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As published in The New York Times on May 24, 2004.
ON THE JOB IN IRAQ, AND IN THE GLARE
THE NEW YORK TIMES
By: LAURA RICH – DAVE LESAR was promoted to chief executive of Halliburton from chief operating officer after Dick Cheney, chosen as George W. Bush's running mate, vacated that position in 2000. Since then, Halliburton has come under intense scrutiny because of more than $250 million in overcharges and disputed bills for its work in Iraq, where it is helping to rebuild Iraq's oil business and its engineering and where its construction arm, Kellogg Brown & Root, provides services for the military. Mr. Lesar, 50, did not want to discuss the disputed charges in detail, but he recently spoke about Iraq, global oil reserves, his predecessor and all the attention on his company. Following are excerpts from the conversations (n.b.This interview took place on April 8):
Q. What are the biggest challenges to doing business in Iraq?
A. It is an environment where we are committed to serving our customer, which in the most part is the U.S. military, and also the C.P.A. (Coalition Provisional Authority) group and in some cases the coalition forces. So, the challenge is doing business in that environment that, especially right now, is under serious stress, with the effect of the attacks that are going on. It is also the constantly changing form of the mission. I think it's important that people remember that our people are not in the rear echelon. They are living with the troops, everyday doing the support services for them. So as the troops move around, or the troops come under fire, then the Halliburton and K.B.R. people have to move around and also come under fire.
Dealing in that environment is really staying up with the challenges the military and the C.P.A. people have and executing their business on a day to day basis.
Q. But this is something that you anticipate at any time - you provide these services all the time, right?
A. It is, but, I think in this case, you know, typically, after a period of time, things return a little bit more to a normal routine. In this case, because of the size of the endeavor, I think what has happened is kind of a surge in activity that has certainly been atypical of other missions we've had in this particular area. That has added a dimension to it that is unique to this particular activity for us. And I think, therefore, it is another reason why we're in my view the only company that can do this.
Q. If this is in some ways this is atypical, did you have to go back and in some ways revise your approach or your strategy?
A. Oh, absolutely. Every day is a new story in terms of how we respond to our customer. As I said, our customer is the military, who are constantly changing their strategy and tactics, where they're going to post people, where they're going to be, where they're going to set up. And so if you aren't as educated about what it is we're doing, it's easy to sit back and take potshots at the company with respect to our efforts there, but if you are in that environment on a day-to-day basis, you see just how well not only the military, but our people are performing.
Q. Did K.B.R. overcharge the Army Corps of Engineers or the C.P.A. in any situations? Which ones?
A. No. We work hard to deliver services at the best prices, value and terms.
Q. Have you been to Iraq in the last year?
A. I was there in the fall.
Q. Where did you go? Did you go to Baghdad?
A. I went to Baghdad, I went to Basra, I went to a number of places.
Q. What was your impression?
A. I had a couple of impressions. I had a physical impression, just moving around it. You come away with a sadness to see how rundown the country is, except for Saddam's palaces and the places that the people in power lived. There's a real kind of black-and-white difference between the living standards you see there.
I also had an emotional impression - you come away very impressed with the professionalism and the focus that the military has on their mission in liberating the Iraqi people. From a personal standpoint, for a CEO of a company that's heavily involved in it, I came away with a very great sense of pride in the job that the K.B.R. folks are doing there in very harsh and dangerous conditions there, but with a very real focus on serving their customer there.
Q. Was it dangerous where you were, was it a constant presence?
A. One of the days I was in Baghdad was when the hotel was blown up that all the U.N. people were in. So you certainly get a sense of danger, but in my view, our people have accepted that. They live with it and deal with it every day. So that's why I think those that take gratuitous shots against our company and the thousands of Americans that we have over there, I wish they could spend some time looking at the job our people in the field are doing and I think they would come away with a very different impression of what it is Halliburton is adding to try to stabilize the situation.
Q. If you weren't there, how would the soldiers eat, for instance?
A. Or, how many more soldiers would we have to have over there.
Q. Do you have any thoughts on how we get out of what some people are saying could be a war-torn quagmire that goes on and on?
