New KBR Chief Envisions A New Path For Company

Team Infidel

Forum Spin Doctor
Houston Chronicle
April 23, 2007
CEO says despite criticisms, company is ready to emerge from Halliburton's shadow
By Brett Clanton, Houston Chronicle
William Utt is the first to admit he has a big job ahead of him.
As chief executive of KBR, the former unit of Halliburton Co., he must not only prove the engineering and construction firm and largest U.S. contractor Iraq can stand on its own, despite years of inconsistent financial results, but answer for problems that followed it out Halliburton's door.
Those include everything from nagging questions about overbilling for military support work in Iraq to ballooning costs at a project in Nigeria that could cut into profits during its first year as a stand-alone company.
Through the noise, Utt wants to plot a new course for KBR, honoring its more than 100-year history while moving the company forward — and out of Halliburton's shadow.
"We look fondly back to have been a part of them, but we're actually more excited about the future as a stand-alone company," said Utt.
In his first interview since KBR split from Halliburton two weeks ago, Utt shared plans for growing the company and talked about its dealings in Iraq and ideas for raising the firm's profile.
Utt, 50, was named KBR's chief executive in March 2006. A 20-year veteran of the energy industry, he had last been CEO of Suez Energy North America, a complex business that included energy trading, power generation and natural gas.
Until this month, however, his main job had been to shepherd KBR through what he called a "complex and very draining" separation from Halliburton. The process began in November when Halliburton held an initial public offering for a portion of KBR shares and ended April 5 when Halliburton disposed of its remaining 81 percent stake in KBR through a stock exchange offer with its shareholders.
From his office in downtown Houston, Utt said though KBR employees had mixed emotions about the split, everyone is glad to have it behind them.
"An audible sigh of relief could be heard on this floor, just saying that part is over."
But that moment of calm passed quickly.
Since the separation, analysts have been speculating KBR's first quarterly financial report on May 4 could be messy because of cost overruns at a gas-to-liquids project in Escravos, Nigeria. And last week, Washington lawmakers again accused KBR of overbilling on a multibillion dollar contract to provide food, shelter and other services to U.S. troops in Iraq, Afghanistan and elsewhere.
Utt said KBR's "spotty" earnings will improve over time, partly because of new internal controls to weigh project risks earlier. And most issues raised by probes into the military contract stem from the early days of the Iraq war when both KBR and the Army were scrambling to mobilize thousands of people, he said.
"We've had fewer issues in the 2005-2006 time frame because we were able to develop our systems and the Army also," he said Tuesday, two days before lawmakers revived the issue."And the expectations are more clear about how we're supposed to perform that work."
KBR, now the sole contractor on the more than $20 billion contract with the U.S. Army known as Logcap, will have to compete with other companies on the next package of work, expected to be awarded in July and spread among several firms. To help fill in a hole left from having less Logcap work, KBR will raise its fees under any new contract, Utt said.
But the Army has told KBR it may extend the current contract until year's end to help support President Bush's surge of 21,000 troops in Iraq, he said.
KBR has about 50,000 people in the Middle East. Though "deeply saddened" that 101 KBR workers have died there during the last four years, Utt said the company is clear in communicating risks.
In 2006, KBR accounted for about 43 percent of Halliburton's revenue, but contributed less than 7 percent of operating income. That's partly why Halliburton CEO David Lesar in 2004 began saying KBR was a drag on the oil-field services giant's earnings and stock price.
And that's why, before the break-up, there were doubts about how investors would view a stand-alone KBR.
The firm's IPO in November, however, attracted more buyers than there were shares. And this month, when Halliburton unloaded the rest of KBR, it could not accept all the requests from shareholders who wanted to swap Halliburton shares for those of KBR.
On Nov. 16, its first day of trading on the New York Stock Exchange, KBR opened at $21 a share. After touching nearly $28 in January, the stock closed Friday up 20 cents at $21.43.
Jeff Tillery, an analyst with Pickering Energy Partners, said investors are mostly drawn to KBR because of its energy and chemicals division, which builds and designs large-scale energy projects such as oil refineries in high demand to satisfy global energy demands.
KBR is the combination of M.W. Kellogg Co., founded in New York in 1901 as a pipe fabrication business, and Houston's Brown & Root, which was born in 1919 and built the world's first offshore drilling platform in 1947. Halliburton acquired Brown & Root in 1962 and inherited Kellogg in 1998 through a merger with Dresser Industries.
But within Halliburton, there was often the sense that KBR couldn't easily "move the needle" with the leadership because it was overshadowed by the firm's massive oil-field services group, Utt said. Now that KBR is on its own, the firm's value will be more evident than it was in Halliburton's share price, he said.
KBR will grow internationally because it is one of the world's few builders of large-scale energy projects and is poised to benefit as governments outsource more military support work, he said.
Utt also wants to grow KBR's domestic business, which now accounts for just 15 percent of sales, to as much as 30 percent of the company's business within three years. To that end, KBR will pursue more U.S. work and try to beef up work at the Houston Ship Channel, he said.
Since the separation, Utt has kept a dizzying schedule to ensure the company roars out of the gate. Proclaiming 2007 the "year of the customer," he is meeting with as many clients as his schedule allows. Last week, that was six. This week, it's off to a trade show in Barcelona. And he plans to visit U.S. troops in Iraq as soon as he can.
Utt said KBR will try to become more visible in Houston by participating in more community events and in general by churning out new project announcements. There is one announcement, however, the company will not make.
"We're not going to Dubai," he said, in a not-so-subtle reference to Halliburton's recent word it would move its CEO from Houston to a new headquarters in the United Arab Emirates. "We're a Houston-based company."