my heroes, Jason Leopold, is a former Los Angeles bureau chief of Dow Jones Newswires. He has worked for the Los Angeles Times and has been a frequent guest on CNBC; his articles have appeared in The Nation, The Wall Street Journal, and The Financial Times. His book News Junkie made the Los Angeles Times bestseller list. This piece, first published on The Public Record over the weekend, is reprinted on Webdiary with Jason's permission.

Halliburton's secret deal for Iraq's Oil

by Jason Leopold

Four months before the United States invaded Iraq, the Department of Defense was secretly working with Vice Pesident Dick Cheney's old company, Halliburton Corp. on a secret deal that would give the world's second largest oil services company total control over Iraq's oil fields, according to interviews with Halliburton's most senior executives.

Previously undisclosed Halliburton documents obtained by The Public Record confirm that controlling the world's second largest oil reserves was a top priority for the Bush administration. Additionally, the deal between the Department of Defense and Halliburton unit Kellogg, Brown & Root to operate Iraq's oil industry saved Halliburton from imminent bankruptcy.

In October of 2002, Halliburton was saddled with a multibillion-dollar asbestos liability as well as a serious slowdown in domestic oil production. The company’s stock plummeted on the news falling to a low of $12.62 in October 2002 from a high of $22 the year before.

A month later, in November 2002, Halliburton’s financial troubles seemingly disappeared. At the urging of unnamed officials in the Office of the Vice President, according to the documents, the Department of Defense recommended The Army Corps of Engineers award a contract to Kellogg, Brown & Root to extinguish Iraqi oil well fires in addition to "assessing the condition of oil-related infrastructure; cleaning up oil spills or other environmental damage at oil facilities; engineering design and repair or reconstruction of damaged infrastructure; assisting in making facilities operational; distribution of petroleum products; and assisting the Iraqis in resuming Iraqi oil company operations."

That was a deal hatched five months before the start of the Iraq war, when the Bush administration said publicly that it had not been working on war plans.

"The fact that the Department was planning for the possibility that it would need to repair and provide for continuity of operations of the Iraqi oil infrastructure was classified until March 2003," the Army Corps of Engineers said on its web site. "This prevented earlier acknowledgement or announcement of potential requirements to the business community."

Halliburton spun off KBR into a separate company last year. The Army Corps of Engineers has declassified portions of some documents related to its deal with Kellogg, Brown & Root.

"The U.S. considered such contingency planning necessary because of Saddam Hussein's actions in Kuwait in 1991, when Iraqi forces damaged 750 wells," states documents released by the Army Corps of Engineers. "That destruction resulted in an environmental disaster as well as a tremendous blow to Kuwait's oil production capability. The U.S. had grounds to believe Saddam was planning to destroy Iraq's own oil infrastructure in the event of hostilities. Such destruction, especially if it extended beyond oil wells to pipelines, pumping stations, or other elements of the infrastructure, could have drastically reduced the Iraqi oil industry's capability to produce income on which the Iraqi people depend. Destruction of the oil fields would result in potential loss of $20 to $30 billion a year in oil revenues for Iraq, as well as an estimated cost of between $30 and $40 billion to recreate the infrastructure.

When news of the deal surfaced five years ago, the Army Corps of Engineers was criticized by Washington lawmakers for awarding the no-bid contract to Brown & Root because of the company's strong ties to Cheney. The Army Corps of Engineers told lawmakers that Kellogg, Brown & Root would do nothing more than extinguish oil well fires. Brown & Root was chosen, according to the Army Corps of Engineers, because the company could be "deployed" on short notice.

However, according to a report in the magazine Fortune, Halliburton employees were working out of a hotel room in Kuwait City as far back as November 2002 assessing Iraq's oil infrastructure and mapping out plans for operating Iraq's oil industry.

"From behind the obsidian mirrors of his wraparound sunglasses, Ray Rodon surveys the vast desert landscape of southern Iraq's Rumailah oilfield. A project manager with Halliburton's engineering and construction division, Kellogg Brown & Root, Rodon has spent months preparing for the daunting task of repairing Iraq's oil industry. Working first at headquarters in Houston and then out of a hotel room in Kuwait City, he has studied the intricacies of the Iraqi national oil company, even reviewing the firm's organizational charts so that Halliburton and the Army can ascertain which Iraqis are reliable technocrats and which are Saddam loyalists," states the April 2003 report published in Fortune.

"Rodon represents the vanguard of what is expected to be a growing army of Halliburton employees in Iraq, where the U.S. is preparing to embark on the grandest exercise in nation building since its occupation of Japan after World War II. At the center of that undertaking will be U.S. companies, with Halliburton probably chief among them," Fortune reported. "Indeed, Texans wearing KBR baseball caps are arriving by the planeload at Kuwait's airport. Some will support the military directly--KBR employees already handle the meal service, laundry, and garbage pickup for several military camps in Kuwait and will do the same as U.S. units establish bases in Iraq. But after the war most hope to be involved in the multibillion-dollar task of rebuilding Iraq: its roads, electrical grid, water supply, ports, airports, and, most important, oil facilities.

"The liberation of Iraq couldn't come at a better time for Halliburton, whose business has been dogged by a host of troubles--from a slowdown in domestic oil production to nightmare asbestos litigation. Last year revenues declined 6%, to $12.6 billion, and the company reported a net loss of $984 million. But CEO Dave Lesar, who took over when his predecessor Dick Cheney went to Washington, is starting to put Halliburton's problems behind it. He has cut costs, sold unproductive assets, curtailed money-losing overseas operations, and devised a bold plan to settle asbestos-related lawsuits."

In a March 2003 news release, Halliburton said it first began working on a plan to repair Iraq's oil infrastructure at the request of the Defense Department.

"The DoD, through its US Army Logistics Civil Augmentation Program (LOGCAP) III contract with KBR, tapped the company in November 2002 to develop the contingency plan. Implementation of the plan is being executed through a separate contract [Kellogg, Brown & Root] now holds with the US Army Corps of Engineers," the news release says.

Perhaps what has been troubling about the lucrative contracts Halliburton has been awarded is the company’s history of overcharging the federal government by millions of dollars. On at least one occasion, overbilling took place while Cheney was chief executive of the company.

In 2002, KBR agreed to pay the U.S. government $2 million to settle allegations it defrauded the military during Cheney’s tenure. KBR was accused of inflating contract prices for maintenance and repairs at Fort Ord, a now-shuttered military installation near Monterey, Calif. The lawsuit, filed in Sacramento, alleged KBR submitted false claims and made false statements in connection with 224 delivery orders between April 1994 and September 1998. KBR and Halliburton has also paid out settlements to end investigations and lawsuits on half-a-dozen other occasions.

So how does the company continue to win such lucrative contracts with the federal government in spite of its shady record?

"KBR was selected for the [Iraq contract] based on the fact that KBR is the only contractor that could commence implementing the complex contingency plan on extremely short notice," Halliburton said in a March news release.

Army Corps of Engineers spokeswoman Carol Sanders said Iraqi people urgently needed cooking oil and gasoline as they began rebuilding their country. Given the need to boil water to prevent disease, it was not feasible to competitively bid the work. She rejected claims that Cheney’s role as Halliburton’s former chief executive in the 1990s had an impact on the contract.

"We made the contract broad enough so we could handle issues just like this," she said.