Halliburton Lowers Q3 Forecast on Legal Costs, Ventures

Halliburton Co.(HAL), the world's second-largest oilfield services company, on Thursday warned it will report lower-than-expected third-quarter results, citing a significant increase in legal fees and lower operating results from joint ventures.

The Houston-based company, once led by Vice President Dick Cheney (search), said it expects to post third-quarter earnings per share from continuing operations of at least 27 cents a share, down from its previous forecast of at least 32 cents a share.

Wall Street analysts polled by Reuters Research, a unit of Reuters Plc, on average had expected Halliburton to earn 33 cents a share.

A spokeswoman for Halliburton -- which is also involved in the rebuilding of Iraq via contracts from which it earns a small percentage of income -- declined to comment on the cause of the higher legal fees or identify the joint ventures.

But Deutsche Bank analyst Michael Urban said the shortfall most likely stems from Halliburton's Subsea 7 joint venture with Norway's DSND (search). The 50-50 venture, formed last year, designs and builds underwater energy production structures and systems worldwide.

"It's the only joint venture that's big enough to have an impact," Urban said. "Its results can be volatile."

DSND earlier Thursday said its third-quarter results would fall below its second quarter numbers due to lower results from the Subsea 7 venture.

"Subsea 7 is expected to report a result close to break-even for the third quarter," DSND said, citing reduced utilization of its fleet and equipment and the deferral of project revenue from the third to the fourth quarter.

Halliburton has received much attention for its ventures in Iraq, where it has won contracts for reconstruction work. However, while the dollar amount of the contracts is large, historically the profit margins in the construction business are in the low single digits. In contrast, the oilfield services business generates profit margins in the low double-digits.

Higher legal fees, analysts said, are probably attributable to Halliburton's massive class-action litigation filed by people who claimed exposure to asbestos and silica, which are cancer-causing materials.

Halliburton in August announced that the number of asbestos and silica claims surged 22 percent to 425,000 since the end of December 2002. Recently the company said the cost of a settlement could exceed $4.5 billion in cash and stock.

Halliburton last month began soliciting claimants, seeking approval for the settlement. If enough claimants accept the offer, Halliburton's DII Industries, Kellogg Brown & Root and other units would file for bankruptcy protection as early as next month -- and help put Halliburton's asbestos problems to rest.

Thursday's warning reverses a rosier outlook announced on July 31, when Halliburton said improved activity levels would boost revenue and earnings across the board in the second half.

Second-quarter results were also lower than expected, dragged down by charges from Brazilian deep-water project Barracuda-Caratinga (search).

Halliburton in June said project-owner Petroleo Brasileiro S.A. (PBR) agreed to pay $59 million of disputed claims and to take an additional $375 million of claims to arbitration in New York.

Halliburton shares were off 62 cents, or 2.5 percent, to $24.64 on the New York Stock Exchange (search).