Iraq Oil Hopes Dashed, Fluor Takes Long View
By CHRIS CZIBORR
For months now, Aliso Viejo-based Fluor Corp.’s prospects for winning a big chunk of work rebuilding Iraq’s oil industry have gone from good to bad and back again.
Now, after months of planning and lobbying, the engineering and construction company finds itself vying for a scaled-down contract that’s small by its standards.
The Army Corps of Engineers last week took bids for what’s left of work getting Iraq’s oil sector up to prewar levels. Fluor was one of several companies that submitted bids.
But what once looked like a $1 billion deal now could be worth just $200 million after the Corps drastically cut the work available for Fluor and other bidders.
Fluor’s now chasing a contract that’s worth about as much as its deal overseeing the Orange County Performing Arts Center expansion.
“It causes you to rethink the proposal and effort you’re putting into that proposal,we’ve spent hundreds of thousands of dollars on this so far,” Fluor spokesman Jerry Holloway said.
The government’s new plan will end up giving Houston-based Halliburton Co.’s Kellogg Brown & Root International Inc. most of the Iraqi oil work, even if it doesn’t submit a bid.
That’s because Halliburton has been working on Iraq’s oil fields and other facilities since the spring under a contract awarded without bidding in March.
“Everybody was surprised about the (new) work plan,” Holloway said. “Kellogg Brown & Root probably wasn’t surprised since they helped draft the plan.”
Upon seeing the more limited plan earlier this month, Fluor’s San Francisco-based rival Bechtel Corp. said it was dropping out of the bidding. Company officials cited the project’s timetable and said they would pursue future work directly with the Iraqi oil ministry.
The Corps is set to award a pair of oil contracts on Oct. 15. But of the $1.1 billion the Corps expects to spend on oil work, more than $700 million is set to be done by Halliburton by Sept. 30.
Another $200 million of work is set to wrap up by year’s end. Halliburton could end up doing all of that second phase work, leaving only about $200 million for the project’s third and final phase.
Fluor’s Holloway said he expects whoever gets selected in October may have a shot at some of the second phase work as well as all of the third phase work.
Still, the lion’s share of the work will not go to the winning bidders, unless Halliburton itself ended up submitting a bid for the remaining work and wins.
Officials at Halliburton didn’t return a call seeking comment on whether the company bid on the remaining work.
Fluor earlier this year formed a venture with British engineering and construction company AMEC PLC to go after the Iraqi oil work.
The venture likely is one of the strongest bidders, given Fluor’s track record in the Middle East and Britain’s role in the Iraq war. Fluor controls 51% of the venture.
Fluor says it’s worth staying in the running to get a foothold for work modernizing Iraq’s oil sector.
“Our intent is to pursue work in this area long term,not just the initial Army contracts,” Holloway said. “We’ve know that the Iraqi government would be responsible for issuing the bulk of the work once they figured out what it was they wanted to do.”
Some industry observers have said the total value of oil and gas work in Iraq could be as much as $5 billion,quite a bit more than the $1.1 billion the Army Corps actually is planning to spend.
“I’m not sure where the $5 billion number came from,” Army Corps spokesman Scott Saunders said. “Our goal is to get the country’s oil infrastructure above and beyond where it was before the war.”
The job of the Corps isn’t to get Iraq’s oil industry up to world-class standards. As such, it won’t be spending money to reverse decades of neglect. Saunders said that will be up to Iraq’s Ministry of Oil.
“The goal is to turn the whole mission over to the Iraqi oil ministry as soon as they’re fully reconstituted and capable,” Saunders said.
Fluor’s Holloway said the company isn’t embittered about the Corps’ work plan bombshell.
“It’s the Corps’ task to get the work done as quickly as possible,that’s what they should be doing,” he said. “It was new information fairly late in the timeframe so it caused potential bidders to stop and evaluate.”
Fluor has a key contact for Iraq’s oil industry: the company’s former chief executive, Phillip Carroll.
Carroll heads the government’s advisory committee for Iraq’s oil industry. He was Fluor’s chief executive from 1998 to early 2002 and predecessor to current Fluor chief Alan Boeckmann.
But, so far, Carroll has treaded cautiously, likely because of controversies over an earlier Bechtel general rebuilding contract and the oil deal given to Halliburton.