A. Well, I guess that's not really my question to answer. I think the government and the military will make that decision and we will have to adjust to whatever that exit plan is. I would say that applies to our work with regard to supporting the military.
Our work in the Iraqi oil fields will go on for many, many years. Now, our customer may not be the U.S. government. It may eventually be the Iraqi Oil Company. It may be those other international oil companies that come in and become partners with the Iraqis. So, I think that aspect of our business, the oil fields services side, I don't believe we will ever leave Iraq, that it will always be part of providing our basic oil field services and engineering and construction services, whoever's going to be operating it in the long term.
Q. Is there any point at which it becomes too dangerous, where you're actually losing too many employees?
A. We're committed to staying the course and serving the military and that's what we were hired on to do. We work very hard every day to make sure our people are safe, that they're being guarded. Again, what I think it's important for people to understand is that we are living every day with the military. So when a mortar round is launched into a camp where the military are, our people are just as exposed to that explosion as the soldier is.
But we have made a commitment. We are upfront with our employees when we send them there; we are very open with them about the living conditions they're going to have and the dangers they're going to face. It's our job to provide them with the security that's necessary in that place. But, it's a war zone and people do get hurt. And we've had a number of people killed, and a number of people injured, and that's an unfortunate aspect of just where the situation is there, but that's part of what we agreed when we signed on.
Q. How does OPEC's cutting of oil production affect your business and how do you expect the oil business to evolve in the next 5 to 10 years?
A. In the next 5 to 10 years, I don't see anything on the horizon that would replace hydrocarbons, either oil or gas, as the main generator of energy to drive the worldwide economy. I mean, eventually, of course, the world will run out of oil. But that is certainly not a 5- to 10-year look. That's a hundred-years-out view of things.
I think the OPEC cuts basically have had an impact on price, obviously. If you look at how that impacts our business - we are in the oil services business, so, the more oil that's being produced and the more oil that's being explored for, the better our business is and the better our business opportunities. So, in fact, cutting output is something that, in the short run, may impact the demand for our services, although it certainly increases the cash flow of those companies that hold the reserves.
If you look at the oil and gas prices - and I think you really have to focus on two markets, the oil market is quite different market from the gas market. The gas market is very much a local market. Oil is one of those classic worldwide commodities and they are subject to the supply and demand balances that are out there. And what has pushed oil prices higher today are not only the OPEC cuts, but also the fact that demand for oil continues to increase around the world. And I think that, in the long run, will have more of an impact on oil prices in the long run. But I think it's a misnomer to have people think that the world is running out of oil and will do so in the next 5 to 10 years.
That's where a lot of the newer technology - and Halliburton supplies a lot of that to the industry - is able to extract more oil out of the existing reserves that are around the world today.
It used to be that, with the best technology, people thought they could maybe get 5 or 10 percent of the oil out of a reservoir, then it moved up to 20 percent. Now we are looking at technology that will allow you to get 25 or 30 percent out of a reservoir.
So, part of the ability to continue to supply oil over time is going to be going back into old fields and getting more of the oil in place out than people thought a field was depleted and it turns out it won't be depleted.
Q. Gas more of a local market?
A. I'm talking about natural gas. And natural gas is more of a local market because the cost of transportation for the amount of energy you get in gas, the equation is much different. So, the gas market is typically more of a localized - in our case, in the U.S., it's focused on the U.S. and Canada. That's why people are looking at so much LNG (liquefied natural gas) as a way to maybe help the U.S. with its gas supply.
Q. That's an area you're working in, then?
A. Halliburton is one of the few big players in the LNG market. And that business for us today is busy, as it has been for a long time, because our customers are looking for a way to bring their gas, that is stranded in various parts of the world - West Africa, Australia, the Middle East - places like that, and bring it into the U.S., because gas is viewed, rightly so, as a cleaner burning, more efficient way to produce energy in the U.S. And so, from an environmental standpoint, more and more of our customers are looking at it. And it will be much more of our business as we move forward.
What we are going to see as a company is that more of our business in the future will be focused on natural gas and less on oil than it has been historically.
