Services: KBR believes it is ready to construct a new image

KBR, a global engineering, construction and services company, has made a name for itself over the years. But it is not quite the name it has wanted.

With the US and UK military among its key government and infrastructure clients, the name KBR conjures up a string of bad publicity over accusations it benefited from favouritism because of its ties to the Bush Administration; overcharged for services in Iraq; and put employees in harm’s way in war zones.

But last month, when KBR announced a 21 per cent drop in net income in the first quarter, the company felt it was at a turning point, not only financially but in remaking its image.

Not only does it have a backlog of $13bn in projects, it also has no material project cancellations. And, more importantly to Bill Utt, chief executive, the company that was separated from Halliburton two years ago believes it has put behind it some of the biggest negatives from its work in Iraq.

With three big arbitrations recently resolved – two with wins and one with a loss that resulted in a $15m charge in the first quarter – the company has as clean a slate as it is going to get, given the work it does.

“We liken it to draining the swamp of all the big alligators,”' Mr Utt says in an interview. “Now we’re into the smaller stuff.”

He hopes so, anyway. Just as KBR closed the book on those arbitrations, the company came under criminal investigation concerning the electrocution deaths of at least two US soldiers in Iraq. The soldiers were showering, and there are claims of faulty wiring and grounding. Indeed, 18 soldiers have been electrocuted in Iraq.

“The Army is the first one to decide how to go, when to go, where to go,” Mr Utt says. “But the plaintiffs can’t sue the insurgents. They can’t sue the US government, so we’re next in line.”

He accepts KBR always will operate in dangerous places and come under heightened scrutiny because of its high-profile clients. A shareholder once told him that, in the 1960s, KBR was criticised for ties to then President Lyndon B. Johnson.

“We were tainted for being too close to the Democrats back then, and we’re tainted for being too close to the Republicans now.” Under the Bush Administration, KBR was accused of favouritism by vice-president Dick Cheney, formerly KBR’s chairman and chief executive.

“If he’s protecting us, he’s not doing a very good job,” Mr Utt jokes.

Criticisms began with KBR winning a contract from the US Army to put out oilwell fires and repair Iraq’s oil infrastructure. The company now does everything from repair infrastructure to provide meals to troops. Such business is a solid revenue stream.

Indeed, KBR announced revenue for the first quarter of 2009 up 27 per cent at $3.2bn, with net income falling from $98m in the same period of the year before to $77m, on the arbitration payments.

There have been more allegations levelled, such as overcharging the US government for services in Iraq. Those charges were settled, but, as KBR has lost 130 employees in the war zone, more always seem to follow. Yet it makes very clear the dangers of the job to prospective employees.

“Whenever you’re going into a country and occupying a country with poor infrastructure, there are just things that hop out,” Mr Utt said. “We don’t think we have the liabilities there.”

And the negative publicity is not about to push KBR out. He is proud KBR has stayed when others have left. It means KBR’s backlog of projects grew 8 per cent last year and sales rose 33 per cent. KBR has $1bn in cash, no debt, and is looking for acquisitions.

As competitors are laying off staff and scaling back, KBR is focusing on expanding its work designing and building offshore platforms and moving into the power business.

Its engineering and procurement division, serving war zones, has been a good provider amid the broader economic downturn that is cutting into the more traditional oil services work.

Indeed, industry bellwether, Schlumberger, the world’s biggest oil field services company, has just laid off about 5,000 of its 84,000 employees, only to reveal it is preparing for a second round of layoffs.

Mr Utt says that KBR has not had to cut staff because it hires contractors as needed for jobs, so a reduction in work would mean just not hiring a new contractor.

It seems increasingly a good way to do business. Halliburton, KBR’s former parent company and the second largest oil services company, said in January that it had cut an unspecified number of jobs. Baker Hughes, another competitor, said it would lay off 1,500 of its 40,000 global staff.

In addition, much of KBR’s oil services work is in liquefied natural gas (LNG), which involves shrinking the gas 600 times to a liquid form, making it more economical to transport offshore.

After it is transported, the LNG is converted back into gas. Despite oversupply of LNG amid the downturn, the world’s biggest international oil companies are pressing ahead with massive, expensive, long-term LNG projects, given strong long-term fundamentals.

The same goes for gas-to-liquids (GTL) projects, in which KBR is also involved.

All of this gives Mr Utt confidence in KBR’s future: “We know we can withstand any length of this crisis – or depth.’’

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