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Wednesday, July 21, 2004

Bryce on Cheney

Robert Bryce writes again, this time for Salon, on Cheney and Halliburton. In addition to war propheteering and immoral if not illegal trading with a "state sponsor of terrorism," Cheney can be accredited with incompetence in business :

Since Cheney's departure, the company's net worth has gone into free-fall, debt has soared, and it is now facing embarrassing legal entanglements that could hamper its profitability for years to come. Furthermore, despite being the largest oil-field services company on earth (last year, its revenues surpassed those of French giant Schlumberger), Halliburton hasn't been able to make any money. Instead, it's losing money -- lots of money. In 2002, the company lost $1 billion. In 2003, despite revenues of $16.2 billion, it lost another $800 million. In the first quarter of this year, losses totaled $65 million. More bad news is expected when the company reports its second quarter results on Friday.

This, Cheney's legacy of incompetence as CEO, is, without doubt, an issue that should be raised. Aside from the shady business dealings of Halliburton under Cheney, there is the salient point that he, like Bush, has made his fortune based on connections rather than talent or expertise. Another failed businessman, bailed out by someone looking for future pro quo. "Scandal-plagued" indeed:

The news of the criminal investigation follows close on the heels of other bad news: In late June, Halliburton said that it will take an $815 million charge against earnings for the second quarter. Of that amount, $200 million stems from cost overruns on the Barracuda-Caratinga offshore project in Brazil, a $2.5 billion undertaking that was announced in January of 2000 -- seven months before Cheney left Halliburton to become George W. Bush's running mate. The rest of the charge against earnings -- $615 million -- will cover the asbestos-related legal claims that stem from Cheney's decision to take over Dresser Industries in 1998.

Meanwhile, both the Securities and Exchange Commission and French investigators are investigating Halliburton for its alleged involvement in bribing Nigerian officials over a giant liquefied natural gas project. Much of the alleged bribery occurred on Cheney's watch.

Add in a recent $106 million legal judgment against the company for its involvement in a Kazakh oil deal done during Cheney's stint as CEO, along with the Pentagon's ongoing investigations into Halliburton's overbilling (investigators have recently found that Halliburton spent $11 million to house personnel at the five-star Kuwait Hilton), and it becomes clear that Halliburton may have trouble surviving Dick Cheney.

How is it that a company can be kowtowed to with as much over-the-top indulgence as has Halliburton been by no-bid federal contracts far and wide (including, perhaps a little off the top to boot?), can find itself in such a sorry state? Leadership. As with American politics on a larger scale, Halliburton made the mistake of forgoing leadership for influence:

Halliburton's board members have been candid in discussing the reasons for hiring Cheney -- and his business acumen is never mentioned. Cheney, whose degrees are in political science, had virtually no business experience when he became CEO of Halliburton in 1995. Thomas H. Cruikshank, the former chairman of Halliburton, told one reporter that Cheney got the job because "he would be able to open doors around the world and to have access practically anywhere ... There was a lot that he could bring in the way of customer relationships."

But there's little evidence to show that those relationships did Halliburton any good. Instead, Cheney's ability to forge relationships got Halliburton into the worst acquisition in its history. In January of 1998, Cheney went quail hunting with Bill Bradford, the chairman of Dresser Industries, another big oil-field services company. During their shooting expedition on a ranch in South Texas, Cheney proposed a merger with Dresser. After a series of meetings, Bradford agreed.....

..."The Dresser deal will go down as one of the worst deals in the modern energy business," says a Houston-based energy analyst who has been following Halliburton for several years. The analyst asked that his name not be used -- which is not surprising given Halliburton's size and the staunch Republican leanings of most energy business personnel. Asked if Cheney was a good CEO for Halliburton, the analyst replied, "The answer is clearly no. He knows how to make decisions. But he wasn't an energy guy. You can't find anything good that comes out of his tenure."...

...A CEO of an energy research firm, who also asked not to be named, said that Halliburton's lack of profits, given today's high oil prices, is stunning. "How can they not be making money in a business that is minting money?" he asked. He also questioned Cheney's push to get into the military contracting business. "The entitlements and all the attention on Halliburton's connections with the Pentagon and the Iraq contracts hasn't resulted in them getting anywhere. It's not repeat business. It's arguable whether they should even be in the business at all."

Given all of Cheney's blunders, it's no surprise that Halliburton's balance sheet is a disaster zone. Since the end of 2000, shareholder equity (the company's net worth) has fallen from almost $4 billion to less than $2.5 billion. Long-term debt during that time period has increased nearly fourfold, going from $1 billion to more than $3.9 billion. Between the end of 2000 and the first quarter of 2004, Halliburton's total liabilities went from $6.1 billion to $13.9 billion.

In short, Cheney's mistakes have cost Halliburton billions of dollars. But Cheney himself did just fine. During his 58-month stint at Halliburton, Cheney was paid a total of $45 million. He continues to receive deferred compensation from the company. This year's payout to Cheney is likely to exceed $100,000.

And America's payout to Halliburton continues.

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