Q. Are there other areas of energy that you are working on, or expanding into, other alternative energy sources?
A. The answer is yes. We are looking at a number of wind-turbine farms, we do even today a lot of work in the geothermal area, drilling geothermal wells and capturing the geothermal energy and are looking at whether or not there's a role for us in the area of fuel cells.
But all of those technologies, in my mind, are not going to replace the basic hydrocarbon as a source of energy, at least for the future.
Q. Because of the infrastructure that's already in place or because it's the most efficient?
A. I think it's the infrastructure, and the laws of economics at this point in time still say that hydrocarbons, whether you like them or not, are going to be the source of energy at least for the foreseeable future.
Q. Regarding your predecessor, what was Dick Cheney's biggest contribution or lasting legacy at Halliburton?
A. I think that Dick brought a lot - the vice president brought a lot to the organization. I think the most lasting legacy or biggest contribution was his focus on moving us from a traditional oil services company and getting us more focused on the higher technology end of the business. We made a number of strategic acquisitions while he was the CEO that are really adding to the product offerings that we have in the marketplace today, like Landmark Graphics, like Numar, like Sperry-Sun Drilling. In the long run, that has much better positioned us to thrive in this industry in the long run.
Q. Are you in touch with the vice president?
A. No.
Q. How much of your stock price is tied to the actions of the White House and Dick Cheney, and how much do you think it hurts Halliburton to have one of its former executives in the White House?
A. In terms of its impact on our stock price, I think it's none. I think that if you survey the landscape today, it's clear that Halliburton is under the most intense public scrutiny of any company in corporate America today. The primary reason for that and for a lot of the gratuitous attacks on the company are the fact that the vice president used to sit at my desk. I mean, this is certainly unchartered territory as far as a U.S. company goes. But I guess, as I sit back, I think that the real story - you know, you look over the last six months, you look over the last year - the stock performance has been strong and I think it's because our shareholders and our potential investors and our customers, they look past the criticism because they believe that it is politically motivated and it's coming at a time of very intense partisan politics in the U.S.
In our view, we just have to get the facts out, and as our shareholders look at the underlying strengths of the company and we communicate the facts out to those shareholders, to our employees, to others, that the investment community is looking past kind of the noise that's out there about Halliburton and is looking to the underlying business and I think it likes what it sees.
Q. What is the good news they're responding to?
A. Our oil field services business has weathered the storm of the political attacks and is doing very well. And that's because of some of the newer technology we have, and the fact that we've got forty-some thousand fabulous employees that look beyond the headlines and go out there and serve customers every day.
That has always been and will continue to be the economic driver of Halliburton company and that's what our shareholders are looking at to make sure that they like and agree that the underlying business franchise is still strong. The government services part of our business in K.B.R. has not been, historically, and continues not to be, the major part of our business, although it's the part of our business that certainly garners the headlines today.
Q. In some ways, has the increased attention - potshots and all - actually been a good thing, since it makes more people aware of your business and take an interest in it?
A. We are not a well-known company by the general public, but our clients know us very well. Also, inside our areas of expertise, we are a well-known company. Being well-known has never been as important to us as being known for doing things well.
Q. How much of your job is responding to the various claims about the company's intentions?
A. Fortunately, I am surrounded by people who are talented and bring a lot to the table. My job is to make certain the company delivers value for the shareholders. I do whatever is required to have that happen and that is what drives my time commitments.
Q. This war has been good for your revenues - how will you sustain war-level income once the U.S. pulls out of Iraq?
A. People forget that our core business is energy services. In fact, the Energy Services Group produces more profits and less media attention.
Q. Regarding the two employees who took kickbacks - what controls have you instituted to guard against a repeat performance elsewhere?
A. Our internal audit team found this. We already had the controls in place and it worked just like it was supposed to.
Q. Should the Army be sharing any of the heat you're taking for the dollar-amount of goods and services supplied to them (they placed the orders)?
A. Well, I think that we have had plenty of equal opportunity political critics. It is a war operation and in flux for us and our client. Decisions made in a war zone are not always the same decisions made after the fact. Criticism we can take. Our goal is to make sure that soldiers have food and everything they need to be more comfortable in a war zone.
Copyright © 2004 The New York Times Co. Reprinted with permission.
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